81 FR 54085 - Fortiline, LLC; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

Federal Register Volume 81, Issue 157 (August 15, 2016)

Page Range		54085-54088
FR Document		2016-19339

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the complaint and the terms of the consent order-- embodied in the consent agreement--that would settle these allegations.

Federal Register, Volume 81 Issue 157 (Monday, August 15, 2016)

[Federal Register Volume 81, Number 157 (Monday, August 15, 2016)]
[Notices]
[Pages 54085-54088]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-19339]

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FEDERAL TRADE COMMISSION

[File No. 151 0000]

Fortiline, LLC; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis to Aid Public Comment describes both the
allegations in the 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 September 8, 2016.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/fortilineconsent online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``In the Matter of
Fortiline, LLC, File No. 151-0000--Consent Agreement'' on your comment
and file your comment online at https://ftcpublic.commentworks.com/ftc/fortilineconsent by following the instructions on the web-based form.
If you prefer to file your comment on paper, write ``In the Matter of
Fortiline, LLC, File No. 151-0000--Consent Agreement'' on your comment
and on the envelope, and mail your comment to the following address:
Federal Trade Commission, Office of the Secretary,

[[Page 54086]]

600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC
20580, or deliver your comment to the following address: Federal Trade
Commission, Office of the Secretary, Constitution Center, 400 7th
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Mark Taylor (202-326-2287), 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 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 August 9, 2016), on the World Wide Web, at
http://www.ftc.gov/os/actions.shtm.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before September 8,
2016. Write ``In the Matter of Fortiline, LLC, File No. 151-0000--
Consent Agreement'' 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
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.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must 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).
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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/fortilineconsent 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 ``In the Matter of
Fortiline, LLC, File No. 151-0000--Consent Agreement'' on your comment
and on the envelope, and mail your comment to the following address:
Federal Trade Commission, Office of the Secretary, 600 Pennsylvania
Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, or deliver
your comment to the following address: Federal Trade Commission, Office
of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor,
Suite 5610 (Annex D), Washington, DC. 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 September 8, 2016. 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, subject
to final approval, an agreement containing consent order (``Consent
Agreement'') from Fortiline, LLC (``Fortiline''). The Commission's
Complaint alleges that Fortiline violated Section 5 of the Federal
Trade Commission Act, as amended, 15 U.S.C. 45, by inviting a competing
seller of ductile iron pipe (``DIP''), Manufacturer A, to raise and fix
prices.
This is the first Commission challenge to an invitation to collude
by a firm that is in both a horizontal (interbrand) and a vertical
(intrabrand) relationship with the invitee, sometimes referred to as a
dual distribution relationship. During the time-period relevant to the
Complaint, Fortiline, a DIP distributor, sold DIP to customers in
competition with Manufacturer A (principally a manufacturer, but also
engaged in direct sales), while it also served as Manufacturer A's
distributor in certain circumstances. Fortiline thus had a vertical
distributor relationship with Manufacturer A in certain areas and
circumstances and a horizontal competitor relationship with
Manufacturer A in others. This case makes clear that the existence of
an intrabrand relationship between firms does not immunize an
invitation to fix prices for interbrand transactions falling outside of
that intrabrand relationship just as the law would not condone an
actual price fixing agreement under similar circumstances.
The Consent Agreement has been placed on the public record for 30
days for receipt of comments from interested members of the public.
Comments received during this period will become part of the public
record. After 30 days, the Commission will review the Consent Agreement
again and the comments received, and will decide whether it should
withdraw from the Consent Agreement or make final the accompanying
Decision and Order (``Proposed Order'').
The purpose of this Analysis to Aid Public Comment is to invite and
facilitate public comment. It is not intended to constitute an official
interpretation of the proposed Consent Agreement and the accompanying
Proposed Order or in any way to modify their terms.

[[Page 54087]]

