[Federal Register Volume 68, Number 37 (Tuesday, February 25, 2003)]
[Notices]
[Pages 8767-8769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4396]


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FEDERAL TRADE COMMISSION

[File No. 021 0100]


Dainippon Ink and Chemicals, Incorporated; Analysis To Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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

DATES: Comments must be received on or before March 3, 2003.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed below.

FOR FURTHER INFORMATION CONTACT: Katherine Havely, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2093.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission's rules of practice, 16 CFR 2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis To Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for January 31, 2003), on the World Wide Web, at http://www.ftc.gov/os/2003/01/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
part of or as an attachment to e-mail messages directed to the 
following e-mail box: [email protected]. Such comments will be 
considered by the Commission and will be available for inspection and 
copying at its principal office in accordance with

[[Page 8768]]

Sec.  4.9(b)(6)(ii) of the Commission's rules of practice, 16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Dainippon Ink and Chemicals, Incorporated 
(``Dainippon''), which is designed to remedy the anticompetitive 
effects resulting from Dainippon's acquisition of Bayer Corporation's 
(``Bayer'') high performance pigments business. Under the terms of the 
Consent Agreement, Dainippon will be required to divest its perylene 
business to Ciba Specialty Chemicals Inc. and Ciba Specialty Chemicals 
Corporation (collectively, ``Ciba'').
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement or make 
it final.
    Pursuant to an asset purchase agreement dated February 15, 2002, 
Dainippon, through its wholly-owned U.S. subsidiary, Sun Chemical 
Corporation (``Sun Chemical''), agreed to acquire Bayer's high 
performance pigments business for approximately $57.8 million (the 
``Proposed Acquisition''). The Commission's Complaint alleges that the 
Proposed Acquisition, if consummated, would violate section 7 of the 
Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the Federal 
Trade Commission Act, as amended, 15 U.S.C. 45, in the worldwide market 
for the research, development, manufacture, and sale of perylenes.

The Parties

    Dainippon is a diversified global chemicals company based in Tokyo, 
Japan. Primarily through Sun Chemical, Dainippon manufactures and sells 
a full range of organic pigments, including perylenes. Sun Chemical is 
the third largest supplier of perylenes in the world. Sun Chemical's 
perylenes are produced through two third-party, ``toll'' manufacturers, 
Lobeco Products and Forth Technologies, which are located in South 
Carolina and Kentucky, respectively. Sun Chemical provides these toll 
manufacturers the intellectual property, manufacturing know-how, and 
raw materials, as well as some of the equipment, to produce perylenes.
    Bayer is a subsidiary of Bayer AG, a diversified, international 
healthcare and chemicals group based in Leverkusen, Germany. 
Headquartered in Pittsburgh, Pennsylvania, Bayer engages in the 
healthcare, life sciences, polymers, and chemicals industries. Bayer 
manufactures organic pigments at its facilities located in Bushy Park, 
South Carolina, and Lerma, Mexico. Bayer primarily participates in the 
high performance pigments segment and is considered a leader in the 
production of perylenes, which it manufactures at the Bushy Park plant. 
Bayer is currently the second largest supplier of perylenes in the 
world.

