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6256 Federal Register / Vol. 62, No. 28 / Tuesday, February 11, 1997 / NoticesAmerican Cyanamid violated Section 5of the Federal Trade Commission Act byengaging in practices that restrictedcompletion in the domestic markets forcrop protection chemicals, which areherbicides and insecticides widely usedin commercial agriculture.The proposed consent order has beenplaced on the public record for sixty(60) days for receipt of comments byinterested persons. Comments receivedduring this period will become part ofthe public record. After sixty (60) days,the Commission will again review theagreement and the comments receivedand will decide whether it shouldwithdraw from the agreement or makefinal the agreement’s proposed order.The purpose of this analysis is toinvite public comment concerning theconsent order and any other aspect ofAmerican Cyanamid’s allegedanticompetitive conduct relating to itsC.R.O.P. and A.P.E.X. rebate programs.This analysis is not intended toconstitute an official interpretation ofthe agreement and order or to modify itsterms in any way.The ComplaintThe complaint prepared for issuanceby the Commission along with theproposed order alleges that AmericanCyanamid has engaged in acts andpractices that have unreasonablyrestrained competition in the sale anddistribution of crop protectionchemicals in the United States. In 1995,the Commission’s proposed complaintalleges, American Cyanamid sold atretail more than $1 billion of its cropprotection chemicals and was themarket share leader in three domesticcrop protection chemical markets:soybean broadleaf herbicides, soybeangrass herbicides, and corn soilinsecticides, as well as being thesecond-largest domestic producer ofcotton grass herbicides.According to the complaint, AmericanCyanamid operated two cash rebateprograms for its retail dealers forapproximately five years. From 1989–1992, the plan was called the ‘‘CashReward on Performance’’ (‘‘C.R.O.P.’’)program, and was renamed the ‘‘Awardfor Performance Excellence’’(‘‘A.P.E.X.’’) program in late 1992through August 1995. The complaintstates that American Cyanamid enteredinto written agreements with its dealersunder these programs, pursuant towhich American Cyanamid offered topay its dealers substantial rebates oneach sale of its crop protectionchemicals that was made at or abovespecified minimum resale prices.According to the complaint, the dealersoverwhelmingly accepted American1 Business Electronics Corp. v. Sharp ElectronicsCorp., 485 U.S. 717 (1988); Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984).Cyanamid’s rebate offer by selling at orabove the specified minimum resaleprices.The complaint further alleges that thewholesale prices in the agreements wereset at a level equal to the specifiedminimum resale prices, and because adealer received no rebate on sales belowthe specified prices, those sales weremade at a loss to the dealer.The complaint further states thatalthough American Cyanamid includedcertain non-price performance criteriain its rebate programs that couldincrease the amount of the rebate, adealer’s compliance with theseperformance criteria was neithernecessary nor, by itself, sufficient toobtain rebates. As examples, thecomplaint alleges that if a dealer met allof American Cyanamid’s performancecriteria, but sold the product for lessthan American Cyanamid’s specifiedminimum resale price, that dealerreceived no rebate on the sale. On theother hand, if the dealer met none of theperformance criteria, but sold theproduct at or above AmericanCyanamid’s specified minimum resaleprice, the dealer nonetheless received arebate on that sale.American Cyanamid’s conditioning offinancial payments on dealers’ charginga specified minimum price amounted tothe quid pro quo of an agreement onresale prices. In cases where this issuehas arisen, both before and after theSupreme Court examined the per se ruleagainst resale price maintenance inMonsanto and Sharp, 1 courts havetreated such agreements as per se illegal.See Lehman v. Gulf Oil Corp., 464 F.2d26, 39, 40 (5th Cir.), cert. denied, 409U.S. 1077 (1972) (stating that ‘‘ * * *adherence to a suggested price schedulewas the quid pro quo for Lehrman’sreceiving Gulf’s TCAs [temporarycompetitive allowances]’’ and ‘‘there isno comparable justification forconditioning wholesale price supportupon adherence to a schedule ofminimum retail prices.’’ (emphasis inoriginal)); Butera v. Sun Oil Co., Inc.496 F.2d 434, 437 (1st Cir. 1974). Byoffering financial inducements in returnfor selling at specified minimum prices,a manufacturer seeks the ‘‘acquiescenceor agreement’’ of its dealers in a resaleprice-fixing scheme. Monsanto, 465 U.S.at 764 n. 9. The dealer, in turn, acceptsthe manufacturer’s offer by selling at orabove the specified minimum prices.See Isaksen v. Vermont Castings, Inc.,825 F.2d 1158, 1164 (7th Cir. 1987)(Posner, J.) (an ‘‘obvious’’ resale pricefixingagreement is found ‘‘ * * * if[the manufacturer] had told [the dealer]that it would reduce its wholesale priceto him if he raised his retail price, and[the dealer] had accepted the offer byraising his price.’’). See also Khan v.State Oil Co., 93 F.3d 1358, 1360–61(7th Cir. 1996) (Posner, J.), petition forcert. pending No. 96–871 (agreement onprice found where dealership agreementon its face allowed dealer to charge anyresale price it wished, but distributortied financial consequences to dealers’not charging the resale prices itsuggested). As a result, incentives toreduce price below the specified levelwere substantially affected by AmericanCyanamid’s rebate scheme.The rebate programs challenged inthis case are unlike situations wheremanufacturers are permitted tocondition a discount or other incentiveon that discount being ‘‘passed through’’to consumers, which prevents a dealerform simply ‘‘pocketing’’ the discount.In these types of cases, the dealer is freeto sell at even lower prices than theamount of the direct ‘‘pass through’’ ofthe discount or other incentive.Discounts cannot be conditioned,therefore, on the dealers’ adherence tospecified minimum price. See AAALiquors, Inc. v. Joseph E. Seagram andSons, Inc., 705 F.2d 1203, 1206 (10thCir. 1982), cert denied, 461 U.S. 919(183) (Seagram’s requirement of passingthrough its discount ‘‘[did] not prohibitthe wholesaler from making greaterreductions in price that the discountprovides.’’) See also Acquaire v. CanadaDry Bottling Co., 24 F.3d 401, 409–10(2d Cir. 1994); Lewis Service Center, Inc.v. Mack Trucks, Inc., 714 F.2d 842, 845–47 (8th Cir. 1983) (because dealers coulddiscount more than Mack’s salesassistance, the court found that ‘‘thepurpose of Mack’s discount program[was] not to force adherence to anyparticular price scheme of Mack’s.’’).The Proposed Consent OrderPart I of the proposed order coversdefinitions. These definitions makeclear that the consent order applies tothe directors, officers, employees, agentsand representatives of AmericanCyanamid. The order also defines theterms product, dealer and resale price.Part II of the order contains two majoroperative provisions: Part II(A) dealswith the specific conduct at issue in thiscase. It prohibits American Cyanamidfrom conditioning the payment ofrebates or other incentives on the resaleprices its dealers charge for its products.Part II(B) prevents American Cyanamidfrom otherwise agreeing with its dealersgenerally to control or maintain resaleprices.