FTC Charges Puerto Rico Lubricant Importer with Illegal Agreement

The Federal Trade Commission today announced a complaint charging American Petroleum Company, Inc. with illegally conspiring with its competitors to restrict the importation and sale of motor oil lubricants in Puerto Rico, in an attempt to force the legislature to repeal a law that charged importers and others within the distribution chain an environmental deposit of 50 cents for each quart of lubricants purchased.

According to the FTC, the company’s conduct was a per se illegal boycott that was inherently likely to hurt the island’s consumers. In agreeing to settle the Commission’s charges, American Petroleum has been barred from engaging in, or attempting to engage in, similar conduct in the future.

“Petitioning the government to repeal a law you don't like is perfectly legal and in fact is a basic constitutional right,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “But where firms take direct action in the marketplace as a means of pressuring the government, they cross the line from permissible to illegal conduct. That's what happened here, and that's why we brought this case.”

The Commission’s Complaint

According to the Commission’s complaint, American Petroleum’s conduct violated Section 5 of the FTC Act. The FTC charged that American Petroleum agreed with competitors to restrict the importation and sale of lubricants in Puerto Rico, to the detriment of consumers, who faced higher prices as a result. The background history of the case is provided below.

For many years, American Petroleum has been in the business of importing lubricants to, and selling lubricants within, Puerto Rico. Puerto Rico Law 278, enacted in 2004, was intended to create incentives for the safe disposal of such lubricants, and required anyone in the lubricant distribution chain to pay an environmental deposit of 50 cents for each quart of lubricants they
bought. The deposit could be recovered only after the used lubricating oil was delivered to an authorized collection center. During 2005 and 2006, American Petroleum joined with numerous others in the Puerto Rico lubricants industry to lobby for the delay, modification, and/or repeal of Puerto Rico Law 278. They succeeded in part, and the Puerto Rico legislature postponed the law’s starting date until March 31, 2006.

With the effective date of the law approaching, the FTC contends, American Petroleum and several other companies that import and sell lubricants in Puerto Rico adopted a new strategy to push for the repeal of Law 278: they agreed to stop importing lubricants, beginning on March 31, 2006, and to continue the stoppage as long as Law 278 remained in effect. They even issued a public warning that as a result of their group boycott, lubricant shortages would arise in Puerto Rico and would continue until Law 278 was repealed.

The FTC challenged their conduct as per se illegal boycott activity. The complaint alleges that the conspiracy is an unlawful horizontal agreement to restrict output that is inherently likely to harm competition and has no countervailing efficiencies that would benefit consumers.

Terms of the Consent Order

The Commission’s consent order is intended to remedy the alleged anticompetitive conduct of the respondent. Accordingly, it bars American Petroleum from conspiring with its competitors to restrict output, and more specifically bars the company from agreeing, or attempting to agree, with any other lubricant seller to: 1) restrain, limit, or reduce the importation or sale of lubricants; or 2) deal with, refuse to deal with, threaten to refuse to deal with, boycott, or threaten to boycott any lubricant buyer or potential buyer.

The order will not interfere with American Petroleum’s right to engage in legitimate petitioning activities, and includes a safe harbor provision that allows the company to exercise its First Amendment rights to petition any government body. The order will expire in 20 years.

The Commission vote approving the complaint and consent order was 5-0. The order will be subject to public comment for 30 days, until July 13, 2007, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 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 $11,000.

Copies of the complaint, consent order, and analysis to aid public comment are available now on the FTC’s Web site. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.