[Federal Register Volume 71, Number 53 (Monday, March 20, 2006)]
[Notices]
[Pages 13976-13979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-3965]


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FEDERAL TRADE COMMISSION

[File No. 051 0008]


Valassis Communications, Inc.; Analysis of Agreement Containing 
Consent Order To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before April 12, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Valassis Communications, File No. 051 
0008,'' to facilitate the organization of comments.

[[Page 13977]]

A comment filed in paper form should include this reference both in the 
text and on the envelope, and should be mailed or delivered to the 
following address: Federal Trade Commission/Office of the Secretary, 
Room 135-H, 600 Pennsylvania Avenue, NW., Washington, DC 20580. 
Comments containing confidential material must be filed in paper form, 
must be clearly labeled ``Confidential,'' and must comply with 
Commission Rule 4.9(c). 16 CFR 4.9(c) (2005).\1\ The FTC is requesting 
that any comment filed in paper form be sent by courier or overnight 
service, if possible, because U.S. postal mail in the Washington area 
and at the Commission is subject to delay due to heightened security 
precautions. Comments that do not contain any nonpublic information may 
instead be filed in electronic form as part of or as an attachment to 
e-mail messages directed to the following e-mail box: 
[email protected].
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Geoffrey Green, Bureau of Competition, 
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-2641.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for March 14, 2006), on the World Wide Web, at http://www.ftc.gov/os/2006/03/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a proposed consent order with 
Valassis Communications, Inc. (``Valassis'' or ``Respondent''), a 
publisher of co-operative free-standing inserts (``FSIs'') with its 
principal place of business located at 19975 Victor Parkway, Livonia, 
Michigan 48152. The agreement settles charges that Valassis violated 
Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, by 
inviting its only FSI rival to collude so as to eliminate competition. 
The proposed consent order has been placed on the public record for 30 
days to receive comments from interested persons. Comments received 
during this period will become part of the public record. After 30 
days, the Commission will review the agreement and the comments 
received, and will decide whether it should withdraw from the agreement 
or make the proposed order final.
    The purpose of this analysis is to facilitate comment on the 
proposed order. The analysis does not constitute an official 
interpretation of the agreement and proposed order, and does not modify 
their terms in any way. Further, the proposed consent order has been 
entered into for settlement purposes only, and does not constitute an 
admission by Respondent that it violated the law or that the facts 
alleged in the complaint (other than jurisdictional facts) are true.

I. The Complaint

    The allegations of the complaint are summarized below:
    FSIs are multi-page coupon booklets commonly found in Sunday 
newspapers across the country. FSIs are an efficient means for consumer 
packaged goods manufacturers and other firms to distribute coupons on a 
mass scale. For more than a decade, there have been only two U.S. 
publishers of FSIs: Valassis and News America Marketing (``News 
America''). On a typical Sunday, both Valassis FSIs and News America 
FSIs are distributed by hundreds of newspapers to over 50 million 
households.

A. The FSI Price War

    Between 1998 and 2001, Valassis and News America each published 
approximately 50 percent of FSI pages. In June 2001, Valassis notified 
its clients of a five percent price increase, bringing Valassis' floor 
price from $6.00 for a full page per thousand inserts to $6.30. News 
America did not follow the Valassis price move. As a result, News 
America captured additional customers and built a substantial market 
share lead. In February 2002, Valassis abandoned its efforts to 
increase prices and sought to regain a 50 percent share of FSI pages, 
leading to FSI prices falling below $5.00 per page by 2004.

B. Valassis Invites its Competitor to Collude

    In mid-2004, Valassis determined that its aggressive pursuit of 
greater market share was no longer serving the company's interests. 
Company executives developed a new strategy. Valassis decided to 
communicate to News America an offer to cease competing for News 
America customers, provided that News America ceased competing for 
Valassis customers. Valassis intended this offer to enable the firms to 
raise FSI prices within their respective uncontested domains and to end 
the FSI price war.
    As a publicly traded corporation, Valassis holds a conference call 
with securities analysts on a quarterly basis. Any person may listen to 
the call live over the Internet or obtain a transcript of the call from 
the Valassis Web site. Valassis held its second quarter analyst call on 
July 22, 2004.\2\ Valassis executives were aware that News America 
representatives would be monitoring the call, and they determined to 
use this conference call as the vehicle to communicate Valassis' offer 
to News America. To ensure that News America clearly understood the 
terms of the Valassis offer, including what Valassis expected in return 
from

[[Page 13978]]

