Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Graco Settles FTC Charges That Its Acquisitions Harmed Competition, (Apr 18, 2013)

By William Zale, J.D.

Industrial finishing equipment manufacturer Graco, Inc. has settled FTC charges that it violated the antitrust laws by buying Gusmer Corp. in 2005 and GlasCraft, Inc. (GCI) in 2008, its two closest competitors in the North American market for fast set equipment (FSE) used by contractors to apply polyurethane foams and polyurea coatings (In the Matter of Graco, Inc., FTC Dkt. C-4399, File No. 101 0215, April 17, 2013).

The consent order is designed to restore competition to the FSE market that was lost as a result of Graco’s acquisitions. It incorporates a private litigation settlement between Graco and Polyurethane Machinery Corp. (Gama/PMC) that requires Graco to license certain technology to Gama/PMC. The consent order also contains provisions that provide Gama/PMC and other competitors easier access to distributors, so they can distribute competing FSE products effectively in the North American market.

"Although Graco was not required to report the Gusmer and GCI transactions under the HSR reporting requirements, those acquisitions eliminated virtually all of its competition in the fast set equipment market," said Richard Feinstein, Director of the FTC’s Bureau of Competition. "The clear result was higher prices and diminished choices for consumers."

Graco is a publicly traded company headquartered in Minneapolis, Minnesota. The company, which entered the FSE market in 2002, sells FSE almost exclusively to third-party distributors that act as middlemen between Graco and the product’s end users. Approximately 550 distributors currently sell Graco FSE in the United States. Before Graco’s acquisitions of Gusmer and GCI, FSE distributors typically carried products from multiple manufacturers.

The FTC’s complaint alleged that the acquisitions eliminated head-to-head competition among Graco, Gusmer, and GCI, leaving the market almost entirely in Graco’s hands. After the acquisitions, Graco raised prices for its FSE products, reduced product options, reduced innovation, and raised barriers to entry for firms seeking to compete with Graco, by taking steps to ensure that its distributors would distribute only Graco’s products.

In addition to the requirement that Graco execute the settlement it negotiated with Gama/PMC, the consent order also requires Graco to stop implementing any arrangement with distributors that will preclude them from dealing with Graco’s FSE competitors. The order also prohibits Graco from discriminating, coercing, threatening, or in any other way pressuring its distributors not to carry its competitors’ FSE products.

The consent order further requires Graco to waive or modify any policies or contracts that might violate the terms of the order, to notify the FTC for 10 years if it intends to acquire any interest in a company that manufactures or sells FSE, and to notify the FTC before suing anyone regarding a claimed violation of its FSE-related intellectual property rights.

The Commission vote to accept the consent agreement and issue the order as final was 4-0, with Chairwoman Edith Ramirez, Commissioner Julie Brill, and Commissioner Maureen K. Ohlhausen issuing a separate Commission statement. The vote to issue the Commission statement was 3-0-1, with Commissioner Joshua D. Wright abstaining. Commissioner Wright issued a separate statement.

Attorneys: John D. Graubert (Covington & Burling LLP) for Graco, Inc.

Companies: Graco Inc.

News: Antitrust FederalTradeCommissionNews