[Federal Register Volume 62, Number 216 (Friday, November 7, 1997)]
[Notices]
[Pages 60267-60278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29474]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Raytheon Company, General Motors Corporation,
and HE Holdings, Inc.; Proposed Final Judgment and Competitive Impact
Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation and Order, Hold Separate and Partition Plan Stipulation and
Order, and Competitive Impact Statement have been filed with the United
States District Court in the District of Columbia, Civil No.
1:97CV02397.
On October 16, 1997, the United States filed a Complaint alleging
that the proposed acquisition by Raytheon Company of Hughes Aircraft
Company, a wholly owned subsidiary of HE Holdings, Inc. and an indirect
subsidiary of General Motors Corporation, would violate Section 7 of
the Clayton Act, 15 U.S.C. Sec. 18. The proposed Final Judgment, filed
contemporaneously with the Complaint, requires Raytheon to: (1) Divest
the second generation and third generation focal plane array business
of Raytheon TI Systems (``RTIS'') and the second generation ground
electro-optical business of Hughes Aircraft Company's Sensors and
Communications Segment; (2) establish a firewall that prevents the flow
of information concerning the Follow-on-to-TOW (``FOTT'') missile
program between the RTIS/Lockheed Martin Corp. joint venture FOTT team
and the Hughes FOTT team, and between each FOTT team and any other
employee of Raytheon; and (3) provide incentives to the RTIS/Lockheed
Martin FOTT team to pursue its bid to ensure competition between
Raytheon and Hughes in bids for the FOTT missile.
Public comment is invited within the statutory 60-day comment
period. Such comments and responses thereto will be published in the
Federal Register and
[[Page 60268]]
filed with the Court. Comments should be directed to J. Robert Kramer
II, Chief, Litigation II Section, Antitrust Division, United States
Department of Justice, 1401 H Street, NW., Suite 3000, Washington, DC
20530 (telephone: 202/307-0924).
Copies of the Complaint, Stipulation and Order, Hold Separate and
Partition Plan Stipulation and Order, Proposed Final Judgment, and
Competitive Impact Statement are available for inspection in Room 215
of the U.S. Department of Justice, Antitrust Division, 325 7th Street,
NW., Washington, DC 20530, (202) 514-2841. Copies of these materials
may be obtained upon request and payment of a copying fee.
Constance K. Robinson,
Director of Operations, Antitrust Division.
United States District Court for the District of Columbia
[Civil No: 97 2397]
United States of America, Plaintiff, v. Raytheon Company, General
Motors Corp., and H E Holdings, Inc., Defendants
Stipulation and Order
It is stipulated by and between the undersigned parties, by their
respective attorneys, as follows:
(1) The Court has jurisdiction over the subject matter of this
action and over each of the parties hereto, and venue of this action is
proper in the United States District Court for the District of
Columbia.
(2) The parties stipulate that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. Sec. 16), and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn its consent,
which it may do at any time before the entry of the proposed Final
Judgment by serving notice thereof on defendants and by filing that
notice with the Court.
(3) Defendants shall abide by and comply with the provisions of the
proposed Final Judgment pending entry of the Final Judgment by the
Court, or until expiration of time for all appeals of any Court ruling
declining entry of the proposed Final Judgment, and shall, from the
date of the signing of this Stipulation by the parties, comply with all
the terms and provisions of the proposed Final Judgment as though the
same were in full force and effect as an Order of the Court.
(4) This Stipulation shall apply with equal force and effect to any
amended proposed Final Judgment agreed upon in writing by the parties
and submitted to the Court.
(5) In the event plaintiff withdraws its consent, as provided in
paragraph 2 above, or in the event the proposed Final Judgment is not
entered pursuant to this Stipulation, the time has expired for all
appeals of any Court ruling declining entry of the proposed Final
Judgment, and the Court has not otherwise ordered continued compliance
with the terms and provisions of the proposed Final Judgment, then the
parties are released from all further obligations under this
Stipulation, and the making of this Stipulation shall be without
prejudice to any party in this or any other proceeding.
(6) Defendants represent that the divestiture ordered in the
proposed Final Judgment can and will be made, and that defendants will
later raise no claim of hardship or difficulty as grounds for asking
the Court to modify any of the divestiture provisions contained
therein.
Dated: October 16, 1997.
For Plaintiff United States of America:
Willie L. Hudgins,
Esquire (D.C. Bar #37127), U.S. Department of Justice, Antitrust
Division, Litigation II, Suite 3000, Washington, D.C. 20005, (202) 307-
0924.
For Defendant Raytheon Company
Robert D. Paul,
Esquire (D.C. Bar #416314), Michael S. Shuster, Esquire, White & Case,
601 13th St., N.W., Washington, D.C. 20005-3807, (202) 626-3614.
For Defendants H E Holdings, Inc. and General Motors Corp.:
Robert C. Odle, Jr.,
Esquire (D.C. Bar #389845), Peter D. Standish, Esquire, Douglas A.
Nave, Esquire, Weil, Gotshal & Manges LLP, 767 Fifth Ave., New York, NY
10153-0119.
It is so Ordered by the Court, this ________ day of
____________, 1997.
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United States District Judge.
United States District Court for the District Of Columbia
United States of America, Plaintiff. v. Raytheon Company, General
Motors Corp., and H E Holdings, Inc., Defendants
Final Judgment
Whereas, plaintiff, the United States of America, filed its
Complaint in this action on October 16, 1997, and plaintiff and
defendants by their respective attorneys, having consented to the entry
of this Final Judgment without trial or adjudication of any issue of
fact or law herein, and without this Final Judgment constituting any
evidence against or an admission by any party with respect to any issue
of law or fact herein;
And whereas, defendants have agreed to be bound by the provisions
of this Final Judgment pending its approval by the Court;
And whereas, plaintiff intends defendants to be required to
preserve competition by: (1) Promptly divesting the second generation
(``2nd Gen.'') and third generation (``3rd Gen.'') focal plane array
(``FPA'') business of Raytheon TI Systems (``RTIS'') and the 2nd Gen.
ground electro-optical (``EO'') business of Hughes Aircraft Company's
Sensors and Communications System Segment; (2) establishing a firewall
that prevents the flow of information concerning the Follow-on-to-TOW
(``FOTT'') missile program between the RTIS Missile Systems Division
(``RTIS Missiles'') of Raytheon and any other part of Raytheon and
between Hughes Missile Systems and any other part of Raytheon: and (3)
incentivizing RTIS Missiles to pursue its bid through a joint venture
with Lockheed Martin Corp. to ensure competition in bids for the FOTT
missile;
And whereas, plaintiff requires defendants to make the divestitures
for the purpose of establishing a viable competitor in the development,
production, and sale of FPAs and ground EO systems, and to construct
firewalls and incentivize RTIS Missiles for the purpose of preserving
competition in bidding for the FOTT missile program;
And whereas, defendants have represented to the plaintiff that the
divestitures ordered herein can and will be made and that the firewalls
can be constructed and that defendants will later raise no claims of
hardship or difficulty as grounds for asking the Court to modify any of
the divestiture or firewall provisions contained below;
Now, therefore, before the taking of any testimony, and without
trial or adjudication of any issue of fact or law herein, and upon
consent of the parties hereto, it is hereby ordered, adjudged, and
decreed as follows:
I. Jurisdiction
This Court has jurisdiction over each of the parties hereto and
over the subject matter of this action. The Complaint states a claim
upon which relief may be granted against defendants, as hereinafter
defined, under Section 7 of the Clayton Act, as amended (15 U.S.C.
Sec. 18).
II. Definitions
As used in this Final Judgment:
A. ``A-Kit'' means all components necessary to fit a B-Kit into a
particular
[[Page 60269]]
ground vehicle, including the optics, electronics, software, visual
display, stabilization, and fire control as required.
B. ``B-Kit'' means the common components for 2nd Gen. Forward
Looking Infrared Systems (``FLIRs'') designed under the HTI program,
including SADA II integrated cooler/dewar detector assemblies, afocal
assemblies, and associated electronics.
