Graco, Inc. Settles FTC Charges That Its Acquisitions Illegally Harmed Competition in the U.S. Market for Fast Set Equipment

Graco, Inc. has settled Federal Trade Commission charges that it violated the antitrust laws by buying Gusmer Corp. (Gusmer) in 2005 and GlasCraft, Inc. (GCI) in 2008, its two closest competitors in the North American market for fast set equipment (FSE) used by contractors to apply polyurethane foams and polyurea coatings. 

The consent order settling the FTC’s charges is designed to restore competition to the FSE market that was lost as a result of Graco’s acquisitions.  It incorporates a private litigation settlement between Graco and Polyurethane Machinery Corp. (Gama/PMC) that requires Graco to license certain technology to Gama/PMC.  The consent order also contains provisions that provide Gama/PMC and other competitors easier access to distributors, so they can distribute competing FSE products effectively in the North American market.

“Although Graco was not required to report the Gusmer and GCI transactions under the HSR reporting requirements, those acquisitions eliminated virtually all of its competition in the fast set equipment market,” said Richard Feinstein, Director of the FTC’s Bureau of Competition.  “The clear result was higher prices and diminished choices for consumers.”         

Graco is a publicly traded company headquartered in Minneapolis, Minnesota.  The company, which entered the FSE market in 2002, sells FSE almost exclusively to third-party distributors that act as middlemen between Graco and the product’s end users.  Approximately 550 distributors currently sell Graco FSE in the United States.  Before Graco’s acquisitions of Gusmer and GCI, FSE distributors typically carried products from multiple manufacturers.           

The FTC’s complaint alleges that the acquisitions eliminated head-to-head competition among Graco, Gusmer, and GCI, leaving the market almost entirely in Graco’s hands.  After the acquisitions, Graco raised prices for its FSE products, reduced product options, reduced innovation, and raised barriers to entry for firms seeking to compete with Graco, by taking steps to ensure that its distributors would distribute only Graco’s products. 

In addition to the requirement that Graco execute the settlement it negotiated with Gama/PMC, the consent order also requires Graco to stop implementing any arrangement with distributors that will preclude them from dealing with Graco’s FSE competitors.  The order also prohibits Graco from discriminating, coercing, threatening, or in any other way pressuring its distributors not to carry its competitors’ FSE products.

The consent order further requires Graco to waive or modify any policies or contracts that might violate the terms of the order, to notify the FTC for 10 years if its intends to acquire any interest in a company that manufactures or sells FSE, and to notify the FTC before suing any distributor or customer regarding a claimed violation of its FSE-related intellectual property rights.

The Commission vote to accept the consent agreement and issue the order as final was 4-0, with Chairwoman Edith Ramirez, Commissioner Julie Brill, and Commissioner Maureen K. Ohlhausen issuing a separate Commission statement.  The vote to issue the Commission statement was 3-0-1, with Commissioner Joshua D. Wright abstaining. Commissioner Wright issued a separate statement.

FTC rules allow an order to take effect immediately prior to the public comment period in appropriate cases.  The Commission believes this is an appropriate situation because the effectiveness of the remedy depends on the timeliness of the private settlement between Graco and Gama/PMC, which only becomes effective after the consent order is final.  The agreement, though final, will be subject to public comment for 30 days, beginning today and continuing through May 20, 2013, and the FTC will publish a description of the consent agreement package in the Federal Register shortly. 

Interested parties can submit comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. Comments in paper form should be mailed or delivered to:  Federal Trade Commission, Office of the Secretary, Room H-113, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions. Comments also can be submitted electronically. 

NOTE:  The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the respondent has actually violated the law.  A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated.  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 up to $16,000.

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