[Federal Register Volume 68, Number 9 (Tuesday, January 14, 2003)]
[Notices]
[Pages 1861-1871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-623]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Northrup Grumman Corporation and TRW Inc.; 
Proposed Final Judgment and Competitive Impact Statement

    Notice is hereby given pursuant tot he Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment and 
Competitive Impact Statement have been filed with the United States 
District Court for the District of Columbia in United States v. 
Northrop Grumman Corporation and TRW, Inc., Civil No. 1:02 CV 02432 
(GK).
    On December 11, 2002, the United States filed a Complaint alleging 
that Northrop's acquisition of TRW would lessen competition 
substantially in development, production, and sale of radar 
reconnaissance satellite systems and electro-optical/infrared 
reconnaissance satellite systems, and the payloads for those systems, 
in the United States, in violation of section 7 of the Clayton Act, 15 
U.S.C. 18. The proposed Final Judgment, filed the same time as the 
Complaint, requires the defendant Northrop to act in a non-
discriminatory manner in making teaming and purchase decisions on 
programs in which, by virtue of the

[[Page 1862]]

acquisition of TRW, it will be able to compete as both a prime 
contractor and the supplier of the payloads for the program. Copies of 
the Complaint, the proposed Final Judgment, and Competitive Impact 
Statement are available for inspection at the U.S. Department of 
Justice, Antitrust Division, Suite 215 North, 325 7th Street, NW., 
Washington, DC 20004 (telephone: 202-514-2692), and at the Clerk's 
Office of the U.S. Court for the District of Columbia, 333 Constitution 
Avenue, NW., Washington, DC 20001.
    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 J. Robert Kramer, II, Chief, Litigation II Section, Antitrust 
Division, U.S. Department of Justice, 1401 H Street, NW., Suite 3000, 
Washington, DC 20530 (telephone: (202) 307-0924).

Constance K. Robinson,
Director of Operations.

Competitive Impact Statement

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

I. Nature and Purpose of the Proceeding

    On December 11, 2002, the United States filed a civil antitrust 
Complaint alleging that the proposed acquisition by Northrop Grumman 
Corporation (``Northrop'') of TRW Inc. (``TRW'') would violate 
section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint alleges 
that Northrop is one of two companies that can supply certain 
payloads used in reconnaissance satellite systems sold to the U.S. 
Government, and that TRW is one of only a few companies with the 
capability to act as a prime contractor on U.S. reconnaissance 
satellite programs that use these payloads. The payloads at issue 
include radar sensors, which detect objects through radio waves, and 
electro-optical/infrared (``EO/IR'') sensors, which detect radiation 
emitted or reflected from objects within the electromagnetic 
spectrum from far infrared through far ultraviolet. The Complaint 
alleges that Northrop's acquisition of TRW will give Northrop the 
incentive and ability to lessen competition by favoring its in-house 
payload and/or prime contractor capabilities to the detriment or 
foreclosure of its competitors, and/or by refusing to sell, or 
selling only at disadvantageous terms, its in-house capabilities to 
its competitors. It further alleges that the acquisition will harm 
the U.S. Government because it will pose an immediate danger to 
competition in two current or future programs, the Space Based Radar 
and the Space Based InfraRed System-Low programs.
    The prayer for relief in the Complaint seeks: (1) a judgment 
that the proposed acquisition would violate section 7 of the Clayton 
Act, and (2) a permanent injunction preventing any contract, 
agreement, understanding, or plan the effect of which would be to 
combine Northrop and TRW.
    When the Complaint was filed, the United States also filed a 
proposed settlement that would permit Northrop to complete its 
acquisition of TRW, but require that Northrop submit to strict 
oversight by the U.S. Department of Defense (``DoD'') to ensure that 
Northrop does not use its position as a combined reconnaissance 
satellite system prime contractor and reconnaissance satellite 
payload provider to harm competition for or in reconnaissance 
satellite system programs.
    The proposed Final Judgment requires that, when Northrop: (1) Is 
the prime contractor for a U.S. Government satellite program; (2) 
has the responsibility to select a radar or EO/IR payload; and (3) 
has the opportunity to select its own payload, Northrop will select 
the payload on a competitive and non-discriminatory basis. It also 
requires that Northrop act in a non-discriminatory manner in 
providing information to its own in-house team and to its payload 
competitors, and in making personnel, resource allocation, and 
satellite system design decisions. These non-discrimination 
provisions would apply, for example, to Northrop's post-merger 
selection of a payload provider for the SBIRS-Low program, for which 
TRW has already been selected as the prime contractor. To ensure 
that these provisions of the Final Judgment are enforced, the decree 
requires that the Secretary of Defense appoint a Compliance Officer 
to oversee Northrop's selection process, and provides for the 
Secretary of the Air Force to resolve any disputes.
    The proposed Final Judgment also requires that, when Northrop is 
a competitor or a potential competitor to be the prime contractor on 
a U.S. Government reconnaissance satellite system program in which 
Northrop has the opportunity to select its own radar or EO/IR 
payload, Northrop will supply other prime contractors with the 
Northrop payload in a manner that does not favor Northrop's in-house 
team. It further requires that Northrop negotiate and enter into 
non-exclusive teaming agreements with other prime contractors that 
desire to use the Northrop payloads, which agreements may not favor 
Northrop's in-house team. To ensure that these goals are achieved, 
the proposed Final Judgment provides for direct oversight of 
Northrop's teaming decisions by the Compliance Officer and 
ultimately by the Secretary of the Air Force.
    The proposed final Judgment further requires that Northrop 
maintain its payload and satellite prime businesses as separate 
entities, establish firewalls, and take other actions to protect the 
information provided by other payload providers or prime 
contractors. Northrop's actions in this regard again would be 
subject to review by the Compliance Officer.
    In addition to the continuing oversight of the Compliance Office 
and DoD generally, the parties to the proposed Final Judgment shall 
be subject to the continuing supervisory jurisdiction of the Court 
over the Final Judgment and the independent authority of the 
Antitrust Division to ensure compliance with, and seek enforcement 
of, all provisions of the Judgment. The Antitrust Division to ensure 
compliance with, and seek enforcement of all provisions of the 
Judgment. The Antitrust Division is authorized to seek from Northrop 
a civil penalty of up to $10 million for each violation of the 
proposed Final Judgment.
    The plaintiff and defendants have stipulated that the proposed 
Final Judgment may be entered after compliance with the APPA. Entry 
of the proposed Final Judgment would terminate the action, except 
that the Court would retain jurisdiction to construe, modify, or 
enforce the provisions of the proposed Final Judgment and punish 
violations thereof.

II. Description of Events Giving Rise to the Alleged Violation

A. The Defendants and the Proposed Transaction

    Northrop is a Delaware corporation with its principal place of 
business in Los Angeles, California. Northrop is one of two leading 
suppliers of radar and EO/IR payloads for reconnaissance satellite 
systems. Northrop's primary radar and EO/IR operations are in its 
Electronic Systems Sector facilities in Baltimore, Maryland and 
Azusa. California. In 2001, Northrop represented net sales of 
approximately $13.6 billion, including $4.7 billion in sales by its 
Electronic Systems Sector.
    TRW is an Ohio corporation with its principal place of business 
in Cleveland, Ohio. The company's offices are located in California, 
Ohio, Georgia, and Florida. Its Space & Electronics and System 
divisions produce sophisticated satellite systems. In fact, TRW is 
one of the few companies with the ability to serve as a prime 
contractor for reconnaissance satellite system. In 2001, TRW has 
sales of roughly $16.4 billion, including $5.2 billion form the 
Space & Electronics and Systems divisions.
    On June 30, 2002, Northrop and TRW entered into an agreement 
pursuant to which Northrop would acquire TRW in a transaction valued 
at approximately $7.8 billion. The parties closed the transaction on 
December 11, 2002.

