[Federal Register Volume 63, Number 68 (Thursday, April 9, 1998)]
[Notices]
[Pages 17454-17460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9372]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Lehman Brothers Holdings Inc. and L-3 
Communications 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. sections 16(b)-(h), that a Complaint, proposed 
Final Judgment, Stipulation and Order, and Competitive Impact Statement 
have been filed with the United States District Court for the District 
of Columbia, in United States v. Lehman Brothers Holdings Inc. and L-3 
Communications Holdings, Inc., Civil Action No. 1:98CV00796.
    On March 27, 1998, the United States filed a Complaint seeking an 
injunction enjoining L-3 Communications Holdings, Inc. and its parent 
Lehman Brothers Holdings Inc. from acquiring AlliedSignal Inc.'s Ocean 
Systems and ELAC Nautik GmbH sonar business, or from entering into or 
carrying out any agreement, understanding or plan, the effect of which 
would be to combine the sonar business of AlliedSignal Inc. 
(``AlliedSignal'') and L-3 Communications Corp. (``L-3 
Communications''), a wholly owned subsidiary of L-3 Communications 
Holdings, Inc. The Complaint alleges that because Lockheed Martin 
Corporation (``Lockheed Martin'') owns 34.0 percent of the common stock 
of L-3 Communications and controls three seats on the L-3 
Communications Board of Directors, the acquisition by L-3 
Communications of the sonar business of AlliedSignal would lessen 
competition substantially in the production and sale of towed sonar 
arrays to the U.S. Department of Defense (``DoD'') in violation of 
Section 7 of the Clayton Act, 15 U.S.C. Section 18. Under the proposed 
Final Judgment, filed the same day as the Complaint, L-3 Communications 
has agreed to: (1) Maintain a ``firewall'' whereby it prevents the 
sharing of non-public information relating to the sonar businesses of 
L-3 Communications and Lockheed Martin, and (2) not enter into any 
joint bidding or teaming agreements with Lockheed Martin to bid on DoD 
contracts relating to towed sonar arrays.
    Public comment is invited within the statutory 60-day comment 
period. Such comments and responses thereto will be published in the 
Federal Register and filed with the Court. Comments should be directed 
to J. Robert Kramer, II, Chief, Litigation II Section, Antitrust 
Division, U.S. Department of Justice, 1401 H Street, N.W., Suite 3000, 
Washington, D.C. 20530 [telephone: (202) 307-0924].
Constance K. Robinson,
Director of Operations & Merger Enforcement Antitrust Division.

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. 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) Defendant 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, and 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 provisions 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 provisions contained therein.

    Dated: March 26, 1998.


[[Page 17455]]


    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 Lehman Brothers Holdings Inc.
Karen Muller,
Vice President, Lehman Brothers Holdings Inc., 3 World Financial 
Center, New York, NY 10285, (212) 526-2728.

    For Defendant L-3 Communications Holdings, Inc.
Christopher C. Cambria,
Vice President, Secretary and General Counsel, L-3 Communications 
Corporation, 600 Third Avenue, New York, NY 10016, (212) 805-5634.

    IT IS SO ORDERED by the Court, this ________ day of March, 1998.

----------------------------------------------------------------------
United States District Judge

Final Judgment

    Whereas, plaintiff, the United States of America, filed its 
Complaint in this action on March 27, 1998, 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 to require defendants to preserve 
competition by: (1) Preventing employees, officers or directors of 
Lockheed Martin who serve on the Board of Directors of L-3 
Communications, or those nominated by Lockheed Martin to the Board of 
Directors of L-3 Communications, from influencing, directly or 
indirectly, the operation of the Ocean Systems and ELAC assets being 
acquired by L-3 Communications from Allied Signal, and (2) prohibiting 
the disclosure of non-public information between L-3 Communications and 
Lockheed Martin relating to the Ocean Systems and ELAC businesses and 
Lockheed Martin's sonar and mine warfare businesses;
    And Whereas, defendants have represented to the plaintiff that they 
will not enter into any joint bidding or teaming agreements with 
Lockheed Martin to bid on DoD contracts relating to towed arrays, but 
that they will be permitted to enter into contracts or subcontracts 
with Lockheed Martin which relate to towed arrays after DoD has awarded 
a contract;
    And Whereas, defendants have represented to the plaintiff that they 
can effectuate the preservation of competition by constructing and 
enforcing a firewall and agreeing not to enter into joint bidding or 
teaming agreements with Lockheed Martin to bid on DoD contracts 
relating to towed arrays and that defendants will later raise no claims 
to hardship or difficulty as grounds for asking the Court to modify any 
of the 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. 18.

