[Federal Register Volume 65, Number 139 (Wednesday, July 19, 2000)]
[Notices]
[Pages 44829-44836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18158]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. JDS Uniphase Corporation and E-TEK Dynamics, 
Inc. Civil Action No. C 00-2227 TEH (N.D. Cal); Proposal Final Judgment 
and Competitive Impact Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a Proposed Final 
Judgment, Stipulation and Competitive Impact Statement have been filed 
with the United States District Court for the Northern District of 
California in United States v. JDS Uniphase Corp. and E-TEK Dynamics, 
Inc., Civil Action No. C00-2227 TEH. On June 22, 2000, the United 
States filed a Complaint which alleged that JDS Uniphase Corp.'s 
proposed merger with E-TEK Dynamics, Inc. would violate section 7 of 
the Clayton Act, 15 U.S.C. 18, by substantially lessening competition 
in the production and sale of dense wavelength division multiplexer and 
demultiplexer modules of 16 or fewer channels (``DWDMs''). The proposed 
Final Judgment, filed the same time as the Complaint, requires the 
newly merged firm to divest certain contractual rights in supply 
agreements the merged entity holds with several thin film filter 
suppliers. Copies of the Complaint, proposed Final Judgment and 
Competitive Impact Statement are available for inspection in Room 215 
of the Antitrust Division, United States Department of Justice, 325 
Seventh Street, NW., Washington, DC 20530 (telephone: (202) 514-2481) 
and at the Office of the Clerk of the United States District Court for 
the Northern District of California, 450 Golden Gate Avenue, San 
Francisco, California 94102.
    Public comment is invited within 60 days of the date of this 
notice. Such comments, and responses thereto, will be published in the 
Federal Register and filed with the Court. Comments should be directed 
to Christopher S. Crook, Chief, San Francisco Field Office, Antitrust 
Division, United States Department of Justice, 450 Golden Gate Ave., 
Box 36046, Room 10-0101, San Francisco, California 94102 (telephone: 
(415) 436-6660).

Constance K. Robinson,
Director of Operations & Merger Enforcement, Antitrust Division.

Stipulation and Order

    It is hereby STIPULATED by and between the undersigned parties, by 
their respective attorneys, as follows:
    1. The Court has jurisdiction over the subject matter of this 
action and over each of the parties hereto, and venue of this action is 
proper in the United States District Court for the Northern District of 
California.
    2. The parties stipulate that a Final Judgment in the form hereto 
attached may be filed and entered by the Court, upon the motion of any 
party or upon the Court's own motion, at any time after compliance with 
the requirements of the Antitrust Procedures and Penalties Act (15 
U.S.C. Sec. 16), and without further notice to any party or other 
proceedings, provided that the plaintiff has not withdrawn its consent, 
which it may do at any time before the entry of the proposed Final 
Judgment by serving notice thereof on defendants and by filing that 
notice with the Court.
    3. Defendants shall abide by and comply with the provisions of the 
proposed Final Judgment pending entry of the Final Judgment by the 
Court, or until expiration of the time for all appeals of any Court 
ruling declining entry of the proposed Final Judgment, and shall, from 
the date of the entry of this Stipulation and Order, comply with all 
the terms and provisions of the

[[Page 44830]]

proposed Final Judgment as though the same were in full force and 
effect as an order of the Court.
    4. This Stipulation shall apply with equal force and effect to any 
amended proposed Final Judgment agreed upon in writing by the parties 
and submitted to the Court.
    5. In the event that the plaintiff withdraws its consent, as 
provided in paragraph 2 above, or if the proposed Final Judgment is not 
entered pursuant to this Stipulation, or the time has expired for all 
appeals of any Court ruling declining entry of the proposed Final 
Judgment, and the Court has not otherwise ordered continuing compliance 
with the terms and provisions of the proposed Final Judgment, this 
Stipluation shall be of no effect whatsoever, and the making of this 
Stipulation shall be without prejudice to any part in this or any other 
proceeding.
    6. Defendants agree not to consummate their transaction before the 
Court has signed this Stipulation and Order.

    Respectfully submitted,
Howard J. Parker, Esq.,
U.S. Department of Justice, Antitrust Division, 450 Golden Gate 
Avenue, Room 10-0101, Box 36046, San Francisco, CA 94102, Telephone 
(415) 436-6660, Facsimile (415) 436-6687, Attorney for Untied States 
of America.

W. Stephen Smith, Esq.
Morrison & Foerster LLP, 2000 Pennsylvania AVenue, N.W., Washington, 
D.C. 20006-1888, Telephone (202) 887-1514, Facsimile (202) 887-0763, 
Attorney for JDS Uniphase Corporation.

Charles T.C. Compton, Esq.,
Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 
94304-1050, Telephone (650) 493-9300, Facsimile (650) 565-5100, 
Attorney for E-TEK Dynamics, Inc.

    Dated: June 22, 2000.