C. ``DoD'' means the Department of Defense.
D. ''DoJ'' means the Antitrust Division of the Department of
Justice.
E. ``EO Business'' means the 2nd Gen. ground EO business of Hughes
operated out of the El Segundo, California and La Grange, Georgia
facilities that produces A-Kits and B-Kits for ground vehicles and
other applications, including the IBAS. M-1 TIS, LRASSS, and HTT
programs, and all employees listed in confidential Attachment A,
including:
a. All tangible assets used to produce A-Kits and B-Kits; all real
property (owned or leased), including interests in the El Segundo,
California and La Grange, Georgia facilities used to produce A-Kits and
B-Kits, research and development activities, as identified pursuant to
the Court's Hold Separate and Partition Plan Stipulation and Order; all
manufacturing, personal property, inventory, office furniture, fixed
assets and fixtures, materials, supplies, on-site warehouses or storage
facilities, and other tangible property or improvements used in the
production of A-Kits and B-Kits; all licenses, permits and
authorizations issued by any governmental organization relating to A-
Kits and B-Kits; all contracts, teaming arrangements, agreements,
leases, commitments and understandings pertaining to A-Kits and B-Kits;
supply agreements; all customer lists and credit records; and other
records maintained by Hughes in connection with the production of A-
Kits and B-Kits;
b. All intangible assets relating to the research, development, and
production of A-Kits and B-Kits, including but not limited to a non-
exclusive, transferable, royalty-free license to use all patents
utilized by Hughes in the EO Business, licenses and sublicenses,
intellectual property, technical information, know-how, trade secrets,
drawings, blueprints, designs, design protocols, specifications for
materials, specifications for parts and devices, safety procedures for
the handling of materials and substances, quality assurance and control
procedures, design tools and simulation capability, and all manuals and
technical information Hughes provides to its own employees, customers,
suppliers, agents or licensees;
c. All research data concerning historic and current research and
development efforts relating to the production of A-Kits and B-Kits,
including designs of experiments, and the results of unsuccessful
designs and experiments;
d. At the option of the purchasers, a supply contract for computer
support services and information and communications services sufficient
to support the EO Business over a period of one year; and
e. At the option of the purchaser, at the time of purchase, an
option to purchase or lease an additional 10,000 square feet of
manufacturing space for the EO Business in addition to the space set
aside for the EO Business in the Hold Separate and Partition Plan and
Order.
F. ``FOTT Information'' means all information relating to the FOTT
Program, including but not limited to, information relating to any and
all proposals, technology, cost data, suppliers, designs, plans, test
results, specifications, pricing, technical interface with IBAS and
ITAS or other sensitive competitive information. FOTT Information shall
be stamped as ``Confidential and Competition Sensitive.''
G. ``FOTT Program'' means the Follow-on-to-TOW missile program, for
which the Hughes FOTT Team and the TI/Martin Javelin Joint Venture (as
defined below) will be competing for the Engineering Manufacturing
Developing (``EMD'') contract, scheduled to be awarded by the United
States Army in 1998.
H. ``FPA'' means a matrix of detectors or pixels made of material
that is sensitive to infrared (``IR'') radiation, which is mated to a
silicon processor and used to detect and analyze IR radiation.
L. ``FPA Business'' means the 2nd Gen. and 3rd Gen. scanning and
staring IR detector businesses of RTIS operated out of the
Semiconductor Building and the Research West Building located at the
Expressway site in Dallas, Texas, including all dewar and cryogenic
cooler manufacturing and dewar and cryogenic cooler assembly (except
for RTIS' uncooled FPA Business), and including all employees listed in
confidential Attachment, including:
a. All tangible assets used to produce scanning IR detectors,
including SADA detectors, staring detectors, dewars, and cryogenic
coolers, including, but not limited to, all real property (owned or
leased), including interests in the Dallas facilities, used in the
operation of the RTIS FPA Business, including research and development
activities, as identified pursuant to the Court's Hold Separate and
Partition Plan Stipulation and Order; all manufacturing, personal
property, inventory, office furniture, fixed assets and fixtures,
materials, supplies, on-site warehouses or storage facilities, and
other tangible property or improvements used in the operation of the
RTIS FPA Business; all licenses, permits and authorizations issued by
any governmental organization relating to the RTIS FPA Business; all
contracts, teaming arrangements, agreements, leases, commitments and
understandings pertaining to the RTIS FPA Business and its operations;
supply agreements; all customer lists and credit records; and other
records maintained by Raytheon in connection with the RTIS FPA
Business;
b. All intangible assets relating to the RTIS FPA Business,
including but not limited to all patents, licenses and sublicenses,
intellectual property, maskwork rights, technical information, know-
how, trade secrets, drawings, blueprints, designs, design protocols,
cell libraries, specifications for materials, specifications for parts
and devices, safety procedures for the handling of materials and
substances, quality assurance and control procedures, designed tools
and simulation capability, and all manuals and technical information
Raytheon provides to its own employees, customers, suppliers, agents or
licensees, except that the purchaser shall agree to grant to the seller
a non-exclusive, transferable, royalty-free license for any invention
disclosed in U.S. Patent No. 5,274,578; and any invention disclosed in
U.S. Patent Applications Nos. 08/474,229, 08/097,522, 08/478,570 and
08/487,820 and Provisional Patent Application No. 60/014,812; and
c. All research data concerning historic and current research and
development efforts relating to the RTIS FPA Business, including
designs of experiments, and the results of unsuccessful designs and
experiments.
J. ``HTI'' means the Horizontal Technology Integration program to
develop a common B-Kit to be used on different ground vehicle
platforms.
K. ``Hughes'' means Hughes Aircraft Company, an indirect subsidiary
of General Motors Corp., with its headquarters in Arlington, Virginia,
and its successors, assigns, subsidiaries, divisions, groups,
affiliates, partnership and joint ventures, and directors, officers,
managers, agents and employees.
L. ``Hughes FOTT Team'' means all Hughes Missile Systems managers
and employees who have been assigned to or
[[Page 60270]]
consulted in connection with the FOTT program.
M. ``IBAS'' means the Integrated Bradley Acquisition System, a
program to upgrade the sights on a Bradley Fighting Vehicle.
N. ``ITAS'' means the Improved Target Acquisition System, a program
to improve TOW missile launching capabilities.
O. ``LRASSS'' means the Long-Range Advanced Scout Surveillance
System, a future surveillance system to be mounted on light ground
vehicles.
P. ``M1-TIS'' means the Thermal Imaging System for the M1 Abrams
tank.
Q. ``Raytheon'' means Raytheon Company, a Delaware corporation with
its headquarters and principal place of business in Lexington,
Massachusetts, and its successors, assigns, subsidiaries, divisions,
groups, affiliates, partnerships and joint ventures, and directors,
officers, managers, agents, and employees.
R. ``RTIS'' means Raytheon TI Systems, Inc.
S. ``RTIS FOTT team'' means Mr. Lawrence Schmidt, all RTIS managers
and employees of the TI/Martin Javelin Joint Venture, and all other
RTIS employees who have been assigned to or consulted in connection
with the FOTT program. One attorney in the General Counsel's Office of
Raytheon, to be designated by Raytheon, shall be deemed a member of the
RTIS FOTT Team and may be consulted for the purpose of obtaining legal
or regulatory advice, but shall not receive FOTT Information concerning
pricing or other bid information.
T. ``SADA'' means the Standardized Advanced Dewar Assembly and
consists of a scanning FPA mounted in an evacuated dewar. The SADA
program is an effort by the United States Army to develop a family of
IR detectors that can be used in a variety of battlefield systems.
U. ``TI/Martin Javelin Joint Venture'' means the joint venture
between Texas Instruments a/k/a RTIS and Lockheed Martin, which will be
a competitor for the FOTT Program.
V. ``Uncooled FPA Business'' means the technology, production
equipment, and all tangible and intangible assets used by RTIS solely
in the production of uncooled FPAs.
III. Applicability
A. The provisions of this Final Judgment apply to Raytheon, its
successor and assigns, their subsidiaries, directors, officers,
managers, agents, and employers, and all other persons in active
concert or participation with any of them who shall have received
actual notice of this Final Judgment by personal service or otherwise.
