Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices 24201 

1 In particular, the written request for confidential 

treatment that accompanies the comment must 

Continued 

President) 1 Memorial Drive, Kansas 

City, Missouri 64198–0001: 

1. Goering Management Company, 

L.L.C. and Goering Financial Holding 

Company Partnership, L.P., both in 

Moundridge, Kansas; to retain at least 

43 percent of the voting shares of Bon, 

Inc., Moundridge, Kansas, and thereby 

indirectly retain voting shares of Home 

State Bank & Trust Co., McPherson, 

Kansas, and The Citizens State Bank, 

Moundridge, Kansas. 

Board of Governors of the Federal Reserve 

System, April 19, 2013. 

Margaret McCloskey Shanks, 

Deputy Secretary of the Board. 

[FR Doc. 2013–09642 Filed 4–23–13; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

Notice of Proposals To Engage in or 

To Acquire Companies Engaged in 

Permissible Nonbanking Activities 

The companies listed in this notice 

have given notice under section 4 of the 

Bank Holding Company Act (12 U.S.C. 

1843) (BHC Act) and Regulation Y, (12 

CFR part 225) to engage de novo, or to 

acquire or control voting securities or 

assets of a company, including the 

companies listed below, that engages 

either directly or through a subsidiary or 

other company, in a nonbanking activity 

that is listed in § 225.28 of Regulation Y 

(12 CFR 225.28) or that the Board has 

determined by Order to be closely 

related to banking and permissible for 

bank holding companies. Unless 

otherwise noted, these activities will be 

conducted throughout the United States. 

Each notice is available for inspection 

at the Federal Reserve Bank indicated. 

The notice also will be available for 

inspection at the offices of the Board of 

Governors. Interested persons may 

express their views in writing on the 

question whether the proposal complies 

with the standards of section 4 of the 

BHC Act. 

Unless otherwise noted, comments 

regarding the applications must be 

received at the Reserve Bank indicated 

or the offices of the Board of Governors 

not later than May 9, 2013. 

A. Federal Reserve Bank of San 

Francisco (Gerald C. Tsai, Director, 

Applications and Enforcement) 101 

Market Street, San Francisco, California 

94105–1579: 

1. One PacificCoast Foundation, 

Oakland, California; to engage de novo 

in community development activities 

and nonbanking activities incidental to 

extending credit, pursuant to sections 

225.28(b)(12)(i) and 225.28(b)(2)(i), 

respectively. 

Board of Governors of the Federal Reserve 

System, April 19, 2013. 

Margaret McCloskey Shanks, 

Deputy Secretary of the Board. 

[FR Doc. 2013–09641 Filed 4–23–13; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL TRADE COMMISSION 

[File No. 101 0215] 

Graco, Inc.; Analysis of Agreement 

Containing Consent Order To Aid 

Public Comment 

AGENCY: Federal Trade Commission. 

ACTION: Proposed Consent Agreement. 

SUMMARY: The consent agreement in this 

matter settles alleged violations of 

federal law prohibiting unfair or 

deceptive acts or practices or unfair 

methods of competition. The attached 

Analysis to Aid Public Comment 

describes both the allegations in the 

draft complaint and the terms of the 

consent order—embodied in the consent 

agreement—that would settle these 

allegations. 

DATES: Comments must be received on 

or before May 20, 2013. 

ADDRESSES: Interested parties may file a 

comment at https:// 

ftcpublic.commentworks.com/ftc/ 

gracoconsent online or on paper, by 

following the instructions in the 

Request for Comment part of the 

SUPPLEMENTARY INFORMATION section 

below. Write ‘‘Graco, File No. 101 0215’’ 

on your comment and file your 

comment online at https:// 

ftcpublic.commentworks.com/ftc/ 

gracoconsent by following the 

instructions on the web-based form. If 

you prefer to file your comment on 

paper, mail or deliver your comment to 

the following address: Federal Trade 

Commission, Office of the Secretary, 

Room H–113 (Annex D), 600 

Pennsylvania Avenue NW., Washington, 

DC 20580. 

FOR FURTHER INFORMATION CONTACT: 

Benjamin Jackson (202–326–2193), FTC, 

Bureau of Competition, 600 

Pennsylvania Avenue NW., Washington, 

DC 20580. 

SUPPLEMENTARY INFORMATION: Pursuant 

to Section 6(f) of the Federal Trade 

Commission Act, 15 U.S.C. 46(f), and 

FTC Rule 2.34, 16 CFR 2.34, notice is 

hereby given that the above-captioned 

consent agreement containing a consent 

order to cease and desist, having been 

filed with and accepted, subject to final 

approval, by the Commission, has been 

placed on the public record for a period 

of thirty (30) days. The following 

Analysis to Aid Public Comment 

describes the terms of the consent 

agreement, and the allegations in the 

complaint. An electronic copy of the 

full text of the consent agreement 

package can be obtained from the FTC 

Home Page (for April 18, 2013), on the 

World Wide Web, at http://www.ftc.gov/ 

os/actions.shtm. A paper copy can be 

obtained from the FTC Public Reference 

Room, Room 130–H, 600 Pennsylvania 

Avenue NW., Washington, DC 20580, 

either in person or by calling (202) 326– 

2222. 

