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FTC:WATCH No. 439

Published on July 31, 1995 in Issue 439

July 31, 1995

Pennsylvania hospitals may dodge federal merger review

Last September, two Pennsylvania hospitals, Capital Health System Services and Polyclinic Health System, announced an agreement to merge and asked the Pennsylvania Attorney Generals Office to review the transaction before submitting their Hart-Scott-Rodino premerger filing to the Federal Trade Commission. The result: Pennsylvania Acting Attorney General Walter W. Cohen has negotiated a comprehensive consent decree and presented it to the FTC at the same time that the hospitals filed their federal notification papers.

Cohen intends to ask the FTC to waive jurisdiction, in which case he will file the decree in the U.S. District Court for the Middle District of Pennsylvania. Not quite a fait accompli, but perhaps close enough for government work.

The proposed consent decree negotiated in this novel manner would, among other things:

Require the hospitals to achieve at least $70 million in net cost savings in the first five years and to pass onto consumers at least $56 million of these savings in the form of free or low-cost health-care services or by reducing prices for existing services to consumers in Cumberland, Dauphin, and Perry Counties;

Prohibit the hospitals, with certain defined exceptions, from employing more than 20% of the physicians in the three-county market practicing in any of the following areas: family practice/ internal medicine, pediatrics, or obstetrics/gynecology;

Prohibit the hospitals from entering into exclusive contracts with health-care providers;

Require the hospitals to provide an open staff, ensuring equal access to all physicians in a three-county market;

Require divestiture of Capital Health Products, CHSs durable medical equipment company, within 12 months:

Require the hospitals affirmatively to inform patients and providers needing home health-care services or home infusion therapy services of the availability of such services from companies not related to the hospitals. The hospitals will be required to provide patients with a patient choice form and with a list of all home health-care and home infusion therapy agencies serving the three-county market;

Require the hospitals to agree that participation in Health Central, Inc., the new managed-care plan proposed by six south central Pennsylvania hospitals including CHS, will be on nonexclusive terms only, will not involve any most-favored nation pricing and will not involve any cross-subsidizing of Health Central with other revenues in a manner that would facilitate predatory pricing or other anticompetitive conduct;

Prohibit the new merged entity from acquiring any indemnity plan, health maintenance organization, or hospital in Cumberland, Dauphin or Perry Counties without the prior approval of the Attorney General; and

Require the hospitals to reimburse the Attorney Generals Office $50,000 for investigative costs and up to $10,000 a year for five years for any expenses, including payment of expert fees, incurred in analyzing and verifying the yearly compliance reports required under the consent decree.

In other merger news ...

The FTC likely will decline to challenge American General Insurance Co.s bid to acquire Unitrin.

The FTC has negotiated a consent agreement in connection with a natural gas deal between Philips Petroleum and Enron.

The FTC will close an investigation of the acquisition of the Sisters of the Sorrowful Ministry (hospitals).

The FTCs investigation of the proposed merger of First Financial Management and First Data Corp. has expanded beyond the obvious product market of cash wire transfers that surfaced last year during a bidding contest between the two for Western Union to merchant processing, described by knowledgeable sources as the business of facilitating credit card transactions by installing terminals in merchants places of business.

The FTC has decided to make final its consent agreement with Eli Lilly and Co., settling alleged anticompetitive problems with Lillys acquisition of McKesson Corp.s prescription benefit management division, PCS. There is one change in the order as proposed for public comment. Pursuant to its new prior approval policy, the FTC will not require Lilly to secure its prior approval for future acquisitions of drug wholesalers unless that proposed transaction is an exclusive dealership with McKesson.

A Commission statement issued with the final agreement will promise continuing scrutiny of this industry, and, if unlawful foreclosure occurs, post acquisition divestiture.

Commissioner Mary L. Azcuenaga objects that the agreement is simultaneously inadequate to remedy the competitive harm from Eli Lilly & Co. Inc.s acquisition of the PCS Health Systems Business of McKesson Corp. and overreaching in that it imposes restrictions on Lilly without a coherent theory of competitive harm. I dissent, she says, because the order does not resolve the competitive concern raised by the acquisition and because it encumbers the company with pointless and unnecessary restrictions. The statement of the Commission, which holds out the possibility of further investigations and monitoring, implicitly reflects a lack of confidence in the remedial value of this Order.

A Commission decision in the R.R. Donnelley case (acquisition of rotogravure printing capacity) is expected momentarily.

The FTC has at last accepted for comment a consent agreement settling charges that Mustad International acquired more than 90% of the U.S. market for rolled horseshoe nails one small, unreportable piece at a time. Mustad will have to divest machines or a complete facility and give the FTC prior notice of future horseshoe nail acquisitions. The FTC says Mustad raised prices by 50% and more after acquiring its virtual monopoly.

The Commissioners are pondering a proposed complaint against a soft drink bottling merger in Topeka, Kansas involving a Seven-Up bottler. Chairman Robert Pitofsky and Commissioner Roscoe B. Starek are recused.

The FTC has issued 46 second requests so far this fiscal year 29 of which have been resolved, 20 (69%) with some sort of corrective action. Seventeen other investigations involving second requests remain open.

[A chart summarizing these actions appears on page 4.]

FTC will try to block

frit glass acquisition

The FTC has moved to block Ferro Corporation from acquiring Chi-Vit Corporation, saying the acquisition could reduce competition in the market for frit glass. Frit glass is used to make porcelain enameled steel, which is used for asking home appliances such as oven interiors. The acquisition would combine two of the three leading U.S. frit glass manufacturers.

There is no substitute for frit in the manufacture of porcelain enameled steel and there is no real match for porcelain enameled steel in many applications, according to the FTC. The proposed acquisition could raise prices and lead to decreased innovation and reduced customer service, according to the FTC.

REFERENCE: FTC Press Release, July 19

951-0032; Contact: Howard Morse, 202/326-2949

FAXLine No. 1326 (2 pages)

Lee Memorial case closed;

state action issue remains open

The Commissions case against Lee Memorial Hospital was being billed in antitrust circles as the latest test of the limits of the state action doctrine. Court proceedings failed to convince a district court and an appeals court panel in the 11th Circuit that the state action doctrine should not shield Lee Memorials acquisition of Cape Coral Hospital from the antitrust laws. The Commission petitioned for a rehearing en banc and suggestions were that the case would go all the way to the Supreme Court if need be.

But Cape Coral terminated its agreement with Lee Memorial and last February found another buyer interested in it: Health Management Associates, Inc. That, said the Commission, made further pursuit of an order barring Lee Memorial from acquiring Cape Coral moot. The Commission has now voted to halt its administrative case against Lee Memorial.

The Commission believes that the public interest would be best served by the Commissions waiting for some future opportunity to advance its position on the state action issue, the Commission said in abandoning the administrative case.

That future opportunity could be in the form of an amicus brief. General Counsel Stephen Calkins recently extended an invitation to attorneys to approach the Commission if an interesting issue might warrant intervention by the Commission in the form of an amicus brief. [See story, this issue, in the Briefs section.]

Commissioner Mary L. Azcuenaga voted with the majority to close the administrative case, but not without pointing out that she never favored bringing suit against Lee Memorial in the first place. I concur in the Commissions decision now to dismiss the complaint, but do not join the Commissions order to dismiss, she said.

REFERENCE: FTC Press Advisory, July 11

D-9265; FAXLine No. 1302 (6 pages)

FTC enforcement actions resulting from Second Requests

issued during fiscal year 1995

MATTER

Glaxo/Wellcome

File No. 951-0054

C-3586

PARTIES

Glaxo Holding Plc

Wellcome Plc

PRODUCT OVERLAP: Research and development of a new generation of anti-migraine drugs

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued decision/order (D&O) 6/14/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Lockheed Corp.

File No. 951-0005

C-3576

PARTIES

Martin Marietta Corp.

Lockheed Corp.

PRODUCT OVERLAP: Space based early warning satellite systems, satellites/expendable launch vehicles, and fighter aircraft/LANTIRN systems

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 5/9/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

HEALTHSOUTH Rehab

File No. 951-0007

C-3570

PARTIES

HEALTHSOUTH

Rehabilitation Corp.

ReLife Inc.

PRODUCT OVERLAP: Rehabilitation hospital services

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 4/l2/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Wright Medical

File No. 951-0015

C-3564

PARTIES

Wright Medical Technology, Inc.

Kidd, Kamm Equity Partners, L.P.

PRODUCT OVERLAP: Finger implants

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 3/23/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Reckitt & Coleman

File No. 951-0013

C-3571

PARTIES

Reckitt & Coleman Plc

Eastman Kodak Co.

PRODUCT OVERLAP: Carpet deodorizers (overlap in rug cleaners was also divested pursuant to a prior approval provision in earlier order)

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 4/4/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

IVAX-Zenith

File No. 951-0001

C-3565

PARTIES

Ivax Corporation

Zenith Laboratories Inc.

PRODUCT OVERLAP: Generic verapamil, a drug used to combat cardiovascular disease

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 3/27/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

SCI/Uniservice

File No. 951-0012

C-3579

PARTIES

Service Corp. International Inc.

Uniservice Corp.

PRODUCT OVERLAP: Funeral homes and cemeteries

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 5/16/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Penn Traffic

File No. 951-0009

C-3577

PARTIES

Penn Traffic Co.

American Stores Co.

PRODUCT OVERLAP: Grocery stores

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 5/15/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Columbia/HealthTrust

File No. 951-0022

PARTIES

Columbia/HCA Health Care Corp.

Healthtrust, Inc. - The Hospital Co.

PRODUCT OVERLAP: Acute care hospital services

FINAL OUTCOME & DATE: Commission accepted consent agreement for public comment 4/21/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Boston Scientific

/SCIMED [1]

File No. 951-0002

C-3573

PARTIES

Boston Scientific Corp. Cardiovascular Imaging Systems, Inc.

Scimed Life Systems, Inc.

PRODUCT OVERLAP: Intravascular ultrasound catheters and imaging guidewires

FINAL OUTCOME & DATE: Commission accepted consent agreement as final and issued D&O 4/28/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Scotts/Sterns

File No. 951-0056

PARTIES

Scotts Co.

Sterns Miracle-Gro Products

PRODUCT OVERLAP: Fertilizer

FINAL OUTCOME & DATE: Commission accepted consent agreement for public comment 5/19/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Silicon/Wavefront

File No. 951-0064

PARTIES

Silicon Graphics, Inc.

Wavefront Technologies, Inc.

Alias Research, Inc.

PRODUCT OVERLAP: Entertainment graphics workstations; high end entertainment graphics software

FINAL OUTCOME & DATE: Commission accepted consent agreement for public comment 6/9/95

-----------------------------------------------------------------------------------------------------------------------------------------------

MATTER

Hoechst/MMD

File Non 951-0090

PARTIES

Hoechst AG

Marion Merrell Dow Inc.

