[Federal Register Volume 76, Number 164 (Wednesday, August 24, 2011)]
[Notices]
[Pages 52972-52990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21590]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Regal Beloit Corp. and A.O. Smith Corp.; 
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, 
Hold Separate Stipulation and Order, and Competitive Impact Statement 
have been filed with the United States District Court for the District 
of Columbia in United States v. Regal Beloit Corporation. and A.O. 
Smith Corporation., Civil Action No. 1:11-cv-01487. On August 17, 2011, 
the United States filed a Complaint alleging that the proposed 
acquisition by Regal Beloit Corporation (``RBC'') of the electric motor 
business of A.O. Smith Corporation (``AOS'') would violate Section 7 of 
the Clayton Act, 15 U.S.C. 18. The proposed Final Judgment, filed at 
the same time as the Complaint, requires RBC to divest assets relating 
to its electric motors for pool pumps and spa pumps, including certain 
tangible and intangible assets associated with these motors. The 
proposed Final Judgment requires that the pool pump and spa pump motor 
assets be sold to SNTech, Inc. The proposed Final Judgment also 
requires RBC to divest the assets AOS has been using in its effort to 
enter the market for draft inducers used in furnaces having a thermal 
efficiency of 90 percent or greater, including the tangible and 
intangible assets associated with AOS's efforts. The proposed Final 
Judgment requires that the draft inducer assets be sold to Revcor, Inc.
    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 District of Columbia. 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 60 days of the date of this 
notice. Such comments and responses thereto will be published in the 
Federal Register and filed with the Court. Comments should be directed 
to Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division, 
U.S. Department of Justice, 450 Fifth Street, NW., Suite 8700, 
Washington, DC 20530 (telephone: (202) 307-0924).

Patricia A. Brink,
Director of Civil Enforcement.

United States District Court for the District of Columbia

    United States of America, United States Department of Justice, 
Antitrust Division, 450 Fifth Street, NW., Suite 8700, Washington, 
DC 20530, Plaintiff, v. Regal Beloit Corporation, 200 State Street, 
Beloit, Wisconsin 53511, and A.O. Smith Corporation, 11270 West Park 
Place, Suite 170, Milwaukee, Wisconsin 53224, Defendants.

Case: 1:11-cv-01487.
Assigned To: Huvelle, Ellen S.
Assign. Date: 8/17/2011.
Description: Antitrust.

Complaint

    The United States of America (``United States''), acting under the 
direction of the Attorney General of the United States, brings this 
civil antitrust action against Defendants Regal Beloit Corporation 
(``RBC'') and A.O. Smith Corporation (``AOS'') to enjoin RBC's proposed 
acquisition of the electric motor business from AOS. The United States 
complains and alleges as follows:

I. Nature of the Action

    1. On December 12, 2010, RBC entered into an agreement to acquire 
the electric motor business from AOS. This business involves the 
manufacture and sale of numerous types of motors, among other related 
products. The transaction is valued at approximately $875 million and 
includes $700 million in cash and 2.83 million shares of RBC common 
stock, currently valued at approximately $175 million.
    2. RBC's proposed acquisition of the electric motor business from 
AOS likely would substantially lessen competition in the markets for 
electric motors for pool pumps and electric motors for spa pumps in the 
United States. RBC and AOS are two of the three leading

[[Page 52973]]

suppliers of these products in the United States. Combined, RBC and AOS 
would supply approximately 85 percent of the U.S. market for electric 
motors for pool pumps. In addition, combined, RBC and AOS would supply 
well over half of the U.S. market for electric motors for spa pumps. 
For some customers of electric motors for pool pumps and electric 
motors for spa pumps, AOS and RBC are the two best sources of supply.
    3. In addition, RBC's proposed acquisition of the electric motor 
business from AOS would eliminate the actual potential competition from 
AOS in the market for draft inducers used in high-efficiency furnaces 
in the United States. RBC is currently the only supplier of these draft 
inducers in the United States. AOS has the means and is likely to enter 
this market. AOS also is a uniquely well-positioned entrant. It is 
likely that AOS's entry into this market would produce procompetitive 
effects.
    4. The elimination of the competition between RBC and AOS likely 
would result in RBC's ability profitably to unilaterally raise prices 
of electric motors for pool pumps and electric motors for spa pumps to 
customers in the United States. The proposed acquisition also likely 
would reduce RBC's incentive to invest in innovations for these 
products.
    5. Further, the elimination of AOS as a potential competitor of 
draft inducers for high-efficiency furnaces in the United States likely 
would result in RBC's ability to continue its monopoly without the 
threat of a potential entrant.
    6. As a result, the proposed acquisition likely would substantially 
lessen competition in the development, manufacture, and sale of 
electric motors for pool pumps and electric motors for spa pumps in the 
United States, in violation of Section 7 of the Clayton Act, 15 U.S.C. 
18. The acquisition also would eliminate the potential competition 
between RBC and AOS for draft inducers for high-efficiency furnaces in 
the United States, in violation of Section 7 of the Clayton Act, 15 
U.S.C. 18.

II. The Defendants

    7. RBC is incorporated in Wisconsin and has its headquarters in 
Beloit, Wisconsin. RBC is a manufacturer of mechanical and electrical 
motion control and power generation products. In 2010, RBC had revenues 
of approximately $2.2 billion, primarily from its electric products.
    8. AOS is incorporated in Delaware and has its headquarters in 
Milwaukee, Wisconsin. AOS comprises two operating units: the water 
products business and the electric motor business. AOS is one of North 
America's largest manufacturers of electric motors for residential and 
commercial applications. In 2010, AOS had revenues of approximately 
$1.5 billion, with approximately $700 million of that amount from 
electric motors and related products.

III. Jurisdiction and Venue

    9. The United States brings this action under Section 15 of the 
Clayton Act, 15 U.S.C. 4 and 25, as amended, to prevent and restrain 
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
    10. Defendants develop, manufacture, and sell electric motors for 
pool pumps and electric motors for spa pumps and other products in the 
flow of interstate commerce. Defendants' activities in the development, 
manufacture, and sale of these products substantially affect interstate 
commerce. This Court has subject matter jurisdiction over this action 
pursuant to Section 15 of the Clayton Act, 15 U.S.C. 25, and 28 U.S.C. 
1331, 1337(a), and 1345.
    11. Defendants have consented to venue and personal jurisdiction in 
this judicial district. Venue is therefore proper in this District 
under Section 12 of the Clayton Act, 15 U.S.C. 22, and 28 U.S.C. 
1391(c).

IV. Electric Motors for Pool Pumps and Spa Pumps

A. Background

    12. Electric motors come in a broad range of sizes, horsepower 
ratings, and end-use segments. Standard frame sizes are determined by 
both common practice and the National Electrical Mechanical 
Association. While there is a great deal of overlap between motor size 
and horsepower, in general, as size increases, horsepower does as well.
    13. The smallest electric motors, which generally range in 
horsepower from 1/400 to one-half, are called subfractional motors. 
Slightly larger electric motors, which generally range in horsepower 
from one-half horsepower to five horsepower, are called fractional 
motors. In addition to variations in frame and horsepower sizes, 
electric motors are often customized for specific end-use applications. 
End-use categories include water pumps, with specific applications for 
pumping well water and wastewater, as well as for use in pools and 
spas; heating, ventilation, air conditioning, and refrigeration, with 
specific applications in air conditioning compressors, fans, furnaces, 
and blowers; and general commercial uses, with such diverse 
applications as garage door openers and exercise machines.
    14. For a number of years, manufacturers have been developing more 
efficient electric motors. One of the most innovative technologies 
being utilized and continually improved for higher energy efficiency is 
variable speed technology, which enables the motor to switch between 
several speeds, sometimes using integrated electronics and permanent 
magnet technology, thereby allowing the motor to run more efficiently.
    15. Motors sold for use in pool pumps and spa pumps must be 
uniquely engineered and assembled to meet the size and performance 
specifications of the individual pump. In addition to size and energy 
efficiency, specification variables include the capacity of the 
impeller, the speed, the current/voltage, whether the motor is operated 
continually or sporadically, and whether the pump has more than one 
speed of operation.
    16. In light of government regulations, energy costs, and 
environmental concerns, more energy-efficient motors, including 
variable speed motors, are increasingly demanded for pool and spa 
applications. For example, California recently enacted legislation 
pertaining to the energy efficiency of pool pumps and spa pumps. Even 
without such legislation, energy-efficient motors are becoming more 
popular because they use less electricity and, therefore, are less 
costly to operate. Energy-efficient pump motors also produce less noise 
than standard induction pump motors. Pool pumps are an excellent 
application for the innovative, more energy-efficient motors because 
pool pumps typically run for many hours a day, sometimes even 
continuously. Pool pumps are therefore expected to be a high growth 
area for more energy-efficient electric motors.
    17. All electric motors must pass Underwriters Laboratories 
(``UL'') certification. UL has established safety standards 
specifically for all electric motors for pool pumps and all electric 
motors for spa pumps. For example, electric motors for pool pumps and 
electric motors for spa pumps are the only pump motors that are 
required to have a ground bonding lug on the outside of the pump, 
assuring that the pump is electrically grounded.
    18. Electric motors for pool pumps and electric motors for spa 
pumps are purchased by manufacturers of pool pumps and spa pumps. 
Electric motors for pool pumps and electric motors for spa pumps are 
also sold as replacements or upgrades in the aftermarket through

[[Page 52974]]

the pump manufacturers and distributors.

B. Relevant Markets

1. Electric Motors for Pool Pumps
a. Product Market
    19. Electric motors for pool pumps have specific applications, for 
which other types of pumps cannot be employed. Motors for use in other 
types of pumps, such as sump pumps and spa pumps, cannot be used in 
pool pumps because each pump is specifically designed for a particular 
application and the motor is then specifically designed for each pump 
type. The motors for the different types of pumps also have different 
performance characteristics. A customer who requires a motor for a pool 
pump cannot substitute a motor for a spa pump, sump pump, or jetted tub 
pump, or any other kind of motor.
    20. A small but significant increase in the price of electric 
motors for pool pumps would not cause customers of those motors to 
substitute a different kind of motor or other product or reduce 
purchases of electric motors for pool pumps in volumes sufficient to 
make such a price increase unprofitable. Accordingly, the development, 
manufacture, and sale of electric motors for pool pumps is a line of 
commerce and relevant market within the meaning of Section 7 of the 
Clayton Act.
b. Geographic Market
    21. Although electric motors for pool pumps may be manufactured 
outside the United States, U.S. purchasers can use only those motors 
designed for use in the United States. These motors must be customized 
for the demands of U.S. purchasers and must comply with distinct U.S. 
technical specifications, such as UL certification.
    22. Manufacturers of electric motors for pool pumps typically 
deliver the motors to their customers' locations. Most customers that 
purchase motors for pool pumps for use in the United States are located 
in the United States.
    23. Major U.S. customers of electric motors for pool pumps consider 
only those manufacturers with a substantial U.S. presence, including 
sales, technical, and support personnel. U.S. customers prefer 
localized experience, inventory, technical support, and warranty 
assistance, as well as detailed knowledge of the U.S. market and 
products designed to meet U.S. requirements.
    24. A small but significant increase in the price of electric 
motors for pool pumps intended for use in the United States would not 
cause a sufficient number of U.S. customers to turn to manufacturers of 
those motors that do not have a substantial presence in the United 
States so as to make such a price increase unprofitable. Accordingly, 
the United States is a relevant geographic market within the meaning of 
Section 7 of the Clayton Act.
2. Electric Motors for Spa Pumps
a. Product Market
    25. Electric motors for spa pumps have specific applications, for 
which other types of pumps cannot be employed. Motors for use in other 
types of pumps, such as sump pumps and pool pumps, cannot be used in 
spa pumps because each pump is specifically designed for a particular 
application and the motor is then specifically designed for each pump 
type. The motors for the different types of pumps also have different 
performance characteristics. A customer who requires a motor for a spa 
pump cannot substitute a motor for a pool pump, sump pump, or jetted 
tub pump, or any other kind of motor.
    26. A small but significant increase in the price of electric 
motors for spa pumps would not cause customers of those motors to 
substitute a different kind of motor or other product or reduce 
purchases of electric motors for spa pumps in volumes sufficient to 
make such a price increase unprofitable. Accordingly, the development, 
manufacture, and sale of electric motors for spa pumps is a line of 
commerce and relevant market within the meaning of Section 7 of the 
Clayton Act.
b. Geographic Market
    27. Electric motors for spa pumps may be manufactured outside the 
United States; however, these motors must be customized for use in the 
United States and must comply with distinct U.S. technical 
specifications, such as UL certification.
    28. Manufacturers of electric motors for spa pumps typically 
deliver the motors to their customers' locations. Most customers that 
purchase motors for spa pumps for use in the United States are located 
in the United States.
    29. Most U.S. customers of electric motors for spa pumps prefer 
manufacturers with a substantial U.S. presence, including sales, 
technical, and support personnel. U.S. customers prefer localized 
experience, inventory, technical support, and warranty assistance, as 
well as detailed knowledge of the U.S. market and products designed to 
meet U.S. requirements.
    30. A small but significant increase in the price of electric 
motors for spa pumps intended for use in the United States would not 
cause a sufficient number of U.S. customers to turn to manufacturers of 
these motors that do not have a substantial presence in the United 
States so as to make such a price increase unprofitable. Accordingly, 
the United States is a relevant geographic market within the meaning of 
Section 7 of the Clayton Act.

