[Federal Register Volume 60, Number 18 (Friday, January 27, 1995)]
[Notices]
[Pages 5428-5431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2062]
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FEDERAL TRADE COMMISSION
[File No. 941 0126]
Sensormatic Electronics Corporation; Proposed Consent Agreement
With Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
prohibit, among other things, Sensormatic Electronics Corporation, a
Florida-based manufacturer of electronic-article surveillance systems
from acquiring patents and other exclusive rights for manufacturer
installed disposable anti-shoplifting labels from Knogo Corporation. In
addition, the consent agreement would require Sensormatic, for ten
years, to obtain Commission approval before acquiring certain rights in
connection with Knogo's SuperStrip, or any significant acquisition of
entities engaged in, or assets used for, the research, development or
manufacture of disposable labels, or acquisitions of patents or other
intellectual property for such purposes.
DATES: Comments must be received on or before March 28, 1995.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th Street and Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Ann Malester, Arthur Strong or Melissa Heydenreich, FTC/S-2224,
Washington, DC 20580. (202) 326-2682, 326-3478 or 326-2543.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the following consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of sixty (60) days. Public comment is invited. Such
comments or views will be considered by the Commission and will be
available for inspection and copying at its principal office in
accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of
Practice (16 CFR 4.9(b)(6)(ii).
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation of the proposed acquisition by Sensormatic Electronics
Corporation (``Sensormatic'') of certain assets of the Knogo
Corporation (``Knogo''), and it now appearing that Sensormatic,
hereinafter sometimes referred to as ``proposed respondent,'' is
willing to enter into an agreement containing consent order to cease
and desist from making certain acquisitions, and providing for other
relief:
It is hereby agreed by and between Sensormatic, by its duly
authorized officer and its attorney, and counsel for the Commission
that:
1. Proposed respondent Sensormatic is a corporation organized,
existing, and doing business under and by virtue of the laws of
Delaware, with its offices and principal place of business located at
500 NW. 12th Avenue, Deerfield Beach, Florida 33442.
2. Proposed respondent admits all the jurisdictional facts set
forth in the draft of complaint.
3. Proposed respondent waives:
a. Any further procedural steps;
b. The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
d. Any claim under the Equal Access to Justice Act.
4. This agreement shall not become part of the public record of the
proceedings unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondent, in which event
it will take such action as it may consider appropriate, or issue and
serve its complaint (in such form as the circumstances may require) and
decision, in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondent that the law has been
violated as alleged in the draft of complaint, or that the facts as
alleged in the draft complaint, other than jurisdictional facts, are
true.
6. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Section 2.34 of the
Commission's Rules, the Commission may, without further notice to
proposed respondent, (1) Issue its complaint corresponding in form and
substance with the draft of complaint and its decision containing the
following order in disposition of the proceeding, and (2) make
information public with respect thereto. When so entered, the order
shall have the same force and effect and may be altered, modified, or
set aside in the same manner and within the same time provided by
statute for other orders. The order shall become final upon service.
Delivery by the United States Postal Service of the complaint and
decision containing the agreed-to order to proposed respondent's
address as stated in this agreement shall constitute service. Proposed
respondent waives any right it may have to any other manner of service.
The complaint may be used in construing the terms of the order, and no
agreement, understanding, representation, or interpretation not
contained in the order or the agreement may be used to vary or
contradict the terms of the order.
7. Proposed respondent has read the proposed complaint and order
contemplated hereby. Proposed respondent understands that once the
order has been issued, it will be required to file one or more
compliance reports showing that it has fully complied with the order.
Proposed respondent further understands that it may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final.
[[Page 5429]]
Order
I
It is ordered that, as used in this order, the following
definitions shall apply:
A. ``Respondent'' or ``Sensormatic'' means Sensormatic Electronics
Corporation, its predecessors, subsidiaries, divisions, and groups and
affiliates controlled by Sensormatic Electronics Corporation, their
directors, officers, employees, agents, and representatives, and their
successors and assigns.
B. ``Knogo'' means Knogo Corporation, its predecessors,
subsidiaries, divisions, and groups and affiliates controlled by Knogo,
their directors, officers, employees, agents, and representatives, and
their successors and assigns.
C. ``KNA'' means Knogo North America, Inc., the successor
corporation to Knogo Corporation's business and assets in the United
States and Canada to be formed pursuant to the Contribution and
Divestiture Agreement between Knogo Corporation and Knogo North
America, Inc., its subsidiaries, divisions, and groups and affiliates
controlled by Knogo North America, Inc., their directors, officers,
employees, agents, and representatives, and their successors and
assigns.
D. ``Commission'' means the Federal Trade Commission.
E. ``Acquisition'' means the transaction described in the Agreement
and Plan of Merger among Sensormatic, Knogo, and KNA, dated August 14,
1994.
