UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
In the Matter of Toys "R" Us, Inc., a corporation
DOCKET NO. 9278
Pursuant to the provisions of the Federal Trade Commission Act, and by
virtue of the authority vested in it by said Act, the Federal Trade
Commission, having reason to believe that Toys "R" Us, Inc., a
corporation (sometimes referred to as "TRU" or "respondent"), has
violated the provisions of said Act, and it appearing to the Commission
that a proceeding by it in respect thereof would be in the public
interest, hereby issues its complaint, stating its charges as follows:
PARAGRAPH ONE: Respondent Toys "R" Us, Inc. ("TRU") is a corporation
organized, existing, and doing business under and by virtue of the laws
of Delaware, with its principal office and place of business at 461 From
Road, Paramus, New Jersey 07652.
PARAGRAPH TWO: TRU is the largest toy retailer in the United States.
It has approximately 600 stores located throughout the United States and
300 stores in foreign countries, which sell toys, infant supplies and
equipment, juvenile sporting goods and related items ("products"). In
1995 its total sales were approximately $9.4 billion.
PARAGRAPH THREE: TRU's acts and practices, including the acts and
practices alleged herein, are in or affect commerce as "commerce" is
defined in the Federal Trade Commission Act.
PARAGRAPH FOUR: TRU's importance as a provider of distribution to
manufacturers of toys and related products has given it the ability to
exercise market power over those manufacturers, and TRU has exercised
PARAGRAPH FIVE: Warehouse clubs ("clubs") charge a membership fee and
retail a broad variety of products, including toys and other products
sold by TRU. The clubs operate on lower margins than TRU or other
national chain discounters. During the late 1980's and early 1990's,
club sales were growing at a much faster rate than other retailers.
During that period, the toy manufacturers wanted to increase their sales
to this relatively new channel of distribution because of the growth
potential of the clubs and the manufacturers' desire to have additional
outlets for their merchandise. Before TRU engaged in the conduct
described in Paragraphs Seven through Nine below, the clubs generally
were able to buy popular individual toys from open stock (i.e., any toys
sold by the manufacturer without restriction) from most of the major
manufacturers, which they generally sold at lower prices than TRU and
other retailers. The clubs needed the option to buy the same toys from
the manufacturers that TRU and the other major retailers were carrying
in order to compete effectively.
PARAGRAPH SIX: TRU has cultivated the image with the public as a toy
discounter that has everyday low prices. However, it does not have the
lowest retail prices among national toy retailers, and it generally does
not lead prices down. In the early 1990's the clubs' low prices were
putting competitive pressure on TRU. TRU feared that consumers would
draw unfavorable and embarrassing comparisons between the clubs' prices
and its prices, and that its image for everyday low prices could be
PARAGRAPH SEVEN: Beginning at least as early as 1989, TRU used its
power to gain agreements or understandings with various suppliers
relating to toy sales to the clubs. These agreements or understandings
included the following:
(a) The suppliers agreed not to sell to the clubs the same individual
toys that TRU carried;
(b) In the event a supplier wanted to sell to the clubs some toys
carried by TRU, TRU and the suppliers agreed upon toy products that
could be sold to the clubs. These generally were "club specials"
consisting of combination packs of two or more different items, or other
product that was differentiated from regular open stock items. The
items in the club specials could not be readily price- compared to
products sold by TRU, the club specials generally cost more to produce,
and the club specials raised the clubs' prices to consumers; and
(c) The suppliers agreed to advise TRU in advance of the specific
products, including club specials, that the suppliers wanted to sell to
the clubs. If after reviewing the products TRU determined that they did
not pose a competitive conflict with the products sold by TRU, the
supplier could sell the product to the clubs.
PARAGRAPH EIGHT: Some major manufacturers were reluctant to give up
their sales of individual toys to the clubs so long as their competitors
were selling them to the clubs. To secure the agreements or
understandings alleged in Paragraph Seven, TRU facilitated
understandings among competing manufacturers to achieve substantial
unity of action among them relating to their dealings with the clubs.
PARAGRAPH NINE: TRU sought, received, and negotiated agreements or
understandings with manufacturers with respect to the toys they would
not sell to the clubs. TRU policed the manufacturers' sales and
repeatedly brought any infractions to their attention. When it deemed
necessary, TRU enforced its policy by taking product off its shelves or
not buying product that manufacturers had sold to the clubs.
PARAGRAPH TEN: By 1994 and continuing to the present, most of the major
U.S. toy manufacturers had stopped selling popular individual toys to
the club channel of distribution that were carried by TRU.
PARAGRAPH ELEVEN: The purpose and effect of the agreements and
understandings described in Paragraphs Seven through Ten was to restrain
competition among toy retailers and among toy manufacturers.
PARAGRAPH TWELVE: By engaging in the acts or practices described in
Paragraphs Four through Eleven of this complaint, TRU has unreasonably
restrained competition in the following ways, among others:
(a) Retail price competition has been restrained, and toy prices to
consumers are higher than they would have been absent TRU's conduct;
(b) Competition among toy manufacturers, including competition with
respect to their distributional practices and their dealing with TRU's
competitors, has been restrained;
(c) The clubs' costs were increased, which impeded the growth of a new
method of toy distribution in its incipiency; and
(d) Information that would enable consumers to make informed price
comparisons has been suppressed.