PRODUCT OVERLAP: Pharmaceuticals used for: hypertension/angina; Crohns Disease; intermittent claudication; and infectious diseases

FINAL OUTCOME & DATE: Commission accepted hold separate agreement 6/26/95

[1] Second requests were issued in both Boston Scientific/Cardiovascular and Boston Scientific/Scimed. Both matters were combined under File No. 951-0002. A preliminary injunction was filed against Boston Scientific and Cardiovascular. Before the suit was resolved, Boston Scientific signed a consent resolving both matters (C-3573).

Five more HSR exemptions proposed

The FTC has proposed five changes to the rules implementing the Hart-Scott-Rodino Act that would exempt transactions from that Acts merger reporting requirements. The changes build on revisions announced jointly by the FTC and DOJ last March designed to streamline the merger review process. [FTC:WATCH No. 431, March 27]

Under the changed rule, as proposed:

* The exemption granted to the purchase of goods and services in the ordinary course of business would be broadened to include, among other things, an exemption for the purchase of used durable goods purchased to upgrade capacity and to improve efficiencies.

* Certain real estate acquisitions (new facilities, unproductive real property, office and residential property, hotels and motels and agricultural property) would be exempt.

* Acquisitions of less than $200 million worth of carbon-based mineral reserves (oil, natural gas, coal, shale or tar sands) or the rights to those reserves would be exempt.

* For those parties that structure as acquisitions of voting securities rather than assets, the rule would exempt the transaction if acquisition of the assets would be exempt.

* Institutional investors and those whose sole business is the acquisition or management of investment rental property would be exempt from reporting requirements when they acquire any investment rental property assets.

REFERENCE: FTC Press Release, July 21

P812937; Contact: John Sipple, 202/326-2862

FAXLine No. 1334 (63 pages)

Global competition hearings

to address wide range of issues

The FTC officially announced a proposed agenda for its hearings, which are slated to begin sometime in early October, and has asked for comments both on the specific issues identified in the announcement and on whether additional topics need be considered. There is, however, an already highly-ambitious set of topics for discussion.

The FTC has proposed discussing the following:

Whether antitrusts traditional approach to defining a relevant market and measuring market power fully accounts for global competition.

Whether antitrust analysis can improve its ability to assess the likelihood of entry by foreign firms into particular markets.

Whether antitrust enforcers can improve how they define the scope of and measure market power in innovation markets, such as those involving research and development.

How antitrust can maximize the likelihood of realizing beneficial efficiencies and minimize the likelihood of injuring consumers from an increase in market power when agencies review mergers, joint ventures, or network-type operations that have apparent efficiencies.

Whether antitrust enforcers should permit an otherwise illegal merger if the merger would significantly cut the costs or improve the quality and effectiveness of innovation efforts.

Whether U.S. merger analysis should revise its approach to corporate failure and distressed industry conditions.

Whether there are particular regulatory barriers that unduly impair the ability of smaller firms to compete in a global environment.

How antitrust analysis should balance the incentive to innovate that intellectual property protection creates with a disincentive to innovate that might occur if enforcers were to require a firm to provide access to its otherwise protected property.

Whether networks, such as those in banking and computer systems, or de facto industry standards may foreclose competition in some circumstances and whether antitrust enforcement should protect the ability of competitors to access or benefit from another firms network or standard.

Whether international consumer protection standards are needed to address the increase in fraud or consumer harm likely to stem from the burgeoning number of cross-border consumer transactions.

What institutional processes the FTC itself should adopt to better protect consumers and promote competition, given the realities of global competition and rapid innovation.

REFERENCE: FTC Press Release, July 19

Contact: Susan DeSanti, 202/326-2167

FAXLine No. 1325 (25 pages)

FTC Rules of Practice changes

reflect changes in law

The FTC has revised its Rules of Practice to bring them into line with FTC Act amendments passed during the last session of Congress. Those amendments, among other things, make Commission orders legally binding 60 days after they are issued (with the exception of divestiture requirements). The rule changes specify how and when respondents must petition the Commission to stay an order pending appeal.

Essentially, parties have thirty days in which to file for a stay of a Commission order. The petition must state the reasons for granting the stay, the likelihood of success on appeal, the consequences of granting or denying the stay and the reason(s) why the stay would be in the public interest.

The Commission will then have thirty days in which to decide whether to grant the petition. Thirty days after the petition is filed the parties have a right to petition the appeals court to have the order stayed if the Commission has not yet ruled on the petition.

Other rule changes implement amendments which allow the Commission to obtain tangible goods (material) in addition to documents when making civil investigative demands.

All changes are effective immediately, though the Commission has welcomed comments on the changes.

REFERENCE: FTC Press Advisory, July 20

P859907; Contact: Joyce Plyler, 202/326-2155

FAXLine Document No. 1328 (31 pages)

Engine labeling: GM

asks for order relief

General Motors Corporation (GM) has asked the Commission to modify a 1979 order that restricts the way GM may label its engines. Changes in the organizational structure at GM, and in the automobile industry generally, warrant the modification, the company contends.

When the order was issued in 1979, the FTC was concerned about deceptive labeling of engines. GM produces cars under several different nameplates, i.e. Chevrolet, Oldsmobile and Pontiac. The FTC accused GM of labeling engines manufactured by one division, say Chevrolet for example, as being manufactured by another division, say Cadillac, for example. The order, among other things, prevented such labeling.

But in the mid-1980s, GM switched almost all of its engine-making operations to a separate division altogether, GM Powertrain. Now, when selling Oldsmobiles, GM is restricted by the order from labeling the engines in its Oldsmobiles as Oldsmobile engines, even if that particular engine is not used in any other GM vehicle, regardless of make.

Who cares? Consumers, according to GM. A market research report conducted by Chevrolet indicates consumers attach value to engines labeled with the marketing division. GM has asked that it be allowed to label unique engines with the name of the marketing division of the car those engines go into. (Under GMs proposed modification, the company would still be prohibited from labeling a motor an Oldsmobile motor, for instance, if the same motor is installed in a vehicle sold under a different nameplate, such as Chevrolet.)

REFERENCE: FTC Press Advisory, July 26

C-2966; Contact: Thomas Massie, 202/326-2982

FAXLine No. 1346 (14 pages)

IPA can use messenger model

to resolve state, federal conflicts

The Northwestern Nevada Orthopedic Surgery Alliance (NOSA) has got a problem. The fledgling organization is trying to form an independent physician association (IPA), and has proposed a few guidelines for the way the IPA will operate. But Nevada law prohibits IPAs from sharing risk among physicians and FTC safety zones for IPA operations typically require risk sharing to avoid antitrust problems.

But while the proposed plan of operation for NOSA would raise serious antitrust concerns, with a few changes the plan could satisfy both state and federal law, the FTC staff said in a letter last month.

The letter, from Assistant Director for Health Care Mark J. Horoschak, explains that by utilizing a messenger model, the IPA need not be economically integrated to avoid antitrust risks. Under a messenger model, an agent of the physicians would be responsible for messengering to the physicians the prices third-party payors would be willing to pay for their services. Individual physicians within the IPA would then be free to independently accept or reject the offers.

As currently structured, NOSAs agent would appear to play a more active role in pricing, Horoschak said. Turn the agent into a simple messenger and the IPA could operate legally.

REFERENCE: FTC Press Advisory, July 13

Contact: Mark J. Horoschak, 202/326-2756

FAXLine No. 1311 (11 pages)

Green guide review:

public conference date set

As promised, the FTC has opened the door to comments on the effectiveness, and market friendliness, of its Guides for the Use of Environmental Marketing Claims (Green Guides). A Public Workshop-Conference has been scheduled for November 13 and 14 to discuss the guides and any recommended changes to them. Requests to participate at that workshop should be submitted to the FTC in writing by August 30.

Review of the guides is part of the FTCs periodic review of all rules and guides. The FTC has asked for comment on four areas of general interest:

* Whether the guides should be changed to account for any changes in consumer perceptions of environmental marketing.

* Whether the guides should be changed to reflect new developments in environmental technology.

* What impact the guides have had on environmental marketing.

* How the guides interact with other federal, state and local environmental regulations.

The FTC has asked more specific questions as well, such as what broader claims might be conveyed by ozone friendly or No CFCs claims. The FTC has also asked for comment on issues relating to recyclable and compostable claims, particularly whether disclosures relating to these claims should be changed and whether any changes would be a burden to industry or a boon to consumers.

This time around the FTC is looking hard at empirical evidence that suggests the guides are or are not working. According to at least one study, conducted by the University of Utah, the guides have not discouraged sellers from making environmental claims. The guides have changed the claims being made, according to the study, as marketers qualify recyclability claims and shy away from claims of degradability for products typically disposed of in landfills.

As it did for the Telemarketing Rulemaking, the FTC has asked that comments for its review of the Green Guides be submitted on computer disk.

REFERENCE: FTC Press Release, July 27

P954501; Contact: Lee Peeler, 202/326-3090

FAXLine No. 1347 (23 pages)

Contact lens prescriptions

still need not be released

The Commission has once again refused to require that physicians disclose contact lens prescriptions to consumers. Review of the Prescription Release Rule, which requires the disclosure of eyeglass prescriptions, was prompted by a petition filed with the FTC in March 1994 by a private attorney.

The latest petition was not summarily rejected. The petition prompted the FTC to conduct a survey of consumers last February to determine how prevalent the practice of distributing contact lens prescriptions is. That study found 60% of consumers are able to obtain their prescription and 92% of those who have requested their prescription were given a copy.

Those numbers support a 1989 Commission clarification of its decision not to require release of contact lens prescriptions, in part because the practice of withholding those prescriptions was not found to be widespread. Many commenters also suggested contact lens prescriptions should not be handed out indiscriminately because of the need to properly fit lenses. The petition presented no new evidence on this point, the FTC said.

The rule will be up for mandatory review in 1998, and the Commission has welcomed comments on this issue at that time.

REFERENCE: FTC Press Advisory, July 20

R011001; Contact: James Reilly Dolan, 202/326-3292

FAXLine No. 1330 (22 pages)

Harley-Davidson order

sunsets amid protests

Despite widespread opposition from motorcycle dealers and aftermarket motorcycle parts makers and distributors the Commission has terminated a 1954 order prohibiting Harley-Davidson Motor Company from tying the sale of its motorcycles to the sale of parts and accessories.

The order was terminated under the Commissions Sunset Policy, which sets forth a rebuttable presumption that competition orders more than 20 years old are ripe for being set aside. Of all the orders considered for sunsetting under the Commissions policy, the order against Harley-Davidson is the only one that has caused the Commission any pause.

