Sigma Corporation; Analysis of Proposed Consent Order To Aid Public Comment, 1491-1494 [2012-267]

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Download as PDF Federal Register / Vol. 77, No. 6 / Tuesday, January 10, 2012 / Notices FEDERAL TRADE COMMISSION [File No. 101 0080] Sigma Corporation; Analysis of Proposed Consent Order To Aid Public Comment Federal Trade Commission. Proposed consent agreement. AGENCY: ACTION: 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 February 6, 2012. ADDRESSES: Interested parties may file a comment online or on paper, by following the instructions in the Request for Comment part of the SUPPLEMENTARY INFORMATION section below. Write ‘‘Sigma, File No. 101 0080’’ on your comment, and file your comment online at https:// ftcpublic.commentworks.com/ftc/ sigmaconsent, 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: Christopher Renner (202) 326–3173), FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 20580. SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and § 2.34 the Commission Rules of Practice, 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 January 4, 2012), on the World Wide Web, at http://www.ftc.gov/ os/actions.shtm. A paper copy can be obtained from the FTC Public Reference mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY: VerDate Mar<15>2010 18:28 Jan 09, 2012 Jkt 226001 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 February 6, 2012. Write ‘‘Sigma, File No. 101 0080’’ 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 obtained from any person and which is privileged or confidential,’’ as provided 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. Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a 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). PO 00000 Frm 00039 Fmt 4703 Sfmt 4703 1491 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/ sigmaconsent 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 ‘‘Sigma, File No. 101 0080’’ 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 February 6, 2012. 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 has accepted, subject to final approval, an agreement containing a proposed consent order (‘‘Agreement’’) from Sigma Corporation (‘‘Sigma’’). The Agreement seeks to resolve charges that Sigma violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, by engaging in a variety of collusive and exclusionary acts and practices in the market for ductile iron pipe fittings (‘‘DIPF’’). The Commission anticipates that the competitive issues described in the complaint will be resolved by accepting the proposed order, subject to final approval, contained in the Agreement. The 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 again review the Agreement and any comments received, and will decide whether it should withdraw from the Agreement or make final the proposed order contained in the Agreement. E:\FR\FM\10JAN1.SGM 10JAN1 1492 Federal Register / Vol. 77, No. 6 / Tuesday, January 10, 2012 / Notices The purpose of this Analysis to Aid Public Comment is to invite and facilitate public comment concerning the proposed order. It is not intended to constitute an official interpretation of the Agreement and proposed order or in any way to modify its terms. The proposed order is for settlement purposes only and does not constitute an admission by Sigma that it violated the law or that the facts alleged in the complaint, other than jurisdictional facts, are true. I. The Complaint The following allegations are taken from the complaint and publicly available information. mstockstill on DSK4VPTVN1PROD with NOTICES A. Background DIPF are used in municipal water distribution systems to change pipe diameter or pipeline direction. DIPF suppliers distribute these products through wholesale distributors, known as waterworks distributors, which specialize in distributing products for water infrastructure projects. The end users of DIPF are typically municipal and regional water authorities. Both imported and domestically produced DIPF are commercially available. Sigma and its largest competitors in the DIPF market, McWane, Inc. (‘‘McWane’’) and Star Pipe Products Ltd. (‘‘Star’’), all sell imported DIPF. McWane was the only domestic producer of a full line of small and medium-sized DIPF until Star’s entry into domestic production in 2009. There are no widely available substitutes for DIPF. Some projects require that only domestically produced DIPF be used. Domestically produced DIPF sold for use in these projects typically command higher prices than comparable imported DIPF. DIPF prices are based off of published list prices and discounts, with customers negotiating additional discounts off of those list prices and discounts on a transaction-bytransaction basis. DIPF suppliers also offer volume rebates. B. Challenged Conduct Between January 2008 and January 2009, Sigma allegedly conspired with McWane and Star to increase the prices at which imported DIPF were sold in the United States. In furtherance of the conspiracy, and at the request of McWane, Sigma changed its business methods to make it easier to coordinate price levels, first by limiting the discretion of regional sales personnel to offer price discounts, and later by exchanging information documenting the volume of its monthly sales, along VerDate Mar<15>2010 18:28 Jan 09, 2012 Jkt 226001 with McWane and Star, through an entity known as the Ductile Iron Fittings Research Association (‘‘DIFRA’’). After the collapse of the DIFRA information exchange in early 2009, Sigma attempted to revive the conspiracy by convincing McWane and Star to raise their prices and to resume the exchange of sales data through DIFRA. McWane and Star rejected Sigma’s invitation to collude. The collapse of DIFRA coincided with the enactment of The American Recovery and Reinvestment Act of 2009 (‘‘ARRA’’) in February 2009. In the ARRA, the United States Congress allocated more than $6 billion to water infrastructure projects, but included a provision requiring the use of domestically