B. The Relevant Markets

    Reconnaissance systems are electronic systems that gather and 
transmit information that maybe useful to the United States' 
military and intelligence forces. These systems may be located on a 
number of types of platforms, including aircraft and, most relevant 
for the purposes of this case satellites. Reconnaissance systems may 
gather information using various types of sensors, but the most 
relevant types for purposes of this proceeding are radar and EO/IR.
    Reconnaissance satellite systems have advantages, and face 
challenges, that are not applicable to airborne or other types of 
reconnaissance systems. Reconnaissance satellite systems can gather 
information about a given geographic area for a much longer time 
than any other system, and can provide survelliance over geographic 
areas that aircraft or other platforms cannot reach. Because they 
operate at such great distances

[[Page 1863]]

from their targets, however, space-based systems also require much 
more capable and sophisticated sensors than do other kinds of 
reconnaissance systems. Furthermore, because space based systems 
cannot be maintained or repaired once they are launched, the 
components of the system must be designed and manufactured to 
withstand the rigors of constant use, over many years, without 
requiring any refurbishment or repair. Finally, components of 
reconnaissance satellite systems must be hardened against radiation, 
able to withstand the harsh environment of space, and capable of 
operating in substantial temperature ranges.
    A reconnaissance satellite system consists of one or more 
satellites and associated ground facilities for support and data 
processing. A reconnaissance satellite has two primary components--
the unmanned spacecraft itself, generally known as the ``bus,'' and 
one or more assemblies of sensors and other components, usually 
refereed to as the ``Payload.'' The payload enables the satellite to 
perform a specific reconnaissance mission. While the bus and the 
payload are separate products, the system and its payload have to be 
jointly developed because their performance is interdependent. The 
lead (``prime'') contractor for a reconnaissance satellite system 
has overall responsibility for the design, development, production, 
and integration of the system components. The prime contractor 
typically produces the spacecraft, and either produces or procures 
the ground facility components. The prime contractor may also 
produce or acquire launch vehicles or services for the satellites. 
The prime contractor typically acquires the payload from another 
manufacturer, and the U.S. Government relies on prime contractors to 
select payloads based on their competitive merits so as to optimize 
over all system performance.
    TRW is one of the few companies that has the capability to be 
the prime contractor on a U.S. reconnaissance satellite system. 
Northrop is one of only two companies that has the capability to be 
the radar or EO/IR payload provider on U.S. reconnaissance satellite 
systems.

Radar Reconnaissance Satellite Systems

    Radar is the process of sending out radio waves and listening 
for the echoes that result when they strike and bounce off an 
object. The United States deploys many types of radars using 
distinctive signal processing technologies. Imaging radars, for 
example, can create photograph-like images and identify and track 
moving targets. Because radars can see through clouds, operate at 
night, and function independently of the energy emitted by a target, 
radar reconnaissance satellite systems will be able to gather 
information of a type and under conditions that cannot be duplicated 
by other types of reconnaissance satellite systems.
    The Space-Based Radar (``SBR'') program is a DoD program 
intended to develop and produce an operational radar reconnaissance 
satellite system. The Request for Proposal for SBR is expected to be 
issued in early 2003, and the first SBR satellite launch is 
scheduled for 2010. TRW is one of a few companies with the 
capability to be the prime contractor for the SBR program. The only 
companies with the capability to supply the advanced radar sensors 
for the SBR program are Northrop and one other company, both of 
which have been developing their radar capabilities, and receiving 
funds and evaluations from the U.S. Government, in anticipation of 
the SBR program. It is expected that the potential prime contractors 
and radar reconnaissance satellite payload providers will have to 
form teams for the SBR competition no later than 2003.
    The Complaint alleges that the development, production, and sale 
of radar reconnaissance satellite systems is a product market. As 
described above, the mission and performance characteristics of such 
systems are sufficiently different from the mission and performance 
characteristics of non-radar reconnaissance satellite systems, and 
from non-space-based radar reconnaissance systems, that a small but 
significant increase in prices for radar reconnaissance satellite 
systems would not cause the only customer, the U.S. Government, to 
switch to other types of systems so as to make such a price increase 
unprofitable and unsustainable.
    The Complaint also alleges that the development, production and 
sale of radar reconnaissance satellite payloads is a product market. 
As described above, the mission and performance characteristics of 
such payloads are sufficiently different from the mission and 
performance characteristics of non-radar reconnaissance satellite 
payloads, and from non-space-based radar reconnaissance payloads 
that a small but significant increase in prices for radar 
reconnaissance satellite payloads would not cause the only customer, 
the U.S. Government, or prime contractors competing to provide 
reconnaissance systems to the U.S. Government, to switch to other 
types of systems or other types of payloads, so as to make such a 
price increase unprofitable and unsustainable.

EO/IR Reconnaissance Satellite Systems

    EO/IR systems detect electromagnetic radiation emitted or 
reflected from objects within the spectrum from far infrared to far 
ultraviolet. These components are used to detect, locate, identify, 
or track a target. EO/IR Early Warning (``EW'') systems are used in 
missile defense programs to detect the hot plumes of a missile 
launch. EO/IR sensors may be found on a number of different 
platforms, including aircraft and satellites, and are already used 
as part of the Defense Support Program (``DSP'') satellite system to 
provide early missile warning.
    The current programs designed to provide space-based EO/IR 
reconnaissance capabilities are called the Space-Based Infrared 
System (``SBIRS'') High and SBIRS-Low. SBIRS-High will provide a 
system of satellites orbiting thousands of miles above the earth, 
scanning large sections of the planet for signs of a missile launch, 
and warning of that event if it occurs. One of TRW's competitors 
will serve as the prime contractor for SBIRS-High, and Northrop will 
supply the EO/IR payload. SBIRS-High will serve to provide 
essentially the same mission as the current DSP program, but will 
employ higher-performance instrumentation. SBIRS-Low is a planned 
system of satellites in lower-earth orbit that will ``acquire'' a 
missile and track it so that it may be intercepted. The acquisition 
function proposed for SBIRS-Low is similar to the work being done by 
DSP and planned for SBIRS-High; in contrast, the tracking function 
planned for SBIRS-Low is a different and much more technically 
difficult one.
    The Missile Defense Agency (``MDA''), Which Controls the SBIRS 
program, established a ``national team'' for SBIRS-Low in April 
2002, naming TRW as the prime contractor. The MDA plan calls for a 
continuing competition between the only two potential payload 
suppliers. Northrup and another company, throughout the SBIRS-Low 
program. The competition between the two SBIRS-Low payload suppliers 
is to be run by TRW as the prime contractor. TRW, with nominal 
oversight from the United States, will choose the winner of the 
payload competition.
    The Complaint alleges that the development, production, and sale 
of EO/IR systems can provide coverage of geographic areas that 
cannot be reached by other EO/IR systems and can provide persistent 
coverage of specific geographic areas. Further, EO/IR systems can 
detect missile launches and track missiles better than other types 
of reconnaissance systems. A small but significant increase in 
prices for space-based EO/IR systems would not cause the only 
customer, the U.S. Government, to switch to other types of systems 
so as to make such a price increase unprofitable and unsustainable.
    The Complaint also alleges that the development, production and 
sale of EO/IR reconnaissance satellite payloads is a product market. 
Space-based EO/IR payloads are specially designed to work in a 
space-based EO/IR reconnaissance satellite system: other space-based 
payloads cannot perform the same missions or be used in EO/IR 
reconnaissance satellite systems. A small but significant increase 
in prices for EO/IR reconnaissance satellite payloads would not 
cause the only customer, the U.S. Government, or prime contractors 
competing to provide reconnaissance systems to the U.S. Government, 
to switch to other types of systems or other types of payloads, so 
as to make such a prime increase unprofitable and unsustainable.

C. Harm to Competition as a Consequence of the Acquisition

    If Northrop purchases TRW, it will own one of the few companies 
capable of competing as a prime contractor for radar or EO/IR 
reconnaissance satellite systems. TRW has demonstrated its 
technical, financial, and organizational ability to bid for, win, 
and perform on complex U.S. Government space systems by competing 
for and winning a number of such programs. Similarly, Northrop is 
one of only two companies with the capability to produce the 
payloads to be used on radar and EO/IR reconnaissance satellite 
systems.
    Absent the protections afforded by the proposed consent decree, 
Northrop would have to incentive and ability post-merger to deny its 
competitors access to either its prime contractor or payload 
capabilities. If

[[Page 1864]]

Northrop has already been chosen to be a prime, it will have the 
incentive and ability to choose its own payload, lessening the 
incentive of competitors to compete for the program, and harming the 
U.S. Government by diminishing innovation and increasing program 
costs.
    A further effect of the merger is the threat that it poses to 
proprietary information of rival primes and payload suppliers that 
enter into teaming agreements with Northrop. Absent the protections 
afforded by the proposed Final Judgment, a reconnaissance satellite 
system prime contractor that teams with Northrop risks the loss of 
its proprietary information to the former TRW's satellite system 
business, and a radar or EO/IR supplier that teams with the former 
TRW satellite system business risks the loss of its proprietary 
information to Northrop.

