[Federal Register Volume 73, Number 204 (Tuesday, October 21, 2008)]
[Notices]
[Pages 62503-62505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24931]



[[Page 62503]]

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FEDERAL TRADE COMMISSION

[File No. 071 0196]


Dick's Sporting Goods, Inc.; Analysis of Proposed 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 November 7, 2008.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Dicks Sporting Goods, File No. 071 0196,'' 
to facilitate the organization of comments. A comment filed in paper 
form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission, Office of the Secretary, Room 135-H, 600 
Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form by following the instructions on the web-based form at 
(http://secure.commentworks.com/ftc-DicksSportingGoods). To ensure that 
the Commission considers an electronic comment, you must file it on 
that web-based form.
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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 Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC website, to the extent practicable, 
at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of 
discretion, the Commission makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm)

FOR FURTHER INFORMATION CONTACT: Melissa Westman-Cherry, FTC Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, D.C. 20580, 
(202) 326-2338.

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 October 9, 2008), on the World Wide Web, at (http://www.ftc.gov/os/2008/10/index.htm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a proposed consent order with Dick's 
Sporting Goods, Inc. (``Dick's'' or ``Respondent''). Dick's, through 
its wholly-owned subsidiary Golf Galaxy, operates a chain of golf 
superstores in the United States. The agreement settles charges that 
Dick's violated Section 5 of the Federal Trade Commission Act, 15 
U.S.C. Sec.  45, by agreeing with a potential competitor to allocate 
markets. 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:
    Golf Galaxy operates a chain of golf superstores in the United 
States. Golf Galaxy stores offer a broad selection of golf merchandise 
and related services, including golf clubs, equipment, accessories, 
clothing, lessons, swing analysis, and golf club fitting. The founders 
of Golf Town Canada Inc. (``Golf Canada'') wished to launch a chain of 
golf superstores in Canada similar to the Golf Galaxy stores.
    In June 1998, Golf Canada and Golf Galaxy entered into a consulting 
agreement (the ``1998 Agreement''). Golf Galaxy agreed therein: (i) to 
develop and present an initial training program for certain Golf Canada 
employees, (ii) to provide Golf Canada on an ongoing basis with useful 
business documents, including construction blueprints, merchandising 
plans, and sales reports, and (iii) to provide continuing consulting 
support to Golf Canada. In consideration for these consulting services, 
Golf Galaxy received shares of Golf Canada, a seat on the company's 
board of directors, and cash payments.
    Certain provisions of the 1998 Agreement restrained Golf Canada 
from competing with Golf Galaxy. Specifically, Golf Canada was barred: 
(i) from operating any retail store in the United States during the 
term of the 1998 Agreement and for five years thereafter, and (ii) from 
engaging in any

[[Page 62504]]

business outside of Canada that competes with or is similar to the 
business of Golf Galaxy during the term of the 1998 Agreement and for 
two years thereafter.
    Between 1998 and 2004, with the assistance of Golf Galaxy, Golf 
Canada opened thirteen retail locations in Canada.
    In October 2004, Golf Galaxy sold its shares of Golf Canada and the 
parties terminated all consulting obligations effective immediately. 
Golf Galaxy and Golf Canada entered into a new contract (the ``2004 
Amended Agreement'') that, inter alia, extended the duration of the 
restraints on competition beyond the expiration dates contemplated in 
the 1998 Agreement. The 2004 Amended Agreement bars Golf Canada: (i) 
from operating any retail store in the United States for nine years 
(until June 2013), and (ii) from engaging in any business outside of 
Canada that competes with or is similar to the business of Golf Galaxy 
for six years (until June 2010). In addition, the 2004 Amended 
Agreement for the first time prohibits Golf Galaxy from opening a store 
in Canada (until June 2008).

