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ANNUAL REPORT OF THE FEDERAL TRADE COMMISSION For the Fiscal Year Ended September 30, 1982 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 HD2775 1982 c. 2 FEDERAL TRADE COMMISSION ___________ JAMES C. MILLER III, Chairman DAVID A. CLANTON, Commissioner MICHAEL PERTSCHUK, Commissioner PATRICIA P. BAILEY, Commissioner GEORGE W. DOUGLAS, Commissioner CAROL M. THOMAS, Secretary ii EXECUTIVE OFFICES OF THE FEDERAL TRADE COMMISSION Pennsylvania Avenue at Sixth Street, N.W. Washington, D.C. 20580 Regional Offices Atlanta, Georgia Room 1000 1718 Peachtree Street, N.W. Zip Code 30367 Denver, Colorado Suite 2900 1405 Curtis Street Zip Code 80202 Boston, Massachusetts Room 1301 150 Causeway Street Zip Code 02114 Los Angeles, California Room 13209 11000 Wilshire Boulevard Zip Code 90024 Chicago, Illinois Suite 1437 55 East Monroe Street Zip Code 60603 New York, New York Room 2243-EB Federal Building 26 Federal Plaza Zip Code 10278 Cleveland, Ohio Suite 500 - Mall Building 118 St. Clair Avenue Zip. Code 44114 San Francisco, California Room 12470 - Federal Building 450 Golden Gate Avenue Zip Code 94102 Dallas, Texas 8303 Elmbrook Drive Zip Code 75247 Seattle, Washington Room 2840 - Federal Building 915 Second Avenue Zip Code 98174 Field Station Honolulu, Hawaii Room 6324 300 Ala Moana Blvd. Zip Code 96850 iii LETTER OF TRANSMITTAL FEDERAL TRADE COMMISSION Washington, D.C. To the Congress of the United States: It is a pleasure to transmit the sixty-eighth Annual Report of the Federal Trade Commission covering its accomplishments during the fiscal year ended September 30, 1982. By direction of the Commission. JAMES C. MILLER III Chairman THE PRESIDENT OF THE SENATE THE SPEAKER OF THE HOUSE OF REPRESENTATIVES iv FEDERAL TRADE COMMISSION 1982 ANNUAL REPORT Table of Contents Page Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Maintaining Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Summary of Enforcement Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Mergers and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Distribution Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Case Generation Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Integration of Economic Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Oil Industry Merger Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Horizontal Merger Enforcement Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Competition Advocacy in Steel Dumping Cases . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Advertising Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Credit Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Service Industry Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Marketing Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Office of Consumer and Business Education . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Impact Evaluation Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Consumer Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Economic Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The Regional Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Executive Direction, Administration and Management . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Appendix Part II (Investigative Stage) Consent Agreements Accepted and Published for Public Comment Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Part II (Investigative Stage) Consent Agreements Issued in Final Form Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 v Preliminary Injunctions Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Civil Penalty Actions Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Administrative Complaints Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Part III (Adjudicative Stage) Consent Agreements Accepted and Published for Public Comment Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Part III (Adjudicative Stage) Consent Agreements Issued in Final Form Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Initial Decisions Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Final Commission Orders Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Consumer Redress Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Order Modifications Competition Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Consumer Protection Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Enforcement Policy Statements and Advisory Opinions . . . . . . . . . . . . . . . . . . . . . . . . . 49 Appellate Court Review of Commission Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Supreme Court Review of Commission Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Economic Working Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Interventions Before Other Federal and State Agencies . . . . . . . . . . . . . . . . . . . . . . . . . 57 Miscellaneous Economic Policy Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Line of Business Program Research Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 vi SUMMARY Fiscal 1982 was a year of change for the Commission. With the appointment of Chairman James C. Miller III, the Commission undertook a restructuring of priorities and management policy for the agency. While the Commission continued its commitment in carrying forward its statutory responsibilities, it also pursued three major goals: I. IMPROVED MANAGEMENT OF THE COMMISSION During fiscal 1982, the Commission placed a high priority on improving the management of the agency. To this end, a reorganization plan was developed and implemented to maximize the utilization of agency resources. The reorganization established direct lines of authority from professional staff to senior managers, increased accountability of senior managers to the Commission, consolidated overlapping and duplicative programs, and reduced the top-heavy management structure. The Bureau of Economics' reorganization enhanced its ability to provide support for the agency's law enforcement missions and to provide advice on economic matters to the Commission more effectively. The Commission's information resources were consolidated from different sources into a single office headed by a new Deputy Executive Director. This new office will offer a coherent and comprehensive information resource for the Commission, the Commission's staff, and the public. II. TARGETING OF THE COMMISSION'S LAW ENFORCEMENT ACTIVITIES During fiscal 1982, the Commission strengthened the effectiveness and efficiency of the agency's law enforcement activities. More emphasis was placed on the prosecution of cases and less on the development of new rules. The staff also has been directed to focus its activities on cases involving fraud, price-fixing, and other more traditional law violations. In an effort to improve the effectiveness of the Commission's law enforcement program, the Commission has successfully integrated economic analysis into all aspects of the Commission's planning, case selection, rule analysis, and prosecution of cases. Integration of economic analysis at all steps in the decisions-making process has focused staff resources on the most promising cases, i.e., those with real potential for consumer or competitive benefits, thereby making the most efficient use of the taxpayer's investment. 1 2 III. FEDERAL TRADE COMMISSION IMPROVEMENT OF RELATIONS BETWEEN THE COMMISSION, MEMBERS OF CONGRESS AND THE PUBLIC In recent years, the Commission's relations with Congress and the public had taken on an overly adversarial tone. Growing Congressional and public criticism over the Commission's directions were reflected in the 1980 FTC Improvements Act, which restricted the agency's law enforcement activities in certain areas and forbade them altogether in others. The Commission has worked toward continually improving its relationship with Congress and the public. The agency's Office of Congressional Relations was upgraded and new lines of communication were opened with private groups interested in or affected by the FTC's activities. Outreach programs were expanded to include business education projects to encourage voluntary compliance with laws and rules administered by the FTC. The organization of the Commission is divided into three bureaus which carry out the Congress' two mandates maintaining competition in the marketplace and protecting the consumer. The following is a summary of the Federal Trade Commission's accomplishments in fiscal 1982. MAINTAINING COMPETITION MISSION The mission of the Commission's Bureau of Competition is to enhance the welfare of consumers by maintaining the competitive operation of our economic system of private enterprise. The Bureau carries out its mission by enforcing the antitrust provisions of the Clayton Act and the Federal Trade Commission Act, as well as by serving as a vigorous advocate of competition before Congress and other governmental bodies. In fiscal year 1982, several organizational changes were made in the Bureau to improve its management and make it more effective in achieving the goals of the FTC Act. These include restructuring the "Deputy Director" position to allocate responsibility for each of the Bureau's litigating units to a particular Deputy Director, allowing each Deputy to maintain day-to-day contact with the segment of Bureau activities under his or her supervision. In addition, responsibility for regional office competition activities was shifted into the Office of the Director. Further, in response to the scarcity of enforcement resources, attorneys were reassigned to make a higher proportion of them available for direct law enforcement efforts. SUMMARY OF ENFORCEMENT ACTIVITIES During fiscal 1982, the Commission initiated 160 investigations of possible violations of the antitrust laws. Many of the investigations pur- ANNUAL REPORT 1982 3 sued possible multiple law violations, totaling 289 possible violations in all. The Commission issued two administrative complaints, accepted eight consent agreements and voted to seek three preliminary injunctions relating to competition matters. The U.S. Courts of Appeals issued decisions in three appeals of Commission decisions, and an evenly divided Supreme Court allowed one challenged Commission order to stand. MERGERS AND ACQUISITIONS Energy Mergers. Substantial resources were focused on mergers and acquisitions, and several of the largest were in the petroleum industry. During the year, the Bureau was called upon to investigate the second and third largest mergers in U.S. history. In the intended purchase by Mobil Corp. of Marathon Oil Co., and subsequently, in the proposed acquisition of Cities Service by Gulf Oil Co., the Bureau devoted extensive resources to providing the Commission with the necessary factual and legal analysis to determine their likely competitive effects. In both cases, the Commission determined that the acquisitions might have resulted in a lessening of competition in the production and distribution of various petroleum products, and voted to seek injunctions in federal court to stop the mergers. In both cases the proposed mergers were abandoned. Other Mergers. In a third large merger case, LTV Corp. sought to acquire Grumman Corp. Based upon the Bureau's investigation, the Commission found that the acquisition could result in a lessening of competition in the carrier-based military aircraft market, and voted to seek an injunction against the acquisition. This proposed acquisition was also abandoned. Two merger investigations resulted in the issuance of formal complaints. B. F. Goodrich sought to acquire certain properties of Diamond Shamrock used to produce polyvinyl chloride. The Commission issued a complaint alleging that the merger could reduce competition in this market. The Hospital Corp. of America acquired two hospital chains in the Chattanooga, Tenn., area. Again, the Commission issued a complaint, charging that patients might have fewer alternatives and pay higher prices as a result of the merger. These cases are now in litigation before administrative law judges. Six merger cases during the year resulted in either consent agreements accepted for public comment or consent agreements approved in final form. The largest of these was the acquisition by ConAgra Inc. of Peavey Corp., where the Commission required substantial divestiture of grain milling facilities in several Western states before approving the proposed transaction. Consent decrees from Batus Inc., and Canada Cement LaFarge Ltd. were accepted and consent agreements with Gifford-Hill American Inc. and General Electric Co., were issued in final form. The Commission also granted final acceptance to an order requiring the 4 FEDERAL TRADE COMMISSION divestiture by Lehigh Portland Cement Co. of its Hannibal, Mo., cement making facility. The divestiture resulted from settlement of charges in the Commission's 1981 complaint that Lehigh's acquisition of U.S. Steel's cement-producing Universal Atlas Division would substantially reduce competition in the manufacture and sale of portland cement in the Midwest. DISTRIBUTION RESTRAINTS The Commission also maintained an effective presence in the enforcement of antitrust prohibitions against distribution restraints which cause injury to consumers, including vertical restraints and violations of Robinson-Patman prohibitions against price discrimination. In a final decision, the Commission reversed a 1981 finding by an administrative law judge and held that Russell Stover Candies Inc. had violated the antitrust laws by coercing retailers to sell candy at "suggested" retail prices with threats to terminate dealers who failed to comply. Germaine Monteil Cosmetiques Corp. agreed to a consent order, and an order was issued in final form against Onkyo U.S.A. Corp. prohibiting resale price maintenance. In addition, new initial phase investigations were opened concerning some 23 possible Robinson-Patman violations and 47 possibly illegal vertical restraints. HEALTH CARE The Commission has devoted major resources to an effort to detect and prosecute antitrust violations in the health-care industry, which accounts for nearly 10 percent of the nation's gross national product. During fiscal 1982, the Texas Dental Association agreed to an order prohibiting it from obstructing insurance companies' efforts to minimize dental care costs. The Commission also issued a complaint against Hospital Corp. of America (discussed above), charging that its acquisition of two hospital chains in Chattanooga would reduce competition in the provision of health care services in that city. The health care effort also resulted in Commission acceptance of two consent orders prohibiting professional organizations from interfering with competition by means of truthful advertising. In a consent order issued in final form, the Broward County