[Federal Register Volume 74, Number 168 (Tuesday, September 1, 2009)]
[Notices]
[Pages 45242-45252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-21051]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Microsemi Corporation; Proposed Final Judgment
and Competitive Impact Statement
Notice is hereby given pursuant to the 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 Central District of California in United States
v. Microsemi Corporation, Civil Action No. 8:09-CV-00275-AG-AN. On
December 18, 2008, the United States filed a Complaint alleging
Microsemi Corporation's July 14, 2008 acquisition of the assets of
Semicoa violated Section 7 of the Clayton Act, 15 U.S.C. 18, and
Section 2 of the Sherman Act, 15 U.S.C. 2. The United States alleged
that this acquisition enabled Microsemi to eliminate or reduce
competition in the development, manufacture, and sale of certain small
signal transistors and ultrafast recovery rectifier diodes used in
military and space programs. The proposed Final Judgment, filed on
August 20, 2009, requires that Microsemi divest all of the assets it
acquired from Semicoa. A Competitive Impact Statement filed by the
United States describes the Complaint, the proposed Final Judgment, the
industry, and the remedies available to private litigants who may have
been injured by the alleged violation.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection at the Department of
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at http://www.usdoj.gov/atr, and at the Office of the Clerk of the United States District Court
for the Central District of California, Southern Division. Copies of
these materials may be obtained from the Antitrust Division upon
request and payment of the copying fee set by Department of Justice
regulations.
Public comment is invited within sixty (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. In order to comply with
publication criteria for the Federal Register, please provide comments
in an electronic word processing format (preferably Word Perfect or
Microsoft Word). Comments should be directed to Maribeth Petrizzi,
Chief, Litigation II Section, Antitrust
[[Page 45243]]
Division, U.S. Department of Justice, 450 Fifth Street, NW., Suite
8700, Washington, DC 20530 (telephone: 202-307-0924).
J. Robert Kramer, II,
Director of Operations and Civil Enforcement.
In the United States District Court for the Eastern District of
Virginia Alexandria Division
United States of America, Plaintiff, V. Microsemi Corporation,
Defendant. Civil Action No.: 1:08cv1311, Judge: Trenga, Anthony J.,
Date: December 18, 2008
Verified Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil antitrust
action to obtain a temporary restraining order, preliminary
injunction, and equitable and other relief against defendant
Microsemi Corporation (``Microsemi'') to remedy the harm to
competition caused by Microsemi's acquisition of assets of Semicoa,
Inc. (``Semicoa''). The United States alleges as follows:
I. Nature of Action
1. This lawsuit challenges Microsemi's July 14, 2008 acquisition
of substantially all of the assets of Semicoa, which has
significantly harmed competition in the development, manufacture and
sale of certain specialized high reliability electronic components
used in aerospace and military applications. The transaction
eliminated all competition for several types of transistors used in
such applications--known as JANS and JANTXV small signal
transistors--and substantially lessened competition for one type of
diode used in such applications--known as JANS and JANTXV 5811
diodes. The high reliability transistors and diodes affected by the
transaction are manufactured to exacting standards to ensure high
performance under the most demanding conditions, subject to a U.S.
government system of qualification and certification that is relied
upon to assure the required degree of reliability. These components
are used by customers that include the military services and the
national security agencies of the United States in a wide range of
critical applications in space, in the air, on land, and on and
under the sea. The largest and most complex military applications
ever designed, ranging from satellites to submarines, depend on
these components. Civilian space projects ranging from
communications satellites to the spacecraft under development to
return astronauts to the moon also require these components. Because
failure of even a single one of these components could result in the
failure of a vital, multibillion dollar mission--and potentially
cost the lives of American servicemen and women and astronauts--
components with lesser degrees of reliability cannot be substituted
for the products at issue in this case.
2. The JANTXV and JANS small signal transistors and the JANTXV
and JANS 5811 diodes at issue in this case are hereinafter referred
to collectively as the ``relevant products.'' Through its
acquisition of the Semicoa assets, Microsemi reduced the number of
suppliers of JANTXV and JANS small signal transistors from two to
one, and thereby acquired monopolies in the development, manufacture
and sale of those products. The acquisition also substantially
reduced competition for JANTXV and JANS 5811 diodes by terminating
Semicoa's attempt to enter into the manufacture and sale of these
diodes. The acquisition has thus created monopolies in the
development, manufacture and sale of JANTXV and JANS small signal
transistors, and has substantially lessened competition in the
development, manufacture and sale of all relevant products.
3. As a result of the transaction, prices for the relevant
products have increased and likely will continue to increase,
delivery times have become less reliable, and terms of service
likely will become less favorable. Accordingly Microsemi's
acquisition of the Semicoa assets violated Section 7 of the Clayton
Act, 15 U.S.C. 18, and Section 2 of the Sherman Act, 15 U.S.C. 2.
II. Jurisdiction and Venue
4. The United States brings this action against defendant
Microsemi under Section 4 of the Sherman Act and Section 15 of the
Clayton Act, 15 U.S.C. 4 and 25, as amended, to prevent and restrain
Microsemi from continuing to violate Section 7 of the Clayton Act,
15 U.S.C. 18, and Section 2 of the Sherman Act, 15 U.S.C. 2.
5. Microsemi develops, manufactures and sells the relevant
products in the flow of interstate commerce. Microsemi's activities
in developing, manufacturing and selling the relevant products
substantially affect interstate commerce. This Court has subject
matter jurisdiction over this action and over the defendant pursuant
to Section 4 of the Sherman Act and Section 15 of the Clayton Act,
15 U.S.C. 4 and 25, and 28 U.S.C. 1331, 1337(a), and 1345.
6. Venue is proper in this district pursuant to Section 12 of
the Clayton Act, 15 U.S.C. 22 and 28 U.S.C. 1391(c), and venue is
proper in this Division pursuant to Local Rule 3(C). Defendant is a
corporation that transacts business within this judicial district
and Division, including by making sales to customers located within
this judicial district and Division.
III. Parties to the Transaction
7. Microsemi is a Delaware corporation with its principal place
of business in Irvine, California. Microsemi's sales were
approximately $514 million in fiscal year 2008. Microsemi
manufactures a range of high reliability semiconductors, including
JANTXV and JANS small signal transistors and JANTXV and JANS 5811
diodes. Microsemi's facilities for the manufacture of the relevant
products are located in Massachusetts, California and Arizona.
Microsemi's relevant products are shipped to customers throughout
the United States, represent a regular, continuous and substantial
flow of interstate commerce, and have a substantial effect upon
interstate commerce.
8. Semicoa was a California corporation with its principal place
of business in Costa Mesa, California. Semicoa's sales in the United
States were approximately $14.7 million in 2007. Prior to the
acquisition, Semicoa's products included a range of high reliability
semiconductors. Semicoa's facilities for the manufacture of the
relevant products were located in Costa Mesa, California. Its
relevant products were shipped to customers throughout the United
States and represented a regular, continuous and substantial flow of
interstate commerce and had a substantial effect upon interstate
commerce. After the sale of the high reliability semiconductor
assets to Microsemi, the remainder of the Semicoa business was
renamed Array Optronics, Inc..
IV. The Transaction
9. On July 14, 2008, Microsemi and Semicoa completed an asset
sale by which Microsemi acquired from Semicoa all of its business
engaged in the development, manufacture and sale of the relevant
products. Microsemi announced plans to release most of Semicoa's
employees and to relocate its operations within a year to Microsemi
facilities.
V. Trade and Commerce
The Relevant Product Markets
10. Transistors and diodes are semiconductor devices used to
control the flow of electric current. In their simplest forms,
transistors can be viewed as switches and diodes can be viewed as
one-way valves. Both products begin as silicon wafers produced in a
furnace, typically referred to as a foundry. They are then cut into
small sections known as dies. These dies are packaged in various
ways into transistors and diodes.
11. Small signal transistors are a class of transistors commonly
used in communications and other signal processing applications.