Effect of the Merger on the SBR Program

    If Northrop owns TRW, it will have the incentive to deny access 
to the Northrop payloads if it believes that doing so will lessen 
the ability of its competitors to compete successfully for the 
specific reconnaissance satellite system program. This incentive 
will be strongest when Northrop believes that the presence on a team 
of either the Northrop payload or the TRW prime contractor 
capabilities provides the greatest chance of deciding the 
competition in that team's favor.
    The SBR program is an immediate example of how the merged firm 
would have the ability and incentive to deny its competitors access 
to a Northrop payload. TRW plans to compete to be the prime 
contractor for the SBR program, and is a likely bidder on future 
space-based radar programs as well. Northrop is one of only two 
companies with the ability to provide payloads for radar 
reconnaissance satellite system programs, including the SBR program. 
The prime contractors and radar payload providers must work together 
at an early stage to develop an integrated system that can perform 
the mission required by the SBR program. The competition for the SBR 
program will be between teams, each with a potential prime 
contractor and potential payload provider. The U.S. Government will 
choose the team that offers the best value. No prime contractor/
radar payload teams have yet been formed.
    An important factor in competing for the SBR program is the 
performance of the radar payload. The purpose of any space-based 
radar program is to gather and transmit information with the use of 
radar technology, and the team with the best-performing radar will 
have an advantage in the competition. The U.S. Government is likely 
to prefer Northrop to supply the SRB payload, and so is more likely 
to award the prime contract to a team including a Northrop payload. 
The prime contractors and Northrop are aware of this.
    After the proposed acquisition, Northrop will thus have the 
ability and incentive to foreclose SBR prime contractor competitors 
by denying them the Northrop payload or by making personnel, 
investment, design, and other payload-related decisions that 
disadvantage those competitors. Northrop's incentive to do so is 
straightforward--by winning both the SBR prime contractor 
competition and the SBR payload competition, it will make more money 
than if it wins only the SBR payload competition under existing DoD 
regulations. Northrop could not earn the same profit by simply 
raising its payload price because DoD has the ability to audit 
defense subcontractor costs and prevent overcharging through various 
pressures and the threat of lost future business. In economic terms, 
Northrop is not able to extract all of the economic rents at the 
payload level. The ability to obtain additional, otherwise 
unobtainable, profits by being both the prime contractor and the 
payload supplier gives Northrop the incentive to foreclose 
competitors.
    Absent the protections afforded by the proposed consent decree, 
the United States would be harmed because innovation in the SBR 
program and similar future programs would be lessened, and the 
United States would be less likely to obtain a radar reconnaissance 
satellite system that includes both the best prime contractor and 
the best radar payload provider.

Effect of the Merger on the SBIRS-Low Program

    If the post-merger Northrop has already been chosen to be the 
prime contractor on an EO/IR reconnaissance satellite system 
program, it will have the incentive and ability to choose its own 
payload for that system and program on a basis other than the 
competitive merits. If Northrop should choose its own payload under 
these circumstances, it would lessen the ability and incentive of 
competitors to compete for the payload, and thus harm the United 
States by diminishing innovation and increasing program costs.
    Prior to the merger, TRW was selected as the prime contractor 
for SBIRS-Low, and has the authority to choose the EO/IR payload 
that will be used on the satellite, subject to the approval of the 
U.S. Government. Before that selection is made, the government's 
SBIRS-Low acquisition strategy calls for a continuing competition 
between Northrop and the only other supplier to provide the payload. 
Under an agreement with the U.S. Government, TRW was given broad 
authority to run that competition and determine the winner. This 
authority has passed to, and may be exercised by, Northrop through 
its purchase of TRW.
     Northrop will benefit after the acquisition if the Northrop EO/
IR payload is chosen for SBIRS-Low. Northrop will receive the 
additional profit generated by the EO/IR payload contract, and will 
be in an improved position to win future EO/IR payload contracts 
because of the experience gained through SBIRS-Low. Northrop thus 
has the incentive to influence the competition to increase the 
chances that its payload will be chosen.
    Even though the U.S. Government has the authority to approve the 
SBIRS-Low payload choice made by a post-merger Northrop, Northrop as 
the prime contractor will still have the ability to influence the 
competition. Northrop would be able to effect design changes to the 
SBIRS-Low satellite or the system as a whole that would favor the 
Northrop payload or increase the costs to competitors of designing 
and producing a winning payload.
     Northrop's post-merger ability to influence the selection of 
itself as the supplier for the SBIRS-Low payload will substantially 
lessen competition by reducing the ability of its competitor to win 
the award even if its payload is a better value for the United 
States. The United States will be harmed by its inability to obtain 
the best-quality SBIRS-Low payload at the lowest cost.

Entry

    Successful entry into the complex, high technology markets for 
radar reconnaissance satellite systems, radar reconnaissance 
satellite payloads, EO/IR reconnaissance satellite systems, and EO/
IR reconnaissance satellite payloads would not be timely, likely, or 
sufficient to deter any unilateral or coordinated exercise of market 
power as a result of the transaction. It would be extremely 
difficult for a new entrant to establish the technological expertise 
required to compete successfully in any of these markets. 
competitions are intermittent and infrequent, and require a 
substantial initial investment.

Potential Harm

    The Complaint summarizes the potential harm to competition 
resulting from the proposed merger. It alleges that the transaction 
will likely have the following anticompetitive effects, among 
others: competition generally in the development, production, and 
sale of radar reconnaissance satellite systems, radar reconnaissance 
satellite payloads, EO/IR reconnaissance satellite systems, and EO/
IR reconnaissance satellite payloads would be substantially 
lessened; prices for radar reconnaissance satellite systems, radar 
reconnaissance satellite payloads, EO/IR reconnaissance satellite 
systems, and EO/IR reconnaissance satellite payloads would likely 
increase; and quality and innovation in each of these markets would 
decline.

III. Explanation of the Proposed Final Judgment

    The vertical combination of Northrop and TRW offers benefits to 
the United States that could not be obtained if structural relief 
were imposed. See section VI, infra. The United States, therefore, 
has consented in the unique circumstances of this case to the strict 
behavioral remedies described below. The proposed Final Judgment 
preserves competition in the relevant radar or EO/IR reconnaissance 
satellite system and payload markets by requiring specific non-
discriminatory conduct from Northrop to prevent the foreclosure from 
these markets of competing prime contractors and payload providers. 
Section IV.A of the proposed Final Judgment sets out requirements to 
ensure that Northrop will select the payload on a non-discriminatory 
basis when Northrop has already been selected as the prime 
contractor for a given reconnaissance satellite system program. This 
section addresses immediate competitive concerns related to 
Northrop's post-merger conduct in the SBIRS-Low program, as well as 
conduct in future reconnaissance satellite system programs where 
Northrop is selected as the prime contractor.

[[Page 1865]]

    Section IV.B ensures that, after the merger, Northrop will make 
its payloads available on a non-discriminatory basis to other prime 
contractor competitors in those reconnaissance satellite system 
programs for which Northrop has not yet been selected as the prime 
contractor or the payload provider. It addresses immediate 
competitive concerns related to Northrop's post-merger conduct in 
the SBR program, as well as conduct in future reconnaissance 
satellite system programs for which Northrop is a prime contract 
competitor and has the opportunity to select its own radar or EO/IR 
payload. Section IV.F establishes firewall provisions designed to 
protect the confidential business information of Northrop's 
satellite prime competitors and radar and EO/IR payload competitors. 
Four final Sections of the proposed Final Judgment ensure compliance 
with its terms. Section V provides for the appointment of a 
Compliance Officer and defines his or her powers and 
responsibilities; Section VI reserves important investigatory and 
enforcement powers for the Antitrust Division of the United States 
Department of Justice; Section VII permits the Court to impose 
substantial civil penalties for violations of the Final Judgment; 
and Section VIII confirms the Court's continuing jurisdiction to 
modify and enforce the proposed Final Judgment.

