Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices 6255

TRANSACTIONS GRANTED EARLY TERMINATION BETWEEN: 012097 AND 013197—Continued

Name of acquiring person; name of acquired person; name of acquired entity PMN No. Date terminated

Mr. Steven P. Jobs, Apple Computer, Inc., Apple Computer, Inc., ......................................................................... 97–1011 01/28/97

Apple Computer, Inc., Steven P. Jobs, NeXT Software, Inc. .................................................................................. 97–1012 01/28/97

Code, Hennessy & Simmons II, L.P., Rand McNally & Company, DocuSystems Division .................................... 97–1020 01/28/97

Leonard Riggio, Barnes & Noble, Inc., Barnes & Noble, Inc. ................................................................................. 97–1029 01/28/97

Potomac Electric Power Company, Baltimore Gas and Electric Company, 1Baltimore Gas and Electric Company ...................................................................................................................................................................... 96–1879 01/29/97

Baltimore Gas and Electric Company, Potomac Electric Power Company, Potomac Electric Power Company ... 96–1880 01/29/97

Tenet Healthcare Corporation, OrNda Healthcorp., OrNda Healthcorp. ................................................................. 97–0309 01/29/97

Evening Post Publishing Company, Post Publishing Company, Post Publishing Company .................................. 97–0969 01/30/97

William L. Sauder, Ronald Cholette, Can-Am Millwork, Ltd. ................................................................................... 97–0987 01/30/97

Paul Goldner, American Business Information, Inc., American Business Information, Inc. ................................... 97–1000 01/30/97

Broderbund Software, Inc., Advanced Voting Trust, of Samuel I. Newhouse, Living Books ................................. 97–1007 01/30/97

BankAmerica Corporation, Homeside, Inc., Honolulu Mortgage Company ............................................................ 97–1017 01/30/97

United Auto Group, Inc., Kevin J. Coffey, Crown Jeep Eagle, Inc. ........................................................................ 97–1024 01/30/97

Automatic Data Processing, Inc., HealthPlan Services Corporation, HealthPlan Services Corporation ................ 97–1027 01/30/97

Payless ShoeSource, Inc., J. Baker, Inc., JBI, Inc., Parade of Shoes Division ...................................................... 97–1042 01/30/97

Philip Environmental Inc., Gil Mains, Sr., RMF Global, Inc. .................................................................................... 97–0982 01/31/97

Primark Corporation, Information Partners Capital Fund, LP, WEFA Holdings, Inc. .............................................. 97–1008 01/31/97

Cable and Wireless plc, Cable and Wireless Communications plc (Joint Venture), Cable and Wireless Communications plc (Joint Venture) ................................................................................................................................. 97–1034 01/31/97

NYNEX Corporation,.

Cable and Wireless Communications plc (Joint Venture), Cable and Wireless Communications plc (Joint Venture) ...................................................................................................................................................................... 97–1035 01/31/97

Metropolitan Life Insurance Company, Andrew Goldfarb, HCC Industries, Inc. ..................................................... 97–1037 01/31/97

Kenneth R. Thomson, Thomas L. Thomas, Creative Solutions, Inc ....................................................................... 97–1043 01/31/97

Irish Life plc, GR Holding Company, Inc., Guarantee Reserve Life Insurance Co. ................................................ 97–1061 01/31/97

Supervalu Inc., Kerry Smith, Signature Mondial, Inc. .............................................................................................. 97–1062 01/31/97

Handy & Harman, Saugatuck Capital Company Limited Partnership III, Olympic Manufacturing Group, Inc. ...... 97–1072 01/31/97

AMF Holdings Inc., American Recreation Centers, Inc., American Recreation Centers, Inc. ................................ 97–1077 01/31/97

FOR FURTHER INFORMATION CONTACT:

Sandra M. Peay or Parcellena P.

Fielding, Contact Representatives,

Federal Trade Commission, Premerger

Notification Office, Bureau of

Competition, Room 303, Washington,

DC 20580, (202) 326–3100.

By Direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 97–3340 Filed 2–10–97; 8:45 am]

BILLING CODE 6750–01–M

[File No. 951–0106]

American Cyanamid Company;

Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

SUMMARY: In settlement of alleged

violations of federal law prohibiting

unfair or deceptive acts or practices and

unfair methods of competition, this

consent agreement, accepted subject to

final Commission approval, would

prohibit, among other things, the

Parsipanny, New Jersey-based company

from conditioning the payment of

rebates or other incentives on the resale

prices its dealers charge for its products,

or from otherwise agreeing with its

dealers to control or maintain resale

prices. The complaint accompanying

the consent agreement alleges that the

company violated antitrust laws by

fixing the resale prices of its agricultural

chemical products.

DATES: Comments must be received on

or before April 14, 1997.

ADDRESSES: Comments should be

directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW.,

Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

William J. Baer, Federal Trade

Commission, H–374, 6th and

Pennsylvania Ave, NW., Washington,

DC 20580. (202) 326–2932. Mark

Whitener, Federal Trade Commission,

H–374, 6th and Pennsylvania Ave, NW.,

Washington, DC 20580. (202) 326–2845.

Michael E. Antalics, Federal Trade

Commission, S–2627, 6th and

Pennsylvania Ave, NW, Washington, DC

20580. (202) 326–2821.

SUPPLEMENTARY INFORMATION: Pursuant

to Section 6(f) of the Federal Trade

Commission Act, 38 Stat. 721, 15 U.S.C.

46, and Section 2.34 of the

Commission’s Rules of Practice (16 CFR

2.34), notice is hereby given that the

above-captioned consent agreement

containing a consent order to cease and

desist, having been filed with and

accepted, subject to final approval, by

the Commission, has been placed on the

public record for a period of sixty (60)

days. The following Analysis to Aid

Public Comment describes the terms of

the consent agreement, and the

allegations in the accompanying

complaint. An electronic copy of the

full text of the consent agreement

package can be obtained from the

Commission Actions sections of the FTC

Home Page (for January 30, 1997), on

the World Wide Web, at ‘‘http://

www.ftc.gov/os/actions/htm.’’ A paper

copy can be obtained from the FTC

Public Reference Room, Room H–130,

Sixth Street and Pennsylvania Avenue,

NW., Washington, DC 20580, either in

person or by calling (202) 326–3627.

