[Federal Register Volume 62, Number 122 (Wednesday, June 25, 1997)]
[Notices]
[Pages 34293-34296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16608]


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FEDERAL TRADE COMMISSION

[Docket No. 9282]


Automatic Data Processing, Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft amended 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before August 25, 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 and Pennsylvania Ave., NW, Washington, DC 20580. 
(202) 326-2932.
    Howard Morse, Federal Trade Commission, S-3627, 6th and

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Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2949.
    Eric D. Rohlck, Federal Trade Commission, S-3627, 6th and 
Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2681.

SUPPLEMENTARY INFORMATION: Purusant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 3.25 of 
the Commission's Rules of Practice (16 CFR 3.25), 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 June 18, 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 Sec. 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 (``Commission'') has accepted, for 
public comment, from Automatic Data Processing, Inc. (``ADP''), an 
Agreement Containing Consent Order (``Agreement''). The Agreement has 
been placed on the public record for sixty days for receipt of comments 
from interested persons.
    Comments received during this period will become part of the public 
record. After sixty 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 order 
(``Order'').
    The Commission issued an administrative complaint on November 13, 
1996, charging ADP with violations of Section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45, and Section 7 of the Clayton Act, 15 
U.S.C. 18, for its April 1, 1995, acquisition of assets from AutoInfo, 
Inc. (``Acquisition''). The Complaint alleged that prior to the 
Acquisition, AutoInfo and ADP were vigorous, head-to-head competitors 
(Complaint at para. 36) and the principal or only competitors in five 
product markets: (1) Automotive used parts and assemblies interchange; 
(2) computerized automotive salvage yard management systems that use an 
interchange; (3) electronic communication systems using an interchange 
used to buy and sell used automotive parts and assemblies; (4) the 
integrated network consisting of an interchange, yard management 
systems and communication systems; and (5) the collection and provision 
of salvage yard inventory data to customers that provide such data as 
part of estimating products sold to insurance companies (Complaint at 
Paras. 16-30). The Complaint charged that the effect of the Acquisition 
may be substantially to lessen competition or tend to create a monopoly 
in the relevant markets, that through the acquisition agreement, ADP 
engaged in unfair methods of competition, that ADP attempted to 
monopolize the relevant product markets, and that ADP monopolized the 
relevant product markets (Complaint at Paras. 42-49).
    According to the Complaint, entry into the relevant product markets 
would not be timely, likely or sufficient in magnitude, character and 
scope to deter or counteract anticompetitive effects of the 
Acquisition. The interchange is based on a database that took many 
years to develop and would be difficult and time-consuming to attempt 
to reproduce (Complaint at para. 39). The interchange is a key input to 
the yard management systems and electronic communication systems, and 
without entry into the interchange market, it is also unlikely that 
timely or sufficient entry will occur (Complaint at para. 39). Entry 
would also be difficult, time-consuming and unlikely in yard management 
systems, electronic communication systems, and salvage yard information 
services because of the large number of customers ADP currently has 
using these products and services. According to the Complaint, salvage 
yards are reluctant to rely upon a new entrant without a significant 
number of other salvage yard customers participating in the network 
(Complaint at para. 40). the Compliant also alleged that timely or 
sufficient entry is unlikely in the collection and dissemination of 
salvage yard inventory data largely because of the time, expense, and 
difficulty in collecting salvage yard inventory data independent of ADP 
and because ADP is the gatekeeper of salvage yard inventory data 
through its control of the interchange, integrated yard management 
systems, electronic communication systems, and salvage yard information 
systems (Complaint at para. 39).
    The Complaint alleged that the Acquisition was part of a two-step 
plan by ADP to acquire the leading information service providers to the 
salvage industry and thereby acquire market power. ADP acquired such 
market power by first acquiring Hollander, Inc., in 1992, a provider of 
salvage yard information services with the largest customer base, and 
then acquiring the AutoInfo assets in 1995, a provider with the second 
largest customer base (Complaint at para. 33).
    The Complaint alleged that the Acquisition would, among other 
things, eliminate AutoInfo as an actual, substantial, and direct 
competitor, increase or potentially increase prices or reduce 
technological improvements or innovations in the relevant product 
markets, increase barriers to entry, harm users of the former-AutoInfo 
products, and give ADP market and monopoly power in the relevant 
product markets (Complaint at para. 33).
    Since November 1996, this matter has been in pretrial discovery 
before an administrative law judge, with trial scheduled to begin on 
July 15, 1997. The matter was removed from administrative adjudication 
on May 22, 1997, on a joint motion of ADP and Commission counsel, so 
the Commission could consider the Agreement. The Agreement Containing 
Consent Order would, if finally accepted by the Commission, settle the 
charge alleged in the Complaint.
    Paragraph II of the Order accepted for public comment would require 
ADP to divest, to an acquire or acquirers and in a manner that receives 
the prior approval of the Commission, the following assets, 
collectively known as the ``AutoInfo Assets'':

