[Federal Register Volume 61, Number 36 (Thursday, February 22, 1996)]
[Notices]
[Pages 6847-6851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4005]
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FEDERAL TRADE COMMISSION
[File No. 961 0018]
Hughes Danbury Optical Systems, Inc., Hughes Electronics
Corporation, General Motors Corporation; Consent Agreement With
Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Consent Agreement.
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SUMMARY: This Consent Agreement, accepted subject to final Commission
approval, settles alleged violations of federal law prohibiting unfair
or deceptive acts or practices and unfair methods of competition
arising from the purchase of the business and selected assets of the
Itek Optical Systems Division of Litton Industries by Hughes Danbury
Optical Systems, Inc. (``HDOS''). The proposed complaint alleges that
the acquisition, if consummated, would violate Section 7 of the Clayton
Act, as amended, and Section 5 of the Federal Trade Commission Act, as
amended, in the market for the research, development, manufacture and
sale of an Airborne Laser (``ABL'') system for use in the U.S. Air
Force's ABL program. The ABL program currently envisions developing an
ABL system that would utilize a customized 747 aircraft to fly at high
altitudes near the forward edge of a battle area to locate and destroy
incoming short-range ballistic missiles. Two teams--with The Boeing
Company and Rockwell International Corporation as the primary
contractors--have been awarded contracts to develop a concept design
for an ABL demonstrator. The proposed consent order would, among other
things, prohibit the respondents from enforcing the exclusivity
provisions contained in a teaming agreement--between HDOS and Xinetics,
Inc.--so that Xinetics will be free to supply the Boeing team with
deformable mirrors for the ABL program. The respondents have also
entered into an Interim Agreement with the Commission in which they
agreed to be bound by the proposed consent order as of February 9,
1996.
DATES: Comments must be received on or before April 22, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room H-159, Sixth Street and Pennsylvania Avenue, NW., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT: William J. Baer, FTC/H-374,
Washington, DC 20580 (202) 326-2932; or Ann B. Malester, FTC/S-2308,
Washington, DC 20580 (202) 326-2682.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade
[[Page 6848]]
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 (``the Commission''), having initiated
an investigation of the acquisition of the Itek Optical Systems
Division of Litton Systems, Incorporated (``Itek''), by Hughes Danbury
Optical Systems, Incorporated (``HDOS''), which is a wholly-owned
subsidiary of Hughes Aircraft Company, which is a wholly-owned
subsidiary of Hughes Electronics Corporation (``Hughes''), which is a
wholly-owned subsidiary of General Motors Corporation (``GM''), and it
now appears that HDOS, Hughes and GM, hereinafter sometimes referred to
as proposed respondents, are willing to enter into an agreement
containing an order to refrain from certain acts and providing for
other relief:
It is hereby agreed by and between proposed respondents, by their
duly authorized officers and attorneys, and counsel for the Commission
that:
1. Proposed respondent HDOS is a corporation organized, existing,
and doing business under and by virtue of the laws of the State of
Delaware, with its office and principal place of business located at
100 Wooster Road, Danbury, Connecticut 06810.
2. Proposed respondent Hughes is a corporation organized, existing,
and doing business under and by virtue of the laws of the State of
Delaware, with its office and principal place of business located at
7200 Hughes Terrace, Los Angeles, California 90045.
3. Proposed respondent GM is a corporation organized, existing, and
doing business under and by virtue of the laws of the State of
Delaware, with its office and principal place of business located at
3044 W. Grand Blvd., Detroit, Michigan 48202.
4. Proposed respondents admit all the jurisdictional facts set
forth in the draft of complaint here attached.
5. Proposed respondents waive:
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.
6. Proposed respondents shall submit within thirty (30) days of the
date this agreement is signed by proposed respondents an initial
report, pursuant to Section 2.33 of the Commission's Rules, signed by
the proposed respondents setting forth in detail the manner in which
the proposed respondents will comply with Paragraph II and Paragraph
III of the order when and if entered. Such report will not become part
of the public record unless and until the accompanying agreement and
order are accepted by the Commission.
