[Federal Register Volume 84, Number 132 (Wednesday, July 10, 2019)]
[Notices]
[Pages 32951-32961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14659]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Harris Corporation and L3 Technologies, Inc.;
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,
Stipulation, and Competitive Impact Statement have been filed with the
United States District Court for the District of Columbia in United
States of America v. Harris Corporation and L3 Technologies, Inc.,
Civil Action No. 1:19-cv-01809. On June 20, 2019, the United States
filed a Complaint alleging that the proposed merger of Harris
Corporation (``Harris'') and L3 Technologies, Inc. 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 the
Defendants to divest Harris's night vision business.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's website at http://www.justice.gov/atr and at the Office of
the Clerk of the United States District Court for the 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, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's website,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments should be directed to Maribeth Petrizzi,
Chief, Defense, Industrials, and Aerospace Section, Antitrust Division,
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, U.S. Department of Justice, Antitrust
Division, 450 Fifth Street NW, Suite 8700, Washington, D.C. 20530,
Plaintiff, v. HARRIS CORPORATION, 1025 West NASA Boulevard,
Melbourne, FL 32919, and, L3 TECHNOLOGIES, INC., 600 Third Avenue,
New York, NY 10016, Defendants.
Civil Action No.: 1:19-cv-01809
Judge: Hon. Thomas F. Hogan
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 Harris Corporation
(``Harris'') and L3 Technologies, Inc. (``L3'') to enjoin the proposed
merger of Harris and L3. The United States complains and alleges as
follows:
I. NATURE OF THE ACTION
1. Pursuant to an agreement and plan of merger dated October 12,
2018, Harris and L3 propose to merge in a transaction that would create
the sixth-largest defense contractor in the United States.
2. Harris and L3 are the only suppliers of image intensifier tubes
for use by the United States military. Image intensifier tubes are the
key component in night vision devices such as goggles and weapon
sights, which are purchased by the U.S. Department of Defense
(``DoD''). Night vision devices amplify visible light and allow
soldiers and aircrews to see their surroundings in dark conditions. The
proposed merger would eliminate competition between Harris and L3 and
create a monopoly for image intensifier tubes for night vision devices
purchased by DoD (hereinafter ``U.S. military-grade image intensifier
tubes'').
3. As a result, the proposed transaction likely would substantially
lessen competition in the market for the design, development,
manufacture, sale, service, and distribution of U.S. military-grade
image intensifier tubes in the United States in violation of Section 7
of the Clayton Act, 15 U.S.C. Sec. 18.
II. THE DEFENDANTS
4. Harris is incorporated in Delaware and has its headquarters in
Melbourne, Florida. Harris provides night vision devices and image
intensifier tubes, tactical communications solutions, electronic
warfare solutions, and space and intelligence systems. In 2018, Harris
had sales of approximately $6.2 billion.
5. L3 is incorporated in Delaware and is headquartered in New York,
New York. L3 provides night vision devices and image intensifier tubes;
intelligence, surveillance, and reconnaissance systems; aircraft
sustainment, simulation, and training; and security and detection
systems. In 2018, L3 had sales of approximately $10.2 billion.
III. JURISDICTION AND VENUE
6. The United States brings this action under Section 15 of the
Clayton Act, 15 U.S.C. Sec. 25, as amended, to prevent and restrain
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. Sec.
18.
7. Defendants design, develop, manufacture, sell, service, and
distribute U.S. military-grade image intensifier tubes. Defendants'
activities in the design, development, manufacture, sale, service, and
distribution of these products substantially affects interstate
commerce. This Court has subject
[[Page 32952]]
matter jurisdiction over this action pursuant to Section 15 of the
Clayton Act, 15 U.S.C. Sec. 25, and 28 U.S.C. Sec. Sec. 1331,
1337(a), and 1345.
8. 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. Sec. 22, and under 28
U.S.C. Sec. 1391(c).
IV. U.S. MILITARY-GRADE IMAGE INTENSIFIER TUBES
A. Background
9. Image intensifier tubes amplify visible light and are integrated
into night vision devices produced by Harris, L3, and other companies.
Night vision devices allow the user to see in dark conditions,
increasing the situational awareness, threat detection, and mission
performance of soldiers and aircrews operating in low-light
environments. Night vision devices come in the form of goggles,
binoculars, and monoculars and can be handheld or mounted to objects
like helmets or weapons. There are over half a million such devices in
use today, and DoD expects to purchase at least one hundred thousand
additional devices over the next few years.
10. DoD also purchases significant quantities of image intensifier
tubes as replacement parts for night vision devices currently in the
field. In addition, as L3 and Harris innovate and develop improved
image intensifier tubes with greater resolution and light
amplification, DoD purchases these more advanced image intensifier
tubes to upgrade existing night vision devices. DoD is likely to
purchase half a million image intensifier tubes for replacements or
upgrades over the next few years.
B. Relevant Markets
1. Product Market
11. The quality and usefulness of an image intensifier tube is
defined by several characteristics, the most important of which are
size, weight, power consumption, and especially sensitivity, which
relates to the ability of the tube to amplify low levels of visible
light without producing excessive distortion in the resulting image.
DoD requires highly capable image intensifier tubes, as the lives of
soldiers and aircrews depend on the performance of the night vision
devices incorporating these tubes. Less capable image intensifier tubes
are therefore not a substitute for the highly capable image intensifier
tubes that DoD views as U.S. military grade.
12. Other night vision technologies such as thermal imaging devices
and digital light amplification systems are not substitutes for U.S.
military-grade image intensifier tubes. Thermal imaging devices, such
as microbolometers and infrared focal plane arrays, detect infrared
radiation emitted by warm objects rather than amplifying visible light.
Thermal imaging devices also differ from image intensifier tubes in
range and sensitivity to environmental factors such as humidity and
dust. Night vision equipment incorporating thermal imaging devices
tends to be larger, heavier, and substantially more expensive than
similar equipment incorporating image intensifier tubes. Although some
night vision devices incorporate both image intensifier tubes and
thermal imaging devices to combine the benefits of the two and create a
``fused'' image, thermal imaging devices cannot replicate the
performance of image intensifier tubes or replace them in night vision
devices.
13. Digital light amplification systems based on charge-coupled
device (``CCD'') or complementary metal oxide semiconductor (``CMOS'')
detectors are also not adequate substitutes for U.S. military-grade
image intensifier tubes. CCD- and CMOS-based devices tend to be
heavier, consume more power, and cost significantly more than devices
incorporating image intensifier tubes. Moreover, because such devices
are digital, and therefore require a certain amount of signal
processing, the images produced also tend to lag behind the actual
scene being viewed, potentially creating disorientation in the user.
