[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32820-32824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16113]



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FEDERAL TRADE COMMISSION
[File No. 921-0050]


New Balance Athletic Shoe, Inc.; Proposed Consent Agreement with 
Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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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 Boston, 
Massachusetts-based shoe manufacturer from fixing, controlling, or 
maintaining the resale prices at which retailers advertise, promote, or 
offer for sale any New Balance athletic or casual footwear. It also 
prohibits New Balance from coercing or pressuring any retailer to 
maintain or adopt any resale price and from attempting to secure their 
commitment to any resale price. This consent agreement settles 
allegations that New Balance entered into agreements with some of its 
retailers to restrict price competition, thereby raising prices for 
consumers.

DATES: Comments must be received on or before August 26, 1996.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:
William Baer, Federal Trade Commission, H-374, 6th and Pennsylvania 
Ave, NW, Washington, DC 20580. (202) 326-2932. Michael Bloom, Federal 
Trade Commission, New York Regional Office, 150 William Street, Suite 
1300, New York, NY 10038. (212) 264-1201.

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

[[Page 32821]]

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 following 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. 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)).

Agreement Containing Consent Order to Cease and Desist

    Commissioners: Robert Pitofsky, Chairman, Mary L. Azcuenaga, 
Janet D. Steiger, Roscoe B. Starek, III, Christine A. Varney.

    The Federal Trade Commission having initiated an investigation of 
certain acts and practices of New Balance Athletic Shoe, Inc, and it 
now appearing that New Balance Athletic Shoe, Inc., hereinafter 
sometimes referred to as proposed respondent, is willing to enter into 
an agreement containing an order to cease and desist from engaging in 
the acts and practices being investigated,
    It is hereby agreed by and between New Balance Athletic Shoe, Inc., 
by its duly authorized officers, and its attorneys, and counsel for the 
Federal Trade Commission that:
    1. Proposed respondent New Balance Athletic Shoe, Inc. is a 
corporation organized, existing and doing business under and by virtue 
of the laws of the State of Massachusetts. The mailing address and 
principal place of business of proposed respondent is: 61 North Beacon 
Street, Boston, Massachusetts 02134.
    2. Proposed respondent admits all the jurisdictional facts set 
forth in the draft of complaint.
    3. The proposed respondent waives:
    (a) Any further procedural steps;
    (b) The requirement that the Commission's decision contain a 
statement of findings of fact and conclusions of law;
    (c) All rights to seek judicial review or otherwise to challenge or 
contest the validity of the order entered pursuant to this agreement; 
and
    (d) Any claim under the Equal Access to Justice Act.
    4. This agreement shall not become part of the public record of the 
proceeding unless and until it is accepted by the Commission. If this 
agreement is accepted by the Commission it, together with the draft of 
complaint contemplated thereby, will be placed on the public record for 
a period of sixty (60) days and information in respect thereto publicly 
released. The Commission thereafter may either withdraw its acceptance 
of this agreement and so notify the proposed respondent, in which event 
it will take such action as it may consider appropriate, or issue and 
serve its complaint (in such form as the circumstances may require) and 
decision, in disposition of the proceeding.
    5. This agreement is for settlement purposes only and does not 
constitute an admission by proposed respondent that the law has been 
violated as alleged in the draft of complaint, or that the facts as 
alleged in the draft complaint, other than jurisdictional facts, are 
true.
    6. This agreement contemplates that, if it is accepted by the 
Commission, and if such acceptance is not subsequently withdrawn by the 
Commission pursuant to the provisions of Sec. 2.34 of the Commission's 
Rules, the Commission may, without further notice to proposed 
respondent, (1) issue its complaint corresponding in form and substance 
with the draft of complaint and its decision containing the following 
order to cease and desist in disposition of the proceeding and (2) make 
information public in respect thereto. When so entered, the order to 
cease and desist shall have the same force and effect and may be 
altered, modified or set aside in the same manner and within the same 
time provided by statute for other orders. The order shall become final 
upon service. Delivery by the U.S. Postal Service of the complaint and 
decision containing the agreed-to order to proposed respondent's 
addresses as stated in this agreement shall constitute service. 
Proposed respondent waives any right it may have to any other manner of 
service. The complaint may be used in construing the terms of the 
order, and no agreement, understanding, representation, or 
interpretation not contained in the order or the agreement may be used 
to vary or contradict the terms of the order.
    7. The proposed respondent has read the proposed complaint and 
order contemplated hereby. It understands that once the order has been 
issued, it will be required to file one or more compliance reports 
showing that it has fully complied with the order. The proposed 
respondent further understands that it may be liable for civil 
penalties in the amount provided by law for each violation of the order 
after it becomes final.