B. Raytheon shall require, as a condition of the sale or other
disposition of all or substantially all of its assets or of a lesser
business unit that includes Raytheon's business of developing and
producing FPAs and ground EO Systems, that the transferee agree to be
bound by the provisions of this Final Judgment.
IV. Divestiture
A. Raytheon is hereby ordered and directed in accordance with the
terms of this Final Judgment, within one-hundred and eighty (180)
calendar days after October 3, 1997 or five (5) days after notice of
the entry of this Final Judgment by the Court, whichever is later, to
divest the FPA Business and the EO Business to an acquirer(s)
acceptable to DoJ and DoD in their sole discretion.
B. Raytheon shall use its best efforts to accomplish the
divestitures as expeditiously and timely as possible. DoJ in its sole
determination, in consultation with DoD, may extend the time period for
any divestitures for an additional period of time not to exceed thirty
(30) calendar days.
C. In accomplishing the divestitures ordered by this Final
Judgment, Raytheon, promptly shall make known, by usual and customary
means, the availability of the EPA Business and the EO Business
described in this Final Judgment. Raytheon shall inform any person
making an inquiry regarding a possible purchase that the sale is being
made pursuant to this Final Judgment and provide such person with a
copy of this Final Judgment. Raytheon shall also offer to furnish to
all bona fide prospective purchasers, subject to customary
confidentiality assurances, all information regarding the FPA Business
and the EO Business customarily provided in a due diligence process
except such information subject to attorney-client privilege or
attorney work-product privilege. Raytheon shall make available such
information to DoJ at the same time that such information is made
available to any other person.
D. Raytheon shall permit bona fide prospective purchasers of the
FPA Business and the EO Business to have reasonable access to personnel
and to make such inspection of the physical facilities of the FPA
Business and EO Business and any and all financial, operational, or
other documents and information customarily provided as part of a due
diligence process.
E. Raytheon shall not take any action that will impede in any way
the operation of the FPA Business or the EO Business.
F. Unless both DoJ and DoD otherwise consent in writing, the
divestitures pursuant to Section IV, or by trustee appointed pursuant
to Section V of this Final Judgment, shall include the entire FPA
Business and the entire EO Business, operated in place pursuant to the
Hold Separate and Partition Plan Stipulation and Order, and be
accomplished by selling or otherwise conveying the FPA Business and the
EO Business to a purchaser(s) in such a way as to satisfy DoJ and DoD,
in their sole discretion, that the FPA Business and the EO Business can
and will be used by the purchaser(s) as part of a viable, ongoing
business or businesses engaged in the development, production, and sale
of FPAs and ground EO systems. Divestiture of the FPA Business and EO
Business may be made to one or more purchasers provided that in each
instance it is demonstrated to the sole satisfaction of DoJ and DoD
that the FPA Business and EO Business will remain viable. The
divestitures, whether pursuant to Section IV or Section V of this Final
Judgment, shall be made to a purchaser(s) who it is demonstrated to
DoJ's and DoD's sole satisfaction: (1) Has the capability and intent of
competing effectively in the development, production and sale of FPAs
or ground EO systems as the case may be; (2) has managerial,
operational, and financial capability to compete effectively in the
development, production and sale of FPAs or ground systems as the case
may be; (3) is eligible to receive applicable DoD security clearances;
and (4) that none of the terms of any agreement between the purchaser
and Raytheon give Raytheon the ability unreasonably to raise the
purchaser's costs, to lower the purchaser's efficiency, or otherwise to
interfere in the ability of the purchaser to compete effectively.
G. For a period of two years from the filing of the Complaint in
this matter, Raytheon and Hughes shall not solicit to hire any
individual who, on the date of the filing of the Complaint in this
matter, was an employee of the FPA Business or the EO Business. For a
period of two years from the filing of the Complaint in this matter,
Raytheon and Hughes shall not hire any individual who, on the date of
the filing of the Complaint in this matter, was an employee of the FPA
Business or the EO Business unless such individual has a written offer
of employment from a third party for a like position.
H. Raytheon shall comply with all agreements with DoD regarding the
[[Page 60271]]
protection of information related to classified programs.
I. Raytheon shall not charge to DoD any costs directly or
indirectly incurred in complying with this Final Judgment.
V. Appointment of Trustee
A. In the event that Raytheon has not divested the FPA Business and
the EO Business within the time specified in Section IV of this Final
Judgment, the Court shall appoint, on application of the United States,
a trustee selected by DoJ, in consultation with DoD, to effect the
divestiture of the FPA Business and the EO Business.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the FPA Business described in
Section II(I) and the EO Business described in Section II(E) of this
Final Judgment. The trustee shall have the power and authority to
accomplish the divestiture at the best price then obtainable upon a
reasonable effort by the trustee, subject to the provisions of Sections
IV and IX of this Final Judgment, and shall have such other powers as
the Court shall deem appropriate. Subject to Section V(C) of this Final
Judgment, the trustee shall have the power and authority to hire at the
cost and expense of Raytheon any investment bankers, attorneys, or
other agents reasonably necessary in the judgment of the trustee to
assist in the divestitures, and such professionals and agents shall be
accountable solely to the trustee. The trustee shall have the power and
authority to accomplish the divestitures at the earliest possible time
to a purchaser acceptable to DoJ and DoD, and shall have such other
powers as this Court shall deem appropriate. Raytheon shall not object
to a sale by the trustee on any grounds other than the trustee's
malfeasance. Any such objections by Raytheon must be conveyed in
writing to DoJ and the trustee within ten (10) calendar days after the
trustee has provided the notice required under Section VII of this
Final Judgment.
C. The trustee shall serve at the cost and expense of Raytheon, on
such terms and conditions as the Court may prescribe, and shall account
for all monies derived from the sale of the assets sold by the trustee
and all costs and expenses so incurred. After approval by the Court of
the trustee's accounting, including fees for its services and those of
any professionals and agents retained by the trustee, all remaining
money shall be paid to Raytheon and the trust shall then be terminated.
The compensation of such trustee and of any professionals and agents
retained by the trustee shall be reasonable in light of the value of
the divested business and based on a fee arrangement providing the
trustee with an incentive based on the price and terms of the
divestiture and the speed with which it is accomplished.
D. Raytheon shall use its best efforts to assist the trustee in
accomplishing the required divestitures, including best efforts to
effect all necessary regulatory approvals. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the businesses to be divested, and Raytheon
shall develop financial or other information relevant to the business
to be divested customarily provided in a due dilligence process as the
trustee may reasonably request, subject to customary confidentiality
assurances. Raytheon shall permit bona fide prospective acquirers of
the assets to have reasonable access to personnel and to make such
inspection of physical facilities and nay and all financial,
operational or other documents and other information as may be relevant
to the divestitures required by this Final Judgment.
E. After its appointment, the trustee shall file monthly reports
with the parties and the Court setting forth the trustee's efforts to
accomplish the divestitures ordered under this Final Judgment;
provided, however, that to the extent such reports contain information
that the trustee deems confidential, such reports shall not be filed in
the public docket of the Court. Such reports shall include the name,
address and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the business to be divested,
and shall describe in detail each contact with any such person during
that period. The trustee shall maintain full records of all efforts
made to divest the businesses to be divested.
F. If the trustee has not accomplished such divestitures within six
(6) months after its appointment, the trustee thereupon shall file
promptly with the Court a report setting forth (1) The trustee's
efforts to accomplish the required divestitures, (2) the reasons, in
the trustee's judgment, why the required divestitures have not been
accomplished, and (3) the trustee's recommendations; provided, however,
that to the extent such reports contain information that the trustee
deems confidential, such reports shall not be filed in the public
docket of the Court. The trustee shall at the same time furnish such
report to the parties, who shall each have the right to be heard and to
make additional recommendations consistent with the purpose of the
trust. The Court shall enter thereafter such orders as it shall deem
appropriate in order to carry out the purpose of the trust which may,
if necessary, include extending the trust and the term of the trustee's
appointment by a period requested by DoJ.