C. Anticompetitive Effects of the Proposed Acquisition

1. Electric Motors for Pool Pumps
    31. AOS, RBC, and one other company are the only significant 
competitors that sell electric motors for pool pumps in the United 
States. Currently, AOS and RBC sell approximately 76 and nine percent, 
respectively, of electric motors for pool pumps in the United States. 
The third competitor accounts for most of the remaining sales in this 
market.
    32. RBC's proposed acquisition of the electric motor business from 
AOS likely would substantially lessen competition in the U.S. market 
for electric motors for pool pumps. If the acquisition is not enjoined, 
the combined firm would supply approximately 85 percent of the electric 
motors for pool pumps in the United States. The Herfindahl-Hirschman 
Index (``HHI'') (explained in Appendix A) is a measure of market 
concentration. Mergers resulting in highly concentrated markets (with 
an HHI in excess of 2,500) that cause an increase in the HHI of more 
than 200 points are presumed to be likely to enhance market power under 
the Horizontal Merger Guidelines issued by the U.S. Department of 
Justice and the Federal Trade Commission. Following RBC's acquisition 
of the electric motor business of AOS, the HHI would increase from 
approximately 6,000 points to more than 7,500 points.
    33. AOS's and RBC's bidding behavior often has been constrained by 
the possibility of losing sales of electric motors for pool pumps to 
the other. For many customers of electric motors for pool pumps, AOS 
and RBC are the two best sources.
    34. Customers have benefited from the competition between AOS and 
RBC for sales of electric motors for pool pumps by receiving lower 
prices. In addition, AOS and RBC have competed vigorously by providing 
innovations that have resulted in higher-quality and more energy-
efficient motors. For example, AOS and RBC have competed for the 
development and sale of more energy-efficient motors for pool pumps. 
The third competitor is behind AOS and RBC in developing this energy-
efficient

[[Page 52975]]

technology. Further, AOS and RBC compete based on the level of service 
they provide to their customers. The combination of AOS and RBC would 
eliminate this competition and its future benefits to customers. Post-
acquisition, RBC likely would have the incentive and gain the ability 
to profitably increase prices, reduce quality, reduce innovation, and 
provide less customer service.
    35. The response of the only other significant competitor in the 
United States for electric motors for pool pumps would not be 
sufficient to constrain a unilateral exercise of market power by RBC 
post-acquisition. RBC would be aware that many customers strongly 
prefer it as a supplier, allowing it profitably to raise prices above 
pre-acquisition levels.
    36. The proposed acquisition, therefore, likely would substantially 
lessen competition in the United States for the development, 
manufacture, and sale of electric motors for pool pumps. This likely 
would lead to higher prices, lower quality, less customer service, and 
less innovation in violation of Section 7 of the Clayton Act.
2. Electric Motors for Spa Pumps
    37. AOS, RBC, and one other company are the only significant 
competitors that sell electric motors for spa pumps in the United 
States. Currently, AOS and RBC each sell a substantial portion of the 
electric motors for spa pumps in the United States. The third 
competitor accounts for most of the remaining sales in this market.
    38. RBC's proposed acquisition of the electric motor business from 
AOS likely would substantially lessen competition in the U.S. market 
for electric motors for spa pumps. If the acquisition is not enjoined, 
the combined firm would supply well over half of the electric motors 
for spa pumps in the United States.
    39. AOS's and RBC's bidding behavior often has been constrained by 
the possibility of losing sales of electric motors for spa pumps to the 
other. For many customers of motors for spa pumps, AOS and RBC are the 
two best sources.
    40. Customers have benefited from the competition between AOS and 
RBC for sales of electric motors for spa pumps by receiving lower 
prices. In addition, AOS and RBC have competed vigorously by providing 
innovations that have resulted in higher-quality motors. The 
combination of AOS and RBC would eliminate this competition and its 
future benefits to customers. Post-acquisition, RBC likely would have 
the incentive and gain the ability to profitably increase prices, 
reduce quality, reduce innovation, and provide less customer service.
    41. The response of the only other significant competitor in the 
United States for electric motors for spa pumps would not be sufficient 
to constrain a unilateral exercise of market power by RBC post-
acquisition. RBC would be aware that many customers strongly prefer it 
as a supplier, allowing it profitably to raise prices above pre-
acquisition levels.
    42. The proposed acquisition, therefore, likely would substantially 
lessen competition in the United States for the development, 
manufacture, and sale of electric motors for spa pumps. This likely 
would lead to higher prices, lower quality, less customer service, and 
less innovation in violation of Section 7 of the Clayton Act.

D. Difficulty of Entry

    43. Sufficient, timely entry of additional competitors into the 
markets for electric motors for pool pumps and electric motors for spa 
pumps in the United States is unlikely. Therefore, entry or the threat 
of entry into this market will not prevent the harm to competition 
caused by the elimination of AOS as a supplier of these products.
    44. Firms attempting to enter into the U.S. market for the 
development, manufacture, and sale of electric motors for pool pumps 
and electric motors for spa pumps face several barriers to entry. 
First, establishing a reputation for successful performance and gaining 
customer confidence are important and may require many years and 
substantial sunk costs. Because end users rely on these motors to 
perform a critical function in their pool pumps and spa pumps, they are 
reluctant to purchase a product from a supplier not already known for 
its expertise in electric motors for pool pumps and electric motors for 
spa pumps, or at least in fractional electric motors.
    45. Second, entry into the markets for electric motors for pool 
pumps and electric motors for spa pumps could take years. A new 
supplier must demonstrate to potential customers that its motors can 
meet the customers' particular design specifications as well as their 
rigorous quality and performance standards. Because each customer may 
have many different specifications for the motors, the period for 
qualification can take up to twelve months with no guarantee of 
success. This period does not include the time necessary to obtain UL 
certification, which may take up to six months. Further, because 
customer specifications are unique, qualification with one customer 
does not guarantee qualification with another.
    46. Third, the technology and expertise involved in developing and 
producing electric motors for pool pumps and electric motors for spa 
pumps is another barrier to entry. A new supplier would need to 
construct production lines capable of manufacturing motors for pool 
pumps and motors for spa pumps that meet the standards of potential 
customers. In addition, the technical know-how necessary to design and 
successfully manufacture such motors is difficult to obtain. Even 
incumbent manufacturers of fractional electric motors, with all their 
expertise and technical know-how, require substantial time and expense 
for engineering, tooling, and testing a new motor before it can be 
sold. A new entrant must also be committed to investing in research and 
development to meet the customers' ongoing desire for innovation, 
including more energy-efficient motors.
    47. Finally, U.S. customers prefer suppliers that have a 
substantial U.S. presence, which can require a significant investment 
in time and money. Given the low volumes of motors needed by 
manufacturers of pool pumps and spa pumps, new entrants are unlikely to 
invest in establishing the personnel, inventory, and distribution 
presence required to compete effectively in the United States.
    48. As a result of these barriers, entry into the markets for 
electric motors for pool pumps and electric motors for spa pumps in the 
United States would not be timely, likely, or sufficient to defeat the 
substantial lessening of competition that likely would result from 
RBC's acquisition of AOS's electric motor business.

V. Draft Inducers for High-Efficiency Furnaces

A. Background

    49. Gas-fired furnaces require the movement of air and the 
expulsion of hot combustion gases. Blowers move the air through ducts 
and circulate it around a building. Furnace draft inducers are 
specialized blowers, which perform an important safety function by 
extracting harmful combustion gases such as carbon monoxide, and 
venting those gases outside. Furnace draft inducers must meet federal 
regulatory standards for safety and energy efficiency.
    50. Furnace draft inducers consist of a housing containing a blower 
wheel and a motor. Furnace draft inducers are distinguished from 
circulation blowers by the shape of the housing, the need for safety 
devices to ensure gas is extracted,

[[Page 52976]]

and the design of the motor mounting on the blower assembly, among 
other design features. The shapes of the housing and fan blades are 
among the more difficult design aspects of furnace draft inducers.
    51. Furnaces are classified according to their thermal efficiency, 
which is the percentage of energy that is used to heat the air and that 
is not lost with the vented combustion gases. Draft inducers are 
designed for the specific thermal efficiency of each furnace. Less 
efficient furnaces, typically referred to as 80 percent thermal 
efficiency or 80+, use draft inducers that employ an older technology 
that has been utilized for forty years. More modern furnaces with 
higher thermal efficiency, typically referred to as 90 percent thermal 
efficiency or 90+, use draft inducers based on newer, more advanced 
technology.
    52. Draft inducers for furnaces with 80 percent thermal efficiency 
(hereafter referred to as ``80+ draft inducers'') are used in non-
condensing furnaces. Non-condensing furnaces do not need the draft 
inducer to drain condensation. 80+ draft inducers are generally simpler 
and easier to design than draft inducers for furnaces with a 90 percent 
or greater thermal efficiency (hereafter referred to as ``90+ draft 
inducers'') because they have a single inlet, a sheet metal housing 
that is easily available, and a narrow, forward-curved wheel.
    53. 90+ draft inducers are used in condensing furnaces. Condensing 
furnaces take so much heat out of the combusted gases (that is, turn so 
much of the combustion energy into heat that is circulated) that 
condensation forms in the draft inducer. This necessitates a draft 
inducer with a plastic housing that is made from polycarbonate 
material, rather than metal, which can corrode, and a drain for the 
condensation. 90+ draft inducers also contain a more technically 
complicated ``swirl fan'' and backward-curved wheel, which is inclined 
for greater efficiency and noise reduction. 90+ draft inducers are 
priced significantly higher than 80+ draft inducers.
    54. Currently, sales of 90+ draft inducers represent the majority 
of the draft inducer sales in the United States. Usage of 90+ draft 
inducers is likely to increase as federal regulations requiring the use 
of more energy-efficient products likely will lead to the removal of 
furnaces with 80 percent thermal efficiency from the market.

B. Relevant Markets

1. Product Market
    55. 90+ draft inducers have specific applications, for which other 
products cannot be employed. Every furnace needs a draft inducer, and 
no product other than a draft inducer can extract the harmful 
combustion gases from the furnace and safely vent them. In addition, 
80+ draft inducers, or other draft inducers designed for less efficient 
furnaces, cannot be substituted for a 90+ draft inducer. Draft inducers 
for less efficient furnaces will not work with a furnace with 90 
percent thermal efficiency.
    56. Draft inducers are also used to vent hazardous gases created in 
other gas appliances. Although performing a similar function as furnace 
draft inducers, the frame shape, wheel design, motor, and other design 
features of a draft inducer intended for another appliance are 
sufficiently distinct that they cannot be used in a furnace.
    57. A small but significant increase in the price of 90+ draft 
inducers would not cause customers of 90+ draft inducers to substitute 
a lower-efficiency draft inducer, such as an 80+ draft inducer, or 
another product or to reduce purchases of 90+ draft inducers in volumes 
sufficient to make such a price increase unprofitable. Accordingly, the 
development, manufacture, and sale of 90+ draft inducers is a line of 
commerce and relevant market within the meaning of Section 7 of the 
Clayton Act.
2. Geographic Market
    58. 90+ draft inducers sold in the United States must be customized 
for the demands of U.S. purchasers and must comply with distinct U.S. 
technical specifications and certification requirements.
    59. Manufacturers of 90+ draft inducers typically deliver the 
products to their customers' locations. 90+ draft inducers are used 
only in the United States and Canada. Customers that purchase 90+ draft 
inducers for use in the United States are located in the United States.
    60. Major U.S. customers of 90+ draft inducers consider only those 
manufacturers with a significant understanding of heating systems in 
the United States. Those manufacturers all have a substantial presence 
in the United States, including sales, technical, and support 
personnel. U.S. customers also prefer localized experience, inventory, 
and technical support, as well as detailed knowledge of the U.S. 
market.
    61. A small but significant increase in the price of 90+ draft 
inducers would not cause a sufficient number of customers in the United 
States to turn to manufacturers of 90+ draft inducers without a 
presence in the United States so as to make such a price increase 
unprofitable. Accordingly, the United States is a relevant geographic 
market within the meaning of Section 7 of the Clayton Act.

