9510083
B236198

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

Sensormatic Electronics Corporation, a corporation, and Checkpoint Systems, Inc., a corporation.

Docket No. C-3796

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, as amended, 15 U.S.C. 41 et seq., and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that the respondents named in the caption hereof have violated and are violating the provisions of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH ONE: Respondent Sensormatic Electronics Corporation (hereinafter “Sensormatic”), a manufacturer of electronic article surveillance (hereinafter “EAS”) equipment, is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business at 951 Yamato Road, Boca Raton, Florida 33431.

PARAGRAPH TWO: Respondent Checkpoint Systems, Inc. (hereinafter “Checkpoint”), a manufacturer of EAS equipment, is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Pennsylvania, with its principal place of business at 101 Wolf Drive, P.O. Box 188, Thorofare, New Jersey 08086.

PARAGRAPH THREE: Respondents Sensormatic and Checkpoint are now, and for some time have been, engaged in the manufacture, advertisement, sale, distribution, installation, and maintenance of EAS systems. EAS systems are electronic devices used by retailers and others to deter and detect shoplifting and internal theft, and for other security-related purposes. An EAS system may contain many electronic components including sensors, deactivation equipment, disposable labels or tags, source tags or labels, and other electronic parts.

PARAGRAPH FOUR: Sensormatic and Checkpoint are the two largest manufacturers and sellers of EAS systems in the United States and the world, and together have sold over 70% of the EAS systems purchased worldwide.

PARAGRAPH FIVE: Entry into certain segments of the EAS market is difficult because of patent protection that exists for the technology of many components of EAS systems.

PARAGRAPH SIX: The acts and practices of respondents, including those herein alleged, are in or affect commerce within the meaning of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45.

PARAGRAPH SEVEN: Except to the extent that competition has been restrained as alleged herein, Sensormatic and Checkpoint have been, and are now, in competition between themselves and with others as manufacturers of EAS equipment.

PARAGRAPH EIGHT: In January of 1993, Checkpoint caused an advertisement to be placed in Billboard magazine wherein it alleged that components of Sensormatic’s Ultra*Max EAS system damaged recorded media. Included in the advertisement were depictions of: audio cassettes, compact discs, reel to reel tape, and video cassettes. Thereafter, Sensormatic initiated a lawsuit in February of 1993 against Checkpoint alleging that said advertisement was false and deceptive because, among other things, the advertisement contained depictions of compact discs.

PARAGRAPH NINE: Shortly after Sensormatic filed the aforementioned suit, executives of Sensormatic and Checkpoint met to discuss the settlement of the lawsuit and other business matters, including matters arising out of Sensormatic’s acquisition of Checkpoint’s European distributor, Sensormatic’s performance under that distributorship agreement, advertising issues, and the cross-licensing of specified technologies under certain circumstances.

PARAGRAPH TEN: During March, April, May, and June of 1993, high-ranking officials of Checkpoint and Sensormatic, including the Chief Executive Officers of the respondents, met, discussed, engaged in telephone conferences, and exchanged correspondence for the purpose of entering into an agreement to settle the aforementioned lawsuit, to terminate Sensormatic as Checkpoint’s European distributor, to refrain from negative advertising, and to agree to an optional cross-license of technology under certain circumstances.

PARAGRAPH ELEVEN: On or about June 27, 1993, Checkpoint and Sensormatic executed a written agreement that included provisions relating to the agreement to settle the aforementioned lawsuit, to terminate Sensormatic as Checkpoint’s European distributor, to refrain from negative advertising, and to agree to an optional cross-license of technology under certain circumstances.