VI. Firewall
A. Members of the RTIS FOTT Team are prohibited from giving or
receiving, either directly or indirectly, any FOTT Information to or
from the Hughes FOTT Team or any other Raytheon employee. Members of
the Hughes FOTT Team are prohibited from giving or receiving, either
directly or indirectly, any FOTT Information to or from the RTIS FOTT
Team or any other Raytheon employee. To implement this provision,
Raytheon is required to construct a firewall within Raytheon that
prevents the flow of FOTT Information between the RTIS FOTT Team and
any other segment or official of Raytheon. Raytheon is also required to
construct a firewall within Raytheon that prevents the flow of any FOTT
Information between the Hughes FOTT Team and any other segment or
official of Raytheon. These firewalls are intended to ensure
competition between RTIS Missiles and Hughes Missile Systems in bidding
on the FOTT Program. Raytheon shall, within five (5) business days of
its signing the Stipulation and Order consenting to the entry of this
Final Judgment, submit to DoJ and DoD a document setting forth in
detail its procedures to effect compliance with this provision. DoJ and
DoD shall have the sole discretion to approve Raytheon's compliance
plan and shall notify Raytheon within three (3) business days whether
they approve of or reject Raytheon's compliance plan. In the event that
Raytheon's compliance plan is rejected, the reasons for the rejection
shall be provided to Raytheon by DoJ and Raytheon shall be given the
opportunity to submit, within two (2) business days of receiving the
notice of rejection, a revised compliance plan. If the parties cannot
agree on a compliance plan within an additional three (3) business
days, a plan will be devised by DoD and implemented by Raytheon. All
Raytheon employees shall abide by the provisions of the compliance
plan. The prohibitions in this paragraph shall remain in effect until
final determination of the EMD contract award for the FOTT Program is
made by DoD. Raytheon shall use all
[[Page 60272]]
reasonable efforts to submit a competitive bid by the RTIS FOTT Team
for the FOTT Program.
B. Raytheon shall delegate to Mr. Lawrence Schmidt, Senior Vice
President, Missile Systems Division of RTIS, in his sole discretion,
the right to review and determine on behalf of Raytheon all matters
relating to the TI/Martin Javelin Joint Venture bid, including any best
and final offer and responses to any inquiry from DoD, on the FOTT
Program; to invest Raytheon's funds in the FOTT Program; and to draw on
other resources within RTIS Missiles to compete for the FOTT Program.
C. Raytheon shall provide an economic incentive to the RTIS
management personnel of the TI/Martin Javelin Joint Venture to ensure
all reasonable efforts will be made by Raytheon to submit a competitive
bid by the TI/Martin Javelin Joint Venture for the FOTT Program. As an
incentive to win the FOTT Program, Raytheon shall pay, conditioned
solely upon the TI/Martin Javelin Joint Venture being awarded the EMD
contract for the FOTT Program, bonuses to certain RTIS Missiles
employees. Each employee to receive a bonus upon award of the EMD
contract for the FOTT Program and the amount of each applicable bonus
is listed in confidential Attachment ``C.''
D. Raytheon shall notify and train all RTIS Missiles, Hughes
Missile Systems, and other Raytheon employees likely to see FOTT
Information regarding the restrictions on FOTT Information and require
that all such employees sign a statement acknowledging the restrictions
on the FOTT Information. In addition, all RTIS Missiles employees
having access to FOTT Information must sign a certification stating
that they understand the restrictions of the firewall and agree to
adhere to the firewall restrictions.
VII. Notification
Within two (2) business days following execution of a definitive
agreement, contingent upon compliance with the terms of this Final
Judgment, to effect, in whole or in part, any proposed divestitures
pursuant to Sections IV or V of this Final Judgment. Raytheon or the
trustee, whichever is then responsible for effecting the divestitures,
shall notify DoJ and DoD of the proposed divestitures. If the trustee
is responsible, if shall similarly notify Raytheon. The notice shall
set for the details of the proposed transaction and list the name,
address, and telephone number of each person not previously identified
who offered to, or expressed an interest in or a desire to, acquire any
ownership interest in the businesses to be divested that is the subject
of the binding contract, together with full details of same. Within
fifteen (15) calendar days of receipt by DoJ and DoD of such notice,
DoJ, in consultation with DoD, may request from Raytheon, the proposed
purchaser, or any other third party additional information concerning
the proposed divestitures and the proposed purchaser. Raytheon and the
trustee shall furnish any additional information requested from them
within fifteen (15) calendar days of the receipt of the request, unless
the parties shall otherwise agree. Within thirty (30) calendar days
after receipt of the notice or within twenty (20) calendar days after
DoJ has been provided the additional information requested from
Raytheon, the proposed purchaser, and any third party, whichever is
later, DoJ and DoD shall each provide written notice to Raytheon and
the trustee, if there is one, stating whether or not it objects to the
proposed divestiture. If DoJ and DoD provide written notice to Raytheon
and the trustee that they do not object, then the divestiture may be
consummated, subject only to Raytheon's limited right to object to the
sale under Section V(B) of this Final Judgment. Absent written notice
that NoJ and DoD do not object to the proposed purchaser or upon
objection by DoJ or DoD, a divestiture proposed under Section IV or
Section V may not be consummated. Upon objection by Raytheon under the
provision in Section V(B), a divestiture proposed under Section V shall
not be consummated unless approved by the Court.
VIII. Affidavits
A. Within twenty (2) calendar days of the filing of the Complaint
in this matter and every thirty (30) calendar days thereafter until the
divestiture has been completed whether pursuant to Section IV or
Section V of this Final Judgment, Raytheon shall deliver to DoJ and DoD
an affidavit as to the fact and manner of compliance with Sections IV
or V of this Final Judgment. Each such affidavit shall include, inter
alia, the name, address, and telephone number of each person who, at
any time after the period covered by the last such report, made an
offer to acquire, expressed an interest in acquiring, entered into
negotiations to acquire, or was contacted or made an inquiry about
acquiring, any interest in the business to be divested, and shall
describe in detail each contact with any such person during that
period. Each such affidavit shall also include a description of the
efforts that Raytheon has taken to solicit a buyer for the relevant
assets and to provide required information to prospective purchasers
including the limitations, if any, on such information. Assuming the
information set forth in the affidavit is true and complete, any
objection by DoJ to information provided by Raytheon, including
limitations on information, shall be made within fourteen (14) days of
receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Raytheon shall deliver to DoJ and DoD an affidavit
which describes in detail all actions Raytheon has taken and all steps
Raytheon has implemented on an on-going basis to comply with the
firewall provisions pursuant to Section VI of this Final Judgment and
to preserve the FPA Business and the EO Business pursuant to Section IX
and this Final Judgment and the Hold Separate and Partition Order
entered by the Court. The affidavit also shall describe, but not be
limited to, Raytheon's efforts to maintain and operate the FPA Business
and the EO Business as an active competitor, maintain the management,
staffing, research and development activities, sales, marketing and
pricing of the FPA Business and the EO Business, and maintain the FPA
Business and the EO Business in operable condition at current capacity
configurations. Raytheon shall deliver to DoJ and DoD an affidavit
describing any changes to the efforts and actions outlined in
Raytheon's earlier affidavit(s) filed pursuant to this Section within
fifteen (15) calendar days after the change is implemented.
C. Until one year after such divestiture has been completed,
Raytheon shall preserve all records of all efforts made to preserve the
business to be divested and effect the divestitures.
IX. Hold Separate Order
Until the divestitures required by the Final Judgment have been
accomplished, Raytheon shall take all steps necessary to comply with
the Hold Separate and Partition Plan Stipulation and Order entered by
this Court and to preserve the assets of the FPA Business and the EO
Business. Defendants shall take no action that would jeopardize the
divestiture ordered by this Court.
X. Financing
Raytheon is ordered and directed not to finance all or any part of
any purchase by an acquirer(s) made pursuant to Sections IV or V of
this Final Judgment.
