Two of the largest Internet resellers of universal product code (UPC) barcodes, InstantUPCCodes.com (Instant) and 680 Digital, Inc., d/b/a Nationwide Barcode (Nationwide), recently settled charges that they violated Section 5 of the Federal Trade Commission (FTC) Act by inviting competitors to join in a collusive scheme to raise prices.[1]  The FTC’s complaints against the companies allege that their principals exchanged a number of emails with each other and a third company in which they proposed to increase their prices to the higher level set by another competitor, stressing that all three firms had to act in concert for the plan to succeed. Although the alleged conduct in this case is particularly extreme, it provides an important reminder that the FTC may still seek relief for invitations to collude, even if it cannot prove an agreement to fix prices or allocate customers.

Background

Numerous companies pay membership fees to an international association—that sets global supply chain standards—to receive UPC barcodes for their products. Some smaller businesses purchase UPC barcodes through resellers in an online secondary market in order to avoid the cost of joining the association. In the past few years, competition among Internet resellers in the secondary UPC barcode market has driven prices significantly lower.

In separate complaints, the FTC charged that Instant and its principal, Jacob J. Alifraghis, and Nationwide and its principal, Philip B. Peretz, violated Section 5 of the FTC Act by inviting competitors to collude to raise prices for barcodes sold over the Internet. The FTC alleged that, on August 4, 2013, Mr. Alifraghis sent a message to Mr. Peretz, which contained an explicit invitation to raise barcode prices to match the higher prices of another competitor. Mr. Alifraghis wrote to Mr. Peretz:

Hello Phil, Our company name is InstantUPCCodes.com, as you may be aware, we are one of your competitors within the same direct industry that you are in. . . . Here’s the deal Phil, I’m your friend, not your enemy. . . . Here’s what I’d like to do: All 3 of us- US, YOU and [Competitor A] need to match the price that [Competitor B] has. . . . I’d say that 48 hours would be an acceptable amount of time to get these price changes completed for all 3 of us. The thing is though, we all need to agree to do this or it won’t work. . . . Reply and let me know if you are willing to do this or not.[2]

Mr. Alifraghis allegedly then sent a similar email invitation to Competitor A, and the next day, Mr. Peretz forwarded Instant’s message to Competitor A, asking for its thoughts on the proposal. Subsequently, Mr. Peretz allegedly responded to Mr. Alifraghis stating that rather than raise prices within the next 48 hours, as proposed by Mr. Alifraghis, he would prefer to wait until Sunday, August 11, to raise his rates. Mr. Peretz added a second condition: he wanted Instant to raise its prices first. Competitor A never responded to any of the emails; nor did it agree to participate in the proposed scheme. The discussion continued between Instant and Nationwide, but without an agreement from Competitor A, they never did raise prices.

The FTC charged Mr. Alifraghis and Mr. Peretz, as well as their respective companies, with violating Section 5 of the FTC Act, despite the fact that the parties did not reach an agreement and no particular action to raise prices was taken. Of course, an accepted invitation to raise prices constitutes an agreement in restraint of trade and is a per se violation of Section 1 of the Sherman Act.

The proposed Orders settle the FTC’s complaints and prohibit Instant and Nationwide and their respective principals from: (1) communicating with competitors about barcode rates or prices; (2) entering into, participating in, inviting or soliciting an agreement with any competitor to divide markets, allocate customers or fix prices; and (3) persuading any competitor to raise, fix, or maintain price or to limit or reduce the terms or levels of service they provide. Further, the settlement imposes certain reporting and compliance requirements on the defendants for 20 years.

Implications

Although the FTC has a long history of challenging invitations to collude, these cases are the latest example of the FTC’s willingness to take action even when an invitation to raise prices is not accepted and, therefore, there is no agreement in restraint of trade. Over the past 20 years, the FTC has brought enforcement actions under Section 5 of the FTC Act against companies that communicate privately with their competitors regarding unlawful price-fixing or market allocation agreements.[3]  More recently, through the Valassis and U-Haul cases, the FTC has expanded the scope of Section 5 and challenged invitations to include through public communications.[4]

The cases against Instant and Nationwide provide a helpful reminder that companies should use caution when communicating with competitors. Companies and individuals should always consider the following:

  • Avoid private communications with competitors regarding price, output, or future competitively significant plans
  • If a company is the recipient of such a communication, it should not respond without first consulting antitrust counsel
  • Public statements regarding future prices, output levels, or competitively significant plans should be vetted by antitrust counsel
  • In public announcements such as earnings calls, focus on the company’s own business activities and avoid commenting on activities of competitors, especially statements where the company’s actions are contingent upon a competitor’s action

Of course, communications with competitors about competitively sensitive information (e.g., price or output) may arise in other circumstances. In such circumstances, companies and individuals should remember to proceed cautiously and consult antitrust counsel promptly.