At a recent breakfast meeting at the International Club, Competition Bureau Director Bill Baer suggested that the current sunset policy which creates a rebuttable presumption in favor of termination may give way to an automatic termination of all competition orders more than 20 years old. Commissioner Mary L. Azcuenaga has commented in several recent sunsetting cases that when orders are set aside with respect to specific firms under order, the orders should be set aside with respect to all other firms under the same order. The Commission has thus far terminated orders only with respect to companies that have petitioned the Commission, a policy that Azcuenaga referred to as termination on a respondent-by-respondent basis.

The Commission acknowledged that nearly 200 comments were received, almost all of which urged the Commission to reject Harley-Davidsons request to terminate the order. Many worried Harley would tie the sale of its popular motorcycles to the sale of its not-as-popular aftermarket parts. Harley owners often customize their motorcycles with a variety of aftermarket parts from other manufacturers.

Addressing that concern, the Commission offered the following sentence, which we have reproduced almost in its entirety: In light of some of the commenters belief that granting Harley-Davidsons Petition would be commensurate with allowing it to engage in conduct that may violate the antitrust laws, and their concern that Harley-Davidson may use certain marketing practices to engage in unlawful conduct in the event the Commission sets aside the order... the Commission notes that Harley-Davidsons conduct would still continue to be subject to a case-by-case, rule of reason analysis under the antitrust laws.

State motor vehicle dealer protection laws may help bar actions by Harley as well, the FTC said.

REFERENCE: FTC Press Advisory, July 12

D-5698; Contact: Daniel P. Ducore, 202/326-2526

FAXLine No. 1304 (4 pages)

Rubber Manufacturers Association

ditches two price-fixing orders

Two orders against the Rubber Manufacturers Association, Inc. (RMAI) are history. The 1948 and 1962 orders prohibited price-fixing. The Commission did not set aside the orders as they pertain to other companies charged alongside RMAI under the same orders, prompting Commissioner Mary L. Azcuenaga to once again lament the sunsetting of orders on a respondent-by-respondent basis. Competition Bureau Director Bill Baer has suggested the Commission may soon modify its policy with regard to the sunsetting of orders currently on the books, making sunsetting a more automatic process that more closely resembles that favored by Azcuenaga. [See story in Briefs and Harley Davidson story, above.]

REFERENCE: FTC Press Advisory, July 21

D-5448 and D-7505

Contact: Elizabeth Piotrowski, 202/326-2623

WestPoint asks out of

prior approval order provisions

WestPoint Stevens, Inc., successor to West Point-Pepperell, Inc., has asked the FTC to vacate a 1988 order requiring the company to seek prior-approval before acquiring manufacturers of terry cloths, terry towels, sheets or pillow cases. WestPoint cites the Commissions new policy with respect to prior approval as its reasoning. If the order is not vacated, WestPoint has asked that it be modified to delete the prior approval clause.

REFERENCE: FTC Press Advisory, July 12

C-3244; Contact: Daniel P. Ducore, 202/326-2526

FAXLine No. 1305 (3 pages)

... Valspar too

Valspar Corporation has asked the FTC to set aside a prior approval clause in its 1993 order which is due to run until 2003. The order settles charges stemming from Valspars acquisition of the Resin Products Division of Cargill, Inc.

REFERENCE: FTC Press Advisory, July 11

C-3478; Contact: Daniel P. Ducore, 202/326-2526

FAXLine No. 1303 (3 pages)

... and KKR Associates

KKR Associates, L.P. has asked out of prior approval provisions of a 1989 order settling charges over the companys acquisition of RJR Nabisco.

REFERENCE: FTC Press Advisory, July 26

C-3253; Contact: Elizabeth Piotrowski, 202/326-2623

FAXLine No. 1344 (7 pages)

... also Foodservice Equipment Distributors Association

Foodservice Equipment Distributors Association (known prior to 1972 as the Food Service Equipment Industry, Inc.) has asked the FTC to set aside a 1941 order barring the association and its members from combining to restrain competition in the sale of food service equipment. The order is more than 50 years old and was not violated, according to the association.

The Commissions Sunset Policy assumes competition orders more than 20 years old are ripe for removal from the books.

REFERENCE: FTC Press Advisory, July 19

D-4433; Contact: Daniel P. Ducore, 202/326-2526

FAXLine No. 1323 (2 pages)

...and Kraft Foods

Kraft Foods, Inc. has asked the FTC to set aside a 1967 order barring the company from price discrimination. Kraft is the successor corporation to National Dairy Products Corp., which settled charges of price discrimination between purchasers of jam, jelly and preserves. The order is 25 years old and hasnt been violated, according to Kraft.

REFERENCE: FTC Press Advisory, July 25

D-8548; Contact: Daniel P. Ducore, 202/326-2526

FTC invites 98 companies

to pass out of prior approval

The FTC has released a list of 98 companies currently under prior approval orders and invited them to petition for removal of those requirements under the Commissions newly-articulated policy regarding prior-approval clauses.

REFERENCE: FTC Press Advisory, July 25

Contact: Daniel P. Ducore, 202/326-2526

FAXLine No. 1341 (8 pages)

Antitrust/Consumer Protection Calendar

August 2 - Robert Skitol and Joseph Kattan discuss high-tech mergers at a Federal Bar Association program at the offices of Foley & Lardner, 3000 K St NW, 5th floor. Time: Noon. Fee: $5.00

August 7 - FTC Chairman Robert Pitofsky, General Counsel Steven Calkins and Assistant Attorney General Anne K. Bingaman participate in a program on the role of antitrust policy in shaping the future of the information technology sector. Time: 9:00am-Noon. Chairman Pitofsky and Commissioner Christine A. Varney are luncheon speakers. Commissioner Mary L. Azcuenaga participates in a panel discussion: Joint Ventures - Finding the Safety Zone. Time: 4:00-5:30pm.

August 8 - Assistant Attorney General Anne K. Bingaman and Deputy U.S. Trade Representative Jeffrey M. Lang will offer opinions on International Antitrust: the Proper Role of Competition Laws in Addressing Foreign Market Access at an ABA International Law Section program at the ABA Annual Meeting in Chicago.

August 8 - ABA program: Intellectual Property: Antitrust Pitfalls at Home & Abroad in Transactions Involving Acquisitions or Licensing. FTC Policy Planning Director Susan DeSanti. Time: 1:30-4:45pm

August 8 - U.S. Justice Dept. Law Librarian Randy Snyder will discuss Researching International Law, with a particular focus on the research and interpretation of multilateral and bilateral treaties. Sponsored by the D.C. Bar at its Conference Center, 1250 H Street NW. Cost: $20-30. Contact: 202-626-3463.

August 8-9 - FTC Chairman Robert Pitofsky, Commissioner Christine Varney, General Counsel Stephen Calkins and Competition Bureau Director William Baer will speak Antitrust Section at the annual American Bar Association meeting in Chicago.

August 9 - ABA meeting panel discussion: Antitrust Developments. With FTC Competition Bureau Director William Baer, for assistant attorney general William Baxter, FTC General Counsel Steven Calkins, Antitrust Division Criminal Enforcement Chief Gary R. Spratling, former Antitrust Division International Antitrust Chief Diane Woods (to be sworn in August 6 as a member of the 7th Circuit Court of Appeals) and Microsoft tormenter Gary Reeback (Wilson, Sonsini, et al) 9:15-noon

August 9 - FTC Advertising Practices Associate Director C. Lee Peeler participates in a Minnesota Continuing Legal Education Conference on Advertising and Promotion Law. Minneapolis.

August 10 - Chairman Pitofsky will participate in discussions at an ABA Antitrust Section meeting, The Homestead.

September 7 - FTC Advertising Practices Associate Director C. Lee Peeler participates in a Food and Drug Law Institute program, Marketing and Advertising of Drugs, Medical Devices and Biologics.

September 8 - Consumer Protection Bureau Director Joan Z. Bernstein and Division of Advertising Practices Associate Director C. Lee Peeler will participate at How to Launch or Defend Against Competitive Challenges to Advertising Claims, an event sponsored by the American Bar Associations Antitrust Law Section. Plaza Hotel, New York City. $350 for ABA members, $325 for Antitrust Section Members. Contact: Carla Travis, 312/988-5609.

September 15-22 - International Bar Association Conference, Paris. Programs include: Antitrust across Frontiers; State Aid Rules in the EU; Antitrust Compliance Programs; Subsidies and Countervailing Duties under the WTO; Intellectual Property Rights and Competition Law. Contact: International Bar Association, 2 Harewood Place, Hanover Square, London W1R 9HB, England. Telephone: (171) 629 1206. Fax: (171) 409 0456.

September 21 - FTC Competition Bureau Director William J. Baer will discuss Antitrust Enforcement at the FTC before the Los Angeles Bar Association, Los Angeles

September 22 - FTC Competition Bureau Director William J. Baer will discuss The Governments Role in Competitor Disputes, ABA Meeting, San Francisco

September 28 - FTC Competition Bureau Director William J. Baer will point out Recent Developments at the FTC at a meeting sponsored by Business Development Associates, Washington, DC

September 28 - Commissioner Varney will discuss Antitrust in Cyberspace at a Business Development Associates conference, Loews LEnfant Hotel, Washington, D.C.

September 29 - Chairman Pitofsky will address the Cosmetic, Toiletries and Fragrance Association meeting at the Four Seasons Hotel (8:30am), and will discuss Advertising and Marketing Issues in a Global Environment at the Advertising Law International annual meeting, DC (luncheon).

October 6 - Commissioner Varney will speak to the American Society of Association Executives, Loews LEnfant Hotel, Washington, D.C.

October 11 - Chairman Pitofsky will be the luncheon speaker at a National Association of Attorneys General antitrust seminar, Baltimore.

October 13 - Commissioner Varney will deliver the keynote address at an ABA Franchise Section program, Orlando.

October 17 - Chairman Pitofsky will address a U.S. Chamber of Commerce National Chamber Litigation Center seminar, Washington, D.C. (10:30-11:15am)

October 20-22 - The Eighth Annual Joint Conference on Law & Aging in Washington, D.C. on the theme Elder Rights in a Changing Political Climate. Contact: The Center for Social Gerontology, Ann Arbor, 313-665-1126

October 23 - Commissioner Varney will discuss healthcare antitrust at an SMS Healthcare conference, Naples, Fla.