C. Anticompetitive Effects of the Proposed Acquisition

    62. For the past several years, RBC has been the only firm selling 
90+ draft inducers in the United States. Furnace manufacturers have 
attempted to find alternative sources for 90+ draft inducers. For at 
least one year, AOS has been attempting to enter the U.S. market for 
90+ draft inducers. AOS has the means to enter this market and has 
advantages over other manufacturers that make it a particularly strong 
and likely entrant.
    63. While AOS is not currently manufacturing and selling 90+ draft 
inducers, it is one of the few manufacturers in the United States that 
likely would have the ability to enter the 90+ draft inducer market. 
RBC and AOS are the only manufacturers of water heater draft inducers 
in the United States. While water heater draft inducers are distinct 
from 90+ draft inducers, AOS's technology, experience, and know-how 
relating to the development of water heater draft inducers provided AOS 
with some technical knowledge necessary to begin developing a 90+ draft 
inducer that would not infringe numerous RBC patents relating to the 
90+ draft inducer. Until the announcement of RBC's proposed acquisition 
of the electric motor business of AOS, AOS engaged in 90+ draft inducer 
development projects with three furnace manufacturers and had sent 
samples of its product to one of these manufacturers. These furnace 
manufacturers viewed AOS as presenting the only opportunity to develop 
an alternative to RBC for 90+ draft inducers. Accordingly, AOS was the 
firm best positioned to challenge RBC's dominance in the 90+ draft 
inducer market in the United States.
    64. One company that sells 80+ draft inducers to U.S. customers is 
attempting to develop a 90+ draft inducer. However, its efforts have 
been unsuccessful and most furnace manufacturers do not consider this 
company to be close to success in developing a 90+ draft inducer.
    65. AOS's entry into the U.S. market for 90+ draft inducers likely 
would have benefited customers with lower prices, more innovation, and 
more favorable terms of service. AOS may have become

[[Page 52977]]

an alternative to RBC for the supply of 90+ draft inducers. RBC's 
acquisition of the electric motor business of AOS would prevent AOS's 
entry and, therefore, substantially lessen competition in the market 
for 90+ draft inducers, in violation of Section 7 of the Clayton Act, 
15 U.S.C. 18.

D. Difficulty of Entry

    66. Sufficient, timely entry of additional competitors into the 
market for 90+ draft inducers in the United States is unlikely. 
Therefore, entry or the threat of entry into this market is not likely 
to prevent the harm to competition caused by the elimination of AOS as 
a potential supplier of 90+ draft inducers.
    67. Firms attempting to enter the U.S. market for the development, 
manufacture, and sale of 90+ draft inducers face several barriers to 
entry. First, a new supplier of 90+ draft inducers must be certified as 
a supplier by the furnace manufacturer and must work with that 
manufacturer to customize the draft inducer specifically for the 
manufacturer's furnace. This is a rigorous and lengthy process, often 
involving many redesigns of the product, and can take two years or 
longer. This process involves, among other things, reaching an 
agreement by the furnace manufacturer and the draft inducer supplier on 
the specifications for the draft inducer, the design of the draft 
inducer and each subcomponent to meet these specifications, and the 
laboratory and field testing of the subcomponents and the assembled 90+ 
draft inducer.
    68. Second, draft inducer suppliers must have an established 
reputation for the reliability of their products and the capacity to 
timely supply them in sufficient quantities. Because draft inducers 
perform a critical function in the furnace, furnace manufacturers are 
reluctant to purchase a product from a supplier that is not already 
known for its expertise in the product area.
    69. Third, a firm attempting to develop a 90+ draft inducer must 
have the technology and know-how to design a draft inducer that avoids 
infringing on the numerous RBC patents relating to 90+ draft inducers. 
Those few motor or blower manufacturers in the heating industry that 
have reputations for quality products and the capacity to supply 
motors, blowers, and other heating system components have experienced 
difficulties in their attempts to develop a 90+ draft inducer that 
would be competitive in price, quality, and the capacity to supply 
them.
    70. As a result of these barriers, entry into the market for 90+ 
draft inducers in the United States would not be timely, likely, or 
sufficient to defeat the substantial lessening of competition that 
would result from RBC's acquisition of AOS's electric motor business.

VI. Violations Alleged

    71. RBC's proposed acquisition of the electric motor business from 
AOS likely would substantially lessen competition in the development, 
manufacture, and sale of electric motors for pool pumps, electric 
motors for spa pumps, and 90+ draft inducers in the United States in 
violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
    72. Unless enjoined, the proposed acquisition likely would have the 
following anticompetitive effects, among others:
    (a) Actual and potential competition between RBC and AOS in the 
markets for the development, manufacture, and sale of electric motors 
for pool pumps and electric motors for spa pumps in the United States 
would be eliminated;
    (b) Competition in the markets for the development, manufacture, 
and sale of electric motors for pool pumps and electric motors for spa 
pumps in the United States likely would be substantially lessened;
    (c) For electric motors for pool pumps and electric motors for spa 
pumps in the United States, prices likely would increase and quality, 
customer service, and innovation likely would decrease;
    (d) Potential competition between RBC and AOS in the market for 90+ 
draft inducers in the United States would be eliminated; and
    (e) Prices for 90+ draft inducers in the United States likely would 
remain higher than they would be in a market with more than one 
competitor.

VII. Requested Relief

    73. The United States requests that this Court:
    (a) Adjudge and decree that RBC's acquisition of the electric motor 
business from AOS would be unlawful and violate Section 7 of the 
Clayton Act, 15 U.S.C. 18;
    (b) Preliminarily and permanently enjoin and restrain Defendants 
and all persons acting on their behalf from consummating the proposed 
acquisition of the AOS electric motor business by RBC, or from entering 
into or carrying out any other contract, agreement, plan, or 
understanding, the effect of which would be to combine RBC with the 
electric motor business of AOS;
    (c) Award the United States its costs for this action; and
    (d) Award the United States such other and further relief as the 
Court deems just and proper.

For Plaintiff United States of America:

Sharis A. Pozen (DC Bar 435204),
Acting Assistant Attorney General.

Patricia A. Brink,
Director of Civil Enforcement.

Maribeth Petrizzi (D.C. Bar 435204),
 Chief, Litigation II Section.

Dorothy B. Fountain (D.C. Bar 439469),
Assistant Chief, Litigation II Section.

Christine A. Hill (D.C. Bar 461048),
James K. Foster,
Milosz Gudzowski,
John Lynch,
Leslie D. Peritz,
Blake Rushforth,
Angela Ting,
Robert W. Wilder,

Attorneys, United States Department of Justice, Antitrust Division, 
450 Fifth Street, NW., Suite 8700, Washington, DC 20530, (202) 305-
2738.

Dated: August 17, 2011.

Appendix A

Definition of HHI

    The term ``HHI'' means the Herfindahl-Hirschman Index, a commonly 
accepted measure of market concentration. The HHI is calculated by 
squaring the market share of each firm competing in the market and then 
summing the resulting numbers. For example, for a market consisting of 
four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 
(30\2\ + 30\2\ + 20\2\ + 20\2\ = 2,600). The HHI takes into account the 
relative size distribution of the firms in a market. It approaches zero 
when a market is occupied by a large number of firms of relatively 
equal size and reaches its maximum of 10,000 points when a market is 
controlled by a single firm. The HHI increases both as the number of 
firms in the market decreases and as the disparity in size between 
those firms increases.
    Markets in which the HHI is between 1,500 and 2,500 points are 
considered to be moderately concentrated and markets in which the HHI 
is in excess of 2,500 points are considered to be highly concentrated. 
See Horizontal Merger Guidelines Sec.  5.3 (issued by the U.S. 
Department of Justice and the Federal Trade Commission on Aug. 19, 
2010). Transactions that increase the HHI by more than 200 points in 
highly concentrated markets will be presumed likely to enhance market 
power. Id.

United States District Court for the District of Columbia

    United States of America, Plaintiff, v. Regal Beloit 
Corporation, and A.O. Smith Corporation, Defendants.

Case: 1:11-cv-01487.

[[Page 52978]]

Assigned To: Huvelle, Ellen S.
Assign. Date: 8/17/2011.
Description: Antitrust.

Competitive Impact Statement

    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. 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

    Defendants Regal Beloit Corporation (``RBC'') and A.O. Smith 
Corporation (``AOS'') entered into an Asset and Stock Purchase 
Agreement, dated December 12, 2010. Pursuant to this agreement, RBC 
proposes to acquire AOS's electric motor business, which involves the 
manufacture and sale of numerous types of motors, among other related 
products. The transaction is valued at approximately $875 million.
    The United States filed a civil antitrust Complaint on August 17, 
2011, seeking to enjoin the proposed acquisition, alleging that it 
likely would substantially lessen competition in three separate product 
markets--electric motors for pool pumps, electric motors for spa pumps, 
and draft inducers for furnaces having a thermal efficiency of 90 
percent or higher (hereafter referred to as ``90+ draft inducers'')--in 
violation of Section 7 of the Clayton Act, 15 U.S.C. 18. For most U.S. 
customers, RBC and AOS are two of the three leading suppliers of 
electric motors for pool pumps and electric motors for spa pumps in the 
United States. The loss of competition from the acquisition likely 
would result in RBC's ability unilaterally to raise prices of electric 
motors for pool pumps and electric motors for spa pumps and would 
reduce RBC's incentive to invest in innovations for those products. In 
addition, RBC is the only supplier of 90+ draft inducers in the United 
States, and AOS is the only company likely to enter this market. The 
elimination of actual potential competition between RBC and AOS likely 
would result in RBC's ability to continue its monopoly without the 
threat of a potential entrant.
    At the same time the Complaint was filed, the United States filed a 
Hold Separate Stipulation and Order (``Hold Separate'') and proposed 
Final Judgment, which are designed to eliminate the anticompetitive 
effects that would result from RBC's acquisition of AOS's electric 
motor business. Under the proposed Final Judgment, which is explained 
more fully below, RBC is required to divest assets relating to its 
electric motors for pool pumps and electric motors for spa pumps, as 
well as the assets AOS has been using in its effort to enter the market 
for 90+ draft inducers. Under the terms of the Hold Separate, RBC will 
keep its own assets entirely separate from the assets it acquires from 
AOS until the required divestitures take place. Pursuant to the Hold 
Separate, RBC and AOS also must take certain steps to ensure that the 
assets being divested continue to be operated in a competitively and 
economically viable manner and that competition for the products being 
divested is maintained during the pendency of the divestiture.
    The United States and Defendants have stipulated that the proposed 
Final Judgment may be entered after compliance with the APPA. Entry of 
the proposed Final Judgment would terminate 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 Violations

A. The Defendants

    RBC is incorporated in Wisconsin and has its headquarters in 
Beloit, Wisconsin. RBC is a manufacturer of mechanical and electrical 
motion control and power generation products. In 2010, RBC had revenues 
of approximately $2.2 billion, primarily from its electric products.
    AOS is incorporated in Delaware and has its headquarters in 
Milwaukee, Wisconsin. AOS comprises two operating units: The water 
products business and the electric motor business. AOS is one of North 
America's largest manufacturers of electric motors for residential and 
commercial applications. In 2010, AOS had revenues of approximately 
$1.5 billion, with approximately $700 million of that amount from 
electric motors and related products.