Order

I

    It is ordered That for the purpose of this order, the following 
definitions shall apply:
    (A) The term ``New Balance'' means New Balance Athletic Shoe, Inc., 
its predecessors, subsidiaries, divisions, groups, and affiliates 
controlled by New Balance Athletic Shoe, Inc., and its respective 
directors, officers, employees, agents, and representatives, and the 
respective successors and assign of each.
    (B) The term ``respondent'' means New Balance.
    (C) The term ``product'' means any athletic or casual footwear item 
which is manufactured, offered for sale or sold under the brand name of 
``New Balance'' to dealers or consumers located in the United States of 
America.
    (D) The term ``dealer'' means any person, corporation or entity not 
owned by New Balance, or by any entity owned or controlled by New 
Balance, that in the course of its business sells any product in or 
into the United States of America.
    (E) The term ``resale price'' means any price, price floor, minimum 
price, maximum discount, price range, or any mark-up formula or margin 
of profit used by any dealer for pricing any product. ``Resale price'' 
includes, but is not limited to, any suggested, established, or 
customary resale price.

II

    It is further ordered That New Balance, directly or indirectly, or 
through any corporation, subsidiary, division or other device, in 
connection with the manufacturing, offering for sale, sale or 
distribution of any product in or into the United States of America in 
or affecting ``commerce,'' as defined by the Federal Trade Commission 
Act, do forthwith cease and desist from:
    (A) Fixing, controlling, or maintaining the resale price at which 
any dealer may advertise, promote, offer for sale or sell any product.
    (B) Requiring, coercing, or otherwise pressuring any dealer to 
maintain, adopt, or adhere to any resale price.
    (C) Securing or attempting to secure any commitment or assurance 
from any dealer concerning the resale price at which the dealer may 
advertise, promote, offer for sale or sell any product.
    (D) For a period of ten (10) years from the date on which this 
order becomes final, adopting, maintaining, enforcing or threatening to 
enforce any policy, practice or plan pursuant to which respondent 
notifies a dealer in a

[[Page 32822]]

advance that: (1) The dealer is subject to warning or partial or 
temporary suspension or termination if its sells, offers for sale, 
promotes or advertises any product below any resale price designated by 
respondents, and (2) the dealer will be subject to a greater sanction 
if it continues or renews selling, offering for sale, promoting or 
advertising any product below any such designated resale price. As used 
herein, the phrase ``partial or temporary suspension or termination'' 
includes but is not limited to any disruption, limitation, or 
restriction of supply: (1) of some, but not all, products, or (2) to 
some, but not all, dealer locations or businesses, or (3) for any 
delimited duration. As used herein, the phrase ``greater sanction'' 
includes but is not limited to a partial or temporary suspension or 
termination of greater scope or duration than the one previously 
implemented by respondent, or complete suspension or termination.
    Provided that nothing in this Order shall prohibit New Balance from 
establishing and maintaining cooperative advertising programs that 
include conditions as to the prices at which dealers offer products, so 
long as such advertising programs are not a part of a resale price 
maintenance scheme and do not otherwise violate this order.

III

    It is further ordered That, for a period of five (5) years from the 
date on which this order becomes final, New Balance shall clearly and 
conspicuously state the following on any list, advertising, book, 
catalogue, or promotional material where it has suggested any resale 
price for any product to any dealer: Although New Balance may suggest 
resale prices for products, retailers are free to determine on their 
own the prices at which they will advertise and sell New Balance 
products.

IV

    It is further ordered That, within (30) days after the date on 
which this order becomes final, New Balance shall mail by first class 
mail the letter attached as Exhibit A, together with a copy of this 
order, to all of its directors and officers, and to dealers, 
distributors, agents, or sales representatives engaged in the sale of 
any product in or into the United States of America.