I. The Complaint

The allegations of the Complaint are summarized below:
Fortiline distributes waterworks infrastructure products, such as
pipe (including DIP), tubing, valves, fittings and piping accessories.
DIP is a commodity product used in underground waterworks distribution
systems and water treatment plants. End users of DIP are primarily
municipalities and water utilities. For a typical project, the end user
seeks bids from multiple contractors. Contractors, in turn, solicit DIP
bids from waterworks distributors (such as Fortiline) and/or directly
from DIP manufacturers. Contractors that buy direct from DIP
manufacturers often pay a lower price, but forgo value-added services
that distributors provide.
Each of the major DIP manufacturers in the United States
periodically publishes a nationwide ``price list'' or ``pricing
schedule.'' Sometimes, rather than publishing a new price list, a DIP
manufacturer would announce a price adjustment stated in terms of a
``multiplier,'' a decimal number by which the published price was
multiplied to arrive at the new list price. A higher multiplier
translated to a higher price for DIP. The price list and the multiplier
would serve as the starting point for transaction price negotiations
with customers; the final transaction price on each project was decided
on a job-by-job basis.
From its founding in 1997 until late 2009, most Fortiline branches
distributed only DIP manufactured by Manufacturer A. However, on or
about December 14, 2009, Fortiline terminated Manufacturer A as its DIP
supplier in North Carolina and in most of Virginia. After December 14,
2009, Fortiline branches in this area bid on new waterworks projects
with DIP manufactured by Manufacturer B, a competitor of Manufacturer
A.
After December 14, 2009, some Fortiline branches outside of North
Carolina and in one part of Virginia continued to distribute
Manufacturer A's DIP. In addition, even though Fortiline terminated
Manufacturer A in North Carolina and in most of Virginia, Fortiline
continued to supply Manufacturer A's DIP to contractors in that area as
needed to complete projects where Fortiline had, prior to December 14,
2009, submitted a bid specifying Manufacturer A's DIP.
Fortiline's termination of Manufacturer A in North Carolina and
most of Virginia left Manufacturer A without a major distributor in
that region. In response, Manufacturer A began to market and sell DIP
directly to contractors in North Carolina and most of Virginia, in
competition with North Carolina and Virginia distributors and their DIP
suppliers, including Fortiline and its new supplier, Manufacturer B.
Manufacturer A did not offer North Carolina and Virginia
contractors the value-added services provided by distributors. In order
to entice contractors to forgo those services and to buy directly from
Manufacturer A, Manufacturer A offered lower prices. In response,
Fortiline and other distributors (in conjunction with their DIP
suppliers) reduced their own prices in order to compete with
Manufacturer A's lower prices.
On two occasions in 2010, when Fortiline and Manufacturer A were
competing against one another to sell DIP in North Carolina and most of
Virginia, Fortiline invited Manufacturer A to collude on DIP pricing in
that region.
On February 12, 2010, the chief executive officer and the vice
president of sales for Fortiline met with Manufacturer A's vice
president of sales. Among other things, they discussed Manufacturer A's
practice of selling direct in North Carolina and most of Virginia at
low prices.
That evening, Fortiline's vice president of sales forwarded to his
counterpart at Manufacturer A an email reporting on market conditions
in North Carolina. The email detailed Manufacturer A's practice of
undercutting its competitors' prices. In contrast, the email reported,
other major DIP manufacturers ``have been trying to keep their numbers
up thus far.'' The Fortiline email included the following commentary:
``This is the type of irrational behavior [by Manufacturer A] that we
were discussing earlier today. With this approach we will be at a .22
[multiplier] soon instead of a needed .42.''
In substance, the February 12th email communicated Fortiline's
dissatisfaction with Manufacturer A's low pricing in North Carolina and
parts of Virginia and its preference that both Fortiline and
Manufacturer A should bid to contractors using the higher .42
multiplier.
Eight months later, on October 26, 2010, executives from Fortiline
and Manufacturer A met again, this time at a trade association meeting.
At that meeting, Fortiline complained that Manufacturer A had sold
direct to a Virginia customer, which had previously purchased from
Fortiline, at a 0.31 multiplier, and that this price was ``20% below
market.''
In substance, this October 26th conversation communicated
Fortiline's dissatisfaction with Manufacturer A's lower pricing in
Virginia, and its preference that both Fortiline and Manufacturer A
should bid to contractors using a substantially higher multiplier in
that region.

II. Analysis

The term ``invitation to collude'' describes an improper
communication from a firm to an actual or potential competitor that the
firm is ready and willing to coordinate on price or output or other
important terms of competition. The Commission has long held that
invitations to collude violate Section 5 of the FTC Act. An invitation
to collude is ``potentially harmful and . . . serves no legitimate
business purpose.'' \1\ For those reasons, the Commission treats such
conduct as ``inherently suspect'' (that is, presumptively
anticompetitive).\2\ This means that, in the absence of a
procompetitive justification, an invitation to collude can be condemned
under Section 5 without a showing that the respondent possesses market
power \3\ and without proof that the competitor accepted the
invitation.\4\ There are various reasons for this. First, unaccepted
solicitations may harm competition by facilitating coordination between
competitors because they reveal information about the solicitor's
intentions or preferences. Second, it can be difficult to discern
whether a competitor has accepted a solicitation. Finally, finding a
violation

[[Page 54088]]

may deter similar conduct that has no legitimate business purpose.\5\
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\1\ In re Valassis Commc'ns., Inc., 141 F.T.C. 247, 283 (2006)
(Analysis of Agreement Containing Consent Order to Aid Public
Comment); see also Address by FTC Chairwoman Edith Ramirez, Section
5 Enforcement Principles, George Washington University Law School at
5 (Aug. 13, 2015) (discussing invitations to collude), https://www.ftc.gov/system/files/documents/public_statements/735411/150813section5speech.pdf.
\2\ See, e.g., In re North Carolina Bd. of Dental Examiners, 152
F.T.C. 640, 668 (2011) (noting that inherently suspect conduct is
such that be ``reasonably characterized as `giv[ing] rise to an
intuitively obviously inference of anticompetitive effect' '').
\3\ See, e.g., In re Realcomp II, Ltd., 148 F.T.C. __, No. 9320,
2009 FTC LEXIS 250 at *51 (Oct. 30, 2009) (Comm'n Op.) (explaining
that if conduct is ``inherently suspect'' in nature, and there are
no cognizable procompetitive justifications, the Commission can
condemn it ``without proof of market power or actual effects'').
\4\ See, e.g., In re Valassis Commc'ns, Inc., 141 F.T.C. 247
(2006); In re Stone Container, 125 F.T.C. 853 (1998); In re
Precision Moulding, 122 F.T.C. 104 (1996). See also In re McWane,
Inc., Docket No. 9351, Opinion of the Commission on Motions for
Summary Decision at 20-21 (F.T.C. Aug. 9, 2012) (``an invitation to
collude is `the quintessential example of the kind of conduct that
should be . . . challenged as a violation of Section 5' '') (citing
the Statement of Chairman Leibowitz and Commissioners Kovacic and
Rosch, In re U-Haul Int'l, Inc., 150 F.T.C. 1, 53 (2010)).
\5\ In re Valassis Commc'ns, 141 F.T.C. at 283 (Analysis of
Agreement Containing Consent Order to Aid Public Comment).
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As described above, during the relevant time period, Fortiline
competed with Manufacturer A in selling DIP to customers while also
serving as Manufacturer A's distributor. Fundamentally, the fact that
the firms are competitors in some transactions and collaborators in
others does not alter the legal analysis. An agreement between actual
or potential competitors that restrains interbrand price competition
between the two firms presumptively harms competition. The existence of
an intrabrand component to the conspirators' relationship (such as a
distribution agreement or a license agreement) does not necessarily
foreclose per se analysis.\6\ The relevant issue is not whether the
parties are in a vertical or horizontal relationship, but whether the
restraint on competition is an intrabrand restraint or an interbrand
restraint.\7\ A similar analysis applies in the context of an
invitation to collude.
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\6\ See Gen. Leaseways, Inc. v. Nat'l Truck Leasing Ass'n, 744
F.2d 588, 594 (7th Cir. 1984) (``It does not follow that because two
firms sometimes have a cooperative relationship there are no
competitive gains from forbidding them to cooperate in ways that
yield no economies but simply limit competition.''). See also Palmer
v. BRG of Georgia, Inc., 498 U.S. 46, 49 (1990) (per se liability
where conspirators had both horizontal and vertical (licensor/
licensee) relationship); Eli Lilly and Co. v. Zenith Goldline
Pharmaceuticals, Inc., 172 F.Supp.2d 1060 (S.D. Ind. 2001) (per se
liability where conspirators had both horizontal and vertical
relationship); United States v. General Electric Co., 1997-1 Trade
Cas. (CCH) ] 71,765 (D. Mont. 1997) (same).
\7\ See United States v. Apple, Inc., 791 F.3d 290, 322 (2d Cir.
2015) (internal citations omitted) (rejecting Apple's argument that
its role in a horizontal conspiracy with publishers should be
evaluated under rule of reason because it was in a vertical
relationship with publishers, noting that ``it is the type of
restraint that Apple agreed with the publishers to impose that
determines whether the per se rule or the rule of reason is
appropriate. These rules are means of evaluating `whether [a]
restraint is unreasonable,' not the reasonableness of a particular
defendant's role in the scheme.'').
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Here, the Complaint charges that Fortiline invited Manufacturer A
to collude on pricing across the board, including on transactions in
which Fortiline was distributing for a rival manufacturer, Manufacturer
B.\8\ Certainly, market and price-related communications between a
manufacturer and its distributor can be appropriate and
procompetitive.\9\ A firm may not, however, use an intrabrand
relationship to shield itself from anticompetitive interbrand
conduct.\10\ As an intrabrand relationship will not immunize an
otherwise unlawful agreement, it likewise will not immunize an unlawful
invitation to collude. If Manufacturer A accepted Fortiline's requests
to raise prices on projects for which the firms were interbrand
competitors, the resulting agreement would be per se unlawful. It
follows that Fortiline's communications to Manufacturer A--its attempts
to secure an unlawful agreement--were unlawful invitations to collude.
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\8\ The Commission has previously found similar communications
to constitute unlawful invitations to collude. E.g., In re Step N
Grip LLC, 160 F.T.C. __, Docket No. C-4561 (Dec. 7, 2015), https://www.ftc.gov/enforcement/cases-proceedings/151-0181/step-n-grip-llc-matter (respondent communicated to competitor that both parties
should sell at the same price); In re Precision Moulding, 122 F.T.C.
104 (1996) (respondent complained to competitor that the
competitor's pricing was ``ridiculously low'' and that the
competitor did not have to ``give the product away''); In re AE
Clevite, 116 F.T.C. 389, 391 (1993) (respondent complained to
competitor about its pricing, and subsequently faxed the competitor
comparative price lists from both companies).
\9\ See Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752,
764-65 (1984).
\10\ See supra notes 6-8.
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III. The Proposed Consent Order