Medical Society was required to abandon restrictions on its members' advertising, including advertising by physicians that they accepted Medicaid or spoke Spanish, and the Association of Independent Dentists also agreed to a consent order prohibiting interference with truthful advertising. Finally, an evenly divided Supreme Court upheld without written opinion a Commission order prohibiting the American Medical Association from interfering with truthful advertising by its members. ANNUAL REPORT 1982 5 CASE GENERATION INITIATIVES In addition to continuing the present level of effort in ongoing enforcement initiatives, several new and complementary approaches to case generation were implemented to foster competition and increase consumer welfare. First, the Bureau instituted a one-month intensive project, enlisting the efforts of attorneys: from all of the Bureau's divisions, to identify promising areas for investigation and evaluate case generation techniques. Second, the Bureau carried out a cooperative effort with the Bureau of Economics to target industries for investigation which, based on an analysis of economic data, appeared likely to have a significant probability of collusion or market power. Finally, increased emphasis was given to case generation activity as an element of the Bureau's ongoing workload. These new approaches have resulted in an enhanced ability to identify and investigate competitive trouble-spots in the economy. INTEGRATION OF ECONOMIC ANALYSIS In accordance with the Commission's stated desire to increase the integration of economic analysis into the agency's activities, the Bureau has increasingly evaluated its competition activities from an economic perspective. In particular, the Bureau has taken steps to obtain and incorporate the comments of the Commission's Bureau of Economics at every important stage of case development. Economists sit on the Bureau's merger screening and evaluation committees and also have input prior to the initiation of preliminary and full-phase investigations. An economic advisor now assists the Director in each major decision, and works with other attorneys within the Bureau as well. Also, a course in legal principles for economists and courses and specialized colloquia on economics for lawyers have enhanced understanding and increased communication between lawyers and economists. Evaluative discussions and written analysis in the Bureau clearly reflect this effort. OIL INDUSTRY MERGER STUDY Following the proposed acquisition of Marathon Oil Co. by Mobil, Congress asked the Commission to perform an intensive study of merger activity in the petroleum industry. A joint effort by the Bureaus of Competition and Economics produced a comprehensive analysis, using data sources derived by the Commission over the course of its ten-year investigation of the petroleum industry in the Exxon case, information provided by the Department of Energy, and information from Hart-Scott-Rodino premerger filing by the parties to recent large mergers in the petroleum industry, notably the Mobil-Marathon and Gulf-Cities Service acquisition attempts. 6 FEDERAL TRADE COMMISSION The study analyzed the degree of concentration and possibilities for anticompetitive restrictions at all stages of petroleum production, including exploration, refining, transportation and marketing. The Commission also analyzed the motives behind merger activity in the petroleum industry, concluding that tax considerations, efficiencies in production and management, and differing valuations for crude oil reserves were the dominant causes. In the bid for Marathon common stock by both U.S. Steel and Mobil, for instance, it was estimated that over 25 percent of the premium paid for Marathon would be recouped in tax savings to the company which succeeded in acquiring it. The Commission concluded that present law was adequate to protect against the possible anticompetitive effects of mergers in the petroleum industry, as the Commission's action against several petroleum mergers during the past year had shown. A proposed complete ban on mergers, which the Commission had been asked to comment on, would have prevented certain mergers whose beneficial aspects, such as improved development of secondary sources of oil, outweighed any harms. The Commission instead recommended continued careful scrutiny of merger activity in the petroleum industry under laws currently in force. HORIZONTAL MERGER ENFORCEMENT STATEMENT During the past fiscal year, the Commission completed work initiated by then-Acting Chairman David Clanton to prepare a statement of Commission policy in the area of horizontal mergers. The FTC statement was released on the same day the Department of Justice announced an updated version of its 1968 guidelines. The guidelines were intended to make clear which factors the FTC would consider important in reviewing horizontal mergers and acquisitions. The Commission's statement emphasizes the qualitative factors involved in determining whether a merger is anticompetitive; for example, whether there are conditions facilitating tacit collusion, and whether market power would be likely to be exercised given alternative product choices available to consumers and alternative manufacturers of the product in question. While giving considerable weight to the justice guidelines so as to provide general parameters to business, the Commission statement makes clear that no single set of quantitative measures, particularly measurements based on market shares, can substitute for careful analysis of the likely competitive effects of a merger. The statement also, for the first time, identified those considerations that would determine how the Commission would exercise its prosecutorial discretion within the limits imposed by the law itself. One important clarification involved the failing company doctrine. The Commission noted that evidence of individual firm performance can be of use in evaluating the probable effect of a merger. Additionally, the Com- ANNUAL REPORT 1982 7 mission observed that some mergers can bring about efficiencies in production and management, and that it is appropriate to consider such efficiencies in deciding how to exercise the agency's discretion. It is anticipated that the enforcement statement will make the Commission's enforcement effort more predictable and enhance businessmen's understanding of the Commission's enforcement policy. COMPETITION ADVOCACY IN STEEL DUMPING CASES In a joint effort, the Bureaus of Competition and Economics undertook a thorough analysis of various aspects of steel dumping cases pending before the Department of Commerce and the International Trade Commission. Bureau representatives filed comments and participated in hearings to emphasize the possible adverse impacts on consumers and competition that could result from the imposition of dumping penalties on imported steel. The Commission was the sole U.S. government agency formally representing the interests of American consumers at the hearings. The Commission did not take a position either for or against particular remedies which had been proposed, but instead emphasized the effects the proposed sanctions would have upon competition in sectors of the American economy other than the steel industry. CONSUMER PROTECTION MISSION The Consumer Protection Mission seeks to eliminate unfair or deceptive acts or practices with emphasis on those practices that may unreasonably restrict or inhibit the free exercise of consumer choice. The Bureau emphasizes market-oriented remedies for law violations, and its mission is carried out through five divisions: Advertising Practices; Credit Practices; Service Industry Practices; Marketing Practices; and Enforcement. In addition, the Bureau has an Office of Consumer Education, an Impact Evaluation Unit, and a Consumer Advocacy program. ADVERTISING PRACTICES The Advertising Practices division focuses on the elimination of false and deceptive advertising. During fiscal year 1982, the Commission gave final approval to several consent agreements in this area. For example, the Tomy Corp. agreed not to represent in its advertising that its doll houses and accessories are sold in sets when, in fact, accessories are priced separately. D'ArcyMacManus and Masius Advertising Inc., the advertising agency for Snug Denture Cushions agreed to conform advertisements for the product to health warnings appearing on its label. Under an agreement 8 FEDERAL TRADE COMMISSION with American Motors Corp., new jeep CJ models will carry stickers warning prospective buyers that the vehicles handle differently than ordinary passenger cars. Many of the agreements approved concern dissemination of energy-related information. For example, two companies, Great North American Industries Inc. and Ball-Matic Corp. Inc., agreed to discontinue allegedly misleading advertising concerning fuel economy improvement claims for their products. The Renuzit Home Products Co. agreed to test its motor oil to ensure that it is properly labeled and classified. Two leading manufacturers of vinyl siding, Mastic Corp. and Vinyl Improvement Products Co., agreed not to make energy savings claims about their products. The Commission published the periodic cigarette report listing the tar, nicotine, and carbon monoxide content of 200 varieties of cigarettes. The FTC contributed comments to the Department of Energy concerning possible consumer protection and competition problems of public utilities in connection with the Residential Conservation Service Program. CREDIT PRACTICES The Credit Practices decision unit enforces legislation addressing problems in the consumer credit market. The Commission obtained civil penalty judgments in five credit-related matters. Collegiate Recovery and Credit Assistance Programs Inc. (CRI) agreed to pay $32,500 in civil penalties to settle FTC charges concerning violations of the Fair Debt Collection Practices Act. The nation's two largest car rental companies agreed to pay civil penalties settling charges that each failed to include a provision concerning consumer rights in contracts financing the sale of cars formerly in their rental fleets. Hertz Corp. will pay a $70,000 civil penalty, and Avis Rent-ACar System Inc. agreed to pay a $30,000 civil penalty and also prepare and distribute public service announcements on consumer rights under the Holder-In-Due-Course Rule. To settle charges that it violated the Equal Credit Opportunity Act (ECOA), Beall's Department Stores Inc. agreed to pay $10,000 in civil penalties and send applicants rejected since July 1978 a package including an ECOA notice, a request form to obtain a new application, and specific reasons for credit denial. To settle charges that it had violated the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act, Lender Service Inc. agreed to pay $10,000 in civil penalties, review all applicants rejected since August 1978, send required ECOA and FCRA notices, and give reasons for past denial of credit. ANNUAL REPORT 1982 9 The FTC has also filed a complaint requesting civil penalties against Iowa Credit Syndicate of Ft. Dodge Inc. for alleged violations of the Fair Debt Collection Act. In the debt collection area, the Commission gave final approval to a consent agreement with Aldens Inc., the nation's fifth largest mail order firm. Aldens agreed not to contact third parties in attempts to collect delinquent accounts. The Commission also obtained a preliminary injunction against the Bureau of Collections and its owner to prevent violations of the Fair Debt Collection Practices Act. The Commission submitted comments to the Federal Reserve Board (FRB) on proposals dealing with credit related regulations. FTC staff comments concerned: proposed interpretations of Regulation B relating to credit scoring systems; proposed updates of the official FRB staff commentary on Regulation Z; proposals concerning preemption of state laws under the Truth-InLending Act (TILA), and Maine's exemption from the TILA. SERVICE INDUSTRY PRACTICES The Service Industry Practices decision unit deals with unfair, deceptive, or anticompetitive practices in the service industries. The Commission filed suit in federal district court seeking a permanent injunction against International Diamond Corp. (IDC), the nation's largest investment diamond company. The FTC complaint charges IDC with misrepresenting the risks associated with diamond investment. IDC and a former official of the company agreed to the terms of the FTC's proposed injunction. In addition, the IDC complaint seeks refunds for investors injured by the allegedly deceptive practices and cancellation of their contracts. The court granted the permanent injunction, but the consumer redress issues are still pending. Another investment firm, the American Diamond Co., signed a consent agreement in which it agreed to stop making allegedly deceptive claims that gems can be sold as easily as stocks and at a generally recognized market price. In the transportation area, the Commission testified before the Senate Commerce Committee on the subject of intercity bus deregulation (H. R. 3663). The Commission advocated substantial deregulation on grounds that industry deregulation would result in greater price and service options. The Commission also filed a rulemaking petition with the Interstate Commerce Commission (ICC) asking that the ICC reduce entry barriers and rate controls over motor contract carriers. The Commission filed an amicus curiae brief in Harris v. North Carolina Board of Certified Public Accountant Examiners. The brief addressed two questions: whether an interpretation of a rule of professional ethics and conduct adopted by the N.C. Board, limiting the 10 FEDERAL TRADE COMMISSION operations of branch offices of CPA firms, unreasonably restricts competition with local firms; and whether the Board's status as a state regulatory body exempts it from application of the antitrust laws. In the product standards area, the Commission (jointly with the Department of Justice) filed an amicus curiae brief in the Supreme Court in American Society of Mechanical Engineers v. Hydrolevel Corp. The case involved the question of a competitor's manipulation of the standards process to block an innovative product from entering the market. The brief argued that a standards organization should be held liable under the antitrust laws for failing to control the anticompetitive conduct of its agents. The Court upheld liability on the theories and reasoning urged in the brief. The Office of Management & Budget (OMB) granted the Commission clearance for the proposed Funeral Rule. The Commission approved the rule, which requires itemized price disclosure and prohibits misrepresenting legal and cemetery requirements, and sent it to Congress for approval as required