Fortiline, LLC; Analysis To Aid Public Comment, 54085-54088 [2016-19339]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 81, Number 157 (Monday, August 15, 2016)]
[Notices]
[Pages 54085-54088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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 
https://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 https://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 https://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 https://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 https://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.

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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

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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