The Commission recognizes the need to tailor relief that will
prevent Fortiline from engaging in the anticompetitive conduct
described in the complaint, yet avoid chilling procompetitive
communications and efficient contracting between Fortiline and each of
its current and future suppliers.
The Proposed Order contains the following substantive provisions:
Section II prohibits Fortiline from entering into, attempting to enter
into, participating in, maintaining, organizing, implementing,
enforcing, inviting, encouraging, offering or soliciting an agreement
or understanding with any competitor to raise or fix prices or any
other pricing action, or to allocate or divide markets, customers,
contracts, transactions, business opportunities, lines of commerce, or
territories. Two provisos apply to Section II. The first proviso makes
clear that Fortiline may engage in conduct that is reasonably related
to, and reasonably necessary to achieve the procompetitive benefits of,
a lawful manufacturer-distributor relationship, joint venture
agreement, or lawful merger, acquisition, or sale agreement. The second
proviso makes clear that Fortiline may negotiate and enter into an
agreement to buy DIP from, or sell DIP to, a competitor.
Paragraphs III-VI of the Proposed Order impose certain standard
reporting and compliance requirements on Fortiline.
The Proposed Order will expire in 20 years.

By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2016-19339 Filed 8-12-16; 8:45 am]
BILLING CODE 6750-01-P

Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Notices 54085

Nature and Extent of Confidentiality: 1. David Ryan Feriancek, Saint 44101–2566. Comments can also be sent
There is no need for confidentiality with Joseph, Minnesota; to become a trustee electronically to
this collection of information. of the Stearns Financial Services, Inc., Comments.applications@clev.frb.org:
Privacy Impact Assessment(s): No Employee Stock Ownership Plan and 1. Commonwealth Holdings, LLC,
impact(s). Trust, Saint Cloud, Minnesota, (ESOP), Burlington, Kentucky; to acquire 33
Needs and Uses: 47 CFR 73.1250(e) and thereby indirectly acquire control of percent of the voting stock of Heritage
states immediately upon cessation of an voting shares Stearns Financial Bancorp, Inc., Burlington, Kentucky,
emergency during which broadcast Services, Inc., Saint Cloud, Minnesota and thereby indirectly acquire control of
facilities were used for the transmission (Stearns). Stearns controls Stearns Bank Heritage Bank, Inc., Erlanger, Kentucky.
of point-to-point messages under National Association, Saint Cloud, B. Federal Reserve Bank of Chicago
paragraph (b) of this section, or when Minnesota, Stearns Bank of Upsala (Colette A. Fried, Assistant Vice
daytime facilities were used during National Association, Upsala, President) 230 South LaSalle Street,
nighttime hours by an AM station in Minnesota, and Stearns Bank of Chicago, Illinois 60690–1414:
accordance with paragraph (f) of this Holdingford National Association, 1. River Holding Company, Stoddard,
section, a report in letter form shall be Holdingford, Minnesota. Wisconsin; to merge with Sparta Union
forwarded to the FCC in Washington, Board of Governors of the Federal Reserve Bancshares, Inc., Sparta, Wisconsin and
DC, setting forth the nature of the System, August 9, 2016. thereby indirectly acquire Union
emergency, the dates and hours of the Michele T. Fennell, National Bank and Trust Company,
broadcasting of emergency information, Sparta, Wisconsin.
Assistant Secretary of the Board.
and a brief description of the material Board of Governors of the Federal Reserve
[FR Doc. 2016–19283 Filed 8–12–16; 8:45 am]
carried during the emergency. A System, August 9, 2016.
certification of compliance with the BILLING CODE 6210–01–P
Michele T. Fennell,
non-commercialization provision of
Assistant Secretary of the Board.
paragraph (f) of this section must
accompany the report where daytime FEDERAL RESERVE SYSTEM [FR Doc. 2016–19284 Filed 8–12–16; 8:45 am]
facilities are used during nighttime BILLING CODE 6210–01–P
Formations of, Acquisitions by, and
hours by an AM station, together with Mergers of Bank Holding Companies
a detailed showing, under the
provisions of that paragraph, that no The companies listed in this notice FEDERAL TRADE COMMISSION
other broadcast service existed or was have applied to the Board for approval, [File No. 151 0000]
adequate. pursuant to the Bank Holding Company
Federal Communications Commission. Act of 1956 (12 U.S.C. 1841 et seq.) Fortiline, LLC; Analysis To Aid Public
(BHC Act), Regulation Y (12 CFR part Comment
Sheryl D. Todd,
225), and all other applicable statutes
Deputy Secretary, Office of the Secretary. AGENCY: Federal Trade Commission.
and regulations to become a bank
[FR Doc. 2016–19307 Filed 8–12–16; 8:45 am] holding company and/or to acquire the ACTION: Proposed Consent Agreement.
BILLING CODE 6712–01–P assets or the ownership of, control of, or
SUMMARY: The consent agreement in this
the power to vote shares of a bank or
matter settles alleged violations of
bank holding company and all of the
FEDERAL RESERVE SYSTEM federal law prohibiting unfair methods
banks and nonbanking companies
of competition. The attached Analysis to
owned by the bank holding company,
Change in Bank Control Notices; Aid Public Comment describes both the
including the companies listed below.
Acquisitions of Shares of a Bank or The applications listed below, as well allegations in the complaint and the
Bank Holding Company as other related filings required by the terms of the consent order—embodied
Board, are available for immediate in the consent agreement—that would
The notificants listed below have settle these allegations.
applied under the Change in Bank inspection at the Federal Reserve Bank
indicated. The applications will also be DATES: Comments must be received on
Control Act (12 U.S.C. 1817(j)) and
§ 225.41 of the Board’s Regulation Y (12 available for inspection at the offices of or before September 8, 2016.
CFR 225.41) to acquire shares of a bank the Board of Governors. Interested ADDRESSES: Interested parties may file a
or bank holding company. The factors persons may express their views in comment at https://
that are considered in acting on the writing on the standards enumerated in ftcpublic.commentworks.com/ftc/
notices are set forth in paragraph 7 of the BHC Act (12 U.S.C. 1842(c)). If the fortilineconsent online or on paper, by
the Act (12 U.S.C. 1817(j)(7)). proposal also involves the acquisition of following the instructions in the
The notices are available for a nonbanking company, the review also Request for Comment part of the
immediate inspection at the Federal includes whether the acquisition of the SUPPLEMENTARY INFORMATION section
Reserve Bank indicated. The notices nonbanking company complies with the below. Write ‘‘In the Matter of Fortiline,
also will be available for inspection at standards in section 4 of the BHC Act LLC, File No. 151–0000—Consent
the offices of the Board of Governors. (12 U.S.C. 1843). Unless otherwise Agreement’’ on your comment and file
Interested persons may express their noted, nonbanking activities will be your comment online at https://
views in writing to the Reserve Bank conducted throughout the United States. ftcpublic.commentworks.com/ftc/
indicated for that notice or to the offices Unless otherwise noted, comments fortilineconsent by following the
instructions on the web-based form. If
sradovich on DSK3GMQ082PROD with NOTICES

of the Board of Governors. Comments regarding each of these applications
must be received not later than August must be received at the Reserve Bank you prefer to file your comment on
30, 2016. indicated or the offices of the Board of paper, write ‘‘In the Matter of Fortiline,
A. Federal Reserve Bank of Governors not later than September 9, LLC, File No. 151–0000—Consent
Minneapolis (Jacquelyn K. Brunmeier, 2016. Agreement’’ on your comment and on
Assistant Vice President) 90 Hennepin A. Federal Reserve Bank of Cleveland the envelope, and mail your comment to
Avenue, Minneapolis, Minnesota (Nadine Wallman, Vice President) 1455 the following address: Federal Trade
55480–0291: East Sixth Street, Cleveland, Ohio Commission, Office of the Secretary,

VerDate Sep<11>2014 19:23 Aug 12, 2016 Jkt 238001 PO 00000 Frm 00045 Fmt 4703 Sfmt 4703 E:\FR\FM\15AUN1.SGM 15AUN1

Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Notices 54087

I. The Complaint began to market and sell DIP directly to In substance, this October 26th
The allegations of the Complaint are contractors in North Carolina and most conversation communicated Fortiline’s
summarized below: of Virginia, in competition with North dissatisfaction with Manufacturer A’s
Fortiline distributes waterworks Carolina and Virginia distributors and lower pricing in Virginia, and its
infrastructure products, such as pipe their DIP suppliers, including Fortiline preference that both Fortiline and
(including DIP), tubing, valves, fittings and its new supplier, Manufacturer B. Manufacturer A should bid to
and piping accessories. DIP is a Manufacturer A did not offer North contractors using a substantially higher
commodity product used in Carolina and Virginia contractors the multiplier in that region.
underground waterworks distribution value-added services provided by II. Analysis
systems and water treatment plants. End distributors. In order to entice
contractors to forgo those services and The term ‘‘invitation to collude’’
users of DIP are primarily describes an improper communication
municipalities and water utilities. For a to buy directly from Manufacturer A,
Manufacturer A offered lower prices. In from a firm to an actual or potential
typical project, the end user seeks bids competitor that the firm is ready and
from multiple contractors. Contractors, response, Fortiline and other
distributors (in conjunction with their willing to coordinate on price or output
in turn, solicit DIP bids from or other important terms of competition.
waterworks distributors (such as DIP suppliers) reduced their own prices
in order to compete with Manufacturer The Commission has long held that
Fortiline) and/or directly from DIP invitations to collude violate Section 5
manufacturers. Contractors that buy A’s lower prices.
On two occasions in 2010, when of the FTC Act. An invitation to collude
direct from DIP manufacturers often pay is ‘‘potentially harmful and . . . serves
a lower price, but forgo value-added Fortiline and Manufacturer A were
no legitimate business purpose.’’ 1 For
services that distributors provide. competing against one another to sell
those reasons, the Commission treats
Each of the major DIP manufacturers DIP in North Carolina and most of
such conduct as ‘‘inherently suspect’’
in the United States periodically Virginia, Fortiline invited Manufacturer
(that is, presumptively
publishes a nationwide ‘‘price list’’ or A to collude on DIP pricing in that
anticompetitive).2 This means that, in
‘‘pricing schedule.’’ Sometimes, rather region.
the absence of a procompetitive
than publishing a new price list, a DIP On February 12, 2010, the chief
justification, an invitation to collude
manufacturer would announce a price executive officer and the vice president
can be condemned under Section 5
adjustment stated in terms of a of sales for Fortiline met with without a showing that the respondent
‘‘multiplier,’’ a decimal number by Manufacturer A’s vice president of possesses market power 3 and without
which the published price was sales. Among other things, they proof that the competitor accepted the
multiplied to arrive at the new list price. discussed Manufacturer A’s practice of invitation.4 There are various reasons
A higher multiplier translated to a selling direct in North Carolina and for this. First, unaccepted solicitations
higher price for DIP. The price list and most of Virginia at low prices. may harm competition by facilitating
the multiplier would serve as the That evening, Fortiline’s vice coordination between competitors
starting point for transaction price president of sales forwarded to his because they reveal information about
negotiations with customers; the final counterpart at Manufacturer A an email the solicitor’s intentions or preferences.
transaction price on each project was reporting on market conditions in North Second, it can be difficult to discern
decided on a job-by-job basis. Carolina. The email detailed whether a competitor has accepted a
From its founding in 1997 until late Manufacturer A’s practice of solicitation. Finally, finding a violation
2009, most Fortiline branches undercutting its competitors’ prices. In
distributed only DIP manufactured by contrast, the email reported, other major 1 In re Valassis Commc’ns., Inc., 141 F.T.C. 247,

Manufacturer A. However, on or about DIP manufacturers ‘‘have been trying to 283 (2006) (Analysis of Agreement Containing
December 14, 2009, Fortiline terminated keep their numbers up thus far.’’ The Consent Order to Aid Public Comment); see also
Fortiline email included the following Address by FTC Chairwoman Edith Ramirez,
Manufacturer A as its DIP supplier in Section 5 Enforcement Principles, George
North Carolina and in most of Virginia. commentary: ‘‘This is the type of Washington University Law School at 5 (Aug. 13,
After December 14, 2009, Fortiline irrational behavior [by Manufacturer A] 2015) (discussing invitations to collude), https://
branches in this area bid on new that we were discussing earlier today. www.ftc.gov/system/files/documents/public_
With this approach we will be at a .22 statements/735411/150813section5speech.pdf.
waterworks projects with DIP 2 See, e.g., In re North Carolina Bd. of Dental
manufactured by Manufacturer B, a [multiplier] soon instead of a needed
Examiners, 152 F.T.C. 640, 668 (2011) (noting that
competitor of Manufacturer A. .42.’’ inherently suspect conduct is such that be
After December 14, 2009, some In substance, the February 12th email ‘‘reasonably characterized as ‘giv[ing] rise to an
Fortiline branches outside of North communicated Fortiline’s intuitively obviously inference of anticompetitive
effect’ ’’).
Carolina and in one part of Virginia dissatisfaction with Manufacturer A’s 3 See, e.g., In re Realcomp II, Ltd., 148 F.T.C. l
continued to distribute Manufacturer low pricing in North Carolina and parts l, No. 9320, 2009 FTC LEXIS 250 at *51 (Oct. 30,
A’s DIP. In addition, even though of Virginia and its preference that both 2009) (Comm’n Op.) (explaining that if conduct is
Fortiline terminated Manufacturer A in Fortiline and Manufacturer A should ‘‘inherently suspect’’ in nature, and there are no
North Carolina and in most of Virginia, bid to contractors using the higher .42 cognizable procompetitive justifications, the
Commission can condemn it ‘‘without proof of
Fortiline continued to supply multiplier. market power or actual effects’’).
Manufacturer A’s DIP to contractors in Eight months later, on October 26, 4 See, e.g., In re Valassis Commc’ns, Inc., 141