You can file a comment online or on 

paper. For the Commission to consider 

your comment, we must receive it on or 

before May 20, 2013. Write ‘‘Graco, File 

No. 101 0215’’ on your comment. Your 

comment—including your name and 

your state—will be placed on the public 

record of this proceeding, including, to 

the extent practicable, on the public 

Commission Web site, at http:// 

www.ftc.gov/os/publiccomments.shtm. 

As a matter of discretion, the 

Commission tries to remove individuals’ 

home contact information from 

comments before placing them on the 

Commission Web site. 

Because your comment will be made 

public, you are solely responsible for 

making sure that your comment does 

not include any sensitive personal 

information, like anyone’s Social 

Security number, date of birth, driver’s 

license number or other state 

identification number or foreign country 

equivalent, passport number, financial 

account number, or credit or debit card 

number. You are also solely responsible 

for making sure that your comment does 

not include any sensitive health 

information, like medical records or 

other individually identifiable health 

information. In addition, do not include 

any ‘‘[t]rade secret or any commercial or 

financial information which * * * is 

privileged or confidential,’’ as discussed 

in Section 6(f) of the FTC Act, 15 U.S.C. 

46(f), and FTC Rule 4.10(a)(2), 16 CFR 

4.10(a)(2). In particular, do not include 

competitively sensitive information 

such as costs, sales statistics, 

inventories, formulas, patterns, devices, 

manufacturing processes, or customer 

names. 

If you want the Commission to give 

your comment confidential treatment, 

you must file it in paper form, with a 

request for confidential treatment, and 

you have to follow the procedure 

explained in FTC Rule 4.9(c), 16 CFR 

4.9(c).1 Your comment will be kept 


tkelley on DSK3SPTVN1PROD with NOTICES
24202 Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices 

include the factual and legal basis for the request, 

and must identify the specific portions of the 

comment to be withheld from the public record. See 

FTC Rule 4.9(c), 16 CFR 4.9(c). 

confidential only if the FTC General 

Counsel, in his or her sole discretion, 

grants your request in accordance with 

the law and the public interest. 

Postal mail addressed to the 

Commission is subject to delay due to 

heightened security screening. As a 

result, we encourage you to submit your 

comments online. To make sure that the 

Commission considers your online 

comment, you must file it at https:// 

ftcpublic.commentworks.com/ftc/ 

gracoconsent by following the 

instructions on the web-based form. If 

this Notice appears at http:// 

www.regulations.gov/#!home, you also 

may file a comment through that Web 

site. 

If you file your comment on paper, 

write ‘‘Graco, File No. 101 0215’’ on 

your comment and on the envelope, and 

mail or deliver it to the following 

address: Federal Trade Commission, 

Office of the Secretary, Room H–113 

(Annex D), 600 Pennsylvania Avenue 

NW., Washington, DC 20580. If possible, 

submit your paper comment to the 

Commission by courier or overnight 

service. 

Visit the Commission Web site at 

http://www.ftc.gov to read this Notice 

and the news release describing it. The 

FTC Act and other laws that the 

Commission administers permit the 

collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments that it receives on or 

before May 20, 2013. You can find more 

information, including routine uses 

permitted by the Privacy Act, in the 

Commission’s privacy policy, at http:// 

www.ftc.gov/ftc/privacy.htm. 

Analysis of Agreement Containing 

Consent Order To Aid Public Comment 

The Federal Trade Commission 

(‘‘Commission’’) has accepted for public 

comment an Agreement Containing 

Consent Order (‘‘Consent Order’’) with 

Graco, Inc. (‘‘Graco’’) to remedy the 

alleged anticompetitive effects resulting 

from Graco’s acquisition of its most 

significant competitors, Gusmer Corp. 

(‘‘Gusmer’’) and GlasCraft, Inc. 

(‘‘GlasCraft’’). The Commission 

Complaint (‘‘Complaint’’) alleges that, at 

the time of the acquisitions, Graco, 

Gusmer, and GlasCraft each 

manufactured and sold equipment for 

the application of fast-set chemicals 

(‘‘fast-set equipment’’). Neither 

acquisition was reportable under the 

Hart-Scott-Rodino Act. The Consent 

Order seeks to restore competition lost 

through the acquisitions by requiring 

Graco to license certain technology to a 

small competitor to facilitate its entry 

and expansion, and to cease and desist 

from engaging in certain conduct that 

may delay or prevent entry and 

expansion of competing firms. The 

Complaint and Consent Order in this 

matter have been issued as final and the 

Consent Order is now effective. 