14. For the foregoing reasons, DoD will not substitute less-capable
image intensifier tubes, thermal imaging devices, or CCD- or CMOS-based
digital light amplification systems for U.S. military-grade image
intensifier tubes in response to a small but significant and non-
transitory increase in the price of U.S. military-grade image
intensifier tubes. Accordingly, U.S. military-grade image intensifier
tubes are a relevant product market and line of commerce under Section
7 of the Clayton Act, 15 U.S.C. Sec. 18.
2. Geographic Market
15. For national security reasons, DoD only considers domestic
producers of U.S. military-grade image intensifier tubes. DoD is
unlikely to turn to any foreign producers in the face of a small but
significant and non-transitory price increase by domestic producers of
U.S. military-grade image intensifier tubes.
16. The United States is a relevant geographic market within the
meaning of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18.
C. Anticompetitive Effects of the Proposed Transaction
17. Harris and L3 are currently the only firms that develop,
manufacture, and sell U.S. military-grade image intensifier tubes. The
merger would therefore give the combined firm a monopoly in this
product market, leaving DoD without a competitive alternative for this
critical component of night vision devices.
18. Harris and L3 compete for sales of U.S. military-grade image
intensifier tubes on the basis of quality, price, and contractual terms
such as delivery times. This competition has resulted in higher
quality, lower prices, and shorter delivery times, and has fostered
innovation, leading to U.S. military-grade image intensifier tubes with
higher sensitivity and resolution. The combination of Harris and L3
would eliminate this competition and its future benefits to DoD
customers. Post-transaction, the merged firm likely would have the
incentive and ability to reduce research and development efforts that
lead to innovative and high-quality products and to increase prices and
offer less favorable contractual terms.
19. The proposed merger, therefore, likely would substantially
lessen competition in the design, development, manufacture, sale,
service, and distribution of U.S. military-grade image intensifier
tubes in the United States in violation of Section 7 of the Clayton
Act, 15 U.S.C. Sec. 18.
D. Difficulty of Entry
20. Sufficient, timely entry of additional competitors into the
market for U.S. military-grade image intensifier tubes is unlikely.
Production facilities for U.S. military-grade image intensifier tubes
require a substantial investment in both capital equipment and human
resources. A new entrant would need to set up a foundry to produce
electronic components, establish production lines capable of
manufacturing fiber optic subcomponents, and build assembly lines and
testing facilities. Engineering and research personnel would need to be
assigned to develop, test, and troubleshoot the detailed manufacturing
process, involving hundreds of steps, that is necessary to produce U.S.
military-grade image intensifier tubes. Any new products would require
extensive testing and qualification before they could be used in night
vision devices for the U.S. military. As a result, entry would be
costly and time-consuming.
21. Moreover, a new entrant is unlikely to recover these costs.
Although CMOS-based night vision
[[Page 32953]]
devices currently are not suitable for DoD uses and thus are not
reasonable substitutes for night vision devices based on U.S. military-
grade image intensifier tubes, research and development on these
devices is progressing. Industry observers expect these devices to
begin replacing night vision devices based on U.S. military-grade image
intensifier tubes at some point in the next five to ten years. Because
the market for U.S. military-grade image intensifier tubes will likely
decline as this transition takes place, an entrant is unlikely to
produce sufficient revenue to recover its costs of entry. The prospect
of a declining market for U.S. military-grade image intensifier tubes
thus would discourage new companies from entering.
22. As a result of these barriers, entry into the market for U.S.
military-grade image intensifier tubes would not be timely, likely, or
sufficient to defeat the anticompetitive effects likely to result from
the merger of Harris and L3.
V. VIOLATIONS ALLEGED
23. The merger of Harris and L3 likely would lessen competition
substantially in the design, development, manufacture, sale, service,
and distribution of U.S. military-grade image intensifier tubes in the
United States in violation of Section 7 of the Clayton Act, 15 U.S.C.
Sec. 18.
24. Unless enjoined, the merger likely would have the following
anticompetitive effects, among others, related to U.S. military-grade
image intensifier tubes:
(a) actual and potential competition between Harris and L3 would be
eliminated;
(b) competition likely would be substantially lessened; and
(c) prices likely would increase, innovation would decrease, and
contractual terms likely would be less favorable to customers.
VI. REQUEST FOR RELIEF
25. The United States requests that this Court:
(a) adjudge and decree that Harris's merger with L3 would be
unlawful and violate Section 7 of the Clayton Act, 15 U.S.C. Sec. 18;
(b) preliminarily and permanently enjoin and restrain Defendants
and all persons acting on their behalf from consummating the proposed
merger of L3 and Harris, or from entering into or carrying out any
other contract, agreement, plan, or understanding, the effect of which
would be to combine Harris with L3;
(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.
Dated: June 20, 2019
Respectfully submitted,
FOR PLAINTIFF UNITED STATES:
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Makan Delrahim,
(D.C. Bar 457795),
Assistant Attorney General,
Antitrust Division.
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Andrew C. Finch,
(D.C. Bar 494992),
Principal Deputy Assistant Attorney General,
Antitrust Division.
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Bernard A. Nigro, Jr.,
(D.C. Bar 412357),
Deputy Assistant Attorney General,
Antitrust Division.
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Patricia A. Brink,
Director of Civil Enforcement,
Antitrust Division.
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Maribeth Petrizzi,
(D.C. Bar 435204),
Chief,
Defense, Industrials, and Aerospace Section,
Antitrust Division.
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David E. Altschuler,
(D.C. Bar 983023),
Assistant Chief,
Defense, Industrials, and Aerospace Section,
Antitrust Division.
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Kevin Quin *,
(D.C. Bar 415268),
Gabriella Moskowitz,
(D.C. Bar 1044309),
Thomas P. Dematteo,
Defense, Industrials, and Aerospace Section,
Antitrust Division, 450 Fifth Street NW, Suite 8700, Washington,
D.C. 20530, Telephone: (202) 307-0922, Facsimile: (202) 514-9033,
Email: [email protected].
* LEAD ATTORNEY TO BE NOTICED
United States District Court for the District of Columbia
UNITED STATES OF AMERICA, Plaintiff, v. HARRIS CORPORATION, and L3
TECHNOLOGIES, INC., Defendants.
Civil Action No.: 1:19-cv-01809
Judge: Hon. Thomas F. Hogan
PROPOSED FINAL JUDGMENT
WHEREAS, Plaintiff, United States of America, filed its Complaint
on June 20, 2019, the United States and Defendants, Harris Corporation
(``Harris'') and L3 Technologies, Inc. (``L3''), 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 Defendants to assure
that competition is not substantially lessened;
AND WHEREAS, the United States requires, and Defendants agree, to
make a certain divestiture for the purpose of remedying the loss of
competition alleged in the Complaint;
AND WHEREAS, Defendants have represented to the United States that
the divestiture required below can and will be made and that Defendants
will not later raise any 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
The 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, as amended (15 U.S.C. Sec. 18).