The Perylene Market

    Pigments are small particles that are used to impart color to a 
wide variety of products, including inks, coatings (such as automotive 
coatings and housepaints), plastics, and fibers. Broadly speaking, 
there are two main categories of pigments: organic and inorganic. 
Organic pigments are chemically synthesized, carbon-based compounds 
that generate a broad spectral range of brilliant, transparent, or 
opaque color shades. Inorganic pigments, on the other hand, are 
generally based on metal oxides and tend to impart a narrower range of 
dull, opaque earth tones. Because of these differences, organic and 
inorganic pigments often are blended together to achieve a particular 
color shade and effect, and thus are used as complements rather than 
substitutes.
    Organic pigments can be further categorized into two main groups: 
Commodity (or classical) organic pigments and ``high performance'' 
pigments. High performance pigments offer far superior durability and 
light-fastness compared to commodity organic pigments. Accordingly, 
high performance pigments are necessary to prevent color fading in 
products that endure prolonged exposure to sunlight and weather, such 
as automotive coatings. Commodity organic pigments, because of their 
lower quality, cannot substitute for high performance pigments in such 
demanding applications. High performance pigments are significantly 
more expensive than commodity organic pigments.
    Perylenes are a class of high performance pigments that impart 
unique shades of red, such as maroon and violet, and offer a 
particularly high degree of transparency. Perylenes are primarily used 
to impart color to automotive coatings, and are used to a lesser degree 
in plastics and carpet fibers. Because no other pigment or colorant 
offers the same combination of unique color shades and high performance 
characteristics that perylenes provide, perylene customers could not 
achieve the same colors and performance levels in their products 
without perylenes. Thus, there are no substitute products that perylene 
customers could turn to, even if faced with a significant price 
increase for perylenes.
    As Sun Chemical and Bayer are two of only four viable suppliers of 
perylenes in the world, the perylene market is already highly 
concentrated, as measured by the Herfindahl-Hirschman Index (``HHI''). 
The Proposed Acquisition would significantly increase concentration in 
the market to an HHI level of 4,856, an increase of 680 points. The 
Proposed Acquisition would also eliminate the vigorous head-to-head 
competition between Sun Chemical and Bayer that has benefitted perylene 
customers in the past. By eliminating competition between Sun Chemical 
and Bayer in the market for perylenes, the Proposed Acquisition would 
allow the combined firm to unilaterally exercise market power, as well 
as increase the likelihood of coordinated interaction among the 
remaining perylene suppliers. As a result, the Proposed Acquisition 
would increase the likelihood that purchasers of perylenes would be 
forced to pay higher prices for perylenes and that innovation and 
service in this market would decrease.
    Entry into the perylene market is not likely and would not be 
timely to deter or counteract the anticompetitive effects that would 
result from the Proposed Acquisition. It would take a new entrant well 
over two years to complete all of the requisite steps for entry, 
including: Researching and developing perylene technology; building a 
perylene manufacturing facility; perfecting the art of manufacturing 
perylenes; and passing the rigorous battery of tests required for 
customer approval. Additionally, new entry into the perylene market is 
unlikely to occur because the capital investment required to become a 
viable perylene supplier is high relative to the limited sales 
opportunities available to new entrants.

The Consent Agreement

    The Consent Agreement requires Dainippon to divest Sun Chemical's 
perylene business to Ciba, a diversified specialty chemicals company 
that is a leading supplier of pigments (but does not manufacture or 
sell perylenes). This divestiture would fully remedy the

[[Page 8769]]

