[Federal Register Volume 62, Number 45 (Friday, March 7, 1997)]
[Notices]
[Pages 10564-10566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5707]
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FEDERAL TRADE COMMISSION
[File No. 971-0013]
Cooperative Computing, Inc.; 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, would require, among other things, the Austin,
Texas-based company, upon completing its merger with Triad Systems
Corporation, to divest, through an exclusive, royalty-free, and
perpetual license, its electronic parts catalog to MacDonald Computer
Systems or another Commission-approved buyer. The complaint
accompanying the consent agreement alleges that Cooperative Computing's
proposed acquisition of Triad would have substantially lessened
competition in the development and sale of management information
systems and electronic parts catalogs for the automotive parts
aftermarket and would likely have resulted in increased prices and
reduced services, in violation of antitrust laws.
DATES: Comments must be received on or before May 6, 1997.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT:
William J. Baer, Federal Trade Commission, H-374, 6th St. and Pa. Ave.,
N.W., Washington, D.C. 20580. (202) 326-2932.
George S. Cary, Federal Trade Commission, H-374, 6th St. and Pa. Ave.,
N.W., Washington, D.C. 20580. (202) 326-3741.
M. Howard Morse, Federal Trade Commission, S-3627, 6th St. and Pa.
[[Page 10565]]
Ave., N.W., Washington, D.C. 20580. (202) 326-2949.
Joseph G. Krauss, Federal Trade Commission, S-3627, 6th St. and Pa.
Ave., N.W., Washington, D.C. 20580. (202) 326-2713.
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 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 February 26,
1997), 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, N.W., Washington, D.C. 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
section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Analysis To Aid Public Comment on the Provisionally Accepted Consent
Order
The Federal Trade Commission (``the Commission'') has accepted,
subject to final approval, an Agreement Containing Consent Order
(``Agreement'') from Cooperative Computing, Inc. (``CCI'').
The proposed Order has been placed on the public record for sixty
(60) days for reception of comments from 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. The
purpose of this analysis is to facilitate public comment on all aspects
of the proposed Order, including public comment with respect to the
suitability of MacDonald Computer Systems (``MacDonald'') as a proposed
licensee.
The Commission's investigation of this matter concerns a proposed
acquisition by CCI of Triad Systems Corporation (``Triad''). In October
1996, CCI entered into a merger agreement with Triad and commenced a
tender offer for all of the outstanding voting securities of Triad.
Under the terms of the tender offer, Triad shareholders will receive
$9.25 per share, or a total of approximately $181 million. Immediately
prior to the CCI acquisition of Triad, Hicks, Muse, Tate & Furst
(``Hicks Muse''), a private investment firm based in Dallas, Texas,
will acquire over 50 percent of CCI stock and gain control of CCI.
The Agreement Containing Consent Order would, if finally accepted
by the Commission, settle charges that the CCI acquisition of Triad may
substantially lessen competition in the development and sale of (1)
electronic catalogs and (2) management information systems or ``MIS''
systems integrated with an electronic catalog, in the United States or
in North America. The Commission has reason to believe that CCI's
agreement to acquire Triad violates Section 5 of the Federal Trade
Commission Act and that the acquisition, if consummated, would violate
Section 7 of the Clayton Act and Section 5 of the Federal Trade
Commission Act, unless an effective remedy eliminates likely
anticompetitive effects.
The Proposed Complaint
According to the Commission's proposed complaint, CCI is a
privately-held company that develops and markets management information
system software for the automotive aftermarket, with annual sales of
approximately $43 million. CCI offers a portfolio of software products
that assist auto parts distributors and retailers to track their parts
inventory. CCI has developed and markets with its software a
proprietary database of auto parts for domestic and foreign
automobiles.
Triad, a publicly-held Livermore, California-based company,
similarly develops and markets management information system software
for the automotive aftermarket and for other industries. Triad also
develops and sells a proprietary database of auto parts for domestic
and foreign automobiles. Triad has had annual sales of approximately
$175 million, including approximately $90 million attributable to sales
to the automotive parts aftermarket.
According to the Commission's proposed complaint, one relevant line
of commerce within which to analyze the effects of CCI's acquisition of
Triad is the market for electronic catalogs. The complaint alleges that
there are no economic substitutes for electronic catalogs. Paper
catalogs, the only theoretical alternative, are inadequate substitutes
because paper catalogs are cumberstone and time consuming to use. The
ability of warehouse distributors and jobbers to access information
about parts availability and supply the required product is critical to
their success, since the industry standard for same day repair service
causes service dealers to require delivery of needed parts within 30
minutes. Electronic catalogs are sold as stand-alone products and as
parts of integrated MIS systems.
The proposed complaint alleges that a second relevant line of
commerce within which to analyze the effects of CCI's acquisition of
Triad is the market for MIS systems integrated with an electronic
catalog. According to the complaint, an MIS integrated with an
electronic catalog enables users to access the vast inventory of
automotive part numbers of hundreds of automotive part manufacturers on
the same computer terminal as the MIS. Customers often demand an MIS
integrated with an electronic catalog to be able to electronically
transfer automotive parts data from the electronic catalog to a
purchase order in the MIS. This transfer of data is important because
it saves times and eliminates any risk of human error during the
process of rekeying automotive part numbers into purchase orders.
