American Petroleum Company, Inc.; Analysis of Agreement Containing Consent Order to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 061 0229]

American Petroleum Company, Inc.; Analysis of Agreement

Containing Consent Order to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint and the terms of the consent order--embodied in the consent

agreement--that would settle these allegations.

DATES: Comments must be received on or before July 13, 2007.

ADDRESSES: Interested parties are invited to submit written comments.

Comments should refer to ``American Petroleum, File No. 061 0229,'' to

facilitate the organization of comments. A comment filed in paper form

should include this reference both in the text and on the envelope, and

should be mailed or delivered to the following address: Federal Trade

Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania

Avenue, NW., Washington, D.C. 20580. Comments containing confidential

material must be filed in paper form, must be clearly labeled

``Confidential,'' and must comply with Commission Rule 4.9(c). 16 CFR

4.9(c) (2005).\1\ The FTC is requesting that any comment filed in paper

form be sent by courier or overnight service, if possible, because U.S.

postal mail in the Washington area and at the Commission is subject to

delay due to heightened security precautions. Comments that do not

contain any nonpublic information may instead be filed in electronic

form as part of or as an attachment to email messages directed to the

following email box: [email protected]. The FTC Act and other

laws the Commission administers permit the collection of public

comments to consider and use in this proceeding as appropriate. All

timely and responsive public comments, whether filed in paper or

electronic form, will be considered by the Commission, and will be

available to the public on the FTC website, to the extent practicable,

at www.ftc.gov. As a matter of discretion, the FTC makes every effort

to remove home contact information for individuals from the public

comments it receives before placing those comments on the FTC website.

More information, including routine uses permitted by the Privacy Act,

may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/

privacy.htm.

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\1\ The comment must be accompanied by an explicit request for

confidential treatment, including the factual and legal basis for

the request, and must identify the specific portions of the comment

to be withheld from the public record. The request will be granted

or denied by the Commission's General Counsel, consistent with

applicable law and the public interest. See Commission Rule 4.9(c),

16 CFR 4.9(c).

FOR FURTHER INFORMATION CONTACT: Geoffrey Green (202) 326-2641, Bureau

of Competition, Room NJ-6264, 600 Pennsylvania Avenue, NW., Washington,

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D.C. 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 2.34 of

the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given

that the above-captioned consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of thirty (30) days. The following

[[Page 34251]]

Analysis to Aid Public Comment describes the terms of the consent

agreement, and the allegations in the complaint. An electronic copy of

the full text of the consent agreement package can be obtained from the

FTC Home Page (for June 16, 2007), on the World Wide Web, at http://

www.ftc.gov/os/2007/06/index.htm. A paper copy can be obtained from the

FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW.,

Washington, D.C. 20580, either in person or by calling (202) 326-2222.

Public comments are invited, and may be filed with the Commission

in either paper or electronic form. \\All comments should be filed as

prescribed in the ADDRESSES section above, and must be received on or

before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement containing a proposed consent order with

American Petroleum Company, Inc. (``American Petroleum'' or

``Respondent''), an importer and seller of lubricants with its

principal place of business located at Road 865 KM 0.2, Barrio

Campanillas, Toa Baja, Puerto Rico 00951.

The agreement settles charges that American Petroleum violated

Section 5 of the Federal Trade Commission Act, 15 U.S.C. Sec. 45, by

agreeing with competitors to restrict the importation and sale of

lubricants in Puerto Rico. The proposed consent order has been placed

on the public record for 30 days to receive comments from interested

persons. Comments received during this period will become part of the

public record. After 30 days, the Commission will review the agreement

and the comments received, and will decide whether it should withdraw

from the agreement or make the proposed order final.

The purpose of this analysis is to facilitate comment on the

proposed order. The analysis does not constitute an official

interpretation of the agreement and proposed order, and does not modify

their terms in any way. Further, the proposed consent order has been

entered into for settlement purposes only, and does not constitute an

admission by Respondent that it violated the law or that the facts

alleged in the complaint (other than jurisdictional facts) are true.