    So Ordered:

    This __ day of June, 2000.
----------------------------------------------------------------------
United States District Judge

Final Judgment

    Whereas, plaintiff, United States of America (``United States''), 
filed its Complaint on June 22, 2000, plaintiff and defendants, 
defendant JDS Uniphase Corporation (``JDS'') and defendant E-TEK 
Dynamics, Inc. (``E-TEK''), by their respective attorneys, have 
consented to the entry of this Final Judgment without trial or 
adjudication of any issue of fact or law, and without this Final 
Judgment constituting any evidence against or admission by any party 
regarding any issue of fact or law;
    And Whereas, defendants agree to be bound by the provisions of this 
Final Judgment pending its approval by the Court;
    And Whereas, plaintiff requires defendants to refrain from 
enforcing or reacquiring contractual rights effecting control over the 
output of any coating chambers owned by or on the premises of certain 
merchant suppliers, for the purpose of remedying the loss of 
competition alleged in the Complaint;
    And Whereas, defendants have represented to the plaintiff that the 
defendants can and will refrain from effecting such control, as ordered 
herein, and that defendants will later raise no claim of hardship or 
difficulty as grounds for asking the Court to modify any of the 
prohibitions contained below;
    Now Therefore, before the taking of any testimony, without trial or 
adjudication of any issue of fact, or law, and upon consent of the 
parties, it is Ordered, Adjudged and Decreed:

I. Jurisdiction

    This Court has jurisdiction over the subject matter of and each of 
he parties to this action. The Complaint states a claim upon which 
relief may be granted against defendants under Section 7 of the Clayton 
Act, as amended (15 U.S.C. Sec. 18).

II. Definitions

    As used in this Final Judgment:
    A. ``E-TEK'' means defendant E-TEK Dynamics, Inc., a Delaware 
corporation with its headquarters in San Jose, California, its 
successors and assigns, and it subsidiaries, divisions, groups, 
affiliates, partnerships and joint ventures, and their directors, 
officers, managers, agents, and employees.
    B. ``Filter Vendor(s)'' means Barr Associates, Inc., Herrmann 
Technology, Inc., Hoya Corporation USA, Optical Coating Japan 
Corporation, and their successors and assigns.
    C. ``JDS'' means defendant JDS Uniphase Corporation, a Delaware 
corporation with its headquarters in San Jose, California, its 
successors and assigns, and its subsidiaries, divisions, groups, 
affiliates, partnerships and joint ventures, and their directors, 
officers, managers, agents, and employees.
    D. ``Optical Filter(s)'' means dielectric thin film filters used in 
optical networks for the telecommunications industry, such as, but not 
limited to, wideband, narrowband and gain flattening filters.
    E. ``Rights of First Refusal'' means: (1) The contractual rights 
held by defendants of first refusal over all other persons with respect 
to the output of coating chambers for the manufacture of Optical 
Filters by the Filter Vendors, such as set forth in the Supply 
Agreements; (2) any right obligating a Filter Vendor to accept a 
defendant's purchase order for Optical Filters; and (3) any right that 
effect of which would be to enable a defendant, through unilateral 
action, to prevent a Filter Vendor from selling Optical Filters to 
persons other than a defendant.
    F. ``Security Interest and Rights of Repayment'' means E-TEK's 
contractual rights under the Supply Agreements: (1) a priority security 
interest in the chambers that are subjects of the Supply Agreements; 
and (2) repayment, through discounts on Optical Filter purchases or 
otherwise, of funds advanced to the Filter Vendors in connection with 
the purchase or upgrade of the chambers that are subjects of the Supply 
Agreements.
    G. ``Supply Agreements'' means the following contracts, including 
all amendments to these contracts: (1) Supply Agreement between E-TEK 
and Barr Associates, Inc. dated October 8, 1996; (2) Supply Agreements 
between E-TEK and Herrmann Technology, Inc. dated December 14, 1998, 
February 11, 1999 (both ``First * * * Agreement'' and ``Second * * * 
Agreement''), and May 5, 1999; (3) Supply Agreement between E-TEK and 
Hoya Corporation USA dated July 20, 1999; and (4) Supply Agreement 
between E-TEK and Optical Coating Japan Corporation dated February 25, 
1999.
    H. ``Transition Period'' means the ninety (90) days following the 
filing of the Complaint in this matter.

III. Applicability

    This Final Judgment applies to JDS and E-TEK, as defined above, and 
all other persons in active concert or participation with any of them 
who receive actual notice of this Final Judgment by personal service or 
otherwise.

IV. Prohibition on Enforcement of Rights

    A. After the expiration of the Transition Period, defendants shall 
not enforce the Rights of First Refusal in the Supply Agreements.
    B. After the first thirty (30) days of the Transition Period, 
defendants shall not enforce the Rights of First Refusal in the Supply 
Agreements with respect to thirty (30) percent of each Filter Vendor's 
Optical Filter manufacturing capacity subject to those Rights. After 
the second thirty (30) days of the Transition Period, defendants shall 
not enforce the Rights of First Refusal in the Supply Agreements with 
respect to sixty (60) percent of each Filter Vendor's Optical Filter 
manufacturing capacity subject to those Rights. During the Transition 
Period, and unless the

[[Page 44831]]

plaintiff otherwise consents in writing, defendants shall refrain from 
making or enforcing any purchase orders to the Filter Vendors unless 
the period for deliveries of Optical Filters under the purchase orders 
is not longer than thirty (30) days in duration.
    C. After the filing of the Complaint in this matter, defendants 
shall not enforce the Security Interest and Rights of Repayment in the 
Supply Agreements.
    D. Defendants promptly shall notify, by usual and customary means, 
the firms that defendants have identified to the plaintiff, in response 
to Second Request Specifications 3(h) and 9, of the prohibitions under 
the terms of this Final Judgment on the Defendants' enforcement of the 
Rights of First Refusal and Security Interest and Rights of Repayment.