7. This agreement shall not become a part of the public record of
the proceeding 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 proposed
respondents, 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.
8. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondents that the law has been
violated as alleged in the draft of complaint here attached, or that
the facts as alleged in the draft complaint, other than jurisdictional
facts, are true.
9. 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 respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint here attached and its decision
containing the following order to refrain from certain acts 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 U.S. Postal
Service of the complaint and decision containing the agreed-to order to
proposed respondents' addresses as stated in this agreement shall
constitute service. Proposed respondents waive any right they 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.
10. Proposed respondents have read the draft of complaint and order
contemplated hereby. Proposed respondents understand that once the
order has been issued, they will be required to file one or more
compliance reports showing that they have fully complied with the
order. Proposed respondents further understand that they may be liable
for civil penalties in the amount provided by law for each violation of
the order after it becomes final.
Order
I
It is ordered that, as used in this order, the following
definitions shall apply:
A. ``HDOS'' means Hughes Danbury Optical Systems, Inc., its
officers, employees, agents and representatives, predecessors,
successors, and assigns; its subsidiaries, divisions, groups and
affiliates controlled by HDOS, and the respective officers, employees,
agents, and representatives, successors and assigns of each.
B. ``Hughes'' means Hughes Electronics Corporation, its officers,
employees, agents and representatives, predecessors, successors, and
assigns; its subsidiaries, divisions, groups and affiliates controlled
by Hughes, and the respective officers, employees, agents, and
representatives, successors and assigns of each.
C. ``GM'' means General Motors Corporation, its officers,
employees, agents and representatives, predecessors, successors, and
assigns; its subsidiaries, divisions, groups and affiliates controlled
by GM, and the respective officers, employees, agents, and
representatives, successors and assigns of each.
D. ``Itek'' means Itek Optical Systems Division of Litton Systems,
Incorporated, its officers, employees, agents and representatives,
[[Page 6849]]
predecessors, successors, and assigns; its subsidiaries, divisions,
groups and affiliates controlled by Itek, and the respective officers,
employees, agents, and representatives, successors and assigns of each.
E. ``Respondents'' means HDOS, Hughes and GM.
F. ``Commission'' means the Federal Trade Commission.
G. ``Xinetics'' means Xinetics Incorporated, a corporation
organized, existing and doing business under and by virtue of the laws
of the Commonwealth of Massachusetts, with its office and principal
place of business located at 410 Great Road #6, Littleton,
Massachusetts 01460.
H. ``Person'' means any natural person, corporate entity,
partnership, association, joint venture, government entity, trust or
other business or legal entity.
I. ``HDOS/Xinetics Letter of Intent'' means the Letter of Intent
entered into on September 21, 1995, between HDOS and Xinetics in which
HDOS expresses its intention to use Xinetics as a supplier of any
Deformable Mirror which may be required for the Phillips Laboratory
Airborne Laser Program.
J. ``Phillips Laboratory Airborne Laser Program'' is a United
States Air Force Advanced Technology Demonstration program to develop
and then demonstrate the necessary technologies to acquire, track, and
destroy theater ballistic missiles during the boost phase of flight.
K. ``Non-Public ABL Information'' means any information not in the
public domain received or developed by Itek in its capacity as a
subcontractor to Lockheed Martin Corporation for the Phillips
Laboratory Airborne Laser Program. Non-Public ABL Information shall not
include: (i) information which subsequently falls within the public
domain through no violation of this order by Respondents, or (ii)
information which subsequently becomes known to Respondents not in
breach of a confidential disclosure agreement.
II
It is further ordered that Respondents shall not enforce or attempt
to enforce any provision contained in the HDOS/Xinetics Letter of
Intent, or take any other action, that would inhibit Xinetics from
teaming or otherwise contracting with any other person for the purpose
of bidding on, designing, developing, manufacturing, or supplying any
part of the Phillips Laboratory Airborne Laser Program.
III
It is further ordered that:
A. Respondents shall not receive, gain access to or in any manner
obtain any Non-Public ABL Information without the express written
permission of Lockheed Martin Corporation.
B. Upon request from Lockheed Martin Corporation, Respondents shall
provide to Lockheed Martin Corporation any Non-Public ABL Information
in a timely fashion not to exceed seven (7) days from the receipt of
such request. Respondents may require payment for their own direct
costs in providing such information.
IV
It is further ordered that Respondents shall comply with all terms
of the Interim Agreement, attached to this order and made a part hereof
as Appendix I.
V
It is further ordered that within sixty (60) days of the date this
order becomes final and every sixty days thereafter for the first year
after this order becomes final, and at such other times as the
Commission may require, Respondents shall file a verified written
report with the Commission setting forth in detail the manner and form
in which they have complied and are complying with this order.
Respondents shall include in their compliance reports, among other
things that are required from time to time, a full description of the
efforts being made to comply with Paragraph II and Paragraph III of the
order. Respondents shall include in their compliance reports copies of
all written communications, all internal memoranda, and all reports and
recommendations concerning compliance with the provisions in Paragraph
II and Paragraph III of the order.
VI
It is further ordered that Respondents shall notify the Commission
at least thirty (30) days prior to any proposed change in the corporate
Respondents, 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 corporate Respondents that may
affect compliance obligations arising out of the order.
VII
It is further ordered that, for the purpose of determining or
securing compliance with this order, Respondents shall permit any duly
authorized representative 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 any Respondent relating to any matters contained in this
order; and
B. Upon five (5) days' notice to any Respondent without restraint
or interference from it, to interview officers, directors, or employees
of that Respondent, who may have counsel present, regarding such
matters.
Interim Agreement
This Interim Agreement is by and between Hughes Danbury Optical
Systems, Incorporated (``HDOS''), Hughes Electronics Corporation
(``Hughes''), and General Motors Corporation (``GM''), three
corporations organized and existing under the laws of the State of
Delaware (collectively referred to as ``Proposed Respondents''), and
the Federal Trade Commission (the ``Commission''), an independent
agency of the United States Government, established under the Federal
Trade Commission Act of 1914, 15 U.S.C. Sec. 41, et seq. (collectively,
the ``Parties'').
Premises
Whereas, HDOS has proposed to acquire the Itek Optical Systems
Division of Litton Systems, Incorporated (``Itek''); and
Whereas, the Commission is now investigating the proposed
acquisition to determine if it would violate any of the statutes the
Commission enforces; and
Whereas, if the Commission accepts the Agreement Containing Consent
Order (``Consent Agreement''), the Commission will place it on the
public record for a period of at least sixty (60) days and subsequently
may either withdraw such acceptance or issue and serve its Complaint
and decision in disposition of the proceeding pursuant to the
provisions of Section 2.34 of the Commission's Rules; and
Whereas, the Commission is concerned that if an understanding is
not reached, preserving competition during the period prior to the
final acceptance of the Consent Agreement by the Commission (after the
60-day public notice period), there may be interim competitive harm and
divestiture or other relief resulting from a proceeding challenging the
legality of the proposed acquisition might not be possible, or might be
less than an effective remedy; and
[[Page 6850]]
Whereas, Proposed Respondents entering into this Interim Agreement
shall in no way be construed as an admission by Proposed Respondents
that the proposed acquisition constitutes a violation of any statute;
and
Whereas, Proposed Respondents understand that no act or transaction
contemplated by this Interim Agreement shall be deemed immune or exempt
from the provisions of the antitrust laws or the Federal Trade
Commission Act by reason of anything contained in this Interim
Agreement.
Now, therefore, the Parties agree, upon the understanding that the
Commission has not yet determined whether the proposed acquisition will
be challenged, and in consideration of the Commission's agreement that,
at the time it accepts the Consent Agreement for public comment, it
will grant early termination of the Hart-Scott-Rodino waiting period,
as follows:
1. Proposed Respondents agree to execute and be bound by the terms
of the Order contained in the Consent Agreement, as if it were final,
from the date the Consent Agreement is accepted for public comment by
the Commission.
2. Proposed Respondents agree to deliver within three (3) days of
the date the Consent Agreement is accepted for public comment by the
Commission, a copy of the Consent Agreement and a copy of this Interim
Agreement to the United States Department of Defense, The Boeing
Company, Lockheed Martin Corporation and Xinetics Incorporated.
3. Proposed Respondents agree to submit within thirty (30) days of
the date the Consent Agreement is signed by the Proposed Respondents,
an initial report, pursuant to Section 2.33 of the Commission's Rules,
signed by the Proposed Respondents setting forth in detail the manner
in which the Proposed Respondents will comply with Paragraph II and
Paragraph III of the Consent Agreement.
4. Proposed Respondents agree that, from the date the Consent
Agreement is accepted for public comment by the Commission until the
first of the dates listed in subparagraphs 4.a and 4.b, they will
comply with the provisions of this Interim Agreement:
a. Ten (10) business days after the Commission withdraws its
acceptance of the Consent Agreement pursuant to the provisions of
Section 2.34 of the Commission's Rules;
b. The date the Commission issues its Complaint and Decision and
Order.
5. Proposed Respondents waive all rights to contest the validity of
this Interim Agreement.
6. For the purpose of determining or securing compliance with this
Interim Agreement, Proposed Respondents shall permit any duly
authorized representative 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 any Proposed Respondent relating to any matters
contained in this Interim Agreement; and
b. Upon five (5) days' notice to any Proposed Respondent and
without restraint or interference from it, to interview officers,
directors, or employees of that Proposed Respondent, who may have
counsel present, regarding any such matters.
7. This Interim Agreement shall not be binding until accepted by
the Commission.
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 General Motors Corporation, Hughes Electronics Corporation
(``Hughes''), and Hughes Danbury Optical Systems, Inc. (``HDOS''),
collectively referred to as ``respondents.'' The proposed Consent Order
prohibits respondents from enforcing exclusivity provisions in a
teaming agreement between HDOS and Xinetics Incorporated for the U.S.
Air Force's Airborne Laser (``ABL'') program. In addition, the proposed
Consent Order prohibits respondents from obtaining information not in
the public domain developed or obtained by the Itek Optical Systems
Division of Litton Systems, Inc., in its capacity as a member of the
Boeing-Lockheed Martin team for the ABL program without the express
written permission of Lockheed Martin Corporation.
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 September 26, 1995, HDOS entered into a letter of intent to
purchase the business and selected assets of the Itek Optical Systems
Division of Litton Industries, Inc. (``Itek''). The proposed complaint
alleges that the acquisition, if consummated, would violate Section 7
of the Clayton Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the
Federal Trade Commission Act, as amended, 15 U.S.C. Sec. 45, in the
market for the research, development, manufacture and sale of an
Airborne Laser system for use in the U.S. Air Force's Airborne Laser
program.
The Airborne Laser program is the premier anti-missile program in
the Department of Defense's Theater Missile Defense System. As
currently envisioned, the ABL system will utilize a customized 747
aircraft to fly at high altitudes near the forward edge of a battle
area to locate and destroy incoming short-range ballistic missiles. The
ABL system would intercept an enemy missile during its launch or boost
phase by focusing a high energy laser beam on the missile's fuel tank
to rupture the tank and destroy the missile. Destruction of the missile
during launch would cause the warhead to fall on enemy territory. If
the ABL system works as planned, an enemy could find it impossible to
launch its missiles for fear of contaminating its own territory with
nuclear, chemical or biological warheads.
The ABL program is currently in the Demonstrator Concept Design
phase (Phase I). Two teams have each been awarded $21.4 million
contracts to develop a concept design for an ABL demonstrator. The
prime contractors for the two teams are The Boeing Company (``Boeing'')
and Rockwell International Corporation (``Rockwell''). The Air Force
plans to release the Request For Proposal (``RFP'') for the building of
an ABL demonstrator (Phase II) in May 1996. In January 1997, one of the
two teams will be awarded $700 million to build the Phase II ABL
demonstrator based on its Phase I design.