F. ``Hard goods EAS systems'' means electronic article surveillance
systems and components designed principally to protect against
shoplifting of hard goods merchandise (e.g., books, audio recordings,
health and beauty aids, groceries, and home center merchandise), by
means of electronic hardware capable of detecting disposable labels
attached to such merchandise, whether the systems or components
generate, detect, or employ radio frequency, electromagnetic,
microwave, acoustic magnetic, or other electronic signals. Such systems
and components may include electronic signal transmitters and
receivers, signal processing equipment, computer software, label
activation equipment, label deactivators, automatic and manual label
applicators, and other related devices.
G. ``Disposable labels'' means labels that can be affixed to or
embedded in retail merchandise and used in conjunction with hard goods
EAS systems.
H. ``Source labelling'' means the process by which manufacturers,
packagers, or independent wholesalers apply disposable labels to retail
merchandise or its packaging.
I. ``SuperStrip'' means:
1. The material, described in Exhibit A attached hereto and made a
part hereof, used or intended for use in disposable labels; and
2. Disposable labels incorporating such material.
J. ``SuperStrip Technology'' means all existing patents,
inventions, trade secrets, know-how, concepts, designs, technical
information, processes, and intellectual property relating to the
design, manufacture, or use of SuperStrip.
K. ``SuperStrip Improvements'' means all improvements.
modifications, developments, revisions, or enhancements of SuperStrip
or SuperStrip Technology, whether or not covered by a patent or
otherwise protected against disclosure or unauthorized use by law.
L. ``Supply Agreement'' means Exhibit B to the Contribution and
Divestiture Agreement, attached as Exhibit C to the Agreement and Plan
of Merger among Sensormatic, Knogo, and KNA, dated August 14, 1994,
that requires Sensormatic to purchase products and materials for hard
goods EAS systems from KNA upon the terms and conditions set forth
therein.
M. ``United States'' means the fifty states, the District of
Columbia, and Puerto Rico.
II
It is further ordered that:
A. As of the date this order becomes final, respondent shall not
hold, possess, receive, or otherwise obtain, or have held, possessed,
received, or otherwise obtained, the SuperStrip Technology from Knogo
or KNA. Provided, however, that no provision of this Order shall
prohibit an acquisition by respondent from Knogo or KNA of: (1) a non-
exclusive license of the SuperStrip Technology to practice and use
SuperStrip and SuperStrip Technology in the United States and Canada;
and (2) ownership of, or other exclusive or non-exclusive legal or
equitable rights to practice and use, SuperStrip, SuperStrip
Technology, and SuperStrip Improvements outside of the United States
and Canada.
B. Respondent shall comply with the terms and conditions of the
Supply Agreement.
III
It is further ordered that, for a period of ten (10) years from the
date this order becomes final, respondent shall not, without the prior
approval of the Commission, directly or indirectly, through
subsidiaries, partnerships, or otherwise:
A. Acquire any legal or equitable rights to practice and use
SuperStrip, SuperStrip Technology, or SuperStrip Improvements in the
United States and Canada other than: (1) Rights to manufacture in the
United States for export only; or (2) a non-exclusive license that is
also offered to other manufacturers of hard goods EAS systems or
disposable labels in connection with adoption of a retail segment
standard;
B. Acquire any stock, share capital, equity or other interest in
any person or concern, corporate or non-corporate, engaged at the time
of such acquisition in, or within the two (2) years preceding such
acquisition engaged in, the research, development, or manufacture of
disposable labels designed or used for source labelling; provided,
however, that individual employees or directors of respondent and each
pension, benefit, or welfare plan or trust controlled by respondent may
acquire, for investment purposes only, an interest of not more than one
(1) percent of the stock or share capital of such person or concern; or
C. Acquire any patents, intellectual property, or other tangible or
intangible assets, other than a non-exclusive license, used in or
previously used in (and still suitable for use in) the research,
development, or manufacture of disposable labels designed or used for
source labelling.
Provided, however, that an acquisition pursuant to Paragraph III.B.
or III.C. shall be exempt from the prior approval requirements of this
Paragraph III if: (1) The stock, share capital, equity, or assets are
acquired from a person or concern that had less than $2 million in
annual sales in the United States of disposable labels in either of the
two (2) most recent calendar years preceding such acquisition; (2) the
acquisition is of assets relating solely to the manufacture of,
improvements of, or accessories to Sensormatic products that are in
existence as of the time of the acquisition; (3) the acquisition is of
assets from or an interest in a joint venture in which respondent is
one participant and in which no other joint venture participant was at
the time of the commencement of the venture engaged in the research,
development, or manufacture of disposable labels in the United States;
(4) the acquisition is of rights or other assets to be used solely in
commercial or industrial (i.e., non-retail) applications; or (5) the
[[Page 5430]] acquisition is of rights or other assets (other than
United States or Canadian marketing rights to patents, trade secrets
and other intellectual property) to be used solely for products sold
outside the United States and Canada.