produced materials in those projects (the ‘‘Buy American’’ requirement). At the time the ARRA was passed, McWane was the sole supplier of a full line of domestic DIPF in the most commonly used size ranges, and possessed monopoly power in that market. In response to the passage of the ARRA and its Buy American provision, Sigma, Star and others attempted to enter the domestically produced DIPF market in competition with McWane. Rather than compete with one another in the domestic DIPF market, Sigma and McWane executed a Master Distributor Agreement (‘‘MDA’’), whereby Sigma was appointed as a distributor of McWane’s domestically produced DIPF. Through the MDA, Sigma accepted compensation from McWane in exchange for abandoning its planned entry into the domestic DIPF market. Sigma also agreed to adopt exclusive dealing policies similar to those adopted by McWane, in furtherance of a conspiracy with McWane to exclude Star and to monopolize the domestic DIPF market. The complaint alleges that Sigma had no legitimate business justification for this course of conduct, and that Sigma’s collusive and exclusionary conduct has caused higher prices for both imported and domestically produced DIPF. II. Legal Analysis We analyze first the various agreements allegedly reached by Sigma with its competitors to limit competition relating to imported DIPF, and then address Sigma’s participation, along with McWane, in the alleged monopolization of the domestic DIPF market. A. Sigma’s Involvement in the 2008 Price Fixing Conspiracy The January and June 2008 price restraints among Sigma, McWane and PO 00000 Frm 00040 Fmt 4703 Sfmt 4703 Star alleged in the complaint are the sort of naked restraints on competition that are per se unlawful.2 The June 2008 agreement, which was allegedly reached after a public invitation to collude by McWane, illustrates how price fixing agreements may be reached in public. Here, McWane’s invitation to collude was conveyed in a letter sent to waterworks distributors, the common customers of McWane, Sigma and Star. McWane’s letter contained a section that was meaningless to waterworks distributors, but was intended to inform Sigma and Star of the terms on which McWane desired to fix prices.3 The DIFRA information exchange was also illegal. The complaint alleges that the DIFRA information exchange played a critical role in the 2008 price fixing conspiracy, first as the quid pro quo for a price increase by McWane in June 2008, and then by enabling Sigma, McWane and Star to monitor each others’ adherence to the collusive arrangement through the second half of 2008.4 B. Sigma’s 2009 Invitation To Collude The complaint includes allegations of a stand-alone Section 5 violation, namely that Sigma invited McWane and Star to collude with Sigma to increase 2 Federal Trade Commission & United States Department of Justice, Antitrust Guidelines for Collaboration Among Competitors (‘‘Competitor Collaboration Guidelines’’) § 1.2 (2000); In re North Texas Specialty Physicians, 140 F.T.C. 715, 729 (2005) (‘‘We do not believe that the per se condemnation of naked restraints has been affected by anything said either in California Dental or Polygram’’). 3 Because McWane’s communication informed its rivals of the terms of price coordination desired by McWane without containing any information for customers, this communication had no legitimate business justification. See In re Petroleum Products Antitrust Litig., 906 F.2d 432, 448 (9th Cir. 1990) (public communications may form the basis of an agreement on price levels when ‘‘the public dissemination of such information served little purpose other than to facilitate interdependent or collusive price coordination’’). 4 The Commission articulated a safe harbor for exchanges of price and cost information in Statement 6 of the 1996 Health Care Guidelines. See Dep’t of Justice & Federal Trade Comm’n, Statements of Antitrust Enforcement Policy in Health Care, Statement 6: Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information (1996). The DIFRA information exchange failed to qualify for the safety zone of the Health Care Guidelines for several reasons. Although the DIFRA information exchange was managed by a third party, the information exchanged was insufficiently historical, the participants in the exchange too few, and their individual market shares too large to qualify for the permissive treatment contemplated by the Health Care Guidelines. While failing to qualify for the safety zone of the Health Care Guidelines is not in itself a violation of Section 5, firms that wish to minimize the risk of antitrust scrutiny should consider structuring their collaborations in accordance with the criteria of the safety zone. E:\FR\FM\10JAN1.SGM 10JAN1 Federal Register / Vol. 77, No. 6 / Tuesday, January 10, 2012 / Notices DIPF prices in early 2009.5 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. Such invitations to collude impose a significant risk of anticompetitive harm to consumers, and as such, violate Section 5 of the FTC Act absent a legitimate business justification. C. Sigma’s Involvement in a 2009 Conspiracy With McWane To Eliminate Competition in the Domestic DIPF Market The complaint alleges that, after the passage of the ARRA, Sigma prepared to enter the domestic DIPF market in competition with McWane. However, McWane wanted to avoid this competition, so McWane and Sigma agreed that Sigma would participate in the domestic DIPF market only as a distributor of McWane’s product. Through this arrangement, McWane shared a portion of its monopoly profits in the domestic DIPF market with Sigma in exchange for Sigma’s commitment to abandon its plans to enter that market in competition with McWane. Such agreements are presumptively unlawful.6 mstockstill on DSK4VPTVN1PROD with NOTICES D. McWane and Sigma Conspired To Monopolize the Domestic DIPF Market The elements of a conspiracy to monopolize are: (1) The existence of a combination or conspiracy; (2) an overt act in furtherance of the conspiracy; and (3) a specific