Non-Discrimination

    Section IV.A of the proposed Final Judgment establishes that 
when Northrop is the prime contractor for a reconnaissance satellite 
system program, is responsible for selecting the payload, and has 
the opportunity to select its own payload, Northrop must select the 
payload on a competitive and non-discriminatory basis. To ensure 
that it makes an impartial payload selection, Northrop must propose 
and obtain approval of payload source selection criteria from the 
Compliance Officer and communicate the criteria to all competing 
payload suppliers. Should the Compliance Officer not approve the 
criteria, the Secretary of the Air Force shall have the sole 
discretion to approve, alter, or set the selection criteria. Under 
these circumstances, Northrop shall also provide information 
regarding its reconnaissance satellite systems to its in-house 
proposal teams and bona fide payload competitors, and make all 
personnel, resource allocation, and satellite system design 
decisions on a non-discriminatory basis. If Northrop selects its own 
payload, it must fully explain the basis for that selection to and 
seek the prior approval of the Compliance Officer. Where, however, 
Northrop notifies the Compliance Officer that it has elected not to 
use or supply its payload to itself as prime contractor, it need not 
comply with the above requirements.
    Section IV.B requires that when Northrop is either a competitor 
or potential competitor for a prime contractor position on a 
reconnaissance satellite system program in which it has the 
opportunity to select its own payload, it must supply its payload on 
a non-discriminatory basis to all prime contractors that have 
expressed to Northrop a potential desire to utilize it. To that end, 
Northrop is required to supply its payload and related information 
to all such prime contractors in a manner that does not favor its 
in-house proposal team. For the purpose of bidding on satellite 
competitions and similar activities, it must also negotiate in good 
faith with such prime contractors to enter into commercially 
reasonable nonexclusive teaming agreement and contracts that do not 
discriminate in favor of its in-house proposal team. These teaming 
agreements will be subject to the approval of the Compliance Officer 
and the Secretary of the Air Force. Northrop also must, on a non-
discriminatory basis, make all personnel, resource allocation, and 
design decisions concerning its payload and provide information 
regarding its payload to contractors with which it has teamed. If 
the Compliance Officer concludes that Northrop has failed to comply 
with these requirements, the Secretary of the Air Force has the sole 
discretion to decide with whom, and on what terms, Northrop enters 
into such teaming relationships.
    The non-discrimination rules of Section IV.A and IV.B are the 
central provisions of this proposed Final Judgment and apply to a 
wide variety of conduct: the provision of information to competitors 
and in-house teams, payload selection criteria, payload selection, 
entering into contracts or teaming agreements, and numerous other 
decisions affecting such matters as personnel, design and 
investment. The term ``discriminate'' is defined in Section II.N. of 
the proposed Final Judgment as meaning ``to choose or advantage 
Northrop or to reject or disadvantage a Northrop prime or payload 
competitor for any reason other than the competitive merits; 
provided, however, that the determination of compliance or non-
compliance with the non-discrimination provisions of this Final 
Judgment shall take into account that different firms will take 
different competitive approaches that may result in differences, 
individually or collectively * * *'' in a number of factors.
    What this means in practice is that the United States will 
require Northrop to be equally aggressive in supporting all 
competing teams. While different firms will follow different 
competitive and technical approaches when competing for 
reconnaissance satellite systems and payloads, differences in 
treatment must be merit-driven. Northrop will not be permitted to 
favor its in-house approach and undermine competing teams and their 
innovation approaches. The proposed Final Judgment recognizes that 
discrimination may result from either a single event, such as a 
important design decision, or from a series of smaller actions.
    Sections IV.A and IV.B of the Final Judgment preserve 
competition by providing other payload and prime contract 
competitors the opportunity to provide meaningful competition in 
their respective markets and by ensuring that Northrop makes payload 
selections in the best interests of the U.S. Government. Absent 
these requirements, Northrop could deny other payload competitors 
access to its reconnaissance satellite systems information or make 
discriminatory selections regarding its satellite systems, thereby 
precluding competitors from competing to provide the payload. 
Likewise, Northrop could deny access to its payloads and thereby 
deny its prime contractor competitors the opportunity to provide 
meaningful competition, and deny the U.S. Government the benefits of 
that competition. These provisions ensure that DoD has the maximum 
possible number of potential teaming possibilities in response to a 
request for proposals and that the highest-value payload and 
reconnaissance satellite system are selected. Absent these 
provisions, foreclosure by Northrop would reduce incentives to 
innovate and reduce the number of innovation approaches, thus 
harming the U.S. Government.

Firewalls

    Section IV.F of the proposed Final Judgment requires that 
Northrop maintain its payload business separate and apart from its 
satellite prime business.\1\ These provisions prevent the flow of 
information between the two businesses by requiring Northrop to 
establish separate communication networks, maintain separate 
locations, and use reasonable efforts to avoid transferring 
employees between the businesses. These firewall provisions further 
prevent Northrop's payload business from making available to its 
satellite prime business any non-public information provided by a 
prime contract competitor to Northrop as the payload provider. This 
will preserve competition by assuring other prime contract 
competitors that their confidential reconnaissance satellite system 
information will not be shared with Northrop's satellite prime 
business, thereby encouraging them to team their satellite systems 
with Northrop's payloads, providing DoD with the maximum number of 
teaming possibilities, and preserving the greatest number of 
innovation paths. Similar provisions assure other payload 
competitors that their confidential payload information will not be 
shared with Northrop's payload business.
---------------------------------------------------------------------------

    \1\ The proposed Final Judgment describes this business as the 
``current TRW Space & Electronics Satellite Systems business.'' This 
unit, which conducts TRW's satellite system prime contracting 
business, will conduct that business for the combined company, and 
the proposed Final Judgment will apply to any future reorganization.
---------------------------------------------------------------------------

Enforcement

    To assure compliance with the Final Judgment. Section V requires 
the Secretary of Defense to appoint a Compliance Officer who, by the 
terms of the Final Judgment, has all necessary investigative and 
enforcement powers. The Compliance Officer, an employee of the U.S. 
Government, is authorized to hire, at the expense of Northrop, a 
team of contractors and other technical personnel to assist him or 
her in monitoring and ensuring compliance with the proposed Final 
Judgment. The team is limited to ten hired consultants, absent the 
approval of the Secretary of the Air Force to increase that number. 
Northrop may not object to the Compliance Officer selected by the 
Secretary of Defense, must use its best efforts to assist the 
Compliance Officer, and may take no action to interfere with or 
impede his or her duties. In practice, it is expected that the 
Compliance Officer will be proactive and will intercede early on to 
address and remedy any issues informally.

[[Page 1866]]

    The consequences of a violation of the proposed Final Judgment, 
apart from the significant civil penalties discussed below, are 
severe and substantial. Under Section IV.A of the proposed Final 
Judgment, if the Compliance Officer concludes that Northrop 
discriminated in its own favor in either its payload selection or 
the selection process, the Secretary of the Air Force is given ``the 
sole discretion to choose the [p]ayload supplier'' and to dismiss 
Northrop's selection. Under Section IV.B of the proposed final 
Judgment, if the Compliance Officer concludes that Northrop 
discriminated in favor of its in-house team, or failed to negotiate 
in good faith or enter into a commercially reasonable teaming 
agreement or contract, the Secretary of the Air Force is given ``the 
sole discretion to decide with whom, and on what terms, Northrop 
enters into such teaming relationships. * * * '' In effect, if the 
Compliance Officer determines that Northrop has discriminated in its 
own favor in a manner prohibited by the proposed Final Judgment, the 
Secretary of the Air Force is authorized to reverse any decision 
made by Northrop and to determine whether and on what terms Northrop 
will participate in the bid under consideration. These provisions 
collectively ensure that the U.S. Government, after the merger, will 
be able to detect discriminatory conduct prohibited by the proposed 
Final Judgment and to remedy quickly any selection or agreement that 
violates the proposed Final Judgment.
    Sections VI, VII and VIII of the proposed Final Judgment confirm 
the significant investigative and enforcement authority of the 
Antitrust Division of the U.S. Department of Justice in this matter 
and the continuing supervisory jurisdiction of the Court in 
implementing the Judgment. The Antitrust Division, among other 
things, will be permitted to inspect and copy Northrop's documents; 
interview Northrop's officers, employees, or agents; and request 
reports from Northrop. The Antitrust Division will also have the 
discretion to seek enforcement of the proposed Final Judgment from 
the Court, which may order Northrop to pay civil penalties of up to 
$10 million for each violation of the Final Judgment. It is 
anticipated that the Antitrust Division and the General Counsel of 
the DoD will work closely together in enforcing the terms of the 
Final Judgment, and the Antitrust Division may take enforcement 
actions either on the recommendation of the General Counsel of the 
DoD or on its own initiative.

