FTC Slaps Puerto Rican Lube Importer


A Federal Trade Commission complaint issued Thursday charged American Petroleum Co. Inc. with illegally conspiring with its competitors to restrict importation and sale of motor oils in Puerto Rico last year. The FTC said the firms goal was to force repeal of a law that charged importers and others within the distribution chain an environmental deposit of 50 cents for each quart purchased.

The FTC said Toa Baja-based American Petroleum has signed a consent agreement, whose proposed 20-year term aims to prevent the company from agreeing or attempting to agree with any other seller of lubricants (i) to restrain, restrict, limit or reduce the import or sale of lubricants; or (ii) to deal with, refuse to deal with, threaten to refuse to deal with, boycott, or threaten to boycott any buyer or potential buyer of lubricants. The settlement is subject to public comment until July 13, after which the commission will decide whether to make it final.

It often takes time to negotiate consent agreements, according to Mitchell Katz, senior public affairs specialist for the FTC.

Sometimes, by the time weve negotiated them, that conduct is over, Katz told Lube Report. But the consent order is to ensure that number one, we let everyone else know they shouldnt be engaging in this sort of conduct. And number two, make sure this organization [American Petroleum] thats under order doesnt engage in this conduct in the future because now theyll be liable for civil penalties if they do.

The FTC emphasized that a consent agreement is for settlement purposes, and does not constitute an admission of a law violation. When the commission issues a consent order on a final basis, it carries the force of law with respect to future actions.

Its one of these things where we say, You dont have to admit that you did it – but dont ever do it again, Katz explained. But if they do it again, theyre liable for up to $11,000 per day, per incident in civil penalties, so theres a pretty strong incentive not to do it again.

Petitioning the government to repeal a law is legal and a basic constitutional right, said Jeffrey Schmidt, director of the FTCs Bureau of Competition. But where firms take direct action in the marketplace as a means of pressuring the government, they cross the line from permissible to illegal conduct, Schmidt explained. Thats what happened here, and thats why we brought this case.

Puerto Rico Law 278, enacted in 2004, aimed to provide incentives for the safe disposal of lubricants and required anyone in the lubricant distribution chain – from the importer to the end-user – to pay an environmental deposit of 50 cents for each quart of lubricants they bought. The deposit could be recovered only after the used lubricating oil was delivered to an authorized collection center.

According to the FTC, American Petroleum joined with numerous others in the Puerto Rico lubricants industry to lobby for the delay, modification and/or repeal of Puerto Rico Law 278. They succeeded in part, the FTC said, with the Puerto Rico legislature postponing the laws starting date until March 31, 2006.

On March 31, 2006, said the FTC, companies in the lubricating oil industry in Puerto Rico held a press conference in San Juan, with American Petroleum president and owner Nelson Soto acting as spokesman for the group. Soto announced that to pressure the government, numerous companies agreed to suspend the importation of lubricating oil, and to continue to do so until Law 278 was repealed. The FTC complaint alleges that Soto also declared that as existing inventories were depleted, the suspension of imports would result in shortages of lubricating oil throughout the island.

The Puerto Rico legislature repealed Law 278 in December 2006.

The commissions complaint alleges that the conspiracy was an unlawful horizontal agreement to restrict output, that was inherently likely to harm competition while offering no benefit to consumers.

According to the Washington, D.C., based American Petroleum Institutes Engine Oil Licensing and Certification System licensees list, American Petroleum Co. Inc. began marketing licensed motor oil products on Feb. 26, 1994. The current license and agreement is scheduled to continue until June 14, 2008.

An American Petroleum Co. Inc. employee told Lube Report on Monday that company president Soto was out of the country on travel until July.

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