    (1) The former-AutoInfo yard management systems, including, 
among other things, Checkmate, Checkmate Jr., Classic, the BidPad, 
PartPad, accounting and management modules, source codes, 
application program interfaces, data formats, communications 
protocols, and customer, supplier and service contracts;
    (2) The former-AutoInfo communication systems, including ORION/
RTS, AutoMatch, AutoXchange, and ORION Exchange communication 
systems, including, among other things, source codes, application 
program interfaces, data formats, communication protocols, customer, 
supplier and service contracts, and ADP's rights and obligations 
with respect to current and former subscribers to CalQwik;
    (3) A non-exclusive, paid-up license to all research and 
development done by or for

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ADP Claims Solutions Group, Inc.'s Parts Services Division for any 
new yard management system or communication system;
    (4) The AutoInfo Interchange, including the assets used in the 
development and maintenance of the AutoInfo Interchange; and
    (5) The former-AutoInfo Parts Locator, a computerized on-line 
telephone service that is offered to the automobile casualty 
insurance industry, which uses ORION/RTS, and, among other things, 
software that provides access to the ORION/RTS database, and 
customer, supplier and service contracts.

    Paragraph II of the Order also requires that ADP divest its rights 
and obligations as the data collector for the Automotive Recyclers 
Association (``ARA'') International Database. The proposed Order 
provides that, in the alternative to a divestiture of the data 
collector rights, ADP can terminate its rights as the ARA Database 
Collector pursuant to the contract with the ARA.
    ADP would be required to divest the AutoInfo Assets absolutely and 
in good faith, as an on-going business, to an acquirer within 150 days 
from the date the Commission accepted the Agreement Containing Consent 
Order for public comment or 60 days after the Order becomes final, 
whichever is later, or be subject to civil penalties and the 
possibility of a trustee being appointed pursuant to Paragraph III of 
the Order. The trustee would have the right to divest not only the 
AutoInfo Assets, but also the Compass network of voice lines (``Trustee 
Assets''). If the trustee is unable to divest the Trustee Assets 
consistent with the Commission's purpose, the trustee may divest 
additional ancillary assets of ADP related to the Trustee Assets and 
effect such other arrangements as are necessary to satisfy the 
requirements of the Order.
    Paragraph II.A. of the proposed Order states that the purpose of 
the divestiture is to maintain the divested assets as on-going 
businesses, to continue use of the former-AutoInfo businesses in the 
same manner as before ADP acquired AutoInfo when ADP and AutoInfo were 
competitors, and to remedy the lessening of competition resulting from 
the Acquisition as alleged in the Commission's complaint.
    Since the Acquisition, ADP, has not updated the former-AutoInfo 
Interchange and has switched the former-AutoInfo yard management system 
customers (Checkmate, Checkmate, Jr. and Classic users) from the 
AutoInfo Interchange to the Hollander Interchange with some integration 
of the AutoInfo Interchange. Because the merger has led to a migration 
to a single interchange, the proposed Order would require ADP to grant 
a paid-up, perpetual, non-exclusive license to the Hollander 
Interchange with updates from ADP for at least a three-year period. The 
Hollander Interchange is an important component for trading salvage 
parts and the proposed Order would allow for the identical Hollander 
Interchange to be used by the acquirer and its customers and licensees 
for a period of time.
    The acquirer would be free to create its own updates to the 
Hollander Interchange. This would allow the acquirer to differentiate 
and improve the Hollander Interchange during the time it is receiving 
updates from ADP and thereafter. Paragraph IV.B. would assist the 
acquirer in writing updates by requiring ADP to provide to the acquirer 
at the time of divestiture, a copy of, and non-exclusive license to, 
all computer programs and databases, and a list of and sources for all 
information, used by ADP to update the Hollander Interchange.
    Under Paragraph IV.A. of the proposed Order, the acquirer of the 
divested assets would have the right to sublicense the Hollander 
Interchange and reproduce it in any form including electronic or 
printed forms (other than the copyright-protected format of Hollander 
Interchange books presently produced and sold by ADP). These rights 
granted the acquirer pursuant to the Order should allow for a 