that area as needed to complete projects 2010, executives from Fortiline and F.T.C. 247 (2006); In re Stone Container, 125 F.T.C.
where Fortiline had, prior to December Manufacturer A met again, this time at 853 (1998); In re Precision Moulding, 122 F.T.C. 104
sradovich on DSK3GMQ082PROD with NOTICES

(1996). See also In re McWane, Inc., Docket No.
14, 2009, submitted a bid specifying a trade association meeting. At that 9351, Opinion of the Commission on Motions for
Manufacturer A’s DIP. meeting, Fortiline complained that Summary Decision at 20–21 (F.T.C. Aug. 9, 2012)
Fortiline’s termination of Manufacturer A had sold direct to a (‘‘an invitation to collude is ‘the quintessential
Manufacturer A in North Carolina and Virginia customer, which had example of the kind of conduct that should be . . .
challenged as a violation of Section 5’ ’’) (citing the
most of Virginia left Manufacturer A previously purchased from Fortiline, at Statement of Chairman Leibowitz and
without a major distributor in that a 0.31 multiplier, and that this price was Commissioners Kovacic and Rosch, In re U-Haul
region. In response, Manufacturer A ‘‘20% below market.’’ Int’l, Inc., 150 F.T.C. 1, 53 (2010)).

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54088 Federal Register / Vol. 81, No. 157 / Monday, August 15, 2016 / Notices