PARAGRAPH TWELVE: The advertising provision of the June 27, 1993 agreement, in part, binds the parties to refrain from:

negative advertising or other negative selling, promotional activities or other communications with respect to the other party or the other party's products and services. The terms ?negative advertising’ and ?other negative selling, promotional activities or other communications’ are defined to mean the knowing use of (i) materially false statements about the other party or the other party’s products or services, or (ii) statements that the other party’s products or services cause or may cause harm to customers, consumers or merchandise or that the other party is engaging or has engaged in illegal or improper conduct. The foregoing shall not be deemed to prohibit either party from otherwise communicating the features, benefits, characteristics, functions, specifications, or performance of their respective products.

PARAGRAPH THIRTEEN: The advertising provision of the June 27, 1993 agreement has also been construed to restrict comparative advertising on the features and functions of the respondents’ products and the services offered by the respondents.

PARAGRAPH FOURTEEN: On or about July 7, 1993, Checkpoint’s CEO, A.E. Wolf, issued a memorandum to all of Checkpoint’s employees explaining the advertising provisions of the June 27, 1993 agreement. Checkpoint’s CEO wrote, “Basically, what it [the agreement] means is that the two parties agree to compete on a positive rather than a negative basis. Simply what that means is that we will promote the positive aspects of our own products, services and companies rather than the negative aspects of the other party.”

PARAGRAPH FIFTEEN: On or about July 19, 1993, Sensormatic’s Vice President of Retail Sales, Dennis Gillette, issued a memorandum to Sensormatic’s United States and Canadian employees explaining the advertising restrictions contained in the agreement. Gillette noted:

The [advertising] agreement allows both Sensormatic and Checkpoint to continue informing customers of the features, benefits, characteristics, functions and specifications of its products, but neither Checkpoint nor Sensormatic may convey negative information about the other party or the other party’s products or services. For example, we can continue to tell customers that UltraMax products don’t cause false alarms and is the only false alarm-free system but we cannot tell them that Checkpoint products do cause false alarms [emphasis in original].

This memorandum was subsequently distributed to the relevant Sensormatic employees worldwide in September 1993.

PARAGRAPH SIXTEEN: Sensormatic attempted to enforce the advertising provision of the agreement in December 1993 when its attorneys alleged that a “Commentary” article authored by Checkpoint’s CEO, entitled “EAS: Sound Quality Is First Concern,” was published in Billboard magazine. The article did not mention Sensormatic, but expressed the opinion that some EAS technologies could degrade the quality of audio cassettes. While Sensormatic’s attorneys did not claim that the information was either false or misleading, they claimed that the publication of the article violated the advertising provision of the June 27, 1993 agreement.

PARAGRAPH SEVENTEEN: Prior to the execution of the advertising provision of the June 27, 1993 agreement, Sensormatic and Checkpoint competed by promoting the technological attributes of their systems and pointing out the inadequacies of their competitors’ systems in promotional materials and advertisements.

PARAGRAPH EIGHTEEN: Since the agreement of June 27, 1993, comparative advertising by Sensormatic and Checkpoint has been restricted.

PARAGRAPH NINETEEN: The advertising provision of the June 27, 1993 agreement is an agreement not to compete on an important element of competition. Retailers and other EAS customers have an interest in obtaining information relevant to their purchasing decisions. Certain information about EAS product performance is also relevant to consumers, such as potential harm to products and information about possible interactions between certain medical devices and EAS equipment. The agreement deprives retailers, other EAS customers and consumers of comparative information about the characteristics of EAS systems that they would find helpful.

PARAGRAPH TWENTY: The conduct engaged in by Sensormatic and Checkpoint described in Paragraphs Eight through Eighteen constitutes an agreement among competitors to refrain from making truthful, non-deceptive claims, including comparisons, criticisms, or disparaging statements in advertising.

PARAGRAPH TWENTY-ONE: The aforesaid acts and practices constitute unfair methods of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act. The acts and practices herein alleged are continuing and will continue in the absence of the relief herein requested.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this sixth day of April, 1998, issues its complaint against respondents.

By the Commission, Commissioner Thompson and Commissioner Swindle not participating.

Benjamin I. Berman
Acting Secretary

SEAL: