[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\
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\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).
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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.
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\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).
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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\
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\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.
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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