News America, the President and Chief Executive Officer of Valassis, 
Alan Schultz, opened the earnings conference call by proposing the 
following:
    1. Valassis would abandon its 50 percent market share goal. The 
company would be content to maintain the share (mid-40s percent) that 
it then held.
    2. Valassis would aggressively defend its existing customers and 
price at whatever level was necessary to retain its existing market 
share.
    3. With regard to customers with expiring contracts with News 
America, effective July 26, 2004, Valassis would observe a floor price 
of $6.00 per page and $3.90 per half page. This was the floor price 
that had been in effect prior to the price war. That meant that for 
News America's historical customers, Valassis would submit bids at a 
level substantially above prevailing market prices.
    4. With regard to the small number of customers that divide their 
FSI business between Valassis and News America, Valassis would price 
its share at whatever level was necessary to retain its historical 
share of that customer's business. If the customer wanted Valassis to 
take more than its historical share, however, Valassis would price that 
portion of the business at the new ($6.00) price floor.
    5. As to four bids that Valassis already had outstanding to News 
America customers, Valassis would honor those bids only until August 1, 
2004, and thereafter all News America customers would be quoted at the 
new higher price.
    6. Finally, Valassis would monitor News America's response to this 
invitation, looking for ``concrete evidence'' of reciprocity in ``short 
order.'' If News America continued to compete for Valassis customers 
and market share, then Valassis would return to its previous pricing 
strategy, and the price war would resume.
    According to the allegations of the complaint, Valassis made the 
foregoing proposal with the intent to facilitate collusion and without 
a legitimate business purpose. Although the proposal was made in the 
context of an analyst call, Valassis' statements provided information 
that would not ordinarily have been disclosed to the securities 
community, and the company would not have made the statements except in 
the expectation that its sole competitor would be listening. Far from 
being normal guidance to its investors or the marketplace with respect 
to the company's future business plans, Valassis' statements described 
with precision the terms of its invitation to collude to News America. 
If the invitation had been accepted by News America, the result likely 
would have been higher FSI prices and reduced output.\3\
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    \2\ A transcript of the earnings conference call is annexed to 
the complaint as Exhibit A.
    \3\ Evidence reviewed in the course of the Commission's 
investigation did not support a charge that the anticompetitive 
agreement proposed by Valassis was consummated.
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II. Legal Analysis of Invitations To Collude

    Invitations to collude have been judged unlawful under Section 2 of 
the Sherman Act as acts of attempted monopolization,\4\ as well as 
under the Federal wire and mail fraud statutes.\5\ In addition, the 
Commission has entered into consent agreements in several cases 
alleging that an invitation to collude--though unaccepted by the 
competitor--violated Section 5 of the FTC Act.\6\
    The preceding line of authority rejects the proposition that 
competition would be adequately protected if antitrust enforcement were 
directed only at consummated cartel agreements. Several legal and 
economic justifications support the imposition of liability upon firms 
that communicate an invitation to collude where acceptance cannot be 
proven. First, it may be difficult to determine whether a particular 
solicitation has or has not been accepted. Second, even an unaccepted 
solicitation may facilitate coordinated interaction by disclosing the 
solicitor's intentions or preferences. Third, the anti-solicitation 
doctrine serves as a useful deterrent against conduct that is 
potentially harmful and that serves no legitimate business purpose.\7\
    Previous FTC actions challenging invitations to collude generally 
have addressed private conversations between the respondent and its 
competitor.\8\ The complaint here alleges that Valassis chose to 
communicate its offer through a public means. The Commission has 
concluded that the fact of public communication should not, without 
more, constitute a defense to an invitation to collude, particularly 
where market conditions suggest that collusion, if attempted, likely 
would be successful (here, a durable duopoly). Private negotiation--in 
a proverbial smoke-filled room--may well be the most efficient route 
for would-be cartelists wishing to reach an accommodation. But it is 
clear that anticompetitive coordination also can be arranged through 
public signals and public communications, including speeches, press 
releases, trade association meetings and the like.\9\ Given the 
obligation under the securities laws not to make false and misleading 
statements with regard to material facts, Valassis' invitation to 
collude, made in the context of a conference call with analysts, may 
have been viewed by News America as even more credible than a private 
communication. If such public invitations to collude were per se 
lawful, then covert invitations to collude would be unnecessary.
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    \4\ United States v. American Airlines, 743 F.2d 1114 (5th Cir. 
1984), cert. dismissed, 474 U.S. 1001 (1985).
    \5\ United States v. Ames Sintering Co., 927 F.2d 232 (6th Cir. 
1990).
    \6\ MacDermid, Inc.,---- F.T.C.---- (C-3911) (1999); Stone 
Container Corp., 125 F.T.C. 853 (1998); Precision Moulding Co., 122 
F.T.C. 104 (1996); YKK (USA) Inc., 116 F.T.C. 628 (1993); A.E. 
Clevite, Inc., 116 F.T.C. 389 (1993); Quality Trailer Products 
Corp., 115 F.T.C. 944 (1992).
    \7\ See generally P. Areeda & H. Hovenkamp, VI Antitrust Law ] 
1419 (2003).
    \8\ In Stone Container Corp., 125 F.T.C. 853 (1998), the 
Commission alleged that an invitation to collude consisting of both 
public and private communications was illegal.
    \9\ See, e.g., David F. Lean, Jonathan D. Ogur, and Robert P. 
Rogers, Does Collusion Pay * * * Does Antitrust Work?, 51 Southern 
Journal of Economics 828, 839 (1985).
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    In evaluating cartels, antitrust law does not afford immunity to 
agreements that are brokered in public; courts recognize that a public 
venue does not necessarily mitigate the threat to competition.\10\ The 
same approach should govern invitations to collude. Liability should 
depend upon the substance and context of the communication, including 
issues of intent, likely effect, and business justification, and should 
not turn solely on the arena in which the communication occurs.
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    \10\ See FTC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411 
(1990); In re Petroleum Products Antitrust Litig., 906 F.2d 432 (9th 
Cir. 1990); San Juan Racing Assoc. v. Asociacion de Jinetes, Inc., 
590 F.2d 31, 32 (1st Cir. 1979).
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    In its earnings call, Valassis communicated to rival News America 
proposed terms of coordination for the FSI market, a longstanding 
duopoly, and did so with extraordinary specificity: Valassis would 
cease competing for News America customers, provided that News America 
likewise ceased competing for Valassis customers. In addition, Valassis 
proposed that prices should be restored by both firms to the pre-price 
war level of $6.00 per page and $3.90 per half page per thousand 
booklets and described how business with shared customers and 
outstanding bids to News America's customers would be handled. Much of 
this information would not have been publicly communicated, even to 
investors and analysts interested in Valassis' business strategy, but 
for Valassis' effort to induce collusion. Under such limited 
circumstances, the