by the 1980 FTC Improvements Act. MARKETING PRACTICES The Marketing Practices decision unit monitors sales and marketing practices and investigates companies allegedly using unfair or deceptive practices at the time of sale. The division also polices warranty practices. A major area of attention in this program is the vacation timesharing industry. Activities in this area include liaison with the industry to advise members of FTC concerns and to encourage full compliance with the laws the Commission administers. A consumer education effort for potential timeshare buyers has been undertaken. A popular consumer newsletter presenting ten timeshare "tips" is part of this effort. The Commission obtained a stipulated injunction against Paradise Palms Vacation Club prohibiting misrepresentations in timeshare sales. Other law enforcement activities in this area also continue. In the deceptive sales practices area, the Commission modified provisions of a 1978 order concerning the use of business cards and advertising disclosures by Grolier Inc., an encyclopedia publisher and distributor. Refund checks totaling $1.47 million were mailed to former Bell & Howell correspondence school students resulting from the settlement of a 1977 FTC complaint. The Commission filed a complaint in federal district court against another correspondence school, LaSalle Extension University. This action seeks redress for former LaSalle students in connection with course cancellation procedures. In addition, the Commission is seeking to enjoin National Transportation Consultants Inc. and others from making further misrepresentations and omissions of material facts in marketing truck driver training courses. The Commission is also seeking consumer redress in this case. ANNUAL REPORT 1982 11 In the product information area, the Commission gave final approval to three consent agreements. The American Honda Motor Co. Inc. agreed to repair or replace rusted front fenders on qualifying 1975-1978 Honda cars. The Chrysler Corp. agreed to provide 700,000 owners of 1971-1980 Japanese-made Chrysler cars and trucks with accurate information on the need to use special replacement oil filters to avoid engine damage. Under an agreement with Volkswagen of America, approximately 400,000 owners of 1977-1981 diesel Volkswagens and Audis were notified of oil filter installation procedures, and offered reimbursement for engine damage caused by oil filter leaks. An administrative law judge issued an initial decision upholding FTC charges in the International Harvester Co. litigation. The administrative law judge ruled that the company knew or should have known by 1963 that certain of its gasoline-powered tractors were subject to a fire hazard, but did not institute an "effective" operator notification program until 1980. The judge did not, however, enter an order against International Harvester. This decision is on appeal to the Commission. The warranties program deals with the comprehensibility and availability of warranty information, as well as with warranty performance. The Commission issued an administrative complaint against R.E. Ward Corp., a major Washington, D.C., area home builder, charging it with a substantial pattern of warranty abuses that led to costly buyer injury. This is the first administrative complaint issued under the FTC's Housing Program, involving the warranty performance of builders across the country. The Commission gave final approval to a consent agreement with Worthington Ford of Alaska Inc. and three associated used car dealerships. The dealers agreed to inform former customers of previously undisclosed warranty coverage on their vehicles. The agreement also requires the dealers to give new customers warranty information before a sale. Chairman Miller has proposed a revised version of the Used Car Rule that Congress vetoed in fiscal year 1982. The Chairman's proposed rule would clarify dealer responsibilities and consumer rights by, among other things, requiring disclosure of warranty information. ENFORCEMENT The Enforcement decision unit monitors compliance with Commission orders and guides, and most rules and statutes. In total, as of September 30, 1982, the FTC has obtained $537,500 in civil penalties for violations of previously issued orders, or for violations of FTC rules. Up to another $44,550,305 may be obtained by consumers in redress resulting from cases concluded in fiscal year 1982. 12 FEDERAL TRADE COMMISSION In addition to the matters mentioned previously, the following companies have been assessed civil penalties: Ivy International, a wool importer, $25,000; RJR Foods Inc., the maker of Hawaiian Punch, $70,000; Womack Nursery Co., a mail order plant company, $10,000; National Dynamics, a mail order firm, $100,000; Van Schaack & Co., a real estate company, $30,000; Starcrest Products of California Inc., a mail order firm, $50,000; and R.J. Reynolds Co., a cigarettes producer, $100,000. The Supreme Court left intact a $1.75 million fine against Reader's Digest for violating a 1971 FTC order. The company distributed misleading contest materials similar to those which resulted in the issuance of the original order. A women's clothing and enamel giftware franchisor, Enamelcraft Inc., agreed to a permanent injunction. Under the injunction, Enamelcraft agreed to comply with the FTC's Franchise Rule and not to misrepresent the services and merchandise it offers. The Commission also obtained a permanent injunction against Marketing Associates Inc. from misrepresenting video game business opportunities in violation of the Franchise Rule. A consent judgment filed by the FTC requires West Branch Ltd., a bankrupt mail-order firm, or its president to set up a fund to ensure refunds to customers who paid for, but did not receive, merchandise offered by the company. An amicus curiae brief was filed in U.S. District Court involving SMM Mail Order Marketing Inc., a mail order firm. The brief described the Mail Order Rule, and suggested that the court allow the company to ship paid orders and return new orders. The Commission filed a complaint in U.S. District Court seeking civil penalties and permanent injunctions against Hosiery Corp. of America, for alleged violations of the Mail Order Rule, the Unordered Merchandise Sec. 205 Synopsis, and postal regulations. The Commission modified three previously issued FTC orders: a 1978 order with Charles E. Boone and Cooga Mooga Inc.; a 1973 order with Credit Card Services Corp; and a 1982 order with Litton Industries Inc. A Commission advisory opinion will allow Paccar Inc. to designate the same year for all trucks in a fleet when production straddles changeover of a model year. The Commission approved proposed amendments to the Care Labeling Rule clarifying the language of required instructions. Tentative partial exemption for the R-Value (Insulation) Rule for cellusose insulation manufacturers was revoked after the Commission accepted public comments. The Commission issued a temporary partial stay of parts of the Rule applicable to new home sellers pending the receipt of public comments. In addition, the Commission approved a proposal to put into effect requirements for measuring thick insulation samples and to lift the stay on this section of the rule. ANNUAL REPORT 1982 13 The Commission also sought public comment on proposed guidelines designed to assist creditors under existing Commission orders in complying with revisions to the Truth-In-Lending Act and its implementing rules. FTC staff prepared and released to the public a booklet entitled Civil Penalties: A Policy Review Session. Its general purpose is to structure Commission discussion and review of the role and determinants of civil penalties in the Consumer Protection Mission. OFFICE OF CONSUMER AND BUSINESS EDUCATION The Office of Consumer and Business Education coordinates an education program aimed at providing information to consumers and industry on major Commission decisions, programs, statutes, and rules. This allows informed choices and competitive business practices to function freely in the marketplace. In fiscal year 1982, three public service announcements were produced for television on creative financing of home mortgages. In addition, a public service announcement campaign is being developed for radio concerning used car sales. Other consumer business education activities include the publication of various brochures, booklets, and fact sheets. For example, the Commission produced material for business on "Buying By Phone," "How To Advertise Consumer Credit," and "Discounts for Cash." For consumers, publications covered such subjects as timesharing, buying by mail, creative financing, and "bargain" jewelry. IMPACT EVALUATION UNIT The Commission continued to assess the economic effects of its activities through various studies coordinated by the Impact Evaluation Unit staff. Among the studies completed in fiscal year 1982 was a baseline and validation study on the proposed Funeral Rule, a baseline study of the Care Labeling Amendment which was also a retrospective evaluation of the Care Labeling Rule, a survey of mortgage bankers regarding the costs of Truth-In-Lending Act compliance, and a study of the quality of contact lens fittings which will be incorporated into a FTC staff report. Several studies were begun in fiscal year 1982 including Regulatory Flexibility Act studies (small business impact) of the Mail Order Rule and the Pre-Sale Availability of Warranties Rule. Follow-up impact studies were initiated on the Commission's Insulation (R-Value) Rule, Appliance Energy Labeling Rule, and Pre-Sale Availability of Warranties Rule. Through these studies, the FTC continues to adjust its plans and enforcement activities to maximize consumer and business benefits at the least cost to all parties involved. 14 FEDERAL TRADE COMMISSION CONSUMER ADVOCACY The Federal Trade Commission has long been aware that government initiatives, as well as private action, may, in some cases, decrease competition and consumer welfare. Instances of government action adverse to competition and consumer welfare come to the Commission's attention in the course of investigatory and monitoring activities directed at private industry. Thus, in addition to its rulemakings, cases, and other activities to remedy problems arising in the private sector, the Commission has traditionally been active in supporting pro-competitive and proconsumer actions by government agencies. A few of the Commission's fiscal year 1982 filings and testimony in which the Bureau of Consumer Protection, as well as the Bureaus of Competition and Economics participated are summarized below. The FTC contributed joint bureau comments in response to requests from the Federal Communications Commission on three separate occasions. The first set of staff comments dealt with the costs involved in the current allocation system for new broadcast licenses, including delay, uncertainty, and extensive legal fees. Staff concluded that as long as public interest considerations were safeguarded via other guarantees, initial allocation by auction would efficiently distribute licenses, with a lottery system viewed as second-best. The second set of comments examined the so-called "three-year rule" which restricts resale of broadcast stations within that time. Staff analysis indicated that elimination of this restriction could lead to more efficient use of broadcast assets, thus helping to maximize consumer satisfaction by easing restraints on competition. The third set of comments argued that there is great merit to allowing free market allocation of domestic satellite transponder circuits. Such an approach could facilitate an increased capacity of the U.S. satellite system, resulting in lower entry costs for satellite transmission and making the circuits available for a wider array of programming services. In response to requests at the state level, the Commission submitted a letter in opposition to a bill that would have severely limited the freedom of auto dealers to locate in Delaware. This letter pointed out the anti-consumer and anti-competitive effects likely to accrue from certain provisions in the bill, and requested consideration for the FTC's concerns regarding the economic impact of the bill. The bureaus of the Commission also jointly petitioned the Interstate Commerce Commission to consider changing the rules affecting motor contract carriers, i.e., trucking companies that do business under private contracts. The petition said that the proposals, if adopted, could lessen discrimination against smaller shippers since contract carriers would no longer be deterred from handling small accounts on a contract basis because of relatively high regulatorily-imposed costs. ANNUAL REPORT 1982 15 Consumer Protection Bureau Director Timothy J. Muris testified before a House subcommittee regarding the provision of telecommunications and information services by the federal government in competition with the private sector. Muris concluded that the special conditions that might justify government enterprise in these areas appeared to be absent. ECONOMIC ACTIVITIES The FTC's Bureau of Economics has three main responsibilities to provide economic support to the agency's antitrust and consumer protection activities; to advise the Commission about the impact of government regulation on competition; and to gather and analyze information on the American economy. The primary mission of the FTC is to enforce the antitrust and consumer protection laws. In 1982, the Bureau of Economics continued to provide guidance and support to those activities. In the antitrust area, economists offered advice on the economic merits of potential antitrust actions. The primary function here was to distinguish situations where the marketplace performed reasonably well from situations where consumer welfare might be augmented by Commission action. When enforcement actions were initiated, economists worked to integrate economic analysis into the proceeding and to devise remedies that would facilitate competition. In a new role, economists who are not involved in the investigation or prosecution of cases also provided advice to the Commissioners in matters at the adjudication stage. In the consumer protection area, economists provided estimates of the benefits and costs of alternative policy approaches. Potential consumer protection actions were evaluated not only for their immediate impact, but also for their longer run effects on price and product variety. Bureau economists provided internal advice on the competitive impact of various governmental laws, regulation, and proposed trade rules. Using expertise derived from studies of various industries and trade practices, economists helped to evaluate credit practices, advertising, product