The Commission's proposed complaint further alleges that CCI and
Triad are the dominant providers of electronic catalogs and of
management information systems integrated with an electronic catalog
and alleges that the relevant U.S. or North American markets for
electronic catalogs and for MIS systems integrated with an electronic
catalog are highly concentrated.
According to the complaint, in addition to CCI and Triad, there is
only one firm, Profit-Pro, Inc. (``Profit-Pro''), which develops and
sells an electronic catalog for the independent automotive aftermarket.
Triad sells both a stand-alone catalog and a catalog integrated with an
MIS system, while CCI only sells its catalog integrated with an MIS
system. The proposed complaint alleges that CCI and Triad have,
nonetheless, been substantial, direct competitors. According to the
complaint, the electronic catalog offered by Profit Pro is considered
inferior compared to the CCI and Triad catalogs, in the size of its
database, the accuracy of the part numbers in the database, and the
speed with which it is updated.
[[Page 10566]]
According to the proposed complaint, Triad and CCI are the dominant
providers of MIS systems integrated with an electronic catalog,
together controlling approximately 70% of the market. The merger of CCI
and Triad would increase the Herfindahl-Hirschman Index (``HHI'') over
1200 points to over 3900. Aside from CCI and Triad, all other firms
selling an MIS integrated with an electronic catalog rely upon Triad or
Profit-Pro for their electronic catalog. The complaint alleges that
these fringe firms do not constrain pricing nor in any other way
substantially impact competition for the development and sale of MIS
systems integrated with an electronic catalog.
The complaint further alleges that de novo entry or fringe
expansion into the relevant markets which would be sufficient to deter
or defeat reductions in competition resulting from the CCI acquisition
of Triad would not be timely or likely. According to the proposed
complaint, developing an electronic catalog would require an
expenditure of substantial sunk costs and would be time-consuming.
Electronic catalog data must be entered manually into a database
because the electronic parts data is received in a different format
from each of hundreds of automotive parts manufacturers. Entry with a
catalog covering only a fraction of available automotive parts would
not be acceptable to most warehouse distributors and jobbers.
The proposed complaint alleges, finally, that the acquisition by
CCI of Triad may substantially lessen competition by, among other
things, eliminating substantial, direct head-to-head competition
between CCI and Triad, likely resulting in increased prices and reduced
services for electronic catalogs and MIS systems integrated with an
electronic catalog.
The Proposed Consent Agreement
The proposed Order accepted for public comment contains provisions
that would require CCI to divest CCI's electronic catalog to MacDonald.
The proposed Order would specifically require CCI to divest, absolutely
and in good faith, through a perpetual, royalty-free, transferable,
assignable, and exclusive license with the right to use for any
purpose, combine with other information, reproduce, modify, market and
sublicense, CCI's PartFinder electronic catalog database,
CCI's J-CON application program interface, CCI software
utilized to retrieve vehicle data from the CCI Database, and support
software and documentation.
MacDonald is a California-based privately-held company which on
February 13, entered into a confidential license agreement with CCI
fulfilling the requirements of the proposed Order. MacDonald currently
sells MIS systems to the automotive aftermarket and has previously
offered customers the option of utilizing the Triad catalog with its
MIS system.
The purpose of the divestiture of the CCI electronic catalog is to
ensure the continued use of that catalog in competition with the merged
CCI/Triad, to ensure MacDonald operates as an independent competitor in
the development and sale of electronic catalogs and MIS systems
integrated with an electronic catalog, and to remedy the lessening of
competition as alleged in the Commission's complaint.
The proposed order would require CCI to offer updates to MacDonald
for the electronic catalog for a period of two years. The proposed
order would also require that CCI provide to MacDonald technical
assistance for electronic catalog maintenance for a period of one year.
The purpose of these provisions is to ensure that MacDonald becomes a
viable competitor to CCI, thereby fostering a competitive environment
for the sale of MIS systems integrated with an electronic catalog.
In the event that CCI fails to divest the CCI Products to MacDonald
because MacDonald, unilaterally and through no fault of CCI, breaches
the License Agreement, CCI is required under the proposed Order to
divest to another acquirer that is approved beforehand by the
Commission, within sixty (60) days after the date on which the Order is
made final. If CCI fails to divest, the proposed Order provides for the
appointment of a trustee, to accomplish the required divestiture.
Pending the required divestiture, CCI is required, under the
proposed Order, to maintain the viability and marketability of the CCI
electronic catalog, by among other things, updating the CCI database on
a regular schedule. In order to assist the acquirer, the proposed Order
prohibits CCI from preventing employees from working for the acquirer,
and from entering into long-term contracts with firms in the business
of distributing hardware and/or software systems to warehouses, jobber/
retail stores and/or service dealers in the automotive aftermarket,
that might interfere with the acquirer's ability to obtain customers
This analysis is not intended to constitute an official
interpretation of the Agreement or the proposed Order or in any way to
modify the terms of the Agreement or the proposed Order.
Donald S. Clark,
Secretary.
[FR Doc. 97-5707 Filed 3-6-97; 8:45 am]
BILLING CODE 6750-01-M