V. Affidavits

    Within forty (40) calendar days of the filing of the Complaint in 
this matter, and every forty (40) calendar days thereafter, through and 
including one hundred twenty (120) calendar days thereafter, defendants 
shall deliver to plaintiff an affidavit as to the fact and manner of 
their compliance with Section IV of this Final Judgment.

VI. Compliance Inspection

    A. For the purposes of determining or securing compliance with this 
Final Judgment, or of determining whether the Final Judgment should be 
modified or vacated, and subject to any legally recognized privilege, 
from time to time duly authorized representatives of the United States 
Department of Justice, including consultants and other persons retained 
by the United States, shall, upon written request of a duly authorized 
representative of the Assistant Attorney General in charge of the 
Antitrust Division, and on reasonable notice to defendants, be 
permitted:

    (1) Access during defendants' office hours to inspect and copy, 
or at plaintiff's option demand defendants provide copies of, all 
books, ledgers, accounts, records, correspondence, memoranda, and 
documents in the possession or control of defendants, who may have 
counsel present, relating to any matters contained in this Final 
Judgment; and
    (2) To interview, either informally or on the record, 
defendants' officers, employees, or agents, who may have their 
individual counsel present, regarding such matters. The interviews 
shall be subject to the interviewee's reasonable convenience and 
without restraint or interference by defendants.

    B. Upon the written request of the Assistant Attorney General in 
charge of the Antitrust Division, defendants shall submit written 
reports, under oath if requested, relating to any of the matters 
contained in this Final Judgment as may be requested.
    C. No information or documents obtained by the means provided in 
this section shall be divulged by the plaintiff to any person other 
than a duly authorized representative of the executive branch of the 
United States, except in the course of legal proceedings to which the 
United States is a party (including grand jury proceedings), or for the 
purpose of securing compliance with this Final Judgment, or as 
otherwise required by law.
    D. If at the time information or documents are furnished by 
defendants to plaintiff, defendants represent and identify in writing 
the material in any such information or documents to which a claim of 
protection may be asserted under Rule 26(c)(7) of the Federal Rules of 
Civil Procedure, and defendants mark each pertinent page of such 
material, ``Subject to claim of protection under Rule 26(c)(7) of the 
Federal Rules of Civil Procedure,'' then plaintiff shall give 
defendants ten (10) calendar days notice prior to divulging such 
material in any legal proceeding (other than a grand jury proceeding).

VII. No Reacquisition

    Defendants shall not reacquire, directly or indirectly, any Right 
of First Refusal over any coating chambers owned by or located on the 
premises of the Filter Vendors as of the filing of the Complaint in 
this matter. After the expiration of the Transition Period, nothing in 
this Final Judgment shall preclude defendants from purchasing Optical 
Filters from the Filter Vendors pursuant to purchase orders so long as 
the period for deliveries of Optical Filters under the purchase orders 
is no longer than sixty (60) days in duration, unless the plaintiff 
otherwise consents in writing. The provisions of this paragraph shall 
remain in effect for three years from expiration of the Transition 
Period.

VIII. Retention of Jurisdiction

    This Court retains jurisdiction to enable any party to this Final 
Judgment to apply to this Court at any time for further orders and 
directions as may be necessary or appropriate to carry out or construe 
this Final Judgment, to modify any of its provisions, to enforce 
compliance, and to punish violations of its provisions.

IX. Expiration of Final Judgment

    Unless this Court grants an extension, this Final Judgment shall 
expire ten (10) years from the date of its entry.

X. Public Interest Determination

    Entry of this Final Judgment is in the public interest.

    Date: _____

    Court approval subject to procedures of Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. 16.
----------------------------------------------------------------------
United States District Judge

Competitive Impact Statement

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

Nature and Purpose of the Proceeding

    On June 22, 2000, the United States filed a civil antitrust 
Complaint alleging that the proposed acquisition of E-TEK Dynamics, 
Inc. (``E-TEK'') by JDS Uniphase Corporation (``JDS'') would violate 
Section 7 of the Clayton Act, as amended, 15 U.S.C. Sec. 18. The 
Complaint alleges that JDS and E-TEK are two of the leading 
manufacturers of components for fiber optic communication systems. JDS 
competes against E-TEK in the production and sale of dense wavelength 
division multiplexer and demultiplexer modules of 16 or fewer channels 
(``DWDMs''). DWDMs are important components that increase the 
transmission capacity of fiber optic networks. These two manufacturers 
are each other's primary competitor in the production and sale of 
DWDMs.
    Competition between JDS and E-TEK has benefited customers through 
higher output, lower prices, increased quality, and faster delivery 
time. The acquisition of E-TEK by JDS will substantially lessen 
competition in the production and sale of DWDMs in violation of Section 
7 of the Clayton Act. The proposed acquisition will substantially 
increase the incentive and likelihood for the combined company to 
engage unilaterally in anticompetitive behavior, such as suppressing 
output and increasing prices of DWDMs.
    The request for relief in the Complaint seeks: (1) A judgment that 
the proposed acquisition would violate Section 7 of the Clayton Act; 
(2) a permanent injunction preventing JDS and E-TEK from merging; (3) 
an award to the United States of its costs in bringing the lawsuit; and 
(4) such other relief that the Court deems proper.
    When the Complaint was filed, the United States also filed a 
proposed Final Judgment that would permit JDS and E-

[[Page 44832]]

TEK to merge, but would require the modification of certain supply 
agreements the merged entity will hold with several thin film filter 
suppliers.
    The United States and the defendants have stipulated that the 
proposed Final Judgment may be entered after compliance with the APPA. 
Entry of the proposed Final Judgment would terminate the action, except 
that the Court would retain jurisdiction to construe, modify or enforce 
the provisions of the proposed Final Judgment and to punish Violations 
thereof .

II. Description of the Events Giving Rise to the Alleged Violation

A. Defendants and Proposed Transaction

    JDS is a Delaware corporation, with its principal offices in San 
Jose, California. It designs, manufactures and distributes fiber optic 
products for communications applications. It is one of the world's 
largest independent suppliers of passive and active components for 
fiber optic communications networks. Passive components are composed of 
optical parts, while active components contain both optical and 
electronic parts. In 1999, JDS reported net sales of $282.8 million.
    E-TEK is a Delaware corporation , with its principal offices in San 
Jose, California. It designs, manufactures and distributes passive 
components for fiber optic communications networks. In 1999, E-TEK 
reported net sales of $172.7 million.
    On January 17, 2000, JDS and E-TEK entered into an agreement 
whereby JDS will acquire E-TEK by exchanging the outstanding shares of 
E-TEK common stock for shares of JDS common stock. The transactions is 
valued at approximately $15-18 billion.

B. Revelant Market

    The volume of traffic carried by communications networks has 
increased rapidly over the last several years as a result of the 
explosion of bandwidth intensive applications such as Internet access, 
e-mail, remote access for computing, and electronic commerce. In the 
past, one fiber strand in a fiber optic communications network could 
carry only a single channel of voice or data traffic. Using a variety 
of different technologies, dense wavelength division multiplexers and 
demultiplexers separate the light signal in a fiber optic strand into 
multiple wavelengths, or colors, with each wavelength capable of 
carrying a separate communications channel. These multiplexers and 
demultiplexers enable the simultaneous transmission of multiple 
channels on a single strand fiber, and thereby increase the total 
transmission capacity of the fiber optic network.
    Thin film filters are a critical component part at the core of the 
DWDMs that are designed, manufactured and sold by JDS and E-TEK. Thin 
film filters are made in a vacuum coating chamber by depositing thin 
alternating layers of two dielectric materials on a polished glass 
substrate. When packaged with other parts into a DWDM, each thin film 
filter will transmit a certain wavelength of light and reflect or 
absorb other wavelengths. The packaged filters are then assembled into 
modules of up to 16 channels, depending on a customer's desired channel 
count.
    Because dense wavelength division multiplexers and demultiplexers 
are typically priced on a per channel basis--The higher the channel 
count, the greater the price of the module--a customer will only 
purchase the number of channels needed for its network design. A 
customer desiring a 16 channel multiplexer, for example, would not find 
it cost effective to substitute a 40 channel multiplexer. A small but 
significant increase in the price of DWDMS would not cause a 
significant number of customers to substitute multiplexers and 
demultiplexers which can achieve channel counts higher than 16 
channels. Because there are no good substitutes for DWDMs, the 
production and sale of DWDMs, whether based on thin filter or some 
other technology, is a relevant product market, or ``line of 
commerce,'' within the meaning of Section 7 of the Clayton Act.
    JDS and E-TEK produce and ship DWDMs to customers throughout the 
United States and the world. The world constitutes a relevant 
geographic market within the meaning of Section 7 of the Clayton Act.

C. Harm to Competition as a Result of the Proposed Transaction

    Upon consummation, the proposed acquisition will substantially 
lessen competition in the manufacturing and sale of DWDMs in the world 
market. JDS and E-TEK are the two most significant manufacturers and 
sellers of DWDMs, with market shares of 41% and 27% respectively. Their 
combined market share of 68% represents a substantial increase in 
concentration in the market. As measured by the commonly used 
Herfindahl-Hirschman Index (HHI), concentration in DWDMs will rise by 
about 2100 points to an HHI of about 4700 after the acquisition.
    Customers view JDS and E-TEK as next best alternatives for DWDMs. 
During individuals purchase negotiations, customers compare product 
offerings from one company with offerings from the other to ensure that 
they are obtaining competitive prices, product specifications, and 
timely delivery. After the acquisition, customers will be left with 
inferior alternatives to the merged entity, with the result that JDS 
will have greater incentive and ability to reduce output below and 
raise prices above the levels they would have been had JDS been 
competing against E-TEK. JDS will also have reduced incentives to meet 
customer product specifications and delivery requirements without the 
competitive presence of E-TEK.
    Competing firms are unlikely to constrain anticompetive behavior--a 
price increase, for example--by the merged firm in a timely manner. The 
DWDM market is characterized by increasing demand and supply shortages. 
Competing firms are currently operating at or near capacity. To expand 
output quickly enough to discipline a price increase by JDS would 
require overcoming time-consuming obstacles. One major obstacle faced 
by an existing firm or a new entrant is the availability of a 
sufficient supply of thin film filters. JDS has obtained virtually all 
of its supply of thin film filters from Optical Coating Laboratories, 
Inc. (``OCLI''), with which JDS established a strategic alliance in 
1997 and which it acquired in February of 2000. E-TEK has obtained its 
supply of thin filters primarily through supply agreements that have 
included the acquisition of rights of first refusal over thin filter 
coating chambers located on the premises of merchant suppliers. E-TEK 
has also supplied itself with thin film filters produced at coating 
chambers located on company premises. Together, JDS and E-TEK in 1999 
controlled approximately 80% of the world's thin film filter output.
    It is a difficult and time consuming process to develop the 
capability of producing thin film filters cost effectively. Vacuum 
coating chambers and sophisticated optical monitoring systems to 
control the thin film deposition process must either be designed and 
constructed internally or be acquired from commercial venders of such 
equipment. Once coating chambers are installed, a potentially lengthy 
trial and error development process is needed to approach the 
manufacturing yields of the leading incumbents.
    In addition to these limitations on the supply of thin film 
filters, there are further obstacles to timely and sufficient

[[Page 44833]]

new entry as a supplier of DWDMs. These obstacles include the need to 
design a DWDM that can be produced cost effectively in commercial 
volume and that meets specifications and is acceptable to customers for 
use in fiber optic communications networks. Customers commonly require 
rigorous and extensive testing over a substantial period of time before 
previously untested DWDMs are qualified and accepted for use in such 
networks. These obstacles are less significant for fringe firms already 
producing DWDMs.
    In the world market for DWDMs, the proposed acquisition threatens 
substantial and serious harm to purchases of DWDMs. By significantly 
increasing the market share of JDS in DWDMs, the proposed acquisition 
will provide the combined company with substantially enhanced control 
over the output and price of DWDMs. Furthermore, customers of DWDMs 
will lose the competition between JDS and E-TEK which has resulted in 
faster product delivery times and improvement in product 
specifications.

III. Explanation of the Proposed Final Judgment

    The proposed Final Judgment will preserve competition in the market 
for DWDMs by requiring defendants to eliminate control over the supply 
of thin film filters by four merchant filter vendors. The proposed 
Final Judgment effectively eliminates such control by prohibiting the 
merged firm from enforcing E-TEK's rights of first refusal over coating 
chambers used by four merchant vendors to produce thin film filters. 
The elimination of control is intended to ensure that firms other than 
the merged firm have access to a supply of thin film filters and 
thereby are able to serve as competitive alternatives to the merged 
firm in the supply of DWDMs.

A. Modification of Thin Film Filter Supply Agreements

    E-TEK currently holds contractual rights of first refusal over a 
significant portion of the output of the four major merchant vendors of 
thin film filters. After a 90-day transition period that starts with 
the filing of the Complaint in this matter, Section IV.A. of the 
proposed Final Judgment directly requires the merged firm to cease 
enforcing these contractual rights. The 90-day transition is necessary 
for the merged firm to readjust settled commercial relationships. The 
effect of the cancellation of the rights of first refusal is an 
elimination of E-TEK's control over the supply of filters from the 
merchant vendors.
    JDS, and its current subsidiary OCLI, in 1999 produced over 50% of 
the 100 GHz and 200 GHz world output of thin film filters. E-TEK 
produced about 5% of the world output in coating chambers located on 
company premises. E-TEK controlled an additional estimated 23% of the 
1999 world output through rights of first refusal over chambers located 
on the premises of the four merchant vendors. Under the relief 
provisions of the proposed Final Judgment, this 23% of the 1999 world 
output of thin film filters will be released from control by the merged 
entity and available to other firms and new entrants. Control over this 
production will transfer to the established merchant vendors, who will 
be free to use the filters internally or to sell them to new entrants 
or established producers of DWDMs.

