If the shoe fits FTC should wear it - Federal Trade Commission, resale price fixing policy - Editorial

Discount Store News, June 5, 1995 by Ken Rankin

Federal Trade Commission antitrusters took another baby step toward enforcing the law against resale price fixing conspiracies that punish discount stores and increase costs to the public.

But the settlement agreement the FTC proposed to resolve resale price maintenance (RPM) charges against the nation's largest manufacturer of athletic shoes offers little comfort to the off-price retailers and their customers who are victimized by such schemes.

The commission's action targeted Stoughton, Mass.-based Reebok International, the nation's largest producer of athletic and casual footwear, and its Rockport subsidiary.

According to federal antitrusters, the company forged agreements with certain retailers to sell Reebok shoes at artificially inflated prices--a scheme designed to restrain trade, hinder competition and "deprive consumers of the benefits of ... price competition among retail dealers."

There's no telling how much economic injury American consumers suffered as a result of this illegal scheme. The FTC didn't bother to estimate it. But given the fact that Reebok controls an estimated 25% of the entire U.S. market for athletic and casual shoes, the impact of this price fixing arrangement was probably enormous.

The penalty that the FTC wants to impose on Reebok for these trade restraints: a federal consent order that prohibits the manufacturer from fixing the prices at which retailers sell its shoes and bars Reebok from "coercing or pressuring any dealer to maintain or adopt any resale price" for their products.

That sounds pretty tough, until you realize that federal antitrust laws already prohibit Reebok from engaging in such practices.

But there's more. The order also prohibits the manufacturer from "notifying a dealer in advance that it is subject to partial or temporary suspension or termination if it sells or advertises" shoes at prices below those established by Reebok.

But this prohibition is only temporary; it expires in 10 years. After that, Reebok will be free to resume threatening retailers with termination if they don't adjust their resale prices to suit the manufacturer.

Worse yet, the order explicitly allows Reebok to continue refusing to sell to retailers that won't agree to maintain its "suggested" prices and to withhold cooperative advertising allowances from those that promote Reebok shoes at discounts.

As wimpy as the proposed settlement order may seem, one FTC commissioner, Roscoe Starek III, voted against it because he thought it was too tough!

Although he acknowledged that Reebok did indeed violate federal antitrust laws by entering into conspiracies with retailers to restrain resale prices, Starek contended that the order shouldn't prohibit the company from doing anything that isn't already per se illegal under federal law.

Preventing Reebok from terminating discounters or punishing them for advertising shoes at lower-than-suggested prices constitute "unnecessarily broad" restrictions that "may enjoin efficient conduct" by the manufacturer, Starek said.