The FTC alleges Toys "R" Us has violated federal antitrust law by influencing manufacturers' sales to some competitors. Specifically, the FTC alleges that Toys "R" Us singled out warehouse discount clubs outlets, requiring manufacturers to exclude items carried by Toys "R" Us from sales to the warehouse clubs. FTC further alleges that Toys "R" Us negotiated agreements among competing manufacturers to block sales to the clubs and policed club inventories to be sure that the agreements were enforced.

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of Toys "R" Us, Inc., a corporation

DOCKET NO. 9278

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, and
by virtue of the authority vested in it by said Act, the Federal Trade
Commission, having reason to believe that Toys "R" Us, Inc., a
corporation (sometimes referred to as "TRU" or "respondent"), has
violated the provisions of said Act, and it appearing to the
Commission that a proceeding by it in respect thereof would be in the
public interest, hereby issues its complaint, stating its charges as
follows:

PARAGRAPH ONE:  Respondent Toys "R" Us, Inc. ("TRU") is a
corporation organized, existing, and doing business under and by
virtue of the laws of Delaware, with its principal office and place of
business at 461 From Road, Paramus, New Jersey  07652.

PARAGRAPH TWO:  TRU is the largest toy retailer in the United
States. It has approximately 600 stores located throughout the
United States and 300 stores in foreign countries, which sell toys,
infant supplies and equipment, juvenile sporting goods and related
items ("products"). In 1995 its total sales were approximately $9.4
billion.

PARAGRAPH THREE:  TRU's acts and practices, including the
acts and practices alleged herein, are in or affect commerce as
"commerce" is defined in the Federal Trade Commission Act.

PARAGRAPH FOUR:  TRU's importance as a provider of
distribution to manufacturers of toys and related products has given it
the ability to exercise market power over those manufacturers, and
TRU has exercised this power.

PARAGRAPH FIVE:  Warehouse clubs ("clubs") charge a
membership fee and retail a broad variety of products, including toys
and other products sold by TRU. The clubs operate on lower
margins than TRU or other national chain discounters. During the
late 1980's and early 1990's, club sales were growing at a much
faster rate than other retailers. During that period, the toy
manufacturers wanted to increase their sales to this relatively new
channel of distribution because of the growth potential of the clubs
and the manufacturers' desire to have additional outlets for their
merchandise. Before TRU engaged in the conduct described in
Paragraphs Seven through Nine below, the clubs generally were able
to buy popular individual toys from open stock (i.e., any toys sold
by the manufacturer without restriction) from most of the major
manufacturers, which they generally sold at lower prices than TRU
and other retailers. The clubs needed the option to buy the same toys
from the manufacturers that TRU and the other major retailers were
carrying in order to compete effectively.

PARAGRAPH SIX:  TRU has cultivated the image with the public
as a toy discounter that has everyday low prices. However, it does
not have the lowest retail prices among national toy retailers, and it
generally does not lead prices down. In the early 1990's the clubs'
low prices were putting competitive pressure on TRU. TRU feared
that consumers would draw unfavorable and embarrassing
comparisons between the clubs' prices and its prices, and that its
image for everyday low prices could be eroded.

PARAGRAPH SEVEN:  Beginning at least as early as 1989, TRU
used its power to gain agreements or understandings with various
suppliers relating to toy sales to the clubs. These agreements or
understandings included the following:

(a) The suppliers agreed not to sell to the clubs the same individual
toys that TRU carried;

(b) In the event a supplier wanted to sell to the clubs some toys
carried by TRU, TRU and the suppliers agreed upon toy products
that could be sold to the clubs. These generally were "club specials"
consisting of combination packs of two or more different items, or
other product that was differentiated from regular open stock items.
The items in the club specials could not be readily price- compared to
products sold by TRU, the club specials generally cost more to
produce, and the club specials raised the clubs' prices to consumers;
and

(c) The suppliers agreed to advise TRU in advance of the specific
products, including club specials, that the suppliers wanted to sell to
the clubs. If after reviewing the products TRU determined that they
did not pose a competitive conflict with the products sold by TRU,
the supplier could sell the product to the clubs.

PARAGRAPH EIGHT:  Some major manufacturers were reluctant to
give up their sales of individual toys to the clubs so long as their
competitors were selling them to the clubs. To secure the agreements
or understandings alleged in Paragraph Seven, TRU facilitated
understandings among competing manufacturers to achieve
substantial unity of action among them relating to their dealings with
the clubs.

PARAGRAPH NINE:  TRU sought, received, and negotiated
agreements or understandings with manufacturers with respect to the
toys they would not sell to the clubs. TRU policed the
manufacturers' sales and repeatedly brought any infractions to their
attention. When it deemed necessary, TRU enforced its policy by
taking product off its shelves or not buying product that
manufacturers had sold to the clubs.

PARAGRAPH TEN:  By 1994 and continuing to the present, most
of the major U.S. toy manufacturers had stopped selling popular
individual toys to the club channel of distribution that were carried by
TRU.

PARAGRAPH ELEVEN:  The purpose and effect of the agreements
and understandings described in Paragraphs Seven through Ten was
to restrain competition among toy retailers and among toy
manufacturers.