II. Definitions

    As used in this Final Judgment:
    A. ``AlliedSignal'' means AlliedSignal, Inc.
    B. ``L-3 Communications'' means L-3 Communications Corporation and 
L-3 Communications Holdings, Inc., and their directors, employees, 
agents, representatives, predecessors, successors and assigns.
    C. ``Lockheed Martin'' means Lockheed Martin Corporation, its 
directors, officers, employees, agents, predecessors, successors and 
assigns; its subsidiaries, divisions, groups, affiliates, partnerships 
and joint ventures controlled by Lockheed Martin Corporation; 
businesses Lockheed Martin Corporation acquires or merges with; and the 
respective directors, officers, employees, agents, predecessors, 
successors and assigns of each.
    D. ``Limited Officer or Director'' means (1) any employee, officer 
or director of Lockheed Martin, who is also a member of the Board of 
Directors of, or an officer of, L-3 Communications, or (2) any member 
of the Board of Directors of L-3 Communications nominated by Lockheed 
Martin.
    E. ``Ocean Systems'' means the business units and assets of 
AlliedSignal to be acquired by L-3 Communications through operation of 
the Purchase Agreement dated December 22, 1997, including AlliedSignal 
Ocean Systems business unit and AlliedSignal ELAC Nautik GmbH.
    F. (1) ``Non-Public Ocean Systems Information'' means any 
information relating to the business of Oceans Systems not in the 
public domain, including, but not limited to, Ocean Systems' plans 
concerning current and future DoD contracts.
    (2) Non-Public Ocean Systems Information shall not include: (a) 
Information that, subsequent to the time L-3 Communications signs the 
Stipulation and Order in this matter, falls within the public domain 
through no violation of this order by L-3 Communications; or (b) 
information that, subsequent to the time L-3 Communications signs the 
Stipulation and Order in this matter, becomes known to Lockheed Martin 
from a third party not known by L-3 Communications or Lockheed Martin 
to be in breach of a confidential disclosure agreement.
    G. (1) ``Non-Public Lockheed Martin Information'' means any 
information not in the public domain relating to sonar and mine warfare 
products of Lockheed Martin, including, but not limited to, Lockheed 
Martin's plans concerning current and future DoD contracts.
    (2) Non-Public Lockheed Martin Information shall not include: (a) 
Information that, subsequent to the time L-3 Communications signs the 
Stipulation and Order in this matter, falls within the public domain 
through no violation of this order by L-3 Communications; or (b) 
information that, subsequent to the time L-3 Communications signs the 
Stipulation and Order in this matter, becomes known to L-3 
Communications from a third party not known by L-3 Communications to be 
in breach of a confidential disclosure agreement.
    H. DoD means U.S. Department of Defense.

III. Firewall

    A. L-3 Communications shall not discuss, provide, disclose, or 
otherwise make available, directly or indirectly, to any Limited 
Officer or Director any Non-Public Ocean Systems Information.
    B. L-3 Communications shall require each Limited Officer or 
Director to refrain from discussing, providing, disclosing or otherwise 
making available, directly or indirectly, any Non-Public Lockheed 
Martin Information to any employee or officer of L-3 Communications or 
to any member of the Board of Directors of L-3 Communications, except 
any other Limited Officer or Director.
    C. The restrictions set forth in Paragraphs III.A and III.B of this 
Order