October 26 - Chairman Pitofsky will speak at the Fordham Corporate Law Institute Annual Conference, New York City

October 27 - Chairman Pitofsky will address the Antitrust Section of the California State Bar Association at the ANA Hotel, San Francisco

November 3 - FTC Competition Bureau Director William J. Baer will discuss The Governments Role in Competitor Disputes, at an ABA meeting, Boston

December 6 - Chairman Pitofsky will be the luncheon speaker at the annual meeting of the National Advertising Review Board, the Harvard Club, New York City

Briefs

Automatic order termination: the FTC plans to announce its final sunset policy at the ABA annual meeting in Chicago. It is understood that the agency will adopt a 20-year termination policy for both antitrust and consumer protection orders. Fencing-in provisions in antitrust orders will not expire in 10 years, as originally proposed, but will accompany the core provisions on their 20 year journey. (Respondents can always request modifications, of course). All orders will terminate automatically. Respondents will not have to appear with a request in hand. (Exception: if the FTC uncovers an order violation, the clock is re-set to zero.)

The Antitrust Division still bails you out after 10 years, however.

Telemarketing Rule: The first proposed Telemarketing rule wasnt quite right and the new proposal is more right, Commissioner Christine A. Varney told attendees of the 1995 Digital Interactive Systems International Conference in Seattle, Washington on July 10. Varney called the Commissions goal of drafting a rule that would attack fraud without burdening business indeed difficult.

The first proposal contained a lengthy enumeration of prohibited practices that, we believed, were the exclusive hallmarks of fraud artists. We learned, however, that exactly the opposite is true; fraudulent operators purposely mimic the business practices of legitimate telemarketers to confuse, and ultimately defraud, the unwitting consumer, Varney said. [REFERENCE: The Revised Telemarketing Rule, July 10 speech by Varney, FAXLine No. 1319 (9 pages)]

Vertical mergers: Commissioner Christine A. Varney expounded on vertical merger enforcement at the Practicing Law Institutes 36th Annual Antitrust Institute in San Francisco, California in July. Enforcement actions should be based on facts, not theories, Varney said. [REFERENCE: Vertical Merger Enforcement Challenges at the FTC, July 17 speech by Varney, FAXLine No. 1324 (16 pages)]

Scanner errors: Make sure youre not overcharged and speak up if you notice mistakes at check-out, the FTC advises in a new brochure aimed at stopping scanning errors. While retailers claim scanners help trim pricing errors, consumer groups claim scanner errors cost consumers millions. The FTC and state attorneys general are working to determine how prevalent scanner errors are. Meanwhile, theres the self-help brochure, Attention All Shoppers: Make Sure the Scanned Price is Right.

Amicus announcement: General Counsel Stephen Calkins invited attorneys to invite the Commission into private cases as friends of the court. By filing an amicus brief in an appropriate case, the Commission could make a contribution to the dialogue on antitrust, Calkins told attorneys during a luncheon meeting at Covington and Burling on July 13. The FTCs latest amicus filing came in November, 1992 in a district court case. In June, 1992 the FTC filed its most recent amicus brief at the Supreme Court, joining with the Justice Department in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. [113 S.Ct. 1920 (1993)]

Microsoft: The governments squabble with Microsoft over documents is over. By letter dated July 21, Assistant Attorney General Anne K. Bingaman informed the court that the DOJ was dropping its fight or additional documents to investigate the competitive impacts, if any, on Microsofts decision to include software in its release of Windows 95 that would allow users to connect easily to Microsofts on-line network. On-line service providers, who will compete with Microsofts on-line service, have suggested Microsoft would have unfair access to a large customer base if it is allowed to include connection software in its Windows 95 release.

Given the delay by Microsoft in producing documents under this CID, it is apparent that the government will have to make its decision as to whether to initiate an enforcement action prior to the launch date [of Windows 95] on the basis of the other evidence we have gathered to date, Bingaman said in the letter to the court. Microsoft plans to launch Windows 95 by August 24.

Bingamans language sounds ominous. [REFERENCE: FAXLine Nos. 1333 (July 21 letter to court, 2 pages); 1312 (Memo of U.S. in Opposition to MSFT petition, 50 pages); 1327 (U.S. prelim. statement of issues, 65 pages); 1332 (MSFT reply memo, 19 pages)]

International Antitrust: Commissioner Janet D. Steiger stressed the need for competition agencies in developing countries to get the word out on their mission. Even in the United States, with its strong tradition of competition enforcement, we constantly hear claims that this or that industry is special, that normal competition principles do not apply to this or that situation, or even that competition policy should be replaced at least for a while with some other sort of industrial policy, Steiger said in remarks last month to an International Bar Association seminar in Brussels, Belgium. What all of this means is that in economies in transition... competition agencies must be prepared to devote considerable attention to competition advocacy explaining to legislators, other government agencies, and the public, ways in which competition policy can benefit consumers and, equally important, the ways in which unwise or unfettered government regulation can injure consumers. [The Crucial Role of Competition Law and Policy in the New Europe, July 6 speech by Steiger, FAXLine No. 1310 (15 pages)]

Budget: so far, the FTC has escaped relatively unharmed by the budget cutters on Capitol Hill. Counting Hart-Scott-Rodino filing fees, which fund almost half its operations, the FTCs nominal budget has been reduced from approximately $107 million to about $100 million. But carry-over filing fees from FY 1995 to FY 1996 should make up for most of the shortfall.

Gasoline prices: state attorneys general in West Virginia, Ohio and Kentucky are investigating alleged local gasoline price-fixing, according to the newsletter U.S. Oil Week.

Franchising: Spaghetti Warehouse, Inc. says one of its franchisees, Bright-Kaplan International Corporation, has submitted a claim against the company to the American Arbitration Association, alleging engaged in deceptive trade practices and violations of the FTCs disclosure Rule. BK is seeking damages in excess of $6.6 million, but Spaghetti Warehouse says it intends to vigorously defend this matter and believes the allegations made by the franchisee are without merit.

Private litigation: Thermex Energy Corp., a commercial explosives company, says a Wise County, Texas jury has awarded it what is believed to be the largest antitrust verdict handed down in Texas: possibly more than $400 million. Thermex accused ICI Explosives, USA of using monopolistic methods to drive Thermex into bankruptcy in 1990.

Cases in the FTCs black hole: Alleged anticompetitive restraints on professional golf tournaments by the PGA Tour, Inc. The Competition Bureau staff forwarded a complaint recommendation to the commissioners months ago.

The Dallas Regional Office has been investigating alleged attempts by recorded music distributors to restrain the sale of used compact disks (CDs) for more than a year. No result to date.

Competition Bureau lawyers gave the commissioners signed consent agreements with 6 major book publishers more than a year ago. Problem: they also sent the commissioners a recommended complaint against a seventh publisher, Viking-Doubleday-Dell. The allegations in all cases involve discriminatory pricing in violation of the Robinson-Patman Act.

Antitrust Division Watch

DOJ forces makeover of mainframe

software mega-merger

Mainframe software giant Computer Associates can proceed unchallenged with its $1.7 billion acquisition of Legent Corporation, but only because it has agreed to help establish a viable competitor in the markets for each of five computer system management software products.

This solution will assure that customers have an alternative to CA after the merger of the first and second largest independent vendors of system management software for IBM mainframe computers. Mainframes are the large and powerful computers used by industrial, commercial, military, educational and government institutions for mission critical data processing applications that require fast and reliable computing performance.

DOJs civil antitrust complaint filed in federal court said that if the deal were not stopped, the combination of the only competitors in some of the relevant markets and the dominant competitors in others would eliminate significant competition and leave users of mainframe software without alternatives, leading to higher prices, lower quality, and less innovation.

System management software is used on a mainframe computer to work together with its operating system, software that controls the resources of the computer such as the central processing unit, memory, data storage devices and other hardware components. Systems management software is designed to run on one or another IBM operating system (mainly MVS or VSE) and is used to help manage, control, or enhance mainframes. CA and Legent both supply such software for both VSE and MVS systems, including tape management, disk management, job scheduling, security management and automated operations packages.

In analyzing competition in the mainframe systems management software business, the Justice Department identified six relevant antitrust markets:

VSE tape management software, which governs the cataloguing, formatting, loading and reading of magnetic tapes used to store data: of the $9.7 million in U.S. sales, CA and Legent have market shares of 42% and 57% respectively. The combination as proposed would have raised the Herfindahl-Hirschman Index (HHI) 4,756 points to 9,746 (a monopoly is 10,000). To put this in perspective, any market with an HHI over 1800 points is considered highly concentrated, and any increase of more than 100 in a concentrated market raises antitrust flags.

VSE disk management software, which controls cataloguing and data storage on disk storage media: CA and Legent have 96% and 4% of the $3.9 million U.S. market. The unmodified transaction would have raised the HHI by 805 points to 10,000 and CA would have achieved every entrepreneurs dream... a monopoly.

VSE security software (prevents unauthorized access to the mainframe computer): Another potential monopoly - in the $6.3 million U.S. market, CA has 31% and Legent 69%, raising the HHI 4,254 points to 10,000.

VSE job scheduling software (automates the scheduling and running of multiple computer tasks): In this $4 million U.S. market, CA and Legent have 25% and 46% and the deal would have raised the HHI 2,341 to 5,748.

VSE automated operations software: $6.7 million in U.S. sales was split 3% to CA and 85% to Legent. The HHI would have gone up 432 points to 7,663. This software automates information handling functions of a computers console.

Cross-platform systems management software: enables different platforms such as mainframe, mid-frame, micros and personal computers to be linked and work together to accomplish a job. CA and Legent are two of only a few competitors uniquely positioned to provide cross-platform systems management solutions for customers that use mainframes among a variety of systems platforms, said DOJ. The deal would eliminate substantial competition in this market, said the complaint.

It is unlikely that users would switch from one mainframe operating system to another to escape price increases in the systems management software, because it would be expensive and complicated, the Antitrust Division added. And new entry allegedly would be neither timely, likely nor sufficient to deter a price increase or a reduction in service.

The settlement requires Computer Associates to grant non-exclusive, worldwide, irrevocable licenses for Legent products in each of the first five markets. The defendants must name an investment banker within seven days to help identify and solicit bidders and evaluate bids. The banker will be paid by the defendants, and the compensation will be based in part on the price and terms of the license and the speed with which it is accomplished. No royalty payments to the defendants may continue under such licenses.

The proposed decree also bars CA from taking any action to restrict competitors access to an important technology in the sixth relevant market the emerging market for cross-platform distributed systems management software previously licensed by Legent from Peer Logic Inc.

REFERENCE: DOJ Press Release, July 28

FAXLine No. 1351 (50 pages)

Bread merger challenged

The acquisition of Continental Baking Co., the nations largest wholesale baker, by Interstate Bakeries, the third largest, threatened to drive up prices in the market for white pan bread sold in five markets Los Angeles, San Diego, Chicago, Milwaukee and Central Illinois, the Justice Department told a federal court on July 20.

Continental is the maker of powerhouse brand Wonder bread and Interstate makes Sunbeam, Butternut and Webers. White pan bread is the soft, taste-free stuff that is all kids ever want in sandwiches.

