[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