[[Page 17456]]

shall not prohibit the otherwise lawful exchange by L-3 Communications 
and Lockheed Martin of such Non-Public Ocean Systems Information or 
such Non-Public Lockheed Martin Information that may be necessary (1) 
to obtain or perform any contract or subcontract between L-3 
Communications and Lockheed Martin, with the exception of the 
prohibitions set forth in Section IV, or (2) to obtain or perform any 
related contracts or subcontracts between or among L-3 Communications, 
Lockheed Martin and any third party (including any governmental 
agency).
    D. L-3 Communications shall conduct all business relating to Ocean 
Systems without the vote, concurrence, attendance or other 
participation of any kind whatsoever of any Limited Officer or 
Director.
    E. Limited Officers or Directors shall not be counted for purposes 
of establishing a quorum in connection with any matter relating to 
Ocean Systems.
    F. L-3 Communications shall not provide any Limited Officer or 
Director with any type of compensation that is based in whole or in 
part on the profitability or performance of Ocean Systems; provided, 
however, that any Limited Officer or Director may receive as 
compensation for his or her serving on the L-3 Communications Board of 
Directors such compensation as is provided generally to other members 
of the L-3 Communications Board of Directors in accordance with L-3 
Communications' ordinary practice, or compensation that is based on the 
overall profitability or performance of L-3 Communications.

IV. Prohibitions on Certain Joint Bidding and Teaming Agreements

    A. L-3 Communications shall not enter into any joint bidding or 
teaming agreements with Lockheed Martin to bid on DoD contracts 
relating to towed arrays. L-3 Communications shall not provide any Non-
Public Ocean Systems Information nor receive any Non-Public Lockheed 
Martin Information for the purpose of entering into any joint bidding 
or teaming agreements with Lockheed Martin for the purpose of bidding 
on DoD contracts relating to towed arrays. These prohibitions do not 
restrict L-3 Communications from entering into any contract or 
subcontract with Lockheed Martin which relates to towed arrays, after 
DoD has awarded a contract.

V. Affidavits

    A. Within sixty (60) calendar days after the filing of the 
Complaint in this matter, L-3 Communications, shall certify to the 
Plaintiff whether it has complied with Sections III and IV above.
    B. For each year during the term of this Final Judgment, L-3 
Communications shall file with the Plaintiff, on or before the 
anniversary date of the filing of the Complaint, an affidavit as to the 
fact and manner of its compliance with the provisions of Sections III 
and IV above.
    C. Until such time that this Final Judgment shall expire, L-3 
Communications shall preserve all records of all efforts to comply with 
the Final Judgment.

VI. Compliance Inspection

    For purposes of determining or securing compliance with the Final 
Judgment and subject to any legally recognized privilege, from time to 
time:
    A. Duly authorized representatives of the United States Department 
of Justice (``DOJ''), upon written request of the Attorney General or 
of the Assistant Attorney General in charge of the Antitrust Division, 
and on reasonable notice to L-3 Communications made to its principal 
offices, shall be permitted:
    1. Access during office hours of L-3 Communications to inspect and 
copy all books, ledgers, accounts, correspondence, memoranda, and other 
records and documents in the possession or under the control of L-3 
Communications, who may have counsel present, relating to the matters 
contained in this Final Judgment; and
    2. Subject to the reasonable convenience of L-3 Communications 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 
L-3 Communication's principal offices, L-3 Communications shall submit 
written reports, under oath if requested, with respect to any matter 
relating to the Final Judgment.
    C. No information or documents obtained by the means provided in 
Section V 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 L-3 
Communications to DOJ, L-3 Communications 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 L-3 Communications 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 to L-3 Communications prior 
to divulging such material in any legal proceeding (other than a grand 
jury proceeding) to which L-3 Communications is not a party.

VII. Applicability

    This Final Judgment applies to defendants; to each of their 
officers, directors, agents, employees, successors, assigns, 
subsidiaries, divisions, and any other organizational units of any 
kind; and to 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.

VIII. 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.

IX. Termination

    This Final Judgment shall continue in force until such time as 
Lockheed Martin owns less than five percent of the voting securities of 
L-3 Communications and there are no Limited Officers or Directors on 
the L-3 Communications Board of Directors.