B. Anticompetitive Effects in the U.S. Markets for Electric Motors for 
Pool Pumps and Electric Motors for Spa Pumps

(1) Electric Motors for Pool Pumps and Spa Pumps
    Electric motors come in a broad range of sizes, horsepower ratings, 
and end-use segments. Standard frame sizes are determined by both 
common practice and the National Electrical Mechanical Association. 
While there is a great deal of overlap between motor size and 
horsepower, in general, as size increases, horsepower does as well. The 
smallest electric motors, which generally range in horsepower from 1/
400 to one-half, are called subfractional motors. Slightly larger 
electric motors, which generally range in horsepower from one-half 
horsepower to five horsepower, are called fractional motors. In 
addition to variations in frame and horsepower sizes, electric motors 
are often customized for specific end-use applications. End-use 
categories include water pumps, with specific applications for pumping 
well water and wastewater, as well as for use in pools and spas; 
heating, ventilation, air conditioning, and refrigeration, with 
specific applications in air conditioning compressors, fans, furnaces, 
and blowers; and general commercial uses, with such diverse 
applications as garage door openers and exercise machines.
    For a number of years, manufacturers have been developing more 
efficient electric motors. One of the most innovative technologies 
being utilized and continually improved for higher energy efficiency is 
variable speed technology, which enables the motor to switch between 
several speeds, sometimes using integrated electronics and permanent 
magnet technology, thereby allowing the motor to run more efficiently.
    Motors sold for use in pool pumps and spa pumps must be uniquely 
engineered and assembled to meet the size and performance 
specifications of the individual pump. In addition to size and energy 
efficiency, specification variables include the capacity of the 
impeller, the speed, the current/voltage, whether the motor is operated 
continually or sporadically, and whether the pump has more than one 
speed of operation.
    In light of government regulations, energy costs, and environmental 
concerns, more energy-efficient motors, including variable speed 
motors, are increasingly demanded for pool and spa applications. For 
example, California recently enacted legislation pertaining to the 
energy efficiency of pool pumps and spa pumps. Even without such 
legislation, energy-efficient motors are becoming more popular because 
they use less electricity and, therefore, are less costly to operate. 
Energy-efficient pump motors also produce less noise than standard 
induction pump motors. Pool pumps are an excellent application for the 
innovative, more energy-efficient motors because pool pumps typically 
run for many hours a day, sometimes even continuously. Pool pumps are 
therefore expected to be a high growth

[[Page 52979]]

area for more energy-efficient electric motors.
    All electric motors must pass Underwriters Laboratories (``UL'') 
certification. UL has established safety standards specifically for all 
electric motors for pool pumps and all electric motors for spa pumps. 
For example, electric motors for pool pumps and motors for spa pumps 
are the only pump motors that are required to have a ground bonding lug 
on the outside of the pump, assuring that the pump is electrically 
grounded.
    Electric motors for pool pumps and motors for spa pumps are 
purchased by manufacturers of pool pumps and spa pumps. Electric motors 
for pool pumps and motors for spa pumps are also sold as replacements 
or upgrades in the aftermarket through the pump manufacturers and 
distributors.
(2) The U.S. Market for Electric Motors for Pool Pumps
    Electric motors for pool pumps have specific applications, for 
which other types of pumps cannot be employed. Motors for use in other 
types of pumps, such as sump pumps and spa pumps, cannot be used in 
pool pumps because each pump is specifically designed for a particular 
application and the motor is then specifically designed for each pump 
type. The motors for the different types of pumps also have different 
performance characteristics. A customer who requires a motor for a pool 
pump cannot substitute a motor for a spa pump, sump pump, or jetted tub 
pump, or any other kind of motor.
    A small but significant increase in the price of electric motors 
for pool pumps would not cause customers of those motors to substitute 
a different kind of motor or other product or reduce purchases of 
electric motors for pool pumps in volumes sufficient to make such a 
price increase unprofitable. Accordingly, the development, manufacture, 
and sale of electric motors for pool pumps is a line of commerce and 
relevant market within the meaning of Section 7 of the Clayton Act.
    Although electric motors for pool pumps may be manufactured outside 
the United States, U.S. purchasers can use only those motors designed 
for use in the United States. These motors must be customized for the 
demands of U.S. purchasers and must comply with distinct U.S. technical 
specifications, such as UL certification. Manufacturers of electric 
motors for pool pumps typically deliver the motors to their customers' 
locations. Most customers that purchase motors for pool pumps for use 
in the United States are located in the United States. Major U.S. 
customers of electric motors for pool pumps consider only those 
manufacturers with a substantial U.S. presence, including sales, 
technical, and support personnel. U.S. customers prefer localized 
experience, inventory, technical support, and warranty assistance, as 
well as detailed knowledge of the U.S. market and products designed to 
meet U.S. requirements.
    A small but significant increase in the price of electric motors 
for pool pumps intended for use in the United States would not cause a 
sufficient number of U.S. customers to turn to manufacturers of those 
motors that do not have a substantial presence in the United States so 
as to make such a price increase unprofitable. Accordingly, the United 
States is a relevant geographic market within the meaning of Section 7 
of the Clayton Act.
(3) The U.S. Market for Electric Motors for Spa Pumps
    Electric motors for spa pumps also have specific applications, for 
which other types of pumps cannot be employed. Motors for use in other 
types of pumps, such as sump pumps and pool pumps, cannot be used in 
spa pumps because each pump is specifically designed for a particular 
application and the motor is then specifically designed for each pump 
type. The motors for the different types of pumps also have different 
performance characteristics. A customer who requires a motor for a spa 
pump cannot substitute a motor for a pool pump, sump pump, or jetted 
tub pump, or any other kind of motor.
    A small but significant increase in the price of electric motors 
for spa pumps would not cause customers of those motors to substitute a 
different kind of motor or other product or reduce purchases of 
electric motors for spa pumps in volumes sufficient to make such a 
price increase unprofitable. Accordingly, the development, manufacture, 
and sale of electric motors for spa pumps is a line of commerce and 
relevant market within the meaning of Section 7 of the Clayton Act.
    Electric motors for spa pumps may be manufactured outside the 
United States; however, these motors must be customized for use in the 
United States and must comply with distinct U.S. technical 
specifications, such as UL certification. Manufacturers of electric 
motors for spa pumps typically deliver the motors to their customers' 
locations. Most customers that purchase motors for spa pumps for use in 
the United States are located in the United States. Most U.S. customers 
of electric motors for spa pumps prefer manufacturers with a 
substantial U.S. presence, including sales, technical, and support 
personnel. U.S. customers prefer localized experience, inventory, 
technical support, and warranty assistance, as well as detailed 
knowledge of the U.S. market and products designed to meet U.S. 
requirements.
    A small but significant increase in the price of electric motors 
for spa pumps intended for use in the United States would not cause a 
sufficient number of U.S. customers to turn to manufacturers of these 
motors that do not have a substantial presence in the United States so 
as to make such a price increase unprofitable. Accordingly, the United 
States is a relevant geographic market within the meaning of Section 7 
of the Clayton Act.
(4) Anticompetitive Effects
(a) Electric Motors for Pool Pumps
    AOS, RBC, and one other company are the only significant 
competitors that sell electric motors for pool pumps in the United 
States. Currently, AOS and RBC sell approximately 76 and nine percent, 
respectively, of electric motors for pool pumps in the United States. 
The third competitor accounts for most of the remaining sales in this 
market. RBC's proposed acquisition of the electric motor business from 
AOS likely would substantially lessen competition in the U.S. market 
for electric motors for pool pumps. If the acquisition is not enjoined, 
the combined firm would supply approximately 85 percent of the electric 
motors for pool pumps in the United States. The Herfindahl-Hirschman 
Index (``HHI'') is a measure of market concentration. Mergers resulting 
in highly concentrated markets (with an HHI in excess of 2,500) that 
cause an increase in the HHI of more than 200 points are presumed to be 
likely to enhance market power under the Horizontal Merger Guidelines 
issued by the U.S. Department of Justice and the Federal Trade 
Commission. Following RBC's acquisition of the electric motor business 
of AOS, the HHI would increase from approximately 6,000 points to more 
than 7,500 points.
    AOS's and RBC's bidding behavior often has been constrained by the 
possibility of losing sales of electric motors for pool pumps to the 
other. For many customers of electric motors for pool pumps, AOS and 
RBC are the two best sources. Customers have benefited from the 
competition between AOS and RBC for sales of electric motors for pool 
pumps by receiving lower prices. In addition, AOS and RBC have competed 
vigorously by providing innovations

[[Page 52980]]

that have resulted in higher-quality and more energy-efficient motors. 
For example, AOS and RBC have competed for the development and sale of 
more energy-efficient motors for pool pumps. The third competitor is 
behind AOS and RBC in developing this energy-efficient technology. 
Further, AOS and RBC compete based on the level of service they provide 
to their customers. The combination of AOS and RBC would eliminate this 
competition and its future benefits to customers. Post-acquisition, RBC 
likely would have the incentive and gain the ability to profitably 
increase prices, reduce quality, reduce innovation, and provide less 
customer service.
    The response of the only other significant competitor in the United 
States for electric motors for pool pumps would not be sufficient to 
constrain a unilateral exercise of market power by RBC post-
acquisition. RBC would be aware that many customers strongly prefer it 
as a supplier, allowing it profitably to raise prices above pre-
acquisition levels.
    The proposed acquisition, therefore, likely would substantially 
lessen competition in the United States for the development, 
manufacture, and sale of electric motors for pool pumps. This likely 
would lead to higher prices, lower quality, less customer service, and 
less innovation in violation of Section 7 of the Clayton Act.
(b) Electric Motors for Spa Pumps
    AOS, RBC, and one other company are the only significant 
competitors that sell electric motors for spa pumps in the United 
States. Currently, AOS and RBC each sell a substantial portion of the 
electric motors for spa pumps in the United States. The third 
competitor accounts for most of the remaining sales in this market. 
RBC's proposed acquisition of the electric motor business from AOS 
likely would substantially lessen competition in the U.S. market for 
electric motors for spa pumps. If the acquisition is not enjoined, the 
combined firm would supply well over half of the electric motors for 
spa pumps in the United States.
    AOS's and RBC's bidding behavior often has been constrained by the 
possibility of losing sales of electric motors for spa pumps to the 
other. For many customers of motors for spa pumps, AOS and RBC are the 
two best sources. Customers have benefited from the competition between 
AOS and RBC for sales of electric motors for spa pumps by receiving 
lower prices. In addition, AOS and RBC have competed vigorously by 
providing innovations that have resulted in higher-quality motors. The 
combination of AOS and RBC would eliminate this competition and its 
future benefits to customers. Post-acquisition, RBC likely would have 
the incentive and gain the ability to profitably increase prices, 
reduce quality, reduce innovation, and provide less customer service.
    The response of the only other significant competitor in the United 
States for electric motors for spa pumps would not be sufficient to 
constrain a unilateral exercise of market power by RBC post-
acquisition. RBC would be aware that many customers strongly prefer it 
as a supplier, allowing it profitably to raise prices above pre-
acquisition levels.
    The proposed acquisition, therefore, likely would substantially 
lessen competition in the United States for the development, 
manufacture, and sale of electric motors for spa pumps. This likely 
would lead to higher prices, lower quality, less customer service, and 
less innovation in violation of Section 7 of the Clayton Act.
(5) Entry
    Sufficient, timely entry of additional competitors into the markets 
for electric motors for pool pumps and electric motors for spa pumps in 
the United States is unlikely. Therefore, entry or the threat of entry 
into this market will not prevent the harm to competition caused by the 
elimination of AOS as a supplier of these products.
    Firms attempting to enter into the U.S. market for the development, 
manufacture, and sale of electric motors for pool pumps and electric 
motors for spa pumps face several barriers to entry. First, 
establishing a reputation for successful performance and gaining 
customer confidence are important and may require many years and 
substantial sunk costs. Because end users rely on these motors to 
perform a critical function in their pool pumps and spa pumps, they are 
reluctant to purchase a product from a supplier not already known for 
its expertise in electric motors for pool pumps and electric motors for 
spa pumps, or at least in fractional electric motors.
    Second, entry into the markets for electric motors for pool pumps 
and electric motors for spa pumps could take years. A new supplier must 
demonstrate to potential customers that its motors can meet the 
customers' particular design specifications as well as their rigorous 
quality and performance standards. Because each customer may have many 
different specifications for the motors, the period for qualification 
can take up to twelve months with no guarantee of success. This period 
does not include the time necessary to obtain UL certification, which 
may take up to six months. Further, because customer specifications are 
unique, qualification with one customer does not guarantee 
qualification with another.
    Third, the technology and expertise involved in developing and 
producing electric motors for pool pumps and electric motors for spa 
pumps is another barrier to entry. A new supplier would need to 
construct production lines capable of manufacturing motors for pool 
pumps and motors for spa pumps that meet the standards of potential 
customers. In addition, the technical know-how necessary to design and 
successfully manufacture such motors is difficult to obtain. Even 
incumbent manufacturers of fractional electric motors, with all their 
expertise and technical know-how, require substantial time and expense 
for engineering, tooling, and testing a new motor before it can be 
sold. A new entrant must also be committed to investing in research and 
development to meet the customers' ongoing desire for innovation, 
including more energy-efficient motors.
    Finally, U.S. customers prefer suppliers that have a substantial 
U.S. presence, which can require a significant investment in time and 
money. Given the low volumes of motors needed by manufacturers of pool 
pumps and spa pumps, new entrants are unlikely to invest in 
establishing the personnel, inventory, and distribution presence 
required to compete effectively in the United States.
    As a result of these barriers, entry into the markets for electric 
motors for pool pumps and electric motors for spa pumps in the United 
States would not be timely, likely, or sufficient to defeat the 
substantial lessening of competition that likely would result from 
RBC's acquisition of AOS's electric motor business.

