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Industry News: September 2000

By Robert Hausman

A storm of controversy has arisen due to the agreement signed in mid-March by the nation’s largest maker of handguns, Smith & Wesson (S&W) with the treasury Department and the Department of Housing and Urban Development (HUD) which affects the way its firearms are manufactured, marketed and sold.

The agreement greatly affects the approximately 22,000 retailers who stock S&W products. The gunmaker’s decision to break ranks with the rest of the industry, negotiate, and ultimately sign the accord with the most anti-gun U.S. Administration in history, has upset the firearms industry, gun rights groups, as well as firearms consumers.

“We can let others make choices for us and determine our fate, or we can be actively involved in the process and exercise some control,” said S&W company spokesman Ken Jorgensen. “The effect of this agreement will mean a change in the way S&W does business. It will not sacrifice the Second Amendment rights of gun owners, something we won’t do.”

“I’m not willing to be a pawn in a political chess game,” explains L.E. (Ed) Shultz, S&W’s president and CEO, in describing the gunmaker’s uncertain future with the wave of municipal lawsuits that have been filed against firearms manufacturers. But the National Rifle Association feels that, by signing the agreement, Shultz became exactly that: “manipulated by the Administration into executing a ‘settlement’ that is widely portrayed as a political victory for the (Clinton-Gore) White House.”

The NRA added the agreement “doesn’t merely alter the design of S&W handguns-it elevates S&W to the role of self-appointed arbiter of national gun policy.” The organization also condemned the agreement in no uncertain terms as “an act of craven self-interest.”

The day after the settlement was announced, HUD secretary Andrew Cuomo and the mayors of Atlanta, Detroit, and Miami, announced they would change their procurement policies to give preference for purchasing S&W-brand firearms for their law enforcement officers.

To pressure the other gunmakers, the Clinton Administration announced that 28 cities and counties have agreed to “give preferences to firearms manufacturers who produce ‘safer’ guns and endorse a code of conduct.” The goal, according to a spokesman, is to “squeeze manufacturers like a pincers.” S&W was also dropped as a defendant in about 15 of the 29 reckless lawsuits filed by municipalities against the firearms industry.

Manufacturer Reaction

Meanwhile, the National Shooting Sports Foundation (NSSF) and seven police firearms companies filed suit in federal court against HUD secretary Andrew Cuomo, New York Attorney General Eliot Spitzer, Connecticut Attorney General Richard Blumenthal and mayors and other officials of 14 municipalities, charging them with an illegal conspiracy in restraint of trade and in violation of the Commerce Clause of the U.S. Constitution.

“The lawsuit arises from a politically-motivated scheme in which these bureaucrats have sought to bully law enforcement professionals into buying handguns based not on the quality or safety of the product, but on capitulation by the manufacturer to a regulatory agenda concocted by these officials,” said Robert Delfay, president and CEO of the NSSF.

“An anti-gun agenda does not excuse anti-democratic behavior,” Delfay stated. “The people of the U.S. have placed the authority to regulate firearm design and distribution in the hands of Congress, not in the hands of a small contingent of self-chosen politicians and their attorneys."

The firearms companies involved in bringing suit with NSSF are: Beretta USA Corp., Browning Arms, Inc., Colt’s Manufacturing, Inc., Glock, Inc., SIG Arms, Inc., Sturm, Ruger & Co., Inc., and Taurus International Manufacturing, Inc.

One of S&W’s largest distributors, RSR Wholesale, which reportedly accounts for about 25% of S&W’s sales, is re-evaluating whether to renew its distributor contract with S&W when it expires at the end of the year. Other gunmakers making announcements they would not sign onto the Clinton-S&W agreement are Sturm, Ruger, Beretta, Browning, Bryco, Glock and Taurus.

“We cannot speak for other manufacturers, but we remain confident these lawsuits are completely unsupportable, both legally and factually,” said Stephen Sanetti, Sturm, Ruger’s vice president and general counsel. “These attacks on our constitutional rights are being met with the firmest resolve. The law and truth are both on our side, and those shall prevail.”

Jeff Reh, general counsel for Beretta USA said, “We believe these settlements simply encourage the use of litigation for extortion of any industry in the country. We don’t think that they should be rewarded through capitulation.”

“Glock, Inc., will not sign a voluntary gun control agreement similar to the one reached between S&W and the Clinton Administration,” said Paul Jannuzzo, Glock’s vice president and general counsel. The Oversight Commission (created by the S&W agreement) is an absurd concept that’s overly broad and more powerful than any regulatory agency.”