IX. Public Interest

    Entry of this Final Judgment is in the public interest.

    Dated: ________________, 1998.

----------------------------------------------------------------------
United States District Judge

Competitive Impact Statement

    The United States, pursuant to Section 2(b) of the Antitrust 
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files 
this Competitive Impact Statement relating to the proposed Final

[[Page 17457]]

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

    On March 27, 1998, the United States filed a civil antitrust 
Complaint alleging that the proposed acquisition by L-3 Communications 
Corporation (``L-3 Communications''), a wholly owned subsidiary of L-3 
Communications Holdings, Inc., of the AlliedSignal Ocean Systems 
business unit (``Ocean Systems''), a wholly owned business unit of 
AlliedSignal Inc. (``AlliedSignal''), and AlliedSignal ELAC Nautik GmbH 
(``ELAC''), a wholly owned subsidiary of AlliedSignal Deutschland GmbH, 
which is a wholly owned subsidiary of AlliedSignal, would violate 
Section 7 of the Clayton Act, 15 U.S.C. 18.
    The Complaint alleges that the acquisition would violate Section 7 
of the Clayton Act because Lockheed Martin Corporation (``Lockheed 
Martin'') owns 34.0% of the common stock of L-3 Communications and 
controls three of ten seats on the L-3 Communications Board of 
Directors, and Lockheed Martin and Ocean Systems are the two leading 
competitors in the design, development, manufacture and sale of towed 
sonar arrays (``towed arrays'') to the U.S. Department of Defense 
(``DoD''). If L-3 Communications were to acquire Ocean Systems, L-3 
Communications and Lockheed Martin would become competitors. Towed 
arrays are sonar systems consisting of very long hose-like structures 
that are towed behind surface ships and submarines for the purpose of 
detecting submarines or torpedoes, depending on the type of array. The 
arrays are linked to electronic signal processing equipment on board 
the ship or submarine towing the array. This equipment processes the 
sounds picked-up by the arrays to determine the source of the sound.
    As described in the Complaint, since towed arrays are sold to DoD 
and there are no foreign producers to which DoD or its U.S. prime 
contractors could reasonably turn to purchase these arrays, the 
relevant geographic market is the United States.
    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 L-3 Communications from 
acquiring Ocean Systems and ELAC.
    When the Complaint was filed, the United States also filed a 
proposed settlement that would permit L-3 Communications to complete 
its acquisition of Ocean Systems and ELAC, and preserve competition in 
the relevant market, by requiring L-3 Communications to establish and 
maintain a ``firewall'' whereby it would refrain from discussing with 
or disclosing to any employee, officer or director of Lockheed Martin, 
or person nominated by Lockheed Martin, who is also a member of the 
Board of Directors of, or an officer of, L-3 Communications any non-
public information relating to the Ocean Systems and ELAC businesses. 
The firewall also requires that these same individuals not share with 
L-3 Communications any non-public information of Lockheed Martin 
relating to Lockheed Martin's sonar and mine warfare products. 
Additionally, the settlement prohibits L-3 Communications from entering 
into joint bidding or teaming agreements with Lockheed Martin for the 
purpose of bidding on DoD contracts for towed arrays. The settlement 
does not however, bar L-3 Communications from entering into a contract 
or subcontract with Lockheed Martin which relates to towed arrays, 
after DoD has awarded a contract. The settlement is embodied in a 
Stipulation and Order and a proposed Final Judgment.
    The proposed Final Judgment requires L-3 Communications to 
implement the firewall and begin adding by the prohibitions on entering 
into joint bidding or teaming agreements with Lockheed Martin or DoD 
contracts for towed arrays immediately upon the filing of the proposed 
Final Judgment and the Complaint in this matter. L-3 Communications 
must maintain the firewall and abide by the prohibitions on certain 
joint bidding and teaming agreements for the duration of the proposed 
Final Judgment. The proposed Final Judgment continues in force until 
such time as Lockheed Martin owns less than five percent of the voting 
securities of L-3 Communications and there are no employees, officers 
or directors of Lockheed Martin, or persons nominated by Lockheed 
Martin, on the L-3 Communications Board of Directors. L-3 
Communications must certify to DOJ sixty (60) calendar days after the 
filing of the Complaint in this matter and annually thereafter the 
steps it has taken to comply with the provisions set forth in the 
proposed Final Judgment.
    The terms of the Stipulation and Order entered into by the parties 
apply to ensure that the Ocean Systems and ELAC businesses to be 
acquired by L-3 Communications shall be maintained as independent 
competitors of Lockheed Martin.
    The plaintiff and defendants have stipulated that the proposed 
Final Judgment may be entered after compliance with the 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