Proposed Acquisition's anticompetitive effects in the perylene market 
for several reasons. First, Ciba is the best-positioned acquirer of Sun 
Chemical's perylene business. Second, under the terms of the Consent 
Agreement, Ciba will receive everything it needs to step into the shoes 
of Sun Chemical in the perylene market. Finally, the Consent Agreement 
includes certain measures that will help ensure an effective transition 
of the Sun Chemical perylene assets to Ciba.
    Ciba is the best-positioned acquirer of Sun Chemical's perylene 
business for several reasons. First, Ciba is committed to the high 
performance pigments market. Ciba is already a leading supplier of 
other high performance pigments, such as quinacridones and diketo 
pyrollo pyrrols. As a result, Ciba has the ability and incentive to 
take over and further develop Sun Chemical's perylene business, because 
the divestiture will enable Ciba to offer a wide range of high 
performance pigments. Second, because Ciba already has a reputation for 
quality and consistency with the customers of high performance pigments 
(such as automotive coatings manufacturers), it will be relatively easy 
for Ciba to convince these customers that it can be a viable supplier 
of perylenes. Finally, customers that have expressed concern about the 
Proposed Acquisition's likely harmful effects on the perylene market 
feel that a divestiture of Sun Chemical's perylene business to Ciba 
would resolve their concern.
    Ciba will receive all of the assets it needs to replace the 
competition offered by Sun Chemical in the perylene market before the 
Proposed Acquisition. Under the Consent Agreement, Sun Chemical will 
divest its entire perylene business to Ciba. The divestiture includes: 
All of Sun Chemical's current perylene products; all perylene research 
and development; manufacturing technology; scientific know-how; 
technical assistance and expertise; customer lists; raw material, 
intermediate, and finished product inventory; and perylene product 
names, codes, and trade dress. Because Sun Chemical manufactures 
perylenes through toll manufacturers, no manufacturing equipment or 
facilities are included in the divestiture. Instead, as required by the 
Consent Agreement, Ciba has entered into contracts with Sun Chemical's 
perylene toll manufacturers--Lobeco Products and Forth Technologies--
that will become effective upon closing the divestiture.
    Additionally, the Consent Agreement includes several measures to 
ensure an effective transition of the tangible and intangible assets 
related to the perylene business from Sun Chemical to Ciba. First, Ciba 
will have the opportunity to hire one or more Sun Chemical employees 
who have key responsibilities in connection with the company's perylene 
business. These former Sun Chemical employees will help Ciba not only 
to understand Sun Chemical's perylene manufacturing, research, and 
development process, but also to identify any missing or incomplete 
assets in the divestiture. Second, the Consent Agreement requires Sun 
Chemical to provide technical assistance to Ciba for a period of one 
year following the divestiture to help Ciba successfully take over Sun 
Chemical's perylene product line. Third, under the Consent Agreement, 
the Commission may appoint an interim monitor to supervise the transfer 
of assets and assure that Sun Chemical provides adequate technical 
assistance to Ciba.
    Finally, in the event that the divestiture of Sun Chemical's 
perylene business to Ciba fails, the Consent Agreement includes certain 
contingent provisions to remedy the Proposed Acquisition's 
anticompetitive effects. If, before the Commission finalizes the 
Consent Order in this matter, the Commission notifies Dainippon that 
Ciba is not an acceptable acquirer of Sun Chemical's perylene business 
or that the manner in which the divestiture to Ciba was accomplished 
was not acceptable, the Consent Agreement requires Dainippon to rescind 
the transaction with Ciba and divest Sun Chemical's perylene business 
to an acquirer that receives the prior approval of the Commission 
within ninety (90) days of the rescission. Additionally, if Dainippon 
does not divest Sun Chemical's perylene business to either Ciba or a 
Commission-approved acquirer within the time required by the Consent 
Agreement, the Commission may appoint a trustee to divest Sun 
Chemical's perylene business in a manner that satisfies the 
requirements of the Consent Agreement.
    The purpose of this analysis is to facilitate public comment on the 
Consent Order, and it is not intended to constitute an official 
interpretation of the Consent Order or to modify its terms in any way.

Quinacridones

    Sun Chemical and Bayer also manufacture quinacridones, another 
class of red-shade high performance organic pigments. Unlike for 
perylenes, however, the Proposed Acquisition would not increase the 
likelihood that customers would pay higher prices for quinacridones, or 
that service and innovation for these products would decrease. Two 
companies--Ciba and Clariant--are by far the largest manufacturers of 
quinacridones in the world, and they are the top two choices for many 
customers. With respect to quinacridones, Sun Chemical and Bayer are 
each less than half the size of Ciba or Clariant. Unlike for perylenes, 
where Sun Chemical and Bayer often vigorously compete head-to-head for 
business, the parties are less likely to face each other in head-to-
head competition for quinacridone business. Many customers believe 
that, after the Proposed Acquisition, the combined Sun Chemical/Bayer 
will become a stronger quinacridone competitor, able to compete more 
effectively against Ciba and Clariant. In addition, several new 
quinacridone suppliers recently have entered the market, and those 
suppliers will provide increasing competition.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 03-4396 Filed 2-24-03; 8:45 am]
BILLING CODE 6750-01-P