XI. Compliance Inspection
For purposes of determining or securing compliance with the Final
[[Page 60273]]
Judgment and subject to any legally recognized privilege, from time to
time:
A. Duly authorized representatives of the United States Department
of Justice, upon written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division, and on
reasonable notice to Raytheon made to its principal offices, shall be
permitted:
1. Access during office hours of Raytheon to inspect and copy all
books, ledgers, accounts, correspondence, memoranda, and other records
and documents in the possession or under the control of Raytheon, who
may have counsel present, relating to the matters contained in this
Final Judgment and the Hold Separate Stipulation and Order; and
2. Subject to the reasonable convenience of Raytheon and without
restraint or interference from it, to interview, either informally or
on the record, its officers, employees, and agents, who may have
counsel present, regarding any such matters.
B. Upon the written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division, made to
Raytheon's principal offices, Raytheon shall submit such written
reports, under oath if requested, with respect to any matter contained
in the Final Judgment and the Hold Separate and Partition Order.
C. No information or documents obtained by the means provided in
Sections VIII or XI of this Final Judgment shall be divulged by a
representative of the plaintiff to any person other than a duly
authorized representative of the Executive Branch of the United States,
except in the course of legal proceedings to which the United States is
a party (including grand jury proceedings), or for the purpose of
securing compliance with this Final Judgment, or as otherwise required
by law.
D. If at the time information or documents are furnished by
Raytheon to DoJ or DoD, Raytheon represents and identifies in writing
the material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(7) of the Federal Rules of
Civil Procedure, and Raytheon marks each pertinent page of such
material, ``Subject to claim of protection under Rule 26(c)(7) of the
Federal Rules of Civil Procedure.'' then ten (10) calendar days notice
shall be given by DoJ or DoD to Raytheon prior to divulging such
material in any legal proceeding (other than a grand jury proceeding)
to which Raytheon is not a party.
XII. Retention of Jurisdiction
Jurisdiction is retained by this Court for the purpose of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders and directions as may be necessary or
appropriate for the construction or carrying out of this Final
Judgment, for the modification of any of the provisions hereof, for the
enforcement of compliance herewith, and for the punishment of any
violations hereof.
XIII. Termination
Unless this Court grants an extension, this Final Judgment will
expire upon the tenth anniversary of the day of its entry.
XIV. Public Interest
Entry of this Final Judgment is in the public interest.
Dated ____________________, 1998.
----------------------------------------------------------------------
United States District Judge.
United States District Court for the District of Columbia
[Civil No. 1:97CV02397]
United States of America, Plaintiff, v. Raytheon Company, General
Motors Corporation, and He Holdings, Inc., Defendants
United States District Judge Emmet G. Sullivan
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. Sec. 16(b)-(h),
files this Competivie Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On October 16, 1997, the United States filed a civil antitrust
Complaint alleging that the proposed acquisition by Raytheon Company
(``Raytheon'') of Hughes Aircraft Co. (``Hughes'') would violate
Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. The Complaint alleges
that Raytheon and Hughes are the only two firms that design, develop,
and produce second generation (``2nd Gen.'') electro-optical (``EO'')
systems for Department of Defense (``DoD'') ground applications. It
alleges that Raytheon and Hughes are also the only two firms that
design, develop, and produce critical infared (``IR'') detectors,
called ``SADA II'' detectors, used in ground EO systems, and are the
leading firms that develop and produce staring IR detectors used for
sensors in missile seeker heads and aircraft and missile warning system
applications. The Complaint further alleges that Raytheon, through its
majority ownership in a joint venture with Lockheed Martin Corporation
(``Lockheed Martin''), and Hughes are competitors for the Follow-On-To-
TOW (``FOTT'') new advanced antitank missile program that will replace
the current inventory of TOW antitank missiles.
The prayer for relief in the Complaint seeks: (1) A judgment that
the proposed acquisition would violate Section 7 of the Clayton Act;
and (2) a permanent injunction preventing Raytheon from acquiring
Hughes.
When the Complaint was filed, the United States also filed a
proposed settlement that would permit Raytheon to complete its
acquisition of Hughes, but require a divestiture and other terms that
will preserve competition in the relevant markets. This settlement
consists of a Stipulation and Order, Hold Separate and Partition Plan
Stipulation and Order, and a proposed Final Judgment.
The proposed Final Judgment orders Raytheon to divest, within one-
hundred and eighty (180) calendar days after October 3, 1997 or five
(5) days after notice of the entry of the Final Judgment by the Court,
whichever is later, the FPA Business (as defined in the Final Judgment)
of Raytheon TI Systems (``RTIS''), and the EO Business (as defined in
the Final Judgment) of Hughes, to an acquirer(s) acceptable to the
Antitrust Division of the Department of Justice (``DoJ'') and DoD.
RTIS's FPA Business includes the 2nd Gen. scanning and third generation
(``3rd Gen.'') staring IR detector businesses (operated out of the
Semiconductor Building and the Research West Building, located at the
Expressway site in Dallas, Texas), all tangible and intangible assets
used in producing those detectors, including production facilities,
research and development activities, and all dewar and cryogenic cooler
manufacturing assembly.
Hughes' EO Business includes the 2nd Gen. ground EO business
operated out of the El Segundo, California and La Grange, Georgia
facilities, which produce A-kits and B-kits for ground vehicles and
other applications, including the Integrated Bradley Acquisition System
(``IBAS''), Thermal Imaging System for the M1 Abrams tank (``M-1
TIS''), Long-Range Advanced Scout Surveillance System (``LRASSS''), and
Horizontal Technology Integration Program (``HTI'') programs, all
tangible and intangible assets used in producing A-kits and B-kits,
production facilities, and research development activities. In
addition, Raytheon is required to
[[Page 60274]]
provide, at the option of the purchaser, a contract for computer
support services and information and communications services sufficient
to support the EO Business over a period of one year, and, at the
option of the purchaser, an option to purchase or lease manufacturing
space in addition to that currently set aside for the EO Business.
Until such divestitures are completed, the terms of the Hold
Separate and Partition Plan Stipulation and Order entered into by the
parties apply to ensure that the FPA Business and the EO Business shall
be maintained as an independent competitor from Raytheon.
In addition to the divestitures, the proposed Final Judgment
requires that Raytheon establish firewalls to preserve the independence
of the Hughes team competing for the FOTT program (``Hughes ROTT
Team'') from the RTIS/Lockheed Martin FOTT joint venture (RTIS FOTT
Team). The firewall provisions prohibit the flow of information between
the two teams and between either team and any other employee of
Raytheon. The Proposed Final Judgment requires Raytheon to delegate to
the head of RTIS Missile Systems Division the sole discretion to
determine all matters relating to RTIS FOTT Team's bid and to create
economic incentives for the RTIS FOTT Team members to ensure all
reasonable efforts will be made to submit a competitive bid for the
FOTT Program.
The plaintiff and defendants have stipulated that the proposed
Final Judgment may be entered after compliance with APPA. Entry of the
proposed Final Judgment would terminate the action, except that the
Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Raytheon is a Delaware corporation headquartered in Lexington,
Massachusetts. Raytheon produces heavy construction equipment;
refrigerators and freezers; radio and TV broadcasting and
communications equipment; semiconductors and related devices; aircraft;
guided missiles and space vehicles; search, detection and navigation
systems; and engineering services. RTIS, a division of Raytheon,
produces ground EO systems at a facility in McKinney, Texas and IR
detectors at its Expressway facility in Dallas, Texas. Amber, a
separate unit of Raytheon, produces detectors at a facility in Goleta,
California. In 1996, Raytheon reported total sales of about $12
billion.
General Motors Corporation (``General Motors'') is a Delaware
corporation headquartered in Detroit, Michigan. Hughes, a missle and
defense electronics company, is an indirect subsidiary of General
Motors. Hughes produces ground EO systems at facilities in El Segundo,
California and LaGrange, Georgia. Hughes operates the industry's
premier detector facility, Santa Barbara Research Center (``SBRC''), in
Santa Barbara, California. In 1996, Hughes reported total sales of
approximately $6 billion.