Public comment is invited. Such

comments or views will be considered

by the Commission and will be available

for inspection and copying at its

principal office in accordance with

Section 4.9(b)(6)(ii) of the Commission’s

Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis To Aid Public Comment on the

Proposed Consent Order

The Federal Trade Commission (‘‘the

Commission’’) has accepted an

agreement to a proposed consent order

from American Home Products

Corporation (‘‘AHP’’), through its

wholly-owned subsidiary, American

Cyanamid Company (‘‘American

Cyanamid’’), located in Parsippany,

New Jersey. The agreement would settle

charges by the Commission that
6256 Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices

1Business Electronics Corp. v. Sharp Electronics

Corp., 485 U.S. 717 (1988); Monsanto Co. v. SprayRite Service Corp., 465 U.S. 752 (1984).

American Cyanamid violated Section 5

of the Federal Trade Commission Act by

engaging in practices that restricted

completion in the domestic markets for

crop protection chemicals, which are

herbicides and insecticides widely used

in commercial agriculture.

The proposed consent order has been

placed on the public record for sixty

(60) days for receipt of comments by

interested persons. Comments received

during this period will become part of

the public record. After sixty (60) days,

the Commission will again review the

agreement and the comments received

and will decide whether it should

withdraw from the agreement or make

final the agreement’s proposed order.

The purpose of this analysis is to

invite public comment concerning the

consent order and any other aspect of

American Cyanamid’s alleged

anticompetitive conduct relating to its

C.R.O.P. and A.P.E.X. rebate programs.

This analysis is not intended to

constitute an official interpretation of

the agreement and order or to modify its

terms in any way.

The Complaint

The complaint prepared for issuance

by the Commission along with the

proposed order alleges that American

Cyanamid has engaged in acts and

practices that have unreasonably

restrained competition in the sale and

distribution of crop protection

chemicals in the United States. In 1995,

the Commission’s proposed complaint

alleges, American Cyanamid sold at

retail more than $1 billion of its crop

protection chemicals and was the

market share leader in three domestic

crop protection chemical markets:

soybean broadleaf herbicides, soybean

grass herbicides, and corn soil

insecticides, as well as being the

second-largest domestic producer of

cotton grass herbicides.

According to the complaint, American

Cyanamid operated two cash rebate

programs for its retail dealers for

approximately five years. From 1989–

1992, the plan was called the ‘‘Cash

Reward on Performance’’ (‘‘C.R.O.P.’’)

program, and was renamed the ‘‘Award

for Performance Excellence’’

(‘‘A.P.E.X.’’) program in late 1992

through August 1995. The complaint

states that American Cyanamid entered

into written agreements with its dealers

under these programs, pursuant to

which American Cyanamid offered to

pay its dealers substantial rebates on

each sale of its crop protection

chemicals that was made at or above

specified minimum resale prices.

According to the complaint, the dealers

overwhelmingly accepted American

Cyanamid’s rebate offer by selling at or

above the specified minimum resale

prices.

The complaint further alleges that the

wholesale prices in the agreements were

set at a level equal to the specified

minimum resale prices, and because a

dealer received no rebate on sales below

the specified prices, those sales were

made at a loss to the dealer.

The complaint further states that

although American Cyanamid included

certain non-price performance criteria

in its rebate programs that could

increase the amount of the rebate, a

dealer’s compliance with these

performance criteria was neither

necessary nor, by itself, sufficient to

obtain rebates. As examples, the

complaint alleges that if a dealer met all

of American Cyanamid’s performance

criteria, but sold the product for less

than American Cyanamid’s specified

minimum resale price, that dealer

received no rebate on the sale. On the

other hand, if the dealer met none of the

performance criteria, but sold the

product at or above American

Cyanamid’s specified minimum resale

price, the dealer nonetheless received a

rebate on that sale.

American Cyanamid’s conditioning of

financial payments on dealers’ charging

a specified minimum price amounted to

the quid pro quo of an agreement on

resale prices. In cases where this issue

has arisen, both before and after the

Supreme Court examined the per se rule

against resale price maintenance in

Monsanto and Sharp,1 courts have

treated such agreements as per se illegal.

See Lehman v. Gulf Oil Corp., 464 F.2d

26, 39, 40 (5th Cir.), cert. denied, 409

U.S. 1077 (1972) (stating that ‘‘ * * *

adherence to a suggested price schedule

was the quid pro quo for Lehrman’s

receiving Gulf’s TCAs [temporary

competitive allowances]’’ and ‘‘there is

no comparable justification for

conditioning wholesale price support

upon adherence to a schedule of

minimum retail prices.’’ (emphasis in

original)); Butera v. Sun Oil Co., Inc.

496 F.2d 434, 437 (1st Cir. 1974). By

offering financial inducements in return

for selling at specified minimum prices,

a manufacturer seeks the ‘‘acquiescence

or agreement’’ of its dealers in a resale

price-fixing scheme. Monsanto, 465 U.S.

at 764 n. 9. The dealer, in turn, accepts

the manufacturer’s offer by selling at or

above the specified minimum prices.

See Isaksen v. Vermont Castings, Inc.,

825 F.2d 1158, 1164 (7th Cir. 1987)

(Posner, J.) (an ‘‘obvious’’ resale pricefixing agreement is found ‘‘ * * * if

[the manufacturer] had told [the dealer]

that it would reduce its wholesale price

to him if he raised his retail price, and

[the dealer] had accepted the offer by

raising his price.’’). See also Khan v.

State Oil Co., 93 F.3d 1358, 1360–61

(7th Cir. 1996) (Posner, J.), petition for

cert. pending No. 96–871 (agreement on

price found where dealership agreement

on its face allowed dealer to charge any

resale price it wished, but distributor

tied financial consequences to dealers’

not charging the resale prices it

suggested). As a result, incentives to

reduce price below the specified level

were substantially affected by American

Cyanamid’s rebate scheme.

The rebate programs challenged in

this case are unlike situations where

manufacturers are permitted to

condition a discount or other incentive

on that discount being ‘‘passed through’’

to consumers, which prevents a dealer

form simply ‘‘pocketing’’ the discount.

