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FTC to Reopen and Modify 1998 Final Order in In the Matter of Toys "R" Us
Practical Law Legal Update 6-565-1205 (Approx. 4 pages)
FTC to Reopen and Modify 1998 Final Order in In the Matter of Toys "R" Us
by Practical Law Antitrust
| Published on 16 Apr 2014 • USA (National/Federal) |
The Federal Trade Commission (FTC) approved a petition by Toys "R" Us to reopen and modify the FTC's 1998 final order prohibiting Toys "R" Us from entering into agreements with or facilitating agreements between its suppliers.
- TRU entered agreements with major toy manufacturers to prevent the manufacturers from selling to other stores what they sold to TRU.
- TRU facilitated agreements between those manufacturers to the same end.
In its final order, issued on October 13, 1998, the FTC found that TRU violated Section 1 of the Sherman Act by entering both:
- Vertical agreements with its suppliers, analyzed under the rule of reason.
- A hub-and-spoke agreement where TRU acted as a hub to facilitate horizontal agreements among toy manufacturers (the rim), analyzed under both a per se and rule of reason.
The FTC also found that TRU possessed market power and had a dominant position in the toy purchaser and retailer markets. On appeal, the US Court of Appeals for the Seventh Circuit affirmed the FTC's order on August 1, 2000.
On January 3, 2014, TRU filed a petition with the FTC to reopen and modify the FTC's final order under Section 5(b) of the FTC Act. Under Section 5(b), the FTC must reopen and consider modifying an order if the respondent satisfactorily shows that changed conditions of law or fact require doing so. To be satisfactory, a request must:
- Identify significant changes in circumstance.
- Show that the changes in circumstance either:
- eliminate the need for the order; or
- cause the order to harm competition.
Section 5(b) also permits the FTC to reopen and modify an order when the FTC determines it is in the public interest, regardless of whether circumstances have changed. To make a public interest request, the respondent must make a prima facie showing of legitimate public interest reasons justifying relief, including by showing, for example, that:
- There is a more effective or efficient way of accomplishing the final order's goals.
- The order is, in whole or in part, no longer necessary.
- Another clear public interest would be served if the FTC granted modification.
Even if, based on the sufficiency of the request, the FTC decides to reopen an order, it is not required to modify the order.
Based on TRU's petition, the FTC found that circumstances had sufficiently changed to warrant reopening and modifying its 1998 final order. The FTC agreed to remove the order provisions restricting TRU's interaction with its suppliers and requiring TRU to maintain detailed records of communications with its suppliers. The FTC reasoned that because TRU demonstrated that it no longer has market power (instead falling behind Walmart and Target in market share and competing against online retailers like Amazon):
- Its vertical agreements and expanded relationships with suppliers would not negatively affect competition in the market.
- It was no longer necessary for TRU to maintain all communications with suppliers regarding potential purchase or distribution agreements as required by the order.
The FTC did not modify the provision prohibiting TRU from facilitating agreements between its suppliers to limit toy sales to other retailers, and maintained its requirement for TRU to record communications between its suppliers and certain TRU officers.
This modification shows that, in light of changing market conditions, companies may consider petitioning the FTC to reopen and modify decades-old final orders.