B. Transition Period

    During the 90-day transition period specified in Section IV.B. of 
the proposed Final Judgment, the merged firm's reliance on its 
contractual control of coating machines at the four filter vendors is 
gradually phased out. After 30 days, 30% of the rights of first refusal 
at each filter vendor become unenforceable. After 60 days, 60% of the 
rights of first refusal become unenforceable. After 90 days, the 
transition period expires and all of the rights of first refusal are 
unenforceable.
    The transition period will provide an opportunity for the merged 
firm to being expansion of its internal supply of thin film filters, 
thus facilitating an uninterrupted flow of thin film filters to the 
merged firm for production of DWDMs. OCLI is a long established 
supplier of optical coatings that the merging parties believe has 
significantly superior technology and significantly superior 
manufacturing yields in the production of thin film filters for use in 
DWDMs. Upon consummation of their merger, JDS and E-TEK expect they 
will be able to expand internal thin film filter capacity at the merged 
firm by transferring OCLI technology to E-TEK.
    The 90-day transition period also provides an opportunity for the 
merged firm to compete with other potential purchasers for short term 
purchases of thin film filters from the merchant vendors. Thus, 
although the merged firms' rights of first refusal are gradually phased 
out during the transition period, its right to purchase in competition 
with others for short term purchase orders is not eliminated. Market 
forces, including competition from the merged firm, will determine the 
price of, and the customer receiving delivery of, each merchant 
vendor's thin film filters that are no longer controlled by rights of 
first refusal.
    During the transition period, and under the terms of the proposed 
Final Judgment, defendants do not have unlimited rights to substitute 
long term purchase arrangements with the merchant filter vendors in 
replacement of their abrogated rights of first refusal. There is a 30-
day limitation on the length of the period during which the merged firm 
can receive thin film filter deliveries under a purchase order. Thirty 
days is a commercially common length of time for thin film filter 
purchase orders and is the period expressly contemplated for the length 
of purchase orders under certain of E-TEK's existing supply agreements 
for thin film filters. The 30-day limitation on purchase orders during 
the transition period is intended to facilitate implementation of the 
relief by providing competitors and potential competitors of the merged 
firm with improved and unrestricted access to thin film filters.

C. Rights of Repayment

    To reduce the incentive for the merged firm to purchase from these 
merchant filter vendors, rather than expand internal capacity, Section 
IV.C. of the proposed Final Judgment prohibits the merged firm from 
enforcing its contractual rights of repayment for money E-TEK advanced 
to the merchant filter vendors and prohibits the merged firm from 
enforcing its security interests in the coating chambers. The 
prohibition is effective immediately upon filing of the Complaint.
    The rights of first refusal over coating chambers on the premises 
of the four merchant filter vendors commonly arose in connection with 
advance payments by E-TEK to a filter vendor that were to be repaid 
over a period of time by means of discounts of up to 20% off the market 
price the filter vendor otherwise would charge for the filters. The 
security interests were to secure the repayment of the advances. As of 
the date of the filing of the Complaint in this matter, the aggregate 
balance of the amounts advanced or currently due to be advanced to the 
four filter vendors was under $4 million. The effect of the merged firm 
having the right to obtain thin film filters from the merchant 
suppliers at this discounted price would be an incentive to continue to 
purchase from the merchant suppliers.
    The provision of the proposed Final Judgment eliminating the merged 
firm's right to obtain filters at the discounted price will increase 
the incentive for the merged firm to expand its own

[[Page 44834]]

production capacity, rather than rely on purchase from the merchant 
filter vendors. Increased production capacity for thin film filters at 
the merged firm will increase total industry thin film filter capacity 
and will lower prices for DWDMs. The increased thin film filter 
capacity will have this effect because the supply of DWDMs is currently 
limited by capacity constraints in the total industry supply of thin 
film filters.

D. Notification to Competitors and Potential Competitors

    Section IV.D. of the proposed Final Judgment requires the merged 
firm to notify a set of firms of the opportunity the Final Judgment 
will provide for improved and unrestricted access to the supply of thin 
film filters to be available from the merchant filter vendors. The 
firms to be notified are competitors and potential competitors of JDS 
and E-TEK who the merging parties have identified to the Antitrust 
Division.

E. No Reacquisition

    For a period of three years from the date the defendants relinquish 
all rights of first refusal, the merged firm, in accordance with 
Section VII. of the proposed Final Judgment, cannot reacquire any right 
of first refusal over any coating chamber located on the premises or 
owned by the merchant filter vendors as of the date the Complaint was 
filed. The purpose of the bar on reacquisition is to protect the 
integrity of the intended elimination of control by preventing evasion 
of the required relief. This proposed Final Judgment seeks to prevent 
possible evasion by broadly defining rights of first refusal in Section 
II, and by specifying in Section VII. that the bar extends to 
acquisition of rights of first refusal over any coating chambers on the 
premises or owned by any of the four merchant filter vendors. Such 
acquisition would be a prohibited reacquisition under the terms of the 
proposed Final Judgment.
    The bar on reacquisition by the merged firm of long term control 
over the four filter vendors' coating machines is not intended to 
foreclose the commercial opportunity for the merged firm to compete 
with other DWDM producers to purchase thin film filters from these four 
filter vendors on a spot market basis, with purchase orders of a 
duration for delivery of 60 or fewer days. A safe harbor provision in 
Section VII. of the proposed Final Judgment makes clear that nothing in 
the decree is intended to preclude such purchases.
    The bar on reacquisition extends for three years. In this case, the 
evidence indicated that this time period would be sufficient to protect 
competition.

