Canadian COMPETITION LAW

July 22, 2014

Guest post
(Steve J. Cernak, Gregory L. Curtner, William M. Hannay – Schiff Hardin)

FTC Action Shows All Commissioners Agree That Section 5 Liability Can Follow Competitor Communications On Price Even When No Agreement Is Reached

The Federal Trade Commission has unanimously voted to accept proposed consent orders preventing improper communications on price between InstantUPCCodes.com (“Instant”) and Nationwide Barcode (“Nationwide”), both Internet resellers of UPC (universal product code) barcodes. According to the FTC, in August 2013, the two principals of Instant and Nationwide exchanged emails with each other and “Competitor A” with explicit invitations to collude to raise barcode prices. Competitor A never responded to any of the many emails and no agreement was ever reached. The Commission charged Instant and Nationwide with a violation of Section 5 of the FTC Act.

This matter reminds businesses that such communications with competitors raise antitrust dangers, even in the absence of an agreement on prices.

Small businesses seeking to affix UPC barcodes to their products for price scanning and inventory purposes routinely purchase the barcodes from Internet companies like Instant, Nationwide and others, like unnamed Competitor A. According to the FTC, Instant principal Jacob Alifraghis emailed Nationwide principal Philip Peretz and suggested a joint price increase.

Here’s the deal Phil, I’m your friend, not your enemy… All 3 of us- US, YOU and [Competitor A] need to match the price that [Competitor B] has … Reply and let me know if you are willing to do this or not.

Peretz indicated his willingness if Competitor A also participated. Alifraghis and Peretz each then sent separate email invitations to Competitor A to join their price-fixing scheme. Competitor A never responded to the several emails that followed and the proposed scheme never actually resulted in an agreement or increased prices. The FTC charged Instant and Nationwide with Section 5 violations.

A violation of Section 1 of the Sherman Act requires additional facts not present here, including an agreement between two parties. Section 5 of the FTC Act, however, is broader in scope and has been read to reach mere offers to collude on prices. A unanimous Commission commented that although in this case the alleged misconduct was “particularly egregious, less egregious conduct may also result in Section 5 liability.” The Commission also noted that “explicit invitations” to collude were not necessary to find a violation of Section 5, nor must the acts of misconduct be committed by principals of the involved companies.

Although the scope of Section 5’s prohibition of “unfair methods of competition” has been the subject of intense debate recently, this case shows a consensus among the Commissioners at least on actions like these. As discussed in a previous client alert, Commissioner Joshua Wright has advocated clearer guidance for businesses and proposed limiting use of Section 5 to actions that offer no “cognizable efficiencies,” are likely to harm competition, and could not be challenged under any other antitrust statute. To date, Commissioner Wright has not convinced a majority of his fellow commissioners to endorse such limits or provide such guidance. As Commissioner Wright has made clear, and the 5-0 vote here confirms, such invitations to collude violate even his view of Section 5.

Businesses must remain mindful of the broad reach of Section 5 when acting in the marketplace. Even communications among competitors that fall short of agreement may still result in liability. Consent decrees following lengthy FTC investigations could result in years of painstaking recordkeeping and reporting that may waste a company’s time, effort, and money. Or, to be more precise, if you ever receive an email from a competitor that begins “I’m your friend, not your enemy,” be very wary and immediately consult an expert.

To discuss competitor communications or the potential impact of Section 5 on your business decisions, please contact Steve Cernak, Greg Curtner, Bill Hannay or any of the other attorneys in Schiff Hardin’s Antitrust and Trade Regulation Group. (Many thanks to Schiff Hardin summer associate Matt Kennison for his research and drafting assistance for this alert.)

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