The Complaint alleges that the 

acquisitions each violated Section 7 of 

the Clayton Act, as amended, 15 U.S.C. 

18, and Section 5 of the Federal Trade 

Commission Act, as amended, 15 U.S.C. 

45. 

The purpose of this Analysis to Aid 

Public Comment is to invite and 

facilitate public comment concerning 

the Consent Order. It is not intended to 

constitute an official interpretation of 

the Agreement and Consent Order or in 

any way to modify their terms. 

The Consent Order is for settlement 

purposes only. The Commission has 

placed the Consent Order on the public 

record for thirty (30) days for the receipt 

of comments by interested persons. 

I. The Relevant Market and Market 

Structure 

The relevant market within which to 

analyze the competitive effects of these 

acquisitions is fast-set equipment used 

by contractors in North America. Fastset equipment combines and applies 

various reactive chemicals that form 

polyurethane foams or polyurea 

coatings used for the application of 

insulation and protective coatings. The 

essential components of a fast-set 

equipment system are the proportioner, 

the heated hoses, and the spray gun. 

Fast-set equipment manufacturers sell 

their products almost exclusively 

through a network of specialized, thirdparty distributors. These independent 

distributors sell to end-users. End-users 

demand a proximate source of expertise, 

spare parts, and repair services. 

Therefore, a robust network of thirdparty fast-set equipment distributors is 

necessary for any manufacturer to 

compete effectively in the relevant 

market. 

Prior to its acquisition by Respondent 

in 2005, Gusmer was the largest and 

most significant competitor engaged in 

the manufacture and sale of a full line 

of fast-set equipment throughout North 

America and the world. The acquisition 

increased Graco’s share of the North 

American fast-set equipment market to 

over 65%, and left GlasCraft as Graco’s 

only significant North American 

competitor. Graco’s acquisition of 

GlasCraft in 2008 raised Graco’s market 

share above 90% and removed Graco’s 

last significant North American 

competitor. Following the acquisitions 

of each of Gusmer and GlasCraft, Graco 

closed both firms’ fast-set equipment 

manufacturing facilities and has fully 

assimilated or terminated all remaining 

assets, products, intellectual property, 

and personnel from both firms. 

Prior to the acquisitions, fast-set 

equipment distributors typically carried 

products from multiple manufacturers. 

Distributors and end-users were able to 

mix and match the products from the 

different manufacturers to assemble a 

fast-set system that best satisfied endusers’ demands. Further, manufacturers 

did not impose exclusive relationships 

on distributors—a distributor was free to 

make some or all of its fast-set 

equipment purchases from whichever 

manufacturers it chose. The Complaint 

alleges, among other effects, that the 

acquisitions of Gusmer and GlasCraft 

have removed the ability of distributors 

and end-users to select the equipment 

that best serves their, and their 

customers’, interests and needs. 

II. Conditions of Entry and Expansion 

The Complaint alleges high entry 

barriers in the relevant market. The 

principal barrier to entry is the need for 

specialized third-party distribution. As 

a result of its acquisitions, Graco 

obtained substantial control over access 

to that distribution channel. Subsequent 

Graco practices have further heightened 

barriers to competitive entry and 

expansion, such that restoration of the 

competition lost as a result of Graco’s 

acquisitions is unlikely to be restored 

unless Graco’s continuation of those 

practices is enjoined. 

Beginning in 2007, former employees 

of Gusmer began distributing fast-set 

equipment as Gama Machinery USA, 

Inc., now doing business as 

Polyurethane Machinery Corp. (‘‘Gama/ 

PMC’’). In March 2008, Graco sued 

Gama/PMC and others alleging, among 

other things, breach of contract. The 

continuation of that litigation has 

reduced the willingness of distributors 

to purchase fast-set equipment from 

Gama/PMC, for fear that their supply of 

fast-set equipment might later be 

interrupted as a result of litigation. To 

reduce that barrier, an impending 

settlement of that litigation is 

incorporated in the Commission’s 

Consent Order. 

Like Gama/PMC, other prospective 

competitors—some of which presently 

offer only some components, rather than 

a full line of proportioners, hoses, and 

spray guns—have been unable to gain a 

meaningful foothold in the North 

American fast-set equipment market 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices 24203 

2 If the Respondent does not agree to any such 

modifications, the Commission may (1) initiate a 

proceeding to reopen and modify the Consent Order 

in accordance with Rule 3.72(b), 16 CFR 3.72(b), or 

(2) commence a new administrative proceeding by 

issuing an administrative complaint in accordance 

with Rule 3.11. See 16 CFR 2.34(e)(2). 

because of barriers to access to the 

required specialty distribution channel. 

