UNITED STATES OF AMERICA
In the Matter of
Checkpoint Systems, Inc., a corporation.
FILE NO. 951-0083
AGREEMENT CONTAINING CONSENT ORDER TO CEASE AND DESIST
The Federal Trade Commission (Commission) having initiated an investigation of certain acts and practices of Sensormatic Electronics Corporation, a corporation, and Checkpoint Systems, Inc., a corporation, and it now appearing that Checkpoint Systems, Inc., hereinafter sometimes referred to as the proposed respondent, is willing to enter into an agreement containing an order to cease and desist from the acts and practices being investigated, and providing for other relief,
IT IS HEREBY AGREED by proposed respondent, by its duly authorized officers, and attorneys, and counsel for the Federal Trade Commission that:
1. Proposed respondent Checkpoint Systems, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Pennsylvania with its office and principal place of business located at 101 Wolf Drive, Thorofare, New Jersey 08086.
2. Proposed respondent admits all the jurisdictional facts set forth in the draft of complaint here attached.
3. Proposed respondent waives:
4. This agreement shall not become part of the public record of the proceeding unless and until it is accepted by the Commission. If this agreement is accepted by the Commission it, together with the draft of complaint contemplated thereby, will be placed on the public record for a period of sixty (60) days and information in respect thereto publicly released. The Commission thereafter may either withdraw its acceptance of this agreement and so notify the proposed respondent, in which event it will take such action as it may consider appropriate, or issue and serve its complaint (in such form as the circumstances may require) and decision, in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not constitute an admission by proposed respondent that the law has been violated as alleged in the draft of complaint here attached, or that the facts as alleged in the draft complaint, other than jurisdictional facts, are true.
6. This agreement contemplates that, if it is accepted by the Commission, and if such acceptance is not subsequently withdrawn by the Commission pursuant to the provisions of § 2.34 of the Commissions Rules, the Commission may, without further notice to proposed respondent, (1) issue its complaint corresponding in form and substance with the draft of complaint here attached and its decision containing the following order to cease and desist in disposition of the proceeding and (2) make information public in respect thereto. When so entered, the order to cease and desist shall have the same force and effect and may be altered, modified or set aside in the same manner and within the same time provided by statute for other orders. The order shall become final upon service. Delivery by the U.S. Postal Service of the complaint and decision containing the agreed-to order to proposed respondents address as stated in this agreement shall constitute service. Proposed respondent waives any right it may have to any other manner of service. The complaint may be used in construing the terms of the order, and no agreement, understanding, representation, or interpretation not contained in the order or the agreement may be used to vary or contradict the terms of the order.
7. Proposed respondent has read the proposed complaint and order contemplated hereby. Proposed respondent understands that once the order has been issued, it will be required to file one or more compliance reports showing that it has fully complied with the order. Proposed respondent further understands that it may be liable for civil penalties in the amount provided by law for each violation of the order after it becomes final.
IT IS ORDERED that, as used in this order, the following definitions shall apply:
A. Respondent means Checkpoint Systems, Inc.
B. Sensormatic Electronics Corporation means Sensormatic Electronics Corporation, its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups and affiliates controlled by Sensormatic Electronics Corporation, and the respective directors, officers, employees, agents, and representatives, successors, and assigns of each.
C. Checkpoint Systems, Inc. means Checkpoint Systems, Inc., its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups and affiliates controlled by Checkpoint Systems, Inc., and the respective directors, officers, employees, agents, and representatives, successors, and assigns of each.
D. EAS system means electronic article surveillance equipment, including, but not limited to, sensors, deactivation equipment, labels or tags, source tags or labels, and any other component parts or related products.
IT IS FURTHER ORDERED that within three (3) days after the date this order becomes final, respondent shall declare null and void Section 4, the Negative Advertising provision, of the June 27, 1993 agreement between Sensormatic Electronics Corporation and respondent.
IT IS FURTHER ORDERED that respondent, directly or indirectly, or through any person, corporation, subsidiary, division or other device, in connection with the manufacture, advertising, offering for sale, sale or distribution of any EAS system, in or affecting commerce, as commerce is defined in the Federal Trade Commission Act, forthwith cease and desist from:
A. Entering into, attempting to enter into, organizing, continuing, or acting in furtherance of any agreement or combination, or carrying out any agreement, either express or implied, that prohibits, restricts, impedes, interferes with, restrains, places limitations on, or advises against engaging in truthful, non- deceptive advertising, comparative advertising, and promotional and sales activities; and
B. Encouraging, advising, pressuring, assisting, inducing, or attempting to induce any non-governmental person or organization to engage in any action prohibited by this order.
IT IS FURTHER ORDERED that respondent shall:
A. Within thirty (30) days of the date on which this order becomes final, provide a copy of this order to all of its directors and officers;
B. For a period of three (3) years from the date on which this order becomes final, and within ten (10) days after the date on which any person becomes a director or officer of respondent, provide a copy of this order to such person; and
C. Require each person to whom a copy of this order is furnished pursuant to subparagraphs IV. A and B of this order to sign and submit to its respective employer named as a respondent within thirty (30) days of the receipt thereof a statement that: (1) acknowledges receipt of the order; (2) represents that the undersigned has read and understands the order; and (3) acknowledges that the undersigned has been advised and understands that non-compliance with the order may subject the respondent to civil penalties for violation of the order.