Small signal transistors operate at low power levels and are used to
amplify electrical signals in a wide range of products, including
critical military and civilian applications ranging from satellites
to nuclear missile systems. Small signal transistors are produced
using equipment, processes and skill sets specific to this type of
transistor. Other types of transistors have different
characteristics and cannot perform the tasks required of small
signal transistors. A small but significant increase in the price of
small signal transistors would not cause customers to switch to
other types of transistors.
12. Rectifier diodes are a class of diodes also commonly used in
communications and other signal processing applications. Rectifier
diodes operate at low power levels and are used to convert
alternating current to direct current in a wide range of products,
including critical military and civilian applications ranging from
satellites to nuclear missile systems. Ultrafast recovery rectifier
diodes, of which the 5811 type (``5811 diode'') is among the most
common, are distinguished from other rectifier diodes by their
extremely high alternating speeds, which minimize power loss and
waste heat generation. Their ability to perform efficiently and
without generating excess heat is especially important in
applications
[[Page 45244]]
such as satellites and missiles, where power availability is
strictly limited and heat dissipation is challenging. The 5811 diode
performs a specific set of functions not performed by other
ultrafast recovery rectifier diodes; while there are other types of
ultrafast recovery rectifier diodes, those diodes have different
characteristics and cannot perform the functions required of 5811
diodes. A small but significant increase in the price of 5811 diodes
would not cause customers to switch to other types of diodes.
13. Highly reliable performance under demanding conditions is
absolutely essential in military and space systems, where failure of
a single component could result in failure of the mission. To ensure
reliability and proper performance, production of these components
for use in United States military and space applications is
supervised by the Defense Supply Center Columbus (``DSCC''), a
component of the Department of Defense. DSCC maintains a list of
qualified components and their suppliers generally known as the
Qualified Manufacturers List, or QML. While the QML is specifically
intended for reference by military contractors, civilian space
system manufacturers also require highly reliable components for use
in a demanding environment, and therefore make use of the QML system
and specify QML qualified components.
14. Products listed on the QML are organized into ``slash
sheets,'' which denote groups of components with similar
characteristics. Microsemi and Semicoa were the only manufacturers
on the QML slash sheets for small signal transistors. This Complaint
hereinafter uses the term ``small signal transistors'' to describe
the products on these slash sheets.
15. DSCC grants certifications and qualifications for different
grades of QML components, known as Joint Army-Navy categories. These
grades in general represent different levels of reliability. The
highest reliability grade is Joint Army-Navy Space (``JANS''); one
level below JANS is Joint Army-Navy Technical Exchange-Visual
Inspection (``JANTXV''). There are two grades below JANTXV, but the
distinction between those grades and JANTXV is not as stark as
between JANTXV and JANS. Therefore, the term JANTXV will be used to
refer to all QML grades other than JANS.
16. Manufacturers pursuing JANTXV qualification for their
components must be audited by DSCC. DSCC audits the manufacturer's
facility, including fabrication, assembly and testing processes. If
satisfied that the manufacturer is able to produce consistently
reliable components at the highest levels of quality and
performance, DSCC will issue a certification for those processes and
authorize production of a particular component for qualification
testing. The manufacturer produces a sample lot and submits test
results to DSCC. Once satisfied with the manufacturer's test
results--which may take several rounds of submissions and required
corrections--DSCC will place the particular component from that
manufacturer on the QML with a JANTXV qualification.
17. JANS grade products are required by customers for systems
that demand the utmost reliability, such as satellites and nuclear
missile systems. Components used in space must be of the highest
quality and performance, because the space environment exposes
components to extremes of temperature, pressure, radiation, and
vibration during launch. Moreover, because failures in space are
generally beyond reach of repair, these components must be extremely
reliable.
18. Thus, while JANS components may perform functions similar to
JANTXV components, obtaining JANS certification requires extensive
additional qualification and testing beyond that required to obtain
JANTXV certification. Each step in the manufacture of each JANS
product must be thoroughly documented to ensure traceability in the
event of a manufacturing defect. In addition, suppliers of JANS
products must undergo far more demanding ongoing manufacturing and
testing requirements than suppliers of other QML components. As a
result, JANS components are regarded by buyers as being
substantially more reliable than JANTXV components and are much more
expensive than JANTXV components.
19. Components for use in commercial applications differ
substantially from their JANTXV or JANS counterparts. JANTXV and
JANS components are produced to very narrow tolerances. Commercial
components, in contrast, are produced to much wider tolerances and
lack the extensive production control, testing and documentation of
JANTXV and JANS components. Moreover, commercial components are
often encased in plastic, whereas JANTXV and JANS components are
hermetically sealed in glass or metal cases, a far more expensive
and demanding process that ensures greater reliability. Because of
these significant differences in production and quality control,
JANTXV and JANS components are much more reliable and substantially
more expensive than commercial components.
20. Customers determine whether their projects require
commercial grade, JANTXV, or JANS components. Those customers that
choose JANTXV or JANS components need their reliability and assured
performance characteristics, as evidenced by their willingness to
pay the much higher cost of these components compared to commercial
grade components.
21. Commercial grade components lack the reliability and assured
performance of JANTXV components because they have not been produced
following the thorough and reliable procedures mandated by DSCC for
JANTXV components. While extensive testing of commercial grade
components might reduce the risk of failure posed by the use of such
components, such testing would be costly and time consuming. It
would delay the project, some degree of risk would still remain, and
the cost associated with such extensive testing in practice would
make use of the commercial grade far more costly than use of a
JANTXV component. Customers therefore do not consider the cost or
availability of commercial grade components when designing systems
requiring JANTXV components.
22. Because JANS components are much more expensive than JANTXV
components, customers whose needs can be met with JANTXV components
have no economic incentive to substitute JANS components.
23. A small but significant increase in the price of JANTXV
small signal transistors would not cause customers to substitute
commercial grade small signal transistors or JANS small signal
transistors to an extent that would make such a price increase
unprofitable. Accordingly, the development, manufacture and sale of
JANTXV small signal transistors is a separate and distinct line of
commerce and a relevant product market for the purpose of analyzing
the effects of the acquisition under Section 7 of the Clayton Act
and Section 2 of the Sherman Act.
24. A small but significant increase in the price of JANTXV 5811
diodes would not cause customers to substitute commercial grade 5811
diodes or JANS 5811 diodes to an extent that would make such a price
increase unprofitable. Accordingly, the development, manufacture and
sale of JANTXV 5811 diodes is a separate and distinct line of
commerce and a relevant product market for the purpose of analyzing
the effects of the acquisition under Section 7 of the Clayton Act
and Section 2 of the Sherman Act.
25. Customers specifying JANS small signal transistors and JANS
5811 diodes for their projects will not substitute JANTXV components
for JANS components because they do not have the extra reliability
of JANS components, which results from the much more demanding and
extensive testing and process control required of JANS components.
While extensive testing of JANTXV components might reduce the risk
of failure posed by the use of such components, such testing would
be costly and time consuming. It would delay the project, some
degree of risk would still remain, and the cost associated with such
extensive testing in practice would make use of the JANTXV component
far more costly than use of a JANS component. Thus, when JANS parts
are available, customers do not consider JANTXV components
substitutes when designing systems requiring JANS components or
purchasing components to build such systems. Because commercial
grade components are of even lower quality, customers specifying
JANS components also will not substitute commercial components.
26. A small but significant increase in the price of JANS small
signal transistors would not cause customers to substitute
commercial grade or JANTXV small signal transistors to an extent
that would make such a price increase unprofitable. Accordingly, the
development, manufacture and sale of JANS small signal transistors
is a separate and distinct line of commerce and a relevant product
market for the purpose of analyzing the effects of the acquisition
under Section 7 of the Clayton Act and Section 2 of the Sherman Act.
27. A small but significant increase in the price of JANS 5811
diodes would not cause customers to substitute commercial grade or
JANTXV 5811 diodes to an extent that would make such a price
increase unprofitable. Accordingly, the development, manufacture and
sale of JANS 5811 diodes is a separate and distinct line of commerce
and a relevant product market for the purpose of analyzing
[[Page 45245]]
the effects of the acquisition under Section 7 of the Clayton Act
and Section 2 of the Sherman Act.
28. To the extent there were some customers that could
substitute JANTXV components in response to a small but significant
and nontransitory price increase on JANS small signal transistors or
JANS 5811 diodes, Microsemi would be able to identify those
customers and charge them a lower price in order to avoid losing
sales to them, while still raising the price to those customers who
would not switch. Microsemi would not need to charge the lower price
to all customers in order to avoid losing contested sales.
The Relevant Geographic Market
29. Customers that require JANTXV or JANS small signal
transistors are located throughout the United States. Microsemi
would be able to identify these customers and increase prices to
them for JANTXV and JANS small signal transistors. Thus, under
Section 7 of the Clayton Act and Section 2 of the Sherman Act, the
relevant geographic market for JANTXV and JANS small signal
transistors is the United States.
30. Customers that require JANTXV and JANS 5811 diodes are
located throughout the United States. Microsemi would be able to
identify these customers and increase prices to them for JANTXV and
JANS 5811 diodes. Thus, under Section 7 of the Clayton Act and
Section 2 of the Sherman Act, the relevant geographic market for
JANTXV and JANS 5811 diodes is the United States.
Market Concentration
JANTXV and JANS Small Signal Transistors
31. Prior to the acquisition, Microsemi and Semicoa were the
only suppliers of JANTXV small signal transistors in the world.
Microsemi and Semicoa combined sold approximately $15 million of
JANTXV small signal transistors annually. The transaction was a
merger to monopoly, and Microsemi faces no current competition.
32. Prior to the acquisition, Microsemi and Semicoa were the
only suppliers of JANS small signal transistors in the world.
Microsemi had approximately $3.5 million in annual sales and Semicoa
had approximately $3 million in annual sales. The transaction was a
merger to monopoly, and Microsemi faces no current competition.
JANTXV and JANS 5811 Diodes
33. Microsemi manufactured JANTXV and JANS 5811 diodes until
2004, when it attempted to shift production from a plant in
California to a plant in Arizona. Difficulties associated with that
shift caused Microsemi to lose its JANTXV and JANS QML
qualifications for that diode. As a result, there was no other firm
qualified to make JANS 5811 diodes for several years. However, prior
to 2004, Microsemi had built up its inventory of JANS 5811 diodes
and continued to sell these products after its disqualification,
making it the dominant supplier of these products since 2004.
34. After 2004, Microsemi's delivery times became very long.
Customers who were unable to delay their programs further were
forced to use less reliable commercial grade 5811 diodes at
increased cost due to the need for additional testing. Microsemi
produced almost all of the commercial grade products used by those
customers.
35. In the meantime, Semicoa took significant steps to enter the
production of JANTXV and JANS 5811 diodes in competition with
Microsemi. The shortage led Semicoa to begin developing its own 5811
diodes to compete with Microsemi, with the assistance of a major
customer that was dissatisfied with Microsemi as its sole source of
supply. By July 2008, Semicoa was testing its 5811 diode and, had
Microsemi not acquired Semicoa's assets later that month, Semicoa
likely would have obtained JANTXV and JANS qualification and
competed with Microsemi for JANTXV and JANS 5811 diodes. Semicoa
already had received $3 million in orders. One other manufacturer,
with manufacturing operations based in Mexico, is JANTXV qualified
for 5811 diodes and may obtain JANS qualification, but would not be
capable of satisfying those customers that require products
manufactured in the United States, as discussed in Paragraph 41
below.
36. Microsemi regained JANTXV and JANS qualifications for its
5811 diodes in October 2008 after more than three years of effort.
Had Microsemi not acquired the Semicoa assets in July 2008,
Microsemi and Semicoa would have competed for the sale of these
products.
Anticompetitive Effects of the Acquisition
JANTXV and JANS Small Signal Transistors
37. Prior to the acquisition, Semicoa was the only alternative
source to Microsemi for JANTXV and JANS small signal transistors,
and customers benefitted from robust competition between the firms.
In the two years preceding the acquisition, Semicoa made significant
investments in capacity expansion, purchasing new equipment and
increasing its workforce to increase production and improve delivery
times. Semicoa's shipments of JANTXV and JANS small signal
transistors rose by more than 40 percent between 2005 and 2007.
Semicoa aggressively priced its small signal transistors to take
business from Microsemi, constraining Microsemi's prices.
38. Post-acquisition, Microsemi has raised prices significantly
on JANTXV and JANS small signal transistors. Without Semicoa as a
competitive constraint, Microsemi has the power to selectively raise
prices to customers that Microsemi is aware cannot substitute lower
grade components for JANTXV and JANS small signal transistors. In
addition, Microsemi has announced that it intends to impose on these
JANTXV and JANS customers less favorable terms of service than were
provided before the acquisition. Customers will not be able to avoid
these terms because they no longer possess an alternative to
Microsemi to ensure timely delivery of their small signal
transistors. The acquisition is likely to lead to lengthened
delivery times and less certain delivery, imposing huge risks and
delays on critical military and space-related programs.
39. Through its acquisition of the Semicoa assets, Microsemi has
substantially lessened competition in the markets for JANTXV and
JANS small signal transistors, in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18, and willfully acquired a monopoly in
violation of Section 2 of the Sherman Act, 15 U.S.C. 2.
JANTXV and JANS 5811 Diodes
40. 5811 diodes are produced using processes, skill sets and
equipment unique to this kind of diode. Microsemi is the sole
supplier of JANS 5811 diodes, and one of only two suppliers of
JANTXV 5811 diodes. Before the acquisition, Semicoa had the
capability to enter the markets for JANTXV and JANS 5811 diodes, and
was well along the way toward completing that entry. Microsemi's
purchase of the Semicoa assets eliminated Semicoa's likely entry to
these markets, thereby leaving Microsemi alone in the market, and
facing the potential entry of only one other firm, which would
manufacture these products in Mexico. As a result, the transaction
reduced from three to two the number of competitors that were likely
to compete in these markets.
41. Competition from the firm with manufacturing facilities in
Mexico will not be sufficient to constrain Microsemi's ability to
raise the prices of JANTXV and JANS 5811 diodes. As the only other
domestic supplier of JANTXV and JANS 5811 diodes, Semicoa would have
been the best alternative source to Microsemi for these customers.
Because of concerns relating to classified data, sensitive end uses,
and lack of the ability of the United States government to
prioritize delivery of product, many customers will hesitate to
purchase these products from the firm with manufacturing facilities
in Mexico.
42. Semicoa's entry into the market for JANTXV and JANS 5811
diodes likely would have benefited customers with lower prices,
shorter delivery times, and more favorable terms of service, just as
Semicoa's competition for sales of JANTXV and JANS small signal
transistors benefited customers for those products. Microsemi's
acquisition of the Semicoa assets prevented this entry and therefore
substantially lessened competition in the markets for JANTXV and
JANS 5811 diodes, in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
Entry into the Development, Manufacture and Sale of the Relevant
Products
43. Entry into the development, manufacture and sale of JANTXV
small signal transistors and JANTXV 5811 diodes will not be timely,
likely, and sufficient to counter the anticompetitive effects of the
acquisition. The process required to obtain QML certification and
DSCC qualification for JANTXV small signal transistors and JANTXV
5811 diodes is lengthy. Entry resulting in significant market impact
likely would take more than two years.
44. Entry into the development, manufacture and sale of JANS
small signal transistors and JANS 5811 diodes sold to United States
is even less likely to be timely, likely, and sufficient to counter
the anticompetitive effects of the acquisition. The additional
process required to obtain DSCC certification and qualification at
the JANS level would require at least another year following JANTXV
certification and
[[Page 45246]]
qualification. Moreover, because JANS parts are used for the most
demanding and critical applications, customers are unlikely to shift
significant amounts of JANS purchases to an entrant until that
entrant has established a record of quality, consistency, and
reliability at the JANS level. Entry resulting in significant market
impact likely would take more than three years for firms that,
unlike Semicoa as to 5811 diodes, did not already have JANS
qualification for other products and significant backing from
important customers.
45. The uncertainties and risks associated with any entry, and
the likelihood that such entry would not be timely in any event, is
demonstrated by Microsemi's own inability to transfer production of
JANTXV and JANS 5811 diodes without losing QML qualification.
Although Microsemi is a large and diversified manufacturer of QML
products, and attempted to transfer production to a facility in
Arizona from a facility that it had used to manufacture QML
components for many years, Microsemi lost its qualification and
needed three to four years to requalify to produce these components.
46. Further, to provide the degree of price competition that
would have existed absent the acquisition, entrants would have to
reach a scale sufficient to achieve production costs comparable to
those of Semicoa. This would require significant investment,
particularly in equipment dedicated to automated production, and is
unlikely to occur given the small size of the potential markets.
VI. First Cause of Action
(Violation of Section 7 of the Clayton Act)
47. The United States incorporates the allegations of paragraphs
1 through 46 above.
48. Microsemi's acquisition of the assets of Semicoa used in the
development, manufacture and sale of JANTXV and JANS small signal
transistors and JANTXV and JANS 5811 diodes has substantially
lessened competition in interstate trade and commerce in violation
of Section 7 of the Clayton Act.
49. The transaction has had the following effects, among others:
a. Competition between Microsemi and Semicoa in the development,
manufacture and sale of JANTXV and JANS small signal transistors and
JANTXV and JANS 5811 diodes has been eliminated;
b. prices for JANTXV and JANS small signal transistors and
JANTXV and JANS 5811 diodes have increased and likely will continue
to increase, delivery times likely will lengthen, and terms of
service likely will become less favorable.
VII. Second Cause of Action
(Violation of Section 2 of the Sherman Act)
50. The United States incorporates the allegations of paragraphs
1 through 46 above.
51. On or about July 14, 2008, Microsemi willfully obtained
monopoly power by acquiring the assets of Semicoa used in the
development, manufacture and sale of JANTXV and JANS small signal
transistors. Semicoa was Microsemi's only competitor, and the effect
of this acquisition has been to create a monopoly in violation of
Section 2 of the Sherman Act.
52. The transaction has had the following effects, among others:
a. The combination created a monopoly for the development,
manufacture and sale of JANTXV and JANS small signal transistors;
b. Competition between Microsemi and Semicoa in the development,
manufacture and sale of JANTXV and JANS small signal transistors has
been eliminated; and
c. Prices for JANTXV and JANS small signal transistors have
increased and likely will continue to increase, delivery times
likely will lengthen, and terms of service likely will become less
favorable.
XII. Requested Relief
53. The United States requests that this Court:
a. Adjudge and decree the acquisition of the assets of Semicoa
by defendant Microsemi to violate Section 7 of the Clayton Act, 15
U.S.C. 18 and Section 2 of the Sherman Act, 15 U.S.C. 2;
b. Compel Microsemi to divest all of Semicoa's tangible and
intangible assets related to the development, manufacture and sale
of the relevant products, and to take any further actions necessary
to restore the markets to the competitive position that existed
prior to the acquisition;
c. Award such temporary and preliminary injunctive and ancillary
relief as may be necessary to avert the likelihood of the
dissipation of Semicoa's tangible and intangible assets during the
pendency of this action and to preserve the possibility of effective
final relief;
d. Award the United States the cost of this action; and
e. Grant the United States such other and further relief as the
case requires and the Court deems just and proper.
Respectfully submitted,
Date: December 18, 2008.
For Plaintiff United States:
/s/--------------------------------------------------------------------
Deborah A. Garza,
Acting Assistant Attorney General.
------/s/------
David L. Meyer,
Principal Deputy Assistant Attorney General.
/s/--------------------------------------------------------------------
J. Robert Kramer II,
Director of Operations.
/s/--------------------------------------------------------------------
Maribeth Petrizzi,
Chief, Litigation II Section.
/s/--------------------------------------------------------------------
Dorothy B. Fountain,
Assistant Chief, Litigation II Section.
/s/--------------------------------------------------------------------
Lowell R. Stern (VA Bar 33460),
Trial Attorney,
Antitrust Division, Litigation II Section,
1401 H Street, NW., Suite 3000, Washington, DC 20530,
(202) 514-3676, (202) 307-6283 (fax), [email protected].
------/s/------
Kevin C. Quin,
Robert W. Wilder (VA Bar 14479),
Janet A. Nash,
Stephanie A. Fleming,
Christine A. Hill,
Helena M. Gardner,
Jay D. Owen,
Rachel J. Adcox,
Attorneys,
U.S. Department of Justice,
Antitrust Division,
Litigation II Section,
1401 H Street NW., Suite 3000,
Washington, DC 20530.
United States District Court Central District of California
United States of America, Plaintiff, v. Microsemi Corporation,
Defendant. Case No.: 8:09-cv-00275-AG-AN.
FINAL JUDGMENT
Hon. Andrew J. Guilford.
Final Judgment
Whereas, plaintiff, United States of America, filed its
Complaint on December 18, 2008, and the United States and Microsemi
Corporation (``Microsemi''), by their respective attorneys, have
consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law, and without this Final
Judgment constituting any evidence against or admission by any party
regarding any issue of fact or law;
And whereas, Microsemi agrees to be bound by the provisions of
this Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt
and certain divestiture of certain rights and assets by Microsemi to
assure that competition is substantially restored;
And whereas, Microsemi has represented to the United States that
the divestiture required below can and will be made and that
Microsemi 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 any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, adjudged and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each
of the parties to this action. The Complaint states a claim upon
which relief may be granted against Microsemi under Section 7 of the
Clayton Act, 15 U.S.C. 18, as amended, and Section 2 of the Sherman
Act, 15 U.S.C. 2.
II. Definitions
As used in this Final Judgment:
A. ``Microsemi'' means defendant Microsemi Corporation, a
Delaware corporation with its headquarters in Irvine, California,
its successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees.
B. ``Semicoa'' means Semicoa, a California corporation with its
headquarters in Costa Mesa, California, its successors and assigns,
and its subsidiaries, divisions, groups, affiliates, partnerships,
and joint ventures, and their directors, officers, managers, agents,
and employees.
[[Page 45247]]
C. ``Acquirer'' means the entity to whom defendant divests the
Divestiture Assets.
D. ``Divestiture Assets'' means all assets acquired by Microsemi
from Semicoa on July 14, 2008, including but not limited to:
(1) All specifications, manufacturing plans, assembly
instructions, standard operating procedures, and work instructions
related to the manufacturing process, including all right, title and
interest in or to all other assets of every kind and nature used or
intended to be used in the operation of Semicoa's business,
including, but not limited to, any finished or unfinished devices,
any materials, data or know-how wherever found or of whatever kind
reasonably required to manufacture and sell the goods and services
previously produced by Semicoa, as well as all books and records,
and all files, documents, papers and agreements that are material to
the continuing operation of Semicoa's business;
(2) All finished goods, works in progress, piece parts and
materials inventory, packaging, and labels, supplies and other
related personal property, except that which has been sold since the
closing of the July 14, 2008 transaction between Microsemi and
Semicoa;
(3) All equipment, machinery or software used in the
development, design, manufacturing and testing of goods previously
manufactured by Semicoa;
(4) All right, title and interest in, and all information
related to, any tooling, molds, equipment and proprietary
specifications Semicoa previously had with any and all vendors from
which Semicoa purchased goods or services, whether or not there are
any ``open'' purchase orders issued to such vendors, as well as
names and other information concerning any vendor that provides
goods or services that were material to the operation of Semicoa's
business;
(5) any list of customers to which Semicoa previously sold
products or provided services over the three years prior to July 14,
2008, whether or not there are any ``open'' sales orders from such
customers;
(6) all sales, marketing and promotional literature, cost and
pricing data, promotion list, marketing data and other compilations
of names and requirements, customer lists and other sales-related
materials;
(7) all intellectual property (``IP'') assets or rights that
have been used in the development, production, servicing, and sale
of QML Small Signal Transistors and QML Ultrafast Recovery Rectifier
Diodes, including but not limited to: All licenses, rights, and
sublicenses, trademarks, trade names, service marks, service names,
technical information, computer software and related documentation,
know-how, trade secrets, approvals, certifications, advertising
literature, and all manuals and technical information provided to
the employees, customers, suppliers, agents, or licensees of Semicoa
and used in connection with the development, design, manufacture,
testing, markets, sale, or distribution of QML Small Signal
Transistors or QML Ultrafast Recovery Rectifier Diodes;
(8) all rights under all contracts, licenses, sublicenses,
agreements, leases, building leases, commitments, purchase orders,
bids and offers; and
(9) all rights acquired pursuant to municipal, state and federal
franchises, permits, licenses, agreements, waivers and
authorizations.