[[Page 13979]]

Commission may challenge an invitation to collude under Section 5 of 
the FTC Act even where the conduct did not result in competitive harm.
    Corporations have many obvious and important reasons for discussing 
business strategies and financial results with shareholders, securities 
analysts, and others. For this reason, the Commission is extremely 
sensitive to the fact that antitrust intervention involving a 
corporation's public communications must take great care not to unduly 
chill legitimate speech.\11\
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    \11\ For example, the Commission would likely not interfere with 
a public communication that is required by the securities laws. 
Here, the Commission has been cited to no other instance where a 
corporation disclosed publicly in securities filings or other fora 
the detailed descriptions of its future pricing plans and business 
strategies alleged in this complaint.
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    In this case, the public statements made by Valassis went far 
beyond a legitimate business disclosure and presented substantial 
danger of competitive harm. The Commission's complaint alleges that 
Valassis made a strategic decision to use and did use its analyst call 
to communicate to News America information that was essential for News 
America to understand how Valassis proposed to divide up the market and 
how it proposed to transition from competition to coordination. For 
example, Valassis specified how it proposed to split the business of 
those customers it shared with News America and explained what its 
pricing would be with regard to pending bids to four News America 
customers. Valassis historically had not provided information of this 
type to the securities community, analysts had no need for the 
information and did not report it, and Valassis had no legitimate 
business justification to disclose the information. Valassis would not 
have disclosed the detailed information except in the expectation that 
News America would be monitoring the call and except for the purpose of 
conveying its proposal to News America.

III. The Proposed Consent Order

    Valassis has signed a consent agreement containing the proposed 
consent order. The proposed consent order enjoins Valassis from 
inviting collusion and from actually entering into or implementing a 
collusive scheme.
    More specifically, Valassis would be enjoined from inviting an FSI 
competitor to divide markets, to allocate customers, or to fix prices. 
The proposed consent order also prohibits Valassis from entering into, 
participating in, implementing, or otherwise facilitating an agreement 
with any FSI competitor to divide markets, to allocate customers, or to 
fix prices.
    The proposed order would not interfere with Valassis' efforts to 
negotiate prices with prospective customers, and it would permit 
Valassis to provide investors with considerable information about 
company strategy. The proposed order also includes a safe harbor 
provision permitting Valassis to communicate publicly any information 
the public disclosure of which is required by the Federal securities 
laws.
    The proposed order will expire in 20 years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E6-3965 Filed 3-17-06; 8:45 am]
BILLING CODE 6750-01-P