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Attorney General Lockyer Announces Approval of Antitrust Settlement That Will Aid Taxpayers
Traffic Signal Firm's Illegal ‘Tie-In' Sales Harmed Public Entities
(SAN FRANCISCO) – Attorney General Bill Lockyer today announced court approval of the settlement of an antitrust lawsuit against a Livermore company that cornered the market for traffic signal equipment in Northern California, forcing public entities and local taxpayers to pay an artificially high cost for safe intersections and smooth traffic flow.
"Our antitrust laws are on the books for good reason: to preserve competition and the benefits it provides the marketplace and consumers," said Lockyer. "When businesses violate those laws, the ones who ultimately suffer are consumers – in this case taxpayers. This settlement will increase competition and benefit local taxpayers by reducing the amount they pay for the traffic signals that help keep them and their families safe on the road."
Lockyer today filed in San Francisco County Superior Court both the complaint against J.A. Momaney Services, Inc. (JAMS) of Livermore and the settlement of the action. As approved by the court, the settlement requires JAMS to pay $105,000 in civil penalties and $105,000 to reimburse the state for attorneys fees and investigative costs. Additionally, for a period of five years, JAMS will be prohibited from engaging in the business practices targeted by the complaint, and must maintain records that will allow the Attorney General's Office and court to monitor the firm's compliance with the settlement.
The Attorney General's Office is conducting an ongoing, statewide investigation of the traffic signal market. "We don't believe JAMS is the only company that engages in these practices," said Lockyer. "We believe this anti-competitive conduct is fairly widespread."
JAMS committed the alleged antitrust violations since 1993, Lockyer said. The alleged unlawful conduct, he added, forced taxpayers in some 54 Northern California communities to pay anti-competitive, artificially high prices for traffic signals at hundreds of intersections. Affected California cities include San Francisco, Sacramento, San Jose, Fremont, Concord, Hayward, Tracy, Pleasanton, Stockton, Cupertino, Livermore and Folsom. Taxpayers in unincorporated areas of Alameda, Sacramento, Contra Costa, Sonoma, Marin and San Joaquin counties also overpaid, said Lockyer.
The settlement announced today only deals with traffic signals installed since 1999 by 37 public entities in California and four in Nevada. The statute of limitations in antitrust cases is four years; thus the 1999 cutoff date.
As outlined in the complaint, JAMS' dominance of the Northern California market had its roots in exclusive distribution rights the firm acquired under contracts with manufacturers of proprietary traffic signal equipment.
These arrangements made JAMS the only source of specific brands of controllers (which synchronize signals), video detection systems (which monitor intersections to help determine the timing of signals), and emergency vehicle preemption devices (which allow ambulances, fire engines and police cars to quickly navigate city streets). Electric contractors in Northern California had to buy these brands from JAMS.
Additionally, public entities that used these brands in some intersections had to use them in all intersections. That's because all the competing manufacturers design their equipment to be incompatible with other brands.
The combination of exclusive distribution rights and public entities' limited ability to freely choose among competing products gave JAMS market power, the complaint alleged. JAMS unlawfully used its market power, according to the complaint, by requiring contractors to buy non-proprietary equipment – such as cabinet housing and other hardware – as a condition of purchasing the propriety products for which it had exclusive distribution rights. Such "tie-in" sales violate the state's antitrust law, known as the Cartwright Act.
Contractors' inability to buy both proprietary and non-proprietary equipment at competitive prices increased their costs, the complaint alleged. In turn, contractors passed on those costs to the public entities and, ultimately, local taxpayers. "Defendant's tie-in sales restrain competition in the market for non-proprietary ... and more commonly available equipment, and result in an overcharge to the end-users," the complaint alleged.
The settlement's "injunctive relief" provisions prohibit JAMS from conditioning the sale of proprietary equipment on the purchase of non-proprietary equipment. Additionally, JAMS cannot refuse to sell proprietary products for which it has exclusive distribution rights. To help the court and Attorney General's Office enforce the settlement, JAMS must retain and make available copies of all quotes and invoices related to the sale of traffic signal equipment.
Lockyer asked manufacturers to be mindful of the potential for abuse created by the combination of exclusive distribution rights and designs that make their products incompatible with other companies' equipment. "It creates an ideal environment for distributors to obtain and abuse market power," said Lockyer. "Manufacturers should more closely monitor their distributors' practices."