    Lehman Brothers Holdings, Inc. is a Delaware corporation 
headquartered in New York, New York. Its business activities are in 
financial services and merchant and investment banking. In 1997, Lehman 
Brothers Holdings, Inc. had net revenues of $3.8 billion.
    L-3 Communications Holdings, Inc. is a Delaware corporation 
headquartered in New York, New York. L-3 Communications is a leading 
provider of sophisticated secure communication systems and specialized 
communication products including high data-rate communications systems, 
microwave components, avionics, and telemetry and instrumentation 
products. In 1997, L-3 Communications had sales of approximately $700 
million.
    On December 22, 1997, L-3 Communications and AlliedSignal entered 
into a Purchase Agreement, whereby L-3 Communications would acquire 
from AlliedSignal its Ocean Systems and ELAC businesses. This 
transaction, which would give Lockheed Martin, through its ownership 
interest in L-3 Communications, influence over, and access to non-
public information of, the other leading competitor in the design, 
development, manufacture and sale of towed arrays to DoD, precipitated 
the government's suit.

B. Towed Arrays Market

    Towed arrays are sonar systems designed to be towed by a submarine 
or a surface vessel. Towed arrays deployed by submarines are designed 
to detect other submarines. The arrays are long, hose-like structures 
measuring up to a thousand feet or longer that contain specially 
designed acoustic sensors, called hydrophones, which pick up sound. The 
arrays include electronics that convert the acoustical waves from 
analog to digital form and transmit that data to electronic processors 
on board the submarine. Processing the data involves such functions as 
distinguishing the sounds generated by submarines from the sounds made 
by other sources, such as whales. The construction of the hose-like 
structure containing the hydrophones and

[[Page 17458]]

electronics requires specialized skills which few companies possess. 
Towed arrays deployed by submarines must be designed to withstand the 
extreme environmental stresses of operation in the ocean depths.
    Towed arrays deployed by surface combat vessels are designed to 
detect submarines and torpedoes. They have different mechanisms for 
deploying, reeling in and storing the arrays and face different 
environmental stresses than those deployed by submarines. Towed arrays 
used by surface combat vessels are towed at much greater speed than 
those towed by submarines or non-combat ships and require engineering 
solutions to deal with the ``noise'' generated by dragging the array 
through the water. Towed arrays deployed by non-combat surface ships 
are designed to detect submarines, but not torpedoes. Only about ten 
percent of towed arrays for surface ships are those designed for non-
combat ships.
    There are no substitutes for towed arrays and therefore no other 
products to which DoD or U.S. prime contractors could turn in the face 
of a small but significant and non-transitory price increase by 
suppliers of towed arrays.

