[Federal Register Volume 61, Number 242 (Monday, December 16, 1996)]
[Notices]
[Pages 66038-66040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31806]
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FEDERAL TRADE COMMISSION
[File No. 971-0006]
The Boeing Company; 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 or deceptive acts or practices and unfair methods of
competition, this consent agreement, accepted subject to final
Commission approval, settles allegations that the Seattle-based defense
and space contractor's acquisition of Rockwell International
Corporation's Aerospace and Defense business would violate antitrust
laws by reducing competition in two markets: High altitude endurance
unmanned air vehicles and space launch vehicles. Boeing and Rockwell
are members of the only two teams currently competing to develop high-
altitude endurance unmanned air vehicles for the Department of Defense.
The agreement would require, among other things, that Boeing deliver to
Teledyne Ryan, which heads the team competing against Boeing, all of
the assets needed to produce Tier II Plus wings for the Teledyne Ryan
team. The proposed acquisition would also make Boeing both a competitor
in the market for space launch vehicles and a provider of the space
launch vehicle propulsion systems used by Boeing and its space launch
vehicle competitors. The agreement prohibits Boeing from making any
space launch vehicle manufacturer's non-public information available to
Boeing's launch vehicle division, and from using a competitor's
proprietary, non-public data in any capacity except as a provider of
launch vehicle propulsion systems.
DATES: Comments must be received on or before February 14, 1997.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., N.W., Washington, DC. 20580.
FOR FURTHER INFORMATION CONTACT: William J. Baer or George Cary,
Federal Trade Commission, H-374, 6th and Pennsylvania Ave., NW,
Washington, DC 20580. (202) 326-2932 or (202) 326-3741.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the
Commission's rules of practice (16 CFR 2.34), notice is hereby given
that the above-captioned 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. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the accompanying complaint. An electronic copy of the
full text of the consent agreement package can be obtained from the
Commission Actions section of the FTC Home Page (for December 5, 1996),
on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A
paper copy can be obtained from the FTC Public Reference Room, Room H-
130, Sixth Street and Pennsylvania Avenue, NW., Washington, DC. 20580,
either in person or by calling (202) 326-3627. 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 Sec. 4.9(b)(6)(ii) of the Commission's rules
of practice (16 CFR 4.9(b)(6)(ii)).
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 The Boeing Company (``Boeing'') designed to remedy the
anticompetitive effects likely to result from Boeing's proposed
acquisition of Rockwell International Corporation's Aerospace and
Defense business (``Rockwell Aerospace and Defense''). The proposed
Consent Order enables Teledyne Ryan, the prime contractor for the Tier
II Plus high altitude endurance unmanned air vehicle (``HAE UAV''), to
replace Boeing as its teammate and wing supplier for Tier II Plus,
without incurring any significant cost or risk, by requiring Boeing, at
Teledyne Ryan's request, to deliver to Teledyne Ryan all of the assets
needed to manufacture wings for the Tier II Plus and provide technical
assistance to Teledyne Ryan. In addition, the proposed Consent Order
prohibits Boeing's space launch vehicle division from gaining access to
any non-public information that Boeing's space launch vehicle
propulsion system division will receive after the acquisition from
competing space launch vehicle providers.
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 any comments received and will decide whether it should
withdraw from the agreement or make final the agreement's proposed
Order.
On or about July 31, 1996, Boeing agreed to acquire Rockwell
Aerospace and Defense for approximately $3.025 billion. The proposed
complaint alleges that the acquisition, if consummated, would violate
section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5
of the Federal Trade Commission Act as amended, 15 U.S.C. 45, in the
markets for HAE UAVs and space launch vehicles.
[[Page 66039]]
The proposed Consent Order would remedy the alleged violations in
each market. First, Boeing and Rockwell are members of the only two
teams currently competing in the design and development of HAE UAVs.
Boeing and its teammate Lockheed Martin are currently developing the
Tier III Minus HAE UAV, and Teledyne Ryan and a team of subcontractors,
including Rockwell Aerospace and Defense, are currently developing the
Tier II Plus HAE UAV.