Both Hughes and Itek are participating in the ABL program. Hughes
is exclusively teamed with Rockwell. Itek is a member of the Boeing
team through an exclusive teaming agreement with Lockheed Martin. Both
Hughes and Itek are responsible for designing and supplying an adaptive
optics system for their respective teams.
Both teams will utilize an adaptive optics system as a part of
their ABL demonstrator design to improve the accuracy and intensity of
the ABL's laser beam. Adaptive optics systems compensate for
distortions in light waves caused by atmospheric turbulence by
recording and comparing wavefront characteristics and feeding this
information to an array of deformable mirrors. A deformable mirror is a
thin, flexible mirror
[[Page 6851]]
equipped with electromechanical actuators. The mirror's actuators
respond to an electrical signal from a computer and alter the mirror's
shape to counteract the distortions of the atmosphere. Deformable
mirrors are critical to the effective functioning of the adaptive
optics system.
There are only two viable manufacturers of deformable mirrors for
the ABL, Itek and Xinetics. Itek has exclusively contracted with
Lockheed Martin to supply deformable mirrors to the Boeing team.
Xinetics has exclusively contracted with Hughes to supply deformable
mirrors to the Rockwell team.
The standard Merger Guidelines entry analysis utilizing a two year
time period is not applicable to the ABL competition. The ABL Phase I
concept design review is scheduled to occur in March 1996 and the bids
for Phase II are expected to be due in July of 1996. Therefore, the
only viable entrants are firms with the current capability to supply
deformable mirrors. Itek and Xinetics are the only firms that currently
possess the expertise, personnel and facilities required to design and
fabricate deformable mirrors.
Respondents' acquisition of Itek poses serious antitrust concerns.
Following the acquisition, the Boeing-Lockheed Martin team would not be
able to replace Hughes/Itek as the supplier of its deformable mirrors
for the ABL competition. This would allow Hughes to: (1) increase the
bid prices for the ABL competition by raising the price of the
deformable mirrors on both teams; (2) decrease its investment in
technology or quality on one or both teams' designs; and/or (3) gain
access to competitively sensitive information relating to the Boeing
team's technical design and cost for its entire adaptive optics system.
Under the proposed Consent Order, respondents are prohibited from
enforcing the exclusivity provisions contained in Hughes's teaming
agreement with Xinetics for the ABL program. Xinetics will be free to
supply the Boeing team with deformable mirrors for the ABL program.
This will ensure that the Boeing team will have an alternate source of
deformable mirrors for the ABL competition. The purpose of this
provision of the Consent Order is to constrain Hughes's ability to
raise the price of both teams' bids or decrease its investment in
technology or quality on one or both teams' designs for the ABL
competition.
Under the proposed Consent Order, respondents are also prohibited
from receiving, gaining access to, or obtaining in any manner, without
Lockheed Martin's approval, information not in the public domain that
was developed or obtained by Itek in its capacity as a member of the
Boeing team for the ABL program. The purpose of this provision of the
Consent Order is to ensure that the Rockwell team will not have access
to competitively sensitive information relating to the technical design
and cost of the Boeing team's adaptive optics system for the ABL
competition.
In order to preserve competition in the market for the research,
development, manufacture and sale of an Airborne Laser system for use
in the U.S. Air Force's Airborne Laser program during the period prior
to the Commission's issuance of the Consent Order (after the 60-day
public notice period), respondents have entered into an Interim
Agreement with the Commission in which they agreed to be bound by the
proposed Consent Order as of the date the Commission accepted the
proposed Consent Order for public comment.
The purpose of this analysis is to facilitate the public comment on
the proposed Order, and it is not intended to constitute on official
interpretation of the agreement and proposed Order or to modify in any
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 96-4005 Filed 2-21-95; 8:45 am]
BILLING CODE 6750-01-M