IV. Remedies Available to Potential Private Litigants

    Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any 
person who has been injured as a result of conduct prohibited by the 
antitrust laws may bring suit in Federal court to recover three 
times the damages the person has suffered, as well as 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. 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

    The United States and defendants have stipulated that the 
proposed Final Judgment may be entered by the Court after compliance 
with the provisions of the APPA, if 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. 15 U.S.C. 16(e).
    The APPA provides a period of at least 60 days preceding the 
effective date of the proposed Final Judgment within which any 
person may submit to the United States written comments regarding 
the proposed Final Judgment. 15 U.S.C. 16(b). 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 Department of Justice, which remains free to withdraw its 
consent to the proposed Final Judgment at any time prior to entry. 
The comments and the United States' responses will be filed with the 
Court and published in the Federal Register. Written comments should 
be submitted to: J. Robert Kramer II, Chief, Litigation II Section, 
Antitrust Division, United States Department of Justice, 1401 H 
Street, NW., Suite 3000, Washington, DC 20530.
    The proposed Final Judgment provides that the Court will retain 
jurisdiction over this action, and the parties may apply to the 
Court for any order necessary or appropriate for the modification, 
interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

    The United States considered, as an alternative to the proposed 
Final Judgment, a full trial on the merits against defendants 
Northrop and TRW. The United States could have brought suit and 
sought preliminary and permanent injunctions against Northrop's 
acquisition of TRW.
    When the United States determines that a horizontal or vertical 
merger would result in a substantial lessening of competition, it 
generally seeks to block the merger or obtain structural relief. 
However, when a merger offers significant efficiencies, which cannot 
be obtained absent the merger or if a structural remedy is imposed, 
the United States will consider behavioral remedies.
    With respect to this transaction, DoD, the only customer for the 
highly complex reconnaissance satellite systems affected by the 
transaction, determined that, with an appropriate decree resolving 
the vertical integration problems identified, the proposed 
acquisition offers the possibility of increased competition for DoD 
space requirements generally and of significant competitive benefits 
to DoD that would not be realized if the merger did not occur. 
Following a thorough review of the transaction, DoD concluded that 
entry of the proposed Final Judgment would remedy its potential 
anticompetitive effects, while permitting the potential achievements 
of significant benefits. Given the DoD's conclusion that the United 
States would benefit from the transaction if the competitive 
problems could be remedied, and given the importance of a vertically 
integrated firm structure to the achievement of those benefits, the 
Department of Justice determined that the proposed Final Judgment, 
containing strict behavioral prohibitions and significant potential 
sanctions, is the best available means of satisfying the public 
interest in competition. Neither the Department of Justice nor the 
DoD considers this proposed Final Judgment to be a general approval 
of behavioral remedies for all vertical or horizontal mergers, but 
rather consider it appropriate here under the unique circumstances 
of this case.

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 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. 16(e). As the Court of Appeals for the District of 
Columbia Circuit has held, the APPA permits a court to consider, 
among other things, the relationship between the remedy secured and 
the specific allegations set forth in the government's complaint, 
whether the decree is sufficiently clear, whether enforcement 
mechanisms are sufficient, and whether the decree may positively 
harm third parties. See United States v. Microsoft Corp., 56 F.3d 
1448, 1458-62 (D.C. Cir. 1995).
    In conducting this inquiry, ``the [C]ourt 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.'' \2\ Rather ``absent 
a showing of corrupt failure of the government to discharge its 
duty, the Court,

[[Page 1867]]

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.'' 
\3\
---------------------------------------------------------------------------

    \2\ 119 Cong. Rec. 24598 (1973). See also United States v. 
Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public 
interest'' determination can be made properly on the basis of the 
Competitive Impact Statement and Response to Comments filed pursuant 
to the APPA. Although the APPA authorizes the use of additional 
procedures, 15 U.S.C. 16(f), those procedures are discretionary. A 
court need not invoke any of them unless it believes that the 
comments have raised significant issues and that further proceedings 
would aid the court in resolving those issues. See H.R. Rep. No. 93-
1463, 93rd Cong. 2d See. 8-9 (1974), reprinted in 1974 U.S.C.C.A.N. 
6535, 6538.
    \3\ United States v. Mid-America Dairymen, Inc., 1977-1 Trade 
Cas. [para] 61,508, at 71,980 (W.D. Mo. 1977).
---------------------------------------------------------------------------

    Accordingly, with respect to the adequacy of the relief secured 
by the decree, a court may not ``enage in an unrestricted evaluation 
of what relief would best serve the public.'' United States v. BNS 
Inc., 858 F.2d 456, 462 (9th Cir. 1988), (quoting United States v. 
Bechtek Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also, 
Microsoft, 56 F.3d 1458 (D.C. Cir. 1995). Precedent requires that
    ``[t]he balancing of competing social and political interests 
affected by a proposed antitrust consent decree must be left, in the 
first instanc, 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.'' \4\
---------------------------------------------------------------------------

    \4\ United States v. Bechtel, 658 F.2d at 666 (internal 
citations omitted)(emphasis added); accord United States v. BNS 
Inc., 858 F.2d at 463; United States v. Nat'l Broadcasting Co., 449 
F. Supp. 1127, 1143 (C.D. Cal. 1978); United States v. Gillette Co., 
406 F. Supp. at 715. See also United States v. Am. Cyanamid Co., 719 
F.2d 558, 565 (2d Cir. 1983).
---------------------------------------------------------------------------

    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'.'' \5\
---------------------------------------------------------------------------

    \5\ United States v. Am. Tel. and Tel Co., 552 F. Supp. 131, 150 
(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 
1001 (1983) (quoting United States v. Gillette Co., 406 F. Supp. at 
716); see also United States v. Alcan Aluminum, Ltd., 605 F. Supp. 
619. 622 (W.D. Ky. 1985).
---------------------------------------------------------------------------

VIII. Determinative Documents

    There are no determinative materials or documents within the 
meaning of the APPA that the United States considered in formulating 
the proposed Final Judgment.
    For Plaintiff United States of America:
    J. Robert Kramer II, Chief, Litigation II Section, PA Bar No. 
23963.
    Maribeth Petrizzi, Assistant Chief, Litigation II Section.
    Robert W. Wilder, Trial Attorney, Virginia Bar No. 14479, U.S. 
Department of Justice, Antitrust Division, 1401 H St., NW., Suite 
3000, Washington, DC 20530, (202) 307-0924, (202) 307-6283 
(Facsimile).
    Dated: December 23, 2002.

Certificate of Service

    I, Robert W. Wilder, hereby certify that on December 23, 2002, I 
caused copies of the foregoing Competitive Impact Statement to be 
served on defendants Northrop Grumman Corporation and TRW, as 
indicated below:
    Counsel for Defendant Northrop Grumman: James R. Loftis, III, 
Esquire, Gibson, Dunn & Crutcher LLP, 1050 Connecticut Ave. NW., 
Suite 900, Washington, DC 20036-5306, Telephone No.: (202) 955-8500, 
Facsimile No.: (202) 467-0539, Via Facsimile and U.S. Mail.
    Counsel for Defendant TRW Corporation: Brian C. Mohr, Esquire, 
Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, NW., 
Washington, DC 20005-2111, Telephone No.: (202) 371-7774, Facsimile 
No.: (202) 661-9067, Via Facsimile and U.S. Mail.
    Robert W. Wilder, Virginia Bar No. 14479, U.S. Department of 
Justice, Antitrust Division, 1401 H. Street, NW., Suite 3000, 
Washington, DC 20530, Telephone No.: (202) 307-6336.

Stipulation and Order

    It is hereby Stipulated by and between the undersigned parties, 
subject to approval and entry by the Court, that:
    1. The Court has jurisdiction over the subject matter of this 
action and over each of the parties hereto, and venue of this action 
is proper in the United States District Court for the District of 
Columbia.
    2. The parties stipulate that a Final Judgment in the form 
hereto attached may be filed with an 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 Procedure 
and Penalties Act (15 U.S.C. 16), and without further notice to any 
party or other proceedings, provided that the United States 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 time for all appeals of any Court 
ruling declining entry of the proposed Final Judgment, and shall, 
from the date of the signing of this Stipulation by the parties, 
comply with all the terms and provisions of the proposed Final 
Judgment as though they 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. If the United States has withdrawn its consent, as provided 
in paragraph 2 above, or if the proposed Final Judgment is not 
entered pursuant to this Stipulation, the time has expired for all 
appeals of any Court ruling declining entry of the proposed Final 
Judgment, and the Court has not otherwise ordered continued 
compliance with the terms and provision of the proposed Final 
Judgment, then the parties are released from all further obligations 
under this Stipulation, and the making of this Stipulation shall be 
without prejudice to any party in this or any other proceeding.
    6. Defendants represent that the required actions set forth in 
Sections IV and V of the proposed Final Judgment can and will be 
implemented and followed and that the defendants will later raise no 
claim of hardship or difficulty as grounds for asking the Court to 
modify any of the provisions contained therein.
    7. This Stipulation shall be effective only upon the closing of 
the Northrop Grumman/TRW transaction.
    Respectfully submitted,
    For Plaintiff
    United States of America: J. Robert Kramer II, Pennsylvania Bar 
No. 23963, Chief, Litigation II Section, Antitrust Division, U.S. 
Department of Justice, 1401 H Street, NW., Suite 3000, Washington, 
DC 20530, Telephone: (202) 307-0924, Facsimile: (202) 307-6283.
    For Defendant
    Northrop Grumman Corporation: Robert E. Nelson, Corporate Vice 
President, Business Strategy, Northrop Grumman Corporation, 1840 
Century Park East, Los Angeles, California 90067, Telephone: (310) 
201-3493, Fax: (310) 201-3494.
    For Defendant TRW Inc.: William B. Lawrence, Ohio State Bar No. 
0031971, Executive Vice President, General Counsel, and Secretary, 
TRW, Inc., 1900 Richmond Road, Cleveland, Ohio 44124, Telephone: 
(216) 291-7230, Fax: (216) 291-7872.
    Dated: December 11, 2002.