E. ``QML Ultrafast Recovery Rectifier Diode'' means each JAN,
JANS, JANTX, and JANTXV part listed on slash sheets 477 and 590 in
the Qualified Products Database maintained by the Defense Supply
Center Columbus.
F. ``QML Small Signal Transistor'' means each JAN, JANS, JANTX,
and JANTXV part listed on slash sheets 182, 251, 253, 255, 270, 290,
291, 301, 317, 336, 349, 354, 366, 374, 376, 382, 391, 392, 394,
395, 423, 455, 512, 534, 535, 544, 545, 558, 559, 560, and 561 in
the Qualified Products Database maintained by the Defense Supply
Center Columbus.
III. Applicability
This Final Judgment applies to Microsemi, as defined above, and
all other persons in active concert or participation with it who
receive actual notice of this Final Judgment by personal service or
otherwise.
IV. Divestiture
A. Microsemi is hereby ordered and directed, within thirty (30)
calendar days after the filing of the proposed Final Judgment in
this matter, or five (5) calendar days after notice of the entry of
this Final Judgment by the Court, whichever is later, to divest the
Divestiture Assets to an Acquirer in a manner consistent with this
Final Judgment. The United States, in its sole discretion, may agree
to one extension of this time period, not to exceed thirty (30)
calendar days, and shall notify the Court of such extension.
Microsemi agrees to use its best efforts to divest the Divestiture
Assets as expeditiously as possible.
B. Microsemi shall provide the Acquirer and the United States
information relating to the personnel involved in the development,
production, operation, testing, management, or sales at the
Divestiture Assets to enable the Acquirer to make offers of
employment. Microsemi will not interfere with any negotiations by
the Acquirer to employ any Microsemi employee whose primary
responsibility was the development, production, operation, testing,
management, or sales at the Divestiture Assets.
C. Microsemi shall permit the Acquirer to have reasonable access
to personnel and to make inspections of the physical facilities
included in the Divestiture Assets; access to any and all
environmental, zoning, and other permit documents and information;
and access to any and all financial, operational, or other documents
and information customarily provided as part of a due diligence
process.
D. Microsemi shall warrant to the Acquirer that each asset will
be operational on the date of sale.
E. Microsemi shall not take any action that will impede in any
way the permitting, operation, or divestiture of the Divestiture
Assets.
F. Microsemi shall warrant to the Acquirer that there are no
material defects in the environmental, zoning, permitting,
qualification, or other permits pertaining to the operation of the
Divestiture Assets, and that following the sale of the Divestiture
Assets, Microsemi will not undertake directly or indirectly, any
challenges to the environmental, zoning, or other permits relating
to the operation of the Divestiture Assets.
G. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV of this Final Judgment shall
include the entire Divestiture Assets, and shall be accomplished in
such a way as to satisfy the United States, in its sole discretion,
that the Divestiture Assets will remain viable and the divestiture
of such assets will remedy the competitive harm alleged in the
Complaint. The divestitures, whether pursuant to Section IV or
Section V of this Final Judgment,
(1) Shall be made to an Acquirer that, in the United States's
sole judgment, has the intent and capability (including the
necessary managerial, operational, technical and financial
capability) of competing effectively in the business of developing,
producing, and selling QML Small Signal Transistors and QML
Ultrafast Recovery Rectifier Diodes; and
(2) Shall be accomplished so as to satisfy the United States, in
its sole discretion, that none of the terms of any agreement between
an Acquirer and Microsemi give Microsemi the ability unreasonably to
raise the Acquirer's costs, to lower the Acquirer's efficiency, or
otherwise to interfere in the ability of the Acquirer to compete
effectively in the business of developing, producing and selling QML
Small Signal Transistors or QML Ultrafast Recovery Rectifier Diodes.
V. Appointment of Trustee to Effect Divestiture
A. If Microsemi has not divested the Divestiture Assets within
the time period specified in Section IV(A), Microsemi shall notify
the United States of that fact in writing. Upon application of the
United States, the Court shall appoint a trustee selected by the
United States and approved by the Court to effect the divestiture of
the Divestiture Assets.
B. After the appointment of a trustee becomes effective, only
the trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer acceptable to the United States at such
price and on such terms as are then obtainable upon reasonable
effort by the trustee, subject to the provisions of Sections IV, V,
and VI of this Final Judgment, and shall have such other powers as
this Court deems appropriate. Subject to Section V(D) of this Final
Judgment, the trustee may hire at the cost and expense of Microsemi
any investment bankers, attorneys, or other agents, who shall be
solely accountable to the trustee, reasonably necessary in the
trustee's judgment to assist in the divestiture.
C. Microsemi shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
Microsemi must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VI.
[[Page 45248]]
D. The trustee shall serve at the cost and expense of Microsemi,
on such terms and conditions as the United States approves, and
shall account for all monies derived from the sale of the
Divestiture Assets and all costs and expenses so incurred. After
approval by the Court of the trustee's accounting, including fees
for its services and those of any professionals and agents retained
by the trustee, all remaining money shall be paid to Microsemi and
the trust shall then be terminated. The compensation of the trustee
and any professionals and agents retained by the trustee shall be
reasonable in light of the value of the Divestiture Assets and based
on a fee arrangement providing the trustee with an incentive based
on the price and terms of the divestiture and the speed with which
it is accomplished, but timeliness is paramount.
E. Microsemi shall use its best efforts to assist the trustee in
accomplishing the required divestiture. The trustee and any
consultants, accountants, attorneys, and other persons retained by
the trustee shall have full and complete access to the personnel,
books, records, and facilities of the business to be divested, and
Microsemi shall develop financial and other information relevant to
such business as the trustee may reasonably request, subject to
reasonable protection for trade secret or other confidential
research, development, or commercial information. Microsemi shall
take no action to interfere with or to impede the trustee's
accomplishment of the divestiture.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestiture ordered under this Final
Judgment. To the extent such reports contain information that the
trustee deems confidential, such reports shall not be filed in the
public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the
preceding month, made an offer to acquire, expressed an interest in
acquiring, entered into negotiations to acquire, or was contacted or
made an inquiry about acquiring, any interest in the Divestiture
Assets, and shall describe in detail each contact with any such
person. The trustee shall maintain full records of all efforts made
to divest the Divestiture Assets.
