Attorney General Lockyer Files Taxpayer-Protection Antitrust Suit Against Traffic Signal Firm
‘Tie-In' Sales Cost Public Entities Millions of Dollars
(LOS ANGELES) – Attorney General Bill Lockyer today filed an antitrust lawsuit against Orange County-based Econolite Control Products, saying the firm's illegal "tie-in" sale of traffic signal equipment has inflated by millions of dollars costs incurred by Southern California taxpayers.
"Facing budget deficits and fiscal uncertainty, taxpayers and local governments cannot afford to pay a penny more than necessary for any public works project," said Lockyer. "Econolite's antitrust violations have cost local taxpayers millions of dollars and, if not stopped, will cost them millions more."
Filed in Los Angeles County Superior Court, Lockyer's lawsuit alleges that since 1997 Econolite has engaged in tie-in sales that violate state antitrust law. Under the antitrust statute, known as the Cartwright Act, violations of the tie-in prohibition are presumed to restrain competition and artificially inflate prices. The lawsuit also alleges the sales violate the state law prohibiting unfair competition, and seeks $2,500 per violation of that statute.
More importantly, however, Lockyer's lawsuit asks the court to permanently prohibit Econolite from engaging in the tie-in sales. Such "injunctive relief," he said, would save money for Southern California taxpayers by ensuring public entities do not continue to pay inflated prices for traffic signals.
"More and more public entities are turning to Econolite," said Lockyer. "The company's unlawful business practices already have cost Southern California taxpayers too much money, and they need to be stopped to prevent further harm."
As stated in the complaint: "Econolite's tie-in sales have caused, and continue to cause, irreparable harm because they are contrary to the public interest and violate the Cartwright Act ..."
Between 1997 and 2002, according to the complaint, Econolite's tie-in sales affected some 406 intersections in 39 cities and counties in Southern California.
Public entities using Econolite products, the complaint alleges, include: Los Angeles County, Orange County, San Bernardino County, Anaheim, Beverly Hills, Santa Monica, Ontario, Burbank, Monterey Park, Whittier, Rancho Cucamonga, Rancho Mirage, Aliso Viejo, Palm Desert and others.
The case has its roots in the changing technology inside the familiar metal boxes at traffic intersections. The boxes contain controllers that manage the timing of traffic lights. Increasingly, these controllers operate as part of larger systems directed from remote locations. Because of proprietary characteristics, all controllers in such systems have to be the same brand in order for all the signals to work correctly together. So, if a city or county already has installed signals equipped with a particular manufacturer's controllers, it has to use the same company's equipment in new signals.
As outlined in the complaint, here's how Econolite's scheme has worked:
Public entities' plans and specifications for new traffic signals may require use of proprietary Econolite equipment such as controllers or video detection systems.
In jurisdictions that already use Econolite systems, electrical contractors bidding on installation jobs cannot substitute proprietary equipment from other manufacturers because alternative equipment does not function properly with other signals containing Econolite equipment.
Electrical contractors bidding on traffic signal projects involving Econolite proprietary equipment must obtain price quotes from Econolite, because there is no alternative means to buy such equipment.
Econolite requires electrical contractors who want to buy its proprietary equipment to also purchase from Econolite non-proprietary equipment, such as emergency vehicle preemption systems and the actual traffic signals.
Econolite has the ability to condition the sale of proprietary equipment on the purchase of non-proprietary equipment because it possesses the economic power to do so. Affected public entities must use Econolite controllers or video detection systems. Additionally, Econolite is the sole distributor of its proprietary equipment.
Lockyer said that under the tie-in sales, Econolite sells the non-proprietary equipment to electrical contractors at substantially higher prices than contractors would otherwise pay, while freezing out other vendors. He added the contractors then pass on those higher costs to public entities and, ultimately, taxpayers.
Lockyer on November 25, 2003 settled a similar lawsuit against J.A. Momaney Services, Inc. (JAMS), a Livermore company that cornered the market for traffic signal equipment in Northern California. The settlement required JAMS to pay $105,000 in civil penalties and prohibited the firm from further engaging in tie-in sales.