defects, warranties, and a wide variety of other consumer protection issues. Although the FTC is primarily a law enforcement agency, it also collects, analyzes, and publishes information about the nation's business firms. Much of this work is conducted by the Bureau of Economics. In 1982, economists did research and statistical studies concerning a broad array of topics in antitrust, consumer protection, and regulation. In the antitrust area, economists released reports on mergers in the petroleum industry and on deep seabed mining. In addition, economists studied the effectiveness of structural antitrust remedies and analyzed theories regarding resale price maintenance and relevant market defini- 16 FEDERAL TRADE COMMISSION tion for antitrust purposes. Economists played an important part in analyses which resulted in the Commission issuing, for the first time, its own statement of principles on merger guidelines. Finally, numerous research projects using the Commission's Line of Business data were initiated, and several papers were released; economists also began working on an extensive analysis of the benefits and costs of the Line of Business program. In the consumer protection area, work continued on studies of the effects of state drug substitution laws, the impact of state advertising restrictions on the prices of legal services, and the effects of the regulation of retail milk prices by states. New studies initiated, during 1982, included research on consumer expectations in the market for automobiles, the effects of the Equal Credit Opportunity Act, and the costs of complying with the Truth-in-Lending Act. In the regulation area, economists participated in a program of commenting on the regulatory activities of other federal and state agencies. In this regard, the Bureau of Economics was involved in hearings before the International Trade Commission which addressed allegations by domestic steel companies that foreign producers were selling steel below cost in the U.S. Economists have been monitoring the activities of the International Air Transport Association which sets fares for international passenger traffic. Comments were offered on the Interior Department's regulation which prohibits joint bidding by major petroleum companies on outercontinental shelf oil leases. Other activities included preparation of a report on the effects of the Interstate Commerce Commission's deregulatory activity, and analyses of issues involving satellite transponders, cable television ownership, travel agents, sugar quotas, product liability laws, railroad boxcars, electronic funds transfer, contact lenses, airport landing slot allocations, and ocean shipping, to name a few. Ongoing study projects in the Bureau cut across the various FTC missions. The year's research agenda included topics such as grocery retailing concentration, regulations which restrict the adoption of certain inventory valuation methods, for-profit hospitals, Securities and Exchange Commission regulations, developing a protocol for experimental tests of oligopoly hypotheses, various aspects of historical merger activity and enforcement guidelines, the economics of dual antitrust law enforcement, and antitrust recidivism. THE REGIONAL OFFICES During fiscal 1982, the regional offices continued to play a substantial role in implementing the policies and law enforcement responsibilities of the Commission. The regional offices, because they are located in the areas they serve, have helped develop and carry out those law enforce- ANNUAL REPORT 1982 17 ment activities best suited to the economic conditions of their areas. The regional offices helped to monitor federal antitrust and consumer protection laws, provided important guidance and education to businesses and consumers, and coordinated efforts with local and state law enforcement agencies. The regional offices made significant contributions to the Commission's law enforcement efforts. They were responsible for handling some of the more significant litigation and for achieving some of the more important settlements during this fiscal year. In addition, the regional offices handled tens of thousands of inquiries and complaints from consumers, businesses, and members of Congress. These offices provided important law enforcement guidance and education to members of the public, small business associations, and local interest groups of numerous types. EXECUTIVE DIRECTION, ADMINISTRATION AND MANAGEMENT The Office of the Executive Director is responsible for executing Commission decisions and providing overall administrative support for agency functions. The office also has primary responsibility for the agency's regional operations which, in 1982, consisted of 10 regional offices located in major cities across the United States. Because 1982 was a year of transition, in terms of administration and resources, particular emphasis was placed on providing support to the new administration and to managing activities with fewer resources. During the year, the Office of the Executive Director was restructured to provide specialized management of information along with the traditional areas of personnel, budget and finance, administrative services and procurement. As a part of this reorganization, printing, publishing and distribution functions were transferred from the Office of the Secretary to the Executive Director, and a new organization, Planning and Information, was created within the Office of the Executive Director to house all data processing, library and information functions. The Office of the Executive Director coordinated the planning and implementation of Commission decisions to restructure the agency's regional offices network. This activity, begun in April 1982, and postponed in May 1982, was undertaken to improve the management of the regional structure and to give better alignment of agency activities with national economic activity. Efforts to improve further the effectiveness of the regional operations, included management sessions with regional personnel and the development of a regional newsletter. Fiscal 1982 appropriations were $2 million less than the previous year, and guidance to the agency indicated that future budgets would be lower. Given this, the agency maintained a limited hiring freeze and im- 18 FEDERAL TRADE COMMISSION plemented other management actions to monitor spending. A cost reduction program was implemented that covered all areas of discretionary spending. In addition, reviews of agencyperformed services that could be contracted out were completed, and contracts were placed when significant savings were achievable. Along with other steps taken to manage and reduce costs, the agency began a review of internal control mechanisms where the focus was on vulnerability to waste, fraud and abuse. In a period of declining resources and transition, personnel management efforts were devoted to maintaining employee morale and monitoring agency employment activities. The agency was in its second full year of operation under the newly developed merit pay system. The use of this program and the incentives provided for employees were being assessed. Continued emphasis was placed on vital employee training and development programs. The Commission's planning and budgeting process was used throughout the year to respond to several new estimates of the fiscal 1982 budget, and special budget review sessions were held to consider these proposals. Other management steps were taken to consolidate headquarters office space and to utilize existing office space more efficiently. As the Commission completed the year, all financial commitments had been met, and the agency returned approximately $400,000 to the Treasury. APPENDIX Part II (Investigative Stage) CONSENT AGREEMENTS ACCEPTED AND PUBLISHED FOR PUBLIC COMMENT COMPETITION MISSION Germaine Monteil Cosmetiques Corp. A leading manufacturer of prestige cosmetics, fragrances, soaps and accessories was prohibited from trying to set retail prices for its products. The complaint accompanying the consent agreement alleges that Germaine Monteil established and maintained the resale prim at which retailers advertised and sold its products. Under the agreement, Germaine Monteil cannot take any action against retailers to retaliate for discounting, and is prohibited from recommending suggested retail prices for two years in some of its product lines. During that time, the company is required to print ads and promotional materials utilizing the prices specified by the individual retailers. Thereafter, Monteil may suggest resale prices, provided they stipulate that final resale price decisions are within the discretion of individual retailers. Batus Inc. Batus agreed to divest one of its retail department stores in the Milwaukee, Wisc. area. The complaint accompanying the consent agreement alleges that Batus' acquisition of Marshall Field & Co. violated antitrust laws because it eliminated competition between the two firms in the Milwaukee area. Batus was the largest department store retailer in Milwaukee, while Marshall Field was the eighth largest. The complaint also alleges that the merger reduced competition in a highly concentrated market and discouraged possible market entrants. Under the agreement, if Batus sells the Marshall Field store to comply with the order, Batus must open or build another Marshall Field store within two years to preserve a wider range of consumer choice by ensuring Marshall Field's continued presence in the market. In addition, the agreement prohibits Batus from making further acquisitions of department stores in the Milwaukee area without Commission approval. ConAgra Inc. ConAgra, a major U.S. grain miller, has agreed to divest several production and distribution facilities in the western United States. The 19 20 FEDERAL TRADE COMMISSION complaint accompanying the consent agreement alleged that ConAgra's acquisition of Peavey Co. eliminated competition in the manufacture and sale of bakery flour between the two companies, and raised entry barriers in a concentrated market. The consent agreement forbids future acquisitions of flour milling plants in the western states during the next ten years without Commission approval. Association of Independent Dentists A group representing private practitioners in Pueblo County, Colorado, the Association of Independent Dentists, agreed not to interfere with its members efforts to compete for business through advertising. Under the terms of the consent agreement, the association is also prohibited from threatening or otherwise coercing insurance companies to influence their reimbursement rates to its members for services rendered. The complaint alleged that the association's suppression of truthful advertisements had "restrained, frustrated, and foreclosed competition" among its members and deprived consumers of necessary information. Canada Cement Lafarge Ltd. A major cement manufacturer, Canada Cement Lafarge Ltd. (CCL), agreed to divest one of its cement plants as a result of charges that its acquisition of General Portland Inc. decreased competition among cement companies in the southeastern U.S. by combining two direct competitors in violation of the antitrust laws. The consent order required CCL to offer the plants future buyer the opportunity to purchase distribution terminals and land over the next five years. CCL is also required to provide the buyer with technical assistance, make 20,000 tons of cement available annually at commercially reasonable wholesale prices, and refrain from acquisitions of cement manufacturing, grinding or distribution facilities in the target market areas for 10 years without Commission approval. CONSUMER PROTECTION MISSION Ogilvy & Mather This advertising agency has agreed to cease advertising, directly or indirectly, that Aspercreme contains aspirin. ANNUAL REPORT 1982 21 Part II (Investigative Stage) CONSENT AGREEMENTS ISSUED IN FINAL FORM COMPETITION MISSION Gifford-Hill-American Inc. Gifford-Hill-American Inc. agreed to divest a concrete pressure-pipe manufacturing plant to offset alleged anticompetitive effects of Gifford Hill's acquisition of the Lock Joint Products Division of Interpace Corp. The complaint accompanying the consent alleged that the merger could increase concentration and substantially reduce competition or promote the creation of a concrete pressure-pipe monopoly in the south central U.S. Gifford Hill is a leading producer of concrete pipes and the largest in the south central U.S., while Lock Joint is the largest producer of pressure-pipe in the nation. The consent agreement also bars Gifford Hill, for ten years, from acquisitions of concrete pressure-pipe manufacturers without Commission approval, and requires it to provide the purchaser of the divested plant with technical advice. General Electric Co. Under the terms of this consent agreement, General Electric is required to sell its interest in one of two companies producing computer aided design and manufacturing systems. GE will divest all stock that it holds in Applicon, the nation's second largest producer of these systems, and retain its interest in Calma Co., the nation's third largest producer. According to a complaint issued with the agreement, GE's purchase of Calma, in December 1980, may have violated antitrust laws by reducing actual and potential competition between Applicon, Calma and other companies, increasing the percentage of the industry dominated by the top companies, and discouraging potential market entrants. Western General Dairies This consent order requires Western General Dairies, a dairy cooperative, to offer nondiscriminatory prices and services to all of its raw milk and dairy customers, and to revise its contracts so as to permit members to sell raw milk after leaving the association. The cooperative sells and distributes raw milk to independent processors, and dairy products to wholesale and retail customers. The complaint charged that Western General Dairies had monopolized the supply of raw milk in Utah, Idaho, Wyoming and Colorado, and monopolized distribution of dairy products in Utah and southeastern Idaho. 