Prohibited trade practices: American Petroleum Co., Inc., 34250-34252 [E7-12033]


[Federal Register: June 21, 2007 (Volume 72, Number 119)]
[Page 34250-34252]
From the Federal Register Online via GPO Access []



[File No. 061 0229]

American Petroleum Company, Inc.; Analysis of Agreement
Containing Consent Order to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.


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 July 13, 2007.

ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``American Petroleum, File No. 061 0229,'' to
facilitate the organization of comments. A comment filed in paper form
should include this reference both in the text and on the envelope, and
should be mailed or delivered to the following address: Federal Trade
Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania
Avenue, NW., Washington, D.C. 20580. Comments containing confidential
material must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with Commission Rule 4.9(c). 16 CFR
4.9(c) (2005).\1\ The FTC is requesting that any comment filed in paper
form be sent by courier or overnight service, if possible, because U.S.
postal mail in the Washington area and at the Commission is subject to
delay due to heightened security precautions. Comments that do not
contain any nonpublic information may instead be filed in electronic
form as part of or as an attachment to email messages directed to the
following email box: The FTC Act and other
laws the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. All
timely and responsive public comments, whether filed in paper or
electronic form, will be considered by the Commission, and will be
available to the public on the FTC website, to the extent practicable,
at As a matter of discretion, the FTC makes every effort

to remove home contact information for individuals from the public
comments it receives before placing those comments on the FTC website.
More information, including routine uses permitted by the Privacy Act,
may be found in the FTC's privacy policy, at


    \1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See Commission Rule 4.9(c),
16 CFR 4.9(c).

FOR FURTHER INFORMATION CONTACT: Geoffrey Green (202) 326-2641, Bureau
of Competition, Room NJ-6264, 600 Pennsylvania Avenue, NW., Washington,
D.C. 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 of
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

[[Page 34251]]

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 June 16, 2007), on the World Wide Web, at
 A paper copy can be obtained from the

FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW.,
Washington, D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission
in either paper or electronic form. \\All comments should be filed as
prescribed in the ADDRESSES section above, and must be received on or
before the date specified in the DATES section.

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 with
American Petroleum Company, Inc. (``American Petroleum'' or
``Respondent''), an importer and seller of lubricants with its
principal place of business located at Road 865 KM 0.2, Barrio
Campanillas, Toa Baja, Puerto Rico 00951.
    The agreement settles charges that American Petroleum violated
Section 5 of the Federal Trade Commission Act, 15 U.S.C. Sec.  45, by
agreeing with competitors to restrict the importation and sale of
lubricants in Puerto Rico. The proposed consent order has been placed
on the public record for 30 days to receive comments from interested
persons. Comments received during this period will become part of the
public record. After 30 days, the Commission will review the agreement
and the comments received, and will decide whether it should withdraw
from the agreement or make the proposed order final.
    The purpose of this analysis is to facilitate comment on the
proposed order. The analysis does not constitute an official
interpretation of the agreement and proposed order, and does not modify
their terms in any way. Further, the proposed consent order has been
entered into for settlement purposes only, and does not constitute an
admission by Respondent that it violated the law or that the facts
alleged in the complaint (other than jurisdictional facts) are true.

I. The Complaint

    The allegations of the complaint are summarized below:
    American Petroleum has for many years been engaged in the business
of importing lubricants into, and selling lubricants in, the
Commonwealth of Puerto Rico.
    Puerto Rico Law 278, enacted in 2004, was intended to create
incentives for the safe disposal of used lubricants. The law required
all persons in the chain of distribution, from the importer to the end-
user, to pay an environmental deposit of fifty cents for each quart of
lubricants purchased. The deposit could be recovered after the used
lubricating oil was delivered to an authorized collection center.
During 2005 and 2006, American Petroleum joined with numerous others in
the Puerto Rico lubricants industry to lobby for the delay,
modification, and/or repeal of Law 278. These efforts were partially
successful. The Legislature postponed the starting date for the law
until March 31, 2006.
    In March 2006, with the effective date for Law 278 approaching,
American Petroleum and several competing importers and sellers of
lubricants adopted a new strategy to pressure the Government to repeal
Law 278. The companies agreed to cease importing lubricants, beginning
on March 31, 2006, and continuing for so long as Law 278 remained in
effect. The conspirators issued a public warning that as a result of
this joint action, shortages of lubricants would arise throughout the
island, and would continue until Law 278 was repealed.
    In December 2006, the Puerto Rico Legislature repealed Law 278.

II. Legal Analysis

    In several previous cases, the Commission has challenged under
Section 5 of the FTC Act boycott activity where the victim was the
government in its capacity as a consumer; that is, the conspiring
sellers refused to deal in order to exact higher prices from the
government.\2\ Here, the lubricant importers are alleged to have used
their economic might in order to pressure the government in its role as
a regulator. As discussed below, the antitrust laws reach this conduct
as well.

    \2\ E.g., Superior Court Trial Lawyers Ass'n, 493 U.S. 411
(1990); Peterson Drug Co., 115 F.T.C. 492 (1992); Michigan State
Medical Society, 110 F.T.C. 191 (1983).

    The conspiracy alleged in the complaint is per se unlawful. A
horizontal agreement to restrict output is inherently likely to harm
competition, and there is no legitimate efficiency justification for
respondent's conduct. SCTLA, 493 U.S. 411; NCAA v. Board of Regents,
468 U.S. 85 (1984); Sandy River Nursing Care v. Aetna Casualty, 985
F.2d 1138 (1\st\ Cir. 1993); PolyGram Holding, Inc., 5 Trade Reg. Rep.
(CCH) ] 15,453 (FTC 2003) (available at <
), aff'd, 416 F.3d 29 (D.C. Cir. 2005).