competitive environment to emerge through development of the acquirer's 
or its licensee's products and broaden the choices available to salvage 
yard customers for parts trading.
    Several provisions of the proposed Order are intended to ensure 
that the acquirer would be a viable and competitive entity at the time 
of divestiture. The Commission's Complaint alleges that ADP stopped 
selling the former-AutoInfo yard management systems after the 
Acquisition and that ADP had a virtual monopoly in the provision of 
yard management systems to the salvage industry (Complaint at para. 24 
and 32-38). New yard management system customers were denied the choice 
of acquiring the AutoInfo yard management system from the date of the 
Acquisition up to the time of the divestiture under the proposed Order. 
Paragraph V of the proposed Order would facilitate those customers' 
switching to the acquirer's products by requiring ADP, for a year, to 
allow, without penalty, any customer who entered into a contract for 
the Hollander Yard Management System or ADP's EDEN communication system 
between April 1, 1995 (the date of the AutoInfo acquisition) and the 
date of divestiture, to switch from ADP systems to a yard management 
system or communication system of the acquirer.
    Paragraph VII of the proposed Order would prohibit ADP, for ten 
years, from restricting, or threatening to restrict any customer or 
licensee of the Hollander Interchange from using or connecting to the 
products of the acquirer, its licensees or the ARA Data Collector. To 
facilitate interconnection, the proposed Order would also require ADP 
to provide to the acquirer and its licensees specifications and 
information reasonably necessary to create interfaces with ADP's yard 
management and communication systems. The acquirer and its licensees 
will be able to transmit inventory data using the Hollander Interchange 
numbers even after the three-year time period prescribed in Paragraph 
IV expires because ADP is required to grant a paid-up, perpetual, non-
exclusive license to the Hollander Interchange to the acquirer and its 
licensees in connection with the collection or searching of inventory 
data. This provision would allow customers to choose to access or 
connect to other companies' products, thereby increasing their options 
for buying and selling used parts and assemblies.
    Paragraph VII of the proposed Order would not require ADP to give 
acquirer and its licensees rights to sell or distribute updates of the 
Hollander Interchange other than the rights specified in Paragraphs II 
and IV, would not bar ADP from restricting transmission of Hollander 
Interchange numbers to persons other than the acquirer or its 
licensees, and would not require ADP to create the interfaces to 
connect to its products or to repair any customer's Hollander yard 
management system or EDEN communication system if the product's 
functionality is damaged by use of the acquirer's or licensees' 
products.
    Paragraph VI of the proposed Order would require ADP to cooperate 
with the acquirer in hiring persons knowledgeable about interchange, 
yard management systems, and communication systems from ADP; ADP would 
be prohibited from restricting or threatening to restrict any person 
employed by ADP's Parts Services division or formerly by AutoInfo, Inc. 
at any time since January 1, 1995, from working for the acquirer; and, 
ADP would be required to cooperate in effecting transfer of any 
employee who chooses to transfer to the acquirer. For a year after the 
date the acquirer hires an ADP employee, ADP is also prohibited from 
re-hiring that person.

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The requirements of this Paragraph would assist the acquirer to obtain 
technical expertise to serve its customers.
    Paragraph VIII of the proposed Order would require ADP to obtain 
prior approval from the Commission for any reacquisition of the assets 
required to be divested. Certain acquisitions that would not require a 
premerger filing under the Hart-Scott-Rodino Premerger Notification Act 
would be subject to a prior notice requirement.
    The proposed Order also would require ADP to provide periodic 
reports of compliance (Paragraph IX), to notify the Commission of 
changes in its corporate structure or status (Paragraph X), and to 
permit authorized representatives of the Commission access to, among 
other things, documents and memoranda relating to matters contained in 
the Order (Paragraph XI). The proposed Order would terminate twenty 
years from the date the Order is final.
    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.
Donald S. Clark,
Secretary.
[FR Doc. 97-16608 Filed 6-24-97; 8:45 am]
BILLING CODE 6750-01-M