FTC awakens from antitrust slumber - Federal Trade Commission

FTC Awakens From Antitrust Slumber

WASHINGTON -- After a decade of antitrust inactivity, the Federal Trade Commission abruptly resumed enforcement of the law against anti-discounter resale price maintenance conspiracies.

In a surprise announcement last month, the FTC's Bureau of Competition formally charged video game giant Nintendo with illegally discriminating against discounters and pressuring retailers to maintain its "suggested" prices.

In a tentative settlement, reached April 10, Nintendo admitted no wrongdoing. Nevertheless, the action is significant because it marks the first federal RPM complaint against a manufacturer since 1980, and appears to represent a key reversal in FTC policy on resale price fixing and other "vertical" restraints of trade.

During the 1980s top officials at both FTC and the Justice Department actively sought to reverse the longstanding legal standards under with RPM conspiracies are considered "per se" or automatic violations of federal antitrust law.

Nintendo, the Japanese video game manufacturer whose NES game console is the No. 1 selling toy in the United States, was accused in the complaint of driving up consumer prices and restricting retail competition by discouraging discount pricing of its products by dealers.

Under a still tentative agreement with the FTC settling those charges, Nintendo will be prohibited from "fixing the price at which any dealer advertises or sells any Nintendo products to consumers" as well as from terminating, cutting off credit, or "reducing the supply of Nintendo products to dealers" who sell the company's hardware or software products at discount prices.

In agreeing to the settlement, Nintendo said that it did not violate antitrust laws. Rather, the settlement came about out of Nintendo's desire to maintain the goodwill of its "loyal consumers," said Howard Lincoln, Nintendo's senior vice president.

While the FTC settlement does not require the company to make any payment of money, it does require Nintendo to send letters to retailers explaining that "they can advertise and sell Nintendo products at any price without adverse action" by the manufacturer. Similar disclaimers will be required on all Nintendo promotional materials listing suggested resale prices for the next five years.

At the same time, Nintendo also agreed to a separate settlement with state antitrusters resolving similar "resale price maintenance" charges by the attorneys general of New York and Maryland.

Under that settlement Nintendo agreed to provide up to $25 million worth of coupons to some 9 million consumers who purchased the company's NES video game console between June 1988 and December 1990. Additionally, the manufacturer will pay nearly $5 million in damages and costs to the states.

According to officials in Maryland and New York, Nintendo required retailers to sell the company's 8-bit NES video game consoles at a uniform price of $99.95.

The settlement entitles every purchaser of an NES console during that period to a $5 coupon which will be good toward the purchase of a Nintendo game cartridge.

Commenting on the settlement Lincoln said, "While we were emphatic during negotiations and continue to insist that Nintendo had done nothing improper or in violation of the antitrust laws, we decided to enter into this comprehensive and nationwide settlement in order to maintain the goodwill our company enjoys with millions of consumers who play Nintendo games."

Lincoln added, "Quite frankly, we were concerned with how Nintendo game players might view these allegations. Rather than risk our company's goodwill while engaging in costly litigation over a complicated legal issue which could drag on for years, we opted to get this behind the company immediately and in a manner that provides real value to Nintendo game players."

New York Attorney General Robert Abrams welcomed the parallel action in Washington by FTC antitrusters.

"For the first time in more than a decade, the Federal Trade Commission has rejoined the battle against vertical price-fixing by manufacturers and retailers," he said.

Calling the action against Nintendo a "carefully coordinated effort between the states and the FTC," Abrams expressed hope that "this joint settlement signals a new era of close cooperation between the states and the federal government to protect consumers from anticompetitive practices imposed on them by manufacturers."

Although New York and Maryland antitrusters spearheaded the probe, the settlement was signed by more than 30 other state attorneys general.

Similar multi-state RPM actions have been taken in recent years to curb alleged anti-discount practices by other Japanese makers of consumer products, including Panasonic, Mitsubishi and Minolta.

Nintendo said that its agreement with New York and Maryland provides for other states and the District of Columbia to join in the settlement and that the company anticipates they will do so.

"The settlement does not relate to the current litigation in Federal court in San Francisco between Nintendo and Atari Games Corp.," said Lincoln. "Nintendo will continue to vigorously prosecute that litigation."

Nintendo of America, based in Redmond, Wash., is a subsidiary of the world's largest maker of video games, Nintendo Co. Ltd., Japan.

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