may deter similar conduct that has no Certainly, market and price-related By direction of the Commission.
legitimate business purpose.5 communications between a Donald S. Clark,
As described above, during the manufacturer and its distributor can be Secretary.
relevant time period, Fortiline competed appropriate and procompetitive.9 A firm [FR Doc. 2016–19339 Filed 8–12–16; 8:45 am]
with Manufacturer A in selling DIP to may not, however, use an intrabrand BILLING CODE 6750–01–P
customers while also serving as relationship to shield itself from
Manufacturer A’s distributor. anticompetitive interbrand conduct.10
Fundamentally, the fact that the firms As an intrabrand relationship will not FEDERAL TRADE COMMISSION
are competitors in some transactions immunize an otherwise unlawful
and collaborators in others does not agreement, it likewise will not Agency Information Collection
alter the legal analysis. An agreement immunize an unlawful invitation to Activities; Proposed Collection;
between actual or potential competitors collude. If Manufacturer A accepted Comment Request
that restrains interbrand price Fortiline’s requests to raise prices on AGENCY: Federal Trade Commission
competition between the two firms projects for which the firms were (‘‘FTC’’ or ‘‘Commission’’).
presumptively harms competition. The interbrand competitors, the resulting
existence of an intrabrand component to ACTION: Notice.
agreement would be per se unlawful. It
the conspirators’ relationship (such as a follows that Fortiline’s communications SUMMARY: The information collection
distribution agreement or a license to Manufacturer A—its attempts to requirements described below will be
agreement) does not necessarily secure an unlawful agreement—were submitted to the Office of Management
foreclose per se analysis.6 The relevant unlawful invitations to collude. and Budget (‘‘OMB’’) for review, as
issue is not whether the parties are in required by the Paperwork Reduction
a vertical or horizontal relationship, but III. The Proposed Consent Order
Act (‘‘PRA’’). The FTC is seeking public
whether the restraint on competition is The Commission recognizes the need comments on its proposal to extend for
an intrabrand restraint or an interbrand to tailor relief that will prevent Fortiline an additional three years the current
restraint.7 A similar analysis applies in from engaging in the anticompetitive PRA clearance for information
the context of an invitation to collude. conduct described in the complaint, yet collection requirements in its Affiliate
Here, the Complaint charges that avoid chilling procompetitive Marketing Rule (or ‘‘Rule’’), which
Fortiline invited Manufacturer A to communications and efficient applies to certain motor vehicle dealers,
collude on pricing across the board, contracting between Fortiline and each and its shared enforcement with the
including on transactions in which of its current and future suppliers. Consumer Financial Protection Bureau
Fortiline was distributing for a rival The Proposed Order contains the (‘‘CFPB’’) of the provisions (subpart C)
manufacturer, Manufacturer B.8 following substantive provisions: of the CFPB’s Regulation V regarding
5 In re Valassis Commc’ns, 141 F.T.C. at 283
Section II prohibits Fortiline from other entities (‘‘CFPB Rule’’). The
(Analysis of Agreement Containing Consent Order
entering into, attempting to enter into, current clearance expires on January 31,
to Aid Public Comment). participating in, maintaining, 2017.
6 See Gen. Leaseways, Inc. v. Nat’l Truck Leasing organizing, implementing, enforcing, DATES: Comments must be filed by
Ass’n, 744 F.2d 588, 594 (7th Cir. 1984) (‘‘It does inviting, encouraging, offering or October 14, 2016.
not follow that because two firms sometimes have soliciting an agreement or
a cooperative relationship there are no competitive ADDRESSES: Interested parties are
gains from forbidding them to cooperate in ways understanding with any competitor to invited to submit written comments
that yield no economies but simply limit raise or fix prices or any other pricing electronically or in paper form by
competition.’’). See also Palmer v. BRG of Georgia, action, or to allocate or divide markets, following the instructions in the
Inc., 498 U.S. 46, 49 (1990) (per se liability where customers, contracts, transactions,
conspirators had both horizontal and vertical Request for Comment part of the
(licensor/licensee) relationship); Eli Lilly and Co. v. business opportunities, lines of SUPPLEMENTARY INFORMATION section
Zenith Goldline Pharmaceuticals, Inc., 172 commerce, or territories. Two provisos below. Write ‘‘Affiliate Marketing
F.Supp.2d 1060 (S.D. Ind. 2001) (per se liability apply to Section II. The first proviso Disclosure Rule, PRA Comment: FTC
where conspirators had both horizontal and vertical makes clear that Fortiline may engage in
relationship); United States v. General Electric Co., File No. P0105411’’ on your comment,
1997–1 Trade Cas. (CCH) ¶ 71,765 (D. Mont. 1997) conduct that is reasonably related to, and file your comment online at https://
(same). and reasonably necessary to achieve the ftcpublic.commentworks.com/ftc/
7 See United States v. Apple, Inc., 791 F.3d 290, procompetitive benefits of, a lawful affiliatemarketingpra, by following the
322 (2d Cir. 2015) (internal citations omitted) manufacturer-distributor relationship,
(rejecting Apple’s argument that its role in a
instructions on the web-based form. If
horizontal conspiracy with publishers should be
joint venture agreement, or lawful you prefer to file your comment on
evaluated under rule of reason because it was in a merger, acquisition, or sale agreement. paper, mail your comment to the
vertical relationship with publishers, noting that ‘‘it The second proviso makes clear that following address: Federal Trade
is the type of restraint that Apple agreed with the Fortiline may negotiate and enter into
publishers to impose that determines whether the
Commission, Office of the Secretary,
per se rule or the rule of reason is appropriate.
an agreement to buy DIP from, or sell 600 Pennsylvania Avenue NW., Suite
These rules are means of evaluating ‘whether [a] DIP to, a competitor. CC–5610 (Annex J), Washington, DC
restraint is unreasonable,’ not the reasonableness of Paragraphs III–VI of the Proposed 20580, or deliver your comment to the
a particular defendant’s role in the scheme.’’). Order impose certain standard reporting
8 The Commission has previously found similar
following address: Federal Trade
and compliance requirements on Commission, Office of the Secretary,
communications to constitute unlawful invitations
to collude. E.g., In re Step N Grip LLC, 160 F.T.C. Fortiline. Constitution Center, 400 7th Street SW.,
ll, Docket No. C–4561 (Dec. 7, 2015), https:// The Proposed Order will expire in 20 5th Floor, Suite 5610 (Annex J),
sradovich on DSK3GMQ082PROD with NOTICES

www.ftc.gov/enforcement/cases-proceedings/151- years. Washington, DC 20024.
0181/step-n-grip-llc-matter (respondent
communicated to competitor that both parties FOR FURTHER INFORMATION CONTACT:
should sell at the same price); In re Precision (respondent complained to competitor about its Requests for additional information
Moulding, 122 F.T.C. 104 (1996) (respondent pricing, and subsequently faxed the competitor
comparative price lists from both companies).
should be addressed to Ruth Yodaiken,
complained to competitor that the competitor’s
pricing was ‘‘ridiculously low’’ and that the 9 See Monsanto Co. v. Spray-Rite Service Corp., Attorney, Division of Privacy and
competitor did not have to ‘‘give the product 465 U.S. 752, 764–65 (1984). Identity Protection, Bureau of Consumer
away’’); In re AE Clevite, 116 F.T.C. 389, 391 (1993) 10 See supra notes 6–8. Protection, Federal Trade Commission,

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Document Created: 2016-08-13 02:22:04
Document Modified: 2016-08-13 02:22:04

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Proposed Consent Agreement.
Dates		Comments must be received on or before September 8, 2016.
Contact		Mark Taylor (202-326-2287), Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 20580.
FR Citation		81 FR 54085