C. Anticompetitive Effects of the Acquisition in the U.S. Market for 
90+ Draft Inducers

(1) 90+ Draft Inducers
    Gas-fired furnaces require the movement of air and the expulsion of 
hot combustion gases. Blowers move the air through ducts and circulate 
it around a building. Furnace draft inducers are specialized blowers, 
which perform an important safety function by extracting harmful 
combustion gases such as carbon monoxide, and venting those gases 
outside. Furnace draft inducers must meet Federal regulatory standards 
for safety and energy efficiency.

[[Page 52981]]

    Furnace draft inducers consist of a housing containing a blower 
wheel and a motor. Furnace draft inducers are distinguished from 
circulation blowers by the shape of the housing, the need for safety 
devices to ensure gas is extracted, and the design of the motor 
mounting on the blower assembly, among other design features. The 
shapes of the housing and fan blades are among the more difficult 
design aspects of furnace draft inducers.
    Furnaces are classified according to their thermal efficiency, 
which is the percentage of energy that is used to heat the air and that 
is not lost with the vented combustion gases. Draft inducers are 
designed for the specific thermal efficiency of each furnace. Less 
efficient furnaces, typically referred to as 80 percent thermal 
efficiency or 80+, use draft inducers that employ an older technology 
that has been utilized for forty years. More modern furnaces with 
higher thermal efficiency, typically referred to as 90 percent thermal 
efficiency or 90+, use draft inducers based on newer, more advanced 
technology.
    Draft inducers for furnaces with 80 percent thermal efficiency 
(hereafter referred to as ``80+ draft inducers'') are used in non-
condensing furnaces. Non-condensing furnaces do not need the draft 
inducer to drain condensation. 80+ draft inducers are generally simpler 
and easier to design than 90+ draft inducers because they have a single 
inlet, a sheet metal housing that is easily available, and a narrow, 
forward-curved wheel.
    90+ draft inducers are used in condensing furnaces. Condensing 
furnaces take so much heat out of the combusted gases (that is, turn so 
much of the combustion energy into heat that is circulated) that 
condensation forms in the draft inducer. This necessitates a draft 
inducer with a plastic housing that is made from polycarbonate 
material, rather than metal, which can corrode, and a drain for the 
condensation. 90+ draft inducers also contain a more technically 
complicated ``swirl fan'' and backward-curved wheel, which is inclined 
for greater efficiency and noise reduction. 90+ draft inducers are 
priced significantly higher than 80+ draft inducers. Currently, sales 
of 90+ draft inducers represent the majority of the draft inducer sales 
in the United States. Usage of 90+ draft inducers is likely to increase 
as federal regulations requiring the use of more energy-efficient 
products likely will lead to the removal of furnaces with 80 percent 
thermal efficiency from the market.
(2) The U.S. Market for 90+ Draft Inducers
    90+ draft inducers have specific applications, for which other 
products cannot be employed. Every furnace needs a draft inducer, and 
no product other than a draft inducer can extract the harmful 
combustion gases from the furnace and safely vent them. In addition, 
80+ draft inducers, or other draft inducers designed for less efficient 
furnaces, cannot be substituted for a 90+ draft inducer. Draft inducers 
for less efficient furnaces will not work with a furnace with 90 
percent thermal efficiency. Draft inducers are also used to vent 
hazardous gases created in other gas appliances. Although performing a 
similar function as furnace draft inducers, the frame shape, wheel 
design, motor, and other design features of a draft inducer intended 
for another appliance are sufficiently distinct that they cannot be 
used in a furnace.
    A small but significant increase in the price of 90+ draft inducers 
would not cause customers of 90+ draft inducers to substitute a lower-
efficiency draft inducer, such as an 80+ draft inducer, or another 
product or to reduce purchases of 90+ draft inducers in volumes 
sufficient to make such a price increase unprofitable. Accordingly, the 
development, manufacture, and sale of 90+ draft inducers is a line of 
commerce and relevant market within the meaning of Section 7 of the 
Clayton Act.
    90+ draft inducers sold in the United States must be customized for 
the demands of U.S. purchasers and must comply with distinct U.S. 
technical specifications and certification requirements. Manufacturers 
of 90+ draft inducers typically deliver the products to their 
customers' locations. 90+ draft inducers are used only in the United 
States and Canada. Customers that purchase 90+ draft inducers for use 
in the United States are located in the United States. Major U.S. 
customers of 90+ draft inducers consider only those manufacturers with 
a significant understanding of heating systems in the United States. 
Those manufacturers all have a substantial presence in the United 
States, including sales, technical, and support personnel. U.S. 
customers also prefer localized experience, inventory, and technical 
support, as well as detailed knowledge of the U.S. market.
    A small but significant increase in the price of 90+ draft inducers 
would not cause a sufficient number of customers in the United States 
to turn to manufacturers of 90+ draft inducers without a presence in 
the United States so as to make such a price increase unprofitable. 
Accordingly, the United States is a relevant geographic market within 
the meaning of Section 7 of the Clayton Act.
(3) Anticompetitive Effects
    For the past several years, RBC has been the only firm selling 90+ 
draft inducers in the United States. Furnace manufacturers have 
attempted to find alternative sources for 90+ draft inducers. For at 
least one year, AOS has been attempting to enter the U.S. market for 
90+ draft inducers. AOS has the means to enter this market and has 
advantages over other manufacturers that make it a particularly strong 
and likely entrant.
    While AOS is not currently manufacturing and selling 90+ draft 
inducers, it is one of the few manufacturers in the United States that 
likely would have the ability to enter the 90+ draft inducer market. 
RBC and AOS are the only manufacturers of water heater draft inducers 
in the United States. While water heater draft inducers are distinct 
from 90+ draft inducers, AOS's technology, experience, and know-how 
relating to the development of water heater draft inducers provided AOS 
with some technical knowledge necessary to begin developing a 90+ draft 
inducer that would not infringe numerous RBC patents relating to the 
90+ draft inducer. Until the announcement of RBC's proposed acquisition 
of the electric motor business of AOS, AOS engaged in 90+ draft inducer 
development projects with three furnace manufacturers and had sent 
samples of its product to one of these manufacturers. These furnace 
manufacturers viewed AOS as presenting the only opportunity to develop 
an alternative to RBC for 90+ draft inducers. Accordingly, AOS was the 
firm best positioned to challenge RBC's dominance in the 90+ draft 
inducer market in the United States.
    One company that sells 80+ draft inducers to U.S. customers is 
attempting to develop a 90+ draft inducer. However, its efforts have 
been unsuccessful and most furnace manufacturers do not consider this 
company to be close to success in developing a 90+ draft inducer.
    AOS's entry into the U.S. market for 90+ draft inducers likely 
would have benefited customers with lower prices, more innovation, and 
more favorable terms of service. AOS may have become an alternative to 
RBC for the supply of 90+ draft inducers. RBC's acquisition of the 
electric motor business of AOS would prevent AOS's entry and, 
therefore, substantially lessen competition in the market for 90+ draft

[[Page 52982]]

inducers, in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
(4) Entry
    Sufficient, timely entry of additional competitors into the market 
for 90+ draft inducers in the United States is unlikely. Therefore, 
entry or the threat of entry into this market is not likely to prevent 
the harm to competition caused by the elimination of AOS as a potential 
supplier of 90+ draft inducers.
    Firms attempting to enter the U.S. market for the development, 
manufacture, and sale of 90+ draft inducers face several barriers to 
entry. First, a new supplier of 90+ draft inducers must be certified as 
a supplier by the furnace manufacturer and must work with that 
manufacturer to customize the draft inducer specifically for the 
manufacturer's furnace. This is a rigorous and lengthy process, often 
involving many redesigns of the product, and can take two years or 
longer. This process involves, among other things, reaching an 
agreement by the furnace manufacturer and the draft inducer supplier on 
the specifications for the draft inducer, the design of the draft 
inducer and each subcomponent to meet these specifications, and the 
laboratory and field testing of the subcomponents and the assembled 90+ 
draft inducer.
    Second, draft inducer suppliers must have an established reputation 
for the reliability of their products and the capacity to timely supply 
them in sufficient quantities. Because draft inducers perform a 
critical function in the furnace, furnace manufacturers are reluctant 
to purchase a product from a supplier that is not already known for its 
expertise in the product area.
    Third, a firm attempting to develop a 90+ draft inducer must have 
the technology and know-how to design a draft inducer that avoids 
infringing on the numerous RBC patents relating to 90+ draft inducers. 
Those few motor or blower manufacturers in the heating industry that 
have reputations for quality products and the capacity to supply 
motors, blowers, and other heating system components have experienced 
difficulties in their attempts to develop a 90+ draft inducer that 
would be competitive in price, quality, and the capacity to supply 
them.
    As a result of these barriers, entry into the market for 90+ draft 
inducers in the United States would not be timely, likely, or 
sufficient to defeat the substantial lessening of competition that 
would result from RBC's acquisition of AOS's electric motor business.

III. Explanation of the Proposed Final Judgment

    The divestitures required by the proposed Final Judgment will 
eliminate the anticompetitive effects that likely would result from 
RBC's acquisition of AOS's electric motor business. These divestitures 
will preserve the current state of competition in the development, 
manufacture, and sale of electric motors for pool pumps and electric 
motors for spa pumps. These divestitures will also preserve the 
potential competition that currently exists in the market for the 
design and development of 90+ draft inducers. The divestiture of the 
pool pump and spa pump motor assets will create an independent, 
economically viable competitor to RBC in the United States for electric 
motors for pool pumps and electric motors for spa pumps. The 
divestiture of the draft inducer assets will create an independent, 
economically viable company that can continue AOS's developmental work 
on the 90+ draft inducers and create the potential for competition in 
that market.

(A) Electric Motors for Pool Pumps and Spa Pumps

    The divested pool pump and spa pump motor assets will provide the 
acquirer with the assets it needs to successfully develop, manufacture, 
and sell electric motors for pool pumps and electric motors for spa 
pumps in the United States. The proposed Final Judgment requires RBC to 
divest the assets used to design, develop, manufacture, market, 
service, distribute, or sell the RBC motors used in pool pump and spa 
pump applications, including but not limited to single-speed motors, 
two-speed motors, three-speed motors, the imPower motors, variable-
speed motors, and electronically commutated motors. The tangible assets 
being divested include manufacturing equipment, tooling, dies, 
prototypes, drawings, bills of material, contracts, specifications, and 
repair and performance records. The intangible assets being divested 
are those assets used exclusively or primarily to design, develop, 
manufacture, market, service, distribute, or sell the RBC motors used 
in pool pump and spa pump applications, including patents, intellectual 
property, know-how, product designs, marketing and sales data, and 
research and development efforts. In addition, the acquirer of the pool 
pump and spa pump motor assets will be granted a non-exclusive, 
perpetual, worldwide, non-transferrable,\1\ royalty-free license for 
any intangible assets that were used to design, develop, manufacture, 
market, service, distribute, or sell any of the RBC motors used in pool 
pump and spa pump applications that are being divested, but that were 
not used exclusively or primarily for those motors. The divestiture 
assets exclude certain trademarks and trade names, but the acquirer 
will be able to use the majority of those trademarks and trade names 
for one year. Finally, the divestiture assets exclude all assets used 
by three named RBC subsidiaries located outside the United States, 
unless those assets have, prior to the time the Court signs the Hold 
Separate, been used to design, develop, manufacture, market, service, 
distribute, or sell motors that are designed or developed for use or 
sale in, or are otherwise intended to be used or sold in, the United 
States for pool pump or spa pump applications.
---------------------------------------------------------------------------

    \1\ However, the license is transferrable to any future 
purchaser of substantially all of the pool pump and spa pump motor 
assets.
---------------------------------------------------------------------------