Order

    It is so ordered, this----------day of----------, 2002.

-----------------------------------------------------------------------
United States District Court Judge

Final Judgment

    Whereas, plaintiff, United States of America, filed its 
Complaint in this action on December 11, 2002, and plaintiff and 
defendants, Northrop Grumman Corporation (``Northrop'') and TRW Inc. 
(``TRW''), by their respective attorneys, have consented to the 
entry of this Final Judgment without trial or adjudication of any 
issue of fact or law herein, and without this Final Judgment 
constituting any evidence against or an admission by any party with 
respect to any issue of fact or law herein: and
    Whereas, defendants have agreed to be bound by the provisions of 
this Final Judgment pending its approval by the Court; and
    Whereas, plaintiff requires defendants to agree to certain 
procedures for the purpose of remedying the loss of competition 
alleged in the Complaint; and
    Whereas, defendants have represented to the United States that 
the procedures required below can and will be implemented and 
followed and that defendants will later raise no claim of hardship 
or difficulty as grounds for asking the Court to modify any of the 
provisions contained below:
    Now Therefore, before the taking of any testimony, and without 
trial or adjudication

[[Page 1868]]

of any issue of fact or law herein, and upon consent of the parties 
hereto, it is ordered, Adjudged and Decreed as follows:

I. Jurisdiction

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

II. Definition

    As used in this Final Judgment:
    A. ``Northrop'' means defendant Northrop Grumman Corporation, a 
Delaware corporation with its headquarters in Los Angeles, 
California, its successors and assigns, and its subsidiaries, 
division, groups, affiliates, partnerships and joint ventures, and 
their directors, officers, managers, agents, and employees and, 
after consummation of the acquisition of TRW, all TRW businesses, 
subsidiaries, divisions, groups, affiliates, partnerships and joint 
ventures, and their directors, officers, managers, agents, and 
employees acquired by Northrop.
    B. ``TRW'' means defendant TRW Inc., an Ohio corporation with 
its headquarters in Cleveland, Ohio, its successors and assigns, and 
its subsidiaries, divisions, groups, affiliates, partnerships and 
joint ventures, and their directors, officers, managers, agents, and 
employees.
    C. ``Defendants'' means, collectively or individually as the 
context requires, Northrop and/or TRW.
    D. ``DoD'' means the United States Department of Defense.
    E. ``Secretary of Defense'' means the United States Secretary of 
Defense, the Deputy Secretary of Defense, or the Secretary of 
Defense's designee.
    F. ``Secretary of the Air Force'' means the United States 
Secretary of the Air Force or the Secretary of the Air Force's 
designee.
    G. ``Prime'' or ``Prime Contractor'' means any entity engaged in 
the research, development, manufacture, sale and/or integration of 
Satellite Systems that sells or competes to sell Satellite Systems 
directly to the United States government.
    H. ``Payload'' means the assembly or assemblies on a Satellite 
that, using electro-optical technology, infrared technology, or 
radar technology, enable a Satellite to perform a specific mission. 
Payload also shall include, with the assembly or assemblies, all 
related components, software, interfaces, any other items within the 
assembly or assemblies that enable the Payload to perform its 
contemplated function, and all related technical data and 
information customarily provided by a Payload supplier to a Prime 
Contractor prior to entering into, or ion the course of working 
pursuant to, a teaming agreement or contract. Data and information 
customarily provided includes the types of data and information 
provided by Northrop to its inhouse Prime contract proposal team. 
Payload expressly excludes those payloads whose primary mission is 
communications.
    I. ``Satellite'' means an unmanned vehicle that is launched with 
a Payload for the purpose of collecting and/or transmitting data 
back to Earth and that is designed either to orbit the Earth or to 
travel away from the Earth.
    J. ``Satellite Systems'' means any Satellite and a system or 
series of systems designed, developed, or utilized in connection 
with the operation of a Satellite and corresponding subsystems and 
ground systems. Satellite Systems also shall include all information 
related to interfaces and any other defining parameters or 
specifications that enable the Payload to perform its contemplated 
function, and all related technical data and information, 
customarily provided by a Satellite Systems Prime Contractor to a 
Payload supplier prior to entering into, or in the course of working 
pursuant to, a teaming agreement or contract. Information and data 
customarily provided includes the types of information and data 
provided by Northrop to its in-house Payload proposal team.
    K. ``Northrop Payload Business'' means that portion of Northrop 
engaged in the research, development, manufacture, or sale of 
Payloads, excluding former TRW Payload entities.
    L. ``Northrop Satellite Prime Business'' means that portion of 
Northrop, or the TRW entity acquired by Northrop, that is engaged in 
the Satellite Systems integration business, including the research, 
development, manufacture, or sale of Satellite Systems or otherwise 
conducting business as a Satellite Systems integrator, and that 
performs contracts directly for the United States government.
    M. ``United States Government Satellite Program'' or ``Program'' 
means any Satellite program executed by the DoD, which includes the 
National Reconnaissance Office.
    N. ``Discriminate'' means to choose or advantage Northrop, or to 
reject or disadvantage a Northrop Prime or Payload competitor, in 
the procurement process for any reason other than the competitive 
merits; provided, however, that the determination of compliance or 
non-compliance with the non-discrimination provisions of this Final 
Judgment shall take into account that different firms will take 
different competitive approaches that may result in differences, 
individually and collectively, in price, schedule, quality, data, 
personnel, investment (including but not limited to, independent 
research and development), technology, innovations, design, and 
risk.
    O. The terms ``and'' and ``or'' have both conjunctive and 
disjunctive meanings.
    P. The terms ``he'' and ``his'' also include ``she'' and 
``her.''

III. Applicability

    This Final Judgment applies to Northrop and TRW, 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. Required Conduct

    A. When Northrop is the Prime Contractor for a United States 
Government Satellite Program, has the responsibility to select a 
Payload for the Satellite, and has the opportunity to select its own 
Payload, the following is required:
    (1) Northrop shall:
    (a) Select the Payload on a competitive and non-discriminatory 
basis:
    (b) on a non-discriminatory basis, provide information, as set 
forth in Definition J, regarding Satellite Systems to its in-house 
Payload proposal teams and any bona fide Payload competitors;
    (c) make all personnel, resource allocation, and design 
decisions regarding Satellite Systems on a non-discriminatory basis; 
and
    (d) propose non-discriminatory Payload source selection 
criteria, obtain approval from the Compliance Officer (as defined in 
Section V, below) for such criteria before the Payload providers are 
formally solicited, and communicate the approved source selection 
criteria to all competing Payload suppliers. The Compliance Officer 
shall not unreasonably withhold approval of the selection criteria 
and shall approve or reject the selection criteria within ten (10) 
business days of receipt of the criteria. If the Compliance Officer 
does not approve of the source selection criteria proposed by 
Northrop, the Compliance Officer shall refer the matter to the 
Secretary of the Air Force, who shall have the sole discretion to 
set non-discriminatory source selection criteria to be used by 
Northrop. The Secretary of the Air Force shall approve or alter the 
source selection criteria within five (5) business days of the 
decision of the Compliance Officer.
    (2) When Northrop is the Prime Contractor for a United States 
Government Satellite Program, if it has decided to select a Northrop 
Payload, it shall seek the prior approval of the Compliance Officer 
and fully explain the reasons for the proposed source selection. The 
Compliance Officer shall review the proposed selection of Northrop, 
and shall approve or reject the selection within ten (10) business 
days of receiving the selection. If the Compliance Officer concludes 
that Northrop discriminated in its own favor, either in its Payload 
selection or the selection process, he shall refer the matter to the 
Secretary of the Air Force, who shall have the sole discretion to 
choose the Payload supplier. The Secretary of the Air Force shall 
approve or alter the selection within ten (10) business days of the 
decision of the Compliance Officer.
    (3) In the event Northrop notifies the Compliance Officer in 
writing that: (i) Northrop, as the Prime Contractor, elects not to 
use the Northrop Payload; or (ii) the Northrop Payload Business 
elects not to supply its Payload to the Northrop Satellite Prime 
Business. Northrop need not comply with the requirements of Section 
IV.A after such notice.
    B. When Northrop is a competitor (or, for potential future 
Programs, when Northrop has the capability to compete and has taken 
steps in anticipation of potentially competing) to be the Prime 
Contractor on a United States Government Satellite Program in which 
Northrop has the opportunity to select its own Payload, the 
following is required:
    (1) Northrop shall:
    (a) For each Program or potential future Program for which a 
Prime Contractor notifies Northrop that it potentially desires to

