Competitors Seek Class Action Suit Against Big Label Makers
WALL STREET WEST
While Avery Dennison Corp. still faces a criminal antitrust investigation by the Justice Department, the giant label maker is also battling a consolidated set of lawsuits seeking class action status that were filed by a cadre of smaller competitors.
In a Securities and Exchange Commission filing last week, Avery and its two co-defendants the three largest players in the label industry filed a response to the civil complaints that have been consolidated in federal District Court in Pennsylvania.
The smaller competitors accused the three defendants of colluding to fix prices, shortly after the Justice Department began an investigation that ultimately blocked the merger of No. 2 label maker Raflatac Inc., a unit of Finland’s UPM-Kymmene Group, with No. 3 Mactac, a unit of Bemis Inc. Avery Dennison, based in Pasadena, is the largest U.S. label maker.
The Justice Department alleged that UPM and Avery Dennison had engaged in discussions about label prices and had tried to limit competition in the label stock market.
But the DOJ also acknowledged that the attempt had not been successful and prices in the industry had actually fallen. The investigation is ongoing, and it is unclear whether charges will be filed.
In their SEC filing, Avery and the other defendants “deny that there ever was any agreement between them to fix the prices of label stock.” Under the Sherman Act, which prohibits agreements between two companies to restrain trade, suppliers and distributors such as Avery Dennison and UPM can “legitimately exchange information about prices and the reception of their products in the downstream market,” the companies said.
Kate Berry
Video Update
Videogame maker Take-Two Interactive Software Inc., which along with Santa Monica-based competitors Activision Inc. and THQ Inc. has been under investigation by the SEC, said the U.S. government plans to file a civil complaint for improperly reporting its sales.
Take-Two Chairman Ryan Brant, the company, an employee and two former officers received so-called Wells notices from the Securities and Exchange Commission, the New York-based videogame maker said in a statement. Take-Two makes the popular “Grand Theft Auto” games.
A Wells notice informs recipients that the SEC plans to bring a complaint and asks them to explain why it shouldn’t be filed.
The SEC has been investigating whether Take-Two and other game makers, including THQ and Activision, booked sales to distributors and retailers prematurely and whether they had a way to verify orders and accounting entries.
“We know there’s an investigation in practices in the industry involving accounting practices and revenue recognition,” said Ian Corydon, an analyst at B. Riley in Los Angeles. Corydon said he owns no shares in the videogame companies, and B. Riley does no investment banking for them but is a market maker for the L.A. videogame firms.
He said THQ and Activision are part of the general probe of the industry and it is unclear whether that investigation is connected to the action taken against Take-Two.
Take-Two said it complied with relevant accounting rules for such sales. The SEC will seek an injunction and monetary damages, Take-Two said.
“All we can say about the investigation is that we are in active talks with the SEC,” Take-Two Chief Executive Jeffrey Lapin said on a conference call. “I can not promise you that we are near the end of things.”
Last week, Activision officials declined comment. THQ officials didn’t return calls seeking comment.
Bloomberg News, Kate Berry