    The proposed Final Judgment designates SNTech, Inc. as the company 
to which the divested pool pump and spa pump motor assets must be sold. 
The United States determined, after a thorough investigation, that 
SNTech has the incentive and capability to develop, manufacture, and 
sell the pool pump and spa pump motors that are being divested. The 
United States does not typically require that the acquirer of the 
divested assets be identified and approved prior to the filing of the 
proposed Final Judgment. However, identifying an upfront acquirer was 
useful in this case because the assets being divested do not constitute 
a full business unit. An upfront acquirer provided the United States 
assurances that the divestiture assets were sufficient to make the 
acquirer a viable competitor and that there would be an acceptable 
acquirer with the means and incentive to use the divested assets to 
compete with RBC.\2\
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    \2\ The United States did not include an alternative relief 
proposal for the pump motor assets in the proposed Final Judgment 
because RBC has a binding agreement with SNTech to acquire those 
assets. RBC and SNTech are prepared to close their acquisition 
immediately after the close of RBC's acquisition of AOS's electric 
motor business. In addition, if a trustee must effect the 
divestiture of the Pump Motor Divestiture Assets, those assets would 
be sufficient to allow an acquirer other than SNTech to become a 
viable competitor in the markets for motors for pool pumps and 
motors for spa pumps.
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    The United States typically requires that assets be divested within 
60 to 90 days after the filing of the Complaint or five days after the 
entry of the Final Judgment by the Court. Because the

[[Page 52983]]

acquirer of the divested assets has been approved by the United States 
prior to the filing of the Complaint, there is no need for time to 
engage in a search for an acquirer. Accordingly, the proposed Final 
Judgment requires that the divested assets be sold to SNTech within ten 
days after the Court signs the Hold Separate. The date of entry of the 
Hold Separate was chosen as the date upon which the divestiture period 
begins to run because RBC cannot consummate its acquisition of AOS's 
electric motor business until the Court enters the Hold Separate, and 
that acquisition must be consummated before the divested assets are 
sold.
    The Hold Separate requires that until the assets being divested are 
sold according to the terms of the proposed Final Judgment, RBC will 
preserve and continue to operate its own assets and the assets it 
acquires from AOS as independent, ongoing, and economically viable 
businesses that are held entirely separate, distinct, and apart. RBC 
shall not coordinate the production, marketing, or terms of sale of its 
assets with the assets it acquires from AOS until the assets being 
divested are sold.
    Because SNTech is purchasing equipment and other assets that must 
be moved and integrated into its existing operations, it will need 
RBC's assistance to enable it to supply the divested motors to 
customers as soon as the divestiture is consummated. Therefore, the 
proposed Final Judgment requires that RBC enter into a transition 
services agreement by which RBC will provide technical and engineering 
assistance to SNTech for one year. This agreement also requires that 
RBC provide sufficient assistance to permit SNTech to develop the next 
generation of imPower motors, referred to as the imPower 2.6 horsepower 
pool pump motor.
    In addition, the proposed Final Judgment requires that RBC enter 
into a supply agreement to provide SNTech with the divested motors so 
that it may supply its customers prior to and while the equipment and 
other assets are being moved, installed, and tested. The proposed Final 
Judgment limits the term of this supply agreement to six months, with 
the possibility of extensions up to an additional six months with the 
United States's approval. The proposed Final Judgment further requires 
that RBC enter into a supply agreement to provide SNTech raw materials 
and components necessary to produce the divested motors. The term of 
this supply agreement is limited to one year, with the possibility of 
extensions up to an additional six months with the United States's 
approval. The proposed Final Judgment requires that RBC establish 
procedures to prevent the disclosure of certain information, including 
quantities and pricing, about SNTech's purchases under the supply 
agreements to any RBC employee responsible for marketing, distributing, 
or selling electric motors for pool pumps or spa pumps in competition 
with SNTech. The proposed Final Judgment requires RBC to submit its 
proposed procedures to the United States for its approval or rejection.
    Finally, the proposed Final Judgment contains a provision that 
ensures that RBC will not compete directly or indirectly with SNTech in 
the markets for pool pump and spa pump motors in the United States 
using any intangible assets RBC is divesting, licensing, or retaining. 
This provision is necessary to ensure that RBC does not use the assets 
it is retaining (such as assets used to manufacture pool pump motors 
and spa pump motors outside the United States) or divesting (such as 
know-how for its imPower motors) to manufacture pool pump motors or spa 
pump motors that can be used in the United States, even if those motors 
are sold outside the United States. For example, it prevents RBC from 
selling RBC pool pump motors and spa pump motors into the United States 
indirectly by selling those motors to overseas pump manufacturers for 
export into the United States. RBC will compete with SNTech in the U.S. 
markets for pool pump and spa pump motors using the assets it acquires 
from AOS. First, this provision prevents RBC from using the intangible 
assets that are being divested or licensed (such as know-how) to 
design, develop, manufacture, market, service, distribute, or sell any 
motors for use in pool pump or spa pump applications. Second, it 
prohibits RBC from using any assets used for pool pump and spa pump 
motor applications that RBC is retaining to design, develop, 
manufacture, market, service, distribute, or sell any motors that are 
designed or developed for use or sale in, or otherwise intended to be 
used and/or sold in, pool pump or spa pump applications in the United 
States, regardless of where those motors are actually delivered or 
sold. Third, this provision prohibits RBC from using the technology, 
intellectual property, and know-how that it uses for its imPulse spa 
motors (which are excluded from the divestiture) to design, develop, 
manufacture, market, service, distribute, or sell any motors for pool 
pump applications.

(B) 90+ Draft Inducers

    The acquirer of the draft inducer assets will obtain the assets it 
needs to replace the potential competition in the market for 90+ draft 
inducers that will be lost as a result of RBC's acquisition of AOS's 
electric motor business. The proposed Final Judgment requires RBC to 
divest the assets that are necessary for the acquirer to continue AOS's 
development work on its 90+ draft inducers. The tangible assets being 
divested are those used exclusively or primarily to design, develop, 
manufacture, market, or sell AOS's 90+ draft inducers, including 
prototypes, drawings, specifications, records, customer agreements, 
teaming agreements, and test data. The intangible assets being divested 
are those used exclusively or primarily to design, develop, 
manufacture, market, or sell AOS's 90+ draft inducers, including 
intellectual property, technical information, know-how, trade secrets, 
design protocols, and research and development efforts. In addition, 
the intangible assets being divested include the patents, drawings, 
product designs, packaging designs, marketing and sales data, and 
quality assurance and control procedures that are used to design, 
develop, manufacture, market, or sell AOS's 90+ draft inducers.
    The proposed Final Judgment designates Revcor, Inc. as the company 
to which the draft inducer assets must be sold.\3\ The United States 
determined, after a thorough investigation, that Revcor's expertise in 
air moving products, previous experience with draft inducers, and prior 
developmental efforts in conjunction with AOS demonstrate that Revcor 
can and will attempt to design, develop, and sell 90+ draft inducers in 
competition with RBC. The circumstances of this divestiture also are 
unique because the assets being divested are those used in AOS's 
developmental efforts and have not been used to manufacture or sell 90+ 
draft inducers. Therefore, the United States insisted that the acquirer 
of the draft inducer assets be identified and approved prior to 
settlement. Because the number of potential acquirers that could 
utilize the draft inducer assets would likely be limited, the United 
States wanted assurances that the acquirer would have the incentive and 
ability to use the assets and that the

[[Page 52984]]

package of assets being transferred was sufficient to continue AOS's 
developmental efforts.
---------------------------------------------------------------------------

    \3\ The United States did not include an alternative relief 
proposal for the draft inducer assets in the proposed Final Judgment 
because RBC has a binding agreement with Revcor to acquire those 
assets. RBC and Revcor are prepared to close their acquisition 
immediately after the close of RBC's acquisition of AOS's electric 
motor business. In addition, if a trustee must effect the 
divestiture of the Draft Inducer Divestiture Assets, those assets 
would be sufficient to allow an acquirer other than Revcor to become 
a viable competitor in the market for 90+ draft inducers.
---------------------------------------------------------------------------

    Because the acquirer of the draft inducer assets has been approved 
by the United States, there is no need for an extended time period for 
the divestiture. Accordingly, the proposed Final Judgment requires that 
the divested assets be sold to Revcor within ten days after the Court 
signs the Hold Separate.
    Finally, because Revcor is acquiring primarily intangible assets 
that will be used to develop a 90+ draft inducer, it may need 
engineering and other assistance from RBC. Therefore, the proposed 
Final Judgment requires that RBC enter into a transition services 
agreement by which RBC will provide such assistance to Revcor for one 
year.

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 Defendants.

V. Procedures Available for Modification of the Proposed Final Judgment

    The United States and Defendants have stipulated that the proposed 
Final Judgment may be entered by the Court after compliance with the 
provisions of the APPA, 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 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 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 United States 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, 450 Fifth 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 Defendants. The 
United States could have continued the litigation and sought 
preliminary and permanent injunctions preventing RBC's acquisition of 
AOS's electric motor business. The United States is satisfied, however, 
that the divestiture of the assets described in the proposed Final 
Judgment will preserve competition for the development, manufacture, 
and sale of electric motors for pool pumps and electric motors for spa 
pumps in the United States. The United States also is satisfied that 
the divestiture of the assets described in the proposed Final Judgment 
will preserve the potential competition for the design and development 
of 90+ draft inducers in the United States. Thus, the proposed Final 
Judgment would achieve all or substantially all of the relief the 
United States 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 in 
accordance with the statute, the court 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); United States v. InBev N.V./
S.A., 2009-2 Trade Cas. (CCH) ]76,736, 2009 U.S. Dist. LEXIS 84787, No. 
08-1965 (JR), at *3 (D.D.C. Aug. 11, 2009) (noting that the court's 
review of a consent judgment is limited and only inquires ``into 
whether the government's determination that the proposed remedies will 
cure the antitrust violations alleged in the complaint was reasonable, 
and whether the mechanisms to enforce the final judgment are clear and 
manageable.'').
    As the United States Court of Appeals for the District of Columbia 
has held, 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); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. 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

[[Page 52985]]

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).\4\ 
In determining whether a proposed settlement is in the public interest, 
the 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); United States v. Republic Serv., 
Inc., 2010-2 Trade Cas. (CCH) ] 77,097, 2010 U.S. Dist. LEXIS 70895, 
No. 08-2076 (RWR), at *10 (D.D.C. July 15, 2010) (finding that ``[i]n 
light of the deferential review to which the government's proposed 
remedy is accorded, [amicus curiae's] argument that an alternative 
remedy may be comparably superior, even if true, is not a sufficient 
basis for finding that the proposed final judgment is not in the public 
interest.'').
---------------------------------------------------------------------------

    \4\ 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' '').
---------------------------------------------------------------------------

    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 (1983); see also 
United States 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). Therefore, 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; Republic Serv., 2010 U.S. Dist. LEXIS 70895, at *2-3 
(entering final judgment ``[b]ecause there is an adequate factual 
foundation upon which to conclude that the government's proposed 
divestitures will remedy the antitrust violations alleged in the 
complaint.'').
    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; see also InBev, 2009 
U.S. Dist. LEXIS 84787, at *20 (``the `public interest' is not to be 
measured by comparing the violations alleged in the complaint against 
those the court believes could have, or even should have, been 
alleged''). 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. Microsoft, 56 F.3d at 1459-60. 
As this Court 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 to the Tunney Act,\5\ Congress made clear 
its intent to preserve the practical benefits of utilizing consent 
decrees in antitrust enforcement, stating: ``[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\
---------------------------------------------------------------------------

    \5\ The 2004 amendments substituted the word ``shall'' for 
``may'' when directing the courts to consider the enumerated factors 
and amended the list of factors to focus on competitive 
considerations and address potentially ambiguous judgment terms. 
Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 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).
    \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 17, 2011.

Respectfully submitted,

Christine A. Hill (D.C. Bar No. 461048),
U.S. Department of Justice, Antitrust Division, Litigation II 
Section, 450 Fifth Street, NW., Suite 8700, Washington, DC 20530, 
(202) 305-2738.

Certificate of Service

    I, Christine A. Hill, hereby certify that on August 17, 2011, I 
caused a copy of the foregoing Competitive Impact Statement, as well as 
the Complaint, Hold Separate Stipulation and Order, and Explanation of 
Consent Decree Procedures filed in this matter, to be served upon 
Defendants Regal Beloit Corporation and A.O. Smith Corporation by 
mailing the documents electronically to the duly authorized legal 
representatives of Defendants as follows:

[[Page 52986]]

Counsel for Regal Beloit Corporation

Howard Fogt, Alan Rutenberg, Melinda Levitt, Foley & Lardner LLP, 3000 
K Street, NW., Suite 600, Washington, DC 20007, [email protected], 
[email protected], [email protected].

Counsel for A.O. Smith Corporation

Sean F.X. Boland, James Kress, Baker Botts LLP, 1299 Pennsylvania 
Avenue, NW., Washington, DC 20004, [email protected], 
[email protected].