HE Holdings, Inc. (``HE Holdings'') is a Delaware corporation
headquartered in Detroit, Michigan. Hughes is a direct subsidiary of HE
Holdings.
On January 16, 1997, Raytheon entered into an agreement with
General Motors to purchase HE Holdings, the parent of Hughes. This
transaction, which would, in part, take place in the highly
concentrated SADA II detector, staring FPA, ground EO systems, and FOTT
missile markets, precipitated the government's suit.
B. The Relevant Markets
SADA II Detectors
IR detectors are sensing devices that convert IR radiation into an
electrical signal. The devices detect the differences in that heat
emissions between an object and its surroundings, and can therefore
produce a thermal image of objects in the device's field of view. The
detector consists of linear or mosaic arrays of individual diodes made
from semiconductor materials such as mercury cadmium telluride
(``MCT'') or indium antimonide ``(InSb''). The detector is attached to
a silicon chip or ``readout'' device that contains the circuitry which
stores the energy captured by the detector and converts this energy to
a voltage signal. When mated to the readout circuit, the detector is
often called a focal plane array (``FPA''). The FPA is typically housed
in an evacuated cooler dewar assembly which isolates the FPA and cools
it to cryogenic temperatures.
The combination of FPA cooler dewar assembly, optics, electronics,
software, and a visual display is commonly called a FLIR (Forward
Looking Infrared). FLIRs are used for surveillance and weapons fire
control purposes in ground and airborne EO systems. FPAs are also used
in heat-seeking missile guidance systems and missile warning systems,
applications for which no pictorial image is required. Since the Gulf
War, great strides have been made in IR technology, and the military is
switching from older first generation (''1st Gen.'') lower performance
technology to more advanced 2nd Gen. technology in a variety of
applications.
Second generation scanning FPAs consist of individual detector
elements arranged in two dimensions varying in size from 240 x 2 to
480 x 4. The detector is scanned mechanically with mirrors across a
field of view. Second generation scanning FPAs differ from 1st. Gen.
scanning FPAs in that the readout circuit is mounted directly to the
detector material. For this reason, 2nd Gen. FPAs are photovoltaic,
while 1st. Gen. FPAs are photo conductive. Scanning FPAs are preferred
on ground vehicles because of their wide field of view.
FPAs are distinguished by the spectrum of the electromagnetic
wavelength they detect--longwave (``LW''), midwave (``MW'') or
shortwave (``SW''). LW is visible in the 8 to 12 micron range, MW in
the 3 to 5 micron range, and SW in the 1 to 2 micron range. Short wave
is not typically used for tactical applications. InSb is the primary
material used for detecting MW IR radiation, and it is only used in
staring arrays. MCT, the leading material for detecting LW IR
radiation, is used in virtually all scanned arrays, but is also used in
staring FPAs.
In the late 1960s, DoD started to develop an IR detector common
across all the services. This effort resulted in the 1st Gen. ``common
module'' detectors, which were placed in the field in approximately
1970. Since the common module detector is not mounted directly to an
integrated readout circuit, fewer detector elements can be placed on
the array. Because it has fewer detector elements, the sensitivity and
resolution of 1st Gen. FPAs are not as good as that of 2nd Gen. FPAs.
First generation detectors were used in Desert Storm, and it was
discovered that U.S. weaponry could fire further than the FLIR systems
could detect. The desire for EO systems with a range closer to that of
the weapon systems motivated the development of 2nd Gen. devices. First
generation FPAs are still in use today, although in the early 1990s,
the U.S. military stopped placing new 1st Gen FLIRs in the field.
In the late 1980s, the Army's Night Vision Laboratory began
development of 2nd Gen. detectors under the Standardized Advanced Dewar
Assembly (``SADA'') program. SADA assemblies use a two dimensional MCT
array sensitive to LW IR radiation. SADA detectors include four
different configurations: SADA I, SADA II, SADA
[[Page 60275]]
III A and SADA III B. Each type has different specifications so that
one does not substitute for another.
The Army uses a SADA II for ground vehicles. As part of a broader
effort undertaken in 1992 to insert a common 2nd Gen. FLIR system into
various battlefield platforms, the Army decided to use SADA II
detectors in the M1A2 Abrams Tank, the M2A3 Bradley Fighting Vehicle,
and the LRASSS. The SADA II is also used in the FLIR for the Improved
Targeting Acquisition System (``ITAS'') for the High Mobility Motorized
Wheeled Vehicle (``HMMWV'').
Because they do not match the field of view achievable with SADA II
detectors, staring FPAs are not viable substitutes for a SADA II
detector. Staring FPAs of a size needed to match the field of view
obtainable from a scanning FPA are not yet available in LW MCT, which
is the only material that meets the Army's needs to see through
battlefield smoke, dust, and clutter.
Even if large format LW MCT arrays became available in the future,
a switch to such arrays would not be economically justified in response
to a small but significant and nontransitory price increase in the SADA
II detectors, because of the substantial configuration changes and
consequent costs required to replace SADA II detectors in ground
vehicles with staring detectors.
Raytheon and Hughes are the only two firms that have sold SADA II
detectors to DoD. Hughes qualified as a SADA II supplier in mid-1996,
and Raytheon was permitted to bid for 1997 purchases based on its
demonstrated success toward completing the qualification process.
Raytheon is expected to be fully qualified by the end of 1997. In 1997,
about 103 SADA II detectors having a total dollar value of about $6.6
million were purchased, of which 70 percent were supplied by Hughes and
30 percent by Raytheon. DoD projects purchases of 2,945 SADA II
detectors through the year 2002, having a total dollar value of about
$138.8 million.
Raytheon's acquisition of Hughes would eliminate all competition in
the development, production, and sale of SADA II detectors. The
proposed acquisition will result in a single supplier with the
incentive and ability to raise prices and little or no incentive to
minimize cost.
Successful entry into the production and sale of SADA II detectors
is difficult, time consuming, and costly. A potential entrant would
have to design and develop a product, establish production processes,
and complete a rigorous qualification process. A new facility capable
of producing SADA II detectors could cost over $20 million. Only one
other firm, Sofradir of France, is trying to qualify under the SADA II
program. Sofradir, which is partially owned by the French government,
is beginning the qualification process. It is unrealistic to expect
sufficient new entry in a timely fashion to protect competition in
upcoming SADA II purchases.
Staring FPAs
Staring or third generation (``3rd Gen.'') FPAs consist of a mosaic
of diodes typically square or rectangular in shape. Since they contain
no scanning mechanism, staring FPAs provide an image by staring at the
scene and rapidly updating changes in the scene. Staring FPAs are
lighter weight than scanning, and they can be more economical to use.
Staring FPAs are produced in sizes ranging from 64 x 64 to 1024 x
1024. The largest size currently produced for tactical applications,
however, is 640 x 480. Staring FPAs provide greater sensitivity and
resolution than scanning FPAs, because they have a larger number of
detectors. However, staring FPAs are more difficult to produce than
scanning FPAs because of the difficulty in producing large InSb or MCT
wafers. Due to their smaller physical size and lighter weight, staring
FPAs are used in missile seeker heads and airborne applications where
small size and light weight are a premium. Staring FPAs are also the
detector of choice for missile warning systems.
Staring FPAs have primarily been made of InSb because it was the
first technology capable of producing staring FPAs and the material
itself is easier to work with. Staring FPAs are now available using MCT
technology.
Raytheon and Hughes are the two leading suppliers of staring FPAs
for military programs. Raytheon produces staring FPAs at its RTIS
facility in Dallas, Texas and its Amber facility, in Goleta,
California. Hughes operates SBRC, the industry's premier staring FPA
facility, in Santa Barbara, California. Hughes and Raytheon have
supplied or are contracted to supply the staring FPAs on most DoD
missile and aircraft programs. DoD projects purchases of about 14,000
staring FPAs over the next five years having a value of about $35
million.
Raytheon's acquisition of Hughes would combine the two leading
suppliers of staring FPAs with over 90 percent of the market. The
acquisition would create a clear dominant supplier with the incentive
and ability to raise prices and little or no incentive to minimize
cost.
