Label Stock Vendors Under Investigation

WASHINGTON, DC—Several of the major label stock vendors are reportedly under investigation for price fixing by the U.S. Department of Justice (DOJ).

Under investigation are Avery Dennison, Bemis, Morgan Adhesives (MACtac), Raflatac and UPM-Kymmene. The DOJ is trying to determine if the companies raised, fixed and maintained the prices of self-adhesive label stock from January 1, 1999, to the present.

News of the investigation and suit began back in April when Avery announced that the DOJ had begun a criminal investigation into competitive prices in the label stock industry and would shortly subpoena the company in connection with that investigation.

Bemis followed Avery and announced that it also expected to receive a subpoena in the investigation. Bemis denied any wrongdoing and said it was cooperating fully with the DOJ investgation.

Marketplace Dominance

In a complaint filed in the Northern District of Illinois the DOJ alleges that UPM and Avery were in "positions of marketplace dominance and had significant incentives to engage in explicit competitive coordination," and that evidence of competitive coordination was enhanced by a "long-standing strategic paper supply relationship" between UPM and Avery, which "provided UPM and Avery with the motivations, opportunities and means to coordinate on price, monitor adherence, punish cheating and engage in side payments that could be hidden in label paper transactions."

In a written statement, Avery refuted the claims of the DOJ. "Avery Dennison takes its legal and ethical obligations very seriously and attempts at all times to act in accordance with both," said Robert G. van Schoonenberg, executive vice president, general counsel and secretary of Avery Dennsion.

According to attorney Michael O'Meara, of Kenneth B. Moll & Associates, "the purpose of this investigation is to inform purchasers of label stock that they may have overpaid due to antitrust violations. We are seeking three times the financial loss for all companies that purchased label stock."

The criminal investigation is in part connected to a separate lawsuit by the DOJ. The DOJ is currently also challenging the proposed merger of UPM Kymmene's Raflatac subsidiary and MACtac (a division of Bemis) in U.S. District Court in Chicago, on the belief that certain aspects of the label stock industry are ones in which competitors have sought to coordinate rather then compete.

On August 21, 2002, Bemis signed an agreement to sell its pressure-sensitive materials business segment to UPM-Kymmene for $420 million in cash.

Raflatac and MACtac are said to be the second and third largest producers of pressure-sensitive label stock in North America.

The DOJ concluded that the merger would facilitate coordination between the merged company and other North American producers of bulk paper label stock, and would substantially reduce competition in the production of bulk paper label stock for use in variable information printing and prime labeling. The merger would result in higher prices for bulk paper label stock throughout the United States, the DOJ contends.

Increased Prices

"Unless this transaction is blocked, the result will be increased prices for bulk paper label stock," says R. Hewitt Pate, acting assistant attorney general in charge of the DOJ's Antitrust division.

"Our investigation has revealed that this market is already one in which competitors have sought to coordinate rather than compete. This merger would increase the likelihood that UPM and others will coordinate on bulk paper label stock prices."

UPM-Kymmene counters that its label stock subsidiary, Raflatac, is a relatively small player in the U.S. label stock market.

The MACtac acquisition would allow Raflatac to introduce a full line of products in the U.S. and compete more efficiently. Even after the MACtac acquisition, Raflatac would only have a market share in America of approximately 15 percent, according to the company.

"UPM-Kymmene believes strongly that the acquisition is pro-competition and therefore pro-customer, and intends to vigorously defend the acquisition," company officials add.