Government In ‘Uphill Battle’ Against Toy Chain Case Against Toys ‘R’ Us May Stretch Antitrust Law

If Mom and Dad wanted to buy a “Hollywood Hair” Barbie, they could pay $10.95 at Toys “R” Us.

But at a warehouse club that was supposed to be a deep discounter, they would have to purchase Barbie packaged with a dress, and fork out $15.99 to boot.

If they tried to buy a “Toy Story” version of Mr. Potato Head in a warehouse club, they would have to take Mrs. Potato Head, too.

That, in a nutshell, is the accusation facing Toys “R” Us after the Federal Trade Commission last week leveled charges that the company was trying to harm consumers and stifle competition.

In initiating an agency proceeding against the world’s largest toy retailer, the FTC charged that Toys “R” Us has illegally used its market clout with manufacturers to put warehouse clubs at a disadvantage in selling toys.

But legal specialists said the commission - which recently has shown new aggressiveness in enforcing antitrust laws - faces a difficult task in winning the case against the Paramus, N.J.-based toy giant.

It’s a complex and fairly unusual case that may stretch antitrust law, said several attorneys in the field.

“They’ve got an uphill battle,” said Robert Paul, a former FTC general counsel who now heads the antitrust department of White & Case, a big New York law firm.

Joe Sims, a partner at Jones, Day, Reavis & Pogue in Washington, gave the commission no better than a one-in-four chance of prevailing.

The FTC, which brought the action last Wednesday by a 3-to-2 vote of its commissioners, charges that Toys “R” Us, beginning as early as 1989, used its clout with toy makers to shut out the deep-discounting warehouse clubs.

Thus, the retailer restricted consumer choice and forced consumers to pay higher toy prices, the commission alleged. Specifically, it charged that Toys “R” Us:

Extracted agreements from manufacturers to refrain from selling some of the most popular toys to discount clubs.

Demanded that manufacturers sell only costly combination packages (like the bundled Mr. and Mrs. Potato Head) to warehouse clubs.

Convinced manufacturers to tell it in advance what they would sell to warehouse clubs.

Took products off its own shelves and refused to buy items that manufacturers had sold to the clubs.

Legal specialists said one stumbling block for the FTC may be showing that Toys “R” Us - despite its 600 U.S. stores and $9.4 billion in 1995 sales - had enough market power to coerce manufacturers. Toys “R” Us has about 20 percent of the toy market.

“In traditional antitrust law, a 20 or 30 percent market share doesn’t hack it. With a 20 percent market share, you can’t force anybody to do anything. You’ve got to have 40, 50 or 60 percent market share,” said Sims.

“It’s a novel proposition that 20 percent of the market adds up to market power. That’s pushing the envelope,” said Paul.

Toys “R” Us says it has done nothing wrong. Calling the FTC complaint “outrageous,” chairman Michael Goldstein said the company has no intention of settling the case.

Goldstein noted that few of his largest competitors - such as Wal-Mart, Target, Kmart or Bradlees - have stepped forward to complain.