22 FEDERAL TRADE COMMISSION Onkyo U.S.A. Corp. Onkyo agreed to a consent order which prohibits it from forcing stores to sell its audio components at manufacturer-determined prices. The complaint accompanying the consent charged that the company engaged in resale price maintenance, thereby reducing competition among dealers. Onkyo agreed to inform its dealers that its suggested prices are only guidelines and that they are free to set their own prices. Broward County Medical Association This consent agreement bars the Broward County Medical Association (BCMA), an American Medical Association affiliate, from prohibiting truthful advertising by its members. The complaint issued in conjunction with the agreement alleges that BCMA restrained competition by declaring truthful advertising to be unethical, and by taking other measures to prohibit its members from distributing information regarding their services and fees. The agreement will permit BCMA to promulgate and enforce "reasonable ethical guidelines" governing deceptive advertising. CONSUMER PROTECTION MISSION Aldens Inc. Aldens has agreed that in collecting debts it will not contact third parties, or any consumer at any unusual or inconvenient time or place, or at the consumer's place of employment if the employer prohibits such contacts unless the consumer consents. Great North American Industries Inc. This company has agreed to cease claiming that its engine oil additive will or may result in substantial fuel economy improvement unless such claims are based on competent scientific tests, and to send customers who purchased over 12 cans of the product copies of the consent agreement. Ball-Matic Corp. Inc. This company has agreed to cease claiming that its "automobile retrofit device" will result in increased fuel economy unless such claims are based on competent scientific tests. ANNUAL REPORT 1982 23 Worthington Ford of Alaska Inc. This company has agreed to make written warranties available to potential buyers and to honor implied warranties. Tomy Corp. In connection with the advertising, distribution and sale of any dollhouse, accessory, or other toy product, this company has agreed to cease representing that any collection of products is a set unless the depicted products can be purchased as a set. Renuzit Home Products Co. This company has agreed to substantiate the claims on the label of its motor oil by conducting reliable tests and taking periodic samples. American Honda Motor Co. Inc. This company has agreed to notify owners of 1975-1978 Honda cars with rusted fenders that the fenders can be repaired or replaced free of charge, and to reimburse owners for past repairs to fenders. D'Arcy-MacManus and Masius Inc. This advertising agency has agreed not to claim that "Snug" denture product is for long-term use. This product Is manufactured by Mentholatum and advertised by D'Arcy. Chrysler Inc. This company has agreed to notify owners of 1971-1980 Japanese-made Chrysler cars and trucks that special strength replacement oil filters are necessary. Mastic Corp. This company has agreed not to pay for or disseminate any advertisement for vinyl siding that contains an energy-related claim. Vinyl Improvement Products Co. This company has agreed not to pay for or disseminate any advertisement for vinyl siding that contains an energy-related claim. 24 FEDERAL TRADE COMMISSION Volkswagen of America This company has agreed to notify owners of 1977-1981 diesel Volkswagens and Audis about how to install replacement oil filters properly and how they can receive reimbursement for engine repairs caused by oil filter leaks. American Motors Corp. This company has agreed to place stickers on new jeep CJ models and send stickers to current owners warning that the vehicles handle differently from ordinary passenger cars and that sharp turns may cause the driver to lose control. National Association of Scuba Diving Schools, Inc. This association has agreed not to represent that any diving equipment or product bearing their seal meets an objective standard of safety or reliability unless such equipment has been competently and completely tested. American Diamond Co. and Thomas L. Baker This company and its president have agreed not to misrepresent the investment value of gemstones and the past or potential appreciation of gemstones. ANNUAL REPORT 1982 25 PRELIMINARY INJUNCTIONS COMPETITION MISSION LTV Corp. The Commission sought a preliminary injunction to prohibit LTV's proposed acquisition of 70 percent of the stock of Grumman Corp. The pleading charged that the acquisition would violate the antitrust laws by reducing competition in the carrier-based aircraft industry. The Commission argued that a preliminary injunction should be granted pending trial, because if the acquisition was allowed to go forward and was later found unlawful, separating the companies' assets would be difficult and would be likely to substantially weaken at least one of the firms. The proposed acquisition was abandoned. Mobil Corp. The Commission sought a preliminary injunction against Mobil's proposed acquisition of Marathon on grounds that the acquisition could substantially lessen competition in several markets downstream from crude oil exploration and production. Marathon obtained an injunction against the transaction in private litigation in the federal courts, which was upheld on appeal by the Court of Appeals. In January 1982, the Supreme Court of the United States refused Mobil's attempt to have these decisions reviewed. The proposed acquisition was abandoned before the court acted on the Commission's suit. Gulf Oil Corp. The Commission sought a preliminary injunction barring Gulf Oil Corp.'s $5.13 billion proposed acquisition of Cities Service, charging that the acquisition would substantially increase concentration in the distribution of gasoline to service stations, production and distribution of kerosene jet fuel, and transportation of petroleum products by pipeline. If the acquisition were allowed, Gulf would have become the fourth largest gasoline marketer in the U.S., increased its market share in the kerosene jet fuel market to over 17 percent, and owned a 30.6 percent share in Colonial Pipeline, the primary petroleum pipeline from the Gulf Coast to the New York City area. The Commission obtained a temporary restraining order from the court and Gulf subsequently cancelled its takeover attempt. 26 FEDERAL TRADE COMMISSION CONSUMER PROTECTION MISSION Paradise Palms Vacation Club This timeshare marketing company was enjoined from making false claims and misrepresentations to buyers about the nature and location of vacation units and exchange privileges. Don H. Sly - Bureau of Collections Respondent was preliminarily enjoined from further violating the Fair Debt Collection Practices Act. A subsequent contempt citation was obtained. Enamelcraft Inc. This company was enjoined from violations of the Franchise Rule and from misrepresenting the availability of its product. ANNUAL REPORT 1982 27 CIVIL PENALTY ACTIONS COMPETITION MISSION Foremost-McKesson Inc. Foremost-McKesson agreed in a consent judgment to pay $175,000 civil penalty to settle charges that its 1977 acquisition of Super Specials, Inc., a wholesale distributor of drug store promotional merchandise including drugs, toiletries, housewares and sundries, violated a 1967 Commission order which required prior Commission approval of certain acquisitions. According to the complaint, Foremost-McKesson violated an order requiring the company to seek Commission approval before acquiring any firm engaged in the wholesale distribution of drugs, drug proprietaries, druggists' sundries, toiletries, housewares or related products. The Anaconda Co. The Anaconda Co. agreed to a consent judgment providing for payment of $100,000 in civil penalties to settle charges that it fixed prices of paper-insulated electric cable. The Commission's complaint alleged that the company violated a 1936 consent order by exchanging paper cable price lists with competitors, which had the effect of raising or stabilizing prices. In addition, the order prohibits the company from conspiring with its competitors to fix prices of paper cable, or exchanging information concerning prices, costs or sale terms for the product. The company is also required to maintain records of any discussions with competitors about paper cable transactions for the next 10 years. CPC International Six corn syrup processors agreed to an injunction that prohibits them from fixing prices or exchanging price information in the sale of corn syrup. The Commission alleged that the companies violated an outstanding 1950 order by exchanging price information in an effort to coordinate price changes. Signing the order were CPC International, Inc., A.E. Staley Manufacturing Co., Standard Brands, Inc., American Maize-Products Co., Anheuser-Busch Inc., and The Hubinger Co. The consent decree was filed on behalf of the FTC by the Justice Department. 28 FEDERAL TRADE COMMISSION Gulf Coast Builders Exchange Gulf Coast Builders Exchange, an organization of Florida general contractors and subcontractors, agreed to a consent judgment providing for the payment of a $30,000 civil penalty to settle charges that it had imposed sanctions on members who dealt with nonmember contractors and subcontractors. The complaint charged the organization with pressuring its members to deal exclusively with other members and maintaining a two-tier fee system that resulted in imposing higher fees on members who dealt with non-members. The judgment enjoins the organization from violating the provisions of the order in the future. CONSUMER PROTECTION MISSION Ivy International This company agreed to a $25,000 civil penalty consent decree for allegedly violating the Wool Products Labeling Act. RJR Foods This company agreed to a $70,000 civil penalty consent decree for allegedly violating a 1973 Commission order involving the disclosure of fruit juice content in Hawaiian Punch. Womack Nursery Co. This company agreed to pay $10,000 in civil penalties and to set up a $35,000 fund to provide refunds to consumers for allegedly violating the Mail Order Rule. National Dynamics This company agreed to a $100,000 civil penalty consent decree for allegedly violating a 1959 and 1976 Commission order concerning advertising claims about "VX-6" battery additive. Van Schaack & Co. This company agreed to a $30,000 civil penalty consent decree for allegedly violating an order requiring compliance with the Truth-in-Lending Act and Regulation Z. ANNUAL REPORT 1982 29 Starcrest Products This company agreed to pay $50,000 in civil penalties, and to notify former customers of their eligibility for replacement merchandise or cash refunds, for allegedly violating the Mail Order Rule. R.J. Reynolds Tobacco Co. This company agreed to a $100,000 civil penalty consent decree for allegedly violating a 1972 Commission order requiring clear and conspicuous lettering in disclosing the health warning. CRI This company agreed to a $32,000 civil penalty consent decree for allegedly violating the Fair Debt Collection Practices Act. Hertz Corp. This company agreed to a $70,000 civil penalty consent decree for allegedly violating the Holder-in-Due-Course Rule. Avis Rent-a-Car Systems Inc. This company agreed to pay a $30,000 civil penalty for allegedly violating the Holder-inDue-Course Rule, and to prepare and distribute public service announcements about the rule. Lender Service Inc. This company agreed to pay $10,000 in civil penalties, review all applicants rejected since August 1978, send the required ECOA and FCRA notices, and give reasons for denying credit. Beall's Department Stores Inc. This company agreed to pay $10,000 in civil penalties, and send to applicants, rejected since July 1978, a package which includes an ECOA notice, a request form to obtain a new credit application, and specific reasons for credit denial. Talent Inc. This company agreed to refrain from violations of a 1974 Commission order concerning misrepresentations in the advertising of phonograph records and song sheets. The Commission did not request civil penalties. 30 FEDERAL TRADE COMMISSION THIS PAGE MISSING IN ORIGINAL ANNUAL REPORT 1982 31 ADMINISTRATIVE COMPLAINTS COMPETITION MISSION B.F. Goodrich The Commission charged that B.F. Goodrich's $131 million acquisition of the assets of Diamond Shamrock Plastics Corp. would substantially lessen competition and increase concentration in the production of polyvinyl chloride (PVC) and vinyl chloride monomer (VCM) materials used to make plastics. If the Commission concludes that the acquisition violated the law, Goodrich may be required to divest the Diamond Shamrock assets it acquired and to refrain from acquiring stock or assets of other PVC or VCM companies without the Commission's prior approval. Hospital Corp. of America The Commission charged that Hospital Corp. of America's 1981 acquisition of two hospital chains in the Chattanooga, Tenn., area reduced competition in the provision of health services in that area. According to the complaint, the nation's largest proprietary hospital chain's acquisition of Hospital Affiliates International Inc. and Health Care Corp. may have eliminated actual and potential competition and increased market concentration in both the acute care and psychiatric hospital markets in Chattanooga. If the Commission finds that the Hospital Corp. of America violated the law, it may order the company to divest facilities acquired in the Chattanooga area, and to refrain from acquiring other competing facilities without he Commission's prior approval. CONSUMER PROTECTION MISSION Ward Corp. The complaint charges Ward, a new home builder, with engaging in a pattern of warranty abuses and other misrepresentations. 32 FEDERAL TRADE COMMISSION THIS PAGE MISSING IN ORIGINAL ANNUAL REPORT 1982 33 PART III (Adjudicative Stage) CONSENT AGREEMENTS ACCEPTED AND PUBLISHED FOR PUBLIC COMMENT COMPETITION MISSION Texas Dental Association Under the terms of this consent agreement, the Texas Dental Association (TDA) may not impede insurance companies efforts to minimize costs through the use of x-rays. Insurance companies frequently request x-rays to evaluate planned treatment in order to limit their benefits to the least expensive form of effective treatment. The complaint charged that the TDA violated antitrust laws by inducing its members not to provide patient x-rays to the insurers. The consent agreement requires the TDA to furnish a copy of the complaint, the order, and an explanation of the order to current members and new members who join during the next five years. 34 FEDERAL TRADE COMMISSION THIS PAGE MISSING IN ORIGINAL ANNUAL REPORT 1982 35 PART III (Adjudicative Stage) CONSENT AGREEMENTS ISSUED IN FINAL FORM COMPETITION MISSION Lehigh Portland Cement Co. Lehigh Portland Cement Co. will divest its Hannibal, Mo., cement making facility in compliance with this consent agreement. The complaint alleged that Lehigh's 1980 acquisition of U.S. Steel's Universal Atlas Division would violate antitrust laws by reducing competition or tending to create a monopoly in the manufacture and sale of portland cement, an ingredient in cement and concrete products, in the midwest. The FTC approved Continental Cement Co., as the buyer of the divested plant and of several cement distribution terminals owned by Lehigh. 