    Ordinarily, members of a cartel reduce output across the market in
order to force consumers to bid up prices. Here the strategy was to
impose pain on consumers in order to coerce the Government of Puerto
Rico to accede to the industry's demand that Law 278 be repealed. This
raises the possibility of viewing the alleged conspiracy as a form of
petitioning activity that arguably is immune from antitrust sanctions.
As the Supreme Court has held, it is not the purpose of the antitrust
laws to regulate traditional petitioning activity aimed at securing
anticompetitive governmental action. Eastern Railroad Presidents
Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961).
    On the other hand, where competitors coordinate their commercial
activity, conspiring in a manner that harms consumers directly, the
fact that the conspirators intended thereby to motivate governmental
action is not a defense to liability. SCTLA, 493 U.S. 411. An exception
to this latter rule governs group boycotts that seek a purely political
objective (that is, an objective that involves no special pecuniary
benefit for the conspirators). A politically motivated boycott is
protected by the First Amendment, and is not subject to antitrust
liability. NAACP v. Claiborne Hardware Co., 458 U.S. 886, 914 (1982)
(The First Amendment protects ``a nonviolent, politically motivated
boycott designed to force governmental and economic change to
effectuate rights guaranteed by the Constitution itself.'').\3\

    \3\ See also Allied International, Inc. v. International
Longshoremen's Ass'n, 640 F.2d 1368, 1380 (1\st\ Cir. 1981), aff'd,
456 U.S. 212 (1982); Missouri v. National Organization for Women,
Inc., 620 F.2d 1301 (8\th\ Cir. 1980).

    The conduct alleged in the complaint would not be immune from
antitrust sanctions under these precedents. In Noerr, the alleged
restraint of trade (legislation favoring the conspirators) was the
consequence of governmental action, and for this reason was exempt from
antitrust review. In the present investigation, the alleged restraint
of trade (a constriction in the supply of lubricants) was the means by
which the conspirators sought to obtain favorable legislation. It
follows that the Noerr defense is not applicable.\4\ The

[[Page 34252]]

Claiborne Hardware defense is also inapplicable because the Puerto Rico
conspiracy was an effort to escape regulation and advance the parochial
economic interests of the importers. This was not a politically
motivated boycott, as that term is used in the case law.

    \4\ See In re Brand Name Prescription Drugs Antitrust Litig.,
186 F.3d 781, 789 (7\th\ Cir. 1999) (The Noerr doctrine ``does not
authorize anticompetitive action in advance of government's adopting
the industry's anticompetitive proposal. The doctrine applies when
such action is the consequence of legislation or other governmental
action, not when it is the means for obtaining such action . . .'')
(emphasis in original).

    The present case is similar to Sandy River Nursing Care v. Aetna
Casualty, 985 F.2d 1138. A group of insurance companies agreed to cease
offering workers' compensation policies in Maine in order to coerce the
legislature into authorizing higher rates. The Court of Appeals
concluded that this concerted refusal to sell insurance was a per se
violation of the Sherman Act, and that the legislative agenda of the
insurance companies afforded them no defense to liability. The opinion
explains: ``[P]rivate actors who conduct an economic boycott violate
the Sherman Act and may be held responsible for direct marketplace
injury caused by the boycott, even if the boycotters' ultimate goal is
to obtain favorable state action.'' 985 F.2d at 1142.
    It is not a legitimate antitrust defense to claim that Law 278 is
inefficient, and that the repeal thereof would enhance consumer
welfare. The legality of an otherwise anticompetitive restraint cannot
turn on the wisdom or efficiency of the governmental policy that is
targeted by the conspirators.\5\

    \5\ An analogous defense was considered and rejected by the
Commission in Detroit Auto Dealers Ass'n, 110 F.T.C. 417 (1989),
aff'd in part and rev'd in part, 955 F.2d 457 (6\th\ Cir. 1992).
DADA involved an agreement among competing automobile dealers to
limit the hours of operation of their dealerships. Respondents
argued, inter alia, that the agreement to limit showroom hours was
justified because it reduced the likelihood that their employees
would join unions. Unionization would potentially lead to higher
wages, and hence higher prices for automobiles. The Commission could
find ``no merit'' in the proposed efficiency defense. ``Given the
national policy favoring the association of employees to bargain in
good faith with employers over wages, hours and working conditions,
we do not believe that preventing unionization can be a legitimate
justification for an otherwise unlawful restraint.'' Id. at 498 n.
    Just as collective bargaining is part of national labor policy,
Law 278 represents the environmental policy of the Commonwealth of
Puerto Rico. And just as escaping national labor policy is not a
cognizable antitrust defense, altering Puerto Rico environmental
legislation is not a cognizable antitrust defense.

III. The Proposed Consent Order

    American Petroleum has signed a consent agreement containing the
proposed consent order. The proposed consent order enjoins American
Petroleum from conspiring with competitors to restrict output.
    More specifically, American Petroleum would be enjoined from
agreeing or attempting to agree with any other seller of lubricants:
(i) to restrain, restrict, limit or reduce the import or sale of
lubricants; or (ii) to deal with, refuse to deal with, threaten to
refuse to deal with, boycott, or threaten to boycott any buyer or
potential buyer of lubricants.
    The proposed order would not interfere with the company's
Constitutional right to engage in legitimate petitioning activity. The
proposed order includes a safe harbor provision expressly permitting
American Petroleum to exercise rights under the First Amendment to
petition any government body concerning legislation, rules, or
    The proposed order will expire in 20 years.
    By direction of the Commission.

Donald S. Clark,
[FR Doc. E7-12033 Filed 6-20-07; 8:45 am]