Following its obtaining of market power 

through its acquisitions, Graco 

increased the discount and inventory 

thresholds it required of distributors, 

and threatened to cut off any 

distributor’s access to needed Graco 

fast-set equipment if the distributor 

purchased fast-set equipment from any 

Graco rival. The reduction of barriers to 

entry and expansion by enjoining the 

continuation of this conduct is 

necessary to the restoration of 

competition lost as a result of Graco’s 

acquisitions, and certain provisions of 

the Commission’s cease and desist order 

are directed to that end. 

III. Effects of Graco’s Acquisitions 

As a result of the acquisitions, Graco 

has eliminated head-to-head 

competition with Gusmer and GlasCraft. 

The Complaint alleges that 

concentration in the relevant market has 

increased substantially, and given Graco 

the ability to exercise market power 

unilaterally. The Complaint alleges that 

Graco has exercised that market power 

by raising prices, reducing product 

options and alternatives, and reducing 

innovation. The Complaint further 

alleges that Graco engaged in certain 

post-acquisition conduct that has raised 

barriers to entry and expansion such 

that the continuation of that conduct 

must be enjoined if the competition lost 

as a result of Graco’s acquisitions is to 

be restored. 

IV. The Consent Agreement 

Since the acquisitions were 

completed some time ago, it is not 

practicable to recreate the acquired 

firms as independent going concerns. 

Instead, the purpose of the Consent 

Order is to ensure the restoration of the 

competitive conditions that existed 

before the acquisitions, to the extent 

possible, by facilitating Gama/PMC’s 

entry and expansion and lowering 

barriers to entry. Therefore, the Consent 

Order requires Graco to enter into a 

settlement agreement with Gama/PMC 

within ten (10) days of the entry of the 

Order. In addition, Graco must grant to 

Gama/PMC an irrevocable license to 

certain Graco patents and other 

intellectual property in order to ensure 

that Graco cannot continue or renew its 

suit. In exchange, PMC will pay to 

Graco a sum of money for the settlement 

of the litigation and agree to a deferred 

license fee for the intellectual property. 

The settlement documents will be 

incorporated by reference into the 

Consent Order, and cannot be modified 

without the Commission’s prior 

approval. Further, the Consent Order 

independently prohibits Graco from 

filing suit against Gama/PMC for 

infringing the licensed intellectual 

property. 

In order to reduce barriers to 

competitor entry, the Consent Order 

directs Graco to cease and desist from 

imposing any conditions on its 

distributors that could, directly or 

indirectly, lead to exclusivity. The 

Consent Order also prohibits Graco from 

discriminating against, coercing, 

threatening, or in any other manner 

pressuring its distributors not to carry or 

service any competing fast-set 

equipment. The Consent Order does not 

mandate that any distributor carry 

competitive fast-set equipment; rather, it 

bars Graco from imposing exclusivity on 

its distributors. 

The Consent Order further obligates 

Graco to waive or modify any policies 

or contracts that would violate the 

Consent Order. Graco will have thirty 

(30) days after the Consent Order is final 

to negotiate changes in the contracts 

with its distributors to comply with the 

Consent Order. Graco must provide all 

of its distributors, employees and agents 

with a copy of the Consent Order and 

a plain-language explanation of what is 

says and requires. 

The Consent Order further requires 

Graco to provide the Commission with 

prior notice: (1) If it intends to make 

another acquisition of fast-set 

equipment (after an appropriate waiting 

period); or (2) if it intends, within thirty 

(30) days, to institute a lawsuit or 

similar legal action against a distributor 

or end-user with regard to a claimed 

violation of Graco’s trade secrets or 

other intellectual property covering fastset equipment. The Consent Order will 

remain in effect for ten (10) years, and 

contains standard compliance and 

reporting requirements. 

V. Effective Date of the Consent Order 

and Opportunity for Public Comment 

In this instance, the Commission 

issued the Complaint and the Consent 

Order as final, and served them upon 

Graco at the same time it accepted the 

Consent Agreement for public comment. 

As a result of this action, the Consent 

Order has become effective. The 

Commission adopted procedures in 

August 1999 to allow for immediate 

implementation of an order prior to the 

public comment period. The 

Commission announced that it 

‘‘contemplates doing so only in 

exceptional cases where, for example, it 

believes that the allegedly unlawful 

conduct to be prohibited threatens 

substantial and imminent public harm.’’ 

64 FR 46,267, 46,268 (1999). 

This is an appropriate case in which 

to issue a final order before receiving 

public comment because the 

effectiveness of the remedy depends on 

the timeliness of the private settlement 

agreement between Graco and Gama/ 

PMC, which only becomes effective 

when the Consent Order becomes final. 

Both Graco and Gama/PMC have made 

initial efforts to address distributor 

concerns about possible Graco 

retribution by separately sending letters 

to distributors assuring them that 

preliminary discussions of business 

relations with Gama/PMC would not 

have any adverse consequences on the 

distributors’ relationship with Graco. 