Rich Bauter, vice president, firearms marketing for Browning, added, “I would think that everybody in the country should be absolutely outraged, at not only S&W’s steps, but also the U.S. government’s steps that have intruded into the legislative process.”

Retailer Response

“We’ve had an excellent relationship with S&W for 40 years,” commented Bill Carter, owner of five Carter’s Country retail stores in the Houston, Texas area and one of the nation’s largest S&W dealers. “But the bottom line is this agreement will force dealers to discontinue the sale of S&W handguns, plain and simple.”

Forrest Buckwald, co-owner of Buck’s Gun Rack in Daytona Beach, Florida, an authorized S&W dealer with annual revenue of about $1 million, was quoted in The Wall Street Journal as objecting to many of the terms of the agreement. “I have a hard problem with S&W telling me that I can’t sell a legal product in my store,” he said referring to the item in the agreement prohibiting the sale of grandfathered so-called “high-capacity magazines.”

Another provision Buckwald objects to mandates locking the gun inventory in a vault at night. “Well, that’s fine for a small place with 20 pistols,” he says. “When you have 1,000 of them, as I do, it’s another story.” He added he couldn’t afford to build a safe large enough to hold his inventory. This column’s author would suggest that some dealers, if they can afford the expense, can turn their whole stores into vaults by beefing up security measures of the building’s doors, walls, windows and ceilings.

Mark McCord, owner of McCord’s Gun Shop in Vidalia, Georgia, cited the clause in the agreement requiring gun shop employees to attend annual training sessions conducted by S&W, and that consumers purchasing S&W products must show evidence of having attended a firearms safety class.

“If we’ve got to go through all that trouble just to sell S&W guns, then it will probably no longer be a mainstay in our store. Nobody’s going to go through all that to carry one line of handguns,” McCord mused.

I haven’t spoken to a Virginia dealer who is happy about this,” said Virginia Firearms Dealers Association president Robert Marcus, owner of Bob’s Gun Shop in Norfolk, Virginia. “With these regulations, S&W has almost become a regulatory agency. “The Clinton Administration was real good to bring in Handgun Control, Inc., to make sure it (the agreement) passed their smell test,” Marcus continued, referring to the anti-gun group’s review of the final document before it was signed.

Reaction from the industry has begun to have an effect on the consumer side as well. In early June, S&W announced that “to adjust to changing market conditions,” it will suspend firearms manufacturing at its plants in Springfield, Massachusetts and Houlton, Maine for most of July. Personnel engaged in the production of handguns were put on leave from July 3 through July 28.

Contributing factors to the action were the normal summer softness in the firearms market “compounded by the reaction of some consumers to the agreement S&W signed with federal, state and local government entities,” the company said.

Anti-Trust Attack

In what can only be termed “revenge” for the industry’s general refusal to acquiesce to the Clinton Administration’s demands, several anti-gun attorneys general have announced “anti-trust investigations” of firearms manufacturers who have not signed on to the agreement, including those of Connecticut, Maryland, New York, California, Florida and Massachusetts. The affected manufacturers maintain that those retailers and distributors who have decided to show their objections to S&W’s move by no longer carrying S&W products are doing so without encouragement from other gun makers.

Connecticut Attorney General Richard Blumenthal (D) said, “We knew and anticipated there would be criticism (of the S&W agreement). We didn’t anticipate there would be apparently concerted activity to retaliate. We have issued subpoenas. We are conducting interviews.”

S&W began registering examples of the firearms industry trying to hurt its business. Gun magazines have quoted advertisers as pledging to pull their ads if the magazines continue to accept advertising from S&W. Organizations sponsoring competitive shooting matches have said they will pull out if S&W is permitted to sponsor the events.

The gun activist group, Gun Owners of America, labeled the S&W agreement, “Clinton & Wesson” in its informational briefs to members and called for a boycott of the company’s products by consumers. The NRA called the S&W agreement “a sell-out” and said the gunmaker had “run up the white flag of surrender and had run behind the Clinton-Gore lines.”

Some analysts compared S&W’s move to that of Liggett Group, which broke the cigarette industry’s solidarity in 1996 by agreeing to settle with anti-tobacco forces.

Agreement Background

During a recent interview in S&W’s Springfield, Massachusetts plant, Shultz revealed he was first approached in early January, 1999, by two Clinton administration lawyers at the Nashville, Tennessee airport with a proposed agreement containing a laundry list of gun control demands. Agree to this, the attorneys said, and the legal assault against the company would end.