C. Harm to Competition as a Consequence of the Acquisition

    Ocean Systems and Lockheed Martin are the two leading firms in the 
design and production of towed arrays. Over ninety percent of the towed 
arrays deployed by submarines have been designed and built by Lockheed 
Martin and Ocean Systems. Over eighty percent of the towed arrays 
deployed by surface combat ships were built by Ocean Systems and 
Lockheed Martin (and companies it acquired). The other company that 
previously built towed arrays for surface combat ships has not won a 
DoD contract for towed arrays in over a decade. Because of their prior 
experience and repeated success in winning DoD towed array contracts, 
Lockheed Martin and Ocean Systems are likely to be the primary 
providers of towed arrays purchased by DoD in the future.
    In 1998, DoD is expected to conduct a competition, known as the 
Omnibus Competition, for the next generation of towed arrays to be 
deployed by submarines and surface combat and non-combat vessels. The 
award of this contract is expected to cover both design and production. 
This contract will likely be awarded on the basis of ``best value'' 
which considers a bidder's price and the quality of its technical 
proposal. The evaluation of the technical proposal generally includes 
an assessment of the riskiness of the proposal and the bidder's prior 
experience. Given their long history in designing and producing towed 
arrays for DoD, Ocean Systems and Lockheed Martin likely will be the 
leading contenders for the Omnibus contract, as well as for any future 
DoD towed array contracts. Other potential competitors do not have the 
experience of these two companies in the design and production of towed 
arrays.
    L-3 Communications' acquisition of Ocean Systems is likely 
significantly to lessen competition for towed array contracts awarded 
by DoD. Because Lockheed Martin sits on the Board of Directors of L-3 
Communications, the acquisition could result in the two leading 
providers of towed arrays to DoD having access to each other's business 
plans, costs, pricing data and decisions, and other internal and 
competitively sensitive information. The exchange of such information 
could significantly decrease the willingness and ability of L-3 
Communications and Lockheed Martin to engage in vigorous competition 
for DoD contracts for towed arrays. Access to information revealing 
each other's costs, pricing and technical efforts would provide them 
with information that could decrease their incentive to bid 
aggressively on DoD contracts and therefore could lead to higher prices 
paid by DoD. Access to such information could also decrease their 
incentive to minimize costs or to innovate in the design or manufacture 
of towed arrays.
    Successful entry into the production and sale of towed arrays is 
difficult, and costly. Entry requires advanced technology, skilled 
engineers, specialized know-how and costly customized equipment and 
facilities. A potential entrant would have to engage in difficult, 
expensive, and time consuming research to develop designs and 
production processes that can economically and reliably produce towed 
arrays. These designs and production processes must be perfected before 
an entrant can successfully bid for a DoD towed array contract. It is 
unrealistic to expect new entry in a timely fashion to protect 
competition in upcoming DoD towed array competitions.
    The Armed Forces of the United States rely on the ongoing, vigorous 
competition between Ocean Systems and Lockheed Martin for the 
development and production of towed arrays. The proposed acquisition 
will lessen this competition, and will result in an increase in prices 
paid by the United States and a decrease in innovation for towed arrays 
and will, therefore, violate Section 7 of the Clayton Act.
    The Complaint alleges that the transaction would have the following 
effects, among others: competition generally in the innovation, 
development, production and sale of towed arrays for military purposes 
in the United States would be lessened substantially; actual and future 
competition between Ocean Systems and Lockheed Martin in the 
innovation, development, production and sale of towed arrays for 
military purposes in the United States would be lessened substantially; 
and prices for towed arrays for military purposes 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 Ocean 
Systems by L-3 Communications.
    The proposed Final Judgment requires L-3 Communications to 
implement a firewall immediately upon the filing of the Complaint in 
this matter and to certify with sixty (60) calendar days after the 
filing of the Complaint that it has implemented the firewall provisions 
set forth in the proposed Final Judgment. The firewall provisions 
require that L-3 Communications shall not discuss, provide, disclose or 
otherwise make available, directly or indirectly, any non-public 
information relating to the Ocean Systems and ELAC businesses, to (1) 
any employee, officer or director of Lockheed Martin, who is also a 
member of the Board of Directors of, or an officer of, L-3 
Communications, or (2) any member of the Board of Directors of L-3 
Communications nominated by Lockheed Martin. Additionally, L-3 
Communications must require that any member of the Board of Directors 
of L-3 Communications who was either nominated by Lockheed Martin or 
who is an employee, officer or director of Lockheed Martin refrain from 
discussing, providing, disclosing or otherwise making available, 
directly or indirectly, any non-public information of Lockheed Martin 
relating to its sonar or mine warfare products. The firewall provisions 
also require that L-3 Communications shall conduct all business 
relating to Ocean Systems and ELAC without the vote, concurrence, 
attendance or other participation of any individuals serving on the L-3 
Communications Board of Directors who is an employee, officer or 
director of Lockheed Martin or who was nominated by Lockheed Martin. 
Finally,