However, the protections of the 

applicable license and covenants, as 

well as those included in the Consent 

Order, are needed to provide 

distributors reasonable assurances that 

buying from Gama/PMC will not 

jeopardize the distributors’ relationship 

with Graco. As a result, any delay in the 

effectiveness of the Consent Order and 

the associated private settlement will 

prevent Gama/PMC from finalizing 

relationships with distributors in time 

for the current construction season— 

and this will have a significant and 

meaningful impact on competition in 

the fast-set equipment market that the 

Consent Order is intended to foster. 

The Commission anticipates that the 

competitive problems alleged in the 

Complaint will be remedied by the 

Consent Order, as issued. Nonetheless, 

public comments are encouraged and 

will be considered by the Commission. 

The purpose of this analysis is to invite 

and facilitate such comments 

concerning the Consent Order and to aid 

the Commission in determining whether 

to modify the Consent Order in any 

respect. Therefore, the Complaint and 

Consent Order have been placed on the 

public record for thirty (30) days to 

solicit comments from interested 

persons. Comments received during this 

period will become part of the public 

record. After thirty (30) days, the 

Commission will again review the 

comments received, and may determine 

that the Consent Order should be 

modified in response to the comments.2


tkelley on DSK3SPTVN1PROD with NOTICES
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3See, e.g., United States v. Microsoft Corp., 253 

F.3d 34, 71–72, 74 (D.C. Cir. 2001) (holding that 

Microsoft’s exclusive dealing arrangements with 

Internet access providers, independent software 

vendors, and Apple violated Sherman Act § 2). 

4See e.g., Fed. Trade Comm’n, Statement of 

Federal Trade Commission’s Bureau of Competition 

on Negotiating Merger Remedies, at 5 (2012), 

available at http://www.ftc.gov/bc/bestpractices/ 

merger-remediesstmt.pdf (stating the Commission 

favors structural relief, such as divestitures, in 

horizontal mergers, but that behavioral relief may 

be appropriate in some cases). 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

Statement of the Federal Trade 

Commission 

Today the Commission has voted 

unanimously to approve the Complaint 

and Decision & Order (‘‘Order’’) against 

Graco, Inc. (‘‘Graco’’) to resolve 

allegations that it violated Section 7 of 

the Clayton Act when it acquired 

Gusmer Corp. (‘‘Gusmer’’) in 2005 and 

Glascraft, Inc. (‘‘Glascraft’’) in 2008. At 

the time of the acquisitions, Gusmer and 

Glascraft were Graco’s two closest 

competitors in the market for fast-set 

equipment (‘‘FSE’’) used to apply 

polyurethane and polyurea coatings. 

The acquisitions eliminated the only 

significant competition in the market, 

and resulted in Graco holding a 

monopoly position as the only full-line 

FSE manufacturer. The Order contains 

provisions, including prohibitions on 

discriminating against distributors 

selling competitors’ FSE products, that 

are intended to constrain Graco’s ability 

to exclude prospective entrants into the 

FSE market by establishing and/or 

maintaining exclusive relationships 

with its third-party distributors. 

Commissioner Wright voted in favor of 

the Complaint and Order, but also 

issued a statement outlining his 

disagreement with these portions of the 

Order. We respectfully disagree with 

Commissioner Wright, and believe that 

these specific provisions are necessary 

to remediate the anticompetitive impact 

of the two mergers in this case. 

The typical remedy for the 

Commission in a Section 7 matter is a 

divestiture of the illegally acquired 

assets (and any other assets necessary to 

make the divestiture buyer a viable 

competitor). Pursuing such a remedy in 

this matter, however, would be difficult, 

if not impossible, because Graco had 

long ago integrated or discontinued the 

product lines it acquired from Gusmer 

and Glascraft. There was no easily 

severable package of assets that could be 

divested to recreate one—much less 

two—viable competitors to replace 

Gusmer and Glascraft. As a result, the 

most effective relief available was a 

behavioral remedy intended to facilitate 

entry into the FSE market, which, of 

course, includes addressing the postacquisition conduct described in the 

Complaint that had precluded entry into 

the relevant market. Specifically, after 

the acquisitions Graco solidified its 

market share by locking up third-party 

distributors through a series of purchase 

and inventory threshold requirements, 

as well as threats of retaliation and 

termination if distributors carried the 

products of any remaining or newly 

entering FSE manufacturers. 

The evidence gathered in the course 

of the Commission’s investigation 

demonstrates that Graco’s efforts were 

successful; no other firm gained more 

than five percent of the North American 

FSE market and Graco’s market share of 

between 90 and 95 percent has 

remained intact since its 2008 

acquisition of Glascraft. Further, the 

investigation uncovered no evidence 

that Graco’s post-acquisition conduct 

provided any cognizable efficiency that 

would benefit consumers. A remedy 

that does not address Graco’s ability to 

raise and maintain nearly 

insurmountable entry barriers is 

substantially less likely to return 

competition to the FSE market. The 

Order provisions that Commissioner 

Wright criticizes, in our view, are 

integral to achieving that goal but will 

not cause market inefficiencies. 