G. If the trustee has not accomplished the divestiture ordered
under this Final Judgment within six (6) months after its
appointment, the trustee shall promptly file with the Court a report
setting forth: (1) The trustee's efforts to accomplish the required
divestiture; (2) the reasons, in the trustee's judgment, why the
required divestiture has not been accomplished; and (3) the
trustee's recommendations. To the extent such reports contain
information that the trustee deems confidential, such reports shall
not be filed in the public docket of the Court. The trustee shall at
the same time furnish such report to the United States, which shall
have the right to make additional recommendations consistent with
the purpose of the trust. The Court thereafter shall enter such
orders as it shall deem appropriate to carry out the purpose of the
Final Judgment, which may, if necessary, include extending the trust
and the term of the trustee's appointment by a period requested by
the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a
definitive divestiture agreement, Microsemi or the trustee,
whichever is then responsible for effecting the divestiture required
herein, shall notify the United States of any proposed divestiture
required by Section IV or V of this Final Judgment. If the trustee
is responsible, it shall similarly notify Microsemi. The notice
shall set forth the details of the proposed divestiture and list the
name, address, and telephone number of each person not previously
identified who offered or expressed an interest in or desire to
acquire any ownership interest in the Divestiture Assets, together
with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Microsemi,
the proposed Acquirer, any other third party, or the trustee, if
applicable, additional information concerning the proposed
divestiture and the proposed Acquirer. Microsemi and the trustee
shall furnish any additional information requested within fifteen
(15) calendar days of the receipt of the request, unless the parties
shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice
or within twenty (20) calendar days after the United States has been
provided the additional information requested from Microsemi, the
proposed Acquirer, any third party, and the trustee, whichever is
later, the United States shall provide written notice to Microsemi
and the trustee, if there is one, stating whether or not it objects
to the proposed divestiture. If the United States provides written
notice that it does not object, the divestiture may be consummated,
subject only to Microsemi's limited right to object to the sale
under Section V(C) of this Final Judgment. Absent written notice
that the United States does not object to the proposed Acquirer or
upon objection by the United States, a divestiture proposed under
Section IV or Section V shall not be consummated. Upon objection by
Microsemi under Section V(C), a divestiture proposed under Section V
shall not be consummated unless approved by the Court.
VII. Financing
Microsemi shall not finance all or any part of any purchase or
divestiture made pursuant to Section IV or V of this Final Judgment.
VIII. Preserving and Maintaining Divestiture Assets
Until the divestiture required by this Final Judgment has been
accomplished, Microsemi shall take all steps necessary to comply
with the Order Approving Stipulation Modifying Order to Preserve and
Maintain Assets and Stipulation Modifying Order to Preserve and
Maintain Assets. Microsemi shall take no action that would
jeopardize the divestiture ordered by this Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the
proposed Final Judgment in this matter, and every thirty (30)
calendar days thereafter until the divestiture has been completed
under Section IV or V, Microsemi shall deliver to the United States
an affidavit as to the fact and manner of its compliance with
Section IV or V of this Final Judgment. Each such affidavit shall
include the name, address, and telephone number of each person who,
during the preceding thirty (30) calendar days, made an offer to
acquire, expressed an interest in acquiring, entered into
negotiations to acquire, or was contacted or made an inquiry about
acquiring, any interest in the Divestiture Assets, and shall
describe in detail each contact with any such person during that
period. Each such affidavit shall also include a description of the
efforts Microsemi has taken to solicit buyers for the Divestiture
Assets, and to provide required information to prospective
Acquirers, including the limitations, if any, on such information.
Assuming the information set forth in the affidavit is true and
complete, any objection by the United States to information provided
by Microsemi, including limitation on information, shall be made
within fourteen (14) calendar days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the
proposed Final Judgment in this matter, Microsemi shall deliver to
the United States an affidavit that describes in reasonable detail
all actions Microsemi has taken and all steps Microsemi has
implemented on an ongoing basis to comply with Section VIII of this
Final Judgment. Microsemi shall deliver to the United States an
affidavit describing any changes to the efforts and actions outlined
in Microsemi's earlier affidavits filed pursuant to this section
within fifteen (15) calendar days after the change is implemented.
C. Microsemi shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestiture has been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with
this Final Judgment, or of determining whether the Final Judgment
should be modified or vacated, and subject to any legally recognized
privilege, from time to time authorized representatives of the
United States Department of Justice Antitrust Division, including
consultants and other persons retained by the United States, shall,
upon written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division, and
on reasonable notice to Microsemi, be permitted:
(1) Access during Microsemi's office hours to inspect and copy,
or at the option of the United States, to require Microsemi to
provide hard copy or electronic copies of, all books, ledgers,
accounts, records, data, and documents in the possession, custody,
or control of Microsemi, relating to any matters contained in this
Final Judgment; and
(2) To interview, either informally or on the record,
Microsemi's officers, employees, or agents, who may have their
individual counsel present, regarding such matters. The interviews
shall be subject to the reasonable
[[Page 45249]]
convenience of the interviewee and without restraint or interference
by Microsemi.
B. Upon the written request of an authorized representative of
the Assistant Attorney General in charge of the Antitrust Division,
Microsemi shall submit written reports or response to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person
other than an 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
Microsemi to the United States, Microsemi represents and identifies
in writing the material in any such information or documents to
which a claim of protection may be asserted under Rule 26(c)(1)(G)
of the Federal Rules of Civil Procedure, and Microsemi marks each
pertinent page of such material, ``Subject to claim of protection
under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure,''
then the United States shall give Microsemi ten (10) calendar days
notice prior to divulging such material in any legal proceeding
(other than a grand jury proceeding).
XI. Notification
Unless such transaction is otherwise subject to the reporting
and waiting period requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C. 18a (the ``HSR
Act''), Microsemi, without providing advance notification to the
Antitrust Division, shall not directly or indirectly acquire any
assets of or any interest, including any financial, security, loan,
equity or management interest, in any entity engaged in the
development, production, or sale of QML Small Signal Transistors or
QML Ultrafast Recovery Rectifier Diodes during the term of this
Final Judgment.
Such notification shall be provided to the Antitrust Division in
the same format as, and per the instructions relating to, the
Notification and Report Form set forth in the Appendix to Part 803
of Title 16 of the Code of Federal Regulations as amended, except
that the information requested in Items 5 through 9 of the
instructions must be provided only about QML Small Signal
Transistors or QML Ultrafast Recovery Rectifier Diodes. Notification
shall be provided at least thirty (30) calendar days prior to
acquiring any such interest, and shall include, beyond what may be
required by the applicable instructions, the names of the principal
representatives of the parties to the agreement who negotiated the
agreement, and any management or strategic plans discussing the
proposed transaction. Early termination of the waiting periods in
this paragraph may be requested and, where appropriate, granted in
the same manner as is applicable under the requirements and
provisions of the HSR Act and rules promulgated thereunder. This
Section shall be broadly construed and any ambiguity or uncertainty
regarding the filing of notice under this Section shall be resolved
in favor of filing notice.
XII. No Reacquisition
Microsemi may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XIII. 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.
XIV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XV. Public Interest Determination
Entry of this Final Judgment is in the public interest. The
parties have complied with the requirements of the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16, including making copies
available to the public of this Final Judgment, the Competitive
Impact Statement, and any comments thereon and the United States's
responses to comments. Based upon the record before the Court, which
includes the Competitive Impact Statement and any comments and
response to comments filed with the Court, entry of this Final
Judgment is in the public interest.
Date: --------, 2009
Court approval subject to procedures of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16.
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Honorable Andrew J. Guilford,
United States District Judge.
LOWELL R. STERN,
[email protected],
United States Department of Justice,
Antitrust Division, 450 5th Street, NW., Suite 8700, Washington, DC
20530,
Telephone: (202) 307-0922,
Facsimile: (202) 307-6283, Attorney for Plaintiff.
United States District Court Central District of California
United States of America, Plaintiff, v. Microsemi Corporation,
Defendant.