II. DEFINITIONS
As used in this Final Judgment:
A. ``Acquirer'' means the entity to which Defendants divest the
Divestiture Assets.
B. ``Harris'' means Defendant Harris Corporation, a Delaware
corporation with its headquarters in Melbourne, Florida, its successors
and assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
C. ``L3'' means Defendant L3 Technologies, Inc., a Delaware
corporation with its headquarters in New York, New York, its successors
and assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
D. ``Night Vision Business'' means Harris's business in the design,
development, manufacture, sale, service, and distribution of image
intensifier technology and night vision devices.
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E. ``Divestiture Assets'' means the Night Vision Business,
including:
1. the facilities located at 7625, 7635, and 7645 Plantation Road,
Roanoke, Virginia; 7767 Lila Drive, Roanoke, Virginia; and 7671 Enon
Drive, Roanoke, Virginia;
2. all tangible assets, including but not limited to: research and
development activities; all manufacturing equipment, tooling and fixed
assets, personal property, inventory, office furniture, materials,
supplies, and other tangible property; all licenses, permits,
certifications, and authorizations issued by any governmental
organization for the Night Vision Business; all contracts, teaming
arrangements, agreements, leases, commitments, certifications, and
understandings, including supply agreements; all customer lists,
contracts, accounts, and credit records; all repair and performance
records; and all other records of the Night Vision Business; and
3. all intangible assets, including but not limited to: all
patents; licenses and sublicenses; intellectual property; copyrights;
trademarks; trade names; service marks; service names; technical
information; computer software and related documentation; know-how;
trade secrets; drawings; blueprints; designs; design protocols;
specifications for materials; specifications for parts and devices;
safety procedures for the handling of materials and substances; quality
assurance and control procedures; design tools and simulation
capability; all manuals and technical information Defendants provide to
their own employees, customers, suppliers, agents, or licensees; and
all research data concerning historic and current research and
development efforts, including but not limited to designs of
experiments and the results of successful and unsuccessful designs and
experiments.
F. ``Regulatory Approvals'' means any approvals or clearances
pursuant to filings with the Committee on Foreign Investment in the
United States (``CFIUS''), or under antitrust, competition, or other
U.S. or international laws required for Acquirer's acquisition of the
Divestiture Assets to proceed.
III. APPLICABILITY
A. This Final Judgment applies to Harris and L3, 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.
B. If, prior to complying with Section IV and Section V of this
Final Judgment, Defendants sell or otherwise dispose of all or
substantially all of their assets or of lesser business units that
include the Divestiture Assets, Defendants shall require the purchaser
to be bound by the provisions of this Final Judgment. Defendants need
not obtain such an agreement from the Acquirer of the assets divested
pursuant to this Final Judgment.
IV. DIVESTITURE
A. Defendants are ordered and directed, within the later of forty-
five (45) calendar days after the entry of the Hold Separate
Stipulation and Order by the Court or fifteen (15) calendar days after
Regulatory Approvals have been received, to divest the Divestiture
Assets in a manner consistent with this Final Judgment to an Acquirer
acceptable to the United States, in its sole discretion. The United
States, in its sole discretion, may agree to one or more extensions of
this time period not to exceed sixty (60) calendar days in total, and
shall notify the Court in such circumstances. Defendants agree to use
their best efforts to divest the Divestiture Assets as expeditiously as
possible.
B. In accomplishing the divestiture ordered by this Final Judgment,
Defendants promptly shall make known, by usual and customary means, the
availability of the Divestiture Assets. Defendants shall inform any
person making an inquiry regarding a possible purchase of the
Divestiture Assets that they are being divested pursuant to this Final
Judgment and provide that person with a copy of this Final Judgment.
Defendants shall offer to furnish to all prospective Acquirers, subject
to customary confidentiality assurances, all information and documents
relating to the Divestiture Assets customarily provided in a due
diligence process, except information or documents subject to the
attorney-client privilege or work-product doctrine. Defendants shall
make available such information to the United States at the same time
that such information is made available to any other person.
C. Defendants shall provide the Acquirer and the United States all
information relating to all personnel in the Night Vision Business to
enable the Acquirer to make offers of employment. Defendants will not
interfere in any way with any negotiations or effort by the Acquirer to
hire any Defendant employee in the Night Vision Business.
D. Defendants shall permit prospective Acquirers of the Divestiture
Assets to have reasonable access to personnel and to make inspections
of the physical facilities of the Night Vision Business; access to any
and all environmental, zoning, and other permit documents and
information; and access to any and all financial, operational, or other
documents and information customarily provided as part of a due
diligence process.
E. Defendants shall warrant to the Acquirer that each asset will be
operational on the date of sale.
F. Defendants shall not take any action that will impede in any way
the permitting, operation, or divestiture of the Divestiture Assets.
G. At the option of the Acquirer, Defendants shall enter into a
transition services agreement for back office, human resource, and
information technology services and support for the Night Vision
Business for a period of up to twelve (12) months. The United States,
in its sole discretion, may approve one or more extensions of this
agreement for a total of up to an additional six (6) months. If the
Acquirer seeks an extension of the term of this transition services
agreement, Defendants shall notify the United States in writing at
least three (3) months prior to the date the transition services
contract expires. The terms and conditions of any contractual
arrangement meant to satisfy this provision must be reasonably related
to market value of the expertise of the personnel providing any needed
assistance. The employee(s) of Defendants tasked with providing these
transition services shall not share any competitively sensitive
information of the Acquirer with any other employee of Defendants.
H. At the option of the Acquirer, Defendants shall enter into a
contract for wafer sawing and sensor packaging services. Such an
agreement shall be for a period of up to twelve (12) months. The United
States, in its sole discretion, may approve one or more extensions of
this agreement for a total of up to an additional six (6) months. If
the Acquirer seeks an extension of the term of this agreement,
Defendants shall so notify the United States in writing at least three
(3) months prior to the date the contract expires. The terms and
conditions of any contractual arrangement meant to satisfy this
provision must be reasonably related to the market value of the
expertise of the personnel providing any needed assistance. The
employee(s) of Defendants tasked with providing these services shall
not share any competitively sensitive information of the Acquirer with
any other employee of Defendants.