In all five markets alleged in the complaint, the Antitrust Division says the firms compete directly and vigorously with each other, engaging in extensive promotional, couponing and ad campaigns that reduce prices. In Los Angeles, San Diego and Central Illinois, no other baker sells a significant amount of white pan bread. In Chicago and Milwaukee, only one other baker (Metz Baking) sells a substantial amount.

The post-merger Herfindahl-Hirschman Index (HHI) for the relevant markets are: 2,250 after an increase of 766 in Chicago; 1,800, up 548 in Milwaukee; 4,000 after an increase of 974 in central Illinois; 4,200 with a gain of 2,035 in L.A.; and 2,900 after an increase of 1,265 in San Diego. Anything over 1,800 is considered highly concentrated, and a change of more than 50 in such a market brings a strong possibility that a transaction will be challenged.

A proposed consent decree filed with the complaint allows Interstate and Continental to proceed to consummation in all parts of the country except the five specified in the complaint. In those areas, Interstate will have to take steps to assure that there will be an economically viable competitor in the baking and wholesale business of white pan bread. The defendants will have nine months after entry of the order to divest certain white pan bread labels and other assets if is necessary.

It may well be, noted the competitive impact statement filed by the government in court, that all that is required to accomplish this goal is the sale to an existing wholesale baker of the exclusive rights to make and sell white pan bread under either Continental or Interstates most popular brand. But the divestiture could also require the sale of either firms production and distribution facilities in the five markets in question. The court will appoint a trustee if the job doesnt get done within nine months. In the meantime, a hold-separate order requires that all assets in question be kept economically viable and that Interstate keep the Continental assets in the five relevant markets completely separate.

REFERENCE: DOJ press release, July 20;

complaint, decree: FAXLine No. 1331 (41 pages);

competitive impact statement No. 1339 (16 pages)

Sprint international JV

challenged, changed

The DOJ has forced changes to the operation of a three-way joint venture between Sprint Corporation and government-owned telephone monopolies in France and Germany that will assure competition in this country for international calls. Absent safeguards, the joint venture partners could discriminate against other American carriers, raising rates and decreasing the quality of telephone service in the process, the DOJ charged.

The three partners could discriminate against competitors in terms and conditions of access to Frances and Germanys networks and services, according to Assistant Attorney General Anne K. Bingaman. The German company is the worlds second largest telecommunications provider, the French the fourth largest.

The order will be implemented in two phases. Phase one contains tight restrictions on operation of the joint venture, and its restrictions will be in place until France and Germany inject competition into their telecommunications systems. During phase one, the German and and French firms will still operate as government-run monopolies and the tough restrictions are geared to preventing anticompetitive consequences of such an arrangement.

Phase two, under which the joint ventures operations will have fewer restrictions, will begin whenever actual competition enters the telecommunications markets of France or Germany. Phase one may run longer in either country, depending on the courses of competition in Germany and France. The European Union has set January 1, 1998 as the target date for countries to liberalize their telecommunications systems. But whether liberalization means opening markets to competition remains to be seen, and the Antitrust Division is not relying on that date as a date certain for removal of phase one restrictions.

Phase two restrictions will resemble those agreed to by British Telecom and MCI in June 1994. The British telecommunications system is more open than those of France and Germany, and phase one restrictions were unnecessary to remedy antitrust concerns in Britain, according to the Division.

Only Sprint is under order, but the order prevents the French and German companies from discriminating in favor of Sprint. Sprint would be required, under order, to withdraw offering new services through either if either were unable or unwilling to open similar opportunities to firms other than Sprint.

Generally, the order would prohibit the Sprint joint venture from providing services until competitors are granted the opportunity to provide similar services. The order would require Sprint to publish the rates and terms under which it gains access to the French and German networks. Other restrictions would bar Sprint from obtaining or accepting favorable treatment or proprietary information about U.S. competitors from the French and German networks.

REFERENCE: DOJ Press Release, July 13

FAXLine Document No. 1308 (71 pages)

Joint discussions to repel assault on

musical rights not anticompetitive

The Justice Department has unshackled the performing rights societies Broadcast Music Inc., the American Society of Composers, Authors & Publishers (ASCAP), and SESAC Inc. enabling them to band together to thrash out issues raised in legislation pending before Congress in H.R. 789, the Fairness in Music Licensing Act of 1995. While the groups said they understand they must zealously avoid joint discussion of pricing, rates or fees, and while they do not intend to enter into any joint agreements that are anticompetitive, they wanted assurances from the Antitrust Division that such discussions themselves would not be challenged.

The bill they are worried about was introduced by Rep. James Sensenbrenner (R.-Wisc.) at the urging of a coalition consisting of members of the National Restaurant Association, the National Licensed Beverage Association, the National Retail Federation, various food service industry trade groups, associations of organizers and sponsors of conventions and trade shows, owners of convention facilities, and religious broadcasters.

The bill, says the musical rights groups, would expand the existing narrow exemption in the Copyright Act ... to exempt from copyright liability virtually all business establishments for provision of music by means of radio and television sets; provide for local arbitration of rate disputes with performing rights societies rather than the non-discriminatory nationwide rate regulation established [by the ASCAP and Broadcast Music consent decrees]; radically limit the amount of damages recoverable for infringing performances of music; ...[require] that unprecedented per programming period licenses be offered to radio broadcasters; require performing rights societies to provide certain information about their repertories; mandate increased federal supervision of performing rights societies consent decrees; exempt sponsors of trade shows and others from vicarious liability; and exempt broadcasters from liability for the performance of copyrighted music during broadcast church services.

This Coalition, said the request for a Business Review Letter, did not approach each of us separately to discuss these questions before they got the bill introduced. Now that the issues are before Congress, Chairman of the House Judiciary Committees Courts & Intellectual Property Subcommittee Carlos J. Moorhead and member Rep. Patricia Schroeder have invited the Coalition and the three societies to meet jointly under the auspices of the Subcommittee.

The Justice Department has no problem with such joint discussions, according to an expedited business review letter dispatched July 21. Joint activities among rivals to petition the government are protected by the Noerr-Pennington doctrine. Now if joint agreements are reached, even if they are prompted by legislation, they are not protected. Clearly, any such agreements that amount to price-fixing, market allocation and service restriction could be per se illegal. Any other agreements the groups reached would be analyzed under the rule of reason. You have assured the government, said the BRL, that you do not intend to enter into any joint agreements that would have an anticompetitive effect unless that effect were both minimal and outweighed by economic efficiencies. Such an agreement would pass muster under rule of reason analysis.

REFERENCE: DOJ Press Release and business

review letter, July 21; FAXLine No. 1340 (11 pages)

We see your point, but...

Court reporters code changes get

qualified nod from DOJ

The National Association of Court Reporters (NCRA) can change its Code of Ethics to bring it into line with requirements that its members preserve both the fact and appearance of impartiality, but only if the 33,000-member group follows the guidelines set out by the Antitrust Division in giving its qualified approval.

NCRA is concerned about the recent trend of large-scale users of court reporting services to sign long term-contracts with court reporters and a trend by management consultants to do likewise. The group worries that such arrangements might give the appearance that a court reporter is part of the litigation team or otherwise non-neutral, in violation of Rule 28(c) of the Federal Rules of Civil Procedure. To remedy any such problem, NCRA proposed to require court reporters to disclose such arrangements to all parties to the litigation.

Thats fine, said DOJs July 27 business review letter, unless the ethical code has the purpose or effect of restraining price or quality competition, limiting output or discouraging innovation. Any of these could then raise significant antitrust risks. Heres how to fix it:

the ethics changes should not have the purpose or effect of discouraging court reporters from entering into long-term contracts, those with volume discounts or other fee discount terms, or contracts with other innovative provisions;

any change to NCRAs Code of Ethics should be accompanied by an affirmative statement to NCRA members that the changes are not intended (nor does NCRA intend generally) to prohibit or discourage long term contracts, volume discounts, fee discounts or other innovative contract terms or otherwise discourage competition among court reporters; and that each reporter should independently set price and services;

the disclosure of a contractual arrangement should be made only to the parties and not to other court reporters (either directly or through NCRA);

any such disclosure should relate the minimum facts necessary to enable the parties to exercise their rights under the Federal Rules.

As long as these guidelines are followed, wrote Assistant Attorney General Anne K. Bingaman, the Antitrust Division does not intend to challenge the NCRAs Code.

REFERENCE: DOJ Press Release and business

review letter, July 27; FAXLine No. 1352 (10 pages)

Joint buying group charter to bargain

business air fares okayed by DOJ

A plan by Business Travel Contractors Corporation (BTCC) to negotiate with airlines mileage-based net fare contracts on behalf of its business customers will likely result in lower costs, improved efficiency and more options for buying air travel services and is unlikely to harm competition, the Justice Department said in a July 14 business review letter. It will enable BTCC customers to aggregate their air transportation purchases and potentially achieve sufficient volume to make it attractive for airlines to incur the risks and costs of implementing a net fare program.

BTCC, based in King of Prussia, Pennsylvania, will enter into contractual fee-based arrangements with corporate customers who seek to take advantage of negotiated Business Contract Fares based on actual corporate costs. Such fares will be net of travel agent commissions, frequent flyer credits, or other buyer or agent inducements and marketing costs. They will be offered on all domestic city-pairs served by an airline and on all flights between cities in the continental U.S. BTCC has promised that it will not disclose sensitive information concerning any airlines plans to any other airline and will remain independent of the airlines.

Customers of BTCC will be required to commit themselves to use the Business Contract Fares for at least 90% of their business travel on city-pair routings for which such fares are available. The plan will limit the number of customers to make sure that the customer base does not account for more than 35% of the purchases of air transportation in any relevant market; more than that could give the group monopsony power that could drive Business Contract Fares below competitive levels. DOJ also took a close look at BTCCs plan to require 90% use of the Fare to see if it might suppress competition by foreclosing other firms, including traditional travel agencies, from a share of the market sufficient to negotiate for net fares. But since the contracts will have relatively short terms, and there will be no sanctions other than non-renewal for violating the 90% rule, business customers of BTCC essentially are able to terminate their contracts at any time and are unlikely to be constrained from switching to a venture offering them a more favorable package of air fares and travel services.

REFERENCE: DOJ Press Release and business

review letter, July 14; FAXLine No. 1318 (16 pages)

Pennsylvania medical network

wont harm competition

An independent group of Pennsylvania prosthetists and orthotists doctors who specialize in the replacement of artificial limbs and the treatment of ineffective joints and muscles can go ahead with a plan to negotiate collectively with third-party payors for its members, says a July 17 business review letter.