[[Page 17459]]

the proposed Final Judgment prohibits L-3 Communications from entering 
into joint bidding or teaming agreements with Lockheed Martin for the 
purpose of bidding on DoD contracts for towed arrays. This prohibition 
does not bar L-3 Communications from entering into a contract or 
subcontract with Lockheed Martin after DoD has awarded a towed array 
contract.
    The provisions of the Final Judgment preserve competition because 
they will ensure that any business decisions made by L-3 Communications 
concerning the Ocean Systems and ELAC businesses it is acquiring from 
AlliedSignal will be made without sharing any non-public information 
with Lockheed Martin or receiving any non-public information from 
Lockheed Martin and because L-3 Communications and Lockheed Martin will 
be required to compete separately for DoD towed array contracts.

IV. Remedies Available To Potential Private Litigants

    Section 4 of Clayton Act (15 U.S.C. 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 cost and reasonable attorney's 
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. 16(a)), the 
proposed Final Judgment has no primi 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 preceding 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 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 comments 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 Krammer II, Chief, Litigation II Section, Antitrust 
Division, United States Department of Justice, 1401 H Street, NW, 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 Lehman 
Brothers Holdings Inc. and L-3 Communications Holdings, Inc. The United 
States could have brought suit and sought preliminary and permanent 
injunctions against L-3 Communications' acquisition.
    The United States is satisfied that the provisions set forth in the 
proposed Final Judgment will encourage viable competition in the 
research, development, and production of towed arrays. The United 
States is satisfied that the proposed relief will prevent the 
acquisition from having anticompetitive effects in this market. The 
provisions of the Final Judgment will restore the towed array market to 
the competitive conditions that existed prior to the acquisition.

VII. Standard of Review Under the APPA for Proposed Final Judgment

    The APPA requires that proposed consent judgments in antitrust 
cases brought 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 upon 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, in any, to be derived from a determination of the 
issues at trial.

15 U.S.C. 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 mechanisms 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 trial or to engage in extended proceedings which might have the 
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. 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. & News 
6535, 6538.
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absent a showing of corrupt failure of the government to discharge 
its duty, the Court, in making its public interest findings, should 
* * * carefully consider the explanations of the government in the 
competitive impact statement and its responses to comments in order 
to determine 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, 462 (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 is 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

[[Page 17460]]

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:
J. Robert Kramer II,
Chief, Litigation II Section, PA Bar #23963.
Willie L. Hudgins,
Assistant Chief, Litigation II Section, DC Bar #37127.

    and

Justin M. Dempsey,
Robert W. Wilder,
Trial Attorneys, U.S. Department of Justice, Antitrust Division, 1401 H 
St., N.W., Suite 3000, Washington, D.C. 20530, 202-307-0924, 202-307-
6283 (Facsimile).

    Dated: March 31, 1998.

Certificate of Service

    I hereby certify under penalty of perjury that on this 1st day of 
April, 1998, I caused copies of the foregoing COMPETITIVE IMPACT 
STATEMENT to be served by first-class mail postage prepaid, upon the 
following:
Christopher C. Cambria, Esq.,
Counsel for L-3 Communications Holdings, Inc., Vice President, 
Secretary, and General Counsel, L-3 Communications Corp., 600 Third 
Avenue, New York, NY 10016.
Joseph F. Wayland, Esq.,
Counsel for L-3 Communications Holdings, Inc., Simpson Thacher & 
Bartlett, 425 Lexington Avenue, New York, NY 10017.
Karen Muller,
For Lehman Brother Holdings Inc., Vice President, Lehman Brothers 
Holdings Inc., 3 World Financial Center, New York, NY 10285.
Justin M. Dempsey,
Attorney, Litigation II Section, U.S. Department of Justice, Antitrust 
Division, 1401 H Street, N.W., Suite 3000, Washington, D.C. 20530, 
(202) 307-0924.
[FR Doc. 98-9372 Filed 4-8-98; 8:45 am]
BILLING CODE 4410-11-M