I. The Complaint

The allegations of the complaint are summarized below:

American Petroleum has for many years been engaged in the business

of importing lubricants into, and selling lubricants in, the

Commonwealth of Puerto Rico.

Puerto Rico Law 278, enacted in 2004, was intended to create

incentives for the safe disposal of used lubricants. The law required

all persons in the chain of distribution, from the importer to the end-

user, to pay an environmental deposit of fifty cents for each quart of

lubricants purchased. The deposit could be recovered after the used

lubricating oil was delivered to an authorized collection center.

During 2005 and 2006, American Petroleum joined with numerous others in

the Puerto Rico lubricants industry to lobby for the delay,

modification, and/or repeal of Law 278. These efforts were partially

successful. The Legislature postponed the starting date for the law

until March 31, 2006.

In March 2006, with the effective date for Law 278 approaching,

American Petroleum and several competing importers and sellers of

lubricants adopted a new strategy to pressure the Government to repeal

Law 278. The companies agreed to cease importing lubricants, beginning

on March 31, 2006, and continuing for so long as Law 278 remained in

effect. The conspirators issued a public warning that as a result of

this joint action, shortages of lubricants would arise throughout the

island, and would continue until Law 278 was repealed.

In December 2006, the Puerto Rico Legislature repealed Law 278.

II. Legal Analysis

In several previous cases, the Commission has challenged under

Section 5 of the FTC Act boycott activity where the victim was the

government in its capacity as a consumer; that is, the conspiring

sellers refused to deal in order to exact higher prices from the

government.\2\ Here, the lubricant importers are alleged to have used

their economic might in order to pressure the government in its role as

a regulator. As discussed below, the antitrust laws reach this conduct

as well.

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\2\ E.g., Superior Court Trial Lawyers Ass'n, 493 U.S. 411

(1990); Peterson Drug Co., 115 F.T.C. 492 (1992); Michigan State

Medical Society, 110 F.T.C. 191 (1983).

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The conspiracy alleged in the complaint is per se unlawful. A

horizontal agreement to restrict output is inherently likely to harm

competition, and there is no legitimate efficiency justification for

respondent's conduct. SCTLA, 493 U.S. 411; NCAA v. Board of Regents,

468 U.S. 85 (1984); Sandy River Nursing Care v. Aetna Casualty, 985

F.2d 1138 (1\st\ Cir. 1993); PolyGram Holding, Inc., 5 Trade Reg. Rep.

(CCH) ] 15,453 (FTC 2003) (available at ), aff'd, 416 F.3d 29 (D.C. Cir. 2005).

Ordinarily, members of a cartel reduce output across the market in

order to force consumers to bid up prices. Here the strategy was to

impose pain on consumers in order to coerce the Government of Puerto

Rico to accede to the industry's demand that Law 278 be repealed. This

raises the possibility of viewing the alleged conspiracy as a form of

petitioning activity that arguably is immune from antitrust sanctions.

As the Supreme Court has held, it is not the purpose of the antitrust

laws to regulate traditional petitioning activity aimed at securing

anticompetitive governmental action. Eastern Railroad Presidents

Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961).

On the other hand, where competitors coordinate their commercial

activity, conspiring in a manner that harms consumers directly, the

fact that the conspirators intended thereby to motivate governmental

action is not a defense to liability. SCTLA, 493 U.S. 411. An exception

to this latter rule governs group boycotts that seek a purely political

objective (that is, an objective that involves no special pecuniary

benefit for the conspirators). A politically motivated boycott is

protected by the First Amendment, and is not subject to antitrust

liability. NAACP v. Claiborne Hardware Co., 458 U.S. 886, 914 (1982)

(The First Amendment protects ``a nonviolent, politically motivated

boycott designed to force governmental and economic change to

effectuate rights guaranteed by the Constitution itself.'').\3\

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\3\ See also Allied International, Inc. v. International

Longshoremen's Ass'n, 640 F.2d 1368, 1380 (1\st\ Cir. 1981), aff'd,

456 U.S. 212 (1982); Missouri v. National Organization for Women,

Inc., 620 F.2d 1301 (8\th\ Cir. 1980).