II. Legal Analysis

    There are two distinct sets of restraints in this matter.
    One set was agreed upon by Golf Galaxy and Golf Canada in 1998 when 
their consulting relationship was launched. These restraints appear to 
have been reasonably necessary to the formation and/or efficient 
operation of the parties' collaboration. For example, Golf Canada's 
commitment not to compete in the United States during the term of the 
consulting relationship (and for five years thereafter) may have been 
necessary in order to induce Golf Galaxy to share with Golf Canada 
certain valuable, confidential, and proprietary information.\2\ The 
Commission therefore does not challenge these 1998 restrictions.
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    \2\ See e.g., Polk Bros. v. Forest City Enters., 776 F.2d 185, 
189 (7th Cir. 1985).
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    The parties entered into a second set of restraints in 2004, 
contemporaneous with the decision to terminate their collaboration. The 
2004 restraints provide for a division of markets well beyond the term 
contemplated in the 1998 Agreement, and are the subject of the 
Commission's claim in this matter. Under the 1998 Agreement, Golf 
Canada's undertaking to forgo competing in the United States would have 
expired five years after termination of the consulting relationship; 
since the consulting relationship ended in 2004, the noncompete would 
have expired five years later in 2009. With the 2004 Amended Agreement 
the noncompete was extended from 2009 until 2013--four years longer 
than what was contemplated under the original 1998 Agreement.
    The 2004 Amended Agreement may be analyzed under the framework 
articulated by the Commission in the PolyGram case.\3\ Agreements 
between competitors to divide markets are treated by the courts as 
presumptively anticompetitive, or inherently suspect. E.g., Nynex Corp. 
v. Discon, Inc., 525 U.S. 128, 134 (1998) (horizontal market division 
is unlawful per se); Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990) 
(same); Timothy J. Muris, The Rule of Reason After California Dental, 
68 Antitrust L. J. 527, 536 (2000) (``[C]ourts already consider price 
fixing and market division to be inherently suspect.''). When an 
agreement is deemed inherently suspect, the parties can avoid summary 
condemnation under the antitrust laws by advancing a legitimate 
(cognizable and plausible) efficiency justification for the 
restraint.\4\
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    \3\ Polygram Holding, Inc., 136 F.T.C. 310 (2003), aff'd, 416 
F.3d 29 (D.C. Cir. 2005). See also N. Tex. Speciality Physicians v. 
FTC, 528 F.3d 346 (5th Cir. 2008).
    \4\ Polygram Holding, Inc. v. FTC, 416 F.3d 29, 35-36 (D.C. Cir. 
2005).
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    Here, the Commission found reason to believe that the 2004 
restraints serve no pro-competitive purpose. This second set of 
restraints was not reasonably necessary for the formation or efficient 
operation of the collaboration between Golf Galaxy and Golf Canada. 
Significantly, the 2004 restraints cannot be said to induce or 
facilitate cooperation between Golf Galaxy and Golf Canada--for the 
simple reason that, after 2004, no further cooperation was 
contemplated. These restraints served only to provide Golf Galaxy's 
shareholders with additional protection from competition, with no 
advantage to U.S. consumers. Because there is no efficiency rationale 
for the 2004 agreement between Golf Galaxy and Golf Canada to divide 
markets, such agreement constitutes an unreasonable restraint on trade, 
and is properly judged to be illegal.
    Application of the ancillary restraints framework leads to 
precisely the same conclusion. The D.C. Circuit has explained:
 To be ancillary, and hence exempt from the per se rule, an agreement 
eliminating competition must be subordinate and collateral to a 
separate, legitimate transaction. The ancillary restraint is 
subordinate and collateral in the sense that it serves to make the main 
transaction more effective in accomplishing its purpose. Of course, the 
restraint imposed must be related to the efficiency sought to be 
achieved. If it is so broad that part of the restraint suppresses 
competition without creating efficiency, the restraint is, to that 
extend, not ancillary.\5\
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    \5\ Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 
210, 224 (D.C. Cir. 1986).
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    The legitimate and competitive purpose of the consulting 
arrangement, in place from 1998 through 2004, was to enable Golf Canada 
to benefit from Golf Galaxy's experience and expertise. However, as 
alleged in the Complaint, the 2004 restraints did nothing to encourage, 
facilitate, or promote this collaboration. (Again, after 2004, no 
ongoing cooperation was contemplated.) Certainly, the dissolution of a 
collaboration does not, of itself, provide a rationale for the ex-
partners to adopt new and expanded limitations upon future competition. 
See Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995) (market division 
agreement adopted by lawyers following dissolution of their partnership 
judged per se unlawful). In short, the challenged restraints are naked 
rather than ancillary.

III. The Proposed Consent Order

    Dick's (the parent of Golf Galaxy) has signed a consent agreement 
containing a proposed consent Order. The proposed consent Order enjoins 
the company from dividing or allocating markets for the retail sale of 
golf merchandise. In addition, the proposed Order will prevent Golf 
Galaxy from enforcing any noncompete provision beyond the date 
originally provided for in the 1998 Agreement. More specifically, the 
provision of the 2004 Amended Agreement prohibiting Golf Canada from 
operating any retail store in the United States will no longer be 
enforceable as of October 8, 2009, and thereafter. The prohibition on 
Golf Canada's engaging in any business outside of Canada that competes 
with or is similar to the business of Golf Galaxy will no longer be 
enforceable as of thirty (30) days from the date on which the Order 
becomes final and thereafter.
    The proposed Order would not interfere with the company's ability 
to enter into written agreements to allocate or divide markets, 
customers, contracts, lines of commerce, or geographic territories in 
connection with the sale of golf merchandise where such agreement is 
reasonably related to a lawful consulting arrangement or lawful joint 
venture agreement; and is reasonably necessary to achieve such 
agreement's procompetitive benefits.

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    The proposed Order will expire in 20 years.
    By direction of the Commission.

Donald S. Clark,
Secretary
[FR Doc. E8-24931 Filed 10-20-08: 8:45 am]
BILLING CODE 6750-01-S