Russell Stover Candies Inc., one of the nation's largest candy manufacturers, has been charged by the Federal Trade Commission with violating federal antitrust laws in a price-fixing scheme the agency says keeps candy prices artificially high.
The FTC complaint, released yesterday, alleges that Russell Stover would not sell its products to retailers who cut prices below levels suggested by the company.
FTC officials said the case represents a significant challenge of a long-debated legal doctrine that protects vertical price-fixing that takes place as a result of a manufacturer's announced policy of not dealing with retailers who want to sell at prices below those suggested by the manufacturer.
As a result of adopting this practice, the prices of Russell Stover products are sold at or above prices set by the candy maker, the FTC charged.
The Kansas City, Mo., company sold more than $125 million in chocolates and other candy products in stores across the country last year. It denied the allegations. A company spokesman, noting that he had not seen the complaint, said Russell Stover had not "done anything illegal."
The spokesman, Edward Stratemeier, the firm's corporate counsel, said the FTC had begun an inquiry over a year ago which involved Stover and "other consumer-product manufacturers."
"It is our understanding that the FTC has been looking for cases to challenge various aspects of suggested retail pricing," Stratemeier said. "It appears now that the commission has decided to use us for one of those test cases. In order for the commission to prevail on the complaint they have issued, they are going to have to get a Supreme Court case overturned."
Officials of the FTC's Bureau of Competition stressed that the case should not be viewed as a challenge to the practice of setting prices but instead is a challenge to the legal doctrine established in a 61-year old Supreme Court case, U.S. vs. Colgate & Co.
"To the extent that the Colgate case precludes establishing an agreement -- and a Sherman Act violation -- on the basis of the facts alleged in Stover, the Bureau of Competition believes that Colgate should be overruled," said Perry Johnson, director of the FTC's Bureau of Competition.
Another Bureau official noted that the key to the complaint, which was approved unanimously by five commissioners on Tuesday, is that the policies allegedly practiced by Stover result in a "general unavailability of merchandise" and therefore "there has been an agreement."
Specifically, the FTC charged that the company "has a policy of not dealing with retailers who sell its products at less than the designated resale prices" and that Russell Stover tells the firms of this policy.