In these types of cases, the dealer is free

to sell at even lower prices than the

amount of the direct ‘‘pass through’’ of

the discount or other incentive.

Discounts cannot be conditioned,

therefore, on the dealers’ adherence to

specified minimum price. See AAA

Liquors, Inc. v. Joseph E. Seagram and

Sons, Inc., 705 F.2d 1203, 1206 (10th

Cir. 1982), cert denied, 461 U.S. 919

(183) (Seagram’s requirement of passing

through its discount ‘‘[did] not prohibit

the wholesaler from making greater

reductions in price that the discount

provides.’’) See also Acquaire v. Canada

Dry Bottling Co., 24 F.3d 401, 409–10

(2d Cir. 1994); Lewis Service Center, Inc.

v. Mack Trucks, Inc., 714 F.2d 842, 845–

47 (8th Cir. 1983) (because dealers could

discount more than Mack’s sales

assistance, the court found that ‘‘the

purpose of Mack’s discount program

[was] not to force adherence to any

particular price scheme of Mack’s.’’).

The Proposed Consent Order

Part I of the proposed order covers

definitions. These definitions make

clear that the consent order applies to

the directors, officers, employees, agents

and representatives of American

Cyanamid. The order also defines the

terms product, dealer and resale price.

Part II of the order contains two major

operative provisions: Part II(A) deals

with the specific conduct at issue in this

case. It prohibits American Cyanamid

from conditioning the payment of

rebates or other incentives on the resale

prices its dealers charge for its products.

Part II(B) prevents American Cyanamid

from otherwise agreeing with its dealers

generally to control or maintain resale

prices.
Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices 6257

1 93 F.3d 1358 (7th Cir. 1996).

2 Id. at 1361. See also Isaksen v. Vermont

Castings, Inc., 825 F.2d 1158, 1164 (7th Cir. 1987)

(in finding a violation based on economic coercion,

Judge Posner noted, ‘‘It is as if Vermont Castings

had told Isaksen that it would reduce its wholesale

price to him if he raised his retail price, and Isaksen

had accepted the offer by raising his price.’’).

3Business Electronics Corp. v. Sharp Electronics

Corp., 485 U.S. 717 (1988).

4 93 F.3d at 1362.

5Although we do not fully detail our

disagreement with the description of the facts in the

dissent, we believe that a full trial would have

shown that an overwhelming portion of sales were

made at or above the minimum resale price.

Moreover, a dealer’s advisory council voted to

advise American Cyanamid to retain the program in

order to protect its margins.

Neither of these provisions should be

construed to prohibit lawful cooperative

advertising programs or ‘‘pass through’’

discount programs that are not

otherwise part of an unlawful resale

price maintenance scheme. The

Commission has previously determined

that order provisions prohibiting

agreements on resale prices do not

restrict a company’s ability to

implement otherwise lawful cooperative

advertising and ‘‘pass through’’ rebate

plans because such programs do not, in

themselves, constitute agreements on

resale prices. See, e.g., In Re Magnavox

Co., 113 F.T.C. 255, 263, 269–70 (1990).

Part III of the order requires that for

a period of three (3) years from the date

on which the order becomes final,

American Cyanamid shall include a

statement, posted clearly and

conspicuously, on any price list,

advertising, catalogue or other

promotional material where it has

suggested a resale price for any product

to any dealer. The required statement

explains that while American Cyanamid

may suggest resale prices for its

products, dealers remain free to

determine on their own the prices at

which they will sell American

Cyanamid’s products.

Part IV of the order requires that for

a period of three (3) years from the date

on which the order becomes final,

American Cyanamid shall mail the letter

attached to the order as Exhibit A and

a copy of this order to all of its current

dealers, distributors, officers,

management employees, and agents or

representatives with sale or policy

responsibilities for American

Cyanamid’s products. American

Cyanamid also must mail the letter and

order to any new dealer, distributor or

employee in the above positions within

thirty (30) days after the commencement

of that person’s affiliation or

employment with American Cyanamid.

All of the above dealers, distributors

and employees must sign and return a

statement to American Cyanamid within

thirty (30) days of receipt that

acknowledges they have read the order

and that they understand that noncompliance with the order may subject

American Cyanamid to penalties for

violation of the order.

Part V of the order requires that

American Cyanamid file with the

Commission an annual verified written

report giving the details of the manner

and form in which American Cyanamid

is complying and has complied with the

order. In addition, Part V of the order

also requires American Cyanamid to

maintain and make available to the

Commission upon reasonable notice all

records of communications with

dealers, distributors, and agents or

representatives relating to sale prices in

the United States, as well as records of

any action taken in connection with

activities covered by the rest of the

order. Finally, American Cyanamid

must inform the Commission at least

thirty (30) days before any proposed

changes in the corporation, such as

dissolution or sale.

Donald S. Clark,

Secretary.

Statement of Chairman Robert Pitofsky

and Commissioners Janet D. Steiger and

Christine A. Varney in the Matter of

American Cyanamid, File No. 951–0106

The Commission today accepts a

proposed consent agreement with

American Cyanamid prohibiting it from

engaging in conduct designed to prevent

its dealers from making discounted sales

below the minimum price that

American Cyanamid specified.

American Cyanamid entered into

written agreements with its dealers that

provided dealers with ‘‘rebates’’ each

time they sold their product at or above

a certain resale price (the floor transfer

price). For dealers who sold at the

specified price, this rebate constituted

their entire profit margin. The

Commission believes that this conduct

amounted to an illegal resale price

maintenance agreement.

Commissioner Starek, in his dissent,

criticizes this enforcement action for a

number of reasons. As explained below,

we disagree with Commissioner Starek’s

reasoning.

First, the dissenting statement appears

to conclude that a situation where a

manufacturer and a dealer enter into an

express agreement that the manufacturer

will pay the dealer to adhere to the

manufacturer’s specified resale price, is

not an ‘‘agreement on resale prices’’ but

rather some form of voluntary behavior.