HAE UAVs are unmanned aircraft used to perform high-altitude, broad
area reconnaissance. These aircraft are controlled from the ground and
transmit reconnaissance sensor data on a real time basis. HAE UAVs are
being designed to satisfy the Defense Airborne Reconnaissance Office's
goal of providing the U.S. military with the ability to obtain
responsive and continuous reconnaissance data from anywhere within
enemy territory, day or night, as the needs of the warfighter dictate.
Under its teaming agreement with Lockheed Martin, Boeing is
responsible for providing, among other things, the wings, launch
station and avionics for Tier III Minus. As a subcontractor to Teledyne
Ryan for Tier II Plus, Rockwell is responsible for providing only the
aircraft's wings. The proposed acquisition therefore would position
Boeing as a member of both competing HAE UAV teams while Boeing would
stand to earn a far greater share of the revenue from its participation
on the Tier III Minus team than it could earn from its role as the wing
supplier for the Tier II Plus team.
The acquisition is likely to lead to anticompetitive effects in the
HAE UAV market. Because the proposed acquisition would cause Boeing to
be a member of the only two competing HAE UAV teams, Boeing would be in
a position to raise price and/or reduce quality on one or both teams.
Boeing would not only have the opportunity to diminish competition, but
would also have the incentive to cause the Tier II Plus team to become
non-competitive because Boeing stands to earn significantly more
revenue from its participation in the Tier III Minus program than it
would earn as a supplier of wings to the Tier II Plus team. Moreover,
if the Tier II Plus system became non-competitive, or simply less
competitive, Boeing would then be in a position to also raise the price
of the Tier III Minus system.
The proposed consent agreement resolves the likely anticompetitive
effects of the acquisition in the HAE UAV market by enabling Teledyne
Ryan to replace Rockwell Aerospace and Defense, which would be owned by
Boeing after the acquisition, as the Tier II Plus wing supplier without
incurring any significant costs or risk. As a result, Boeing will
either agree to supply Tier II Plus wings in a competitive manner after
the acquisition or be replaced by Teledyne Ryan.
Specifically, under the terms of the Order, Boeing is required to
deliver, upon request from Teledyne Ryan, to business locations in the
United States designated by Teledyne Ryan, at no cost to Teledyne Ryan,
all of the assets needed to produce Tier II Plus wings, including the
special tooling, special test equipment, engineering data and design
data. Teledyne Ryan can request that Boeing deliver such assets at
anytime prior to six months from the date the Order becomes final,
provided Teledyne Ryan and Boeing have not agreed to a new contract for
Boeing to supply wings for Tier II Plus. This ensures that Boeing will
have the incentive to compete vigorously to remain a supplier of wings
for Tier II Plus. In addition, Boeing is prohibited from asserting or
enforcing any proprietary rights in such equipment or data, or holding
Teledyne Ryan liable for any damages or costs resulting from the
replacement of Boeing as the Tier II plus wing supplier.
In order to ensure a smooth transition of the wing manufacturing to
a new supplier and to offset any lost learning curve efficiencies, the
proposed Order requires Boeing to provide technical assistance, not to
exceed four man years over a one year period, at no cost to Teledyne
Ryan. Because Teledyne Ryan may need Boeing's assistance in resolving
any technical issues that arise during the upcoming Tier II Plus flight
tests, the Order requires Boeing to provide additional technical
assistance through the duration of such tests. Finally, in order to
prevent the anticompetitive flow of competitively sensitive
information, the order establishes a ``firewall'' between Boeing's Tier
III Minus business and the Rockwell North American Aircraft Division
that is currently providing Tier II Plus wings.
Boeing is also a significant competitor in the research,
development, manufacture and sale of space launch vehicles, and is
expected to bid for the upcoming Department of Defense (``DoD'')
Evolved Expendable Launch Vehicle (``EELV'') program. The EELV
competition is expected to produce the next generation of launch
vehicles to replace all current medium to heavy launchers--Lockheed
Martin's Atlas, Titan II and Titan IV series, and McDonnell Douglas's
Delta series--with a single family of vehicles capable of launching
medium and heavy payloads into orbit at a significantly lower cost. The
EELV will handle the bulk of the U.S. government's launch requirements
after the year 2000 and is also expected to be used for commercial
applications. Boeing, McDonnell Douglas, Lockheed Martin and Alliant
Techsystems are currently facing a down-selection from four to two
contractors in the next phase of the EELV program.