intent to monopolize.7 Here, the complaint alleges that through their MDA arrangement, McWane and Sigma agreed to limit competition between themselves in the domestic DIPF market, and to exclude their rivals in that market, including Star, by the adoption of duplicate exclusive dealing 5 In re U-Haul International, Inc., F.T.C. File No. 081–0157, 2010 FTC LEXIS 61, *6 (July 14, 2010); In re Valassis Communications, Inc., F.T.C. File No. 051–008, 2006 FTC LEXIS 25, *4–7 (April 19, 2006); In re MacDermid, Inc., F.T.C. File No. 991– 0167, 1999 FTC LEXIS 191, *10 (Feb. 4, 2000); In re Stone Container Corp., 125 F.T.C. 853 (1998); In re Precision Moulding Co., 122 F.T.C. 104 (1996); In re YKK (USA) Inc., 116 F.T.C. 628 (1993); In re A.E. Clevite, Inc., 116 F.T.C. 389 (1993); In re Quality Trailer Products Corp., 115 F.T.C. 944 (1992). In addition, an invitation to collude may violate Section 2 of the Sherman Act as an act of attempted monopolization, and may also violate federal wire and mail fraud statutes. See United States v. American Airlines, 743 F.2d 1114 (5th Cir. 1984); United States v. Ames Sintering Co., 927 F.2d 232 (6th Cir. 1990). 6 E.g., Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49–50 (1990); United States v. Masonite Corp., 316 U.S. 265, 281 (1942); In re SKF Industries, Inc., 94 F.T.C. 6, 97–104 (1979). 7 See Volvo N. Am. Corp. v. Men’s Int’l Prof’l Tennis Council, 857 F.2d 55, 74 (2d Cir. 1988). VerDate Mar<15>2010 18:28 Jan 09, 2012 Jkt 226001 policies, and did so with the common and specific intent to maintain and share monopoly profits in the domestic DIPF market. III. The Proposed Order The proposed order is designed to remedy the unlawful conduct charged against Sigma in the complaint and to prevent the recurrence of such conduct. Paragraph II.A of the proposed order prohibits Sigma from participating in or maintaining any combination or conspiracy between any competitors to fix, raise or stabilize the prices at which DIPF are sold in the United States, or to allocate or divide markets, customers, or business opportunities. Paragraph II.B of the proposed order prohibits Sigma from soliciting or inviting any competitor to participate in any of the actions prohibited in Paragraphs II.A. Paragraph II.C of the proposed order prohibits Sigma from participating in or facilitating any agreement between competitors to exchange ‘‘Competitively Sensitive Information’’ (‘‘CSI’’), defined as certain types of information related to the cost, price, output or customers of or for DIPF. Paragraph II.D of the proposed order prohibits Sigma from unilaterally disclosing CSI to a competitor, except as part of the negotiation of a joint venture, license or acquisition, or in certain other specified circumstances. Paragraph II.E of the proposed order prohibits Sigma from attempting to engage in any of the activities prohibited by Paragraphs II.A, II.B, II.C, or II.D. The prohibitions on Sigma’s communication of CSI with competitors contained in Paragraphs II.C and II.D of the proposed order are subject to a proviso that permits Sigma to communicate CSI to its competitors under certain circumstances. Under the proposed order, Sigma may participate in an information exchange with its competitors in the DIPF market provided that the information exchange is structured in such a way as to minimize the risk that it will facilitate collusion among the Sigma and its competitors. Specifically, the proposed order requires any exchange of CSI to occur no more than twice yearly, and to involve the exchange of aggregated information more than six months old. In addition, the aggregated information that is exchanged must be made publicly available, which increases the likelihood that an information exchange involving Sigma will simultaneously benefit consumers. The proposed order also prohibits Sigma’s participation in an exchange of CSI involving price, cost or total unit cost of or for DIPF when the PO 00000 Frm 00041 Fmt 4703 Sfmt 4703 1493 individual or collective market shares of the competitors seeking to participate in an information exchange exceed specified thresholds. The rationale for this provision is that in a highly concentrated market the risk that the information exchange may facilitate collusion is high. Due to the highly concentrated state of the DIPF market as currently structured, an information exchange involving Sigma and relating to price, output or total unit cost of or for DIPF is unlikely to reoccur in the foreseeable future. The proposed order has a term of 20 years. By direction of the Commission. Donald S. Clark, Secretary. Statement of Commissioner J. Thomas Rosch, Concurring in Part and Dissenting in Part The Commission has voted separately (1) to issue a Part 3 Administrative Complaint against Respondents McWane, Inc. (‘‘McWane’’) and Star Pipe Products, Ltd. (‘‘Star’’), and (2) to accept for public comment a Consent Agreement settling similar allegations in a draft Part 2 Complaint against Respondent Sigma Corporation (‘‘Sigma’’). While I have voted in favor of both actions, I respectfully object to the inclusion—in both the Part 3 Administrative Complaint and in the draft Part 2 Complaint—of claims against McWane and Sigma, to the extent that such claims are based on allegations of exclusive dealing, as explained in Part I below. I also respectfully object to naming Star, a competitor of McWane and Sigma, as a Respondent in the Part 3 Administrative Complaint, which alleges, inter alia, that Star engaged in a horizontal conspiracy to fix the prices of ductile iron pipe fittings (DIPFs) sold in the United States, and in a related, information exchange, as described in Part II below. I. For reasons similar to those that I articulated in a recent dissent in another matter, Pool Corp., FTC File No. 101– 0115, http://www.ftc.gov/os/caselist/ 1010115/ 111121poolcorpstatementrosch.pdf, I do not think that the Part 3 Administrative Complaint against McWane and the draft Part 2 Complaint against Sigma adequately allege exclusive