[[Page 1869]]

have Northrop supply the Payload, supply such Prime Contractor its 
Payload in a manner that does not discriminate in favor of its in-
house proposal team against any other Prime Contractor on any basis, 
including but not limited to, price, schedule, quality, data, 
personnel, investment (including but not limited to, independent 
research and development), technology, innovations, design, and 
risk;
    (b) for each Program or potential future Program for which a 
Prime Contractor notifies Northrop of a bona fide potential desire 
to have Northrop supply the Payload, negotiate in good faith with 
such Prime Contractor to enter into commercially reasonable 
nonexclusive teaming agreements and contracts for the purpose of 
bidding on Satellite competitions and similar activities; such 
agreements and contracts shall not discriminate in favor of its in-
house proposal team against any other Prime Contractor on any basis, 
including but not limited to, price, schedule, quality, data, 
personnel, investment (including but not limited to, independent 
research and development), technology, innovations, design, and 
risk;
    (c) prior to entering into any such teaming agreements and 
contracts, provide to the Compliance Officer copies of such 
agreements for his approval. The Compliance Officer shall not 
unreasonably withhold approval of such agreements and contracts, and 
shall approve or reject the agreements and contracts within five (5) 
business days of receipt of the agreement or contract. If the 
compliance Officer does not approve of the terms of an agreement or 
contract, the Compliance Officer shall refer the matter to the 
Secretary of the Air Force, and Northrop shall enter into teaming 
agreements and contracts on specific terms as required by the 
Secretary of the Air Force, in his sole discretion, such decision to 
be made within five (5) days of the decision of the Compliance 
Officer;
    (d) on a non-discriminatory basis, provide information, as set 
forth in Definition H, regarding its Payload to its in-house 
proposal team(s) and to any Prime Contractor that has notified 
Northrop of a bona fide potential desire to have Northrop supply its 
Payload or with which Northrop has teamed to supply its Payload; and
    (e) make all personnel, resource allocation, and design 
decisions regarding the Payload on a non-discriminatory basis 
between its in-house proposal team(s) and any Prime Contractor with 
which Northrop has teamed to supply its Payload.
    (2) If the Compliance Officer concludes that Northrop has 
discriminated in favor of its in-house proposal team, failed to 
negotiate a teaming agreement or contract in good faith, or refused 
to enter into a commercially reasonable teaming agreement or 
contract, the Compliance Officer shall refer the matter to the 
Secretary of the Air Force who shall have the sole discretion to 
decide with whom, and on what terms. Northrop enters into such 
teaming relationships, such decision to be made within five (5) 
business days of the decision of the Compliance Officer.
    (3) Notwithstanding any provisions of this Section IV.B, 
Northrop may refuse to supply a Payload to any Satellite Systems 
Prime if the number and/or burden of Satellite Systems Primes 
seeking the benefit of this Section becomes unreasonably large. In 
such event, Northrop shall notify the compliance Officer, who shall 
review the decision and make a recommendation to the Secretary of 
the Air Force within ten (10) business days. The Secretary of the 
Air Force shall have the sole discretion to decide with whom, and on 
what terms. Northrop enters into such teaming relationships, such 
decision to be made within ten (10) business days of the decision of 
the Compliance Officer.
    (4) In the event that Northrop notifies the Compliance Officer 
in writing that: (i) Northrop, as the Prime Contractor, elects not 
to use the Northrop Payload; or (ii) the Northrop Payload business 
elects not to supply its Payload to the Northrop Satellite Prime 
Business; or (iii) Northrop elects not to compete at either the 
Prime or Payload level. Northrop need not comply with the 
requirements of Section IV.B after such notice.
    C. When the Northrop Payload Business enters into teaming 
agreements or contracts or similar intra-company arrangements that 
function as teaming agreements with the Northrop Satellite Prime 
Business or with any other potentially competing Prime Contractor 
for any Program or potential future Program, and the team engages in 
joint investment or development activity for that Program, the 
provisions in this Final Judgment requiring non-discriminatory 
behavior shall not require that Northrop disclose the products and/
or other results of such joint investments or developments of one 
team to any other team for the Program or potential future Program.
    D. The provision of any information, technology, or product to 
any party pursuant to this Final Judgment shall be subject to 
appropriate confidentiality agreements on the treatment of 
competition-sensitive, national security-sensitive, ITAR-controlled, 
and/or proprietary information.
    E. No provision of this Final Judgment shall require Northrop to 
provide products, services, or technology to any party without 
commercially reasonable compensation.
    F. Northrop shall maintain the current TRW Space & Electronics 
Satellite Systems business (``S&E Business'') separate and apart 
from the Northrop Payload Business. To assure the above. Northrop:
    (1) Shall establish a separately protected communications 
network for the S&E Business as distinct from the Northrop Payload 
Business:
    (2) shall maintain separate physical locations for each such 
business:
    (3) shall use commercially reasonable efforts to avoid 
transferring employees between the S&E Business and the Northrop 
Payload Business, and shall not transfer personnel, including 
employees and independent contractors, between the S&E Business and 
the Northrop Payload Business without first requiring such 
transferred personnel to acknowledge the restrictions of this Final 
Judgment as set forth herein. Records of such transfers, and copies 
of any such acknowledgments, shall be maintained during the term of 
this Final Judgment, and shall be available for inspection. Northrop 
shall notify the Compliance Officer of any such transfers:
    (4) shall now allow the S&E Business to provide, disclose, or 
otherwise make available to the Northrop Payload Business any non-
public information of any Payload competitor. All non-public 
information that a Payload competitor provides to the S&E Business 
shall be used only in Northrop's capacity as a Prime Contractor. The 
Northrop Payload Business shall not provide, disclose, or otherwise 
make avaiable to the S&E Business any non-public information of any 
Prime Contractor. All non-public information that a Prime Contractor 
provides to the Northrop Payload Business shall be used only in 
Northrop's capacity as a Payload supplier; provided, however, that 
the provisions of this paragraph shall not apply if the owner of the 
information consents to a broader lawful use of that information.
    (5) shall within fifteen (15) business days of the closing of 
the transaction, submit a detailed plan for maintaining the Northrop 
Payload Business separate and apart from the S&E Business to the 
General Counsel of the DoD and the Assistant Attorney General in 
charge of the Antitrust Division, and the Assistant Attorney General 
in charge of the Antitrust Division, in consultation with the 
General Counsel of the DoD, shall in his sole discretion make 
changes to such plan to ensure compliance with the terms of this 
Final Judgment; and
    (6) provided, that nothing in this Final Judgment shall require 
a separation of Northrop's Payload team and the team for the S&E 
Business at the implementation stage of a Program that has been 
awarded to Northrop at the Prime and Payload level.
    G. Northrop shall inform all personnel of both the Northrop 
Payload Business and the S&E Business of the terms and requirements 
of this Final Judgment and require all personnel to adhere to such 
provisions.
    H. When this Final Judgment places time limits on certain 
actions by the Compliance Officer and the Secretary of the Air 
Force, such limits may be modified by mutual agreement between the 
Compliance Officer or the Secretary of Air Force and Northrop.
    I. (1) Northrop shall bear all its costs of monitoring, 
complying with, or enforcing this Final Judgment, and all such 
reasonable costs of the DoD arising solely from monitoring, 
complying with, or enforcing this Final Judgment, excluding the 
salaries and benefits of United States government employees, and 
including but not limited to, the costs of the Compliance Officer 
and the costs associated with the retention of third parties to 
assist the Compliance Officer.
    (2) Northrop shall not charge to the DoD, either directly or 
indirectly, any costs of DoD referred to in Section IV.I(1). 
Northrop shall not charge to DoD, either directly or indirectly, any 
of Nortrop's costs, referred to in Section IV.I(1), including any 
remedial costs, as defined by Section IV.I(3); provided, however, 
that costs referred to in Sectin IV.I(1) incurred by Northrop, other 
than remedial costs, associated with normal business activities that 
could reasonably have been undertaken by Northrop in the absence of 
this Final Judgment are not subject to the