Under the proposal, the Pennsylvania Orthotics & Prosthetics Enterprise (POPE) will form a network of its members and hire a management company to negotiate contracts with third-party payors. DOJ believes the scheme will not harm competition because, among other things, POPE will make sure its membership does not exceed 20% of all the prosthetists and orthotists in any relevant geographic market, and will take steps to reduce its membership if it grows beyond 20%. In addition, the network will be non-exclusive and POPEs members will be free to negotiate whatever they want outside the network. Confidentiality safeguards should be sufficient to make sure there is no disclosure of members price and cost data, said DOJ.

Finally, POPE will withhold no less than 20% of each members billings, and will distribute the resulting pot if members as a group meet established efficiency and quality goals. POPE will look at these goals to measure compliance with its standards: 1) whether remanufacturing of an orthosis or prosthesis is required; 2) whether the initial contact with an inpatient occurs within 48 hours and whether the product is delivered within 48 hours after that; 3) whether clinical review standards and utilization management are satisfactory to the third party payor; and 4) whether patient surveys indication patient satisfaction,

POPE appears to be a genuine joint venture with significant shared financial risk, said DOJ. In addition, the safeguards and lack of controlling power make it unlikely that the plan could create, enhance or facilitate the exercise of market power. Finally, third-party payors do not object. Because it appears unlikely that the venture will harm competition, DOJ does not plan to challenge it.

REFERENCE: DOJ Press Release and business

review letter, July 17; FAXLine No, 1317 (6 pages)

Rebate fraud will be focus of

joint info exchange

The Promotion Marketing Association of America (PMAA) wants rebate fraud stopped and it wants it stopped now.

So the group has proposed that it be allowed to set up a system under which it would receive, aggregate and distribute information about suspected cheating in the rebate mail-in-offer fraud business. Rebate offers are generally contingent on actual purchase of the promoted item, and usually require some proof that the promoted item has, in fact, been purchased. But fraudulent operators have devised ways of buying or producing such evidence in large quantities, and manufacturers have suffered to the tune of nearly $500 million a year.

PMAA, working with the U.S. Postal Service, has proposed a centralized data base (CFS) into which participating firms could key instances of suspected fraud. A data base manager would collect this evidence and turn it over to law enforcement officials and in aggregated form to participants. PMAA hopes that by making data about such large scale abusers as those who own cash registers and trump up bogus proofs of purchase in bulk, participating manufacturers will see a payback in increased enforcement efforts.

The only information shared will be data compiled by CFS concerning individual abusers, and that data will be aggregated. There will be no discussion between subscribers, and CFS will not compile or share any competitively significant information.

Looks fine to us, said a July 18 business review letter. In fact, To the extent [the information sharing] reduces the cost to manufacturers of stolen or counterfeit rebate certificates, PMAAs proposal may reduce prices and expand output to the benefit of consumers.

REFERENCE: DOJ Press Release and business

review letter, July 18; FAXLine No. 1329 (9 pages)

Now available:

Competitive Impact Statement in U.S. v. American Bar Association, Civ. No. 95-1211(CR), (D.D.C.); case filed 6/27/95; impact statement filed 7/14/95; FAXLine Document No. 1315 (19 pages)

FTC Enforcement

Hyde, New Balance Made in USA ad cases

prompt FTC to rethink definitions -

public workshop planned

The FTC has paused its active investigations into Made in the USA claims and will use the delay to hold a public workshop to consider redefining the standard under which marketers can use unqualified domestic content claims. The agency has clamped a stay on an active Made in the USA case against New Balance Athletic Shoes and sent the staff back to renegotiate a consent agreement in a recent settlement with Hyde Athletic Industries, Inc.. The moves are all part of a comprehensive review of Made in the USA advertising.

More than 100 public comments reached the FTC with regard to these complaints addressing Made in the USA ads for footwear, almost none of which expressed support for the Commissions stringent standard for Made in the USA claims.

In the Hyde and New Balance cases the Commission based allegations on its view that products must be all or virtually all domestically-produced before they qualify for a Made in the USA claim. But comments suggested that standard is impossible or virtually impossible to meet given todays global economy, and the Commission has called for comments addressing why the standard should not changed.

FTC Chairman Robert Pitofsky noted the difficulties of defining a made in USA standard. Some of those difficulties are political, and the shift in policy represents a large political victory for New Balance, which has fought a brilliant media battle and captured the attentive ear of several Congressmen and Senators. Deceptive made in USA claims might make a real difference to a large segment of American consumers. The public workshop will explore the best way to deal with this issue, according to Pitofsky.

A public workshop is hardly the perfect place to set policy in this area, Commissioner Roscoe B. Starek III said in parting with the Commission. No comments produced evidence that the all or virtually all standard is not proper, he said in advocating case-by-case evaluation of ad claims and copy tests to determine consumer perceptions of Made in USA claims for individual products. I cannot support authorizing the staff to conduct a comprehensive review... of domestic content claims to the extent that it would be a broad inquiry into why adopting a weaker standard for unqualified Made in USA claims is good public policy, Starek said.

The revised Hyde complaint will continue to charge the company with making false claims that all of its Saucony shoes were made in the USA when a substantial amount of them are made in foreign countries. But charges that domestically assembled shoes consist largely of foreign component parts have been dropped, and the all or virtually all standard has been abandoned. The revised Hyde complaint and consent are not yet available.

REFERENCE: FTC Press Release, July 11

Hyde: 922-3236; New Balance: D-9268

Contact: C. Steven Baker (Hyde), 312/353-8156

FAXLine Document No. 1301 (19 pages)

ALJ declares California dental

advertising restraints illegal

Administrative Law Judge Lewis F. Parker has ruled that restraints on advertising imposed by the California Dental Association (CDA) illegally prevented truthful, non-deceptive advertising to the detriment of CDA members and the public. Parker ordered CDA to revise its rules of practice and remove the restrictions.

CDA restricted its members ability to advertise prices, discounts, quality and superiority, Parker concluded. CDA has also, regardless of their truth, expressed displeasure with claims that are allegedly insulting, offensive to peers, vague or ambiguous, subjective, or do not elevate the esteem of the profession, Parker said, calling restrictions on such advertising inherently suspect. While CDA ad restrictions might have, at their core, the goal of preventing false or deceptive ads, they are too broad and express a hostility toward advertising by its members even if it is truthful and nondeceptive, according to Parker.

Moreover, CDAs expressed fears that dentists who conduct free school screenings may pressure parents and children into using their services is not supported by any record evidence and its actions have denied schoolchildren the benefits of dental screening, Parker said.

Contrary to FTC assertions, CDA cannot exercise market power, Parker ruled. But market power is not an essential prong of the case, according to Parker.

Parker accepted provisions of the FTCs proposed order that would require CDA to revise its Code of Ethics and remove ad restrictions. He also accepted, over CDA objections, provisions requiring CDA to specifically avoid restraining ads that are undignified or unprofessional. But Parker did not require CDA to send notices of reconsideration to members who were dropped by CDA in the past ten years for non-payment of dues. Complaint counsel had pushed for that order provision, but the provision had no apparent connection with CDAs illegal acts, according to Parker.

REFERENCE: FTC Press Release, July 25

D-9259; FAXLine Document No. 1343 (100 pages)

Ad agency under order, again:

J. Walter Thompsons

toughest wrist-slap yet!

On three previous occasions in the past twenty years, the Commission has charged J. Walter Thompson USA, Inc., one of the countrys leading ad agencies, with misrepresenting tests or studies. Now, on the fourth occasion that such charges have been leveled, the Commission has decided to broaden the coverage of the order to fence-in the company. Well, sort of.

In 1974, J. Walter Thompson settled charges of misrepresenting studies in automobile advertisements, agreeing not to misrepresent studies in automobile ads. When the FTC accused the ad agency in 1979 with misrepresenting studies in connection with dishwashers, the 1974 order, which had a narrow-defined product market, was not violated, and a second, narrowly-drawn order prevented misrepresentations of studies in dishwasher ads. The same pattern was followed in 1981, with allegations (and similarly narrow relief) focusing on cleaning devices.

But now, the Commission is cracking down. The Commission challenged claims relating to a consumer survey performed for the Jenny Craig weight-loss program. But instead of insisting on an order prohibiting misrepresenting studies narrowly drawn just for weight-loss programs, the FTC broadened coverage this time... to cover the weight loss industry in general.

The Commission has been remarkably stern this time around. There is a strong suggestion in the joint concurring statement of Commissioners Christine A. Varney and Roscoe B. Starek, III that the Commission might have considered the idea of maybe imposing broader relief in this case.

Varney and Starek described the study relied on by J. Walter Thompson in this instance as obviously and severely flawed. In a rebuke to the ad agency, the Commissioners noted that [r]egardless of whether the prior consent orders may be considered evidence of past violations, they show that JWT was aware of the Commissions concern about this type of claim and of the requirements of the law with respect to claims involving surveys and tests.

But Varney and Starek identified several reasons for accepting the proffered, narrow relief: broader relief arguably weighs more heavily on an ad agency such as JWT that handles accounts for a diverse assortment of products and services, they said, and litigation inevitably presents resource allocation questions.

Commissioner Mary L. Azcuenaga was not swayed. JWT continued to make claims based on this flawed study even after it received contradictory results from a more reliable study that it had commissioned, she said. Assuming the allegations in this and the previous cases to be true, we would have to conclude that J. Walter Thompson has had difficulty comprehending that the conduct alleged is conduct about which the Commission is concerned.

Because she viewed JWTs actions as deliberate and easily transferable to other products, Azcuenaga pressed for broad coverage against JWT. The proposed order requires JWT to substantiate any endorsement claims for weight loss programs. It would prohibit JWT from misrepresenting any tests or studies in advertisements for any weight loss or weight control program, weight loss product, health or fitness program, exercise equipment, or diet-related food.

REFERENCE: FTC Press Release, July 13

942-3294; Contact: Jeffrey Klurfeld, 415/744-7920

FAXLine Document No. 1309 (24 pages)

Onkyo fixes resale prices,

violates 82 order, FTC charges

Audio component-maker Onkyo U.S.A. Corporation has agreed to pay a $225,000 civil penalty to settle charges that it violated a 1982 order prohibiting the company from resale price maintenance (RPM). For at least two years between 1988 and 1990, Onkyo engaged in RPM in violation of the order, the FTC charged.

The FTC charges stem from Onkyos dealings, through sales representative Duane Swanson, with Best Buy Company, Inc., a discount electronics retailer. Onkyo allegedly directed the prices at which Best Buy sold Onkyo goods, used Best Buy to track retailers who deviated from suggested price levels and failed to notify retailers that suggested prices were just that: suggested.