IT IS FURTHER ORDERED that respondent shall:
A. Within sixty (60) days from the date on which this order becomes final, and annually thereafter for three (3) years on the anniversary of the date this order becomes final, and at such other times as the Commission may by written notice to the respondent require, file with the Commission a verified written report setting forth in detail the manner and form in which respondent has complied and is complying with this order;
B. For a period of three (3) years after the order becomes final, maintain and make available to the staff of the Federal Trade Commission for inspection and copying, upon reasonable notice, all records of communications with EAS competitors of respondent relating to any aspect of advertising, and records pertaining to any action taken in connection with any activity covered by parts II, III, IV, and V of this order; and
C. Notify the Commission at least thirty (30) days prior to any proposed change in corporate respondent such as dissolution, assignment, sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporation that may affect compliance obligations arising out of this order.
IT IS FURTHER ORDERED that this order shall terminate twenty years from the date this order becomes final.
Signed, this ____ day of _____________, 1997.
UNITED STATES OF AMERICA
In the Matter of
Sensormatic Electronics Corporation, a corporation, and Checkpoint Systems, Inc., a corporation.
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 Sensormatics 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 Sensormatics acquisition of Checkpoints European distributor, Sensormatics 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 Checkpoints 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 Checkpoints 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 partys products or services, or (ii) statements that the other partys 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, Checkpoints CEO, A.E. Wolf, issued a memorandum to all of Checkpoints employees explaining the advertising provisions of the June 27, 1993 agreement. Checkpoints 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, Sensormatics Vice President of Retail Sales, Dennis Gillette, issued a memorandum to Sensormatics 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 partys products or services. For example, we can continue to tell customers that UltraMax products dont 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
Checkpoints 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 Sensormatics 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 the ____day of ___________, 1998 issues its complaint against respondents.
By the Commission.
Donald S. Clark
Analysis of Proposed Consent Orders
The Federal Trade Commission has accepted agreements to proposed consent orders from Sensormatic Electronics Corporation (Sensormatic) and Checkpoint Systems, Inc. (Checkpoint). Sensormatics principal place of business is located at 951 Yamato Road, Boca Raton, Florida. Checkpoints principal place of business is located at 101 Wolf Drive, Thorofare, New Jersey.
The proposed consent orders have been placed on the public record for 60 days for reception of comments by interested persons. Comments received during this period will become part of the public record. After 60 days, the Commission will again review the agreements and the comments received, and will decide whether it should withdraw from the agreements or make final the agreements proposed orders.
Sensormatic and Checkpoint are the two largest manufacturers and sellers of electronic article surveillance (EAS) systems in the United States and the world. Their combined worldwide sales exceed 70 percent of total EAS industry sales.
EAS systems are used primarily by retailers to deter and detect shoplifting and employee theft. Bits of reactive metal or electronic transmitters called tags are attached to products sold in retail stores. When a product is purchased, the tag is removed or deactivated by the cashier. If a tag passes through an EAS systems sensors at a store exit without being deactivated, it sets off an alarm. EAS systems are also commonly found in libraries and video stores.
The complaint alleges that Sensormatic and Checkpoint entered a written agreement on June 27, 1993 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, including statements that the other partys products or services cause or may cause harm to customers, consumers or merchandise. The complaint further alleges that the respondents have construed the June 27, 1993 agreement to restrict comparative advertising relating to the performance and effectiveness of the proposed respondents EAS systems.
The complaint alleges that the June 27, 1993 agreement deprives retailers, other customers who purchase EAS systems, and consumers of comparative information about the characteristics of EAS systems that they would find helpful. In particular, the complaint alleges that retailers and other EAS customers have an interest in obtaining comparative information relevant to their purchasing decisions. The complaint further alleges that certain information about EAS systems, such as the potential harm to retail products and information about possible interactions between certain medical devices and EAS equipment, is relevant to consumers. Finally, the complaint alleges that the June 27, 1993 agreement is an agreement among competitors to refrain from making truthful, non-deceptive claims, including comparisons, criticisms, or disparaging statements in advertising, and that this agreement constitutes an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act.
On many occasions, the Commission has prohibited groups of horizontal competitors from agreeing to refrain from making truthful, non-deceptive claims, including comparisons, criticisms, or disparaging statements in advertising. The Commission has recognized that one of the benefits of competition is that competitors may be driven to provide consumers with information that makes for better educated, effective consumers.(1) The alleged conduct engaged in by Sensormatic and Checkpoint and the terms of the proposed orders are similar to the conduct alleged and the relief obtained in Personal Protective Armor Association, Inc., 117 F.T.C. 104 (1994).
Sensormatic and Checkpoint have signed consent agreements containing the proposed consent orders. The proposed consent orders require Sensormatic and Checkpoint to declare null and void the negative advertising provision of the June 27, 1993 agreement. The proposed consent orders also prohibit Sensormatic and Checkpoint from entering into any agreement that prohibits, restricts, impedes, interferes with, restrains, places limitations on, or advises against engaging in truthful, non-deceptive advertising, comparative advertising, promotional and sales activities for twenty years after the date the order becomes final. In addition, the proposed consent orders require that Sensormatic and Checkpoint provide copies of the orders to their respective executives, and that Sensormatic and Checkpoint file annual compliance reports with the Federal Trade Commission.
The purpose of this analysis is to facilitate public comment on the proposed orders, and it is not intended to constitute an official interpretation of the agreement and proposed orders or to modify in any way their terms.
(1) See generally Commission Policy Statement in Regard to Comparative Advertising, 16 C.F.R. § 14.15 (1997)(comparative advertising assists consumers in making rational purchase decisions, encourages product improvement or innovation, and can lead to lower market prices).