36 FEDERAL TRADE COMMISSION THIS PAGE MISSING IN ORIGINAL ANNUAL REPORT 1982 37 INITIAL DECISIONS COMPETITION MISSION General Foods Corp. An administrative law judge dismissed the complaint against General Foods Corp., one of the nation's two largest coffee makers. The complaint had charged that General Foods, through its Maxwell House Division, used its dominant market position to frustrate the growth of smaller coffee producers, limit entry into its markets and prevent competition in the industry. The decision covers "regular" coffee, which includes all types except instant. The judge ruled that General Food's conduct did not reveal an intent to use unfair methods of competition or to monopolize the regular coffee market industry, but instead was calculated to defend its market shares by meeting prices and promotions of Procter & Gamble's Folger brand, and thus, was not unlawful. Grand Union Co. A decision by an administrative law judge ruled that the 1978 merger between Grand Union Co. and Colonial Stores violated the antitrust laws. The complaint alleged that the merger would lessen competition in the industry by eliminating Grand Union as a potential competitor in certain southeast U.S. markets. The order requires Grand Union to divest its interest in Colonial, within one year, to an acquirer approved by the Commission and to obtain prior approval of acquisitions of any other company in the food retailing industry for a period of 10 years. BASF Wyandotte An administrative law judge dismissed a complaint against BASF Wyandotte Corp., a New Jersey subsidiary of BASF AG, a West German company. The Commission's complaint charged that BASF Wyandotte's acquisition of Allegheny Ludlum International's Chemetron Pigments Division would give BASF Wyandotte a market share in excess of 10 percent in the organic pigment market. The judge found that the increase in concentration would not threaten competition in an industry that has had significant over-capacity for some years and has relatively low barriers to entry. Thus, despite the combined market share of 10 percent, other factors demonstrated that market shares did not adequately describe the economic characteristics of the industry. 38 FEDERAL TRADE COMMISSION Massachusetts Furniture & Piano Movers Association In a decision rendered by an administrative law judge, the Massachusetts Furniture and Piano Movers Association was found to have violated the antitrust laws by illegally conspiring to fix rates in the moving industry in certain geographic areas. Massachusetts Furniture is an association of some 300 common carriers representing 80 percent of the carriers certified by the Massachusetts Department of Public Utilities to move household goods and office furniture. The order requires the association, within three months, to cancel and withdraw all tariffs (uniform rates for service agreed upon by competing movers and approved by state regulators) which it has filed with the Massachusetts Department of Public Utilities. Although joint tariffs are authorized by the Department of Public Utilities, the judge found that they were not required by Massachusetts law, and neither the regulation authorizing joint tariffs, nor administrative review for "reasonableness" were adequate grounds for exempting the association from the federal antitrust laws. CONSUMER PROTECTION MISSION International Harvester An administrative law judge upheld a 1980 complaint that this company failed to disclose to operators that their gasoline-powered tractors have a safety hazard of "fuel-geysering." Southwest Sunsites Inc. An administrative law judge dismissed a complaint which alleged that this company misrepresented and unlawfully induced purchasers to make payments for land of "little or no value." ANNUAL REPORT 1982 39 FINAL COMMISSION ORDERS COMPETITION MISSION Kellogg Co. The Commission vacated an initial decision and dismissed the 10 year old shared monopoly case against the nation's largest ready-to-eat cereal manufacturers - Kellogg, General Mills and General Foods. The complaints had alleged that, as a result of their conduct, the three cereal producers shared monopoly power in the ready-to-eat cereal industry. The complaint, which also alleged that the companies' advertising and marketing practices led to higher cereal prices, was dismissed with prejudice determining that the case may not be brought again. Beltone Electronics The Commission overruled a 1980 FTC administrative law judge's decision and dismissed a 1973 complaint against Beltone Electronics, one of the nation's largest hearing aid manufacturers. The Commission ruled that Beltone's requirements that its dealers sell only within assigned geographical territories and deal exclusively in Beltone's hearing aids did not unreasonably restrain competition. The Commission concluded that there was not a sufficient adverse effect on interbrand competition to justify challenging the restraint. General Motors Corp. The Commission dismissed a complaint which charged that General Motors' selective distribution of crash-parts created a monopoly in the collision repair industry. General Motors sells crash-parts, which are the body parts most commonly damaged in accidents, exclusively through its franchised dealers. Independent body shops purchase the parts from the General Motors dealers who resell them at a price higher than the price paid to GM. The complaint, which was issued in 1976, charged that GM's distribution system disadvantaged independent commercial body shops. The dismissal reverses an administrative law judge's 1979 ruling that found GM's "wholesale compensation plan," whereby a percentage of the cost of crash parts sold to independent body shops is rebated by GM back to its dealers, discriminated against those who compete with GM dealers in repairing crash-damaged vehicles. The Commission concluded that while the competitive injury to the independent body shops "barely" met the required legal showing of substantial injury to competition, injury 40 FEDERAL TRADE COMMISSION was offset by a showing of substantial business justification for the distribution system. Times Mirror Co. The Commission rejected a consent agreement it had provisionally accepted to settle charges made in a 1977 complaint that Times Mirror discriminated in price among competing retailers who purchased advertising space. The Commission dismissed the charges and closed the case based on staff recommendations and public comment which suggested that if it was made a model for antitrust enforcement throughout the industry, the agreement might have imposed rigid structures and high compliance costs on newspapers in their competition with other advertising media and had little beneficial effect on smaller advertisers. Exxon Corp. The Commission dismissed a 1979 complaint challenging Exxon's proposed acquisition of Reliance Electric Co. as anticompetitive. The complaint charged that the acquisition would eliminate Exxon as a potential competitor in the electronic variable speed industrial drives market. Exxon acquired Reliance, a major manufacturer of these drives, to market a new technology called alternating current synthesis which was used to make the drives. The efforts to develop this new technology were abandoned when Exxon realized that the new technology did not have prospects for commercial exploitation. The Commission subsequently accepted the Bureau of Competition's recommendation to dismiss the complaint because Exxon no longer appeared to be a significant potential entrant as alleged in the complaint. Russell Stover Candies Inc. The Commission reversed a 1981 administrative law judges finding and held that Russell Stover violated the antitrust laws by coercing retailers to sell candy at "suggested" retail prices with threats to terminate dealers who failed to comply. The Commission's order prohibited Russell Stover from taking action against retailers who sell below suggested retail prices and to reinstate dealers terminated because they had discounted. In addition, the company was required to pay for a survey of actual retail prices of its candy, and to refrain from suggesting prices in the future if the survey shows more than 87 percent of the products were sold at manufacturer-designated prices. ANNUAL REPORT 1982 41 CONSUMER REDRESS ACTIONS CONSUMER PROTECTION MISSION West Branch Ltd This company has agreed to set up a $15,000 account to provide refunds to consumers for undelivered merchandise to settle charges that it violated the Mail Order Rule. General Development Corp. * This company has agreed to give buyers the option of selling their lots back, changing the location of their lots, using their lots as an exchange, or listing their lots for resale with a subsidiary of the company at no charge. __________ * General Development Corp. is in the process of purchasing the development from AMREP Corp. which allegedly misrepresented the investment value of the land. This special agreement with the Commission is not the result of an investigation of the company and is subject to finalization of the purchase agreement between GDC and AMREP. 42 FEDERAL TRADE COMMISSION THIS PAGE MISSING IN ORIGINAL ANNUAL REPORT 1982 43 ORDER MODIFICATIONS COMPETITION MISSION ABC Vending Corp. The 1964 Commission order, among other things, prohibited respondent from (1) entering theater concessioning contracts with a length of more than five years and (2) inducing or receiving illegal price allowances. Ogden Food Service Corporation, a successor to the original respondent, in 1981, petitioned the Commission to either set aside both order provisions, or in the alternative, to eliminate the restriction on the length of its contracts. Ogden said that market conditions had changed dramatically since the order was issued and that it no longer possesses the dominant market position that allegedly enabled it to impose anticompetitive contracts on motion picture exhibitors. Ogden also stated that because of changed conditions concession contracts that were less than five years old were often unprofitable, and the restraints imposed on it by the Commission's order thus threatened its existence as a viable competitor. The Commission agreed, and it deleted the order provision that involved contractual restraints. The Commission denied the petition with respect to the inducing of illegal price discriminations stating that the order only required respondent to comply with existing law. Ash Grove Cement Co. The order, among other things, required Ash Grove, which is a cement company to divest a ready mix concrete company it had acquired. Ash Grove completed the divestiture, but because it was forced to institute foreclosure proceedings against the acquirer, it reacquired the divested assets. The order provided that in such a case, Ash Grove was to redivest the assets. Ash Grove petitioned the Commission to delete these requirements from the order. Ash Grove argued that changed economic conditions, specifically a depressed market, and the acquired company's consequent poor financial condition, made it impossible for it to divest the company. It requested that the Commission permit Ash Grove to retain the company and attempt to restore it as an effective competitor. In granting Ash Grove's request, the Commission determined that it would be in the public interest to allow Ash Grove to retain the company and continue its operations. 44 FEDERAL TRADE COMMISSION Bayer AG The order originally required Miles Laboratories, Inc., to divest the assets it used in manufacturing and selling allergenic extracts. Miles twice petitioned the Commission to modify the order to relieve it of the divestiture obligation. Miles argued that a proposed change in regulations of the Food and Drug Administration (FDA) made it impossible for Miles to obtain an acquirer for its allergenic extracts line because the proposal apparently would ban Miles' most important allergenic extract products. Because FDA had not made a final decision on the proposal and because Miles was then negotiating with a potential acquirer, the Commission first only modified the order to grant Miles a one-year extension of time within which to complete the divestiture. In granting Miles' second petition, the Commission determined that as a result of the FDA proposal, Miles was unable to divest its allergenic extracts business as a complete viable competitor. Godfrey Co. The consent order in this case originally required Godfrey to divest seven retail grocery stores. Godfrey divested four of the seven stores, but in three separate petitions, requested relief from the three remaining divestiture requirements, citing its inability to find acquirers. The Commission granted Godfrey's petition and modified the order to relieve Godfrey of the three remaining divestiture requirements. Hammermill Paper Co. The consent order with Hammermill prohibits resale price maintenance and also, prohibits Hammermill from imposing customer restrictions on its dealers. Hammermill petitioned the Commission to delete the order prohibition relating to customer restrictions. Hammermill claimed that it had been unable to penetrate the market of small end users of copier paper and that in order to penetrate this market, it needed flexibility in choosing the distribution network it will implement - which includes the choice whether to impose customer restrictions on its dealers. Hammermill asserted that modification of the order would be procompetitive because its entry into the market would increase interbrand competition. The Commission reopened and modified the order, but rather than delete the provision in question, the Commission modified the provision to allow Hammermill to impose customer restrictions on its dealers as long as doing so would not unreasonably restrain competition. ANNUAL REPORT 1982 45 Hercules Incorporated The order required a rope manufacturer, Columbian Rope Company, to obtain Commission approval before acquiring any other rope manufacturer. Columbian petitioned the Commission to relieve it of this obligation, citing changed market conditions. Columbian argued that as a result of the changed conditions, the prior approval provision was unnecessary and reduced both its flexibility in making procompetitive acquisitions and the likelihood that it would be acquired in a transaction that promoted competition. In deciding to grant Columbian's petition, the Commission determined that modification of this 11 year old order was in the public interest. International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, Local Union 959 This consent order basically prohibits respondent from entering into agreements that prevent an employer from subcontracting work to firms that do not operate under the same terms and conditions as govern the relationship between the Teamsters and the employer. A proviso in the order, however, permitted the respondent to enter into such agreements if authorized to do so by Section 8(e) of the National Labor Relations Act (NLRA) as long as one member of the union was working at the relevant construction site. At the time the order was entered, it was widely believed that such subcontracting clauses were unlawful if they pertained to a construction site at which no union member is employed. Two Circuit Courts of Appeals subsequently held that Section 8(e) of the NLRA permits the agreements in question whether or not union and non-union workers are employed together at the relevant construction site. Respondent then petitioned the Commission for modification of the order, citing changed conditions of law. The Commission modified the order to delete the section that allowed respondent to enter into the agreements only if one of the respondent's members is working at the relevant construction site and conformed the order to the NLRA. Lenox, Inc. The Lexox order generally prohibits resale price maintenance and also includes a provision prohibiting Lenox from preventing transshipping by its dealers. Lenox petitioned the Commission to modify the order to delete this provision prohibiting Lenox from imposing non-price related customer restrictions. Lenox said that the order's transshipping provision no longer was necessary to ensure intrabrand price competition because of the order's other prohibitions 46 FEDERAL TRADE COMMISSION against resale price maintenance and the existence of widespread discounting. However, Lenox claimed that the prohibition of non-price customer restrictions significantly impeded intrabrand competition by interfering with effective distribution of Lenox products; the inability to prevent transshipping resulted in free-rider problems for Lenox dealers and impaired the efforts by Lenox to foster the proper "prestige image" of its products; and that Lenox was at a competitive disadvantage because its competitors are free to prevent transshipping under the current law. The Commission modified the order to delete the transshipping provision, but also added a provision making clear that Lenox cannot discipline dealers who had transshipped Lenox products either before the order was modified or before receiving notice that Lenox may restrict transshipping by its dealers. National Dairy Products Corp. The National Dairy order prohibits respondent from charging different prices to customers at the same level of distribution. Kraftco, the successor to National Dairy, petitioned the Commission to either vacate the order or modify it to prohibit Kraftco from charging different prices to customers at the same level of distribution only when such price differences would result in injury to competition. Kraftco stated that the order required it to establish a uniform price, nationwide, for its fruit spreads, and prevented Kraftco from experimenting with different marketing techniques. As a result, competition was adversely affected because Kraftco, rather than being able to compete aggressively and initiate price competition, could only react defensively to promotional price reductions by its competitors. The Commission modified the order to provide that Kraftco could charge different prices to customers at the same level of distribution, as long as the practice did not result in injury to competition. RSR Corp. The Commission's order, which was affirmed on appeal, required RSR to divest three secondary lead plants and other assets the Commission found to have been acquired in violation of Section 7 of the Clayton Act. After one year, RSR petitioned the Commission to relieve it of the divestiture requirements, citing RSR's inability to find an acquirer for the plants. RSR subsequently agreed to a modification of the order that required RSR to divest two secondary lead plants it owned before the acquisition, as a substitute for divestiture of the acquired firm's assets. RSR also agreed to license certain technology to the acquirers. The Commission then modified the order in accordance with that agreement. ANNUAL REPORT 1982 47 Xerox Corp. The complaint in this case charged Xerox with monopolizing the office copier market by engaging in unlawful patent and marketing practices. The Commission order, in this case, required Xerox, among other things, to grant at prescribed royalty rates, non-exclusive patent licenses for office copiers and related products. In order for potential licensees to become aware of this opportunity, the order required Xerox to publish a notice in the Official Gazette of the United States Patent and Trademark Office. Xerox had to include in this notice a list of all U.S. and foreign patents that Xerox is required by the order to license. Xerox petitioned the Commission to modify the order to relieve it of the obligation to reprint the list annually; Xerox requested that instead, the Commission only require it to announce the availability of the patents and list only those patents issued since the preceding notice. Xerox noted that repeat publications of the entire list (5,776 patents most recently) is costly and because repeat publications is unnecessary, the cost cannot be justified. Additionally, the list included expired patents, and the copier industry was already aware of the Xerox order. The Commission granted Xerox's request that it annually publish only those patents not included in a previously published list, together with a reference to previously published list. The Commission also deleted a requirement that Xerox include in the notice a reference to a nowexpired provision of the order. CONSUMER PROTECTION MISSION Cooga Mooga, Inc. A petition by Charles E. Boone and Cooga Mooga, Inc., to modify a 1978 FTC order was granted in part and denied in part. Under the modified order, Boone will no longer be required to disclose any financial interest he may have in the products he endorses. The request to suspend the requirement that Boone participate in a consumer refund program was denied. Miriam Maschek, Inc. A petition by Francis Maschek to reopen and modify a 1975 FTC order was denied. The petition claimed that the facial surgery covered by the order is now performed regularly by physicians and thus should be considered safe and effective. The Commission determined there was insufficient evidence to support any change in fact. 48 FEDERAL TRADE COMMISSION Credit Card Service Corp., et al. A petition by the firm to modify a 1973 FTC order was granted in part and denied in part. The Commission approved a wording change for a notice required in ads that alerts consumers to the fact that they are protected from unauthorized use of their credit cards. The Commission denied the request to drop John F. Ferry, Chairman of the CCSC Board of Directors from the order. American Home Products A petition by C.T. Clyne Company, Inc., an advertising agency, to reopen the proceeding and vacate the order entered against it was denied. The Commission denied the request on grounds that it failed to show that changed conditions of fact or law required the order to be modified. ANNUAL REPORT 1982 49 ENFORCEMENT POLICY STATEMENTS AND ADVISORY OPINIONS COMPETITION MISSION Statement Concerning Horizontal Mergers The Commission issued its first general policy statement concerning merger enforcement. The statement emphasizes the factors the Commission will consider in assessing whether a horizontal merger is anticompetitive and how those factors will be weighted. According to the statement, market share data may not always measure the market power of merging firms accurately, and therefore, other factors such as entry barriers, technological change, and evidence of a failing division, or operating efficiencies should be considered to assess market power effects. Consideration of such factors allows the Commission to evaluate overall trends and reveals whether the market shares overstate the competitive impact of a merger. The Commission also indicated that it would give "considerable weight" to merger guidelines issued on the same day by the Justice Department when evaluating the effects of horizontal mergers. Iowa Dental Association The FTC issued an advisory opinion to the Iowa Dental Association stating that the peer review plan proposed by the Association for resolving fee-related disputes, as set forth in their letter requesting the Commission's opinion, would not violate the antitrust laws. The Commission also suggested safeguards to ensure that the plan would not be used as a pricefixing mechanism in the future. National Association of Stevedores The Commission issued an advisory opinion to the National Association of Stevedores. The opinion, based on the information furnished to the Commission by the Association, stated that the FTC does not presently intend to commence enforcement proceedings against the Association or its member companies if they make effective the "Code of Business Ethics of the National Association of Stevedores," standards of policy with regard to lawful competitive and business practices. The Commission also advised that if membership in the Association were to become a valuable property right and competitive factor, certain actions performed by the Association with respect to membership exclusion, suspension or termination imposed without adequate procedural safeguards pursuant to the proposed ethical code would be likely to raise enforcement concern. 50 FEDERAL TRADE COMMISSION Oil Merger Policy Statement The Commission issued a report to Congress recommending against enactment of proposed legislation that would impose a legislative ban on oil company mergers. Members of the Senate and the House had asked the FTC to investigate the petroleum companies' recent increase in merger activity. Although the Commission could find no single reason for the increased activity, three possible influences on the industry were suggested: the rapid escalation of crude oil prices, windfall profit tax and the corporate tax provisions enacted by Congress. The Commission concluded that the recent large mergers in the industry had neither a significant effect on concentration nor endangered competition and that a merger ban could discourage the industry from exploiting opportunities for the development of additional supplies of petroleum. ANNUAL REPORT 1982 51 APPELLATE COURT REVIEW OF COMMISSION ORDERS Borden Inc. On February 24, 1982, the Court of Appeals for the Sixth Circuit affirmed the Commission's decision and order, holding that the respondent manipulated prices in such a way as to exclude equally efficient competitors from the reconstituted lemon juice market. Borden petitioned for certiorari. Equifax Inc. On June 18, 1982, the Court of Appeals for the Eleventh Circuit set aside challenged paragraphs of the Commission's order in Docket No. 8954, holding that the record did not support the Commission's finding that Equifax's quality control audit procedures would likely result in inaccurate information about consumers, and therefore violate the Fair Credit Reporting Act. H.R. Gibson, Sr. et al. On August 13, 1982, the Court of Appeals for the Fifth Circuit affirmed and enforced the Commission's order, holding, inter alia, that there was substantial evidence supporting the Commission's findings of a group boycott and payments of illegal brokerage fees. Litton Industries Inc. On May 3, 1982, the Court of Appeals for the Ninth Circuit enforced, as modified, the Commission's order, holding that it was within the allowable discretion of the Commission to impose "all consumer products" coverage with respect to the order provision banning deceptive use of surveys in advertising. Sears, Roebuck & Co. On May 6, 1982, the Court of Appeals for the Ninth Circuit affirmed the Commission's order, holding that it was proper for the Commission to enter an order prohibiting certain types of false and unsubstantiated advertising claims for various types of major home appliances based upon evidence that Sears had engaged in an extensive campaign of false and unsubstantiated advertising for dishwashers. 52 FEDERAL TRADE COMMISSION Tenneco Inc. On September 16, 1982, the Court of Appeals for the Second Circuit set aside the Commission order, in Docket No. 9097, holding that the evidence did not support the Commission's findings that the acquisition by Tenneco of Monroe Auto Equipment Company might substantially lessen competition in replacement automotive shock absorbers. ANNUAL REPORT 1982 53 SUPREME COURT REVIEW OF COMMISSION ORDERS American Medical Association On March 23, 1982, the Supreme Court affirmed the judgment of the Court of Appeals for the Second Circuit by an equally divided Court. The Court of Appeals enforced as modified the Commission's order requiring the American Medical Association to cease and desist from regulating certain business aspects of the medical profession and to disaffiliate any component medical society that fails to comply with the order. Brunswick Corp. On April 5, 1982, the Supreme Court denied Brunswick Corp.'s petition for a writ of certiorari, thus letting stand the decision of the Court of Appeals for the Eighth Circuit, upholding the Commission's determination that a joint venture between Brunswick and Yamaha Motor Co. concerning the production and sale of outboard motors may substantially lessen competition under Sec. 7 of the Clayton Act. 54 FEDERAL TRADE COMMISSION THIS PAGE MISSING IN ORIGINAL ANNUAL REPORT 1982 55 ECONOMIC WORKING PAPERS Structure-Profit Relationships at the Line of Business and Industry Level by David Ravenscraft, March 1982. Cycles in Nonrenewable Natural Resource Commodity Prices: An Analysis of the Frequency Domain by Margaret Slade, March 1982. Trends in Nonrenewable Natural Resource Commodity Prices: An Analysis of the Time Domain by Margaret Slade, March 1982. Dominant Firm Pricing and Byproduct Supply: The Structure of the U.S. Molybdenum Market by Margaret Slade, March 1982. The Role of Risk Aversion in the Allocation of Resources to Invention by Kenneth Kelly, March 1982. Economic Issues in the Enforcement of the Equal Credit Opportunity Act by Samuel Myers, Jr., March 1982. Rate of Return Regulation and Vertical Integration Under Uncertainty by Richard Rozek, March 1982. Demand-Pull and Technological Innovation by F.M. Scherer, March 1982. Inter-Industry Technology Flows and Productivity Growth by F.M. Scherer, March 1982. The Risk Segmentation Hypothesis: A Reinterpretation of the Boczar Study by David Barton, March 1982. Using Linked Patent and R&D Data to Measure Inter-Industry Technology Flows by F.M. Scherer, March 1982. Judo Economics, Entrant Advantages, and the Great Airline Coupon Wars by Judith Gelman and Steven Salop, June 1982. Entry, Market Shares, and Oligopolistic Performance by Daniel Alger, June 1982. Spatial Competition Within an Optimal Control Framework by Mark Fratrick, June 1982. Trends in Aggregate Concentration by Richard Duke, June 1982. 56 FEDERAL TRADE COMMISSION Mobility Among the 200 Largest Manufacturing Firms: 1948-1978 by Lawrence Rens, June 1982. Defects in Disneyland: Quality Control as a Two-Part Tariff by A. Braverman, J.L. Gauch, and S. Salop, June 1982, A Review of the Economic Basis for Broad-Based Horizontal Merger Policy by Paul Pautler, June 1982. Advertising Intensity, Market Share, Concentration and Degree of Cooperation by William Long, June 1982. Vertical Restraints and Economic Efficiency by Robert Steiner, June 1982. Economic Efficiency of Liability Rules for Joint Torts with Uncertainty by Edward Golding, September 1982. Disclosure of Product Quality under Imperfect Information by Edward Golding, July 1982. Warranties as Signals of Product Quality When Some Consumers Do Not Seek Redress by Edward Golding, July 1982. Product Differentiation and Imperfect Information: Policy Perspectives by Carl Shapiro, July 1982. An Empirical Analysis of the Boston Consulting Group's Portfolio Model by Malcolm Coate, August 1982. An Experimental Test of the Consistent-Conjectures Hypothesis by Charles Holt, Jr., August 1982. Practices That (Credibly) Facilitate Oligopolistic Coordination by Steven Salop, August 1982. ANNUAL REPORT 1982 57 INTERVENTIONS BEFORE OTHER FEDERAL AND STATE AGENCIES COMPETITION, CONSUMER PROTECTION, AND ECONOMICS MISSIONS Motor Carrier-Ratemaking Study Commission Testimony by James C. Miller III, "Antitrust Immunity for Collective Rulemaking in the Motor Carrier Industry," before the Motor Carrier Ratemaking Study Commission. (11/8/81) Federal Communications Commission Federal Trade Commission joint bureau comments submitted in Federal Communications Commission Gen. Dkt. No. 81-768, Selection of Initial Licensees Using Random Selection or Lotteries Instead of Comparative Hearings. (12/20/81) Interstate Commerce Commission Federal Trade Commission joint bureau comments submitted in Interstate Commerce Commission Ex Parte No. 346, Sub. No. 8, Regulation-Boxcar Traffic. (03/01/82) Federal Communications Commission Federal Trade Commission joint bureau comments submitted in Federal Communications Commission BC Dkt. No. 81-897, Amendment of Section 73.3597 of the Commission's Rules (Applications for Voluntary Assignments or Transfer of Control). (03/01/82) Motor Carrier Ratemaking Study Commission Comments of Dr. Denis A. Breen of the Bureau of Economics on "Regulatory Reform and the Trucking Industry: An Evaluation of the Motor Carrier Act of 1980," submitted to the Motor Carrier Ratemaking Study Commission. (03/04/82) Federal Communications Commission Federal Trade Commission joint bureau comments submitted in Federal Communications Commission CC Dkt. No. 82-45, Domestic Fixed Satellite Transponder Sales. (04/16/82) 58 FEDERAL TRADE COMMISSION Interstate Commerce Commission Federal Trade Commission joint bureau reply comments submitted in Interstate Commerce Commission Ex Parte No. 346, Sub. No. 8, Exemption from Regulation-Boxcar Traffic. (04/30/82) International Trade Commission and Department of Commerce Comments and briefs submitted on alleged subsidies and dumping of foreign steel in the U.S., to the International Trade Commission and the Department of Commerce, May 27, 1982; July 21, 1982; July 26, 1982; July 28, 1982; August 11, 1982; August 27, 1982; September 14, 1982. (05/28/82 - 09/14/82) State of Delaware Commission letter to the Delaware Development Office opposing a bill that would have limited the freedom of auto dealers to locate in Delaware. (06/14/82) Interstate Commerce Commission Federal Trade Commission joint bureau comments submitted to the Interstate Commerce Commission No. 38749, UTF Carriers, Inc., Petition for Exemption from Tariff Filing Requirements. (06/28/82) Office of Management and Budget Federal Trade Commission joint bureau comments submitted to the Office of Management and Budget on proposed Cable Telecommunications Act of 1982. (09/15/82) ANNUAL REPORT 1982 59 MISCELLANEOUS ECONOMIC POLICY PAPERS Regulatory Reform and the Trucking Industry: An Evaluation of the Motor Carrier Act of 1980, submitted to the Motor Carrier Ratemaking Study Commission, Denis Breen, March 1982. According to the paper, the post-Motor Carrier Act experience provides a useful empirical test of alternative rationales for trucking regulation. It reports that available evidence on market structure, conduct and performance in the less-regulated environment does not lend support to the market failure arguments for regulation; the evidence suggests instead that regulation has served primarily to suppress competition in trucking. The paper concludes that these findings, together with the problems that have arisen in attempting to implement a statute that provides for piecemeal and gradual changes, indicate the need for further regulatory reform. Antitrust and Price Competition in the Trucking Industry, The Antitrust Bulletin, Denis Breen, forthcoming. The paper notes that two antitrust issues have arisen over pricing practices in the lessregulated trucking industry: First, how will antitrust liability change with respect to collective ratemaking activities; Second, is there a need for antitrust oversight by the Interstate Commerce Commission of individual-carrier pricing practices to prevent predation and rate discrimination? The first part of the paper explains why antitrust liability for collective ratemaking is likely to increase and what difficulties this poses for antitrust compliance. The paper then proceeds to consider allegations of anticompetitive behavior, but finds that procompetitive pricing initiatives by individual carriers are being mischaracterized as actions that destroy competition. According to the paper, these findings cast considerable doubt on the need for the ICC to serve as a surrogate antitrust enforcer. Competition and Health Planning, Judith Gelman, April 1982. This paper, which is aimed at non-economists, examines the opportunities for introducing competition in the heavily-regulated health care sector. Complications - such as costly or inaccessible information, quality concerns, entry and exit barriers, and the existence of natural monopolies - are discussed. Current regulations and their efficacy in achieving their goals are examined. Finally, the paper contains questions that must be answered in conducting a market analysis. 60 FEDERAL TRADE COMMISSION Efficiency Considerations in Merger Enforcement, Yale Law Journal, Alan Fisher and Robert Lande, forthcoming. The role that efficiency considerations should play in merger enforcement policy is analyzed by assessing congressional intent, econometric and case-study evidence, and theoretical properties of the welfare trade-off between improved efficiency and increased market power attributable to mergers, A benefit-cost model is developed to critique alternative enforcement policy options and to provide a basis for recommending changes in current merger enforcement consideration of efficiencies. An Economic Analysis of Vertical Merger Enforcement Policy, Alan Fisher and Richard Sciacca, March 1982 This paper combines a review of the economics literature on vertical integration and vertical mergers with consideration of legal and political constraints in formulating realistic vertical merger enforcement guidelines. Particular attention is given to recent advances in the theory of vertical integration. Economically rational enforcement guidelines consistent with these advances and with the costs and benefits of alternative enforcement efforts are proposed. A Guide to the Herfindahl Index for Antitrust Attorneys, Paul Pautler, August 1982. This paper presents the Herfindahl Index and its characteristics in a simple format. Several numerical examples are used to explicate the characteristics of the index and to indicate how it compares with use of a four-firm concentration ratio as a summary measure of market structure. In addition, some discussion of the usefulness of any summary market structure measure in merger guidelines is included. Mergers in the Petroleum Industry, Bureau of Economics and Bureau of Competition Staff, September 1982. This report presents statistics on the domestic merger activity of the largest U.S. oil companies over the period 1971-1981. The study compares the merger activity of a sample of large companies not having substantial oil-related assets. It indicates an increase in large oil company merger activity during 1979-1981 when compared with the period 1971-1981. The study also shows a higher rate of merger activity for the large oil companies than the sample of large companies ANNUAL REPORT 1982 61 having no oil-related interests. The study also examines the likely effects of the petroleum industry mergers on crude oil extraction, refining, transportation and marketing. According to the report, merger activity of the large oil companies has not significantly altered competitive relationships within any of these segments. The Random Character of Merger Activity, William Shughart and Robert Tollison, May 1982. The report observes that it is commonly accepted that merger activity has historically occurred in "waves." Nevertheless, according to the paper despite the wide endorsement of this proposition, the simple fact is that the "wave" hypothesis has not been tested heretofore. This paper reports the results from time series analyses of acquisition statistics. Using annual U.S. merger data covering the period 1895-1979 and observations on firm disappearances in British manufacturing during the years 1880 to 1918, the authors report that they were unable to reject the hypothesis that merger levels are generated by a white noise process. The empirical findings imply that the economy-wide diffusion of efficient-firm-size-augmenting innovation does not occur in a systematic pattern. According to the paper, it is concluded that public policy concern with merger trends is unwarranted. A Welfare Defense of the "Failing Company" Doctrine. William Shughart and Robert Tollison, May 1982. Judicial precedent allows an otherwise illegal merger to escape injunction if one of the parties can demonstrate that it would fail in the absence of the proposed takeover. In this paper, an economic defense is provided of the so-called failing company doctrine. A model was developed showing that the output restriction will be smaller and the welfare loss corresponding less if the failed company's assets are acquired by an industry insider than if those resources are dispersed by a bankruptcy proceeding. The authors conclude that the defense should be applied expeditiously without protracted searches for the "least anticompetitive" buyer and that mergers between failed firms and their former rivals should go through with minimal delay. Antitrust Recidivism in Federal Trade Commission Data: 1915-1982, William Shughart and Robert Tollison, August 1982. In this paper, an analysis is made of data about cases involving firms who repeatedly violate the laws enforced by the FTC. It is found that approximately 23 percent of the law enforcement actions brought by 62 FEDERAL TRADE COMMISSION the Commission involve repeat offenders. An illustrative sample of the characteristics of recidivist cases includes: the majority of repeat offenses involved violations of Sec. 5 of the FTC Act, nine percent concerned infractions of the Robinson-Patman Act, and relatively few were brought under antimerger laws; over half of the repeat violations involved advertising violations; and recidivism was most prevalent among firms in the apparel and accessories industry. The available evidence was found to be more consistent with the hypothesis that recidivism is due to the presence of law enforcement institutions and bureaucratic incentives that make it less costly for the Commission to challenge the practices of repeat offenders, rather than arising from the behavior of the firms themselves. Dual Enforcement of the Antitrust Laws, Richard Higgins, William Shughart, and Robert Tollison, September 1982. In this paper, a model was developed which shows that independent dual enforcement leads to more antitrust activity at a lower unit cost than would be obtained with a single agency. On the other hand, the paper states that if the agencies collude, as they appear to do under present institutional arrangements, dual enforcement leads to less and more costly antitrust activity than would otherwise result. According to the paper, empirical tests using historical agency budget and case production figures do not refute the models main predictions. It concludes that more enforcement activity would be obtained at a lower unit cost if the 1948 FTC-Justice liaison agreement were abandoned. Antitrust Over the Business Cycle, Ryan Amacher, Richard Higgins, William Shughart, and Robert Tollison, September 1982. According to this paper, two broad and venerable hypotheses can be deduced from the literature about collusion, antitrust, and economic activity. These are that both private collusive agreements and producer protection regulation should vary inversely with the business cycle. This paper gives evidence which supports both contentions. Employing data on general antitrust law enforcement activity and complaints charging violations of the Robinson-Patman Act, strong counter-cyclical tendencies are found in collusion and governmental regulatory intervention. ANNUAL REPORT 1982 63 LINE OF BUSINESS PROGRAM RESEARCH PAPERS The Effects of Inter-Firm Cooperation and Economies of Scale on Product-Improving Research and Development Expenditures by William Long. Collusion, Rivalry, Scale Economies and Line of Business Profitability by John Kwoka and David Ravenscraft. Modeling Profitability at the Line of Business Level by Stephen Martin. Market, Firm, and Economic Performance: An Empirical Analysis by Stephen Martin. On the Profitability of Wholesale Trade by Stephen Martin. Aggregation and Studies of Industrial Profitability by Stephen Martin and David Ravenscraft. Profitability and the Cost of Capital by George Pascoe and John Scott. Structure-Profits Relationships at the Line of Business and Industry Levels by David Ravenscraft. Transfer Pricing and Profitability by David Ravenscraft. Concentration, Regulation, R&D, and Productivity Change by F.M. Scherer. Technological Change and the Modern Corporation by F.M. Scherer. The Propensity to Patent by F.M. Scherer. The Effects of Conglomerate Mergers on Profits and Growth by Leonard Weiss. Extent and Permanence of Market Dominance by Leonard Weiss and George Pascoe. Adjusted Concentration Ratios in Manufacturing 1972 by Leonard Weiss and George Pascoe. The Size of Selling Costs by Leonard Weiss, George Pascoe, and Stephen Martin. *U.S. GOVERNMENT PRINTING OFFICE : 1984 0 - 428-504