[Federal Register Volume 63, Number 242 (Thursday, December 17, 1998)]
[Notices]
[Pages 69667-69674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33378]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. General Electric Company; Response to Public 
Comments

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. 16(b) through (h), that a Public Comment 
and the Response of the United States have been filed with the United 
States District Court for the District of Montana, Missoula Division, 
in United States v. General Electric Company, Civil Action No. 96-121-
M-CCL. Copies of the Complaint, proposed Final Judgment, Competitive 
Impact Statement, Public Comment, and the Response of the United States 
are available for inspection at the Department of Justice in 
Washington, D.C., in Room 215, 325 Seventh Street, N.W., and the Office 
of the Clerk of the United States District Court for the District of 
Montana, 301 South Park, Room 542, Helena, Montana 59626.
    The Complaint in this case, filed in August 1996, alleged that 
General Electric had entered into agreements that violated Sections 1 
and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2, by requiring 
hospitals that licensed certain diagnostic software from GE to agree 
not to compete with GE in unrelated service markets. On July 14, 1998, 
the United States filed a proposed Final Judgment and a Stipulation 
signed by the parties allowing for entry of the Final Judgment 
following compliance with the Tunney Act. The United States also filed 
a Competitive Impact Statement (``CIS''), which it published, along 
with the proposed Final Judgment, in the Federal Register. See 63 FR 
40737 (1998).
    The proposed Final Judgment enjoins GE from agreeing with any 
licensee that the licensee will not service third-party medical 
equipment, or from otherwise restraining the licensee from providing 
third-party service as a condition of licensing certain advanced 
service materials. The proposed Final Judgment also requires GE to 
implement a compliance program, and provides procedures that the United 
States may utilize to determine and secure GE's compliance.
    Under the Tunney Act, interested parties have 60 days from the date 
the proposed Final Judgment and CIS are published in the Federal 
Register to submit to the United States any comments they have on the 
Judgment. The 60-day period for public comments relating to this matter 
expired on September 28, 1998. The United States received only one 
Comment. The Comment and the Responses thereto, are hereby published in 
the Federal Register and have been filed with the Court.
Rebecca P. Dick,
Director of Civil Non-Merger Enforcement, Antitrust Division.
Ronald S. Katz, Esq.,
General Counsel, ISNI, Coudert Brothers, 4 Embarcadero Center, Ste. 
3300, San Francisco CA 94111, Telephone: 415-986-1300.

United States District Court for the District of Montana Missoula 
Division

    United States of America, Plaintiff, v. General Electric 
Company, Defendant. CV 96-121-M-CCL, PUBLIC COMMENT OF INDEPENDENT 
SERVICE NETWORK INTERNATIONAL PURSUANT TO 15 U.S.C. Sec. 16(b), (d).
    Pursuant to 15 U.S.C. Sec. 16(b), (d), of the Antitrust Procedures 
and Penalty Acts (``APPA'') Independent Service Network International 
(``ISNI''), a trade association of 157 maintainers of high technology 
equipment, including medical equipment of the type at issue in this 
matter,\1\ submits this public comment to the Competitive Impact 
Statement (``CIS'') published in the Federal Register at 63 FR 40737.
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    \1\ InnoServ Technologies, Inc., which General Electric Medical 
Systems (``GEMS'') is attempting to acquire, is a member of ISNI, 
but, because of conflict of interest considerations, has not been 
informed of or consulted about this public comment. Similarly, this 
comment is not intended to express any views of Serviscope, an ISNI 
member acquired by GEMS in August, 1998. See attached Declaration of 
Claudia Betzner, para. 6.
    The Innoserv conflict arises from another simultaneous consent 
decree between the U.S. and General Electric, described in a CIS at 
63 FR 39894. Although that CIS informs the D.C. District Court about 
this consent decree, the CIS in this case, for reasons known only to 
the parties, does not inform this Court about that consent decree. 
That the two decrees are related is evidenced by the GEMS press 
release on the consent decrees, which stated that GEMS settled this 
suit in order ``to obtain clearance to complete the Innoserv 
acquisition * * *'' See attached Declaration of Claudia Betzner, 
Exhibit A.
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I. Introduction

    This proposed consent decree grants GEMS the right to commit a per 
se violation of the antitrust laws, i.e., to prohibit hospital service 
organizations from licensing GEMS' advanced service materials unless 
the hospital agrees that such service materials may not be used by 
part-time employees. As will be detailed below, there is no 
justification for such a limitation, which could well distort the 
market, particularly in sparsely populated areas like Montana. Because 
per see violations of the antitrust laws are by definition contrary to 
public policy, it is not possible for the Court to make a determination 
that this consent decree is in the public interest pursuant to Sec. (e) 
of the APPA.
    A public interest determination is particularly important in this 
case because it involves the cost of healthcare, a subject important to 
all Americans, and because GEMS has a high market share in the relevant 
markets, which it has extended through recent aggressive transactions 
unopposed by the Government. Therefore, pursuant to APPA Sec. (f) and 
based on the showing detailed below, ISNI respectfully requests that 
the Court not make a determination that this consent decree is in the 
public interest. ISNI also respectfully requests that the Court 
authorize ISNI to appear at any hearing that the court may convene in 
order to determine whether this consent decree is in the public 
interest.

II. ISNI and its Interest in this Proceeding

    ISNI, an association of 157 independent service organizations 
(``ISOs''), i.e., organizations servicing equipment manufactured by 
others (see Betzner Decl., Exhibit B for a list of members), is a non-
profit corporation incorporated in the District of Columbia. In 
competition with the Service organizations of manufacturers, the 
members of ISNI service various types of high-technology equipment, 
including medical equipment of the type that is the subject of the CIS. 
ISNI's members account for over $1.5 billion in commerce.
    The purpose of ISNI for the past fourteen years has been to promote 
and maintain a closer union and organization of ISOs. Specifically ISNI 
develops educational methods to increase awareness about ISOs and 
studies economic and legal problems confronting them. ISNI also serves 
as a clearing house for information and data relating to its members' 
businesses and ISNI promotes better relations among providers, 
distributors and manufacturers of supplies and services.
    ISNI appears in Appendix C of the Pre-discovery Disclosure 
Statement of the United States filed in this matter on May 16, 1997. 
Page C-1 of that

[[Page 69668]]

document is headed ``List of individuals who may have relevant 
information'' and number four under that heading reads

    Individuals associated with industry associations * * * that 
likely possess information pertaining to: (a) the prices of medical 
equipment; (b) the functions of different types of medical 
equipment; (c) regulations for imaging equipment; and/or (d) market 
data, including trends in the medical equipment or service 
industries. (See Appendix C-58 to C-60.)

The seventh name listed on page C-58 of that document is that of 
Claudia Betzner, ISNI's Executive Director. Therefore, the Government 
acknowledges that ISNI has relevant information related to the 
proceeding.
    ISNI has participated in various legal proceedings on behalf of its 
members. For example, ISNI, then known as Computer Service Network 
International, filed a friend-of-the-court brief which was cited by the 
United States Supreme Court in its landmark antitrust decision 
concerning service aftermarkets, Eastman Kodak Co. v. Image Technical 
Services, Inc., et Al., 504 U.S. 451, 462 n.6 (1992). Also, pursuant to 
the order of Chief Judge Thomas P. Griesa of the Southern District of 
New York (Betzner Decl., Exhibit C), ISNI has been granted the right to 
intervene for purposes of appeal in the proceeding concerning the 
termination of the IBM consent decree, United States of America v. 
International Business Machines Corporation, 52 CIV. 72-344 (TPG), 
currently pending the U.S. Court of Appeals for the Second Circuit. 
ISNI has filed a brief in that proceeding.
    In his order, Judge Griesa found that ``ISNI has a legitimate 
interest in appealing from the May ruling, and it is in the public 
interest to allow ISNI to appeal'' (Id at 2). Similarly, it is in the 
public interest for ISNI to intervene in this proceeding because, as a 
result of GEMS' anticompetitive practices, a dwindling number of its 
members compete with GEMS to service the equipment involved in this 
case. The reasons that the number is dwindling are that GEMS has a 
large market share; it has aggressively extended that market share 
through the transactions described below, unopposed by the U.S. 
government; and its advanced diagnostics are an essential facility 
necessary to compete in the relevant markets. Now GEMS may further its 
stranglehold on the service market by precluding, pursuant to the 
Proposed Final Judgment, ISOs and hospital service organizations from 
cooperating in certain ways, such as ISOs providing part-time employees 
for hospital service organizations, serving as agents for hospital 
service organizations, or joint-venturing with hospital service 
organizations.
    Such cooperation is particularly important in sparsely populated 
areas like Montana, which may not have enough medical equipment of 
various types to justify full-time employees. Like businesses 
throughout history, hospital service organizations may find it most 
efficient from time to time to employ part-time personnel, and, 
depending on market conditions, it may be economic for an ISO to 
provide such part-time personnel. The Proposed Final Judgment, however, 
prevents this perfectly normal working of a free and open market.
    The reasons that it is in the public interest for ISNI to intervene 
in this matter are cogently set forth in the Government's complaint in 
this matter. The complaint clearly targets GEMS' practice of 
constraining competition from the hospital or its employees. For 
example, paragraph 32 of the Complaint describes how under the 
offending GEMS licensing agreement, ``* * * the hospitals also agreed 
to prohibit their service employees from competing with G.E. during the 
employees' business and off hours'' (emphasis added).
    Paragraph 33 of the Complaint quotes a ``continuing 
representation'' from the hospitals in GE's standard licensing 
agreement: ``You [the hospital] have no full or part-time employee who 
services any type of medical equipment of any person or entity other 
than you'' (emphasis added). Paragraph 37 of the Complaint states that 
to effectuate ``* * * its agreements not to compete, G.E. * * * 
provided valuable advanced diagnostics and training in exchange for the 
licensees' commitment that neither the licensees nor their employees 
would compete with G.E. in servicing medical equipment or provide 
service for medical equipment sold to other health care facilities by 
GE's competitors; and * * * to enforce the agreements not to compete 
when it discovered that licensees or their employees were servicing 
other health care providers' medical equipment'' (emphasis added).
    These agreements against hospitals and their employees resulted in 
the following ``Harm to Competition'' described in the Complaint:

    38. GE's agreements with its licensees have eliminated 
significant actual or potential high-quality, low-cost competitors 
throughout the United States from numerous markets for servicing 
medical equipment.
* * * * *
    40. Throughout the United States, health care providers that use 
imaging equipment have been forced to pay supra-competitive prices 
to have their equipment serviced.
    41. Medical equipment owners and operators, and their patients, 
have been denied the benefits of free and open competition in the 
servicing of medical equipment in Montana and throughout the United 
States.
    42. Medical equipment owners and operators, and their patients, 
have been denied the benefits of free and open competition in the 
sale of medical equipment in Montana and throughout the United 
States.
    43. Less service has been purchased by medical equipment owners 
and operators than would have been purchased in the absence of GE's 
restraints.
    44. By preventing hospitals with in-house service organizations 
from servicing other manufacturers' equipment, GE's agreements have 
made it more costly and difficult for those manufacturers to sell 
their imaging equipment in areas where they lack a significant 
installed base.
    45. GE's agreements with its licensees in Montana have 
disadvantaged many of GE's competitors in selling imaging equipment 
in Montana and have reduced customer choice.

    Despite these pernicious effects, the government has agreed in 
Sec. V(g) of the Proposed Final Judgment in this matter that GE is not 
prohibited ``* * * from agreeing with a licensee of Defendant's 
Operating and Service Materials that such materials may be used only by 
the Licensee's full-time employees.'' As will be detailed below, there 
is no justification whatsoever for this agreement, which distorts the 
workings of free and open competition. It is a per se violation of the 
antitrust laws, which by definition is not in the public interest and 
should not be countenanced by this Court.

III. GEMS' Monopoly and its Successful Efforts to Maintain and 
Extend it

    According to its own press release, ``E.G. Medical Systems, based 
in Milwaukee, WIS., is a $4.5 billion global provider of medical 
diagnostic imaging systems, services and solutions with 16,000 
employees worldwide.'' (Betzner Decl., Exhibit A.) According to the 
Complaint in this matter, ``health care providers spend over three 
billion dollars each year to service and repair all types of medical 
equipment'' (para. 1), ``GE is the world's largest manufacturer of 
imaging equipment'' (para. 4), and GE's licensing agreements with 
hospitals ``* * * reduced competition in servicing medical equipment'' 
(para. 5).
    Furthermore, GEMS has extended and maintained its market power by a 
number of recent aggressive transactions unopposed by the U.S. 
government:
     August, 1994: strategic alliance with Advanced NMR 
Systems, Inc.

[[Page 69669]]

regarding very high field magnetic resonance systems. (Betzner Decl., 
Exhibit D.)
     June, 1995: five-year agreement with Columbia/HCA 
Healthcare Corp. covering the service of all diagnostic imaging 
equipment in the hospital chain, which at that time consisted of 320 
hospitals. (Id., Exhibit E.)
     February, 1996: acquisition of National Medical 
Diagnostics, Inc., which at the time of acquisition provided medical 
equipment maintenance services to 220 hospitals in 23 states. (Id., 
Exhibit F.)
     August, 1996: acquisition of Specialty Underwriters, a 
seller of maintenance insurance to the healthcare industry, and 
Maintenance Management, which provides service for medical equipment. 
(Id., Exhibit G.)
     August, 1997: investment of $5.1 million in Advanced NMR 
Systems, Inc., an extension of the August 1994 alliance described 
above. (Id., Exhibit H.)
     December, 1997: five-year marketing pact with INPHACT, a 
provider of on-line radiology services for radiologists. (Id., Exhibit 
I.)
     August 1998: acquired Serviscope, a medical equipment 
maintenance and asset management company that was one of the few 
potential candidates to compete with GEMS to acquire Innoserv. (Id. at 
para 6.)
     September, 1998: pending acquisition of imaging business 
of Elscint (Id., Exhibit J).
    With each of these transactions, GEMS got stronger both absolutely 
and also relative to its much smaller hospital and ISO competitors. For 
GEMS to dictate when these hospital competitors can use part-time 
employees distorts free and open competition and has no justification 
whatsoever.

IV. Non-Compliance With The APPA

A. The CIS Does Not Provide the Required Information on the 
Restrictions on Part-time Employees

    Sec. (b)(3) of the APPA requires the CIS to recite ``an explanation 
of the proposal for a consent judgment, including an explanation of * * 
* relief to be obtained thereby, and the anticipated effects on 
competition of such relief.'' The information required by Sec. (b) has 
not been provided with respect to the part-time employee issue. Indeed, 
no information has been provided explaining or justifying GE's ability 
to restrict hospital competitors from using part-time employees. The 
reason for this lack of information is that there is no justification 
for this distortion of free and open competition, a fact which prevents 
this Court from determining that this Proposed Final Judgment is in the 
public interest.
    Speaking about this case, the InnoServ CIS, 63 FR 39894, 39899, 
states that ``GE * * * agreed to all of the relief that the Government 
was seeking. * * *'' That is simply not true. Paragraph 3 of the Prayer 
for Relief in the Complaint reads as follows:

    That GE, its officers, directors, agents, employees, 
subsidiaries, and successors, and all other persons acting or 
claiming to act on its behalf, be permanently enjoined, restrained 
and prohibited from, in any manner, directly or indirectly, 
continuing, enforcing, or renewing these agreements, or from 
engaging in any other confirmation, conspiracy, agreement, 
understanding, plan, program, or other arrangement limiting 
competition in the service of medical equipment, except for 
reasonable limitations on the use of copyrighted software and 
manuals themselves. Clearly the unjustified limitation on the use of 
part-time employees by hospital service organizations is contrary to 
this prayer for relief because (1) that limitation is part of the 
enjoined agreement and (2) that limitation is an arrangement 
``limiting competition in the service of medical equipment.'' Id.

B. The Proposed Final Judgment Is Not In the Public Interest

    APPA Sec. (e) requires this court to determine that the entry of 
judgment is in the public interest by considering among other things, 
``the competitive impact of such judgment.'' Because of the part-time 
employee prohibition, the competitive impact of this judgment would be 
negative.
    This Court can take judicial notice that since time immemorial 
employers have been using part-time employees to adjust to market 
conditions. The flexibility to use part-time employees is critical to 
being competitive: if one hires a full-time employee when only a part-
time employee is needed, then one's costs are too high; if one does not 
hire a part-time employee when there is sufficient work for such an 
employee, then one's production is insufficient.
    The need for part-time employees is particularly acute in sparsely 
populated areas like Montana. The CIS itself acknowledges this fact by 
acknowledging at page 40739 that (1) ``[h]ospitals are reluctant to 
purchase a piece of imaging equipment unless someone near their 
facility can service it'' and (2) ``[b]ecause manufacturers cannot 
economically place their own service engineers in areas [like Montana] 
where they do not have a large installed base, they need someone else 
in those areas who is qualified to service their equipment.'' Because 
the installed base is not large, that ``someone else'' may well be a 
part-time employee, especially in the critical early stages of the 
creation of an installed base of equipment.
    An obvious source of part-time employees for a hospital service 
organization is a local ISO. Because the ISO might not have enough for 
its employees to do in a sparsely populated area, it could be economic 
for the ISO to provide such an employee or to enter into other mutually 
advantageous relationships with a hospital service organization. Such 
relationships could include becoming the service agent for the hospital 
service organization or joint venturing with a hospital service 
organization. Under Sec. 5(g) of the Proposed Final Judgment, however, 
GEMS could choose not to license advanced service materials to such a 
hospital solely because a part-time employee may be using GE's advanced 
service materials.
    There is absolutely no justification for this distortion of free 
and open competition. The only possible justification--security of the 
advanced service materials--is debunked by the CIS itself at page 
40739:

    The non-compete agreements are not ancillary to any legitimate 
business interest that GE had in licensing advanced service 
materials particularly since they were not reasonably necessary to 
prevent the hospital from using the advanced service materials on 
third-party equipment, in a manner not authorized by the license 
agreements. As a result of software security procedures adopted by 
GE, the advanced service materials will only work on the specific GE 
machine to which the license agreement relates. Furthermore, the 
advanced service materials are model specific, i.e., the advanced 
service materials for one model of GE imaging equipment cannot be 
used on another model, even if the two models are of the same 
`modality' (e.g., if both are GE CT scanners), and cannot be used on 
other manufacturers' equipment * * * Given the machine and model-
specific nature of the software, the restrictions imposed by the 
license agreements on third-party service are unrelated to any 
legitimate interest GE has in preventing the unauthorized use of its 
software.

Obviously the same security that prevents hospitals from unauthorized 
use of the advanced software materials would also prevent such use by 
part-time employees of the hospitals.
    This fact makes the agreement allowed by the Proposed Final 
Judgment--i.e., a license agreement between GE and a hospital 
prohibiting the hospital from allowing part-time employees to use GE's 
advanced service materials--a non-ancillary agreement to allocate 
territories or customers.
    Indeed, it is just a potentially milder version of the agreement on 
which the

[[Page 69670]]

Government brought suit. That agreement was that hospitals could not 
compete with G.E. for service customers if the hospitals wanted GEMS' 
advanced service materials for their own use. The new agreement is that 
hospitals using part-time employees cannot compete with G.E. for 
service customers if the hospitals want GEMS' advanced service 
materials for the hospitals' own use. Such agreements are illegal per 
se, as the United States demonstrates at Appendix B-1 of its Pre-
Discovery Disclosure Statement filed with this Court on May 16, 1997:

    Non-ancillary agreements between actual or potential competitors 
to allocate territories or customers are illegal per se because they 
are ``naked restraints of trade with no purpose except stifling of 
competition.'' Palmer v. BRG of Georgia, 498 U.S. 46, 49-50 (1990). 
Such agreements are anticompetitive regardless of whether the 
parties split a market within which both do business or whether they 
merely reserve one market for one and another for the other. Id. An 
agreement not to compete in terms of price or output, without some 
pro-competitive justification, is simply `inconsistent with the 
Sherman Act's command that price and supply be responsive to 
consumer preference. National Collegiate Athletic Association v. 
Board of Regents of the University of Oklahoma, 468 U.S. 85, 109-
10(1984). Moreover, `the existence of a vertical aspect to the 
relationship between [GE and its hospital licensees] does not 
foreclose per se treatment of agreements to eliminate competition 
between them.' United States v. General Electric Co. (Order of March 
18, 1997), 1997-1 CCH Trade Cases, at 71,765, pp. 79,408-409 (citing 
Palmer) * * * (emphasis added).

The underscored references to output and supply mentioned above relate 
directly to the employment of part-time employees, a factor which 
effects output/supply.
    This Court has also recognized the per se nature of the challenged 
agreements at page five of its March 18, 1997 slip opinion in this 
matter:

    While it is true that restraints which are ancillary to a 
legitimate transaction are exempt from the per se rule, the 
government has alleged in the complaint that the agreements not to 
compete are not ancillary restraints * * * Of course, GE may offer 
evidence to refute the allegation later in this litigation, but for 
now the allegation is sufficient to withstand the motion to dismiss.

Not only did GE not refute this allegation, but also the CIS now 
acknowledges at page 40739 that ``* * * [t]he non-compete agreements 
are not ancillary to any legitimate business interest that GE had in 
licensing advanced service materials * * *''
    Therefore, these agreements, with their totally unjustified 
prohibition on part-time employees, are still per se violations of the 
antitrust laws. As such, this Court should not determine that a consent 
decree that permits them is in the public interest because the Supreme 
Court has already determined that such agreements are ``naked 
restraints of trade with no purpose except stifling of competition.'' 
Palmer, 498 U.S. at 49-50.

C. The CIS Asserts, Incredibly, That There Were No Materials Which the 
United States Considered Determinative in Formulating the Consent 
Decree

    APPA Sec. (b) requires the United States to publish with the CIS 
``* * * any other materials and documents which the United States 
considered determinative in formulating such proposal * * *'' The CIS 
at 40741 states, incredibly, that ``The government considered no 
materials or documents determinative in formulating the proposed Final 
Judgment.''
    This Court can take judicial notice that antitrust cases are among 
the most complex, document-intensive cases in the Federal Courts. This 
Court should respond in the same way as another District Court Judge 
responded to the same incredible claim: with incredulity and with an 
order to produce documents required by law. U.S. v. Central Contracting 
Co., Inc., 537 F. Supp. 571, 575, 577 (E.D.Va. 1982):

    The Act [APPA] clearly does not require a full airing of Justice 
Department files, but the Court cannot countenance plaintiff's claim 
that though Congress enacted sunshine legislation the courts may 
blandly (and blindly) accept government certification in case after 
case that no document or materials, by themselves or in the 
aggregate, led to a determination by the government that it should 
enter into a consent decree * * *
* * * * *
    This does not require full disclosure of Justice Department 
files . . . or defendant's files, but it does require a good faith 
review of all pertinent documents and materials and a disclosure of 
those which meet the above [APPA] criterium.

    Although no entity but the Government can know what these documents 
are, they should include at least the documents, if any, which led the 
Government to conclude that it was reasonable to permit GE to distort 
free and open competition by having the ability to limit its 
competitors from having part-time employees. These documents or 
documents like them must exist or else there is no reasoned basis for 
the consent decree. If they do not exist, then the Antitrust Division 
is not acting in a professional, competent manner.

V. This Court Should Authorize ISNI to Participate in any Public 
Interest Hearing That the Court May Convene

    APPA Sec. (f) authorizes this Court to ``authorize full or limited 
participation in proceedings before the court by interested persons or 
agencies, including . . . intervention as a party pursuant to the 
Federal Rules of Civil Procedure . . .'' The defects of the CIS 
described above amply justify such an authorization.
    As mentioned in Sec. II above, the ISNI has the interest, expertise 
and the experience to aid the Court. At the very least, the Court 
should order a hearing before making its public interest determination 
and should permit the ISNI to participate in that hearing.

VI. Conclusion

    Because the Proposed Final Judgment permits GEMS to engage in a per 
se violation of the antitrust laws, it is by definition not in the 
public interest. It will raise healthcare costs and reduce choice for 
patients. Therefore, ISNI respectfully requests the Court not to 
approve the Proposed Final Judgment.

    Respectfully submitted.

    Dated: September 24, 1998
    By
Ronald S. Katz, Esq.,
General Counsel, ISNI.
Coudert Brothers,
4 Embarcadero Center, Ste. 3300, San Francisco, CA 94111, Telephone: 
415-986-1300.

Certificate of Service

    This certifies that on December 10, 1998, I caused copies of the 
foregoing Public Comment of Independent Service Network 
International to be served as indicated upon the parties to this 
action and courtesy copies to be served as indicated upon each 
commenter:
By hand:
    Richard L. Rosen, Esquire, Arnold & Porter, 555 12th Street, 
Washington, D.C. 20004, Counsel for General Electric Company
By first-class mail
    Ronald S. Katz, Esquire, Coudert Brothers, 4 Embarcadero Center, 
Suite 3300, San Francisco, CA 94111, Counsel for the Independent 
Service Network International
Joan H. Hogan
Jon B. Jacobs, Joan H. Hogan, Peter J. Mucchetti,
Antitrust Division, United States Department of Justice, Liberty Place 
Building, 325 7th Street, N.W., Suite 300, Washington, D.C. 20530, 
(202) 616-5935.
    Attorneys for the United States.

    Responses to Public Comment.

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (``APPA'' or

[[Page 69671]]

``Tunney Act''), the United States hereby responds to the public 
comment received regarding the proposed Final Judgment in this case.

I. Background

    On August 1, 1996, the United States filed the Complaint in this 
matter, alleging that General Electric Company (``GE'') has violated 
Sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2, by 
requiring hospitals that licensed certain diagnostic software from GE 
to agree not to compete with GE in unrelated service markets. On July 
14, 1998, the United States filed a proposed Final Judgment and a 
Stipulation signed by the parties allowing for entry of the Final 
Judgment following compliance with the Tunney Act. The United States 
also filed a Competitive Impact Statement (``CIS''), which it 
published, along with the proposed Final Judgment, in the Federal 
Register. See 63 Fed. Reg. 40737 (1998).
    As is explained more fully in the Complaint, CIS, and various 
memoranda filed in this matter, GE, the world's largest manufacturer of 
medical imaging equipment, is also a leading provider of service for 
all types and brands of medical equipment. Many hospitals with in-house 
service departments also want to offer service to other nearby 
hospitals or clinics. In sparsely populated rural areas, such as 
Montana, these hospitals may be the only service providers other than 
GE that are qualified to service certain equipment. GE regularly 
granted these hospitals licenses that permitted them to use GE's 
software (``advanced service materials'') to service their own medical 
imaging equipment, but only if the hospitals agreed not to compete with 
GE to service other customers, even though the hospitals would not use 
GE's software to provide that service. These agreements harmed 
competition by foreclosing actual and potential competitors from 
offering service. The United States alleged that these agreements not 
to compete were per se illegal.
    The proposed Final Judgment prohibits certain conduct, requires GE 
to implement a compliance program, and provides procedures that the 
United States may utilize to determine and secure GE's compliance. The 
proposed Final Judgment enjoins GE from agreeing with any licensee that 
the licensee will not service third-party medical equipment. It defines 
``third-party service'' to mean the service of any medical equipment in 
the United States not owned, leased, or operated by the party 
performing it. Section IV(A) of the Final Judgment prohibits GE from 
entering into or enforcing any agreement in conjunction with the 
licensing of advanced service materials or related training whereby (a) 
the end-user represents that it has not, does not, or will not perform 
third-party medical equipment service or (b) the end-user is prevented 
or restrained from providing third-party service. Section IV(B) 
prohibits GE from requiring that a potential licensee give GE 
information regarding that person's provision of third-party service. 
Section IV(C) enjoins GE from representing that it has a policy or 
general practice of refusing to license operating or service materials 
for medical equipment, or of refusing to provide training thereon, 
because an end-user offers third-party medical equipment service. 
Section IV(D) prohibits GE from offering to sell or license operating 
or service materials on terms that vary depending on whether the end 
user has provided, does provide or will provide third-party medical 
equipment service.
    Under the Tunney Act, interested parties have 60 days from the date 
the proposed Final Judgment and CIS are published in the Federal 
Register to submit to the United States any comments they have on the 
Judgment. The United States then files with the court any such 
comments, along with its responses, and published them in the Federal 
Register. 15 U.S.C. Sec. 16(d). Provided that nothing in the public 
comments alters its conclusion that the proposed Final Judgment is in 
the public interest, the United States files a motion with the court 
asking for entry of the Judgment. The court thereafter must make its 
own determination of whether the proposed Final Judgment is in the 
public interest. 15 U.S.C. Sec. 16(e).
    The 60-day period for public comments relating to this matter 
expired on September 28, 1998. The United States received only one 
comment, that of Independent Service Network International (``ISNI''). 
ISNI, based in Washington, D.C., is a trade association of 157 
maintainers of high technology equipment, including some Independent 
Service Organizations (``ISOs'') that service medical imaging 
equipment. The United States has carefully considered the views 
expressed in ISNI's Comment. Nothing in the Comment has altered the 
United States' conclusion that the proposed Final Judgment is in the 
public interest. Accordingly, once ISNI's Comment and this Response are 
published in the Federal Register, as required by the Tunney Act, the 
United States will file a motion with this Court seeking entry of the 
proposed Final Judgment.

III. Response to the Comment of Independent Service Network 
International

    ISNI's primary concern with the proposed Final Judgment relates to 
Section V(g), which states: ``[N]othing in this Final Judgment shall be 
construed . . . to prevent Defendant from agreeing with a licensee of 
[its advanced service materials] . . . that such materials may be used 
only by the licensee's full-time employees.'' ISNI contends that 
because the proposed Final Judgment does not prohibit GE from agreeing 
with its hospital licensees that part-time employees may not use GE's 
software and because, it asserts, such agreements would be per se 
violations of the Sherman Act, the proposed Final Judgment is not in 
the public interest. ISNI Comment at 7. ISNI believes that in the 
absence of such licensing restrictions, ISO's (including, presumably, 
some of ISNI's members) might ``share'' an employee with a hospital on 
a part-time basis, who then would use GE's software to repair the 
hospital's equipment. ISNI Comment at 10-11.
    ISNI also contends that the United States failed to comply with the 
Tunney Act because in ISNI's view it did not adequately explain why the 
Judgment does not prohibit these restrictions regarding use by part-
time employees, and because the United States did not identify any 
determinative documents. ISNI Comment at 9-15. ISNI urges the Court to 
hold a hearing on the public interest determination and seeks to 
participate at that hearing.

A. The Proposed Final Judgment Adequately and Properly Remedies the 
Violation Alleged in the Complaint.

    ISNI's principal objection to the proposed Final Judgment--that it 
does not prohibit GE from entering into agreements with its licensees 
restricting the use of its software to certain employees--fails to 
raise an appropriate issue for consideration under the Tunney Act. The 
agreements to which ISNI objects are not of the type that were 
challenged in the United States' Complaint.
    The Complaint in this case challenges agreements not to compete 
that GE required of hospitals that wished to secure GE's advanced 
service materials. Complaint para. 31. These noncompete agreements 
between GE and the hospitals that are its actual or potential 
competitors in the third-party service business were unrelated to any 
legitimate interest of GE. An agreement between horizontal competitors 
not to compete is tantamount to an agreement

[[Page 69672]]

to allocate markets and is the type of restraint that is so likely to 
have anticompetitive effects that it is deemed to be per se illegal 
under the antitrust laws. See, e.g., Palmer v. BRG of Georgia, Inc., 
498 U.S. 46 (1990) (per curiam). The proposed Final Judgment prohibits 
GE from enforcing any such existing agreements and from entering into 
any similar agreements in the future. It provides full and complete 
relief for the violations alleged in the Complaint.
    ISNI is complaining about other potential provisions in GE's 
licensing agreements--restrictions not challenged in the Complaint--
that do restrict the way in which the hospital licensees may use GE's 
software. GE's licenses contain a number of these provisions. For 
example, the license requires the hospital to commit that ``[n]either 
[the] hospital nor any of [the hospital's] employees will permit any 
one other than [the hospital's] service employee . . . to have access 
to or to use any part of the [advanced service materials].'' These 
restrictions are similar to those found in many software licenses in 
order to prevent against misappropriation or to limit the license to 
certain categories of users. Contrary to ISNI's assertions, such 
provisions typically found in GE's licenses, including provisions 
regarding that only full-time employees use GE's software, do not 
prohibit licensee hospitals with part-time employees from competing 
with GE for third-party service customers. Licensee hospitals may even 
use their part-time employees to provide that service. The restrictions 
questioned by ISNI concern who within the hospital may use GE's 
software, not the provision of third-party service. The Complaint did 
not allege that such restrictions on use violate the antitrust laws, 
and thus the proposed Final Judgment does not prohibit them. See CIS at 
8.
    The Tunney Act does not contemplate judicial review of the 
government's determination of which conduct to challenge or which 
violations to allege in the Complaint. The government's decision not to 
challenge particular conduct based on the facts and law before it at a 
particular time, like any other decision not to prosecute, ``involves a 
complicated balancing of a number of factors which are peculiarly 
within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821, 
831 (1985). The United States has wide discretion within the reaches of 
the public interest to resolve potential litigation. See United States 
v. Western Elec. Co., 993 F.2d 1572, 1577 (D.C. Cir. 1993). Moreover, 
in conducting its Tunney Act evaluation, the Court must not look beyond 
the Complaint ``to evaluate claims that the government did not make and 
to inquire as to why they were not made.'' United States v. Microsoft, 
56 F.3d, 1448, 1459 (D.C. Cir. 1995). Last year, the United States 
Court of Appeals for the District of Columbia Circuit stated that 
courts, in making their public interest determination:

    Must examine the decree in light of the violations charged in 
the complaint and should withhold approval only if any of the terms 
appear ambiguous, if the enforcement mechanism is inadequate, if 
third parties will be positively injured, or if the decree otherwise 
makes ``a mockery of judicial power.''

    Massachusetts School of Law at Andover, Inc. v. United States, 118 
F.3d 776, 783 (D.C. Cir. 1997), quoting United States v. Microsoft 
Corp., 56 F.3d 1448, (D.C. Cir. 1995).

B. The Proposed Final Judgment Does Not Authorize GE to Include Any 
Particular Restrictions in Its Licenses

    ISNI suggests that Section V(g) of the proposed Final Judgment 
grants GE the right to engage in per se illegal conduct. ISNI Comment 
at 2. ISNI has misconstrued the impact of Section V of the Final 
Judgment. Section V is intended to clarify the meaning of Section IV, 
which contains the key prohibitions. Section V makes it clear that the 
Judgment should not be read to prohibit certain conduct. It does not, 
however, reach any conclusions as to whether that conduct is otherwise 
lawful, nor does it authorize GE to engage in any particular activity. 
Instead, as was stated in the CIS, the proposed Final Judgment is 
silent as to whether any particular restriction addressed in Section V 
would violate the antitrust laws. CIS at 8. Section V thus provides GE 
with no defense to any later allegation, made by a private party or 
even the United States, that the conduct described in Section V(g) 
violated the antitrust laws. Furthermore, entry of a proposed Final 
Judgment does not bar a private party from seeking and obtaining 
appropriate antitrust remedies, whether or not the challenged conduct 
is prohibited by the Final Judgment. In short, the proposed Final 
Judgment does not authorize GE to include any particular restrictions 
in its licenses.\1\
---------------------------------------------------------------------------

    \1\ Although the proposed Final Judgment does not authorize GE 
to prevent a hospital's part-time employee from using its software, 
and although the United States takes no position regarding the 
validity of this particular restriction, ISNI's contention that this 
restriction is illegal per se is wrong. The Supreme court has ruled 
that certain conduct, such as the agreements challenged in this 
case, is so inherently anticompetitive that it is illegal per se 
under Section 1. See Palmer, 498 U.S. at 48-50. However, the per se 
standard is generally not applied to restrictions on the way a 
licensee can use software it has licensed, provided that the 
restrictions do not restrain competition that would occur in the 
absence of the license. An owner of intellectual property is 
ordinarily not required to license others to use it, but may choose 
to do so and to subject the licensee to reasonable restrictions and 
conditions. Such restrictions and conditions often serve 
procompetitive purposes by allowing licensors to exploit their 
intellectual property rights and by encouraging others to make 
similar investments. For these reasons, restrictions on the way a 
licensee may use intellectual property are generally reviewed under 
the rule of reason standard, which takes into account market 
conditions and other relevant factors, rather than a per se 
standard. See U.S. Department of Justice and the Federal Trade 
Comm'n, Antitrust Guidelines for the Licensing of Intellectual 
Property, 4 Trade Reg. Rep. (CCH) para. 13,132 at 20,735-36, 20740-
41 (1995).
---------------------------------------------------------------------------

C. The United States Has Complied with the Tunney Act

1. The CIS Adequately Explains the Relief
    ISNI contends that the United States failed to comply with the 
Tunney Act because it did not explain why the Judgment does not 
prohibit GE from agreeing with its licenses that only full-time 
employees could use its software. ISNI mischaracterizes the CIS, which 
states:

    The limiting conditions are consistent with the relief sought in 
the Complaint. The Complaint alleged that GE had used its advanced 
service materials to induce hospitals with in-house service 
capability to agree not to compete with GE in the servicing of 
medical equipment. The Complaint did not allege that GE's refusal to 
license its intellectual property to any or all persons who might 
seek such licenses violated the antitrust laws, and the Final 
Judgment is silent as to that conduct.
    CIS at 8.
2. There Were No Determinative Documents
    ISNI next contends that the United States failed to comply with the 
Tunney Act because it did not identify any determinative documents. 
ISNI characterizes as ``incredible'' the CIS's statement that there 
were no determinative materials or documents within the meaning of the 
APPA that were considered in formulating the proposed Final Judgment. 
ISNI Comment at 14.
    The Tunney Act requires, in pertinent part, that the United States 
make available to the public copies of the proposed final Judgment 
``and any other materials and documents which the United States 
considered determinative in formulating such proposal.'' 15 U.S.C. 
Sec. 16(b) (emphasis added). Thus, the United States is required to 
disclose only those documents that it considered

[[Page 69673]]

determinative in its decision to settle the case on the terms set forth 
in the proposed Final Judgment. Documents that were determinative in 
the decision to file the case need not be disclosed. During Senate 
hearings on the Tunney Act, one witness specifically urged that ``as a 
condition precedent to * * * the entry of a consent decree in a civil 
case * * * the Department of Justice be required to file and make a 
matter of public record a detailed statement of the evidentiary facts 
on which the complaint * * * was predicated.'' \2\ Congress, however, 
rejected that recommendation. ISNI's broad request for the documents 
providing the good-faith basis for filing the Compliant is contrary to 
the plain language of the Tunney Act and its legislative history and 
therefore should be denied.
---------------------------------------------------------------------------

    \2\ The Antitrust Procedures and Penalties Act: Hearings on S. 
782 and S. 1088 Before the Subcommittee on Antitrust and Monopoly of 
the Senate Judiciary Committee, 93d Cong., 1st Sess. 26, 57 (1973) 
(prepared statement of Maxwell M. Blecher, attorney).
---------------------------------------------------------------------------

    ISNI's request falls outside the scope of what courts have 
interpreted to be determinative documents. Just last year, the United 
States Court of Appeals for the District of Columbia Circuit, in a case 
brought by the Antitrust Division challenging certain portions of the 
American Bar Association's law school accreditation activities, held 
that a third-party was not entitled to a wide range of documents in the 
government's files. Massachusetts School of Law at Andover, Inc. v. 
United States, 118 F.3d 776 (D.C. Cir. 1997). In that case, the United 
States asserted that the determinative documents provision referred 
``only to documents, such as reports to the government, `that 
individually had a significant impact on the government's formulation 
of relief--i.e., on its decision to propose or accept a particular 
settlement.' '' Id. at 784. The court held that both the statutory 
language and the legislative history supported this interpretation. 
Indeed, the court noted that during the senate debate on the Tunney 
Act, Senator Tunney himself cited a report to the government by an 
outside expert analyzing the economic consequences of proposed relief 
in an earlier case as exemplifying a ``determinative document.'' Id.\3\ 
The court also considered a broad disclosure requirement to be 
inappropriate because it would directly interfere with the United 
States' ability to negotiate settlement agreements. Id. at 784-85. 
Similarly, in another recent Antitrust Division case the Second Circuit 
held that ``the range of materials that are `determinative' under the 
Tunney Act is fairly narrow'' and that only documents that were ``a 
substantial inducement to the government to enter into the consent 
decree'' should be subject to disclosure. United States v. Bleznak, 153 
F.3rd 16, 20-21 (2d Cir. 1998).\4\
---------------------------------------------------------------------------

    \3\ Congress enacted the Tunney Act in response to consent 
judgments entered in 1971 in three cases involving acquisitions by 
International Telephone and Telegraph Corporation (``ITT''), 
including that of the Hartford Fire Insurance Company. The consent 
judgments permitted ITT to retain Hartford. Subsequent Congressional 
hearings revealed that the Antitrust Division had employed Richard 
J. Ramsden, a financial consultant, to prepare a report analyzing 
the economic consequences of ITT's possible divestiture of Hartford. 
Ramsden concluded that requiring ITT to divest Hartford would have 
adverse consequences on ITT and on the stock market generally. Based 
in part on the Ramsden Report, the United States concluded that the 
need for the divestiture of Hartford was outweighed by the 
divestiture's projected adverse effects on the economy. In 
explaining the determinative documents provision, Senator Tunney 
stated, ``I am thinking here of the so-called Ramsden memorandum 
which was important in the ITT case.'' 119 Cong. Rec. 24,605 (1973).
    \4\The single case cited by ISNI--United States v. Central 
Contracting Co., 537 F. Supp. 571 (E.D. Va. 1982)--has not been 
followed by any other court. Moreover, even that opinion recognized 
that the Tunney Act ``does not require full disclosure of Justice 
Department files, or grand jury files, or defendant's files, but it 
does require a good faith review of all pertinent documents and 
materials and a disclosure of'' those ``materials and documents that 
substantially contribute to the determination [by the government] to 
proceed by consent decree * * *.'' Id. at 577.
---------------------------------------------------------------------------

    ISNI has given no reason to doubt the United States' assertion that 
there are no determinative documents in this case. The United States 
did not receive any expert reports or any other document that 
substantially contributed to its determination to proceed with the 
settlement.

D. The Court Need Not Hold a Hearing in Making Its Public Interest 
Determination

    ISNI requests that this Court convene a hearing before it makes its 
public interest determination. I further requests that the Court 
authorize ISNI to participate in the hearing. ISNI Comment at 15. The 
United States believes that a hearing is unnecessary because ISNI has 
already adequately expressed its views through the public comment 
procedure, as provided by statute. See United States v. G. Heileman 
Brewing Co., 563 F. Supp. 642, 650 (D. Del. 1983) (court denies request 
for evidentiary hearing when ``those same issues have already been 
raised by movants through the APPA's third-party comment procedure); 
United States v. Carrols Development Corp., 454 F. Supp. 1215, 1221-22 
(N.D.N.Y. 1978) (request for limited participation denied when ``the 
moving parties have set forth their views in considerable detail in 
briefs and affidavits filed with this Court as well as in written 
comments submitted to the Government under the APPA''). If, however, 
the Court determines that a hearing would be useful in making its 
public interest determination, the United States would not object to 
ISNI's appearance as an amicus curiae.

IV. Conclusion

    After careful review of ISNI's Comment, the United States continues 
to believe that entry of the proposed Final Judgment will provide an 
effective and appropriate remedy for the antitrust violation alleged in 
the Complaint and is therefore in the public interest. Upon the 
publication of this Public Comment and the Response by the United 
States in the Federal Register, the United States will move the Court 
to enter the proposed Final Judgment. Once the United States moves for 
entry of the proposed Final Judgment, the Tunney Act directs this Court 
to determine whether its entry ``is in the public interest.'' 15 U.S.C. 
Sec. 16(e). In making that determination, ``the court's function is not 
to determine whether the resulting array of rights and liabilities is 
one that will best serve society, but only to confirm that the 
resulting settlement is within the reaches of the public interest.'' 
Western Elec. Co., 993 F.2d at 1576 (emphasis added, internal quotation 
and citation omitted). This Court should evaluate the relief set forth 
in the proposed Final Judgment and should enter the Judgment if it 
falls within the government's ``rather broad discretion to settle with 
the defendant within the reaches of the public interest.'' Microsoft, 
56 F.3d at 1461; accord United States v. Associated Milk Producers, 534 
F.2d 113, 117-18 (8th Cir. 1976), cert. denied, 429 U.S. 940 (1976).

    Dated: December 9, 1998.

    Respectfully submitted,
Jon B. Jacobs, Joan H. Hogan, Peter J. Mucchetti,
Attorneys for the United States
Bernard M. Hollander,
Senior Trial Attorney, Antitrust Division, U.S. Department of Justice, 
325 Seventh Street, N.W., Suite 300, Washington, DC 20530, (202) 616-
5935.

Certificate of Service

    This certifies that on December 9, 1998, I caused copies of the 
foregoing Response to Public Comment to be served as indicated upon 
the parties to this action and courtesy copies to be served as 
indicated upon each commenter:
By facsimile & hand:

[[Page 69674]]

    Richard L. Rosen, Esquire, Arnold & Porter, 555 12th Street, 
Washington, D.C. 20004, Counsel for General Electric Company
By facsimile & first-class mail:
    Ronald S. Katz, Esquire, Coudert Brothers, 4 Embarcadero Center, 
Suite 3300, San Francisco, CA 94111, Counsel for Independent Service 
Network International
Joan H. Hogan
[FR Doc. 98-33378 Filed 12-16-98; 8:45 am]
BILLING CODE 4410-11-M