Judge Posner responded to similar

arguments in Khan v. State Oil.1

In Khan, the court declared a

maximum resale price arrangement per

se illegal where the manufacturer

permitted dealers to charge above a

maximum price, but required them in

such case to provide any resulting profit

above the maximum price to the

manufacturer. The ‘‘voluntary’’ nature

of the arrangement did not detract from

the finding that there was an agreement.

Judge Posner noted that the arrangement

was indistinguishable from an

agreement not to exceed the maximum

price, because the dealer was sanctioned

for violating the agreement by having to

remit any resulting profit to the

manufacturer. In responding to State

Oil’s argument that there was no price

fixing agreement, Judge Posner

observed: ‘‘The purely formal character

of the distinction that it urges can be

seen by imagining that the contract had

forbidden Khan to exceed the suggested

resale price and had provided that if he

violated the prohibition the sanction

would be for him to remit any resulting

profit to State Oil.’’ 2

We agree with Judge Posner. In this

case, the sanction was loss of the rebate

for sales made below the floor transfer

price. If an agreement to forego one’s

entire profit margin if one departs from

the specified price does not constitute a

price maintenance agreement, then

nothing remains of the per se rule.

Second, the dissent seems to suggest

that this case is one where agreement is

being inferred from unilateral conduct.

We cannot concur. American Cyanamid

entered into written agreements which

offered financial incentives for

adherence to a minimum price

schedule. Courts, both before and after

Sharp,3 have held such arrangements

unlawful where adherence to a

suggested price was the quid pro quo for

the financial inducements. Judge

Posner’s decision in Khan is consistent

with this approach.4

Third, the dissenting statement,

relying in large part on recent economic

literature, argues that American

Cyanamid’s program should not be

condemned without proof of a supplier

cartel, dealer cartel, or market power.5

That view is inconsistent with the

Supreme Court’s view that resale price

maintenance continues to be illegal per

se and we reject the idea that the

Supreme Court can be overruled by

scholarly contributions to economic

journals.

Finally, we cannot agree with the

suggestion that this enforcement action

somehow creates uncertainty about the

Commission’s treatment of pass through

rebates or cooperative advertising

programs. As the analysis to aid public

comment explains, pass through

programs have always been permitted,
6258 Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices

1There is a substantial body of economic

literature demonstrating that RPM frequently can be

socially beneficial. See, e.g., Michael L. Katz,

‘‘Vertical Contractual Relations,’’ in Richard

Schmalensee and Robert D. Willig, 1 Handbook of

Industrial Organization 655 (1989). The existing

empirical literature fails to find evidence

supporting an anticompetitive characterization of

RPM. See e.g., Pauline M. Ippolito & Thomas R.

Overstreet, Jr., ‘‘Resale Price Maintenance: An

Economic Assessment of the Federal Trade

Commission’s Case Against the Corning Glass

Works,’’ 39 J.L. & Econ. 285 (1996) (evidence

convincingly rejects anticompetitive theories and

suggests instead that RPM increase sales of

Corning’s products); Pauline M. Ippolito, ‘‘Resale

Price Maintenance: Empirical Evidence from

Litigation,’’ 34 J.L. & Econ. 263 (1991) (empirical

evidence cannot support a collusive explanation for

the use of RPM).

2 I also emphasize that in none of the RPM actions

brought by the Commission during my tenure could

one have plausibly characterized the condemned

conduct as having an anticompetitive effect

(indeed, in several instances, procompetitive

rationales for the restrictions were plainly evident).

In only one instance, Nintendo of America Inc., 114

F.T.C. 702 (1991), could one have plausibly

ascribed market power to the manufacturer that was

party to the agreement. Without manufacturer

market power, RPM agreements between a single

manufacturer and its dealers cannot harm

consumers. Of course, it cannot be overemphasized

that market power is only a necessary, but not a

sufficient, condition for vertical restraints to reduce

consumer welfare; by itself, market power does not

establish that the conduct is anticompetitive. Even

when a manufacturer possesses substantial market

power, all of the procompetitive rationales for

vertical restraints remain potentially valid.

3 465 U.S. 752 (1984).

4Evidence suggests that distributors in fact sold

specific products covered by the AmCy program at

retail prices both above and below the wholesale

transfer price. Wide variation in distributor resale

prices runs contrary to usual evidence of a

as long as the dealer is free to discount

to an even greater extent than the pass

through amount. Similarly, both the

courts and the Commission have judged

cooperative advertising cases under the

rule of reason, as long as the

arrangements do not limit the dealer’s

right: (1) To discount below the

advertised price, and (2) to advertise at

any price when the dealer itself pays for

the advertisement. Unlike those

programs, American Cyanamid’s rebate

program controlled the actual prices

charged and was structured to prevent

dealers from pricing below the floor

transfer price.

Concurring Statement of Commissioner

Mary L. Azcuenaga in American

Cyanamid Co., File No. 951–0106

I concur in the decision to accept the

consent agreement for public comment

but decline to join the separate

statement of the majority. The consent

agreement, which includes the consent

order and the complaint on which it is

based, constitutes the decisional

document of the Commission. My

substantive views on this matter are

contained entirely within the four

corners of the decisional document. If

the majority wants to revise or expand

its decision, the proper course is to

revise the decisional document. See

Dissenting Statement of Commissioner

Mary L. Azcuenaga in Dell Computer

Corp. at 21–23 (Docket No. 3658, May

20, 1996).

Dissenting Statement of Commissioner

Roscoe B. Starek III, in the Matter of

American Cyanamid Company, File No.

951–0106

I respectfully dissent from the

Commission’s decision to accept a

consent agreement with the American

Cyanamid Company (‘‘AmCy’’), a

producer of agricultural chemicals. The

proposed complaint claims that certain

aspects of AmCy’s compensation

arrangement with its dealers constitute

per se illegal resale price maintenance

(‘‘RPM’’), in violation of Section 5 of the

Federal Trade Commission Act, 15

U.S.C. 45. I do not agree that AmCy’s

dealer rebate policies constitute the

functional and legal equivalent of RPM

agreements. Consequently, I conclude

that the decision to challenge AmCy’s

distribution policies would expand

substantially the range of activities

condemned by the Commission as

Illegal per se. This policy is ill-advised

and runs contrary to twenty years of

case law in which the scope of vertical

arrangements subject to per se

condemnation has been steadily

narrowed. This case is an especially

poor vehicle for expanding the scope of

the per se rule, for it would be difficult

to find conduct that better exemplifies

the economic deficiencies of that

standard.