[[Page 1870]]

charging restrictions of this Section IV.I(2), whether or not such 
activities are affected by this Final Judgment; and further provided 
that, in the event that the Antitrust Division seeks to have the 
Court find Northrop in contempt or impose civil penalties and the 
conduct at issue is held by the Court to be compliant with the non-
discrimination provisions of this Final Judgment, the remedial costs 
disallowed pursuant to this Section may be charged to DoD.
    (3) remedial costs are those costs, incurred by Northrop, 
relating directly to the administration of measures to remedy 
conduct of Northrop in violation of this Final Judgment, where the 
following conditions are met:
    (a) the conduct of Northrop was not undertaken pursuant to prior 
written direction or approval of the Compliance Officer:
    (b) the Secretary of the Air Force has taken action in 
accordance with Sections IV.A(2) or IV.B(2) indicating concurrence 
with the Compliance Officer's conclusion that Northrop has engaged 
in conduct in violation of this Final Judgment with respect to a 
United States Government Satellite Program; and
    (c) said costs are incurred after the date of the Secretary of 
the Air Force's action.

V. Appointment of Compliance Officer

    To effect the procedures set forth in this Final Judgment, the 
Secretary of Defense shall appoint a Compliance Officer, who shall 
be an employee of the United States government. The Compliance 
Officer shall oversee compliance by the defendants with the terms of 
this Final Judgment, and shall have the power and authority to 
oversee such compliance and such other powers as this Court deems 
appropriate.
    A. To perform his duties and responsibilities, and subject to 
any legally recognized privilege, the Compliance Officer may:
    (1) Investigate any complaint or representation made to him or 
made available to him with respect to any matter arising in relation 
to or connected with compliance by Northrop with this Final 
Judgment;
    (2) interview any Northrop personnel, subject to the reasonable 
convenience of such personnel, without restraint or interference by 
Northrop;
    (3) during normal business hours, inspect and copy any document 
in the possession, custody of Northrop;
    (4) during normal business hours, obtain reasonable access to 
any systems or equipment to which Northrop personnel have access;
    (5) during normal business hours, obtain access to and inspect 
any physical facility, building, or other premises to which Northrop 
personnel have access;
    (6) require Northrop to provide compilations of documents, data, 
and other information to Compliance Officer in such form as the 
Compliance Officer may direct;
    (7) solicit and accept comments from third parties;
    (8) utilize DoD or other United States government staff as 
appropriate to assist in the execution of the Final Judgment;
    (9) hire, at the cost and expense of Northrop, a third party (or 
third parties) to assist in the execution of this Final Judgment, 
which third party (or third parties) shall be solely accountable to 
the Compliance Officer, and shall have such duties responsibilities 
as determined by the Compliance Officer and that do not exceed the 
Compliance Officer's duties and responsibilities as set forth in the 
Final Judgment; provided, however, that the professional staff 
(including third party consultants) reporting to the Compliance 
Officer shall be no larger than ten (10) persons (measured by full-
time equivalents), with such maximum to be expanded solely with the 
permission of the Secretary of the Air Force as necessary to the 
execution of this Final Judgment; and provided that such 
professional staff (including third party consultants) shall 
maintain the confidentiality of business sensitive or proprietary 
information and documents of Northrop or any other person; and
    (10) advise Northrop as soon as practical of the material nature 
of assertions or allegations of noncompliance that the Compliance 
Officer intends to investigate and, within reasonable time limits 
set by the Compliance Officer, attempt to resolve any deficiencies 
in Northrop's performing its obligations under this Final Judgment.
    B. Defendants shall not object to the Compliance Officer chosen 
by the Secretary of Defense.
    C. Defendants shall use their best efforts to assist the 
Compliance Officer in accomplishing the procedures established in 
this Final Judgment. Defendants shall take no action to interfere 
with or to impede the Compliance Officer's accomplishment of these 
procedures.
    D. Defendants shall furnish to the Compliance Officer a 
compliance report, to be submitted as directed by the Compliance 
Officer, but in any event no less frequently than on an annual basis 
or more frequently than quarterly. The compliance report shall 
contain an affidavit that describes the actions defendants have 
taken and the steps defendants have implemented to comply with the 
terms of this Final Judgment. The Compliance Officer may direct 
defendants to include in their report any other information the 
Compliance Officer deems useful or necessary.
    E. The Compliance Officer shall report in writing on an annual 
basis to the Secretary of the Air Force, the General Counsel of the 
DoD and the Assistant Attorney General in charge of the Antitrust 
Division a summary of the actions the Compliance Officer has 
undertaken in performing his duties pursuant to this Final Judgment. 
Such report shall include any compliance reports submitted by 
defendants to the Compliance Officer pursuant to Subsection D above. 
If the Compliance Officer is unable to perform his duties for 
whatever reason the Compliance Officer shall promptly notify the 
above individuals. The Secretary of Defense shall then appoint 
another Compliance Officer. The Secretary of Defense shall have the 
sole discretion to replace the Compliance Officer at any time when 
the Secretary of Defense considers such action appropriate.
    F. If the Compliance Officer has reason to believe that there 
has been a failure of the defendants to comply with any term of this 
Final Judgment, he shall notify the Secretary of the Air Force and 
the General Counsel of the DoD. As soon as practical, the Compliance 
Officer shall inform Northrop that he has notified the Secretary of 
the Air Force and the general Counsel of the DoD of the failure and 
the material nature of the assertion or allegation of noncompliance.

VI. Compliance

    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 
Antitrust Division, including consultants and other persons retained 
by plaintiff, shall upon written request of a duly authorized 
representative of the Assistant Attorney General in charge of the 
Antitrust Division, and on reasonable notice of defendants be 
permitted:
    (1) Access during defendants office hours to inspect and copy or 
at plaintiff's option to require defendants to provide copies of, 
all books, ledgers, correspondence, memoranda, accounts, records, 
and documents in the possession, custody, or control of defendants 
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 reasonable convenience of the interviewee and without 
restraint or interference by defendants.
    B. Upon the written request of the Attorney general or of the 
Assistant Attorney General in charge of the Antitrust Division, 
defendants shall submit such written reports under oath if 
requested, with respect to any matter contained in the Final 
Judgment and the Stipulation and Order.
    C. No information or documents obtained by the means provided in 
this Section shall be divulged by a representative of 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 Civil Procedure,'' then ten (10) 
business days notice shall be given by plaintiff to defendants prior 
to divulging such material in any legal proceeding (other than a 
grant jury proceeding) to which defendants are not a party.
    E. When the General Counsel of the DoD has reason to believe 
that there has been a failure by the defendants to comply with any

[[Page 1871]]

term of this Final Judgment, the General Counsel of the DoD shall 
notify the Assistant Attorney General in charge of the Antitrust 
Division.
    F. The Assistant Attorney General in charge of the Antitrust 
Division shall have the sole discretion to seek appropriate 
enforcement of this Final Judgment with the Court, either as the 
result of a referral or on the Antitrust Division's own initiative.

VII. Civil Penalties

    The Court may order Northrop to pay a civil penalty of up to $10 
million for each violation of this Final Judgment.

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. Third Party Rights

    Nothing in this Final Judgment is intended to confer upon any 
other persons any rights or remedies of any nature whatsoever 
hereunder or by reason of this Final Judgment.

X. Expiration of Final Judgment

    This Final Judgment shall expire seven (7) years from the date 
of entry; provided that, before the expiration of this Final 
Judgment, plaintiff, after consultation with DoD, may petition the 
Court to extend the Final Judgment for a period of up to three (3) 
years. In no event shall the terms of this Final Judgment exceed a 
period of ten (10) years.

XI. 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. 16

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

[FR Doc. 03-623 Filed 1-13-03; 8:45 am]
BILLING CODE 4410-11-M