On at least one occasion Onkyo specifically told Best Buy that its Onkyo products prices were too low and asked Best Buy to raise prices for selected items, according to the FTC. Swanson, in a letter to Best Buy, allegedly acknowledged receipt of a letter naming a retailer who would not conform to Onkyos pricing policies. Swanson believed it was his responsibility to suggest logical pricing to aggressive discounters, to keep dealers from disrupting the marketplace, and to try to maintain an orderly marketplace, the FTC said.

Though a 1982 order against Onkyo requires the company to state clearly on all price lists that all resale prices on the list are suggested only, Onkyo distributed price lists without the required disclosure, the FTC charged. Onkyo also allegedly failed to distribute a copy of the 1982 order to all its sales, advertising and policy staff members, as required by the order.

The Commissions action in this case demonstrates our commitment to monitor and enforce its orders, Competition Bureau Director William J. Baer said in announcing the latest settlement.

REFERENCE: FTC Press Release, July 25

Civ. 95-CV01378 (D.D.C.); C-3092; Contact: Elizabeth Piotrowski, 202/326-2623

FAXLine Document No. 1342 (20 pages)

When cooperation is bad:

Market allocation at heart

of alleged cable TV cabal

The FTC has charged Summit Communications Group, Inc. and seven Wometco Cable TV companies with illegally allocating markets. According to the FTC, Summit and Wometco exhibited a degree of cooperation that would be a work of art, if it were not per se unlawful.

It all began back in 1990, according to the FTC, when both cable companies found themselves in the same apartment complex, preparing to pre-wire the complex for cable television. After discussing the issue with each other, the firms came to an agreement whereby Wometco would provide the service to the apartment complex. Thus began a series of agreements whereby only one of the two would supply cable television services to other apartment complexes and housing subdivisions, the FTC has charged.

The cozy agreement was allegedly threatened in 1993, when Summit tried to convince Wometco to abandon plans to serve Manor Oaks, a housing subdivision. Wometco refused to back away, and Summit subsequently abandoned its own plans to move into the subdivision, the FTC alleges. But only a few months later, to show there were no hard feelings, Wometco sold Summit at cost its cable television facilities in two other subdivisions, saying Summit should have the right to be the provider in those subdivisions, the FTC says.

The Commission voted unanimously to condemn the alleged agreements and prohibit similar agreements from occurring in the future. But Commissioner Mary L. Azcuenaga parted from the majority with respect to the geographic scope of the proposed relief.

The proposed order would prohibit both firms from market allocation in 14 counties surrounding Atlanta, Georgia. Because violations were alleged in only one county, the order covers a far broader area than the small area in one county where the parties had cable systems capable of competing for business, the Commission reasoned.

Azcuenaga disagreed, saying the limited geographic area signals a new leniency toward per se violations. Since market allocation is unlawful whenever and wherever it occurs, I see no reason to limit the prohibition in the order to a tiny geographic region.

REFERENCE: FTC Press Release, July 12

951-0024; Contact: Ronald B. Rowe, 202/326-2610

FAXLine Document No. 1306 (32 pages)

Sweepstakes entry club

settlement: $350,000

Debbie C. Taylor, charged last March with participation in connection with the marketing of an allegedly deceptive sweepstakes entry club, has agreed to pay $350,000 to settle charges against her. Taylor and others allegedly promised to enter their customers in a variety of sweepstakes but were unable to carry through with their promises.

The settlement with Taylor prohibits misrepresentations about products or services in the future.

Taylor was charged in connection with charges filed against Research Awards Center, Inc., et. al.

REFERENCE: FTC Press Release, July 26

Civ. S-95-636(D. Md.)

Contact: Collot Guerard, 202/326-3338

FAXLine No. 1345 (14 pages)

Churches, small businesses

get money back in cleaning supply scheme

Unwitting customers of David C. Ashley will be getting checks back that they sent in for janitorial supplies. Ashley, who allegedly directed fraudulent schemes to dump unordered janitorial supplies on churches and small businesses, has agreed to send back $44,000 worth of uncashed checks as part of a settlement in the case, which was filed last October.

Ashley phoned churches and businesses promising free gifts and samples in exchange for a name and address. But once that name and address were in hand, Ashley packaged up and shipped janitorial supplies and charged the companies for those supplies, the FTC charged.

Ashley has agreed to post a $400,000 bond before re-entering the telemarketing business. A proposed settlement would also bar Ashley from using the names of the companies that he used to sell janitorial supplies: Central Supplies, Inc. and Hi-Tronics, Inc.

REFERENCE: FTC Press Release, July 27

Civ. 94 C 6391 (N.D. Ill.)

Contact: Louise Jung, 202/326-2989

FAXLine No. 1348 (20 pages)

A different kind of pay-TV:

biz-op seller and coin-op TVs

A Florida man has settled charges that he sold coin-operated television sets to would-be entrepreneurs promising big profits and easy placement in high-traffic areas. Few if any realized the kind of earnings promised, in part because it was often difficult to find locations for installing the televisions, the FTC said.

MINI-TV USA, Inc. and its president, Edmund Albright, claimed the televisions were easy to place and could earn customers up to $1,460 per set per year. Typical consumer investments in the business opportunity were around $14,400, the FTC estimated. The FTC disagreed. And since Albright made earnings claims, those claims must be backed by an earnings-claims disclosure document, under the Franchise Rule. Albright failed to provide that, or even a basic disclosure document, as required by the rule, the FTC charged.

All the alleged practices would be prohibited under a proposed settlement.

REFERENCE: FTC Press Release, July 27

(M.D. Fla.); FAXLine No. 1349 (19 pages)

3 schemes, 2 individuals

under order on 900 number charges

The names: Interactive Marketing Concepts, Inc., Advanced Marketing and Promotions, Inc., Consumer News Service, Inc., Donald Hellinger and Robert Ostroff.

The alleged offenses (there are three!): deceptive advertising of 900 number phone services that purportedly could help consumers (1) get VISA and Mastercard credit cards, (2) save more than $4,000 a year on groceries and (3) claim packages being held for them.

As those who have been playing this game for years have probably already guessed, (1) the credit cards were secured (but ads allegedly didnt say that), (2) the grocery savings information was only a recording about redeeming coupons and (3) the packages were not being held, and merely contained unsolicited merchandise, the FTC charged. Calls to the 900 numbers averaged charges between $9.95 and $24 per call, many charges were not advertised and in one case listening to the message would cost consumers four times the price stated in advertisements, according to the FTC.

Dont do that, the FTC said, and proposed consent decrees entered into with Hellinger and Ostroff would prohibit both from doing that (or similar thats) in the future. Hellinger has agreed to pay a $10,000 civil penalty; Ostroff will pay $5,000.

Hellinger has also agreed to past a $250,000 performance bond before re-entering the telemarketing or direct marketing business.

REFERENCE: FTC Press Release, July 26

(D. N.J.); Contact: Robin E. Eichen, 212/264-1207

FAXLine Document No. 1350 (66 pages)

Project Telesweep:

Feds, states attack business swindles

The FTC teamed with grassroots business opportunities regulators, the Justice Department and attorneys general offices last month to launch a nationwide sweep to root out business opportunity fraud. Civil suits have been filed against about 100 firms charging variations of a common theme: that they sold business opportunities in vending machines, amusement games, pay telephones or display racks by promising literally unreal easy profits. The effort has been dubbed Project Telesweep.

FTC Chairman Robert Pitofsky said the sweep is an effort to change our tactics to keep pace with scam artists. This nationwide problem is best addressed by an all-out, aggressive campaign taken on by committed consumer protection officials from across the nation, and thats the genesis of Project Telesweep.

North American Securities Administrators Association (NASAA) Director Deborah Bortner stated that the goal... is to try to put a stop to the swindlers who are literally looting the American Dream. NASAA, the national voice of grassroots business opportunity regulators in all 50 states, joined the FTC is pursuing these cases.

In connection with Project Telesweep, the FTC and NASAA produced a consumer bulletin, Business Opportunity Fraud, which is available through the FTCs Public Reference Branch, 202/326-2222.

REFERENCE: FTC Press Release, July 18

Franchise Rule: Jani-King

agrees to clean up act

Jani-King International, Inc. has agreed to pay a $100,000 civil penalty to settle charges that it violated the FTCs Franchise Rule by, among other things, making earnings claims without providing franchisees with the proper disclosure documents. Jani-King has further agreed not to violate the rule in the future.

The FTC also charged Jani-King with failing to disclose the companys complete litigation history to prospective franchisees and the names, addresses and phone numbers of existing franchisees.

REFERENCE: FTC Press Release, July 21

Civ. 3-95-CV-1492-G (N.D. Tex.)

Contact: Betsy Broder, 202/326-2968

FAXLine No. 1335 (19 pages)

FTC collects from debt

collection firm, lawyer

A federal district court judge has ordered National Financial Services (NFS), owner Robert J. Smith and Baltimore attorney N. Frank Lanocha to pay civil penalties totaling $550,000 for debt collection activities that allegedly crossed the line of the Fair Debt Collection Practices Act (FDCPA). The civil penalty is the largest ever obtained by the FTC in a debt-collection case.

The court found the defendants guilty of FDCPA violations in 1993, enjoining the defendants from further violations of the Act. The amount of civil penalties to be assessed was the only remaining issue in the case. The FTC charged that the company sent consumers letters on Lanochas law firm stationary, falsely implying that legal action was imminent when it was not.

In deciding on civil penalty amounts, the court noted that it is a reasonable inference that at least several million illegal collection notices were mailed and that the FDCPA violations were of a deliberate nature. On the other hand, the court noted, none of the defendants was under order and none engaged in abusive or threatening telephone calls or other more direct and offensive personal communications.

Of the estimated $71,000 gain that Lanocha made from his dealings with NFS, the court ordered him to pay a $50,000 civil penalty. Smith, who gained $4.1 million from NFS during the period covered by the FTCs complaint, was ordered to pay a $500,000 civil penalty.

REFERENCE: FTC Press Release, July 24

Civ. L-91 226 (D. Md.)

Contact: David Medine, 202/326-3224

FAXLine No. 1337 (16 pages)

Funeral Rule: another

$70,000 in the coffer

The FTC accused Chapel of the Chimes of San Francisco of hitting a few bad notes in the symphony that is the FTCs Funeral Rule. The funeral home agreed to pay $70,000 to end the song and dance. It will, of course, abide by the rule in the future.

Chapel of the Chimes allegedly failed to give consumers general price lists, or failed to make required disclosures on the general price lists that were given to consumers. The funeral home further failed to provide itemized written statements and make other required disclosures, according to the FTC. And last, but not least, the funeral home allegedly conditioned the sale of some goods or services on the purchase of other goods or services, a no-no under the rule.

REFERENCE: FTC Press Release, July 20

Civ. C-95-2628 DLJ (N.D. Cal.)

