Electronic Article Surveillance System Manufacturers Settle FTC Charges

The two largest marketers of the electronic article surveillance systems used in retail stores to prevent shoplifting have agreed to settle Federal Trade Commission charges that they agreed to restrict comparative advertising in violation of federal law. Sensormatic Electronics Corporation and Checkpoint Systems, Inc. will nullify the section of the June 27, 1993, agreement that restricts comparative advertising regarding harm their products may cause to consumers and to merchandise and will be barred from entering any agreements that prohibit or restrict truthful, non-deceptive advertising in the future.

Electronic article surveillance (EAS) systems use bits of reactive metal called "tags" attached to retail products to deter and detect theft. When the product is purchased, the tag is deactivated by a store employee. If the tag passes through an EAS sensor at a store exit without being deactivated, it sets off an alarm.

Sensormatic, headquartered in Boca Raton, Florida, is the largest manufacturer of EAS products in the world. Its 1996 revenues were $995 million. Checkpoint, based in Thorofare, New Jersey, had 1996 revenues of $214 million. Together, Sensormatic and Checkpoint have sold over 70 percent of the EAS systems purchased worldwide.

In 1993, Checkpoint ran an ad in Billboard magazine alleging that components of Sensormatic's Ultra*Max EAS system could damage recorded media. Included in the advertisement were depictions of audio cassettes, video cassettes, reel-to-reel tape, and compact discs. Sensormatic sued Checkpoint, claiming that the ad was false and deceptive. According to the FTC complaint detailing the charges, as part of the settlement of that suit, Sensormatic and Checkpoint agreed to refrain from "negative" advertising about one another's products and services, including "statements that the other party's products or services cause or may cause harm to customers, consumers or merchandise." The agreement served to restrict advertising by either firm that would provide information comparing the features and functions of the competing products -- including information about the potential harm to retail products and possible interactions between certain medical devices and EAS equipment -- in violation of federal antitrust law, according to the FTC.

"Agreements that prevent truthful, non-deceptive information about competing products from reaching consumers stifle competition in the marketplace and are unfair," said William J. Baer, Director of the FTC's Bureau of Competition. "Sensormatic and Checkpoint acted unlawfully to restrict consumers' ability to make informed choices about competing products, discourage product innovation and restrain price competition," he said.

To settle the FTC charges, Sensormatic and Checkpoint will declare null and void the section of their June 1993 agreement that restricts advertising and promotional claims about each other's products or services. In addition, they will be barred from entering any agreement that "prohibits, restricts, impedes, interferes with, restrains, places limitations on, or advises against engaging in truthful, non-deceptive advertising, comparative advertising or promotional and sales activities."

The Commission vote to accept the consent agreement for a public comment period was 4-0, with Commissioner Mozelle W. Thompson not participating. The proposed consent agreement 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 it 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 $11,000.

Copies of the complaint, consent agreement and an analysis to aid public comment are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 951 0083