IV
It is further ordered that within sixty (60) days after the date
this order becomes final, one year (1) from the date this order becomes
final, and annually for the next nine (9) years on the anniversary of
the date this order becomes final, and at such other times as the
Commission may require, respondent shall file a verified written report
with the Commission setting forth in detail the manner and form in
which it has complied and is complying with this order.
V
It is further ordered that respondent shall notify the Commission
at least thirty (30) days prior to any proposed change in the corporate
respondent such as dissolution, assignment, sale resulting in the
emergence of a successor corporation, or the creation or dissolution of
subsidiaries or any other change in the corporation that may affect
compliance obligations arising out of the order.
VI
It is further ordered that, for the purpose of determining or
securing compliance with this order, subject to any legally recognized
privilege and upon written request with reasonable notice, respondent
shall permit any duly authorized representatives of the Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of respondent relating to any matters contained in this
order; and
B. Upon five (5) days' notice to respondent and without restraint
or interference from it, to interview officers, directors, or employees
of respondent, who may have counsel present regarding such matters.
Exhibit A--SuperStrip Material
SuperStrip I
SuperStrip I is covered by Patent numbers 5,029,291 (docket number
85.151) and 5,304,987 (docket number 85.168) and one invention
disclosure (as described in docket number 85.184). These patents and
disclosure describe a new type of oxidized magnetic material with an
asymmetrical hysteresis curve and the ability to become magnetically
deactivated. SuperStrip I material is produced by a process, as
described in Knogo's patent, that involves the cutting of amorphous
magnetic material into short, tag-length segments and annealing these
segments for several hours in the presence of a magnetic field.
SuperStrip II
SuperStrip II is a modified version of Knogo's standard magnetic
tag. Short deactivation segments are electroplated onto the soft part
of the magnetic strip in a continuous process instead of being
mechanically cut and adhered to the strip. A U.S. patent application
(docket number 85.180) filed by Knogo is pending with respect to this
process.
SuperStrip III
SuperStrip III, which is the subject of a pending U.S. patent
application (docket #85.191) filed by Knogo is a recent development
involving the melt-spin casting of a specially formulated amorphous
magnetic material in such a way as to produce a unique hysteresis curve
in a manner similar to that of SuperStrip I, but without the use of any
additional processing steps beyond casting the material.
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an agreement containing a proposed Consent Order
from Sensormatic Electronics Corporation (``Sensormatic''), which
prohibits Sensormatic from acquiring certain patents from Knogo
Corporation (``Knogo'') for the practice and use of SuperStrip
technology (``SuperStrip'') in the United States and Canada.
The proposed Consent Order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received and will decide whether it should
withdraw from the agreement or make final the agreement's proposed
Order.
On August 14, 1994, Sensormatic and Knogo entered into an agreement
whereby Sensormatic agreed to acquire through a merger all of Knogo's
assets outside of North America, along with patents related to
SuperStrip; the agreement also obligated Sensormatic and Knogo North
America, Inc. (``Knogo/NA''), a successor corporation to Knogo's
business and assets in the United States and Canada, to grant royalty-
free cross-licenses to one another for any improvements to patents or
trade secrets related to SuperStrip (``SuperStrip Improvements''). The
proposed complaint alleges that the proposed acquisition, if
consummated, would constitute a violation of Section 7 of the Clayton
Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the FTC Act, as
amended, 15 U.S.C. Sec. 45, in the market for the research and
development of disposable labels developed or used for source labelling
and the research and development of processes to manufacture disposable
labels in the United States and Canada.
Knogo has been developing SuperStrip for possible use as a
disposable source label with electronic article surveillance systems,
which are installed in retail stores as theft prevention devices.
Disposable source labels would be imbedded in goods or packaging at the
manufacturing or distribution level, and they would obviate the need
for retailers to install labels themselves. Sensormatic has been
developing one of its proprietary technologies for potential use as a
source label.
The proposed Consent Order would remedy the alleged violation by
prohibiting Sensormatic from acquiring the SuperStrip patents and
intellectual property in the United States and Canada. The proposed
order allows Sensormatic to acquire a non-exclusive license to use the
technology for products manufactured or sold in the United States and
Canada, and it allows Sensormatic to acquire exclusive rights to such
technology outside the United States and Canada. Finally, the proposed
Consent Order would require Sensormatic to comply with the terms and
conditions of a supply agreement between Sensormatic and Knogo/NA
The proposed Order will also prohibit Sensormatic, for a period of
ten (10) years, from acquiring, without Federal Trade Commission
approval, other legal or equitable rights to use the SuperStrip
technology or SuperStrip Improvements, any stock in any concern engaged
in the research, development, or manufacture of disposable labels
designed or used for source labelling, or any patents or other
intellectual property used in the research, development, or manufacture
of disposable labels designed or used for source labelling. The prior
approval provisions contain several provisos, which exempt certain
acquisitions from the prior approval requirements.
