Thursday, the Federal Trade Commission announced a consent agreement and order that settled charges that Golf Galaxy, a subsidiary of Dicks Sporting Goods Inc., violated federal law by illegally agreeing with a potential competitor, Golf Canada, to allocate the market for golf merchandise in the United States and Canada.
According to the FTC, in June 1998, Golf Canada and Golf Galaxy entered into an agreement under which Golf Galaxy agreed to develop and present an initial training program for Golf Canada employees, provide Golf Canada with blueprints, merchandising plans, sales reports, and other useful business documents, and provide continued consulting services to Golf Canada. In return, Golf Galaxy received shares of Golf Canada, a seat on the companys board of directors, and cash payments. Golf Canada also agreed to conditions that would bar it from entering the United States market for a certain time period. Adhering to the agreement, with the help of Golf Galaxy, Golf Canada opened 13 retail stores in Canada between 1998 and 2004.
In October 2004, Golf Galaxy sold all its shares of Golf Canada and the companies ended all consulting obligations under the 1998 agreement. They then entered into a new contract that extended the duration of the restraints on competition between the two companies beyond the dates contemplated in the 1998 agreement. Under the 2004 amended agreement, Golf Canada was barred from: 1) operating any retail store in the United States until 2013; and 2) engaging in any businesses outside Canada that competes with, or is similar to, Golf Galaxy until 2010. In addition, for the first time, Golf Galaxy was prohibited from opening a store in Canada until June 2008.
Under the 1998 agreement, Golf Canada was prohibited from competing in the United States until five years after the agreement ended. The consulting arrangement between the companies ended in 2004, and therefore the non-compete provisions should have extended through 2009. However, under the 2004 amended agreement, the non-compete provision was extended until 2013.
The Commission contended that the terms of the order would not interfere with Golf Galaxys ability to enter into written agreements that restrain competition in connection with the sale of golf merchandise, provided such agreements are “reasonably related to a lawful consulting arrangement, lawful joint venture agreement, or lawful merger, acquisition or sale agreement,” and “reasonably necessary to achieve such agreements pro-competitive benefits.”