F. Other Provisions

    In order to monitor and ensure compliance with the Final Judgment, 
Section V. requires periodic affidavits on the fact and manner of 
defendants' compliance with the Final Judgment. Section VI. gives the 
United States various rights, including the ability to inspect 
defendants' records, to conduct interviews and to take sworn testimony 
of defendants' officers, directors, employees and agents, and to 
require defendants to submit written reports. These rights are subject 
to legally recognized privileges, and any information the United States 
obtains using these powers is protected by specified confidentiality 
obligations.
    The Court retains jurisdiction under Section VIII., and Section IX. 
provides that the proposed Final Judgment will expire on the tenth 
anniversary of the date of its entry, unless extended by the Court.
    Through the modification of the supply agreements with merchant 
vendors of thin film filters, the proposed Final Judgment's 
prohibitions will lower obstacles to entry and expansion by new and 
fringe DWDM suppliers and thereby improve, enhance and preserve 
competitive alternatives to the merged firm in the world DWDM market. 
Absent these prohibitions, the likely result of a combined JDS and E-
TEK would be higher prices and lower output than there otherwise would 
be for DWDMs.

IV. Remedies Available to Potential Private Litigants

    Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any 
person who has been injured as a result of conduct prohibited by the 
antitrust laws may bring suit in federal courts to recover three times 
the damages a person has suffered, as well as costs and reasonable 
attorney's fees. Entry of the proposed Final Judgment will neither 
impair nor assist the bringing of any private antitrust damage action. 
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. 
Sec. 16(a), the proposed Final Judgment has no prima facie effect in 
any subsequent private lawsuit that may be brought against the 
defendants.

V. Procedures Available For Modification of the Proposed Final 
Judgment

    Plaintiff and defendants have stipulated that the proposed Final 
Judgment may be entered by the Court after compliance with the 
provisions of the APPA, provided that the United States has not 
withdrawn its consent. The APPA conditions entry upon the Court's 
determination that the proposed Final Judgment is in the public 
interest.
    The APPA provides a period of at least sixty (60) days preceding 
the effective date of the proposed Final Judgment within which any 
person may submit to the United States written comments regarding the 
proposed Final Judgment. Any person who wishes to comment should do so 
within sixty (60) days of the date of publication of this Competitive 
Impact Statement in the Federal Register. The United States will 
evaluate and respond to the comments. All comments will be given due 
consideration by the United States, which remains free to withdraw its 
consent to the proposed Final Judgment at any time prior to entry. The 
comments and the responses of the United States will be filed with the 
Court and published in the Federal Register.
    Written comments should be submitted to: Christopher S. Crook, 
Chief, San Francisco Field Office, United States Department of Justice, 
Antitrust Division, 450 Golden Gate Avenue, Box 36046, Room 10-0101, 
San Francisco, CA 94102.
    The proposed Final Judgment provides, in Section VIII., that the 
Court retains jurisdiction over this action, and the parties may apply 
to the Court for any order necessary or appropriate to carry out or 
construe the Final Judgment, to modify any of its provisions, to 
enforce compliance, and to punish any violations of its provisions.

VI. Alternatives to the Proposed Final Judgment

    The United States considered, as an alternative to the proposed 
Final Judgment, seeking an injunction to block consummation of the JDS/
E-TEK merger and a full trial on the merits. The United States is 
satisfied, however, that the modification of supply agreements and 
other relief contained in the proposed Final Judgment will preserve 
competition in the market for DWDMs. This proposed Final Judgment will 
also avoid the substantial costs and uncertainty of a full trial on the 
merits on the violations alleged in the complaint. Therefore, the 
United States believes that there is no reason under the antitrust laws 
to proceed with further litigation if the supply agreements are 
modified in the manner required by the proposed Final Judgment.

[[Page 44835]]

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

    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States be subject to a sixty (60) day 
comment period, after which the court shall determine whether entry of 
the proposed Final Judgment ``is in the public interest.'' In making 
that determination, the court may consider:
    (1) the competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration or relief sought, anticipated effects of alternative remedies 
actually considered, and any other considerations bearing upon the 
adequacy of such judgment;
    (2) the impact of entry of such judgment upon the public generally 
and individuals alleging specific injury from the violations set forth 
in the complaint including consideration of the public benefit, if any, 
to be derived from a determination of the issues at trial.

15 U.S.C. Sec. 16(e) (emphasis added). As the United States Court of 
Appleas for the D.C. Circuit held, this statute permits a court to 
consider, among other things, the relationship between the remedy 
secured and the specific allegations set forth in the government's 
complaint, whether the decree is sufficiently clear, whether 
enforcement mechanisms are sufficient, and whether the decree may 
positively harm third parties See United States v. Microsoft, 56 F.3d 
1448; 1461-62 (D.C. Cir. 1995).
    In conducting this inquiry, ``[t]he Court is nowhere compelled to 
go to trial or to engage in extended proceedings which might have the 
effect of vitiating the benefits of prompt and less costly settlement 
through the consent decree process.'' \1\ Rather.
---------------------------------------------------------------------------

    \1\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette 
Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest'' 
determination can be made properly on the basis of the Competitive 
Impact Statement and Response to Comments filed pursuant to the 
APPA. Although the APPA authorizes the use of additional procedures, 
15 U.S.C. Sec. 16(f), those procedures are discretionary. A court 
need not invoke any of them unless it believes that the comments 
have raised significant issues and that further proceedings would 
aid the court in resolving those issues. See H.R. Rep. 93-1463, 93d 
Cong. 2d Sess. 8-9 (1974), reprinted in U.S.C.C.A.N. 6535, 6538.

    [a]bsent a showing of corrupt failure of the government to 
discharge its duty, the Court, in making its public interest 
finding, should * * * carefully consider the explanations of the 
government in the competitive impact statement and its responses to 
comments in order to determine whether those explanations are 
---------------------------------------------------------------------------
reasonable under the circumstances.

United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. (CCH) 
para. 61,508, at 71,980 (W.D. Mo. 1977).
    Accordingly, with respect to the adequacy of the relief secured by 
the decree, a court may not ``engage in an unrestricted evaluation of 
what relief would best serve the public.'' United States v. BNS, Inc., 
858 F .2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel 
Corp., 648 F.2d 660, 666 (9th Cir. 1981), see also Microsoft, 56 F.3d 
at 1460-62. Precedent requires that

the balancing of competing social and political interests affected 
by a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's 
role in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to 
the decree. The court is required to determine not whether a 
particular decree is the one that will best serve society, but 
whether the settlement is ``within the reaches of the public 
interest.'' More elaborate requirements might undermine the 
effectiveness of antitrust enforcement by consent decree.\2\
---------------------------------------------------------------------------

    \2\ Bechel, 648 F.2d at 666 (emphasis added); see BNS, 858 F.2d 
at 463; United States v. National Broadcasting Co., 449 F. Supp. 
1127, 1143 (C.D. Cal. 1978); Gillette, 406 F. Supp. at 716. See also 
Microsoft, 56 F.3d at 1461 (whether ``the remedies [obtained in the 
decree are] so inconsonant with the allegations charged as to fall 
outside of the `reaches of the public interest` '').

    The proposed Final Judgment, therefore, should not be reviewed 
under a standard of whether it is certain to eliminate every 
anticompetitive effect of a particular practice or whether it mandates 
certainty of free competition in the future. Court approval of a final 
judgment requires a standard more flexible and less strict than the 
standard required for a finding of liability. ``[A] proposed decree 
must be approved even if it falls short of the remedy the court would 
impose on its own, as long as it falls within the range of 
acceptability or is `within the reaches of public interest.'' United 
States v. American Tel. & Tel Co., 552 F. Supp. 131, 151 (D.D.C. 1982), 
aff'd sub nom., Maryland v. United States, 460 U.S. 1001 (1983) 
(quoting Gillette Co., 406 F. Supp. at 716); United States v. Alcan 
Aluminum, Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985).
    Moreover, the court's role under the Tunney Act is limited to 
reviewing the remedy in relationship to the violations that the United 
States has alleged in its Complaint, and does not authorize the court 
to ``construct [its] own hypothetical case and then evaluate the decree 
against that case.'' Microsoft, 56 F.3d at 1459. Since ``[t]he court's 
authority to review the decree depends entirely on the government's 
exercising its prosecutorial discretion by bringing a case in the first 
place,'' it follows that the court ``is only authorized to review the 
decree itself,'' and not to ``effectively redraft the complaint'' to 
inquire into other matters that the United States might have but did 
not pursue. Id.

VIII. Determinative Documents

    There are no determinative materials within the meaning of the APPA 
that were considered by the Untied States in formulating the proposed 
Final Judgment. Consequently, the United States has not attached any 
such materials to the proposed Final Judgment.
    Dated this 30th day of June 2000.

    Respectfully submitted,

    FOR PLAINTIFF UNITED STATES

Joel I. Klein,
Assistant Attorney General.

Donna E. Patterson,
Deputy Assistant Attorney General.

Constance K. Robinson,
Director of Operations and Merger Enforcement.
Christopher S. Crook,
Chief, San Francisco Field Office.

Howard J. Parker
Pauline T. Wan
Jeane Hamilton
Niall E. Lynch
Lisa V. Tenorio
Trial Attorneys, U.S. Department of Justice, Antitrust Division, San 
Francisco Field Office.

Certificate of Service

United States v. Uniphase Corporation and E-TEK Dynamics Inc.

    I, Brenda J. Fautt, declare that I am a citizen of the United 
States, over the age of 18 years and not a party to the within action.
    I hereby certify that a copy of the foregoing:

Competitive Impact Statement

was served today by placing it in Federal Express at San Francisco, 
California in a postage-paid envelope, sealed and addressed to the 
attorneys for the parties listed below:
W. Stephen Smith, Esq.
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, NW., Washington, DC 
20006-1888.

Charles T. C. Compton, Esq.
Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 
94304-1050.

    I declare under penalty of perjury that the foregoing is true and 
correct, and that this certificate was executed at San Francisco, 
California.


[[Page 44836]]


    Dated: June 30, 2000
Brenda J. Fautt.
Secretary, Antitrust Division, U.S. Department of Justice, San 
Francisco, California.
[FR Doc. 00-18158 Filed 7-18-00; 8:45 am]
BILLING CODE 4410-01-M