Under the provisions of the Consent Order, Sensormatic is also
required to provide to the Commission a report of its compliance with
the Order within [[Page 5431]] sixty (60) days after the date this
Order becomes final, one (1) year from the date this order becomes
final, and annually thereafter for the next nine (9) years. The Consent
Order also requires Sensormatic to notify the Commission at least
thirty (30) days prior to any change in the structure of Sensormatic
resulting in the emergence of a successor.
The purpose of this analysis is to facilitate public comment on the
proposed Order, and it is not intended to constitute an official
interpretation of the agreement and proposed Order or to modify in any
way their terms.
Donal S. Clark,
Secretary.
Statement of Commissioner Mary L. Azcuenaga Concurring in Part and
Dissenting in Part in Sensormatic Electronics Corp., File No. 941-0126
Today the Commission accepts for public comments a consent order
that would settle allegations that Sensormatic Electronics
Corporation's acquisition of Knogo Corporation's patents related to
SuperStrip and the agreement to cross-license improvements to
SuperStrip violate Section 7 of the Clayton Act and Section 5 of the
Federal Trade Commission Act. I find reason to believe the transaction
violates the law and concur in accepting the consent order for
publication. I dissent, however, from the allegations in the complaint
defining the relevant market and from paragraph II(B) of the order,
which requires that Sensormatic adhere to a private supply contract.
Sensormatic and Knogo produce and sell electronic article
surveillance (EAS) systems and components, used by retailers to protect
against shoplifting. EAS systems provide a warning when a special label
attached to merchandise by the retailer triggers an electronic signal
on hardware located at the store's exit unless the label has been
neutralized by store employees at the time of sale. Because Sensormatic
proposes to acquire only those assets of Knogo located outside North
America, the competitive analysis of the transaction does not focus on
the production and sale of existing EAS systems and labels to retailers
in the United States and Canada.
Sensormatic, Knogo, and other firms, however, are also engaged in
research and development to perfect a new ``source labelling'' system.
In such a system, manufacturers would apply the EAS label to the
merchandise or its packaging, which would eliminate the need for
retailers manually to affix a label to each protected item of
merchandise. No source labelling system is currently in use, but Knogo
has developed and patented SuperStrip technology for use in labels,
potentially including source labels, and other firms are developing
their own source labelling technologies.
I concur that the relevant market involves competition in research
and development, but question the market definition in paragraph 11 of
the complaint, which is narrowly limited to the research and
development of ``disposable labels developed or used for source
labelling'' and processes to make them. In a Section 7 case, the
Commission has the burden of proving the relevant product market, and
distinguishing research and development of source labelling from other
improvements in EAS systems may be difficult or impossible. I would not
limit the product market to research and development in source
labelling but would define the market as research and development in
EAS systems and components, including source labelling.
I also dissent from paragraph 12 of the complaint, which limits the
geographic market to the United States and Canada. Successful research
and development yields intellectual property that can move freely
across international boundaries. A foreign firm can license
intellectual property without establishing a manufacturing or sales
presence in the United States. Limiting the geographic market to the
United States and Canada excludes from the market the potentially
important research activity of at least one European firm. Even if
domestic firms are familiar with particular technologies and have a
sizable base of equipment already installed in retail stores, research
and development may yield an improvement significant enough to overcome
the advantages of current market leaders. The market should not be so
narrowly defined as to presume that only North American firms could
effect a significant breakthrough that might alter the current
competitive balance.
Applying Section 7 analysis to the products and geographic markets
as I would define them, I find reason to believe the transaction would
violate the law. The proposed acquisition would significantly increase
the concentration in the already highly concentrated world market for
EAS system research and development. The proposed transaction, the
transfer of patents from Knogo to Sensormatic and the agreement to
grant royalty-free cross licenses on any improvements to SuperStrip,
likely would diminish competition in research and development of new
EAS systems and components. Accordingly, I concur in paragraph II(A) of
the order.
Finally, I dissent from paragraph II(B) of the order, which
provides that Sensormatic ``shall comply with the terms and
conditions'' of a supply agreement between Sensormatic and Knogo North
America, Inc., the successor corporation to Knogo's North American
business. The supply agreement is a long, highly detailed commercial
contract that was negotiated as part of the acquisition in question.
The complaint contains no allegations establishing a relationship
between this contract and the state of competition in any antitrust
market. Absent a demonstrable link between the contract and
competition, the contract provides no basis for liability and
compliance with the contract does not appear necessary to effect
relief.
[FR Doc. 95-2062 Filed 1-26-95; 8:45 am]
BILLING CODE 6750-01-M