dealing as a matter of law. In particular, there is case law in both the Eighth and Ninth Circuits blessing the conduct that the complaints charge as exclusive dealing. E:\FR\FM\10JAN1.SGM 10JAN1 1494 Federal Register / Vol. 77, No. 6 / Tuesday, January 10, 2012 / Notices II. I also object to the allegations in the Part 3 Administrative Complaint and in the draft Part 2 Complaint that name Star as a co-conspirator in the alleged horizontal price-fixing of DIPF sold in the United States and the related, alleged DIFRA information exchange.8 I do not consider naming Star, along with McWane and Sigma, as a co-conspirator to be in the public interest. There are at least three reasons why this is so. First, although there may be reason to believe Star conspired with McWane and Sigma in this oligopolistic industry, Star seems much less culpable than the others. More specifically, I believe that we must be mindful of the consequences of public law enforcement in assessing whether the public interest favors joining Star as a co-conspirator.9 Second, I am concerned that a trier of fact may find it hard to believe that Star could be both a victim of McWane’s alleged ‘‘threats’’ to deal exclusively with distributors, and at more or less the same time (the ‘‘exclusive dealing’’ program began in September 2009), a co-conspirator with McWane in a pricefixing conspiracy (June 2008 to February 2009). (This concern further explains why I do not have reason to believe that the exclusive dealing theory is a viable one.) Third, I am concerned that Star’s alleged participation in the price-fixing conspiracy and information exchange relies, in part, on treating communications to distributors as actionable signaling on prices or price levels.10 See, e.g., Williamson Oil Co., Inc. v. Philip Morris USA, 346 F.3d 1287, 1305–07 (11thCir. 2003). [FR Doc. 2012–267 Filed 1–9–12; 8:45 am] BILLING CODE 6750–01–P DEPARTMENT OF HEALTH AND HUMAN SERVICES Administration for Children and Families Proposed Information Collection Activity; Comment Request Proposed Projects Title: Child Care Development Fund (CCDF)—Reporting Improper Payments—Instructions for States. OMB No.: 0970–0323. Description: Section 2 of the Improper Payments Act of 2002 provides for estimates and reports of improper payments by Federal agencies. Subpart K of 45 CFR part 98 will require States to prepare and submit a report of errors occurring in the administration of CCDF grant funds once every three years. The Office of Child Care (OCC) is completing the second 3-year cycle of case record reviews to meet the requirements for reporting under IPIA. The OCC has conducted ongoing evaluation of the case record review process to determine if ‘‘improper authorizations for payment’’ remained a suitable proxy for actual ‘‘improper payments.’’ It is OCC’s determination that in some cases authorizations for payment represented the same figure as actual payments; in other cases authorizations for payment has represented a figure as much as 20% higher than actual payments. Many States reported errors found during the desk audit review process that were due to missing or insufficient documentation or other misapplication of policy, but found that families were determined to be eligible for services and that the actual payment authorized was correct. Other States reported regulatory barriers in State law which prohibits recovery of over-authorization or over-payment as the result of agency error. As such, this information collection will provide a methodology revision that will assess errors in eligibility determinations that will compare the amount authorized for payment with the actual payment. Respondents: State grantees, the District of Columbia, and Puerto Rico. ANNUAL BURDEN ESTIMATES Number of respondents Instrument mstockstill on DSK4VPTVN1PROD with NOTICES Sampling Decisions and Fieldwork Preparation Plan ..................................... Record Review Worksheet .............................................................................. State Improper Authorizations for Payment Report ........................................ Corrective Action Plan ..................................................................................... Number of responses per respondent 17 17 17 8 1 276 1 1 Average burden hours per response 106 6.33 639 156 Total burden hours 1802 29,700.36 10,863 1248 Estimated Total Annual Burden Hours: 43,613.36. In compliance with the requirements of Section 506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Administration for Children and Families is soliciting public comment on the specific aspects of the information collection described above. Copies of the proposed collection of information can be obtained and comments may be forwarded by writing to the Administration for Children and Families, Office of Planning, Research and Evaluation, 370 L’Enfant Promenade SW., Washington, DC 20447, Attn: ACF Reports Clearance Officer. Email address: infocollection@acf.hhs.gov. All requests should be identified by the title of the information collection. The Department specifically requests comments on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden of the proposed collection of information; (c) the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to 8 See McWane/Star Part 3 Administrative Compl. §§ 29–38, 64–65; Sigma draft Part 2 Compl. §§ 23B33. 9 See Credit Suisse Secs. (USA) LLC v. Billing, 551 U.S. 264, 281–84 (2007) (questioning the social benefits of private antitrust lawsuits filed in numerous courts when the enforcement-related need is relatively small); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557–60 (2007) (expressing concern with the burdens and costs of antitrust discovery, and the attendant in terrorem effect, associated with private antitrust lawsuits). 10 McWane/Star Part 3 Administrative Compl. § 34b; Sigma draft Part 2 Compl. § 29. VerDate Mar<15>2010 18:28 Jan 09, 2012 Jkt 226001 PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 E:\FR\FM\10JAN1.SGM 10JAN1

