United States: FTC Settles Complaint Alleging Company Attempted to Use Analyst Call to Collude with Competitor

The Federal Trade Commission has announced the settlement of a complaint alleging that a public company used a quarterly earnings call to communicate information in an unsuccessful effort to collude with a competitor. The FTC charged that Valassis Communications, Inc. ("Valassis"), a leading producer of free-standing newspaper inserts ("FSI"), violated the FTC Act by making public statements in an analyst conference call that amounted to an invitation to News America Marketing ("News America"), its only rival in the sale of FSI, to raise prices and allocate customers. The FTC’s action against Valassis underscores the current Commission’s intent to use the FTC Act to bring enforcement actions against "invitations to collude."

Valassis and News America have, for over ten years, been the only two publishers of FSI. Following a multi-year price war between the two companies, the FTC alleged that Valassis sought to communicate to News America an offer to cease competing for News America’s customers if News America reciprocated and ceased competing for Valassis customers, thereby allowing both companies to raise prices to their own customers.

The FTC’s complaint¹ alleged that Valassis made a strategic decision to use and did use its quarterly earnings call with financial analysts to communicate information to News America that was essential for News America to understand Valassis’s proposal to divide the market and engage in coordinated pricing and anticompetitive conduct. The FTC’s complaint alleged that Valassis’s statements on the analyst call had no legitimate business purpose, provided information that would not have ordinarily been made in the context of an earnings call, and were made solely with the intent to facilitate collusion.

The FTC did not allege that News America accepted the invitation to collude, and did not allege that the companies engaged in any conduct that actually caused injury to customers.

In a strict sense, the FTC’s enforcement action against Valassis does not break new legal ground – this is not the first time the Commission has argued that an invitation to collude may violate Section 5 of the FTC Act, even if the invitation is not accepted and no anticompetitive agreement is formed. Although U.S. courts generally have concluded the Sherman Act applies only to consummated agreements to restrain trade, the FTC has argued on a number of occasions over the past twenty years that Section 5 of the FTC Act prohibits even unsuccessful attempts to collude.

In light of the current enforcement climate in Washington, D.C., the Valassis enforcement action is notable for at least three reasons:

• Many commentators and observers of the FTC had expected that the current Commission, with three Republican appointees and two Democratic appointees, would be more selective in its enforcement activities and somewhat less aggressive than in recent years. The Valassis enforcement action, which the Commission approved unanimously by a 5-0 vote, runs contrary to that notion.

• The FTC’s complaint against Valassis highlights the Commission’s continuing desire to use Section 5 of the FTC Act (which prohibits "unfair and deceptive trade practices") to challenge conduct that would not otherwise support a claim under the Sherman Act. Although the FTC has had little success when it has argued this proposition in the courts, the current enforcement action demonstrates that the Commission believes that the broad language of Section 5 of the FTC Act provides it with an equally broad mandate to challenge a wide range of conduct that could have an adverse effect on competition.

• The FTC’s complaint against Valassis is the first enforcement action to challenge an unsuccessful attempt to collude that was based upon statements made openly in a public forum (in this case, on a call with Wall Street analysts, shareholders and other interested parties). Previous FTC enforcement actions have focused on private communications, "in a proverbial smoke-filled room." In this case, however, the Commission took pains to explain that "antitrust law does not afford immunity to agreements that are brokered in public . . . a public venue does not necessarily mitigate the threat to competition."

The FTC’s enforcement action against Valassis does not signal a new area of potential antitrust liability for U.S. companies. Nonetheless, the complaint and the corresponding settlement agreement are an important reminder that comprehensive and effective antitrust compliance policies are essential in the modern enforcement environment. The importance of such compliance programs, and the need for internal vigilance, is heightened for companies that operate in concentrated industries or that possess significant market share.

Footnotes:

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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