Condemning certain conduct as illegal

per se normally is rationalized by the

belief that the conduct in question is so

frequently pernicious that one cannot

justify the cost of attempting to identify

the few instances in which it is not.

Whether RPM warrants characterization

as per se illegal conduct has

increasingly been called into question

by antitrust scholars; 1 indeed, it would

be difficult to find an antitrust

economist who would defend this

enforcement standard.2 RPM remains

illegal per se, however, and, consistent

with this standard, I have voted to

support enforcement actions against

RPM agreements when I have been

convinced that (1) the conduct in

question plainly constituted an illegal

agreement on price (as construed by

contemporary case law), and (2) the

relief was appropriately tailored to deter

future illegal conduct.

Notwithstanding the continued per se

treatment of RPM—and my willingness

to support RPM cases in the limited

circumstances identified above—I

cannot ignore the persistent

accumulation of economic evidence

demonstrating the potentially

procompetitive (or, or worst,

economically neutral) nature of RPM

agreements. At minimum, this evidence

counsels against expanding the

boundaries of per se illegal conduct to

envelop activities that (at best) only

weakly satisfy the legal criteria for

finding the existence of an ‘‘agreement’’

and, more important, appear to be

procompetitive in both purpose and

effect. Under these evaluative criteria,

the present matter is a poor candidate

for an enforcement action.

The Supreme Court set forth the legal

standard for finding an illegal RPM

‘‘agreement’’ in Monsanto Co. v. SprayRite Service Corporation: 3

The correct standard is that there must be

evidence that tends to exclude the possibility

of independent action by the manufacturer

and distributor. That is, there must be direct

or circumstantial evidence that reasonably

tends to provide that the manufacturer and

others had a conscious commitment to a

common scheme designed to achieve an

unlawful objective.

Monsanto, 465 U.S. at 768. The Court

stated further that the ‘‘concept of ‘a

meeting of the minds’ or ‘a common

scheme’ * * * includes more than a

showing that the distributor conformed

to the suggested price. It means as well

that evidence must be presented both

that the distributor communicated its

acquiescence or agreement, and that this

was sought by the manufacturer.’’ Id. at

764 n. 9 (emphasis added).

While it is true that AmCy entered

into contracts with its distributors

providing for compensation for sales at

or above the wholesale purchase price,

it is clear that there was no ‘‘meeting of

the minds’’ or ‘‘common scheme,’’ and

thus no illegal agreement, to maintain

resale prices. At no time did AmCy tell

its distributors that they must sell

agricultural chemicals at specific prices

or risk losing supplies; AmCy did not

attempt to coerce or intimidate its

distributors into selling at specific price

levels; distributors did not communicate

an agreement to sell at specific prices;

no distributors were ever terminated for

selling at prices below the wholesale

price; and distributors remained free

(explicitly provided by contract) to

resell products at any price of choosing.

That distributors sometimes sold at

prices below the wholesale level

without loss of supply or termination is

testament to the unilateral nature of the

distributors’ pricing decisions and to the

absence of any agreement to maintain

resale prices.4 In this instance, all of the
Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices 6259

minimum resale price fixing agreement. As

Chairman Pitofsky has stated: ‘‘The one point that

emerges clearly in any debate concerning the per se

rule is that minimum vertical price agreements lead

to higher, and usually uniform, resale prices.’’

Robert Pitofsky, ‘‘In Defense of Discounters: The

No-Frills Case for a Per Se Rule Against Vertical

Price Fixing,’’ 71 Geo. L.J. 1487, 1488 (1983). The

Commission’s proposed compliant does not allege,

nor provide supporting evidence, that the rebate

program resulted in higher retail prices for AmCy’s

products. Moreover, the wide dispersion in resale

prices demonstrates the absence of the type of

uniformity believed to be an indicator of a

minimum resale price agreement. This dispersion

in retail prices suggests that distributors were

engaging in loss-leader programs out of a desire to

increase future sales of AmCy products. In addition

to encouraging distributors to provide valuable presale services, AmCy’s rebate program may have

encouraged distributors to engage in loss-leader

programs as a means of persuading customers to

switch to AmCy products.

5United States v. Colgate & Co., 250 U.S. 300

(1919).

6Although the majority’s reply emphasizes

‘‘written agreements’’ pursuant to which dealers

were offered compensation for sales at prices above

the wholesale transfer price (Statement of Chairman

Robert Pitofsky and Commissioners Janet D. Steiger

and Christine A Varney in the Matter of American

Cyanamid, at 2), the proposed complaint in this

case indicates that the Commission is willing—

despite the clear warnings of Colgate and Monsanto

to the contrary—to infer the existence of per se

illegal RPM ‘‘agreements’’ solely from the dealers’

unilateral acceptance of AmCy’s ‘‘offer.’’ Proposed

Complaint, at ¶ 6 (‘‘The dealers overwhelmingly

accepted AmCy’s offer by selling at or above the

specified minimum prices.’’).

7Continental T.V., Inc. v. GTE Sylvania Inc., 433

U.S. 36 (1977).

8Business Electronics Corp. v. Sharp Electronics

Corp., 485 U.S. 717 (1988).

9The majority relies heavily on Judge Posner’s

opinion in Khan v. State Oil Co., 93 F.3d 1358 (7th

Cir. 1996). Besides the obvious difference that Khan

deals with maximum rather than minimum RPM,

the facts of Khan are fundamentally different. The

contract between State Oil (the supplier) and Khan

(the dealer) provided that State Oil would announce

a suggested retail price for gasoline and sell it to

Khan for 3.25 cents per gallon less. The contract

further required Khan to rebate to State Oil any

profit received for sales above the suggested retail

price. As Judge Posner noted, the contract

eliminated any incentive for Khan to charge above

the suggested retail price. Since absolute

compliance was thus guaranteed under the facts of

Khan, it is not surprising that a dealer challenged

the program. AmCy, on the other hand, never

announced suggested retail prices to its dealers,

never established an explicit mark-up, and never

required dealers to seek permission before lowering

their price. The fact that AmCy’s dealers frequently

lowered retail prices below the wholesale

purchaseprice indicates that AmCy did not

implement its rebate program in order to eliminate

dealers’ incentives to reduce prices (e.g., to develop

new customers, to increase business with existing

customers, or to encourage switching by customers

from other manufacturers’ agricultural products to

AmCy’s products). The majority’s reliance on Khan

is therefore of doubtful relevance to this case.