Christine A. Hill, Esquire,
United States Department of Justice, Antitrust Division, Litigation 
II Section, 450 Fifth Street, NW., Suite 8700, Washington, DC 20530, 
(202) 305-2738.

United States District Court for the District of Columbia

    United States of America, Plaintiff v. Regal Beloit Corporation 
and A.O. Smith Corporation, Defendants.

Case No.: Judge:

Proposed Final Judgment

    Whereas, Plaintiff, United States of America, filed its Complaint 
on August 17, 2011, and the United States and Defendants, Regal Beloit 
Corporation (``RBC'') and A.O. Smith Corporation (``AOS''), by their 
respective attorneys, have consented to the entry of this Final 
Judgment without trial or adjudication of any issue of fact or law, and 
without this Final Judgment constituting any evidence against or 
admission by any party regarding any issue of fact or law;
    And whereas, Defendants agree to be bound by the provisions of this 
Final Judgment pending its approval by the Court;
    And whereas, the essence of this Final Judgment is the prompt and 
certain divestiture of certain rights or assets by RBC to assure that 
competition is not substantially lessened;
    And whereas, the United States requires RBC to make certain 
divestitures for the purpose of remedying the loss of competition 
alleged in the Complaint;
    And whereas, Defendants have represented to the United States that 
the divestitures required below can and will be made and that 
Defendants will later raise no claim of hardship or difficulty as 
grounds for asking the Court to modify any of the divestiture 
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 Defendants under Section 7 of the Clayton 
Act, 15 U.S.C. 18, as amended.

II. Definitions

    As used in this Final Judgment:
    A. ``RBC'' means Defendant Regal Beloit Corporation, a Wisconsin 
corporation with its headquarters in Beloit, Wisconsin, its successors, 
assigns, subsidiaries, divisions, groups, affiliates, partnerships and 
joint ventures, and their directors, officers, managers, agents, and 
employees.
    B. ``AOS'' means Defendant A.O. Smith Corporation, a Delaware 
corporation with its headquarters in Milwaukee, Wisconsin, its 
successors, assigns, subsidiaries, divisions, groups, affiliates, 
partnerships and joint ventures, and their directors, officers, 
managers, agents, and employees.
    C. ``Acquirer of the Pump Motor Divestiture Assets'' means SNTech, 
the entity to which RBC divests the Pump Motor Divestiture Assets.
    D. ``Acquirer of the Draft Inducer Divestiture Assets'' means 
Revcor, the entity to which RBC divests the Draft Inducer Divestiture 
Assets.
    E. ``SNTech'' means SNTech, Inc., a Delaware corporation with its 
headquarters in Phoenix, Arizona, its successors, assigns, 
subsidiaries, divisions, groups, affiliates, partnerships and joint 
ventures, and their directors, officers, managers, agents, and 
employees.
    F. ``Revcor'' means Revcor, Inc., an Illinois corporation with its 
headquarters in Carpentersville, Illinois, its successors, assigns, 
subsidiaries, divisions, groups, affiliates, partnerships and joint 
ventures, and their directors, officers, managers, agents, and 
employees.
    G. ``Divested RBC Product Lines'' means all motors smaller than 
NEMA 140 frame that, as of the date the Court signs the Hold Separate 
Stipulation and Order in this matter, are being designed, developed, 
manufactured, marketed, distributed, and/or sold by or for RBC for use 
in pool pump and/or spa pump applications, including, but not limited 
to, single-speed motors, two-speed motors, three-speed motors, the 
imPower motors, variable speed motors, and electronically commutated 
motors. However, the Divested RBC Product Lines shall exclude RBC's 
imPulse motors; RBC's imPower motors that, as of the date the Court 
signs the Hold Separate Stipulation and Order in this matter, have been 
or are being designed or developed for use and/or sale, and are 
intended to be used and/or sold, solely outside of the United States; 
and all motors that, as of the date the Court signs the Hold Separate 
Stipulation and Order in this matter, are being designed, developed, 
manufactured, marketed, distributed, and/or sold by or for AOS.
    H. ``Divested AOS Product Line'' means all AOS draft inducers that, 
as of the date the Court signs the Hold Separate Stipulation and Order 
in this matter, are being marketed to furnace manufacturers and/or are 
being designed and/or developed for use in furnaces having a thermal 
efficiency of 90 percent or greater.
    I. ``Pump Motor Divestiture Assets'' means:
    (1) All tangible assets that are used to design, develop, 
manufacture, market, service, distribute, and/or sell any of the 
Divested RBC Product Lines, including, but not limited to, 
manufacturing equipment, machining, tooling, dies, prototypes, models, 
drawings, blueprints, bills of material, specifications, inventory, 
supplies, customer lists, contracts, agreements, accounts, credit 
records, teaming arrangements, leases, commitments, manuals, licenses, 
permits, authorizations, and repair and performance records.
    (2) All intangible assets used exclusively or primarily to design, 
develop, manufacture, market, service, distribute, and/or sell any of 
the Divested RBC Product Lines, including, but not limited to, research 
and development activities, patents, intellectual property, copyrights, 
trademarks, trade names, service marks, service names, technical 
information, computer software and related documentation, know-how, 
trade secrets, product designs, packaging designs, design protocols, 
safety procedures, marketing and sales data, quality assurance and 
control procedures, design tools and simulation capabilities, technical 
information RBC provides to its own employees, customers, suppliers, 
agents, or licensees, and data concerning historic and current research 
and development efforts relating to the Divested RBC Product Lines, 
including, but not limited to, designs and experiments, the results of 
such designs and experiments, testing protocols, and the results of 
product testing.
    (3) With respect to any intangible assets used to design, develop, 
manufacture, market, service, distribute, and/or sell any of the 
Divested RBC Product Lines that are not included in

[[Page 52987]]

paragraph II(I)(2), above, and that prior to the filing of the 
Complaint in this matter were used to design, develop, manufacture, 
market, service, distribute, and/or sell any of the Divested RBC 
Product Lines and any other RBC product, a non-exclusive, perpetual, 
worldwide, non-transferrable, royalty-free license for such intangible 
assets to be used for the design, development, manufacture, marketing, 
servicing, distribution, and/or sale of any of the Divested RBC Product 
Lines; provided, however, that any such license is transferrable to any 
future purchaser of substantially all of the Pump Motor Divestiture 
Assets. Any improvements or modifications to these intangible assets 
developed by the Acquirer of the Pump Motor Divestiture Assets shall be 
owned solely by that acquirer.
    The Pump Motor Divestiture Assets shall exclude the trademarks, 
trade names, service marks, or service names ``Regal Beloit,'' 
``Marathon,'' ``Leeson,'' ``FASCO,'' ``imPower,'' and ``imPulse,'' or 
any Internet domain names. However, for the sole and limited purpose of 
marketing, distributing, servicing, and/or selling any of the Divested 
RBC Product Lines, RBC shall grant the Acquirer of the Pump Motor 
Divestiture Assets a worldwide and royalty-free license to use the 
trademarks, trade names, service marks, or service names ``Marathon,'' 
``Leeson,'' ``FASCO,'' ``imPower,'' and the Internet domain names 
impowerdealer.com and pumpmotors.com for a period of one year from the 
date the Pump Motor Divestiture Assets are divested to the Acquirer of 
the Pump Motor Divestiture Assets.
    The Pump Motor Divestiture Assets shall exclude those assets used 
by FASCO Australia Pty, Ltd., FASCO Motors Thailand, and CMG 
Engineering Group Pty, Ltd., and the subsidiaries of each of these 
entities, unless those assets have, prior to the time the Court signs 
the Hold Separate Stipulation and Order in this matter, been used in 
any way to design, develop, manufacture, market, service, distribute, 
and/or sell motors smaller than NEMA 140 frame that are designed or 
developed for use and/or sale in, or are otherwise intended to be used 
and/or sold in, the United States for pool pump and/or spa pump 
applications.
    J. ``Draft Inducer Divestiture Assets'' means:
    (1) All tangible assets that are used exclusively or primarily to 
design, develop, manufacture, market, and/or sell the Divested AOS 
Product Line, including, but not limited to, drawings, specifications, 
tooling, dies, models, prototypes, records, customer agreements, 
teaming agreements, and test data.
    (2) The following intangible assets that are used to design, 
develop, manufacture, market, and/or sell the Divested AOS Product 
Line: patents, drawings, product designs, packaging designs, marketing 
and sales data, and quality assurance and control procedures.
    (3) All intangible assets that are used exclusively or primarily to 
design, develop, manufacture, market, and/or sell the Divested AOS 
Product Line, including, but not limited to, research and development 
activities, intellectual property, copyrights, trademarks, trade names, 
service marks, service names, technical information, know-how, trade 
secrets, design protocols, and data concerning historic and current 
research and development efforts relating to the Divested AOS Product 
Line, including, but not limited to, designs and experiments, the 
results of such designs and experiments, testing protocols, and the 
results of product testing.

III. Applicability

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

IV. Divestitures

    A. RBC is ordered and directed, within ten calendar days after the 
Court signs the Hold Separate Stipulation and Order in this matter, to 
divest the Pump Motor Divestiture Assets to the Acquirer of the Pump 
Motor Divestiture Assets and to divest the Draft Inducer Divestiture 
Assets to the Acquirer of the Draft Inducer Divestiture Assets in a 
manner consistent with this Final Judgment.
    B. Defendants shall not interfere with any negotiations by the 
Acquirer of the Pump Motor Divestiture Assets to employ any: (1) 
Current or former RBC employee who has been, at any time during the two 
years prior to the date the Court signs the Hold Separate Stipulation 
and Order in this matter, responsible for the design, development, 
manufacture, marketing, servicing, distribution, and/or sale of any of 
the Divested RBC Product Lines that are designed or developed for use 
in, or are otherwise intended to be used in, the United States for pool 
pump and/or spa pump applications for at least 50 percent of his or her 
time during any three month period; (2) RBC employees with the 
following titles who have, at any time during the two years prior to 
the date the Court signs the Hold Separate Stipulation and Order in 
this matter, devoted 20 percent or more of his or her time during any 
three month period to the design, development, manufacture, marketing, 
servicing, distribution, and/or sale of any of the Divested RBC Product 
Lines that are designed or developed for use in, or are otherwise 
intended to be used in, the United States for pool pump and/or spa pump 
applications: Pump Product Manager, Customer Service Leader, Product 
Service Engineer, Senior Application Engineer--Pump, New Product 
Development Project Leader, Electronics Design Engineer, Software 
Engineer, Mechanical Design Manager, Electrical Design Manager, 
Mechanical Design Engineer, Laboratory Technician, Agency/Compliance 
Engineer, Variable Speed Team Leader, and Production Leading Hand; and 
(3) employee of RBC's CASA facility in Juarez, Mexico who has worked in 
any way on any of the Divested RBC Product Lines at any time during one 
year prior to the date the Court signs the Hold Separate Stipulation 
and Order in this matter. Defendants will not interfere with any 
negotiations by the Acquirer of the Draft Inducer Divestiture Assets to 
employ any current or former AOS employee who was, at any time during 
one year prior to the date the Court signs the Hold Separate 
Stipulation and Order in this matter, primarily responsible for the 
design, development, manufacture, marketing, and/or sale of the 
Divested AOS Product Line as well as the Lead Engineer, Blower 
Products, of AOS's Electrical Products Company. Interference with 
respect to this paragraph includes, but is not limited to, enforcement 
of non-compete clauses and offers to increase salary or other benefits 
apart from those offered company-wide.
    C. RBC shall warrant to the Acquirer of the Pump Motor Divestiture 
Assets that the tangible Pump Motor Divestiture Assets will be 
operational on the date of sale.
    D. RBC shall not take any action that will impede in any way the 
operation, use, or divestiture of the Pump Motor Divestiture Assets. 
Defendants shall not take any action that will impede in any way the 
use or divestiture of the Draft Inducer Divestiture Assets.
    E. RBC shall not design, develop, manufacture, market, service, 
distribute, and/or sell any motors smaller than NEMA 140 frame for use 
in pool pump or spa pump applications using any intangible assets 
divested or licensed (except trademarks, trade names, service marks, 
service names, or Internet domain names) pursuant to paragraph

[[Page 52988]]