Boeing Company (``Boeing'') and Lockheed Martin make staring FPAs
for military applications, but neither is a major supplier in the
tactical market. Boeing has focused on space applications, where the
FPA must meet more rigid durability and quality standards.
Consequently, FPAs for space applications cost significantly more than
FPAs for tactical applications. Lockheed Martin operates a very small,
research-oriented staring FPA operation. Boeing would need to refocus
its staring FPA business from the higher price space applications and
Lockheed Martin would need to invest in a production-oriented facility
in order for either to be a more significant supplier in the tactical
market.
Successful entry into the production and sale of staring FPAs is
difficult, time consuming, and costly. A potential entrant would have
to design and develop a product and establish production processes. A
new facility capable of producing staring FPAs could cost over $20
million. It is unrealistic to expect new entry in a timely fashion to
protect competition in upcoming staring FPA purchases.
The acquisition also likely will result in lessening of competition
in the market for missile systems. Raytheon and Hughes are not only
suppliers of staring FPAs, but are also major suppliers of the missile
systems of which these devices are critical components. With the
acquisition of Hughes, Raytheon will control access to virtually all
currently viable staring FPAs for tactical applications. Raytheon will
have an incentive to refuse to sell, or to sell on disadvantageous
terms, its state-of-the-art staring FPAs to its missile competitors.
Without access to the latest staring FPAs, a missile manufacturer is at
a serious competitive disadvantage.
2nd Gen. Ground EO Systems
A ground EO system is an integrated system with a thermal imager
(usually a FLIR), including an integrated cooler dewar assembly with
detector, afocal assemblies, and associated electronics. It might also
include the optics, electronics, software, visual displays, fire
control and stabilization necessary to adapt the system to a particular
platform.
Targeting and navigation are the two major types of ground infrared
EO systems. Targeting systems, sometimes called ``fire control
systems,'' acquire the target and direct the missile or gun round to
the target. These systems are much more complex than those used for
[[Page 60276]]
navigation, which only need to permit the operator to see the general
area.
A ground EO system operating in or on a ground combat vehicle, in
the dust, heat and smoke of a battlefield, faces risks and demands that
are different from those faced by an EO system on a fighter aircraft or
a helicopter operating substantially above the battlefield. Many
problems that are unique to designing EO systems for the ground combat
environment are not faced in designing and EO system for airborne
applications. Among these is the requirement that any FLIR on a tank be
able to absorb the tremendous shock of a direct hit and keep
functioning. In addition, the shock of the recoil of the gun and the
extreme vibrations that constantly accompany the operation of a ground
combat vehicle must also be accounted for in designing and producing a
group EO system. An EO system operating on the ground may also have to
see through several miles of battlefield smoke and debris. For these
reasons, the Army spent over $90 million in the early 1990s to
specifically develop an EO system for its ground vehicles.
Raytheon and Hughes are the only two firms that develop and produce
2nd Gen. EO systems for ground vehicles. Raytheon's RTIS and Hughes are
the only two firms that have established the developmental capacity and
low-cost production processes needed to economically produce 2nd Gen.
ground EO system.
During the next five years, DoD expects to spend about $200 million
a year for 2nd Gen. ground EO systems to be purchased for the following
programs: the Improved Target Acquisition System for the HMMWV; the
Improved Bradley Acquisition System for the Bradley Fighting Vehicle;
the Commander's Independent Thermal Viewer for the M1 Abrams tank; the
Thermal Independent Sight for the M1 Abrams tank; the Commander's
Independent Viewer for the Bradley Fighting Vehicle; and the Long Range
Advanced Scout Surveillance System. Raytheon and Hughes are the only
sources for these ground EO systems.
Raytheon's acquisition of Hughes would eliminate all competition in
the development, production, and sale of 2nd Gen. ground EO systems for
military applications. The proposed acquisition would result in a
single supplier with the incentive and ability to raise prices and
little or no incentive to minimize cost.
Sucessful entry into the production and sale of 2nd Gen. ground DoD
is difficult, time consuming, and costly, Entry requires advanced
technology, skilled engineers and specialized equipment. A potential
entrant would have to engage in difficult, expensive, and time
consuming research to develop and produce 2nd Gen. ground EO systems.
It is unrealistic to expect new entry in a timely fashion to protect
competition in upcoming 2nd Gen. ground EO systems purchases.
FOTT Program
FOTT is a U.S. Army engineering, manufacturing, and development
(``EMD'') program for an advanced missile to replace the current
inventory of TOW anti-tank missiles. The program started on March 30,
1995 when the Army issued a Request for Information. An initial draft
Request for Proposal was issued on May 15, 1996, a second draft Request
for Proposal was issued on February 12, 1997, and a third draft Request
for Proposal was issued on August 8, 1997. The Army currently
anticipates issuing a formal Request for Proposal for the FOTT program
at the end of 1997 or early 1998. A contract for EMD is expected to be
awarded in the first half of 1998. Hughes and a joint venture between
RTIS and Lockheed Martin, in which RTIS owns a 60 percent interest, are
competing for the FOTT program.
The U.S. Army has determined that development of an advanced anti-
tank missile is necessary and that no other missile system meets the
mission objectives set for the FOTT program.
If Raytheon acquires Hughes, it will control the Hughes FOTT
proposal and it will control a 60 percent interest in the RTIS/Lockheed
Martin joint venture FOTT proposal. In such a situation, Raytheon has a
strong economic incentive to favor its Hughes proposal, where it stands
to win 100 percent of the program, over the team in which it has only a
60 percent interest. Raytheon's acquisition of Hughes will eliminate
the aggressive competition that would otherwise exist between these
independent teams. FOTT is a potential $8 billion to $10 billion
program.
It would be very difficult for another firm to successfully enter
the FOTT competition at this stage. The Hughes and RTIS/Lockheed Martin
Joint venture teams have completed the validation and demonstration
stage and have each spent over $20 million during the last three years
developing a missile to demonstrate during the EMD selection. Selection
of a contractor for the EMD contract is expected during the first half
of 1998.
C. Harm to Competition as a Consequence of the Acquisition
Raytheon's acquisition of Hughes would eliminate competition in the
research, development, and production of SADA II detectors and ground
EO systems, both necessary to ground military weapons systems in the
United States. It would combine the two leading suppliers of staring
FPAs with over 90 percent of the market. In addition, Raytheon's
acquisition of Hughes would eliminate the aggressive competition that
would otherwise exist between Hughes and the RTIS/Lockheed Martin joint
venture for the FOTT antitank missile. Entry by a new company would not
be timely, likely or sufficient to prevent harm to competition in any
of these product areas.
The Complaint alleges that the transaction would have the following
effects, among others: competition generally in the innovation,
development, production, and sale of SADA II detectors, staring FPAs,
ground EO systems, and the FOTT missile in the United States would be
lessened substantially; actual and future competition between Raytheon
and Hughes in the development, production and sale of SADA II
detectors, staring FPAs, ground EO systems, and the FOTT missile in the
United States will be eliminated; and prices for SADA II detectors,
staring FPAs, ground EO systems, and the FOTT missile in the United
States would likely increase.
III. Explanation of the Proposed Final Judgment
The provisions of the proposed Final Judgment are designed to
eliminate the anticompetitive effects of the acquisition of Hughes by
Raytheon.
The proposed Final Judgment provides that Raytheon must divest,
within one hundred eighty (180) calendar days after October 3, 1997, or
five (5) days after notice of the entry of the Final Judgment by the
Court, whichever is later, the FPA Business of RTIS and the EO Business
of Hughes to an acquirer(s) acceptable to the DoJ and DoD. In addition,
Raytheon is required to provide, at the option of the purchaser, a
contract for computer support services and information and
communications services sufficient to support the EO Business over a
period of one year, and, at the option of the purchaser, an option to
purchase or lease manufacturing space in addition to that currently set
aside for the EO Business.