10Today’s action by the Commission has by no

means established a clearer and more certain legal

rule for RPM cases than exists under the rule of

Colgate and other Supreme Court decisions.

Whereas a supplier before today’s decision might

know with certainty that mere voluntary adherence

by a distributor to a unilaterally announced resale

price policy does not constitute illegal RPM, the

same supplier must now worry that the

Commission may henceforth use such voluntary

adherence as evidence of a per se illegal agreement

to maintain resale prices. Moreover, as a result of

today’s decision, the business community may be

left wondering how the Commission can—and

whether it will—maintain the functional distinction

it currently draws between, on the one hand, rebatepass-through provisions and cooperative

advertising programs—programs that the

Commission generally does not consider to be per

se illegal—and, on the other hand, other types of

rebate programs that similarly impose restrict

conditions on the buyer.

11Of course, much of the empirical literature on

the actual uses of RPM (see note 1, supra) casts

serious doubt upon the validity of this proposition.

12See Lester G. Telser, ‘‘Why Should

Manufacturers Want Fair Trade?,’’ 3 J.L. & Econ. 86

(1960).

13See George J. Stigler, ‘‘A Theory of Oligopoly,’’

in The Organization of Industry 39, 43 (1968) (‘‘In

general the policing of a price agreement involves

an audit of the transactions prices.’’).

14This argument is subject to the obvious

limitation that a manufacturer wishing to cheat on

the collusive arrangement would have little

incentive to enforce the RPM agreement.

hallmarks of a per se illegal RPM

agreement are lacking.

Evidence that dealers did in fact resell

AmCy products at or above the

wholesale purchase price does not

relieve the Commission of its obligation

to demonstrate the existence of an

illegal agreement. As made clear by

Colgate,5 a unilateral, self-motivated

decision by a distributor to accept a

manufacturer’s pricing policies, and

thus sell products at a suggested retail

price, does not constitute an illegal RPM

agreement. In Monsanto, the Supreme

Court stated: ‘‘Under Colgate, the

manufacturer can announce its resale

prices in advance and refuse to deal

with those who fail to comply. And a

distributor is free to acquiesce in the

manufacturer’s demand in order to

avoid termination.’’ 465 U.S. at 761. As

Monsanto and Colgate make clear,

something more than mere acquiescence

by a distributor in a manufacturer’s

pricing policies is necessary to convert

a unilateral decision by a distributor

into an agreement to maintain resale

prices.

I am therefore puzzled why the

majority is so quick to infer the

existence of a per se illegal RPM

agreement from evidence that many

distributors found it in their self-interest

unilaterally to sell at or above the

wholesale price and thereby receive

rebates from AmCy. To infer the

existence of a per se illegal RPM

agreement in this context, when AmCy

never announced minimum resale

prices nor sought a commitment from

distributors to sell at or above certain

price levels, violates the fundamental

legal principle of RPM law announced

in Colgate. How can the majority find a

per se illegal agreement here—under

arguably weaker factual circumstances

than existed in Colgate—and believe

that it still seeks to enforce the rule

announced in Colgate, and reiterated in

Monsanto, that mere acquiescence by a

distributor in the pricing policies of a

manufacturer is insufficient as a matter

of law to warrant inference of the

existence of a per se illegal RPM

agreement? 6

The majority’s finding that AmCy

entered into illegal RPM agreements

with its distributors is nothing less than

a retreat from the principles of vertical

restraints analysis laid down by the

Supreme Court in Colgate, Monsanto,

Sylvania,7 and Sharp.8 In cases

involving allegations of concerted price

fixing, ‘‘the antitrust plaintiff must

present evidence sufficient to carry its

burden of proving that there was such

an agreement. If an inference of such an

agreement may be drawn from highly

ambiguous evidence, there is a

considerable danger that the doctrines

enunciated in Sylvania and Colgate will

be seriously eroded.’’ Monsanto, 465

U.S. at 763. I conclude that the standard

set forth by Supreme Court for the

finding of a price-fixing agreement has

not been met. That the majority is

willing to infer the existence of an

agreement in this instance on the basis

of such ambiguous evidence, and to rely

primarily on pre-Sharp case law and

post-Sharp dicta and one case not on

point 9 to justify its

conclusion, represents an effort to

circumvent the law of RPM (and of

vertical restraints in general) laid down

by the Supreme Court over the last

twenty years.10

The majority’s decision to accept a

consent agreement here also cannot be

supported on economic grounds. The

per se treatment of RPM usually is

justified by the assertion that such

agreements almost invariably are used

to support collusion, either among

manufacturers or among distributors.11

RPM could support manufacturer

collusion for two reasons.12 First, RPM

may make it easier to detect cheating on

a cartel agreement, because resale prices

(presumably) are easier to observe than

wholesale prices, and successful

monitoring of prices is necessary for any

successful collusive price agreement to

work.13 Second, RPM may reduce the

incentive to cheat on a cartel because a

manufacturer cutting its wholesale price

will not increase sales by very much if

the corresponding resale price cannot

fall.14 If RPM is being used to facilitate

manufacturer collusion, we would

expect to see other manufacturers

adopting similar price restrictions;

collectively, these manufacturers would
6260 Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices

15Of course, all of the standard factors used to

analyze market power and the ability to implement

and maintain collusive pricing (e.g., ease of entry,

heterogeneity of the products, and so forth) would

also be relevant to judging the likelihood of

successful supplier collusion.

16As Stigler (supra note 13, at 42) noted, ‘‘[f]ixing

market shares is probably the most efficient of all

methods of combating secret price reductions.’’

17The likelihood of successfully maintaining

collusion in the face of product innovation (as was

occurring in this instance) is, of course, quite small.

