[Federal Register Volume 64, Number 56 (Wednesday, March 24, 1999)]
[Notices]
[Pages 14249-14251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7210]


-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 9810329]


Medtronic Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

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

DATES: Comments must be received on or before May 24, 1999.

ADDRESS: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Stephen Riddell or Mark Menna, FTC/H-
2105, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580, (202) 326-
2721 or (202) 326-2722.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for March 8, 1999), on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W., Washington, 
D.C. 20580, either in person or by calling (202) 326-3627. Public 
comment is invited. Such comments or views will be considered by the 
Commission and will be available for inspection and copying at its 
principal office in accordance with Section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of the Proposed Consent Order and Draft Complaint to Aid 
Public Comment

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from Medtronic, Inc. (``Medtronic'' or ``proposed 
Respondent'') an Agreement Containing Consent Order (``the proposed 
consent order''). The proposed Respondent has also reviewed a draft 
complaint contemplated by the Commission. The proposed consent order is 
designed to remedy likely anticompetitive effects arising from the 
acquisition of Avecor Cardiovascular, Inc. (``Avecor''). Both Medtronic 
and Avecor are medical technology companies that compete in the 
manufacture and sale of non-occlusive arterial pumps, perfusion devices 
used in heart/lung machines. The proposed consent order remedies the 
acquisition's anticompetitive effects by requiring Medtronic to divest 
Avecor's non-occlusive arterial pump assets (``Avecor Pump Assets'') as 
a viable, on-going product line. Medtronic has entered into an 
agreement to divest the Avecor Pump Assets to Baxter Healthcare 
Corporation (``Baxter'').
    Medtronic, which is headquartered in Minneapolis, Minnesota, is 
engaged in the research, development, manufacture and sale of medical 
devices, including implantable devices, such as pacemakers and 
defibrillators, which regulate heart rhythm; tissue and mechanical 
heart valves; coronary stents; and perfusion devices for heart/lung 
machines. Medtronic's perfusion devices include non-occlusive arterial 
pumps. Medtronic's Bio-Pump is the market leader in non-occlusive 
arterial pumps. Avecor, also headquartered in Minneapolis, Minnesota, 
is engaged in the research, development, manufacture and sale of 
perfusion devices, including,

[[Page 14250]]

among other things, non-occlusive arterial pumps. Avecor introduced its 
non-occlusive arterial pump is the Fall of 1997. Avecor's pump, which 
utilizes different technology, is still in the early stages of gaining 
market acceptance. Some in the industry believe that this new pump may 
offer consumers advantages over the Bio-Pump and other conventional 
non-occlusive pumps.
    Pursuant to an Agreement and Plan of Merger (``Merger Agreement''), 
signed July 12, 1998, and as subsequently amended, Medtronic agreed to 
acquire 100% of the voting stock of Avecor for approximately $106 
million. The proposed Complaint alleges that the Merger Agreement 
violates Section 5 of the FTC Act, as amended, 15 U.S.C. Sec. 45, and 
that the acquisition violates Section 7 of the Clayton Act, as amended, 
15 U.S.C. Sec. 15, and Section 5 of the FTC Act, as amended, 15 U.S.C. 
45, in the United States market for the research, development, 
manufacture and sale of non-occlusive arterial pumps.
    The draft complaint alleges that medtronic's proposed acquisition 
of Avecor would lessen competition in the United States market for 
research, development, manufacture and sale of non-occlusive arterial 
pumps. Arterial pumps are a perfusion device used primarily to stand in 
for the heart and lungs during surgical procedures involving those 
organs. Perfusion devices are products that handle blood in heart/lung 
machines. These devices circulate and oxygenate the blood and regulate 
body temperature during heart bypass surgery and other procedures where 
the heart must be relieved of its pumping function. Arterial pumps 
circulate the blood. According to the complaint, there are no 
competitive substitutes for non-occlusive arterial pumps.
    The complaint alleges that the United States is the relevant 
geographic market in which to analyze the effects of the proposed 
acquisition.
    The complaint alleges that the United States market for research, 
development, manufacture and sale of non-occlusive arterial pumps is 
highly concentrated, and would become significantly more concentrated 
as a result of the acquisition. Premerger concentration in this market, 
as measured by the Herfindahl-Hirschamann Index,\1\ exceeds 5,700, and 
the acquisition would increase the HHI by more than 340 to more than 
6,050.
---------------------------------------------------------------------------

    \1\ The Herfindahl-Hirschmann Index, or ``HHI,'' is a 
measurement of market concentration calculated by summing the 
squares of the individual market shares of all participants in the 
market. Under section 1.51 of the Horizontal Merger Guidelines 
issued April 2, 1992, by the Federal Trade Commission and the 
Department of Justice, the Commission considers concentration levels 
exceeding 1,800 as ``highly concentrated'' and concentration levels 
between 1,000 and 1,800 as ``moderately concentrated.''
---------------------------------------------------------------------------