Agencies

[Federal Register Volume 77, Number 6 (Tuesday, January 10, 2012)]
[Notices]
[Pages 1491-1494]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-267]



[[Page 1491]]

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FEDERAL TRADE COMMISSION

[File No. 101 0080]


Sigma Corporation; Analysis of Proposed Consent Order 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 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 February 6, 2012.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Sigma, File No. 101 
0080'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/sigmaconsent, 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: Christopher Renner (202) 326-3173), 
FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 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 January 4, 2012), 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 February 6, 
2012. Write ``Sigma, File No. 101 0080'' 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 obtained from any person and which is privileged or 
confidential,'' as provided 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/sigmaconsent 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 ``Sigma, File No. 101 
0080'' 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 February 6, 2012. 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 has accepted, subject to final 
approval, an agreement containing a proposed consent order 
(``Agreement'') from Sigma Corporation (``Sigma''). The Agreement seeks 
to resolve charges that Sigma violated Section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45, by engaging in a variety of collusive and 
exclusionary acts and practices in the market for ductile iron pipe 
fittings (``DIPF'').
    The Commission anticipates that the competitive issues described in 
the complaint will be resolved by accepting the proposed order, subject 
to final approval, contained in the Agreement. The 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 again review the Agreement and any comments received, and will 
decide whether it should withdraw from the Agreement or make final the 
proposed order contained in the Agreement.

[[Page 1492]]

    The purpose of this Analysis to Aid Public Comment is to invite and 
facilitate public comment concerning the proposed order. It is not 
intended to constitute an official interpretation of the Agreement and 
proposed order or in any way to modify its terms.
    The proposed order is for settlement purposes only and does not 
constitute an admission by Sigma that it violated the law or that the 
facts alleged in the complaint, other than jurisdictional facts, are 
true.

I. The Complaint

    The following allegations are taken from the complaint and publicly 
available information.

A. Background

    DIPF are used in municipal water distribution systems to change 
pipe diameter or pipeline direction. DIPF suppliers distribute these 
products through wholesale distributors, known as waterworks 
distributors, which specialize in distributing products for water 
infrastructure projects. The end users of DIPF are typically municipal 
and regional water authorities.
    Both imported and domestically produced DIPF are commercially 
available. Sigma and its largest competitors in the DIPF market, 
McWane, Inc. (``McWane'') and Star Pipe Products Ltd. (``Star''), all 
sell imported DIPF. McWane was the only domestic producer of a full 
line of small and medium-sized DIPF until Star's entry into domestic 
production in 2009.
    There are no widely available substitutes for DIPF. Some projects 
require that only domestically produced DIPF be used. Domestically 
produced DIPF sold for use in these projects typically command higher 
prices than comparable imported DIPF.
    DIPF prices are based off of published list prices and discounts, 
with customers negotiating additional discounts off of those list 
prices and discounts on a transaction-by-transaction basis. DIPF 
suppliers also offer volume rebates.