We believe that exclusive dealing 

relationships can have procompetitive 

benefits and that such relationships 

should not be condemned in the 

absence of a thorough factual and 

economic assessment of the 

circumstances surrounding such 

conduct. But it is equally important to 

recognize that, when employed by a 

competitor that has acquired significant 

market power or monopoly power, 

exclusive dealing arrangements have the 

potential to cement such power and 

prevent or deter entry that would lead 

to lower prices, higher quality, and 

better service for consumers.3 In any 

event, regardless of how one views 

exclusive dealing arrangements 

generally, there is ample support for the 

fencing-in relief prescribed in this 

merger settlement, which is designed to 

restore competition in the FSE market 

lost as a result of Graco’s illegal 

acquisitions. 

We join Commissioner Wright in 

commending the Commission staff for 

their hard work in this matter. They 

have done an excellent job in 

investigating the market involved and 

the issues raised during the course of 

this investigation. 

By direction of the Commission, 

Commissioner Wright abstaining. 

Donald S. Clark, 

Secretary. 

Statement of Commissioner Joshua D. 

Wright 

The Commission has voted to issue a 

Complaint and Order against Graco, Inc. 

(‘‘Graco’’) to remedy the allegedly 

anticompetitive effects of Graco’s 

acquisition of Gusmer Corp. (‘‘Gusmer’’) 

in 2005 and GlasCraft, Inc. (‘‘GlasCraft’’) 

in 2008. I supported the Commission’s 

decision because there is reason to 

believe Graco’s acquisitions 

substantially lessened competition in 

the market for fast-set equipment in 

violation of Section 7 of the Clayton 

Act. I want to commend staff for their 

hard work in this matter. Staff has 

conducted a thorough investigation and 

developed strong evidence that Graco’s 

acquisition of Gusmer and GlasCraft 

likely resulted in higher prices and 

fewer choices for consumers. 

I write separately to discuss two 

aspects of the Order with which I 

respectfully disagree, namely the 

provisions prohibiting Graco from 

entering into exclusive dealing contracts 

with distributors and establishing 

purchase and inventory thresholds that 

must be satisfied in order for 

distributors to obtain discounts. Both 

provisions are aimed at prohibiting 

exclusivity or, in the case of purchase 

and inventory thresholds, loyalty 

discounts that might be viewed as de 

facto exclusive arrangements. I am not 

persuaded in this case that prohibiting 

exclusive dealing contracts and 

regulating loyalty discounts will make 

consumers better off. To the contrary, 

these provisions may lead to reduced 

output or higher prices for consumers. 

I therefore do not believe the limitations 

on such arrangements imposed by the 

Order are in the public interest. 

I. Appropriate Use of Behavioral 

Remedies 

The majority and I agree that although 

the most suitable remedy for an 

anticompetitive merger usually is a 

divestiture of assets, under certain 

circumstances behavioral remedies may 

be appropriate.4 One scenario in which 

behavioral remedies may be appropriate 

is when the challenged merger has long 

since been consummated and 

divestiture or other structural remedies 

are not a viable option for restoring 

competition to pre-merger levels. Given 

that Graco has fully integrated Gusmer 

and Glascraft and discontinued their 


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5The Commission should keep in mind that ours 

is not a binary choice simply between imposing a 

structural or a behavioral remedy. The most 

attractive option from a consumer welfare point of 

view for any given circumstance may be to block 

the merger in its entirety, allow the merger to 

proceed without any remedy, or a hybrid solution 

combining some aspects of each of these options. 

Having ruled out structural remedies in this case, 

the question is which, if any, of the non-structural 

alternatives best improves consumer welfare. See 

Ken Heyer, Optimal Remedies for Anticompetitive 

Mergers, 26 ANTITRUST 27 (2012) (arguing 

behavioral remedies are not justified simply 

because structural remedies are unavailable, and 

that an agency should weigh the economic costs 

and benefits of each non-structural alternative, 

including doing nothing). 

6U.S. Dep’t of Justice Antitrust Div., Antitrust 

Division Policy Guide to Merger Remedies, at 7 n.12 

(June 2011), available at http://www.justice.gov/atr/ 

public/guidelines/272350.pdf; see also, Heyer, 

supra note 2, at 27–28 (‘‘[A]mong the most 

important considerations in devising a behavioral 

remedy is that there be a close nexus between the 

remedy imposed and the theory of harm motivating 

its use.’’). 

7 In fact, efficiencies justifications for exclusive 

dealing contracts apply, and some even more 

strongly, when a firm has market power. 