V

    It is further ordered That, for a period of two (2) years after the 
date on which this order becomes final, New Balance shall mail by first 
class mail the letter attached as Exhibit A, together with a copy of 
this order, to each new director, officer, dealer, distributor, agent, 
and sales representative engaged in the sale of any product in or into 
the United States of America, within ninety (90) days of the 
commencement of such person's employment or affiliation with New 
Balance.

VI

    It is further ordered That New Balance shall notify the Commission 
at least thirty (30) days prior to any proposed changes in New Balance 
such as dissolution, assignment or sale resulting in the emergence of a 
successor corporation, the creation or dissolution of subsidiaries, or 
any other change in the corporations which may affect compliance 
obligations arising out of the order.

VII

    It is further ordered That, within sixty (60) days after the date 
this order becomes final, and at such other times as the Commission or 
its staff shall request, New Balance shall file with the Commission a 
verified written report setting forth in detail the manner and form in 
which New Balance has complied and is complying with this order.

VIII

    It is further ordered That this order shall terminate on July 15, 
1996.

Exhibit A [New Balance Letterhead]

    Dear Retailer: The Federal Trade Commission has conducted an 
investigation into New Balance's sales policies, and in particular 
New Balance's ``Statement of Policy,'' which was announced in July 
1991 and, with modifications, has remained in effect since then. To 
expeditiously resolve the investigation and to avoid disruption to 
the conduct of its business, New Balance has agreed, without 
admitting any violation of the law, to the entry of a Consent Order 
by the Federal Trade Commission prohibiting certain practices 
relating to resale prices. A copy of the Order is enclosed. This 
letter and the accompanying Order are being sent to all of our 
dealers, sales personnel and representatives.
    The Order spells out our obligations in grater detail, but we 
want you to know and understand that you can sell and advertise our 
products at any price you choose. While we may send materials to you 
which contain suggested retail prices, you remain free to sell and 
advertise those products at any price you choose.
    We look forward to continuing to do business with you in the 
future.
    Sincerely yours,
    ________
President, New Balance Athletic Shoe, Inc.

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted an agreement to a 
proposed consent order from New Balance Athletic Shoe, Inc. (``New 
Balance'').
    The proposed consent order has been placed on the public record for 
sixty (60) days for reception 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 is should 
withdraw from the agreement or make final the agreement's proposed 
order.

I. The Proposed Complaint

    The Commission has issued a proposed complaint against New Balance 
that alleges that New Balance has entered into combinations, agreements 
and understandings with certain of its dealers to fix the resale prices 
at which dealers sell its athletic footwear. The complaint further 
alleges that this conduct violates Section 5 of the Federal Trade 
Commission Act.
    To assist the public in understanding the circumstances under which 
the Commission may find a price agreement between a manufacturer and a 
retailer, the Commission's proposed complaint alleges price agreements 
in more detail than was contained in prior Commission resale price 
maintenance complaints. Specifically, the complaint alleges that New 
Balance engaged in various actions with the intent and effect of 
inducing certain of its dealers to enter into agreements with New 
Balance, pursuant to which the dealers agreed to raise retail prices on 
New Balance products, to maintain prices or price levels set by New 
Balance, or to refrain from discounting New Balance products. According 
to the complaint, these actions of New Balance included, among other 
things:
    (a) Threatening to suspend or terminate shipments to discounting 
retailers and engaging in other coercive acts, such as surveillance of 
dealers' prices and demanding that discounting dealers raise their 
prices;
    (b) Informing dealers that New Balance would act to secure similar 
price agreements with other dealers; and
    (c) Securing price agreements from discounting dealers after 
warning them that continued or subsequent selling of New Balance 
products at prices below those set by New Balance would result in 
discontinuation of sales to the dealer pursuant to New Balance's 
written

[[Page 32823]]

policy stating that it will give a ``one-time warning'' to a dealer who 
sells its products below designated prices, and that in the event of 
continued or subsequent violation of its policy New Balance will 
discontinue selling to that dealer.
    The complaint alleges that the purpose, tendency, or effect of the 
described New Balance actions is and has been to restrain trade 
unreasonably and to hinder competition in the sale of athletic footwear 
in the United States, depriving consumers of the benefits of price 
competition among retail dealers with respect to the sale of New 
Balance products and increasing prices to consumers of those products. 
The complaint concludes that the described acts and practices 
constitute unfair methods of competition and are illegal.