II(I) of this Final Judgment. In addition, RBC shall not design, 
develop, manufacture, market, service, distribute, and/or sell any 
motors smaller than NEMA 140 frame that are designed or developed for 
use and/or sale in, or otherwise intended to be used and/or sold in, 
pool pump or spa pump applications in the United States, regardless of 
where those motors are actually delivered and/or sold, using any assets 
that are specifically excluded (except trademarks, trade names, service 
marks, service names, or Internet domain names) from the definition of 
Pump Motor Divestiture Assets in paragraph II(I) of this Final 
Judgment. Further, RBC shall not design, develop, manufacture, market, 
service, distribute, and/or sell any motors smaller than NEMA 140 frame 
that are designed or developed for use and/or sale in, or otherwise 
intended to be used and/or sold in, pool pump applications utilizing 
the technology, intellectual property, and/or know-how that is used in 
the design, development, and/or manufacture of RBC's imPulse motor.
    F. RBC shall enter into a transition services agreement with the 
Acquirer of the Pump Motor Divestiture Assets for a period of one year. 
This agreement shall include technical and engineering assistance 
relating to motors for pool pump and spa pump applications. This 
agreement shall also include sufficient assistance to provide the 
Acquirer of the Pump Motor Divestiture Assets the ability to develop 
the imPower 2.6 horsepower pool pump motor. The terms and conditions of 
any contractual arrangement meant to satisfy this provision must be 
commercially reasonable.
    G. RBC shall enter into a transition services agreement with the 
Acquirer of the Draft Inducer Divestiture Assets for a period of one 
year. This agreement shall include technical and engineering assistance 
relating to draft inducers for furnaces having a thermal efficiency of 
90 percent or greater. The terms and conditions of any contractual 
arrangement meant to satisfy this provision must be commercially 
reasonable.
    H. RBC shall enter into a supply agreement to supply the Divested 
RBC Product Lines to the Acquirer of the Pump Motor Divestiture Assets 
in quantities and at prices agreed to between RBC and the Acquirer of 
the Pump Motor Divestiture Assets. The duration of this supply 
agreement shall not be longer than six months. Subject to written 
approval by the United States, in its sole discretion, at the option of 
the Acquirer of the Pump Motor Divestiture Assets, RBC shall agree to 
one or more extensions of this agreement, so long as such extensions do 
not total more than six months in duration. The terms and conditions of 
any such supply agreement shall be subject to the approval of the 
United States, in its sole discretion.
    I. RBC shall enter into a supply agreement to supply raw materials 
and/or motor components used in the design, development, and/or 
manufacture of the Divested RBC Product Lines sufficient to meet all or 
part of the needs of the Acquirer of the Pump Motor Divestiture Assets. 
The duration of this supply agreement shall not be longer than one 
year. Subject to written approval by the United States, in its sole 
discretion, at the option of the Acquirer of the Pump Motor Divestiture 
Assets, RBC shall agree to one or more extensions of this agreement, so 
long as such extensions do not total more than six months in duration. 
The terms and conditions of any such supply agreement shall be subject 
to the approval of the United States, in its sole discretion.
    J. During the terms of the supply agreements discussed in 
paragraphs IV(H) and IV(I) of this Final Judgment, RBC shall establish, 
implement, and maintain procedures and take such other steps that are 
reasonably necessary to prevent the disclosure of the quantities of 
motors, materials, and components ordered or purchased from RBC by the 
Acquirer of the Pump Motor Divestiture Assets, the prices paid by the 
Acquirer of the Pump Motor Divestiture Assets, and any other 
competitively sensitive information regarding the performance of RBC or 
the Acquirer of the Pump Motor Divestiture Assets under these supply 
agreements, to any employee of RBC that has responsibility for 
marketing, distributing, and/or selling motors for pool pump and/or spa 
pump applications in competition with the Acquirer of the Pump Motor 
Divestiture Assets. RBC shall, within thirty days after the Court signs 
the Hold Separate Stipulation and Order in this matter, submit to the 
United States Department of Justice, Antitrust Division (``Antitrust 
Division'') a document setting forth in detail the procedures 
implemented to effect compliance with this paragraph. The Antitrust 
Division shall notify RBC within ten days whether it approves of or 
rejects RBC's compliance plan, in its sole discretion. In the event 
that RBC's compliance plan is rejected, the reasons for the rejection 
shall be provided to RBC and RBC shall submit, within ten days of 
receiving the notice of rejection, a revised compliance plan. If RBC 
and the Antitrust Division cannot agree on a compliance plan, the 
Antitrust Division shall have the right to request that the Court rule 
on whether RBC's proposed compliance plan is reasonable.
    K. Unless the United States otherwise consents in writing, the 
divestiture of the Pump Motor Divestiture Assets shall be accomplished 
in such a way as to satisfy the United States, in its sole discretion, 
that the Pump Motor Divestiture Assets can and will be used by the 
Acquirer of the Pump Motor Divestiture Assets as part of a viable, 
ongoing business that is engaged in the design, development, 
manufacture, marketing, servicing, distribution, and sale of the 
Divested RBC Product Lines and the divestiture of the Pump Motor 
Divestiture Assets will remedy the competitive harm alleged in the 
Complaint. The divestiture of the Pump Motor Divestiture Assets 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 design, development, manufacture, marketing, 
servicing, distribution, and sale of the Divested RBC Product Lines. 
The divestiture of the Pump Motor Divestiture Assets shall be 
accomplished so as to satisfy the United States, in its sole 
discretion, that the terms of any agreement between the Acquirer of the 
Pump Motor Divestiture Assets and RBC do not give RBC the ability 
unreasonably to raise that acquirer's costs, to lower that acquirer's 
efficiency, or otherwise to interfere in the ability of that acquirer 
to compete effectively.
    L. Unless the United States otherwise consents in writing, the 
divestiture of the Draft Inducer Divestiture Assets shall be 
accomplished in such a way as to satisfy the United States, in its sole 
discretion, that the Acquirer of the Draft Inducer Divestiture Assets 
can and will attempt to use the Draft Inducer Divestiture Assets to 
design, develop, and sell draft inducers for use in furnaces having a 
thermal efficiency of 90 percent or greater and the divestiture of the 
Draft Inducer Divestiture Assets will remedy the competitive harm 
alleged in the Complaint. The divestiture of the Draft Inducer 
Divestiture Assets 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) 
to design, develop, and sell draft inducers for use in furnaces having 
a thermal efficiency of 90 percent or greater. The divestiture of the 
Draft Inducer Divestiture Assets shall be accomplished so as to satisfy 
the United

[[Page 52989]]

States, in its sole discretion, that the terms of any agreement between 
the Acquirer of the Draft Inducer Divestiture Assets and RBC do not 
give RBC the ability unreasonably to raise that acquirer's costs, to 
lower that acquirer's efficiency, or otherwise to interfere in the 
ability of that acquirer to compete effectively.

V. Appointment of Trustee

    A. If RBC has not divested the Pump Motor Divestiture Assets and 
the Draft Inducer Divestiture Assets within the time period specified 
in Section IV(A), RBC 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 Pump Motor Divestiture Assets and/or the 
Draft Inducer Divestiture Assets.
    B. After the appointment of a trustee becomes effective, only the 
trustee shall have the right to sell the Pump Motor Divestiture Assets 
and/or the Draft Inducer Divestiture Assets. The trustee shall have the 
power and authority to accomplish the divestitures to acquirers 
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 RBC 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 divestitures.
    C. Defendants shall not object to sales by the trustee on any 
ground other than the trustee's malfeasance. Any such objections by 
Defendants must be conveyed in writing to the United States and the 
trustee within ten calendar days after the trustee has provided the 
notice required under Section VI.
    D. The trustee shall serve at the cost and expense of RBC, on such 
terms and conditions as the United States approves, and shall account 
for all monies derived from the sale of the assets sold by the trustee 
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 RBC 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 Pump 
Motor Divestiture Assets and the Draft Inducer Divestiture Assets and 
based on a fee arrangement providing the trustee with an incentive 
based on the price and terms of the divestitures and the speed with 
which it is accomplished, but timeliness is paramount.
    E. Defendants shall use their best efforts to assist the trustee in 
accomplishing the required divestitures. 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 Defendants 
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. Defendants shall take no action to interfere 
with or to impede the trustee's accomplishment of the divestitures.
    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 divestitures 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 Pump Motor Divestiture 
Assets and/or the Draft Inducer 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 Pump Motor Divestiture 
Assets and/or the Draft Inducer Divestiture Assets.
    G. If the trustee has not accomplished the divestitures ordered 
under this Final Judgment within six 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 divestitures; (2) the 
reasons, in the trustee's judgment, why the required divestitures have 
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. If the trustee is responsible for effecting either of the 
divestitures required herein, within two business days following 
execution of a definitive divestiture agreement, the trustee shall 
notify the United States of any proposed divestiture required by 
Section V of this Final Judgment. The trustee also shall notify RBC. 
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 Pump Motor Divestiture Assets 
and/or the Draft Inducer Divestiture Assets, together with full details 
of the same.
    B. Within fifteen calendar days of receipt by the United States of 
such notice, the United States may request from Defendants, the 
proposed acquirer(s), any other third party, or the trustee, if 
applicable, additional information concerning the proposed 
divestiture(s), the proposed acquirer(s), and any other potential 
acquirer. Defendants and the trustee shall furnish any additional 
information requested within fifteen calendar days of the receipt of 
the request, unless the parties shall otherwise agree.
    C. Within thirty calendar days after receipt of the notice or 
within twenty calendar days after the United States has been provided 
the additional information requested from Defendants, the proposed 
acquirer(s), any third party, and the trustee, whichever is later, the 
United States shall provide written notice to RBC and the trustee 
stating whether or not it objects to any proposed divestiture. If the 
United States provides written notice that it does not object, the 
divestiture(s) may be consummated, subject only to RBC'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(s) or upon objection by the United States, a divestiture 
proposed under Section V shall not be consummated. Upon objection by 
RBC under Section V(C), a divestiture proposed under Section V shall 
not be

[[Page 52990]]

consummated unless approved by the Court.

VII. Financing

    Defendants shall not finance all or any part of any divestiture 
made pursuant to Sections IV or V of this Final Judgment.

VIII. Hold Separate

    Until the divestitures required by this Final Judgment have been 
accomplished, Defendants shall take all steps necessary to comply with 
the Hold Separate Stipulation and Order entered by this Court. 
Defendants shall take no action that would jeopardize the divestitures 
ordered by this Court.

IX. 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 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 Defendants, be permitted:
    (1) Access during Defendants' office hours to inspect and copy, or 
at the option of the Antitrust Division, to require Defendants to 
provide hard copy or electronic copies of, all books, ledgers, 
accounts, records, data, and documents in the possession, custody, or 
control of Defendants, relating to any matters contained in this Final 
Judgment; and
    (2) To interview, either informally or on the record, Defendants' 
officers, employees, or agents, who may have their individual counsel 
present, regarding such matters. The interviews shall be subject to the 
reasonable convenience of the interviewee and without restraint or 
interference by Defendants.
    B. Upon the written request of an authorized representative of the 
Assistant Attorney General in charge of the Antitrust Division, 
Defendants shall submit written reports or respond 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 
Defendants to the Antitrust Division, Defendants represent and identify 
in writing the material in any such information or documents to which a 
claim of protection may be asserted under Rule 26(c)(1)(G) of the 
Federal Rules of Civil Procedure, and Defendants mark each pertinent 
page of such material, ``Subject to claim of protection under Rule 
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United 
States shall give Defendants ten calendar days notice prior to 
divulging such material in any legal proceeding (other than a grand 
jury proceeding).

X. 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''), 
during the term of this Final Judgment, Defendants, without providing 
advance notification to the Antitrust Division, shall not directly or 
indirectly acquire any assets of or any interest (including, but not 
limited to, any financial, security, loan, equity, or management 
interest) in any entity engaged in the United States in the design, 
development, production, marketing, servicing, distribution, or sale of 
electric motors for pool pumps, electric motors for spa pumps, or draft 
inducers for use in furnaces having a thermal efficiency of 90 percent 
or greater.
    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 electric motors for pool pumps, electric motors for 
spa pumps, and draft inducers for use in furnaces having a thermal 
efficiency of 90 percent or greater. Notification shall be provided at 
least thirty 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. If within the 
thirty-day period after notification, representatives of the Antitrust 
Division make a written request for additional information, Defendants 
shall not consummate the proposed transaction or agreement until thirty 
calendar days after submitting all such additional information. 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.

XI. No Reacquisition

    Defendants may not reacquire any part of the Pump Motor Divestiture 
Assets or the Draft Inducer Divestiture Assets during the term of this 
Final Judgment.

XII. 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.

XIII. Expiration of Final Judgment

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

XIV. 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:------------------------------------------------------------------

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

[FR Doc. 2011-21590 Filed 8-23-11; 8:45 am]
BILLING CODE 4410-11-P