8Such retaliatory conduct alone is outside the 

normal competitive process and has no plausible 

procompetitive benefit. Its proscription therefore is 

unlikely to harm consumers. Of course, a decision 

by Graco to refuse to sell to distributors who do not 

enter into an exclusive contract should not itself be 

proscribed as illegitimate retaliation. 

9See e.g., Alden F. Abbott & Joshua D. Wright, 

Antitrust Analysis of Tying Arrangements and 

Exclusive Dealing, in ANTITRUST LAW AND ECONOMICS

183, 194–96 (Keith N. Hylton ed., 2d ed. 2010). 

There also are novel theories of anticompetitive 

harm, including models exploring the possibility 

that certain types of discount programs effectively 

impose a tax upon distributors’ choice to expand 

rivals’ sales and thereby potentially prevent rivals 

from acquiring a sufficient number of retailers to 

cover the fixed costs of entry. See e.g., Joe Farrell, 

et al., Economics at the FTC: Mergers, DominantFirm Conduct, and Consumer Behavior, 37 (4) REV. 

INDUS. ORG. 263 (2010). 

10See e.g., Abbott & Wright, supra note 6, at 200– 

01; Francine Lafontaine & Margaret Slade, Exclusive 

Contracts and Vertical Restraints: Empirical 

Evidence and Public Policy, in HANDBOOK OF

ANTITRUST ECONOMICS, 393–94 (Paolo Buccirossi, 

ed., 2008); Benjamin Klein & Kevin Murphy, 

Exclusive Dealing Intensifies Competition for 

Distribution, 75 ANTITRUST L. J. 433, 465 (2008). 

11See e.g., Abbott & Wright, supra note 6, at 200– 

01; Lafontaine & Slade, supra note 7, at 393–94. 

12Complaint ¶ 24, Graco, Inc., FTC File No.101– 

0215, (April 17, 2013). 

product lines, divestiture is not an 

option and the Commission should 

rightly consider whether behavioral 

remedies in this case would protect 

consumers. 

As with merger remedies generally, 

when deciding whether and what 

behavioral remedy to impose, the 

Commission must ultimately be guided 

by its mission of protecting consumers.5

Because behavioral remedies displace 

normal competitive decision-making in 

a market, they pose a particularly high 

risk of inadvertently reducing consumer 

welfare and should be examined closely 

prior to adoption to ensure consumers’ 

interests are best served. In particular, 

effective behavioral remedies must be 

‘‘tailored as precisely as possible to the 

competitive harms associated with the 

merger to avoid unnecessary 

entanglements with the competitive 

process.’’ 6 Merely showing high market 

shares and the unavailability of 

structural remedies does not justify 

restricting conduct that typically is 

procompetitive because these 

conditions do not make the conduct any 

more likely, much less generally likely, 

to be anticompetitive.7 A minimum 

safeguard to ensure remedial 

provisions—whether described as 

fencing-in relief or otherwise—restore 

competition rather than inadvertently 

reduce it is to require evidence that the 

type of conduct being restricted has 

been, or is likely to be, used 

anticompetitively to harm consumers. 

With this analytical framework in 

mind, I support those remedies in the 

Order that seek to restore pre-merger 

competition by imposing restrictions 

closely linked to the evidence of 

anticompetitive harm in this case. For 

instance, staff uncovered evidence 

Graco threatened distributors that 

considered carrying fast-set equipment 

sold by competing manufacturers, and 

that these threats actually led to 

distributors not purchasing the 

competing products. Staff also learned 

that distributors refused to purchase 

fast-set equipment from Gama/PMC, one 

of the few fringe competitors remaining 

after Graco’s acquisitions, because of the 

uncertainty resulting from Graco’s 

lawsuit against Gama/PMC. The Order 

thus appropriately prohibits Graco from 

retaliating against distributors that 

consider purchasing fast-set equipment 

from other manufacturers 8 and requires 

Graco to settle its lawsuit against Gama/ 

PMC. 

In contrast, and as is discussed in 

more detail below, there is insufficient 

evidence linking the remedial 

provisions in the Order prohibiting 

exclusive dealing contracts and 

regulating loyalty discounts to the 

anticompetitive harm in this case. 

II. Prohibitions on Exclusive Dealing 

It is widely accepted that exclusive 

dealing and de facto exclusive 

contracts—while generally efficiency 

enhancing—can lead to anticompetitive 

results when certain conditions are 

satisfied. The primary competitive 

concern is that exclusive dealing may be 

used by a monopolist to raise rivals’ 

costs of distribution by depriving them 

the opportunity to compete for 

distribution sufficient to achieve 

efficient scale, and ultimately harm 

consumers by putting competitors out of 

business.9 On the other hand, the 

economic literature is replete with 

procompetitive justifications for 

exclusive dealing, including aligning 

the incentives of manufacturers and 

distributors, preventing free-riding, and 

facilitating relationship-specific 

investments.10 In fact, the empirical 

evidence substantially supports the 

view that exclusive dealing 

arrangements are much more likely to 

be procompetitive than 

anticompetitive.11

Because exclusive dealing contracts 

typically are procompetitive and a part 

of the normal competitive process, the 

Commission should only restrict the use 

of such arrangements when there is 

sufficient evidence that they have or are 

likely to decrease consumer welfare. 