II. Description of Practices Giving Rise to the Alleged Violations of 
the Federal Trade Commission Act

    New Balance, a Massachusetts corporation, is a prominent seller of 
athletic footwear. New Balance athletic shoes are available in a wider 
range of widths than many other athletic shoes, as a result of which 
New Balance has a loyal following among customers who wear non-standard 
widths.
    In 1991, New Balance adopted a policy (hereinafter referred to as 
New Balance's ``one-time warning'' policy) under which retailers would 
first be warned, then terminated if they sold certain New Balance 
products at more than 20% below New Balance's suggested resale prices. 
Other versions of the one-time warning policy with minor changes came 
into effect at the start of 1993 and 1994.
    Instead of enforcing this one-time warning policy through 
termination of non-complying retailers, New Balance on occasion used 
the policy as a means to enter into agreements with discounting 
retailers with respect to resale prices. For example, New Balance urged 
retailers to comply, sought expressions of consent, and negotiated the 
terms on which certain retailers would comply. As a result of these 
actions by New Balance some retailers have raised their retail prices.
    As alleged in the complaint, New Balance induced retailers to enter 
into these agreements through coercive acts, including surveillance of 
retailer prices, threatening to suspend or terminate shipments to 
discounting retailers, and demanding that discounting retailers raise 
their prices. In addition, New Balance assured retailers that New 
Balance would secure similar price agreements from other, competing 
retailers or otherwise prevent unapproved discounting of New Balance 
athletic shoes.
    New Balance, by using the means described, was successful in 
inducing recalcitrant retailers to agree to charge prices preferred by 
New Balance, irrespective of the pricing preferences of each retailer. 
The result of New Balance's actions was to restrict price competition 
among retailers of New Balance athletic shoes, increasing New Balance 
athletic shoe prices to consumers. Entry into such price agreements 
constitute per se violations of the antitrust law prohibition of 
agreements in restraint of trade and violate Section 5 of the Federal 
Trade Commission Act.

III. Explanation of the Proposed Consent Order

    New Balance has signed an agreement containing an order to cease 
and desist from engaging in the acts and prices under investigation. 
The agreement provides that it is for settlement purposes only and does 
not constitute an admission by New Balance that the law has been 
violated or that the facts alleged in the complaint (other than 
jurisdictional facts) are true. The proposed order requires New Balance 
to cease and desist from continuing or renewing the acts and practices 
alleged in the complaint, which affected both advertised and in-store 
prices. Specifically, Section II(A) of the proposed order requires New 
Balance to cease and desist from fixing, controlling, or maintaining 
the resale prices at which any dealer may advertise, promote, offer for 
sale or sell any New Balance product.
    The law generally permits a manufacturer unilaterally to adopt, 
announce, and implement a policy of refusing to deal with resellers who 
sell at prices other than those preferred by the manufacturer. United 
States v. Colgate & Co., 250 U.S. 300 (1919). The manufacturer may not, 
however, seek and obtain a reseller's agreement to adhere to the 
manufacturer's price preferences. United States v. Parke, Davis & Co., 
362 U.S. 29 (1960). To prevent New Balance from seeking and obtaining 
resellers' agreements to adhere to its pricing preferences, Sections II 
(B) and (C) of the order prohibit New Balance from requiring, coercing, 
or otherwise pressuring any dealer to maintain, adopt, or adhere to any 
resale price, and from securing or attempting to secure any commitment 
or assurance from any dealer concerning the resale price at which the 
dealer may advertise, promote, offer for sale, or sell any product.
    Section II(D) addresses New Balance's improper use of its one-time 
warning policy. To prevent New Balance from using this policy as a 
means to enter into price agreements with non-complying retailers, the 
proposed order prohibits New Balance, for a period of ten years from 
the date on which the order becomes final, from adopting, maintaining, 
threatening to enforce, or enforcing any policy, practice, or plan 
under which New Balance notifies a reseller in advance that the 
reseller is subject to partial or temporary suspension or termination 
if it sells or advertises any product below a resale price designated 
by New Balance, and that the dealer will be subject to a greater 
sanction if it continues or renews selling or advertising any product 
below a designated resale price. The order does not prohibit New 
Balance from announcing suggested resale prices in advance and 
unilaterally refusing to deal with those who fail to comply.
    The proposed order does not prohibit New Balance from establishing 
and maintaining cooperative advertising programs that include 
conditions as to the prices at which dealers offer products, so long as 
such advertising programs are not a part of a resale price maintenance 
scheme and do not otherwise violate this order.
    The proposed order also contains provisions that are intended to 
restore competitive conditions in the market(s) affected by New 
Balance's unlawful actions. Section III of the proposed order requires 
New Balance, for a period of five years from the date on which the 
order becomes final, to place on any material in which it suggests 
resale prices a statement that the reseller is free to determine the 
prices at which it will sell New Balance products. Section IV of the 
proposed order requires New Balance, within thirty days after the date 
on which the order becomes final, to mail a letter, together with a 
copy of the order, to its directors, officers, dealers, sales 
representatives, and specified others, to inform them that resellers of 
New Balance products can advertise and sell New Balance products at any 
price they choose. Section V of the order, for a period of two years 
from the date on which the order becomes final, imposes a similar 
requirement with respect to prospective directors, officers, dealers, 
sales representatives.
    Section VI of the proposed order requires New Balance to provide 
the Commission with notice of changes in New Balance, such as the 
creation or dissolution of subsidiaries, that may affect its order 
compliance obligations. Section VII requires New Balance to file