Contact: Sylvia Kundig, 415/744-7920

FAXLine No. 1336 (18 pages)

Telemarketing recovery room

traded on government ties -

falsely the FTC has charged

The FTC has charged a company doing business as Senior Citizens Against Telemarketing (SCAT) with defrauding consumers who believed it was helping them to recover lost money. SCAT represented itself as a recovery room for victims of telemarketing fraud, saying it had ties to government agencies and could recover money lost to fraudulent telemarketing operators, the FTC has charged. In fact, it had closer ties to the fraudulent telemarketers themselves, according to the FTC.

Consumers contacted by SCAT were told the company had a special relationship with government agencies such as the FTC and State Attorney Generals Offices. The FTC has solidified that special relationship with a lawsuit charging USM Corporation, d/b/a SCAT, and its president, Anita Sowards, with running a deceptive telemarketing scheme.

A federal district court has temporarily barred the alleged questionable practices and frozen the firms assets. This is the fourth FTC case against a Las Vegas, Nevada-based recovery room in the past year.

REFERENCE: FTC Press Release, July 17

Civ. CV-S-95-00668-LDG (LRL) (D. Nev.);

FAXLine No. 1321 (30 pages)

$4,500 Used Car Rule civil penalty

Charles W. Middleton, d/b/a Crossroads Auto Mart, was one of the unlucky auto dealers charged in the summer of 1993 with failing to post a Buyers Guide on all used car for sale, as required by the Used Car Rule. A federal district court judge has now executed swift judgment against Middleton, ordering him to pay a $4,500 civil penalty in connection with the 1993 charges against him.

Judge Charles R. Nogle, Sr. found no factual disputes existed and assessed the penalty at the end of June.

REFERENCE: FTC Press Advisory, July 17

Civ. 1:93-cv-04633 (N.D. Ill.)

Contact: Steve Baker, 312/353-8156

FOR THE RECORD:

FTC okay to Occidental

The FTC has given Occidental Chemical Corp. approval to divest its suspension polyvinyl chloride (PVC) copolymer and dispersion PVC plant in Burlington, New Jersey to a subsidiary of Ozite Corporation. Divestiture is required under an order settling charges that Occidentals 1986 acquisition of PVC assets from Tenneco Polymers, Inc. would reduce competition in some U.S. PVC markets.

REFERENCE: FTC Press Advisory, July 14

D-9205; Contact: Elizabeth A. Piotrowski, 202/326-2623

AHP asks to divest vaccines

American Home Products Corporation (AHP) has asked the FTC to approve its sale of tetanus and diphtheria vaccine assets to Medeva PLC, a United Kingdom company. Sale is required under an order stemming from AHPs $9.7 billion acquisition of American Cyanamid Co.. The FTC challenged that transaction in a number of markets, including the U.S. markets for tetanus and diphtheria vaccines.

Medeva doesnt offer either vaccine in the U.S., wouldnt offer either vaccine in the U.S. absent this purchase and is well established and able to enter the market and compete strongly, AHP said in its divestiture application.

AHP has asked the Commission for a 90-day extension of the four month divestiture window. AHPs original buyer backed out, prompting AHPs divestiture to Medeva, according to AHP. Additional time is necessary to allow for a public comment period and Commission consideration, AHP said.

Comments are being accepted until August 18.

REFERENCE: FTC Press Advisory, July 19

C-3557; Contact: Roberta S. Baruch, 202/326-2861

FAXLine No. 1322 (8 pages)

Oerlikon-Buhrle asks to

divest CD metalizer biz

Oerlikon-Buhrle Holding AG has asked the FTC to approve divestiture of its compact disc metalizer business, formerly belonging to Leybold AG, to Diana Betilingungs under Verwaltungs Gesellschaft mbH. Divestiture is required under a l995 order settling charges relating to Oerlikon-Buhrles acquisition of Leybold.

REFERENCE: FTC Press Advisory, July 13

C-3535; Contact: Daniel P. Ducore, 202/326-2526

FAXLine No. 1313 (13 pages)

Final Order reporter:

Reebok: price-fixing

An order, made final on July 18, prohibits Reebok International, Ltd. from price-fixing. The order settles charges that Reebok fixed, or tried to fix, the resale prices of its shoes. Commissioner Roscoe B. Starek III dissented from the decision to accept the order, saying he found portions of the prohibitions to be unnecessarily broad.

REFERENCE: FTC Press Advisory, July 21

C-3592; Contact: William Baer, 202/326-2555

Natures Bounty: advertising

The Federal Trade Commission has given final approval to a consent agreement with Natures Bounty, Inc. and two of its wholly-owned subsidiaries, settling charges that they made deceptive weight-loss, body building, disease treatment or other health-related claims for 26 nutrient supplements they marketed.

The FTC complaint challenges claims made in mail order catalogs as well as in promotional materials distributed at retail stores. The FTC also charged that the respondents use of the names Sleepers Diet, Memory Booster, Dark Circle Eye Treatment, and Super Fat Burners was deceptive because the names made representations about the products that the respondents could not substantiate.

The final order requires Natures Bounty and its subsidiaries to pay $250,000 to the Commission for possible use for consumer redress, prohibits the respondents from making the challenged claims, requires them to have substantiation for future specific health-related representations and prohibits the respondents from deceptively using the product names Sleepers Diet, Memory Booster, Dark Circle Eye Treatment, or Super Fat Burners.

The Commission voted 4-1 on July 21, Commissioner Mary L. Azcuenaga dissenting because the order leaves the respondents free to sell products they know or should have known were deceptively labeled. I believe that the order should hold the respondents liable if they know, or should know, that the labels or packaging of any such product contains false or unsubstantiated claims, she said.

REFERENCE: File No. 932 3224

Docket No. C-3593

People

Antitrust Division Chief-of-Staff Larry Fullerton becomes deputy assistant attorney general for merger enforcement on August 6, replacing Steven Sunshine, who has joined Shearman & Sterling. The COS position disappears.

Former FTC Competition Bureau Director/Deputy Director Mary Lou Steptoe joins Skadden, Arps, et al as a partner in September. Friends/clients can reach her then at 202-371-7020.

Willard K. Tom has left his position as counselor to the assistant attorney general (antitrust) to join the FTC as Competition Bureau assistant director for policy and evaluation.

From 1981 to 1993, Tom was associated with Sutherland, Asbill & Brennan, as an associate and a partner, practicing primarily in the areas of antitrust and federal litigation. He received a B.A. from Harvard College and a J.D. from Harvard Law School. He is a member of the governing Council of the ABA Antitrust Section and was the editorial chair for its two-volume treatise, Antitrust Law Developments(Third).

A death in the family

Former FTC Chairman Lewis A. Engman died July 11, 1995 after suffering a stroke at his home in McLean, Virginia. He was 59.

Lew Engman headed the FTC from 1973-76, and his contributions to his fellow citizens, literally hundreds of millions of whom never knew his name, were profound.

After leaving the FTC, Engman sought the Republican nomination for the U.S. Senate from Michigan, but encountered that state partys habit at the time of nominating the least interesting candidate and was unsuccessful.

But, in truth, his leadership at the FTC accomplished far more for his country than many mediocrities who have served and are serving in the U.S. Senate.

At his death, his family was entitled to an itemized price list from the funeral home in charge of burial, courtesy of an FTC Trade Regulation Rule launched under his chairmanship. While the memorial service was under way on a sweltering Friday afternoon at DCs National Presbyterian Church, American consumers were buying air conditioners under credit terms that allow them to assert claims and defenses for shoddy merchandise against subsequent holders of the contracts. Others were leaving their optometrists or ophthalmologists offices with copies of their corrective vision prescriptions in their pockets. Some were looking up physicians in the classified sections of their telephone books

Still others were learning whether or not the dealer offered any warranty on the used cars they were about to buy.

All of these protections were generated by the Engman Commission. He did not accomplish them single-handedly, certainly, but many if not all of them would not have emerged at all without his leadership. He took a revived FTC handed to him by predecessors Casper Weinberger and Miles Kirkpatrick and in many ways transformed the U.S. economy.

For, in addition to these other accomplishments, it was Lew Engman this time single-handedly who brought regulatory reform out of academe and the think tanks and dropped it with a loud thump on the American political agenda.

When Lew Engman joined the FTC, the other commissioners there disagreed on much, but agreed on one thing for sure: they should never, ever criticize another agency of the federal government. Lew repealed that compact at 8:00am on October 7, 1974, when he strode to the lectern before the unlikely audience of the Financial Analysts Federation in Detroit and changed America. At that moment, he became, in the words of Time Magazine, A regulator to end all regulators.

Though most government regulation was enacted under the guise of protecting the consumer from abuse, he said, much of todays regulatory machinery does little more than shelter producers from the normal competitive consequences of lassitude and inefficiency. In some cases, the world has changed, reducing the original threat of abuse. In other cases, the machinery was a mistake from the start. In any case, the consumer, for whatever presumed abuse he is being spared, is paying plenty in the form of government-sanctioned price-fixing.

Take the airline industry for example. Under the Federal Aviation Act, the Civil Aeronautics Board controls the entry of new carriers to the market, controls the distribution of routes and has the power to disapprove or modify an airlines rate change proposal after hearing complaints from the so-called competition.

The result is that in the areas of rates and routes, for all intents and purposes there is no competition at all. Competition, where it exists, is concentrated on the one unregulated aspect of airline activity, customer service. That is why the average airline commercial looks like an ad for a combination bawdy house and dinner theater.

This may lead to some pleasing amenities. But it puts the customer in the position of captive buyer. Nobody asks him if he would rather have the money than the movie, or if he would like to brown bag it from New York to California instead of having the steamship round of beef au jus on the little plastic plate. He is just asked to pay up.

The CAB has not approved entry of a new trunk carrier to the market since 1938. And just last month, the CAB rejected an application by Laker Airways, a privately-owned British airline, to fly regularly scheduled New York/London flights for $125 each way.

I would find it hard to imagine a more obvious instance of prices being pushed up by regulation than the case of the airlines.

Unfortunately, I do not have to imagine such a case, for we have the Interstate Commerce Commission . ...

The full text of this revolutionary speech is available, free of charge, to our FAXLine system members as Document No. 1353.

The ideas seem conventional now, but they were anything but conventional coming from a federal government official 21 years ago. On the other hand, Lew Engman knew the difference between economic regulation (what to sell, how much to charge) and health and safety regulation. A true free market economist/lawyer in an administration that created the Environmental Protection Agency, he knew that people naturally seek subsidies, will always shift the costs of their activities somewhere else if they can, including, for example, to the environment ... to the water and to the air. Competition will force them to do it. And so from him the public never heard the cheap cant and rhetoric about tree huggers that comes from the so-called conservatives today.

Two decades after Lew Engman changed the agenda, the ICC is on the way out and the CAB is gone. Unfortunately for his country, so is he.