This ensures consumers the merger 

remedy does not deprive them the fruits 

of the competitive process. The 

evidence in this case is insufficient to 

conclude that Graco has used, or 

intends to use, exclusive dealing or de 

facto exclusive contracts to foreclose 

rivals and ultimately harm consumers. 

To the contrary, the Commission’s 

Complaint describes the fast-set 

equipment market as one particularly 

well suited for exclusive arrangements. 

Specifically, the Complaint 

acknowledges the sale of fast-set 

equipment demands specialized third 

party distributors that possess the 

technical expertise to teach consumers 

how to use and maintain the 

manufacturer’s equipment.12 One could 

therefore easily imagine that 

manufacturers might only be willing to 

provide training to distributors if they 

have some assurance that current or 

future competitors will be unable to free 

ride on their investments in the 

distributors’ technical expertise. 

Exclusive dealing arrangements with 

distributors are one well-known and 

common method of preventing such free 

riding. 

The provisions in the Order 

prohibiting exclusive contracts therefore 

may needlessly harm consumers by 

deterring potentially procompetitive 

arrangements. For that reason, I do not 

believe that provision is in the public 

interest. 

III. Restrictions on Loyalty Discounts 

The primary anticompetitive concerns 

with loyalty discounts are analytically 

similar to those associated with 

exclusive dealing and de facto exclusive 


tkelley on DSK3SPTVN1PROD with NOTICES
24206 Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices 

13See generally Bruce H. Kobayashi, The 

Economics of Loyalty Discount and Antitrust Law 

in the United States, 1 COMP. POL’Y INT’L 115 (2005). 

14 Id. 

15 Decision & Order § III(6)(c), Graco, Inc., FTC 

File No.101–0215, (April 17, 2013). 

contracts.13 As with exclusive dealing, 

the economic literature also supports 

the view that loyalty discounts more 

often than not are procompetitive.14 The 

Commission’s competition mission 

therefore is best served by an approach 

that counsels against imposing 

restrictions on loyalty discounts unless 

there is sufficient evidence to establish 

that such arrangements have or are 

likely to harm competition and 

consumers. 

The Order permits Graco to enter into 

certain loyalty discount agreements that 

require distributors to meet annual 

purchase and inventory thresholds to 

qualify for discounted prices.15 The 

Order, however, restricts the scope of 

these loyalty discounts by prescribing 

the maximum threshold levels Graco 

may set in 2013 and by only allowing 

those maximums to increase by 5 

percent year to year. Although there is 

evidence that Graco in some instances 

increased the inventory and purchase 

thresholds it required distributors to 

meet to receive discounts on fast-set 

equipment following its acquisitions, I 

have not seen evidence sufficient to link 

these increases to the anticompetitive 

effects of the mergers alleged in the 

Commission’s Complaint. For example, 

I have seen no evidence that a 

distributor dropped Gama/PMC or any 

other fringe competitor in response to 

Graco’s increased thresholds. Further, 

although there appears to be evidence 

that at least some distributors are unable 

to both meet the thresholds necessary to 

receive Graco’s discounts and carry 

competing manufacturers’ products, 

there is nothing barring these 

distributors from forgoing those 

discounts in order to carry multiple 

products lines. It has been several years 

since Graco increased the thresholds. In 

the absence of evidence this change 

harmed competition, the fact that some 

distributors prefer to take the discounts 

is not a sufficient reason to believe that 

prohibiting these contracts will protect 

consumers. Moreover, it is unlikely that 

the Commission is best positioned to 

gauge what the appropriate threshold 

should be for each distributor over time 

and as market conditions change. 

As a result, based upon the available 

evidence, I am concerned the 

restrictions on loyalty discounts in the 

Order ultimately may reduce consumer 

welfare rather than protect competition. 

Thus, I do not believe this aspect of the 

Order is in the public interest. 

* * * * * 

For these reasons, I voted in favor of 

the Commission’s Complaint and Order, 

but respectfully disagree with the Order 

provisions prohibiting exclusive 

contracts and restricting loyalty 

discounts. To the extent the majority 

believes Graco may use such 

arrangements to engage in 

anticompetitive conduct in the future, 

the Commission’s willingness and 

ability to bring a monopolization claim 

where the evidence indicates it is 

appropriate would protect consumers 

against the competitive risks posed by 

these arrangements without depriving 

consumers of their potential benefits. 

[FR Doc. 2013–09673 Filed 4–23–13; 8:45 am] 

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