[[Page 32824]]

a detailed report of the manner and form of its compliance with the 
order within sixty days of its becoming final and at such other times 
as the Commission may request.
    The proposed order provides that the order shall terminate 20 years 
after the date of its issuance by the Commission.
    The purpose of this analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order to modify in any way 
their terms.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Mary L. Azcuenaga in New Balance 
Athletic Shoe, Inc., File No. 921-0050

    There is some evidence that New Balance went beyond permissible 
communications with its dealers and entered the realm of unlawful 
resale price maintenance. An order is, therefore, appropriate. I write 
separately to make clear my understanding that the proposed complaint 
does not challenge the announcement or implementation by a supplier of 
a structured termination policy. although I view Paragraph 4(c) of the 
complaint as ambiguous, the essence of the charge is that New Balance 
would not impose sanctions on them. New Balance did not implement its 
structured termination policy, and the proposed complaint and order do 
not address the lawfulness of that policy.

Dissenting Statement of Commissioner Roscoe B. Starek, III In the 
Matter of New Balance Athletic Shoe, Inc., File No. 921-0050

    As I did in Reebok International, Ltd., Docket No. C-3592, I find 
reasons to believe that the target of the present investigation--New 
Balance Athletic Shoe, Inc. (``New Balance'')--has entered into 
agreements with retailers to restrain retail prices and has thereby 
violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45. 
However, I dissent from the Commission's decision to accept the consent 
agreement in this matter because certain provisions of the proposed 
Commission order are not required to prevent unlawful conduct and may 
instead unnecessarily restrain procompetitive conduct by New Balance.
    As in Reebok International, the fencing-in restrictions in the 
proposed order relating to resale price advertising (specifically, the 
minimum advertised price provisions) \1\ and to New Balance's 
``structured termination policy.'' \2\ are unjustifiably broad and 
likely to deter efficient conduct. Indeed, the order even goes beyond 
the provisions I found over inclusive, and therefore unacceptable, in 
the Reebok order: the current order omits language that appeared in 
Paragraph II of the Reebok order that expressly recognized the 
respondent's Colgate rights.\3\
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    \1\ The unnecessary provisions relating to price advertising 
appear in Paragraphs II(A), II(B), and III and in Exhibit A to the 
proposed order.
    \2\ See Paragraph IV(C) of the proposed complaint and Paragraph 
II(D) of the proposed order.
    \3\ See United States v. Colgate & Co., 250 U.S. 300 (1919).
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    In the interests of fairness and efficiency, injunctive relief 
ordered to address resale price maintenance should be strictly tailored 
to the per se unlawful conduct alleged. Because the proposed order in 
this case mandates excessive restrictions upon the conduct of New 
Balance, I respectfully dissent.
[FR Doc. 96-16113 Filed 6-24-96; 8:45 am]
BILLING CODE 6750-01-M