[[Page 32955]]
I. Defendants shall warrant to the Acquirer (1) that there are no
material defects in the environmental, zoning, or other permits
pertaining to the operation of the Divestiture Assets, and (2) that
following the sale of the Divestiture Assets, Defendants will not
undertake, directly or indirectly, any challenges to the environmental,
zoning, or other permits relating to the operation of the Divestiture
Assets.
J. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV or by Divestiture Trustee appointed
pursuant to Section V of this Final Judgment shall include the entire
Divestiture Assets and shall be accomplished in such a way as to
satisfy the United States, in its sole discretion, that the Divestiture
Assets can and will be used by the Acquirer as part of a viable,
ongoing business of the design, development, manufacture, sale,
service, and distribution of image intensifier technology and night
vision devices. If any of the terms of an agreement between Defendants
and the Acquirer to effectuate the divestiture required by the Final
Judgment varies from the terms of this Final Judgment then, to the
extent that Defendants cannot fully comply with both terms, this Final
Judgment shall determine Defendants' obligations. The divestiture,
whether pursuant to Section IV or Section V of this Final Judgment,
(1) shall be made to an Acquirer that, in the United States' sole
judgment, has the intent and capability (including the necessary
managerial, operational, technical, and financial capability) of
competing effectively in the business of the design, development,
manufacture, sale, service, and distribution of image intensifier
technology and night vision devices; and
(2) shall be accomplished so as to satisfy the United States, in its
sole discretion, that none of the terms of any agreement between an
Acquirer and Defendants give Defendants the ability unreasonably to
raise the Acquirer's costs, to lower the Acquirer's efficiency, or
otherwise to interfere in the ability of the Acquirer to compete
effectively.
V. APPOINTMENT OF DIVESTITURE TRUSTEE
A. If Defendants have not divested the Divestiture Assets within
the time period specified in Paragraph IV(A), Defendants shall notify
the United States of that fact in writing. Upon application of the
United States, the Court shall appoint a Divestiture Trustee selected
by the United States and approved by the Court to effect the
divestiture of the Divestiture Assets.
B. After the appointment of a Divestiture Trustee becomes
effective, only the Divestiture Trustee shall have the right to sell
the Divestiture Assets. The Divestiture Trustee shall have the power
and authority to accomplish the divestiture to an Acquirer acceptable
to the United States, in its sole discretion, at such price and on such
terms as are then obtainable upon reasonable effort by the Divestiture
Trustee, subject to the provisions of Sections IV, V, and VI of this
Final Judgment, and shall have such other powers as the Court deems
appropriate. Subject to Paragraph V(D) of this Final Judgment, the
Divestiture Trustee may hire at the cost and expense of Defendants any
agents, investment bankers, attorneys, accountants, or consultants, who
shall be solely accountable to the Divestiture Trustee, reasonably
necessary in the Divestiture Trustee's judgment to assist in the
divestiture. Any such agents or consultants shall serve on such terms
and conditions as the United States approves, including confidentiality
requirements and conflict of interest certifications.
C. Defendants shall not object to a sale by the Divestiture Trustee
on any ground other than the Divestiture Trustee's malfeasance. Any
such objections by Defendants must be conveyed in writing to the United
States and the Divestiture Trustee within ten (10) calendar days after
the Divestiture Trustee has provided the notice required under Section
VI.
D. The Divestiture Trustee shall serve at the cost and expense of
Defendants pursuant to a written agreement, on such terms and
conditions as the United States approves, including confidentiality
requirements and conflict of interest certifications. The Divestiture
Trustee shall account for all monies derived from the sale of the
assets sold by the Divestiture Trustee and all costs and expenses so
incurred. After approval by the Court of the Divestiture Trustee's
accounting, including fees for any of its services yet unpaid and those
of any professionals and agents retained by the Divestiture Trustee,
all remaining money shall be paid to Defendants and the trust shall
then be terminated. The compensation of the Divestiture Trustee and any
professionals and agents retained by the Divestiture Trustee shall be
reasonable in light of the value of the Divestiture Assets and based on
a fee arrangement that provides the Divestiture Trustee with incentives
based on the price and terms of the divestiture and the speed with
which it is accomplished, but the timeliness of the divestiture is
paramount. If the Divestiture Trustee and Defendants are unable to
reach agreement on the Divestiture Trustee's or any agents' or
consultants' compensation or other terms and conditions of engagement
within fourteen (14) calendar days of the appointment of the
Divestiture Trustee, the United States may, in its sole discretion,
take appropriate action, including making a recommendation to the
Court. The Divestiture Trustee shall, within three (3) business days of
hiring any other agents or consultants, provide written notice of such
hiring and the rate of compensation to Defendants and the United
States.
E. Defendants shall use their best efforts to assist the
Divestiture Trustee in accomplishing the required divestiture. The
Divestiture Trustee and any agents or consultants retained by the
Divestiture Trustee shall have full and complete access to the
personnel, books, records, and facilities of the business to be
divested, and Defendants shall provide or develop financial and other
information relevant to such business as the Divestiture Trustee may
reasonably request, subject to reasonable protection for trade secrets;
other confidential research, development, or commercial information; or
any applicable privileges. Defendants shall take no action to interfere
with or to impede the Divestiture Trustee's accomplishment of the
divestiture.
F. After its appointment, the Divestiture Trustee shall file
monthly reports with the United States setting forth the Divestiture
Trustee's efforts to accomplish the divestiture ordered under this
Final Judgment. Such reports shall include the name, address, and
telephone number of each person who, during the preceding month, made
an offer to acquire, expressed an interest in acquiring, entered into
negotiations to acquire, or was contacted or made an inquiry about
acquiring any interest in the Divestiture Assets and shall describe in
detail each contact with any such person. The Divestiture Trustee shall
maintain full records of all efforts made to divest the Divestiture
Assets.
G. If the Divestiture Trustee has not accomplished the divestiture
ordered under this Final Judgment within six months after its
appointment, the Divestiture Trustee shall promptly file with the Court
a report setting forth (1) the Divestiture Trustee's efforts to
accomplish the required divestiture; (2) the reasons, in the
Divestiture Trustee's judgment, why the required divestiture has not
been accomplished; and (3) the Divestiture Trustee's recommendations.
To the extent such reports contain
[[Page 32956]]
information that the Divestiture Trustee deems confidential, such
reports shall not be filed in the public docket of the Court. The
Divestiture 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 Divestiture Trustee's
appointment by a period requested by the United States.
H. If the United States determines that the Divestiture Trustee has
ceased to act or failed to act diligently or in a reasonably cost-
effective manner, the United States may recommend the Court appoint a
substitute Divestiture Trustee.