Case No.: 8:09-cv-00275-AG-AN
Competitive Impact Statement
Hon. Andrew J. Guilford
Plaintiff United States of America (``United States''), pursuant
to Section 2(b) of the Antitrust Procedures and Penalties Act
(``APPA'' or ``Tunney Act''), 15 U.S.C. Sec. 16(b)-(h), files this
Competitive Impact Statement relating to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On July 14, 2008, defendant Microsemi Corporation
(``Microsemi'') acquired most of the assets of Semicoa. After
investigating the competitive impact of that acquisition, the United
States filed a civil antitrust Complaint on December 18, 2008,
seeking an order compelling Microsemi to divest the Semicoa assets
and other relief to restore competition. The Complaint alleges that
the acquisition significantly lessened competition in the
development, manufacture and sale of certain high reliability small
signal transistors and ultrafast recovery rectifier diodes used in
aerospace and military applications, in violation of Section 7 of
the Clayton Act, 15 U.S.C. 18, and Section 2 of the Sherman Act, 15
U.S.C. 2. As a result of the acquisition, prices for these products
did or would have increased, delivery times would have lengthened,
and terms of service would have become less favorable. Pursuant to
an Order to Preserve and Maintain Assets, which was entered on
December 24, 2008 and modified on August 6, 2009, Microsemi may not,
without written consent of the United States, dispose of the
acquired assets prior to resolution of this proceeding.
Concurrent with the filing of this Competitive Impact Statement,
the United States and Microsemi have filed a Stipulation Regarding
Proposed Final Judgment and a proposed Final Judgment. These filings
are designed to restore competition through a divestiture of the
acquired assets. The proposed Final Judgment, which is explained
more fully below, requires Microsemi to divest the Semicoa assets,
thus restoring the competition that was lost as a result of the
acquisition.
The United States and Microsemi have stipulated that the
proposed Final Judgment may be entered after compliance with the
APPA. Entry of the Final Judgment would terminate this action,
except that the Court would retain jurisdiction to construe, modify,
or enforce the provisions of the Final Judgment and to punish
violations thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. Microsemi and the Semicoa Acquisition
Microsemi is a Delaware corporation with its principal place of
business in Irvine, California. Microsemi's sales were approximately
$514 million in fiscal year 2008. Microsemi's products include a
range of electronic components, including high reliability small
signal transistors and ultrafast recovery rectifier diodes.
Semicoa was a California corporation that operated from a
manufacturing facility in Costa Mesa, California. Semicoa's sales
were approximately $14.7 million in 2007. Semicoa manufactured a
range of high reliability electronic devices for the military,
aerospace, and satellite markets, including high reliability small
signal transistors and ultrafast recovery rectifier diodes.
On July 14, 2008, Microsemi acquired substantially all of the
assets of Semicoa. The transaction was not subject to the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, which requires
companies to notify and provide information to the Department of
[[Page 45250]]
Justice and the Federal Trade Commission before consummating certain
acquisitions. As a result, the Department of Justice did not learn
of the transaction until after it had been consummated.
B. The Competitive Impact of the Acquisition on the Markets for QML
Small Signal Transistors and QML Ultrafast Recovery Rectifier
Diodes
Transistors and diodes are semiconductor devices used to control
the flow of electric current. In their simplest forms, transistors
can be viewed as switches and diodes can be viewed as one-way
valves. Both products begin as silicon wafers produced in a furnace,
typically referred to as a foundry. They are then cut into small
sections known as dies. These dies are packaged in various ways into
transistors and diodes.
Small signal transistors are a class of transistors commonly
used in communications and other signal processing applications.
Small signal transistors operate at low power levels and typically
are used to amplify electrical signals in a wide range of products,
including critical military and civilian applications ranging from
satellites to nuclear missile systems.
Rectifier diodes are a class of diodes also commonly used in
communications and other signal processing applications. Rectifier
diodes operate at low power levels and are used to convert
alternating current to direct current in a wide range of products,
including critical military and civilian applications ranging from
satellites to nuclear missile systems. Ultrafast recovery rectifier
diodes are distinguished from other rectifier diodes by their
extremely high alternating speeds, which minimize power loss and
waste heat generation. Their ability to perform efficiently and
without generating excess heat is especially important in
applications such as satellites and missiles, where power
availability is strictly limited and heat dissipation is
challenging.
Highly reliable performance under demanding conditions is
absolutely essential in military and space systems, where failure of
a single component could result in failure of the mission. To ensure
reliability and proper performance, production of these components
for use in United States military and space applications is
supervised by the Defense Supply Center Columbus (``DSCC''), a
component of the Department of Defense. DSCC maintains a list of
qualified components and their suppliers generally known as the
Qualified Manufacturers List, or QML. Manufacturers seeking
placement on the QML must pass rigorous audits of their facilities,
production processes, assembly and test procedures, equipment,
documentation, and personnel.
Prior to the acquisition, Microsemi and Semicoa were the only
QML-listed manufacturers of small signal transistors. In addition,
Semicoa and Microsemi were both poised to obtain QML listing for
ultrafast recovery rectifier diodes, which at the time were in
critically short supply.\1\ While a firm with production facilities
in Mexico did produce some QML Ultrafast Recovery Rectifier Diodes,
concerns related to classified data, sensitive end uses, and the
inability of the United States government to prioritize product
deliveries beyond the nation's borders make many customers reluctant
to purchase such products from non-domestic sources.
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\1\ Products listed on the QML are organized into ``slash
sheets,'' which generally denote groups of components produced by
similar processes and having somewhat similar characteristics. Small
signal transistors are denoted on slash sheets 182, 251, 253, 255,
270, 290, 291, 301, 317, 336, 349, 354, 366, 374, 376, 382, 391,
392, 394, 395, 423, 455, 512, 534, 535, 544, 545, 558, 559, 560, and
561. Ultrafast recovery rectifier diodes are denoted on slash sheets
477 and 590. This Competitive Impact Statement will hereinafter
refer to the products on these slash sheets as ``QML Small Signal
Transistors'' and ``QML Ultrafast Recovery Rectifier Diodes.''
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As discussed in the Complaint, customers benefitted from robust
competition between the two firms. In the two years before the
acquisition, Semicoa expanded its capacity, improved delivery times,
and priced aggressively to take business from Microsemi. As a
result, it increased its shipments by more than 40 percent between
2005 and 2007. Without the constraining effect of Semicoa, Microsemi
has the power to raise prices and lengthen delivery times on QML
Small Signal Transistors and QML Ultrafast Recovery Rectifier
Diodes.\2\
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\2\ The Complaint describes the various reliability grades of
QML products. In particular, it distinguishes products qualified for
use in space (``JANS'') from lower reliability grades (collectively
referred to in the Complaint as ``JANTXV''). The terms of the
proposed Final Judgment, however, do not vary among the different
QML reliability grades. Therefore, this Competitive Impact Statement
uses the terms ``QML Small Signal Transistors'' and ``QML Ultrafast
Recovery Rectifier Diodes'' to include products of all QML
reliability grades.
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There are no practical substitutes for QML Small Signal
Transistors or QML Ultrafast Recovery Rectifier Diodes. While
commercial grade analogues of these components exist, such
components are produced to much wider tolerances than QML
components, and lack the extensive production control, testing and
documentation--and thus the reliability and guaranteed performance--
of QML components. While extensive testing of commercial grade
components might somewhat reduce the risk of failure posed by the
use of such components, such testing would be costly and time
consuming, and some risk would still remain. Military and aerospace
customers therefore do not regard commercial grade components as
viable substitutes for QML components.
Entry of new firms into the production of QML Small Signal
Transistors or QML Ultrafast Recovery Rectifier Diodes is highly
unlikely to alleviate the harm to competition resulting from
Microsemi's acquisition of Semicoa. Obtaining QML listing is a
lengthy and uncertain process. Even at the lowest QML reliability
grades, entry resulting in sufficient market impact likely would
take more than two years. Moreover, entry on a scale sufficient to
match the competitive impact of Semicoa prior to the acquisition
would require significant investment, particularly in equipment
dedicated to automated production, and is unlikely to occur given
the small size of the potential markets.
III. Explanation of the Proposed Final Judgment
The divestiture required by the proposed Final Judgment will
eliminate the anticompetitive effects of the acquisition in the
markets for QML Small Signal Transistors and QML Ultrafast Recovery
Rectifier Diodes by reestablishing Semicoa as an independent and
economically viable competitor. The assets to be divested include
essentially all of the assets \3\ acquired by Microsemi in the July
14, 2008 transaction. The divestiture provisions of the proposed
Final Judgment will eliminate the anticompetitive effects of the
acquisition in the provision of QML Small Signal Transistors and QML
Ultrafast Recovery Rectifier Diodes.
