FTC Challenges Anticompetitive Practices of Nation's Leading Fire Truck Pump Manufacturers

The nation’s two leading manufacturers of fire pumps made for installation onto fire trucks have agreed to settle Federal Trade Commission charges that each imposed restraints requiring their customers to deal exclusively in that manufacturer’s pumps. This reduced competition between the two firms and made it more difficult for other firms to enter the market for truck-mounted fire pumps, the FTC alleged. The companies -- Hale Products, Inc. of Conshohocken, Pennsylvania, and Waterous Company, Inc. of South Saint Paul, Minnesota -- together account for about 90 percent or more of this market. According to the FTC, each company sold its pumps on an exclusive basis to fire truck manufacturers in the belief -- and with the effect -- that, if both companies maintained the restraints, they could allocate the customers each would serve and make it harder for other pump makers to enter the market. The proposed settlement agreements the FTC has obtained from Hale and Waterous would prohibit the companies from engaging in similar conduct to restrain the ability of fire truck manufacturers to offer their customers a choice of pumps, and require the companies to notify those truck manufacturers with which they do business about the FTC settlement provisions.

According to the FTC complaints detailing the allegations in these cases, the challenged practices went on for more than 50 years, and continued well after the respondents recognized that continuing their exclusive dealing practices would reduce competition between Hale and Waterous over the prices and other terms on which the pumps are sold.

The FTC alleged in its complaints that only one other company -- W.S. Darley & Company, Inc. -- sells mid-ship mounted fire pumps to fire truck manufacturers in the United States. Darley has only a small share of the market, and there has been little if any entry into the market in more than 50 years, the complaints state. According to the complaints, Hale and Waterous recognized that, if both firms continued to adhere to their exclusive dealing policies, it would have the effect of diminishing competition between them and excluding entry by other competitors.

The proposed consent agreements to settle the FTC charges were announced today for a public comment period, after which the Commission will determine whether to issue them as final and binding. The settlements would prohibit each of the respondents, Hale and Waterous, from entering into, continuing or enforcing any requirement that fire truck manufacturers refrain from purchasing mid-ship mounted fire pumps from any company, or that they purchase or sell only the relevant respondent’s pumps. In addition, Hale and Waterous each would be required to send a specifically-worded notice to every fire truck manufacturer to which it sold a pump in the prior two years and to any new fire truck manufacturers with which it does business in the next three years. The notice states that the respondent has entered into an agreement with the FTC under which it will not refuse to sell mid-ship mounted fire pumps because a manufacturer refuses to sell the respondent’s pumps exclusively, and states that manufacturers are free to offer and install competing pumps. The FTC settlement would accompany the notice.

Finally, the settlements contain various reporting provisions that would assist the FTC in monitoring the respondents’ compliance.

The FTC’s Cleveland Regional Office investigated this matter. The Commission vote to accept the proposed consent agreements was 3-2, with Commissioners Mary L. Azcuenaga and Roscoe B. Starek, III, dissenting and issuing statements, and the majority also issuing a statement.

“I cannot endorse an ineffective remedy for a nonexistent harm,” Commissioner Starek said in his dissenting statement. The statement outlines Starek’s reasons for concluding that (1) the distribution policies of Hale and Waterous cannot be characterized as “exclusive,” because several large fire truck manufacturers said they would be willing to install (and in fact have installed) another pump manufacturer’s pumps at their customer’s request; (2) the policies in any case did not harm competition (in part because they did not entail the allocation of the final customers, that is, the fire departments, and in part because the evidence does not show that they deterred entry); and (3) the proposed prohibitions on requiring exclusivity as a condition of sale do not remedy the alleged anticompetitive effects because the respondents could pursue a variety of alternative strategies to achieve the same end.

Commissioner Azcuenaga commented in her statement that she generally endorsed Commissioner Starek’s views, adding: “The evidence does not in my view suggest a market in which competition has been unlawfully restrained . . ..”

Chairman Robert Pitofsky and Commissioners Janet D. Steiger and Christine A. Varney disagreed with Starek’s suggestion that the allocation of customers for a component would be undermined by, among other things, competition for customers of the final product. That would be true, the majority said, in situations where the component is a significant part of the cost of the final good or where the final customers have a stronger preference for the component than the ultimate good, but neither was the case here. The majority added: “The fact that the exclusive policy was not perfect . . . did not have a significant effect on competition at the pump level.” The plan worked for several decades to diminish competition, keep prices higher and make new entry more difficult, they said, concluding that “those are the anticompetitive effects that the Commission’s orders are intended to address.”

The proposed consent agreements will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make them final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaints, proposed consent agreements, analyses of the consents to assist the public in commenting, and the full text of the Commissioners’ statements are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 202- 326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recor ding at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. 901 0061)