B. Challenged Conduct

    Between January 2008 and January 2009, Sigma allegedly conspired 
with McWane and Star to increase the prices at which imported DIPF were 
sold in the United States. In furtherance of the conspiracy, and at the 
request of McWane, Sigma changed its business methods to make it easier 
to coordinate price levels, first by limiting the discretion of 
regional sales personnel to offer price discounts, and later by 
exchanging information documenting the volume of its monthly sales, 
along with McWane and Star, through an entity known as the Ductile Iron 
Fittings Research Association (``DIFRA'').
    After the collapse of the DIFRA information exchange in early 2009, 
Sigma attempted to revive the conspiracy by convincing McWane and Star 
to raise their prices and to resume the exchange of sales data through 
DIFRA. McWane and Star rejected Sigma's invitation to collude.
    The collapse of DIFRA coincided with the enactment of The American 
Recovery and Reinvestment Act of 2009 (``ARRA'') in February 2009. In 
the ARRA, the United States Congress allocated more than $6 billion to 
water infrastructure projects, but included a provision requiring the 
use of domestically produced materials in those projects (the ``Buy 
American'' requirement). At the time the ARRA was passed, McWane was 
the sole supplier of a full line of domestic DIPF in the most commonly 
used size ranges, and possessed monopoly power in that market.
    In response to the passage of the ARRA and its Buy American 
provision, Sigma, Star and others attempted to enter the domestically 
produced DIPF market in competition with McWane. Rather than compete 
with one another in the domestic DIPF market, Sigma and McWane executed 
a Master Distributor Agreement (``MDA''), whereby Sigma was appointed 
as a distributor of McWane's domestically produced DIPF. Through the 
MDA, Sigma accepted compensation from McWane in exchange for abandoning 
its planned entry into the domestic DIPF market. Sigma also agreed to 
adopt exclusive dealing policies similar to those adopted by McWane, in 
furtherance of a conspiracy with McWane to exclude Star and to 
monopolize the domestic DIPF market.
    The complaint alleges that Sigma had no legitimate business 
justification for this course of conduct, and that Sigma's collusive 
and exclusionary conduct has caused higher prices for both imported and 
domestically produced DIPF.

II. Legal Analysis

    We analyze first the various agreements allegedly reached by Sigma 
with its competitors to limit competition relating to imported DIPF, 
and then address Sigma's participation, along with McWane, in the 
alleged monopolization of the domestic DIPF market.

A. Sigma's Involvement in the 2008 Price Fixing Conspiracy

    The January and June 2008 price restraints among Sigma, McWane and 
Star alleged in the complaint are the sort of naked restraints on 
competition that are per se unlawful.\2\ The June 2008 agreement, which 
was allegedly reached after a public invitation to collude by McWane, 
illustrates how price fixing agreements may be reached in public. Here, 
McWane's invitation to collude was conveyed in a letter sent to 
waterworks distributors, the common customers of McWane, Sigma and 
Star. McWane's letter contained a section that was meaningless to 
waterworks distributors, but was intended to inform Sigma and Star of 
the terms on which McWane desired to fix prices.\3\
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    \2\ Federal Trade Commission & United States Department of 
Justice, Antitrust Guidelines for Collaboration Among Competitors 
(``Competitor Collaboration Guidelines'') Sec.  1.2 (2000); In re 
North Texas Specialty Physicians, 140 F.T.C. 715, 729 (2005) (``We 
do not believe that the per se condemnation of naked restraints has 
been affected by anything said either in California Dental or 
Polygram'').
    \3\ Because McWane's communication informed its rivals of the 
terms of price coordination desired by McWane without containing any 
information for customers, this communication had no legitimate 
business justification. See In re Petroleum Products Antitrust 
Litig., 906 F.2d 432, 448 (9th Cir. 1990) (public communications may 
form the basis of an agreement on price levels when ``the public 
dissemination of such information served little purpose other than 
to facilitate interdependent or collusive price coordination'').
---------------------------------------------------------------------------

    The DIFRA information exchange was also illegal. The complaint 
alleges that the DIFRA information exchange played a critical role in 
the 2008 price fixing conspiracy, first as the quid pro quo for a price 
increase by McWane in June 2008, and then by enabling Sigma, McWane and 
Star to monitor each others' adherence to the collusive arrangement 
through the second half of 2008.\4\
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    \4\ The Commission articulated a safe harbor for exchanges of 
price and cost information in Statement 6 of the 1996 Health Care 
Guidelines. See Dep't of Justice & Federal Trade Comm'n, Statements 
of Antitrust Enforcement Policy in Health Care, Statement 6: 
Enforcement Policy on Provider Participation in Exchanges of Price 
and Cost Information (1996). The DIFRA information exchange failed 
to qualify for the safety zone of the Health Care Guidelines for 
several reasons. Although the DIFRA information exchange was managed 
by a third party, the information exchanged was insufficiently 
historical, the participants in the exchange too few, and their 
individual market shares too large to qualify for the permissive 
treatment contemplated by the Health Care Guidelines. While failing 
to qualify for the safety zone of the Health Care Guidelines is not 
in itself a violation of Section 5, firms that wish to minimize the 
risk of antitrust scrutiny should consider structuring their 
collaborations in accordance with the criteria of the safety zone.
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B. Sigma's 2009 Invitation To Collude

    The complaint includes allegations of a stand-alone Section 5 
violation, namely that Sigma invited McWane and Star to collude with 
Sigma to increase

[[Page 1493]]

DIPF prices in early 2009.\5\ 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. Such invitations to collude impose a significant 
risk of anticompetitive harm to consumers, and as such, violate Section 
5 of the FTC Act absent a legitimate business justification.
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    \5\ In re U-Haul International, Inc., F.T.C. File No. 081-0157, 
2010 FTC LEXIS 61, *6 (July 14, 2010); In re Valassis 
Communications, Inc., F.T.C. File No. 051-008, 2006 FTC LEXIS 25, 
*4-7 (April 19, 2006); In re MacDermid, Inc., F.T.C. File No. 991-
0167, 1999 FTC LEXIS 191, *10 (Feb. 4, 2000); In re Stone Container 
Corp., 125 F.T.C. 853 (1998); In re Precision Moulding Co., 122 
F.T.C. 104 (1996); In re YKK (USA) Inc., 116 F.T.C. 628 (1993); In 
re A.E. Clevite, Inc., 116 F.T.C. 389 (1993); In re Quality Trailer 
Products Corp., 115 F.T.C. 944 (1992). In addition, an invitation to 
collude may violate Section 2 of the Sherman Act as an act of 
attempted monopolization, and may also violate federal wire and mail 
fraud statutes. See United States v. American Airlines, 743 F.2d 
1114 (5th Cir. 1984); United States v. Ames Sintering Co., 927 F.2d 
232 (6th Cir. 1990).
---------------------------------------------------------------------------

C. Sigma's Involvement in a 2009 Conspiracy With McWane To Eliminate 
Competition in the Domestic DIPF Market

    The complaint alleges that, after the passage of the ARRA, Sigma 
prepared to enter the domestic DIPF market in competition with McWane. 
However, McWane wanted to avoid this competition, so McWane and Sigma 
agreed that Sigma would participate in the domestic DIPF market only as 
a distributor of McWane's product. Through this arrangement, McWane 
shared a portion of its monopoly profits in the domestic DIPF market 
with Sigma in exchange for Sigma's commitment to abandon its plans to 
enter that market in competition with McWane. Such agreements are 
presumptively unlawful.\6\
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    \6\ E.g., Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49-50 
(1990); United States v. Masonite Corp., 316 U.S. 265, 281 (1942); 
In re SKF Industries, Inc., 94 F.T.C. 6, 97-104 (1979).
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D. McWane and Sigma Conspired To Monopolize the Domestic DIPF Market

    The elements of a conspiracy to monopolize are: (1) The existence 
of a combination or conspiracy; (2) an overt act in furtherance of the 
conspiracy; and (3) a specific intent to monopolize.\7\ Here, the 
complaint alleges that through their MDA arrangement, McWane and Sigma 
agreed to limit competition between themselves in the domestic DIPF 
market, and to exclude their rivals in that market, including Star, by 
the adoption of duplicate exclusive dealing policies, and did so with 
the common and specific intent to maintain and share monopoly profits 
in the domestic DIPF market.
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    \7\  See Volvo N. Am. Corp. v. Men's Int'l Prof'l Tennis 
Council, 857 F.2d 55, 74 (2d Cir. 1988).
---------------------------------------------------------------------------

III. The Proposed Order

    The proposed order is designed to remedy the unlawful conduct 
charged against Sigma in the complaint and to prevent the recurrence of 
such conduct.
    Paragraph II.A of the proposed order prohibits Sigma from 
participating in or maintaining any combination or conspiracy between 
any competitors to fix, raise or stabilize the prices at which DIPF are 
sold in the United States, or to allocate or divide markets, customers, 
or business opportunities.
    Paragraph II.B of the proposed order prohibits Sigma from 
soliciting or inviting any competitor to participate in any of the 
actions prohibited in Paragraphs II.A.
    Paragraph II.C of the proposed order prohibits Sigma from 
participating in or facilitating any agreement between competitors to 
exchange ``Competitively Sensitive Information'' (``CSI''), defined as 
certain types of information related to the cost, price, output or 
customers of or for DIPF. Paragraph II.D of the proposed order 
prohibits Sigma from unilaterally disclosing CSI to a competitor, 
except as part of the negotiation of a joint venture, license or 
acquisition, or in certain other specified circumstances. Paragraph 
II.E of the proposed order prohibits Sigma from attempting to engage in 
any of the activities prohibited by Paragraphs II.A, II.B, II.C, or 
II.D.
    The prohibitions on Sigma's communication of CSI with competitors 
contained in Paragraphs II.C and II.D of the proposed order are subject 
to a proviso that permits Sigma to communicate CSI to its competitors 
under certain circumstances. Under the proposed order, Sigma may 
participate in an information exchange with its competitors in the DIPF 
market provided that the information exchange is structured in such a 
way as to minimize the risk that it will facilitate collusion among the 
Sigma and its competitors. Specifically, the proposed order requires 
any exchange of CSI to occur no more than twice yearly, and to involve 
the exchange of aggregated information more than six months old. In 
addition, the aggregated information that is exchanged must be made 
publicly available, which increases the likelihood that an information 
exchange involving Sigma will simultaneously benefit consumers. The 
proposed order also prohibits Sigma's participation in an exchange of 
CSI involving price, cost or total unit cost of or for DIPF when the 
individual or collective market shares of the competitors seeking to 
participate in an information exchange exceed specified thresholds. The 
rationale for this provision is that in a highly concentrated market 
the risk that the information exchange may facilitate collusion is 
high. Due to the highly concentrated state of the DIPF market as 
currently structured, an information exchange involving Sigma and 
relating to price, output or total unit cost of or for DIPF is unlikely 
to reoccur in the foreseeable future.
    The proposed order has a term of 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Commissioner J. Thomas Rosch, Concurring in Part and 
Dissenting in Part

    The Commission has voted separately (1) to issue a Part 3 
Administrative Complaint against Respondents McWane, Inc. (``McWane'') 
and Star Pipe Products, Ltd. (``Star''), and (2) to accept for public 
comment a Consent Agreement settling similar allegations in a draft 
Part 2 Complaint against Respondent Sigma Corporation (``Sigma''). 
While I have voted in favor of both actions, I respectfully object to 
the inclusion--in both the Part 3 Administrative Complaint and in the 
draft Part 2 Complaint--of claims against McWane and Sigma, to the 
extent that such claims are based on allegations of exclusive dealing, 
as explained in Part I below. I also respectfully object to naming 
Star, a competitor of McWane and Sigma, as a Respondent in the Part 3 
Administrative Complaint, which alleges, inter alia, that Star engaged 
in a horizontal conspiracy to fix the prices of ductile iron pipe 
fittings (DIPFs) sold in the United States, and in a related, 
information exchange, as described in Part II below.

I.

    For reasons similar to those that I articulated in a recent dissent 
in another matter, Pool Corp., FTC File No. 101-0115, http://www.ftc.gov/os/caselist/1010115/111121poolcorpstatementrosch.pdf, I do 
not think that the Part 3 Administrative Complaint against McWane and 
the draft Part 2 Complaint against Sigma adequately allege exclusive 
dealing as a matter of law. In particular, there is case law in both 
the Eighth and Ninth Circuits blessing the conduct that the complaints 
charge as exclusive dealing.

[[Page 1494]]

II.

    I also object to the allegations in the Part 3 Administrative 
Complaint and in the draft Part 2 Complaint that name Star as a co-
conspirator in the alleged horizontal price-fixing of DIPF sold in the 
United States and the related, alleged DIFRA information exchange.\8\ I 
do not consider naming Star, along with McWane and Sigma, as a co-
conspirator to be in the public interest. There are at least three 
reasons why this is so. First, although there may be reason to believe 
Star conspired with McWane and Sigma in this oligopolistic industry, 
Star seems much less culpable than the others. More specifically, I 
believe that we must be mindful of the consequences of public law 
enforcement in assessing whether the public interest favors joining 
Star as a co-conspirator.\9\ Second, I am concerned that a trier of 
fact may find it hard to believe that Star could be both a victim of 
McWane's alleged ``threats'' to deal exclusively with distributors, and 
at more or less the same time (the ``exclusive dealing'' program began 
in September 2009), a co-conspirator with McWane in a price-fixing 
conspiracy (June 2008 to February 2009). (This concern further explains 
why I do not have reason to believe that the exclusive dealing theory 
is a viable one.) Third, I am concerned that Star's alleged 
participation in the price-fixing conspiracy and information exchange 
relies, in part, on treating communications to distributors as 
actionable signaling on prices or price levels.\10\ See, e.g., 
Williamson Oil Co., Inc. v. Philip Morris USA, 346 F.3d 1287, 1305-07 
(11thCir. 2003).
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    \8\ See McWane/Star Part 3 Administrative Compl. Sec. Sec.  29-
38, 64-65; Sigma draft Part 2 Compl. Sec. Sec.  23B33.
    \9\ See Credit Suisse Secs. (USA) LLC v. Billing, 551 U.S. 264, 
281-84 (2007) (questioning the social benefits of private antitrust 
lawsuits filed in numerous courts when the enforcement-related need 
is relatively small); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557-
60 (2007) (expressing concern with the burdens and costs of 
antitrust discovery, and the attendant in terrorem effect, 
associated with private antitrust lawsuits).
    \10\ McWane/Star Part 3 Administrative Compl. Sec.  34b; Sigma 
draft Part 2 Compl. Sec.  29.

[FR Doc. 2012-267 Filed 1-9-12; 8:45 am]
BILLING CODE 6750-01-P