VI. NOTICE OF PROPOSED DIVESTITURE
A. Within two (2) business days following execution of a definitive
divestiture agreement, Defendants or the Divestiture Trustee, whichever
is then responsible for effecting the divestiture required herein,
shall notify the United States of any proposed divestiture required by
Section IV or Section V of this Final Judgment. If the Divestiture
Trustee is responsible, it shall similarly notify Defendants. The
notice shall set forth the details of the proposed divestiture and list
the name, address, and telephone number of each person not previously
identified who offered or expressed an interest in or desire to acquire
any ownership interest in the Divestiture Assets, together with full
details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Defendants,
the proposed Acquirer, any other third party, or the Divestiture
Trustee, if applicable, additional information concerning the proposed
divestiture, the proposed Acquirer, and any other potential Acquirer.
Defendants and the Divestiture Trustee shall furnish any additional
information requested within fifteen (15) calendar days of the receipt
of the request, unless the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer, any third party, and the Divestiture Trustee,
whichever is later, the United States shall provide written notice to
Defendants and the Divestiture Trustee, if there is one, stating
whether it objects to the proposed divestiture. If the United States
provides written notice that it does not object, the divestiture may be
consummated, subject only to Defendants' limited right to object to the
sale under Paragraph V(C) of this Final Judgment. Absent written notice
that the United States does not object to the proposed Acquirer or upon
objection by the United States, a divestiture proposed under Section IV
or Section V shall not be consummated. Upon objection by Defendants
under Paragraph V(C), a divestiture proposed under Section V shall not
be consummated unless approved by the Court.
VII. FINANCING
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or Section V of this Final Judgment.
VIII. HOLD SEPARATE
Until the divestiture required by this Final Judgment has been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by the Court.
Defendants shall take no action that would jeopardize the divestiture
ordered by the Court.
IX. AFFIDAVITS
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestiture has been completed under Section IV or Section V,
Defendants shall deliver to the United States an affidavit, signed by
each defendant's Chief Financial Officer and General Counsel, which
shall describe the fact and manner of Defendants' compliance with
Section IV or Section V of this Final Judgment. Each such affidavit
shall include the name, address, and telephone number of each person
who, during the preceding thirty (30) calendar days, made an offer to
acquire, expressed an interest in acquiring, entered into negotiations
to acquire, or was contacted or made an inquiry about acquiring, any
interest in the Divestiture Assets, and shall describe in detail each
contact with any such person during that period. Each such affidavit
shall also include a description of the efforts Defendants have taken
to solicit buyers for the Divestiture Assets, and to provide required
information to prospective Acquirers, including the limitations, if
any, on such information. Assuming the information set forth in the
affidavit is true and complete, any objection by the United States to
information provided by Defendants, including limitation on
information, shall be made within fourteen (14) calendar days of
receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Defendants shall deliver to the United States an
affidavit that describes in reasonable detail all actions Defendants
have taken and all steps Defendants have implemented on an ongoing
basis to comply with Section VIII of this Final Judgment. Defendants
shall deliver to the United States an affidavit describing any changes
to the efforts and actions outlined in Defendants' earlier affidavits
filed pursuant to this Section within fifteen (15) calendar days after
the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestiture has been completed.
X. COMPLIANCE INSPECTION
A. For the purposes of determining or securing compliance with this
Final Judgment, or of any related orders such as any Hold Separate
Stipulation and Order or of determining whether the Final Judgment
should be modified or vacated, and subject to any legally-recognized
privilege, from time to time authorized representatives of the United
States, including agents 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 United States, to require Defendants to provide
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 response to written
interrogatories, under oath if
[[Page 32957]]
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
Section X 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), for the purpose
of securing compliance with this Final Judgment, or as otherwise
required by law.
D. If at the time that Defendants furnish information or documents
to the United States, 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 (10) calendar days' notice prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
XI. NO REACQUISITION
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XII. RETENTION OF JURISDICTION
The Court retains jurisdiction to enable any party to this Final
Judgment to apply to the 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. ENFORCEMENT OF FINAL JUDGMENT
A. The United States retains and reserves all rights to enforce the
provisions of this Final Judgment, including the right to seek an order
of contempt from the Court. Defendants agree that in any civil contempt
action, any motion to show cause, or any similar action brought by the
United States regarding an alleged violation of this Final Judgment,
the United States may establish a violation of the Final Judgment and
the appropriateness of any remedy therefor by a preponderance of the
evidence, and Defendants waive any argument that a different standard
of proof should apply.
B. This Final Judgment should be interpreted to give full effect to
the procompetitive purposes of the antitrust laws and to restore all
competition the United States alleged was harmed by the challenged
conduct. Defendants agree that they may be held in contempt of, and
that the Court may enforce, any provision of this Final Judgment that,
as interpreted by the Court in light of these procompetitive principles
and applying ordinary tools of interpretation, is stated specifically
and in reasonable detail, whether or not it is clear and unambiguous on
its face. In any such interpretation, the terms of this Final Judgment
should not be construed against either party as the drafter.
C. In any enforcement proceeding in which the Court finds that
Defendants have violated this Final Judgment, the United States may
apply to the Court for a one-time extension of this Final Judgment,
together with other relief as may be appropriate. In connection with
any successful effort by the United States to enforce this Final
Judgment against a Defendant, whether litigated or resolved before
litigation, that Defendant agrees to reimburse the United States for
the fees and expenses of its attorneys, as well as any other costs
including experts' fees, incurred in connection with that enforcement
effort, including in the investigation of the potential violation.
D. For a period of four (4) years following the expiration of the
Final Judgment, if the United States has evidence that a Defendant
violated this Final Judgment before it expired, the United States may
file an action against that Defendant in this Court requesting that the
Court order (1) Defendant to comply with the terms of this Final
Judgment for an additional term of at least four years following the
filing of the enforcement action under this Section, (2) any
appropriate contempt remedies, (3) any additional relief needed to
ensure the Defendant complies with the terms of the Final Judgment, and
(4) fees or expenses as called for in Paragraph XIII(C).
XIV. EXPIRATION OF FINAL JUDGMENT
Unless the Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry, except that after
five (5) years from the date of its entry, this Final Judgment may be
terminated upon notice by the United States to the Court and Defendants
that the divestiture has been completed and that the continuation of
the Final Judgment no longer is necessary or in the public interest.
I.
XV. PUBLIC INTEREST DETERMINATION
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16, including making copies available to
the public of this Final Judgment, the Competitive Impact Statement,
any comments thereon, and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and responses 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. Sec. 16:
-----------------------------------------------------------------------
United States District Judge
United States District Court for the District of Columbia
UNITED STATES OF AMERICA, Plaintiff, v. HARRIS CORPORATION, and
L3 TECHNOLOGIES, INC., Defendants.
