Solicitations to Collude Are the Worst Type of Invitation

Inviting your competitor to collude in 2014? Not on the FTC's watch, at least not when the agency has one of the hottest documents in the history of antitrust.

Imagine your business client asked you to review the following email before he sent it:

Hello Phil, Our company name is InstantUPCCodes.com, as you may be aware, we are one of your competitors within the same direct industry that you are in. The reason for this email is because of the constant price changing from multiple vendors within this industry. The 3 main problems are US, YOU, and [Competitor A].¹

Now imagine how it must feel to have that email turned over to the FTC.

Last week two internet resellers of universal product code (UPC) barcodes used by retailers for price scanning and inventory purposes settled charges that they violated Section 5 of the Federal Trade Commission Act by inviting an agreement to raise prices.

Many companies pay membership fees to an international association that sets global supply chain standards to obtain UPC barcodes for their products. Some smaller businesses avoid the cost of the membership fee and purchase UPC barcodes through resellers in an online secondary market. Competition among resellers in the secondary UPC barcode market has driven prices lower over the past several years.

The FTC issued separate complaints to InstantUPCCodes.com (Instant) and its principal, Jacob J. Alifraghis, and to 680 Digital, Inc., d/b/a/ Nationwide Barcode (Nationwide) and its principal, Philip B. Peretz charging that on August 4, 2013, Alifraghis of Instant sent the above message to Peretz of Nationwide with its explicit invitation to raise prices of barcodes. Alifraghis proposed that both Nationwide and Instant match the higher prices of another competitor, stressing that all three firms had to act in concert or the plan would not succeed.

The FTC viewed the email as a textbook example of an invitation to collude. Over the past 20 years the FTC has brought enforcement actions under Section 5 of the FTC Act against companies who make private communications to competitors that set forth proposed terms of unlawful horizontal price-fixing or market allocation agreements.² Even though there is no acceptance of the invitation, and therefore no actual violation of Section 1 of the Sherman Act because there is no finding that the firms formed any “contract, combination . . . or conspiracy,” the FTC has maintained that just the invitation itself is unlawful under Section 5. In the last ten years, through the Valassis and U-Haul cases, the FTC has extended its enforcement on invitations to collude to include public communications.³

The proposed Orders settle the complaints and prohibit Instant and Nationwide and their respective principals from: 1) communicating with competitors about barcode rates or prices; 2) any involvement related to an agreement with any competitor to divide markets, allocate consumers, or fix prices; and 3) persuading any competitor to raise, fix, or maintain price or to limit or reduce the terms or levels of service they provide.

The email between Mr. Alifraghis and Competitor A will join the pantheon of documents used in antitrust training programs. It gives counsel the perfect opportunity to remind the business teams of the basics:

• Avoid private contact with competitors regarding prices or customers.
• Public statements regarding future prices or output levels should be vetted by antitrust counsel.
• In public announcements like earnings calls, companies should focus on their own actions and avoid commenting on their competitors or the industry, especially statements where their actions are contingent upon another's action.

And of course, always assume your emails will become public.

---

¹ See, Complaint of Federal Trade Commission, InstantUPCCodes.com, FTC File No. 141-0036 (Jul. 21, 2014), available at http://www.ftc.gov/system/files/documents/cases/140721instantupccmpt.pdf.

² See, Complaint of Federal Trade Commission, Quality Trailer Products Corp., 115 F.T.C. 944 (Nov. 5, 1992), available at http://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-115/ftc_volume_decision_115_january_-_december_1992pages_880-976.pdf; Complaint of Federal Trade Commission, A.E. Clevite, Inc., 116 F.T.C. 389 (1993); Complaint of Federal Trade Commission, YKK (U.S.A.) Inc., 116 F.T.C. 628 (Jul. 1, 1993); Complaint of Federal Trade Commission, Precision Moulding Co., 122 F.T.C. 104 (Sept. 3, 1996); Complaint of Federal Trade Commission, Stone Container Corp., 125 F.T.C. 853 (June 3, 1998), available at http://www.ftc.gov/sites/default/files/documents/cases/1998/06/9510006.cmp_.htm; Complaint of Federal Trade Commission, MacDermid, Inc., FTC File No. 991-0167, Docket No. C-3911, 1999 FTC Lexis 191 (Dec. 21, 1999); Complaint of Federal Trade Commission, Amerigas/ Blue Rhino, FTC File No. 111-0195, Docket No. 9460 (Mar. 27, 2014) available at http://www.ftc.gov/system/files/documents/cases/140401amerigascomplaint.pdf

³ See, Analysis of Agreement Containing Consent Order, Valassis, FTC File No. 051-0008 (Mar. 14, 2006), available at http://www.ftc.gov/sites/default/files/documents/cases/2006/03/060314ana0510008.pdf; Analysis of Agreement Containing Consent Order, U-Haul, FTC File No. 081-0157 (Jul. 20, 2010), available at http://www.ftc.gov/sites/default/files/documents/cases/2010/06/100609uhaulanal.pdf.

---