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The conduct alleged in the complaint would not be immune from

antitrust sanctions under these precedents. In Noerr, the alleged

restraint of trade (legislation favoring the conspirators) was the

consequence of governmental action, and for this reason was exempt from

antitrust review. In the present investigation, the alleged restraint

of trade (a constriction in the supply of lubricants) was the means by

which the conspirators sought to obtain favorable legislation. It

follows that the Noerr defense is not applicable.\4\ The

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Claiborne Hardware defense is also inapplicable because the Puerto Rico

conspiracy was an effort to escape regulation and advance the parochial

economic interests of the importers. This was not a politically

motivated boycott, as that term is used in the case law.

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\4\ See In re Brand Name Prescription Drugs Antitrust Litig.,

186 F.3d 781, 789 (7\th\ Cir. 1999) (The Noerr doctrine ``does not

authorize anticompetitive action in advance of government's adopting

the industry's anticompetitive proposal. The doctrine applies when

such action is the consequence of legislation or other governmental

action, not when it is the means for obtaining such action . . .'')

(emphasis in original).

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The present case is similar to Sandy River Nursing Care v. Aetna

Casualty, 985 F.2d 1138. A group of insurance companies agreed to cease

offering workers' compensation policies in Maine in order to coerce the

legislature into authorizing higher rates. The Court of Appeals

concluded that this concerted refusal to sell insurance was a per se

violation of the Sherman Act, and that the legislative agenda of the

insurance companies afforded them no defense to liability. The opinion

explains: ``[P]rivate actors who conduct an economic boycott violate

the Sherman Act and may be held responsible for direct marketplace

injury caused by the boycott, even if the boycotters' ultimate goal is

to obtain favorable state action.'' 985 F.2d at 1142.

It is not a legitimate antitrust defense to claim that Law 278 is

inefficient, and that the repeal thereof would enhance consumer

welfare. The legality of an otherwise anticompetitive restraint cannot

turn on the wisdom or efficiency of the governmental policy that is

targeted by the conspirators.\5\

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\5\ An analogous defense was considered and rejected by the

Commission in Detroit Auto Dealers Ass'n, 110 F.T.C. 417 (1989),

aff'd in part and rev'd in part, 955 F.2d 457 (6\th\ Cir. 1992).

DADA involved an agreement among competing automobile dealers to

limit the hours of operation of their dealerships. Respondents

argued, inter alia, that the agreement to limit showroom hours was

justified because it reduced the likelihood that their employees

would join unions. Unionization would potentially lead to higher

wages, and hence higher prices for automobiles. The Commission could

find ``no merit'' in the proposed efficiency defense. ``Given the

national policy favoring the association of employees to bargain in

good faith with employers over wages, hours and working conditions,

we do not believe that preventing unionization can be a legitimate

justification for an otherwise unlawful restraint.'' Id. at 498 n.

22.

Just as collective bargaining is part of national labor policy,

Law 278 represents the environmental policy of the Commonwealth of

Puerto Rico. And just as escaping national labor policy is not a

cognizable antitrust defense, altering Puerto Rico environmental

legislation is not a cognizable antitrust defense.

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III. The Proposed Consent Order

American Petroleum has signed a consent agreement containing the

proposed consent order. The proposed consent order enjoins American

Petroleum from conspiring with competitors to restrict output.

More specifically, American Petroleum would be enjoined from

agreeing or attempting to agree with any other seller of lubricants:

(i) to restrain, restrict, limit or reduce the import or sale of

lubricants; or (ii) to deal with, refuse to deal with, threaten to

refuse to deal with, boycott, or threaten to boycott any buyer or

potential buyer of lubricants.

The proposed order would not interfere with the company's

Constitutional right to engage in legitimate petitioning activity. The

proposed order includes a safe harbor provision expressly permitting

American Petroleum to exercise rights under the First Amendment to

petition any government body concerning legislation, rules, or

procedures.

The proposed order will expire in 20 years.

By direction of the Commission.

Donald S. Clark,

Secretary.

FR Doc. E7-12033 Filed 6-20-07; 8:45 am]

BILLING CODE 6750-01;P