Civil Action No.: 1:19-cv-01809
Judge: Hon. Thomas F. Hogan
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. Sec. 16(b)-(h), files this Competitive
Impact Statement relating to the proposed Final Judgment submitted for
entry in this civil antitrust proceeding.
I. NATURE AND PURPOSE OF THE PROCEEDING
Defendants Harris Corporation (``Harris'') and L3 Technologies,
Inc. (``L3'') entered into an agreement and plan of merger, dated
October 12, 2018, pursuant to which Harris and L3 propose to combine in
a transaction that would create the sixth-largest defense contractor in
the United States. The United States filed a civil antitrust Complaint
on June 20, 2019, seeking to enjoin the proposed transaction. The
Complaint alleges that the likely effect of this merger would be to
lessen competition substantially in the United States for the design,
development, manufacture, sale, service, and distribution of U.S.
military-grade image intensifier tubes in violation of Section 7 of the
Clayton Act, 15 U.S.C. Sec. 18.
At the same time the Complaint was filed, the United States also
filed a Hold
[[Page 32958]]
Separate Stipulation and Order (``Hold Separate'') and proposed Final
Judgment, which are designed to eliminate the anticompetitive effects
of the transaction. Under the proposed Final Judgment, which is
explained more fully below, Defendants are required to divest Harris's
business in the design, development, manufacture, sale, service and
distribution of image intensifier technology and night vision devices
(the ``night vision business''). Under the terms of the Hold Separate
Stipulation and Order, Defendants will take certain steps to ensure
that Harris's night vision business is operated as a competitively
independent, economically viable, and ongoing business concern that
will remain independent and uninfluenced by Harris and that competition
is maintained during the pendency of the required 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 proposed Final Judgment and to punish violations
thereof.
II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATION
A. The Defendants and the Proposed Transaction
Harris is incorporated in Delaware and has its headquarters in
Melbourne, Florida. Harris provides night vision devices and image
intensifier tubes, tactical communications solutions, electronic
warfare solutions, and space and intelligence systems. In 2018, Harris
had sales of approximately $6.2 billion.
L3 is incorporated in Delaware and is headquartered in New York,
New York. L3 provides night vision devices and image intensifier tubes;
intelligence, surveillance, and reconnaissance systems; aircraft
sustainment, simulation, and training; and security and detection
systems. In 2018, L3 had sales of approximately $10.2 billion.
Harris and L3 entered into an agreement and plan of merger, dated
October 12, 2018, pursuant to which Harris and L3 propose to merge.
B. The Competitive Effects of the Transaction
1. Background
Image intensifier tubes amplify visible light and are integrated
into night vision devices produced by Harris, L3, and other companies.
Night vision devices allow the user to see better in dark conditions,
increasing the situational awareness, threat detection, and mission
performance of soldiers and aircrews operating in low-light
environments. Night vision devices come in the form of goggles,
binoculars, and monoculars and can be handheld or mounted to objects
like helmets or weapons. There are over half a million such devices in
use today, and the U.S. Department of Defense (``DoD'') expects to
purchase at least one hundred thousand additional devices over the next
few years.
DoD also purchases significant quantities of image intensifier
tubes as replacement parts for night vision devices currently in the
field. In addition, as Harris and L3 innovate and develop improved
image intensifier tubes with greater resolution and light
amplification, DoD purchases these more advanced image intensifier
tubes to upgrade existing night vision devices. DoD is likely to
purchase half a million image intensifier tubes for replacements or
upgrades over the next few years.
2. Relevant Markets
As alleged in the Complaint, the quality and usefulness of an image
intensifier tube is defined by several characteristics, the most
important of which are size, weight, power consumption, and especially
sensitivity, which relates to the ability of the tube to amplify low
levels of visible light without producing excessive distortion in the
resulting image. DoD requires highly capable image intensifier tubes,
as the lives of soldiers and aircrews depend on the performance of the
night vision devices incorporating these tubes. The Complaint alleges
that less capable image intensifier tubes are therefore not a
substitute for the highly capable image intensifier tubes that DoD
views as U.S. military grade.
According to the Complaint, other night vision technologies such as
thermal imaging devices and digital light amplification systems are not
substitutes for U.S. military-grade image intensifier tubes. Thermal
imaging devices, such as microbolometers and infrared focal plane
arrays, detect infrared radiation emitted by warm objects rather than
amplifying visible light. Thermal imaging devices also differ from
image intensifier tubes in range and sensitivity to environmental
factors such as humidity and dust. Night vision equipment incorporating
thermal imaging devices tends to be larger, heavier, and substantially
more expensive than similar equipment incorporating image intensifier
tubes. Although some night vision devices incorporate both image
intensifier tubes and thermal imaging devices to combine the benefits
of the two and create a ``fused'' image, thermal imaging devices cannot
replicate the performance of image intensifier tubes or replace them in
night vision devices.
The Complaint further alleges that digital light amplification
systems based on charge-coupled device (``CCD'') or complementary metal
oxide semiconductor (``CMOS'') detectors are also not adequate
substitutes for U.S. military-grade image intensifier tubes. CCD- and
CMOS-based devices tend to be heavier, consume more power, and cost
significantly more than devices incorporating image intensifier tubes.
Moreover, because such devices are digital, and therefore require a
certain amount of signal processing, the images produced also tend to
lag behind the actual scene being viewed, potentially creating
disorientation in the user.
For the foregoing reasons, DoD would not substitute less-capable
image intensifier tubes, thermal imaging devices, or CCD- or CMOS-based
digital light amplification systems for U.S. military-grade image
intensifier tubes in response to a small but significant and non-
transitory increase in the price of U.S. military-grade image
intensifier tubes. Therefore, the Complaint alleges that U.S. military-
grade image intensifier tubes are a relevant product market and line of
commerce under Section 7 of the Clayton Act.
The Complaint alleges that the relevant geographic market for U.S.
military-grade image intensifier tubes is the United States. For
national security reasons, DoD only considers domestic producers of
U.S. military-grade image intensifier tubes. DoD is unlikely to turn to
any foreign producers in the face of a small but significant and non-
transitory price increase by domestic producers of U.S. military-grade
image intensifier tubes.
3. Anticompetitive Effects
As alleged in the Complaint, Harris and L3 are currently the only
firms that develop, manufacture, and sell U.S. military-grade image
intensifier tubes. The merger would therefore give the combined firm a
monopoly in this product market, leaving DoD without a competitive
alternative for this critical component of night vision devices.
