[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]
BILLING CODE 6750-01-P