Rockwell, through its Rocketdyne Division (``Rocketdyne''), is one
of the world's leading manufacturers of space launch vehicle propulsion
systems. Currently, Boeing and McDonnell Douglas are planning to use
Rocketdyne propulsion systems as part of their EELV proposals. Thus,
the proposed acquisition would vertically integrate Boeing as an EELV
bidder and a launch vehicle propulsion systems provider.
Because an EELV manufacturer that is using a Rockwell propulsion
system must work very closely with Rockwell in order to integrate that
system into its EELV, Boeing and McDonnell Douglas have provided, and
will continue to provide, a wide range of competitively sensitive
proprietary design, performance, cost-related, marketing and business
strategy information to Rockwell.
If DoD selects the Boeing and McDonnell Douglas teams as the
finalists for the EELV competition, Boeing's launch vehicle division
could gain access to the proprietary information that McDonnell Douglas
has provided to Rockwell's launch vehicle propulsion business, which
could affect the prices and services that Boeing would offer. Thus, the
proposed acquisition increases the likelihood that competition between
the participants in the EELV program would decrease.
In addition, Boeing also competes in the commercial market for
space launch vehicles and Rockwell also supplies space launch
propulsion systems to Boeing's commercial space launch vehicle
competitors. As a result, the proposed acquisition may result in
similar anticompetitive effects in future commercial space launch
vehicle procurements. In addition to causing higher prices, the
proposed acquisition may also reduce innovation in the commercial space
launch vehicle market, as Boeing's competitors who use Rockwell
propulsion systems will be less willing to invest in new space launch
vehicle developments for fear that Boeing will be able to ``free-ride''
off their technological developments.
To remedy the proposed acquisition's likely anticompetitive effects
in the
[[Page 66040]]
space launch vehicle market, the proposed Consent Order preserves the
confidentiality of space launch vehicle suppliers' proprietary
information by prohibiting Boeing's division that provides space launch
vehicle propulsion systems from making any proprietary information from
competing space launch vehicle manufacturers available to Boeing's
space launch vehicle division. Under the proposed Consent Order, Boeing
may only use such information in its capacity as a provider of space
launch vehicle propulsion systems. Non-public information in this
context includes any information not in the public domain that is
designated as proprietary information by any space launch vehicle
manufacturer that provides such information to Boeing as well as
information not in the public domain provided by any space launch
vehicle manufacturer to Rockwell prior to the acquisition. The purpose
of the proposed Consent Order is to preserve the opportunity for full
competition in the market for the research, development, manufacture
and sale of space launch vehicles. The Commission has issued similar
orders limiting potentially anticompetitive information transfers
following mergers or acquisitions, including Lockheed Martin, (C-3685)
(September 20, 1996); Raytheon Company, (C-3681) (September 10, 1996);
Lockheed Corporation/Martin Marietta Corporation, (C-3576) (May 9,
1995); Alliant Techsystems Inc., (C-3567) (April 7, 1995); Martin
Marietta, (C-3500) (June 28, 1994).
Under the provisions of the proposed Consent Order, Boeing is
required to deliver a copy of the Order to any space launch vehicle
manufacturer prior to obtaining any information from such manufacturer
that is outside of the public domain. The Order also requires Boeing to
provide the Commission a report of compliance with the provisions of
the Order within (60) days of the date the Order becomes final, and
annually for the next (10) years on the anniversary of the date the
Order becomes final.
In order to preserve competition in the relevant markets during the
period prior to the final acceptance of the proposed Consent Order
(after the 60-day public notice period), Boeing has entered into an
Interim Agreement with the Commission in which it has agreed to be
bound by the proposed Consent Order as of the date the Commission
accepts the proposed Consent Order subject to final approval.
The purpose of this analysis is to facilitate public comment on the
proposed Consent Order, and it is not intended to constitute an
official interpretation of the agreement and proposed Consent Order or
to modify in any way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 96-31806 Filed 12-13-96; 8:45 am]
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