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Purging Ancient Decrees From the Books Isn't Easy

By Cindy Skrzycki
Tuesday, September 2, 2008

It's been almost a half-century since U.S. Justice Department antitrust regulators and True Temper, one of the world's largest makers of golf club shafts, settled a case in which the company agreed not to fix prices and carve up sales territories.

In the 1950s, the company commanded 90 percent of steel golf shaft sales. Now, the Memphis-based private company, renamed True Temper Sports, has 34 percent of the market and faces stiff domestic and international competition in the steel and graphite golf shaft business.

"The market is completely different," said Jason Jenne, True Temper's chief financial officer. "It's a mature industry with real competition. It's not a cottage industry like it was then."

So earlier this year, the company asked that the ancient decrees be terminated, and on Aug. 15, a federal judge in Chicago approved the company's request and lifted the judgments from 1959 and 1961.

The Justice Department changed its policy in 1980, saying future antitrust settlements would last 10 years. Still, more than 1,000 cases predating the policy change are in effect because firms went out of business or don't want to pay the legal bills for seeking termination.

Only about 15 of the perpetual consent decrees have been lifted in the past decade, according to Gina Talamona, a Justice Department spokeswoman.

Usually, a specific business issue prompts a company to initiate the legal gymnastics to get an antitrust judgment taken off the books. In the case of True Temper, the decrees became a problem when private-equity firms interested in investing in the company discovered the antitrust cases as they conducted due diligence.

They also found that one of the attorneys representing True Temper in the cases was Robert Bork, who later became a federal judge, antitrust scholar and a failed nominee to the Supreme Court.

The company, now owned by senior management and New York private-equity firm Gilbert Global Equity Partners, decided to try to get the judgments lifted.

"This is pretty specialized," said Phillip Zane, an attorney with Baker Donelson Bearman Caldwell & Berkowitz in Washington, who represented True Temper. "You go into it knowing there will be an investigation. It takes five to 10 years to lift, and it ain't cheap."

In its filings with the court, True Temper said the decrees were preventing it from adopting pricing and advertising strategies that its competitors use to promote their graphite shafts to millions of golfers in the United States and overseas.

True Temper said it lost $33.5 million last year and credit-rating companies downgraded its debt. Sales have rebounded, the company said, to $37.7 million for the second quarter from $33 million for the same period in 2007.

In agreeing to let True Temper play by new rules, the Justice Department said in an April memo to the court: "These provisions are unnecessary, inconsistent with modern antitrust standards, and restrict the ability of True Temper and the four manufacturer defendants to compete with competitors not subject to the consent decrees."

The termination, like the decrees, also covered what were then known as the "Big Four" golf club manufacturers who bought shafts from True Temper and shared about 80 percent of sales: Wilson Athletic Goods Manufacturing, A.G. Spalding & Bros., MacGregor Sports Products, and Hillerich & Bradsby.

Today, those companies account for less than 10 percent of golf club sales. Hillerich & Bradsby in Louisville is best known for the Louisville Slugger baseball bat.

"When you look at a consent decree issued 40 years ago and ask if [it is] applicable, the answer is no," said Dennis Carlton, an economics professor at the University of Chicago Graduate School of Business.

The antitrust division is eager to clear its books. Its lawyers said in the memorandum outlining support for the True Temper dismissal that consent decrees before 1980 "should be terminated unless there are affirmative reasons for continuing them, which we would expect to exist only in limited circumstances."

Some industries would prefer to see the ancient decrees live on. A group of independent auto repair shops called the Coalition for Collision Repair Excellence has been pressing the Justice Department to enforce a 1963 decree that covered 245 insurance companies' relationships with some repairers, said Stephen Behrndt, director of the coalition and owner of a repair shop in Downington, Pa.

Many of the perpetual decrees in existence are clearly from another time. There's the Master Horseshoers' National Protective Association of America decree, entered in 1913. The Half-Size Dress Guild judgment entered in 1940. The oldest dates to 1897, when the government brought a case against the Missouri Freight Association.

"They thought the horse and buggy would never go out of existence," said Peter Sullivan, an antitrust attorney with Gibson, Dunn & Crutcher in New York, explaining the rationale for perpetual judgments.

Cindy Skrzycki is a regulatory columnist with Bloomberg News. She can be reached at cskrzycki@bloomberg.net.

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