PARAGRAPH TWELVE:  By engaging in the acts or practices
described in Paragraphs Four through Eleven of this complaint, TRU
has unreasonably restrained competition in the following ways,
among others:

(a) Retail price competition has been restrained, and toy prices to
consumers are higher than they would have been absent TRU's
conduct;

(b) Competition among toy manufacturers, including competition
with respect to their distributional practices and their dealing with
TRU's competitors, has been restrained;

(c) The clubs' costs were increased, which impeded the growth of a
new method of toy distribution in its incipiency; and

(d) Information that would enable consumers to make informed price
comparisons has been suppressed.

PARAGRAPH THIRTEEN:  The acts or practices of TRU alleged
herein were and are to the prejudice and injury of the public. The
acts or practices constitute unfair methods of competition in or
affecting commerce in violation of Section 5 of the Federal Trade
Commission Act. These acts or practices are continuing and will
continue, or amy recur, in the absence of the relief requested.


NOTICE

Notice is hereby given to the respondent Toys "R" Us, Inc. that the
sixteenth day of July, 1996, at 10:00 a.m. o'clock is hereby fixed as
the time and Federal Trade Commission Offices, Sixth Street and
Pennsylvania Avenue, Northwest, Washington, D.C. 20580, Room
532, as the place when and where a hearing will be had before an
Administrative Law Judge of the Federal Trade commission, on the
charges set forth in this complaint, at which time and place you will
have the right under said Act to appear and show cause why an order
should not be entered requiring you to cease and desist from the
violations of law charged in the complaint.

You are notified that the opportunity is afforded you to file with the
Commission an answer to this complaint on or before the thirtieth
(30th) day after service of it upon you. An answer in which the
allegations of the complaint are contested shall contain a concise
statement of the facts constituting each ground of defense; and
specific admission, denial, or explanation of each fact alleged in the
complaint or, if you are without knowledge thereof, a statement to
that effect. Allegations of the complaint not thus answered shall be
deemed to have been admitted.

If you elect not to contest the allegations of fact set forth in the
complaint, the answer shall consist of a statement that you admit all
of the material allegations to be true. Such an answer shall constitute
a waiver of hearings as to the facts alleged in the complaint, and
together with the complaint will provide a record basis on which the
Administrative Law Judge shall file an initial decision containing
appropriate findings and conclusions and an appropriate order
disposing of the proceeding. In such answer you may, however,
reserve the right to submit proposed findings and conclusions and the
right to appeal the initial decision to the Commission under Section
3.52 of the Commission's Rules of Practice for Adjudicative
Proceedings.

Failure to answer within the time above provided shall be deemed to
constitute a waiver of your right to appear and contest the allegations
of the complaint and shall authorize the Administrative Law Judge,
without further notice to you, to find the facts to be as alleged in the
complaint and to enter an initial decision containing such findings,
appropriate conclusions and order.


NOTICE OF CONTEMPLATED RELIEF

Should the Commission conclude from the record developed in an
adjudicative proceeding in this matter that the respondent is in
violation of Section 5 of the Federal Trade Commission Act, as
alleged in the complaint, the Commission may order such relief as is
supported by the record and is necessary and appropriate including,
but not limited to, an order that requires the following in connection
with toy products and related products for infants and juveniles
("products"):

1. Respondent shall cease and desist from directly or indirectly
continuing, maintaining, entering into, or attempting to enter into any
agreement or understanding with any supplier to limit supply or to
refuse to sell toys and related products to any toy discounter.

2. Respondent shall not directly or indirectly urge, induce, coerce,
or pressure, or attempt to urge, induce, coerce, or pressure, any
supplier to limit supply or to refuse to sell toys and related products
to any toy discounter.

3. Respondent shall not directly or indirectly require, solicit, request
or encourage any supplier to furnish information to respondent
relating to any supplier's sales or actual or intended shipments to any
toy discounter.

4. Respondent shall not directly or indirectly facilitate or attempt to
facilitate agreements or understandings between or among suppliers
relating to limiting the sale of toys and related products to any toy
discounter(s) by, among other things, transmitting or conveying
complaints, intentions, plans, actions, or other similar information
from one supplier to another supplier relating to sales to such toy
discounter(s).

5. For a period of five years, Respondent shall not (1) announce or
communicate that respondent will or may discontinue purchasing or
refuse to purchase toys and related products from any supplier
because that supplier intends to sell or sells toys to any toy
discounter; or (2) refuse to purchase toys and related products from a
supplier because, in whole or in part, that supplier offered to sell or
sold toys and related products to any toy discounter.

6. Respondent shall mail to each of its suppliers and employees who
have purchasing responsibilities a copy of the Commission's
complaint and order in this matter, along with a letter from
respondent's chief executive officer stating that its suppliers can sell
whatever products they wish to any toy discounter, and that
respondent will not take any adverse action for selling such products
to any toy discounter.

7. Respondent shall take such other measures that are appropriate to
correct or remedy, or prevent the recurrence of, the anticompetitive
practices engaged in by respondent.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade
Commission on this twenty-second day of May, 1996, issues its
complaint against said respondent.

By the Commission, Commissioner Azcuenaga and Commissioner
Starek dissenting.


Donald S. Clark
Secretary