    According to the draft complaint, entry into the United States 
market for research, development, manufacture and sale of non-occlusive 
arterial pumps is difficult and would not be timely, likely or 
sufficient to prevent the adverse competitive effects that may result 
from the proposed acquisition.
    The proposed consent order remedies the Commission's competitive 
concerns about the proposed acquisition. Under Paragraph II of the 
proposed consent order, Medtronic must divest all of the assets 
relating to Avecor's non-occlusive arterial pump to Baxter or to 
another acquirer approved by the Commission. Baxter is a major producer 
of medical devices used in cardiac surgery and has substantial 
experience in the research, development, manufacture and sale of other 
perfusion devices used in cardiac surgery bypass operations. Baxter 
also is a major provider of perfusion services. In the event that 
Medtronic does not sell these assets to Baxter or another Commission-
approved buyer within ninety (90) days of the Order's becoming final, 
the Commission may appoint a trustee to divest the Avecor Pump Assets.
    The Commission's purpose in evaluating possible purchasers of 
divested assets is to maintain the competitive environment that existed 
prior to the acquisition. A proposed buyer must not itself present 
competitive problems. The Commission believes that Baxter is well 
qualified to operate the divested assets and that divestiture to Baxter 
will not be anticompetitive in this market.
    The proposed consent order requires Medtronic to provide 
substantial assistance to the buyer of the Avecor Pump Assets to enable 
the buyer to obtain FDA approval to manufacture and market the Avecor 
pumps and reservoirs to use with the pump. First, Medtronic must 
contract manufacture a supply of the Avecor pumps and the reservoirs 
used with the Avecor pumps for a year while the buyer establishes its 
own manufacturing capability. Medtronic must continue to supply the 
buyer with such reservoirs for a second year if the buyer determines 
that it needs additional time to establish the manufacturing capability 
to produce a reservoir to use with the Avecor pump. Second, Medtronic 
must provide technical assistance to help the buyer obtain necessary 
FDA approvals and to acquire the capability to manufacture the Avecor 
pump. Finally, the proposed consent order provides the buyer with the 
opportunity to hire Avecor employees associated with the Avecor Pump 
Assets.
    In order to facilitate the smooth transfer of assets and ensure 
that the buyer will get the assistance necessary to independenty 
manufacture the Avecor pump, the proposed consent order also provides 
for the appointment of an interim trustee. The interim trustee will 
serve until the acquirer has received all necessary FDA approvals to 
manufacture the Avecor pump and becomes an independent producer of the 
Avecor pump.
    Under certain circumstances if the Commission-approved buyer fails 
to become a viable, independent manufacturer and seller of Avecor pump, 
the Commission may terminate the divestiture and appoint a divestiture 
trustee to find a new buyer for the Avecor pump assets. If, prior to 
obtaining the necessary FDA approvals and beginning to manufacture 
Avecor pump and a compatible reservoir, the buyer stops selling the 
Avecor pump for 60 days or otherwise fails to make good faith efforts 
to sell it, the Commission may step in and terminate the divestiture. 
The Commission may also terminate the divestiture if the buyer fails to 
make good faith efforts to obtain the necessary FDA approvals. 
Similarly, the Commission may revoke the divestiture if the buyer fails 
to obtain the FDA approvals or to begin manufacturing within one year. 
Under this last scenario, the Commission may refrain from revoking the 
divestiture (for a second year) if it appears that the buyer is likely 
to obtain the FDA approvals or begin to manufacture the products in 
that time period.
    The proposed consent order also required Medtronic to provide to 
the Commission a report of compliance with the divestiture and 
assistance provisions of the proposed consent order within sixty (60) 
days following the date the proposed consent order becomes final and 
every ninety (90) days thereafter until Medtronic has completed the 
divestiture and the acquire has obtained all necessary FDA approvals 
and has become an independent manufacturer of the Avecor pump and a 
reservoir that can be used with the Avecor pump. The proposed consent 
order also requires Medtronic to notify the Commission at least thirty 
(30) days prior to any change in the structure of Medtronic that may 
affect compliance with the proposed consent order.

[[Page 14251]]

    The proposed consent order has been placed on the public record for 
sixty (60) days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After sixty (60) days, the Commission will again review the agreements 
and the comments received and will decide whether it should withdraw 
the argument or make the proposed consent order final.
    By accepting the proposed consent order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
complaint will be resolved. The purpose of this analysis is to 
facilitate public comment on the proposed consent order, including the 
proposed sale of the Avecor pump assets to Baxter, in order to aid the 
Commission in its determination of whether to make the proposed consent 
order final. This analysis is not intended to constitute an official 
interpretation of the proposed consent order, nor is it intended to 
modify the terms of the proposed consent order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-7210 Filed 3-23-99; 8:45 am]
BILLING CODE 6750-01-M