Collusion is more likely to be successful, the greater

the degree of similarity (e.g., in terms of cost,

demand, and product characteristics) among the

parties to the agreement.

18This is unsurprising, because over 2500 dealers

participated in the C.R.O.P.TM and A.P.E.X.TM

programs. It is fanciful to believe that a cartel could

have been formed from among such a large number

of dealers. If such a cartel exists, one might

reasonably ask why the dealers that belong to it are

not also named in the Commission’s complaint.

19 In its reply, the majority appears to suggest that

the existence of a dealer cartel can be inferred from

the allegation that ‘‘a dealer’s advisory council

voted to advise American Cyanamid to retain the

program in order to protect their margins.’’

Statement of Chairman Robert Pitofsky and

Commissioners Janet D. Steiger and Christine A.

Varney in the Matter of American Cyanamid, at

note 5. Even if an advisory council furnished this

advice to AmCy, communications of this nature

between dealers and manufacturers do not establish

that the dealers acted collusively. Moreover, the fact

that dealers may have communicated this advance

says nothing about the competitive effects of

AmCy’s rebate program. One would expect dealers

to provide this same ‘‘advice’’ if AmCy’s program

were designed to prevent discounters from freeriding on the pre-sale services provided by other

dealers.

20See, e.g., Remarks of Commissioner Roscoe B.

Starek, III, ‘‘Reinventing Antitrust Enforcement?

Antitrust at the FTC in 1995 and Beyond,’’ before

a conference on ‘‘A New Age of Antitrust

Enforcement: Antitrust in 1995’’ (Marina del Rey,

California, Feb. 24, 1995).

21As I noted earlier (supra note 2), market power

is a necessary, but not a sufficient, condition for

vertical restraints to reduce consumer welfare.

22As Katz (supra note 1, at 713–14) notes,

‘‘[m]uch of the literature on vertical restraints has

been conducted with the express aim of deriving

policy conclusions. But in many, if not most,

instances there is no widespread agreement on

whether a particular vertical practice is socially

beneficial or harmful. This unhappy state of affairs

is due, in part, to the fact that all of the practices

can be beneficial in some instances and harmful in

others, and it may be extremely difficult to

distinguish between the two cases.’’

have to account for sufficient total

output to give them power over price.15

As far as I can tell, the ‘‘manufacturer

cartel’’ theory is not relevant to the

present case. The Commission’s

proposed complaint does not allege, let

alone provide supporting evidence, that

AmCy has attempted to collude with

other agricultural chemical makers,

such as DuPont, Monsanto, Ciba-Geigy,

or BASF. There is also no evidence that

these other firms used RPM, as is

required for the theory to work. But

even putting aside the absence of such

evidence, it is difficult to imagine an

arrangement less suited to cartel

stability than that which existed

between AmCy and its distributors.

Specifically, under the terms of AmCy’s

C.R.O.P.TM and A.P.E.X.TM programs, a

dealer’s compensation was tied

explicitly to the share of chemical sales

accounted for by AmCy’s products.

Given that a crucial element of cartel

enforcement is the discovery of some

means by which each member can

commit credibly to maintaining—but

not increasing—its market share,16 how

could a program that explicitly rewards

market share expansion plausibly be

characterized as a cartel enforcement

tool?

Furthermore, the available evidence

suggests that the C.R.O.P.TM and

A.P.E.X.TM programs were

extraordinarily successful in expanding

AmCy’s sales and market share, which

grew substantially while the program

was in use. Certainly, other factors (e.g.,

the successful introduction of several

new product lines) may have accounted

for a portion of this increase; 17

nevertheless, it is difficult (if not

impossible) to reconcile the behavior of

AmCy’s output—or of total market

output—during this period with any

coherent theory of competitive harm

involving collusion with other chemical

makers.

In the alternative, per se treatment

sometimes is predicated on the

characterization of RPM as an aid to

dealer collusion. Under such a scenario,

a group of dealers pressures the supplier

to adopt RPM to achieve and maintain

a collusive resale price arrangement

among the dealers. When RPM is used

for this purpose, we would expect to see

coordinated pressure on the

manufacturer to adopt RPM from a

group of dealers with sufficient market

power to credibly threaten the

manufacturer. Moreover, to be effective,

the dealer cartel must enter into similar

arrangements with enough

manufacturers to be able to affect market

price; otherwise, the collusive retail

price of price-maintained products

would be undermined by competition

from products not subject to RPM

agreements. Under such conditions, we

would expect the manufacturer to be a

reluctant participant in the scheme,

though it would enforce the RPM

agreement if the dealer threats were

credible. Finally, it is unlikely that the

colluding dealers would carry

competing products not subject to RPM

agreements, as that would be equivalent

to cheating on the collusivelydetermined resale margin.

This second anticompetitive theory

fits the facts of this case no better than

the first. The Commission’s complaint

does not allege, let alone provide

supporting evidence, that AmCy is the

victim of a dealer cartel. As I already

have noted, it does not appear that other

manufacturers had similar arrangements

with the members of any putative

‘‘dealer cartel,’’ or that this ‘‘cartel’’

eschewed the products of rival

manufacturers.18 Had AmCy been the

victim of a cartel, its attitude toward the

Commission and numerous state

investigations should have been one of

grateful acquiescence, because the

enforcement agencies would be rescuing

it from the clutches of its rapacious

dealers. In fact, of course, AmCy

unilaterally terminated the challenged

provisions of the C.R.O.P.TM and

A.P.E.X.TM programs several years ago.

so much for ‘‘dealer coercion.’’ 19

Given that neither of the two

traditional anticompetitive theories can

be reconciled with the terms of the

AmCy program, could the Commission’s

action be justified on some other basis?

The Commission might attempt to seek

refuge in some unilateral theory of

market power, under which a

manufacturer with substantial preexisting market power is hypothesized

to use vertical restraints because, for

some reason, it cannot extract the full

value of its market power simply by

raising its wholesale price. The

economics literature certainly

acknowledges such possibilities, but

these theories provide a fragile basis for

antitrust enforcement.20 As such models

show, vertical restraints often can

improve consumer welfare even when

adopted by firms with substantial

market power; 21 the models fail,

however, to provide empirical criteria

by which enforcers can distinguish

anticompetitive from procompetitive

effects.22 Thus, the practical utility of

these theories is questionable even for

conduct judged under the rule of reason;

their inability to justify a policy of per

se illegality appears self-evident.