According to the Complaint, Harris and L3 compete for sales of U.S.
military-grade image intensifier tubes on the basis of quality, price,
and contractual terms such as delivery times. This competition has
resulted in higher quality, lower prices, and shorter delivery times
and has fostered
[[Page 32959]]
innovation, leading to U.S. military-grade image intensifier tubes with
higher sensitivity and resolution. The Complaint alleges that the
combination of Harris and L3 would eliminate this competition and its
future benefits to DoD customers. Post-transaction, absent the required
divestiture, the merged firm likely would have the incentive and
ability to reduce research and development efforts that lead to
innovative and high-quality products and to increase prices and offer
less favorable contractual terms.
4. Difficulty of Entry
According to the Complaint, sufficient, timely entry of additional
competitors into the market for U.S. military-grade image intensifier
tubes is unlikely. Production facilities for U.S. military-grade image
intensifier tubes require a substantial investment in both capital
equipment and human resources. A new entrant would need to set up a
foundry to produce electronic components, establish production lines
capable of manufacturing fiber optic subcomponents, and build assembly
lines and testing facilities. Engineering and research personnel would
need to be assigned to develop, test, and troubleshoot the detailed
manufacturing process, involving hundreds of steps, that is necessary
to produce U.S. military-grade image intensifier tubes. Any new
products would require extensive testing and qualification before they
could be used in night vision devices for the U.S. military. As a
result, the Complaint alleges that entry would be costly and time
consuming.
Moreover, as alleged in the Complaint, a new entrant is unlikely to
recover these costs. Although CMOS-based night vision devices currently
are not suitable for DoD uses, and thus are not reasonable substitutes
for night vision devices based on U.S. military-grade image intensifier
tubes, research and development on these devices is progressing, and
industry observers expect these devices to begin replacing night vision
devices based on U.S. military-grade image intensifier tubes at some
point in the next five to ten years. Because the market for U.S.
military-grade image intensifier tubes will likely decline as this
transition takes place, the Complaint alleges that an entrant is
unlikely to produce sufficient revenue to recover its costs of entry.
The prospect of a declining market for U.S. military-grade image
intensifier tubes thus would discourage new companies from entering.
III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The divestiture required by the proposed Final Judgment will
eliminate the anticompetitive effects of the transaction in the market
for U.S. military-grade image intensifier tubes by establishing an
independent and economically viable competitor. Paragraph IV(A) of the
proposed Final Judgment requires Defendants, within the later of 45
calendar days after the entry of the Hold Separate by the Court or 15
calendar days after Regulatory Approvals have been received, to divest
Harris's night vision business.\1\ Paragraph IV(J) of the proposed
Final Judgment provides that the business must be divested in such a
way as to satisfy the United States, in its sole discretion, that the
Divestiture Assets can and will be operated by the purchaser as a
viable, ongoing business that can compete effectively in the design,
development, manufacture, sale, service, and distribution of image
intensifier technology and night vision devices. Defendants must take
all reasonable steps necessary to accomplish the divestiture quickly
and must cooperate with prospective purchasers.
---------------------------------------------------------------------------
\1\ Paragraph II(F) of the proposed Final Judgment defines
Regulatory Approvals as ``any approvals or clearances pursuant to
filings with the Committee on Foreign Investment in the United
States (``CFIUS''), or under antitrust, competition, or other U.S.
or international laws required for Acquirer's acquisition of the
Divestiture Assets to proceed.''
---------------------------------------------------------------------------
In the event that Defendants do not accomplish the divestiture
within the period prescribed in the proposed Final Judgment, Section V
of the proposed Final Judgment provides that the Court will appoint a
trustee selected by the United States to effect the divestiture. If a
trustee is appointed, the proposed Final Judgment provides that
Defendants will pay all costs and expenses of the trustee. The
trustee's commission will be structured so as to provide an incentive
for the trustee based on the price obtained and the speed with which
the divestiture is accomplished. After his or her appointment becomes
effective, the trustee will file monthly reports with the United States
setting forth his or her efforts to accomplish the divestiture. At the
end of six months, if the divestiture has not been accomplished, the
trustee and the United States will make recommendations to the Court,
which shall enter such orders as appropriate in order to carry out the
purpose of the trust, including extending the trust or the term of the
trustee's appointment.
The proposed Final Judgment contains several provisions to
facilitate the immediate use of the Divestiture Assets by the Acquirer.
Paragraph IV(G) of the proposed Final Judgment requires Defendants, at
the Acquirer's option, to enter into a transition services agreement
for back office, human resource, and information technology services
and support for the night vision business for a period of up to 12
months. Paragraph IV(H) of the proposed Final Judgment requires
Defendants, at the Acquirer's option, to enter into a contract for
wafer sawing and sensor packaging services to help facilitate the
development of the next-generation of U.S. military-grade image
intensifier tubes, for a period of up to 12 months. With respect to any
agreements entered into under Paragraph IV(G) or IV(H), the United
States, in its sole discretion, may approve one or more extensions for
a total of up to an additional six months. If the Acquirer seeks an
extension of any such agreement, Defendants must notify the United
States in writing at least three months prior to the date the
underlying agreement expires. Paragraphs IV(G) and IV(H) further
provide that employees of Defendants tasked with providing services
under such agreements must not share any competitively sensitive
information of the Acquirer with any other employee of Defendants.
The proposed Final Judgment also contains provisions designed to
promote compliance and make the enforcement of the Final Judgment as
effective as possible. Paragraph XIII(A) provides that the United
States retains and reserves all rights to enforce the provisions of the
proposed Final Judgment, including its rights to seek an order of
contempt from the Court. Under the terms of this paragraph, Defendants
have agreed that in any civil contempt action, any motion to show
cause, or any similar action brought by the United States regarding an
alleged violation of the Final Judgment, the United States may
establish the violation and the appropriateness of any remedy by a
preponderance of the evidence and that Defendants have waived any
argument that a different standard of proof should apply. This
provision aligns the standard for compliance obligations with the
standard of proof that applies to the underlying offense that the
compliance commitments address.
Paragraph XIII(B) provides additional clarification regarding the
interpretation of the provisions of the proposed Final Judgment. The
proposed Final Judgment was drafted to restore all competition that
would otherwise be harmed by the merger. Defendants agree that they
will abide by the proposed Final Judgment
[[Page 32960]]
and that they may be held in contempt of the Court for failing to
comply with any provision of the proposed Final Judgment that is stated
specifically and in reasonable detail, as interpreted in light of this
procompetitive purpose.