After reading the document, Shultz replied to one of the young lawyers, “If you have a good long life, you will not live to see this proposal happen.” After this initial rebuff, negotiations continued over the next two months with several drafts of the proposed agreement being amended and rewritten with items added and others deleted. This author perused one such rejected draft copy in the gunmaker’s offices. Meetings were held in out-of-the-way airports and in a seldom-used conference room at the U.S. Mint in Washington to avoid attracting attention.

In mid-March, Shultz came under mounting pressure from his superiors at S&W’s parent company, Tomkins Plc, to get the gunmaker out from under its legal problems. Tomkins planned to get out of the consumer products business by selling S&W and other holdings. Shultz and the Administration lawyers came up with a version of the agreement they could all agree on, and Shultz signed it.

During the interview with this author, Shultz stated his belief that many of the provisions in the agreement would have little or no effect on stopping crime or saving lives. But he feared the municipal lawsuits endangered the gunmaker’s future. He also believes the agreement will help to improve the public’s image of the firearms industry, which he says is at a low point.

He continues to stand by his decision to sign the agreement, telling the Associated Press,. “The risk of the business is much greater in not settling the lawsuits than the risk of...letting consumers put us out of business.” The rest of the firearms industry remains unwilling to sign on to the S&W deal.

“Yes, the agreement amounts to government extortion of the industry,” Shultz admitted to this reporter, “but (the agreement) is the best chance S&W has to survive,” he concluded.

Key Terms of the S&W Agreement By Robert M. Hausman

While the complete document is too lengthy to be reproduced within these pages, here are some of the key provisions of the S&W agreement. Note that the interpretation of the document is in dispute. While S&W maintains only its own firearm products are affected by the agreement’s terms, others, such as the National Rifle Association’s Institute for Legislative Action chief lobbyist, attorney James Jay baker, maintain firearms produced by manufacturers other than S&W within S&W authorized dealers’ inventories are affected by the agreement as well.

Be aware also that S&W had already been complying with many of the provisions in the agreement which are required for manufacturers desiring to sell handguns in Massachusetts under the terms of that state’s laws.

*S&W handguns will contain both a visible serial number on the exterior of the frame and a second hidden serial number on the interior of the frame or receiver, or a second serial number visible only with the aid of an optical instrument.

*If technologically feasible, S&W will fire each gun before its sale and enter a digital image of its fired casing into a databank at ATF’s National Tracing Center.

*Within two years, all S&W firearms will have a built-in, on-board locking system.

*Two percent of the company’s revenues will be committed to “smart gun” research. *Within a year, all pistols will have the option of a magazine disconnector feature.

*S&W dealers are prohibited from selling magazines containing over 10 rounds capacity to civilians if such magazines were manufactured by S&W. While S&W maintains this provision affects only magazines of their own manufacture, the NRA and others, say this provision affects all magazines in a dealer’s inventory regardless of what firm manufactured them.

*Retailers must agree to a code of conduct to help prevent sales of firearms to non-qualified buyers.

*Retailers, where available, must carry a $1 million liability insurance policy. S&W may assist dealers in obtaining this insurance.

*Retailers must make no sales of S&W products at gun shows unless all sales by any sellers of S&W products at the gun show are conducted only upon completion of a background check.

*Retailers must develop an electronic inventory tracking plan. S&W may provide dealers with software, hardware, and training needed to comply with this requirement.

*S&W firearms must be secured, other than during business hours, in a locked, fire-proof safe or vault.

*Require persons under 18 to be accompanied by a parent or guardian when they are in the firearms section of the store.

*Require annual training of firearms sales employees regarding gun laws, safe handling of firearms, etc.

*Not complete any transfer of a S&W firearm prior to receiving notice from the NICS that the transferee is not a prohibited person.

*Transfer S&W firearms only to individuals who have passed a firearms safety course.

*Sell only one S&W handgun to a particular buyer at a time. The purchaser can pick up additional guns after waiting 14 days.

*Authorized S&W dealers are encouraged to consent to up to three unannounced ATF compliance inspections annually.

*The maximum penalty for a retailer for violating the agreement is removal as an authorized S&W reseller.

The agreement also creates an Oversight Commission to monitor compliance. It will consist of two members from city and county parties to the agreement, one member of a state party to the agreement, one S&W representative, and one party selected by the ATF.


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