On several grounds, therefore,

acceptance of the consent agreement in

this matter represents a poor policy

choice by the Commission. From a legal

perspective, AmCy’s conduct does not

constitute an illegal agreement to

maintain resale prices; from an

economic perspective, the evidence

points to the conclusion that AmCy’s

conduct was procompetitive; and from a

policy perspective, the Commission’s

decision hardly delineates a clearer

distinction (and in fact seriously blurs

the line) between conduct likely to be

subject to per se condemnation and

conduct that is not. Instead of reaching

for ways to expand the application of

the per se rule to conduct that is plainly

procompetitive, enforcers should
Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / Notices 6261

reserve their heavy hand for conduct

that falls within standards for per se

illegality clearly enunciated by the

Supreme Court. Accordingly, I cannot

support the proposed enforcement

action made public today.

[FR Doc. 97–3341 Filed 2–10–97; 8:45 am]

BILLING CODE 6750–01–M

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Centers for Disease Control and

Prevention

[30DAY–28]

Agency Forms Undergoing Paperwork

Reduction Act Review

The Centers for Disease Control and

Prevention (CDC) publishes a list of

information collection requests under

review by the Office of Management and

Budget (OMB) in compliance with the

Paperwork Reduction Act (44 U.S.C.

Chapter 35). To request a copy of these

requests, call the CDC Reports Clearance

Office on (404) 639–7090. Send written

comments to CDC, Desk Officer; Human

Resources and Housing Branch, New

Executive Office Building, Room 10235;

Washington, DC 20503. Written

comments should be received within 30

days of this notice.

The following request has been

submitted for review since the last

publication date on February 4, 1997.

Proposed Project

1. Biomechanical Stress Control in

Drywall Installation—New-Drywall

installers represented approximately

1.42% of the construction workforce in

1992. Based on analysis of the

Supplementary Data System (BLS) of 21

states, the compensable injury/

incidence rate (27.5 cases per 100

workers for this group) was nearly three

times the injury rate of 9.5 for all other

construction occupations combined, in

1987. Data from the 1992 and 1993

Annual Survey of Occupational Injuries

and Illnesses (BLS) indicated that there

were an estimated 4,680 traumatic

injuries among drywall installers

involving days away from work in the

construction industry in 1992, and

4,122 in 1993. In 1993, bodily reaction

and exertion (31.8%), falls (28.6%), and

contact with objects (24.6%) were the

leading events of injury and illness

involving days away from work. As a

result, sprains and strains (40.6%)

constituted the most frequent nature of

injuries and illnesses category in 1994.

To gain an understanding of these

injuries, NIOSH has initiated this

project to examine different approaches

in both field and laboratory settings to

identify and control the high-risk

activities associated with the traumatic

injuries and overexertion hazards of

drywall installation work. One of the

field study components for this project

is to identify high-risk tasks and

activities for drywall installers, using a

drywall installation survey which was

developed at NIOSH. The findings of

this survey will provide further

understanding and focus laboratory

research efforts on the most hazardous

tasks/activities of drywall-installation

work. Study populations will include

drywall installers or construction

workers with drywall installation

experience. Each questionnaire will take

approximately 20 minutes to complete.

The total annual burden is 30.

Respondents Number of

respondents

Number of

responses/

respondent

Average

burden/response

(in hrs.)

Drywall Installers ...................................................................................................................................... 120 1 .25

Dated: February 5, 1997.

Wilma G. Johnson,

Acting Associate Director for Policy Planning

and Evaluation, Centers for Disease Control

and Prevention (CDC).

[FR Doc. 97–3332 Filed 2–10–97; 8:45 am]

BILLING CODE 4163–18–P

Food and Drug Administration

[Docket No. 96E–0388]

Determination of Regulatory Review

Period for Purposes of Patent

Extension; MERREM I.V.

AGENCY: Food and Drug Administration,

HHS.

ACTION: Notice.

SUMMARY: The Food and Drug

Administration (FDA) has determined

the regulatory review period for

MERREM I.V. and is publishing this

notice of that determination as required

by law. FDA has made the

determination because of the

submission of an application to the

Commissioner of Patents and

Trademarks, Department of Commerce,

for the extension of a patent which

claims that human drug product.

ADDRESSES: Written comments and

petitions should be directed to the

Dockets Management Branch (HFA–

305), Food and Drug Administration,

12420 Parklawn Dr., rm. 1–23,

Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT:

Brian J. Malkin, Office of Health Affairs

(HFY–20), Food and Drug

Administration, 5600 Fishers Lane,

Rockville, MD 20857, 301–443–1382.

SUPPLEMENTARY INFORMATION: The Drug

Price Competition and Patent Term

Restoration Act of 1984 (Pub. L. 98–417)

and the Generic Animal Drug and Patent

Term Restoration Act (Pub. L. 100–670)

generally provide that a patent may be

extended for a period of up to 5 years

so long as the patented item (human

drug product, animal drug product,

medical device, food additive, or color

additive) was subject to regulatory

review by FDA before the item was

marketed. Under these acts, a product’s

regulatory review period forms the basis

for determining the amount of extension

an applicant may receive.

A regulatory review period consists of

two periods of time: A testing phase and

an approval phase. For human drug

products, the testing phase begins when

the exemption to permit the clinical

investigations of the drug becomes

effective and runs until the approval

phase begins. The approval phase starts

with the initial submission of an

application to market the human drug

product and continues until FDA grants

permission to market the drug product.

Although only a portion of a regulatory

review period may count toward the

actual amount of extension that the

Commissioner of Patents and

Trademarks may award (for example,

half the testing phase must be

subtracted as well as any time that may

have occurred before the patent was

issued), FDA’s determination of the

length of a regulatory review period for

a human drug product will include all

of the testing phase and approval phase

as specified in 35 U.S.C. 156(g)(1)(B).

FDA recently approved for marketing

the human drug product MERREM I.V.

(meropenem). MERREM I.V. is

indicated as single agent therapy for the

treatment of the following infections