If defendants fail to divest these businesses, a trustee (selected
by DoJ in
[[Page 60277]]
consultation with DoD) will be appointed by the Court. The trustee will
be authorized to sell the FPA Business and the EO Business. The Final
Judgment provides that Raytheon will pay all costs and expenses of the
trustee. After his or her appointment becomes effective, the trustee
will file monthly reports with the parties and the Court, setting forth
the trustee's efforts to accomplish divestiture. At the end of six
months, if the divestiture has not been accomplished, the trustee and
the parties will make recommendations to the Court, which shall enter
such orders as appropriate in order to carry out the purpose of the
trust, including extending the trust or the term of the trustee's
appointment.
Divestiture of the FPA Business, the EO Business and the options
preserves competition because it will restore the SADA II, staring FPA,
and the ground EO systems markets to structures that existed prior to
the acquisition and will preserve the existence of independent
competitors. Divestiture will keep at least two producers of SADA II
detectors and ground EO systems in the market competing for upcoming
contracts, which will preserve and encourage ongoing competition in
product innovation and development, production, and sales. Divestiture
will also maintain at least two major competitors for staring FPAs and
prevent missile system manufacturers from being foreclosed from a
critical input. The divestiture thus will preserve competition in
upcoming programs.
In addition to the divestitures, the Final Judgment requires that
Raytheon establish procedures to assure that the current Hughes and the
RTIS/Lockheed Martin joint venture remain independent competitors for
the FOTT program. The firewall provisions required by the Final
Judgment prevent the flow information between Hughes' FOTT team and the
RTIS FOTT team and between either team and any other Raytheon employee.
Raytheon is required to delegate to the head of its RTIS Missile
Systems Division the sole discretion to determine all matters relating
to the RTIS FOTT bid to create economic incentives for the RTIS FOTT
team members to ensure all reasonable efforts will be made to submit a
competitive bid for the FOTT program.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act (15 U.S.C. Sec. 15) provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act (15 U.S.C.
Sec. 16(a)), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least 60 days proceeding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within
sixty (60) days of the date of publication of this Competitive Impact
Statement in the Federal Register. The United States will evaluate and
respond to the comments. All comments will be given due consideration
by the Department of Justice, which remains free to withdraw its
consent to the proposed Judgment at any time prior to entry. The
comment and the response of the United States will be filed with the
Court and published in the Federal Register.
Written comments should be submitted to: J. Robert Kramer II,
Chief, Litigation II Section, Antitrust Division, United States
Department of Justice, 1401 H Street, N.W., Suite 3000, Washington,
D.C. 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against defendants Raytheon
and General Motors. The United States could have brought suit and
sought preliminary and permanent injunctions against Raytheon's
acquisition of Hughes.
The United States is satisfied that the divestive of the described
assets and the other terms specified in the proposed Final Judgment
will encourage viable competition in the research, development, and
production of SADA II detectors, staring FPAs, ground EO systems, and
the FOTT program. The United States is satisfied that the proposed
relief will prevent the acquisition from having anticompetitive effects
in these markets. The divestiture of the FPA Business and the EO
Business and the other proposed terms will restore the SADA II, staring
FPA, ground EO systems, and FOTT missile markets to structures that
existed prior to the acquisition and will preserve the existence of
independent competitors in those markets.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases by the United States be subject to a sixty-day comment period,
after which the court shall determine whether entry of the proposed
Final Judgment ``is in the public interest.'' In making that
determination, the court may consider--
(1) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing the adequacy of such judgment;
(2) The impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. Sec. 16(e) (emphasis added). As the Court of Appeals for the
District of Columbia Circuit recently held, the APPA permits a court to
consider, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the decree is sufficiently clear, whether
enforcement mechanism are sufficient, and whether the decree may
positively harm third parties. See United States v. Microsoft, 56 F.3d
1448 (D.C. Cir. 1995).
In conducting this inquiry. ``the Court is nowhere compelled to go
to trail or to engage in extended proceedings which might have a effect
of vitiating the benefits of prompt and less costly settlement through
the consent decree process.'' \1\ Rather.
\1\ 119 Cong. Rec. 24598 (1973). See also United States v.
Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public
interest'' determination can be made properly on the basis of the
Competitive Impact Statement and Response to Comments filed pursuant
to the APPA. Although the APPA authorizes the use of additional
procedures, 15 U.S.C. Sec. 16(f), those procedures are
discretionary. A court need not invoke any of them unless it
believes that the comments have raised significant issues and that
further proceedings would aid the court in resolving those issues.
See H.R. 93-1463, 93rd Cong. 2d Sess. 8-9, reprinted in (1974) U.S.
Code Cong. & Ad. News 6535, 6538.
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[[Page 60278]]
Absent a showing of corrupt failure of the government to
discharge its duty, the Court, in making its public interest
finding, should * * * carefully consider the explanations of the
government in the competitive impact statement and its responses to
comments in order to determining whether those explanations are
---------------------------------------------------------------------------
reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. para.
61,508, at 71,980 (W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, (9th Cir. 1988), quoting United States v. Bechtel Corp.,
648 F.2d 660,666 (9th Cir.), cert. denied, 454 U.S. 1083 (1981); see
also, Microsoft, 56 F.3d 1448 (D.C. Cir. 1995). Precedent requires that
[T]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest in one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is `within the reaches of the public
interest.' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\2\
\2\ United States v. Bechtel, 648 F.2d at 666 (internal
citations omitted) (emphasis added); see United States v. BNS, Inc.,
858 F.2d at 463; United States v. National Broadcasting Co., 449 F.
Supp. 1127, 1143 (C.D. Cal. 1978); United States v. Gillette Co.,
406 F. Supp. at 716. See also United States v. American Cyanamid
Co., 719 F.2d 558, 565 (2d Cir. 1983).
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The proposed Final Judgment, therefore should not be reviewed under
a standard of whether it is certain to eliminate every anticompetitive
effect of a particular practice or whether it mandates certainty of
free competition in the future. Court approval of a final judgment
requires a standard more flexible and less strict than the standard
required for a finding of liability. ``[A] proposed decree must be
approved even if it falls short of the remedy the court would impose on
its own, as long as it falls within the range of acceptability or is
`within the reaches of public interest.' (citations omitted).''\3\
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\3\ United States v. American Tel. and Tel Co., 552 F. Supp.
131, 150 (D.D.C. 1982), aff'd sub nom. Maryland v. United States,
460 U.S. 1001 (1983), quoting United States v. Gillette Co., supra,
406 F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F.
Supp. 619, 622 (W.D. Ky 1985).
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
For Plaintiff United States of America:
Dated: October 22, 1997.
J. Robert Kramer II,
Chief, Litigation II Section, PA Bar #23963.
Willie L. Hudgins,
Assistant Chief, Litigation II Section, DC Bar #37127.
and
Janet Adams Nash,
Kevin C. Quin,
Stacy Nelson,
Laura M. Scott,
Nancy Olson,
Tara M. Higgins,
Charles R. Schwidde,
Robert W. Wilder,
Melanie Sabo,
Trial Attorneys, U.S. Department of Justice, Antitrust Division,
1401 H St., NW., Suite 3000, Washington, DC 20530, 202-307-0924,
202-307-6283 (Facsimile).
Certificate of Service
I hereby certify under penalty of perjury that on this 22nd day of
October, 1997, I caused copies of the foregoing competitive impact
statement to be served via hand-delivery upon the following:
Counsel for Raytheon Company.
Robert D. Paul, Esq.,
Michael S. Shuster, Esq.,
White & Case, 601 13th St., NW., Washington, DC 20005-3807.
Counsel for HE Holdings, Inc., and General Motors Corp.
Robert C. Odle, Esq.,
Peter D. Standish, Esq.,
Douglas A. Nave, Esq.,
Weil, Gotshal & Manges LLP, 767 Fifth Ave., New York, NY 10153-0119.
Willie L. Hudgins, Esq.,
Assistant Chief, Litigation II Section, U.S. Department of Justice,
Antitrust Division, 1401 H Street, NW., Suite 3000, Washington, DC
20530, (202) 307-0924.
[FR Doc. 97-29474 Filed 11-6-97; 8:45 am]
BILLING CODE 4410-11-M