PARAGRAPH THIRTEEN: The acts or practices of TRU alleged herein were
and are to the prejudice and injury of the public. The acts or
practices constitute unfair methods of competition in or affecting
commerce in violation of Section 5 of the Federal Trade Commission Act.
These acts or practices are continuing and will continue, or amy recur,
in the absence of the relief requested.
Notice is hereby given to the respondent Toys "R" Us, Inc. that the
sixteenth day of July, 1996, at 10:00 a.m. o'clock is hereby fixed as
the time and Federal Trade Commission Offices, Sixth Street and
Pennsylvania Avenue, Northwest, Washington, D.C. 20580, Room 532, as
the place when and where a hearing will be had before an Administrative
Law Judge of the Federal Trade commission, on the charges set forth in
this complaint, at which time and place you will have the right under
said Act to appear and show cause why an order should not be entered
requiring you to cease and desist from the violations of law charged in
You are notified that the opportunity is afforded you to file with the
Commission an answer to this complaint on or before the thirtieth (30th)
day after service of it upon you. An answer in which the allegations of
the complaint are contested shall contain a concise statement of the
facts constituting each ground of defense; and specific admission,
denial, or explanation of each fact alleged in the complaint or, if you
are without knowledge thereof, a statement to that effect. Allegations
of the complaint not thus answered shall be deemed to have been
If you elect not to contest the allegations of fact set forth in the
complaint, the answer shall consist of a statement that you admit all of
the material allegations to be true. Such an answer shall constitute a
waiver of hearings as to the facts alleged in the complaint, and
together with the complaint will provide a record basis on which the
Administrative Law Judge shall file an initial decision containing
appropriate findings and conclusions and an appropriate order disposing
of the proceeding. In such answer you may, however, reserve the right
to submit proposed findings and conclusions and the right to appeal the
initial decision to the Commission under Section 3.52 of the
Commission's Rules of Practice for Adjudicative Proceedings.
Failure to answer within the time above provided shall be deemed to
constitute a waiver of your right to appear and contest the allegations
of the complaint and shall authorize the Administrative Law Judge,
without further notice to you, to find the facts to be as alleged in the
complaint and to enter an initial decision containing such findings,
appropriate conclusions and order.
NOTICE OF CONTEMPLATED RELIEF
Should the Commission conclude from the record developed in an
adjudicative proceeding in this matter that the respondent is in
violation of Section 5 of the Federal Trade Commission Act, as alleged
in the complaint, the Commission may order such relief as is supported
by the record and is necessary and appropriate including, but not
limited to, an order that requires the following in connection with toy
products and related products for infants and juveniles ("products"):
1. Respondent shall cease and desist from directly or indirectly
continuing, maintaining, entering into, or attempting to enter into any
agreement or understanding with any supplier to limit supply or to
refuse to sell toys and related products to any toy discounter.
2. Respondent shall not directly or indirectly urge, induce, coerce, or
pressure, or attempt to urge, induce, coerce, or pressure, any supplier
to limit supply or to refuse to sell toys and related products to any
3. Respondent shall not directly or indirectly require, solicit,
request or encourage any supplier to furnish information to respondent
relating to any supplier's sales or actual or intended shipments to any
4. Respondent shall not directly or indirectly facilitate or attempt to
facilitate agreements or understandings between or among suppliers
relating to limiting the sale of toys and related products to any toy
discounter(s) by, among other things, transmitting or conveying
complaints, intentions, plans, actions, or other similar information
from one supplier to another supplier relating to sales to such toy
5. For a period of five years, Respondent shall not (1) announce or
communicate that respondent will or may discontinue purchasing or refuse
to purchase toys and related products from any supplier because that
supplier intends to sell or sells toys to any toy discounter; or (2)
refuse to purchase toys and related products from a supplier because, in
whole or in part, that supplier offered to sell or sold toys and related
products to any toy discounter.
6. Respondent shall mail to each of its suppliers and employees who
have purchasing responsibilities a copy of the Commission's complaint
and order in this matter, along with a letter from respondent's chief
executive officer stating that its suppliers can sell whatever products
they wish to any toy discounter, and that respondent will not take any
adverse action for selling such products to any toy discounter.
7. Respondent shall take such other measures that are appropriate to
correct or remedy, or prevent the recurrence of, the anticompetitive
practices engaged in by respondent.
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this
twenty-second day of May, 1996, issues its complaint against said
By the Commission, Commissioner Azcuenaga and Commissioner Starek
Donald S. Clark
Brought to you by - The 'Lectric Law Library
The Net's Finest Legal Resource For Legal Pros & Laypeople Alike.
* * * * * * * * * * No one connected with the 'Lectric Law Library, including Sponsors, Advertisers, & Content Providers,
necessarily Endorses, Warrants or Approves of any of its material. Also, Library content is NOT meant
to provide Specific Legal Advice, or to Solicit or Establish Any Kind of Professional-Client Relationship.