Paragraph XIII(C) of the proposed Final Judgment provides that
should the Court find in an enforcement proceeding that Defendants have
violated the Final Judgment, the United States may apply to the Court
for a one-time extension of the Final Judgment, together with such
other relief as may be appropriate. In addition, in order to compensate
American taxpayers for any costs associated with the investigation and
enforcement of violations of the proposed Final Judgment, Paragraph
XIII(C) provides that, in any successful effort by the United States to
enforce the Final Judgment against a Defendant, whether litigated or
resolved prior to litigation, the Defendant agrees to reimburse the
United States for attorneys' fees, experts' fees, or costs incurred in
connection with any enforcement effort, including the investigation of
the potential violation.
Paragraph XIII(D) states that the United States may file an action
against a Defendant for violating the Final Judgment for up to four
years after the Final Judgment has expired or been terminated under
Section XIV. This provision is meant to address circumstances such as
when evidence that a violation of the Final Judgment occurred during
the term of the Final Judgment is not discovered until after the Final
Judgment has expired or been terminated or when there is not sufficient
time for the United States to complete an investigation of an alleged
violation until after the Final Judgment has expired or been
terminated. This provision, therefore, makes clear that, for four years
after the Final Judgment has expired or been terminated, the United
States may still challenge a violation that occurred during the term of
the Final Judgment.
Finally, Section XIV of the proposed Final Judgment provides that
the Final Judgment shall expire ten years from the date of its entry,
except that after five years from the date of its entry, the Final
Judgment may be terminated upon notice by the United States to the
Court and Defendants that the divestiture has been completed and that
the continuation of the Final Judgment is no longer necessary or in the
public interest.
The divestiture provisions of the proposed Final Judgment will
eliminate the anticompetitive effects of the merger in the provision of
U.S. military-grade image intensifier tubes by establishing a new,
independent, and economically viable competitor to the merged entity.
IV. REMEDIES AVAILABLE TO POTENTIAL PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal 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.
Sec. 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 60 days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within 60
days of the date of publication of this Competitive Impact Statement in
the Federal Register, or the last date of publication in a newspaper of
the summary of this Competitive Impact Statement, whichever is later.
All comments received during this period will be considered by the
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 the Final Judgment. The comments and the response of the
United States will be filed with the Court. In addition, comments will
be posted on the U.S. Department of Justice, Antitrust Division's
internet website and, under certain circumstances, published in the
Federal Register.
Written comments should be submitted to: Maribeth Petrizzi, Chief,
Defense, Industrials, and Aerospace Section, Antitrust Division, United
States Department of Justice, 450 Fifth Street NW, Suite 8700,
Washington, D.C. 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 the merger of Harris
and L3. The United States is satisfied, however, that the divestiture
of assets described in the proposed Final Judgment will preserve
competition for the provision of U.S. military-grade image intensifier
tubes in the relevant market identified by 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 60-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. Sec. 16(e)(1). In making that
determination, the court, in accordance with the statute as amended in
2004, is required to consider:
(A) the competitive impact of such judgment, including termination of
alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including
[[Page 32961]]
consideration of the public benefit, if any, to be derived from a
determination of the issues at trial.
15 U.S.C. Sec. 16(e)(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); United States v.
U.S. Airways Grp., Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014)
(explaining that the ``court's inquiry is limited'' in Tunney Act
settlements); United States v. InBev N.V./S.A., No. 08-1965 (JR), 2009
U.S. Dist. LEXIS 84787, 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 mechanism to enforce the final judgment
are clear and manageable'').
As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations in the government's complaint, whether the Final Judgment
is sufficiently clear, whether its enforcement mechanisms are
sufficient, and whether the Final Judgment may positively harm third
parties. See Microsoft, 56 F.3d at 1458-62. With respect to the
adequacy of the relief secured by the Final Judgment, 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) (quoting 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. Instead:
[t]he balancing of competing social and political interests affected by
a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's role
in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to the
decree. The court is required to determine not whether a particular
decree is the one that will best serve society, but whether the
settlement is ``within the reaches of the public interest.'' More
elaborate requirements might undermine the effectiveness of antitrust
enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\2\
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\2\ See also 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'').
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The United States' predictions with respect to the efficacy of the
remedy are to be afforded deference by the Court. See, e.g., Microsoft,
56 F.3d at 1461 (recognizing courts should give ``due respect to the
Justice Department's . . . view of the nature of its case' ''); United
States v. Iron Mountain, Inc., 217 F. Supp. 3d 146, 152-53 (D.D.C.
2016) (``In evaluating objections to settlement agreements under the
Tunney Act, a court must be mindful that [t]he government need not
prove that the settlements will perfectly remedy the alleged antitrust
harms[;] it need only provide a factual basis for concluding that the
settlements are reasonably adequate remedies for the alleged harms.''
(internal citations omitted)); United States v. Republic Servs., Inc.,
723 F. Supp. 2d 157, 160 (D.D.C. 2010) (noting ``the deferential review
to which the government's proposed remedy is accorded''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (``A
district court must accord due respect to the government's prediction
as to the effect of proposed remedies, its perception of the market
structure, and its view of the nature of the case.''). The ultimate
question is whether ``the remedies [obtained in the Final Judgment are]
so inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest.' '' Microsoft, 56 F.3d at 1461
(quoting United States v. Western Elec. Co., 900 F.2d 283, 309 (D.C.
Cir. 1990)).
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 U.S. Airways,
38 F. Supp. 3d at 75 (noting that the court must simply determine
whether there is a factual foundation for the government's decisions
such that its conclusions regarding the proposed settlements are
reasonable); 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[dash]60.
In its 2004 amendments to the APPA,\3\ Congress made clear its
intent to preserve the practical benefits of utilizing Final Judgments
in antitrust enforcement, adding the unambiguous instruction that
``[n]othing in this section shall be construed to require the court to
conduct an evidentiary hearing or to require the court to permit anyone
to intervene.'' 15 U.S.C. Sec. 16(e)(2); see also U.S. Airways, 38 F.
Supp. 3d at 76 (indicating that a court is not required to hold an
evidentiary hearing or to permit intervenors as part of its review
under the Tunney Act). This language explicitly wrote into the statute
what Congress intended when it first 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 Sen. Tunney). ``A court can make its public interest determination
based on the competitive impact statement and response to public
comments alone.'' U.S. Airways, 38 F. Supp. 3d at 76 (citing United
States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000)).
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\3\ Pub. L. 108[dash]237, Sec. 221.
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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: June 20, 2019
Respectfully submitted,
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Kevin Quin* (D.C. Bar 415268)
Defense, Industrials, and Aerospace Section, Antitrust Division, 450
Fifth Street NW, Suite 8700, Washington, D.C. 20530, Telephone:
(202) 307-0922, Facsimile: (202) 514[dash]9033,
[email protected].
*Attorney of Record
[FR Doc. 2019-14659 Filed 7-9-19; 8:45 am]
BILLING CODE 4410-11-P