March 29, 2011, 5:00 PM

Toys ‘R’ Us settles lawsuits over web price pressure

Toys ‘R’ Us was accused of pressuring manufacturers not to sell to online discounters.

Don Davis

Editor in Chief

Lead Photo

Toys ‘R’ Us Inc. has agreed to settle lawsuits in which it was accused of pressuring suppliers to not sell to online retailers that undercut the retail chain’s prices. Toys ‘R’ Us also agreed to pay a $1.3 million fine in a related settlement with the Federal Trade Commission that was announced today.

Toys ‘R’ Us faced two connected lawsuits alleging antitrust violations. One was a class action suit brought by consumers who claimed they had to pay more to buy products like child car seats and baby strollers because Toys ‘R’ Us pressured the manufacturers of those products not to pay to web retailers that charged less than bricks-and-mortar stores. In the other case, e-retailers BabyAge.com Inc. and Baby Club of America sued Toys ‘R’ Us and several manufacturers saying they lost business because they were not able to sell products made by the manufacturers that succumbed to pressure from Toys ‘R’ Us, which is No. 37 in the Internet Retailer Top 500 Guide.

At the heart of both complaints is the question of resale price maintenance, that is, the degree to which manufacturers, or their major customers, can dictate that products not be sold for less than a certain price. This is also often referred to as MAP, for minimum advertised price, as some manufacturers say retailers cannot advertise their prices below a set amount.

Many online retailers say suppliers have stepped up their pressure on e-retailers not to cut prices since a 1997 U.S. Supreme Court decision, Leegin Creative Leather Products Inc. v. PSKS Inc., gave manufacturers more legal leeway to defend themselves against price-fixing charges.

Today’s action by the FTC sends a message that manufacturers and retailers can’t conspire to set prices, says Elizabeth A. Fegan, one of the lawyers for consumers in the class action against Toys ‘R’ Us. “It puts companies on notice that resale price maintenance is fair game for the FTC and that online retailers can have success bring those actions,” says Fegan, an attorney in the law firm of Hagens Berman Sobol Shapiro LLP.

But another attorney with expertise in resale price maintenance says the FTC action does not signal a change in policy. “This announcement does not reflect a substantive change in the position taken by the FTC's in the underlying matter, but rather is an example of the FTC's ability to flex its muscle when it believes a company has violated a prior order,” says Christopher S. Finnerty of the Boston law firm of Nelson Mullins Riley & Scarborough LLP.

Fegan says Toys ‘R’ Us and the baby products manufacturers sued by the consumers have agreed to pay $35 million into a fund that will be used to compensate consumers who can show they brought certain products from the manufacturers between Feb. 2, 2000, and April 30, 2005. The manufacturers sued include Baby Björn, Britax, Kids Line, Maclaren, Medela and Peg Perego. A federal judge has set a July 6 date for a hearing on approving the settlement.

Toys ‘R’ Us said in a filing last week with the U.S. Securities and Exchange Commission that it had agreed to pay $17 million to settle the consumer case. The retail chain also said it had agreed to pay $5 million to settle the case brought by the Internet retailers.

The total amount of the settlement of the e-retailer case was not disclosed. Jack Kiefer, president and CEO of BabyAgen.com, said he could not comment. BabyAge is No. 282 in the Internet Retailer Top 500 Guide.

The FTC said today that Toys ‘R’ Us had agreed to pay the $1.3 million civil penalty to settle FTC charges that the retailer had violated a 1998 FTC order against Toys ‘R’ Us for allegedly urging suppliers to limit shipments or refuse to sell to discounters. That 1998 order stemmed from FTC charges that Toys ‘R’ Us had pressured suppliers not to sell to bricks-and-mortar warehouse clubs.

In the order today, the FTC did not claim that Toys ‘R’ Us had violated that 1998 order, but made clear it was paying attention to charges of pressure to keep up prices. “Although we did not find evidence that Toys ‘R’ Us entered into agreements with the suppliers that violated the order, the penalty here underscores the importance of parties complying fully with all of their order obligations,” Richard A. Feinstein, director of the FTC’s Bureau of Competition, said in a statement.

The FTC statement went on to allege that Toys ‘R’ Us violated the 1998 order at various times between 1999 and 2010 by complaining to manufacturers about discounting of their baby products. It also says Toys ‘R’ Us requested information from manufacturers about their supply of products to discounters, in violation of the 1998 order.

Asked for a comment on the FTC order and settlements, a spokeswoman for Toys ‘R’ Us said, “We are pleased that this matter is fully resolved and is now behind us.”

The consumer case was certified as a class action in January 2006 by Judge Anita Brody of the U.S. District Court for the Eastern District of Pennsylvania. Baby Age and Baby Club of America filed their lawsuit in December 2005 and the judge eventually consolidated the cases.

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