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\3\ Inventory and/or work-in-progress that Microsemi sold in the
ordinary course of business after the July 14, 2008 acquisition of
the Semicoa assets are excluded from the divestiture. The Acquirer
will acquire all of the assets necessary to restore competition in
the relevant markets.
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The proposed Final Judgment requires Microsemi, within thirty
(30) days after the filing of the proposed Final Judgment, or five
(5) calendar days after notice of the entry of the Final Judgment by
the Court, whichever is later, to divest the Semicoa assets as a
viable ongoing business. The United States may, in its discretion,
extend this period by an additional period of up to thirty (30)
days. The assets must be divested in such a way as to satisfy the
United States, in its sole discretion, that the assets can and will
be operated by the purchaser as a viable, ongoing business that can
compete effectively in the relevant markets. Microsemi must use its
best efforts to accomplish the divestiture as expeditiously as
possible and shall cooperate with prospective purchasers.
In the event that Microsemi does not accomplish the divestiture
within the periods prescribed in the proposed Final Judgment, the
proposed Final Judgment provides that the Court will appoint a
trustee selected by the United States to effect the divestiture. If
a trustee is appointed, the Final Judgment provides that Microsemi
will pay all costs and expenses of the trustee. The trustee's
commission will be structured so as to provide an incentive for the
trustee based on the price obtained and the speed with which the
divestiture is accomplished. After his or her appointment becomes
effective, the trustee will file monthly reports with the Court and
the United States setting forth his or her efforts to accomplish the
divestiture. At the end of six (6) months, if the divestiture has
not been accomplished, the trustee and the United States will make
recommendations to the Court, which shall enter such orders as
appropriate, in order to carry out the purpose of the trust,
including extending the trust or the term of the trustee's
appointment.
In addition to the divestiture provisions, the proposed Final
Judgment, in Section XI, provides that Microsemi will provide the
United States at least thirty (30) days' advance notice of any
acquisition of the assets of, or any interest in, any entity
[[Page 45251]]
engaged in the development, production or sale of QML Small Signal
Transistors or QML Ultrafast Recovery Rectifier Diodes. The
notification shall be provided in the same format as, and per the
instructions relating to, the Notification and Report Form set forth
in the Appendix to Part 803 of Title 16 of the Code of Federal
Regulations as amended, except that the information requested in
Items 5 through 9 of the instructions need be provided only for QML
Small Signal Transistors and QML Ultrafast Recovery Rectifier
Diodes.
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 attorneys' 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 defendant.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and Microsemi have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its consent. The APPA conditions entry upon the
Court's determination that the proposed Final Judgment is in the
public interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding
the proposed Final Judgment. Any person who wishes to comment should
do so within sixty (60) days of the date of publication of this
Competitive Impact Statement in the Federal Register, or the last
date of publication in a newspaper of the summary of this
Competitive Impact Statement, whichever is later. All comments
received during this period will be considered by the Department of
Justice, which remains free to withdraw its consent to the proposed
Final Judgment at any time prior to the Court's entry of judgment.
The comments and the response of the United States will be filed
with the Court and published in the Federal Register.
Written comments should be submitted to: Maribeth Petrizzi,
Chief, Litigation II Section, Antitrust Division, United States
Department of Justice, Liberty Square Building, 450 5th Street, NW.,
Suite 8700, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
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 Microsemi. The
United States could have continued the litigation and sought
divestiture of the Semicoa assets. The United States is satisfied,
however, that the divestiture of the assets in the manner prescribed
in the proposed Final Judgment will restore competition in the
markets for QML Small Signal Transistors and QML Ultrafast Recovery
Rectifier Diodes. The proposed Final Judgment would achieve all of
the relief the government would have obtained through litigation,
but avoids the time, expense and uncertainty of a full trial on the
merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, 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)(1)(A) & (B). In considering these statutory factors,
the court's inquiry is necessarily a limited one as the government
is entitled to ``broad discretion to settle with the defendant
within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act).\4\
\4\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for the court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
Sec. 16(e) (2004), with 15 U.S.C. Sec. 16(e)(1) (2006); see also
SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004
amendments ``effected minimal changes'' to Tunney Act review).
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Under the APPA a court considers, 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
Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the
relief secured by the decree, a court may not ``engage in an
unrestricted evaluation of what relief would best serve the
public.'' United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir.
1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th
Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62; United States
v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001). Courts have
held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations
omitted).\5\ In determining whether a proposed settlement is in the
public interest, a district court ``must accord deference to the
government's predictions about the efficacy of its remedies, and may
not require that the remedies perfectly match the alleged
violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17; see also
Microsoft, 56 F.3d at 1461 (noting the need for courts to be
``deferential to the government's predictions as to the effect of
the proposed remedies''); United States v. Archer-Daniels-Midland
Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court
should grant due respect to the United States's prediction as to the
effect of proposed remedies, its perception of the market structure,
and its views of the nature of the case).
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\5\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be
approved even if it falls short of the remedy the court would impose
on its own, as long as it falls within the range of acceptability or
is `within the reaches of public interest.' '' United States v. Am.
Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations
omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713,
716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United States, 460
U.S. 1001, 103 S. Ct. 1240, 75 L.Ed.2d 472 (1983); see also United
States
[[Page 45252]]
v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985),
(approving the consent decree even though the court would have
imposed a greater remedy). To meet this standard, the United States
``need only provide a factual basis for concluding that the
settlements are reasonably adequate remedies for the alleged
harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to
reviewing the remedy in relationship to the violations that the
United States has alleged in its Complaint, and does not authorize
the court to ``construct [its] own hypothetical case and then
evaluate the decree against that case.'' Microsoft, 56 F.3d at 1459.
Because the ``court's authority to review the decree depends
entirely on the government's exercising its prosecutorial discretion
by bringing a case in the first place,'' it follows that ``the court
is only authorized to review the decree itself,'' and not to
``effectively redraft the complaint'' to inquire into other matters
that the United States did not pursue. Id. at 1459-60. As confirmed
in SBC Communications, courts ``cannot look beyond the complaint in
making the public interest determination unless the complaint is
drafted so narrowly as to make a mockery of judicial power.'' 489 F.
Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to
preserve the practical benefits of utilizing consent decrees in
antitrust enforcement, adding the unambiguous instruction that
``[n]othing in this section shall be construed to require the court
to conduct an evidentiary hearing or to require the court to permit
anyone to intervene.'' 15 U.S.C. 16(e)(2). The language wrote into
the statute what Congress intended when it enacted the Tunney Act in
1974, as Senator Tunney explained: ``[t]he court is nowhere
compelled to go to trial or to engage in extended proceedings which
might have the effect of vitiating the benefits of prompt and less
costly settlement through the consent decree process.'' 119 Cong.
Rec. 24,598 (1973) (statement of Senator Tunney). Rather, the
procedure for the public interest determination is left to the
discretion of the court, with the recognition that the court's
``scope of review remains sharply proscribed by precedent and the
nature of Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d at
11.\6\
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\6\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: August 20, 2009.
Respectfully submitted,
By: ------/s/------
Lowell R. Stern, Attorney for Plaintiff.
Certificate of Service
I hereby certify that on the 20th day of August, 2009, I will
electronically file the foregoing with the Clerk of Court using the CM/
ECF system, which will then send a notification of such filing (NEF) to
the following:
Brett J. Williamson,
Darin J. Glasser,
O'Melveny & Myers LLP, 610 Newport Center Drive, 17th Floor, Newport
Beach, CA 92660-6429.
Michael E. Antalics,
Benjamin G. Bradshaw,
O'Melveny & Myers LLP, 1625 Eye Street, NW., Washington, DC 20006.
------/s/------
Lowell R. Stern,
Attorney for Plaintiff.
[FR Doc. E9-21051 Filed 8-31-09; 8:45 am]
BILLING CODE 4410-11-P