[Federal Register Volume 86, Number 139 (Friday, July 23, 2021)]
[Notices]
[Pages 39059-39077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15728]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Danfoss A/S, et al. 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. Danfoss A/S and Eaton Corporation plc, Civil
Action No. 1:21-cv-1880-CJN. On July 14, 2021, the United States filed
a Complaint alleging that Danfoss's proposed acquisition of Eaton
Corporation plc's hydraulics business 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 Danfoss to divest three Danfoss
hydraulic orbital motor and hydraulic steering unit manufacturing
facilities and from Eaton two orbital motor production lines and one
hydraulic steering unit production line.
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 submitted in English and
directed to Jay Owen, Acting Chief, Defense, Industrials, and Aerospace
Section, Antitrust Division, Department of Justice, 450 Fifth Street
NW, Suite 8700, Washington, DC 20530 (email address:
[email protected]).
Suzanne Morris,
Chief, Premerger and Division Statistics, Antitrust Division.
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, DC 20530,
Plaintiff v. Eaton Corporation plc, Eaton House, 30 Pembroke Road,
Dublin 4, Ireland and Danfoss A/S, Nordborgvej 81, DK-6430v Nordborg,
Denmark, Defendants.
Civil Action No.: 1:21-cv-1880-CJN
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 Eaton Corporation plc
(``Eaton'') and Danfoss A/S (``Danfoss'') to enjoin Danfoss's proposed
acquisition of Eaton's hydraulics business. The United States complains
and alleges as follows:
I. Nature of the Action
1. Pursuant to a Transaction Agreement dated January 21, 2020,
Danfoss intends to acquire Eaton's hydraulics business for
approximately $3.3 billion. The hydraulic power components that Danfoss
and Eaton manufacture make it possible to steer, propel, and operate
equipment used to pave roads, harvest produce, construct buildings, and
perform other heavy industrial and agricultural tasks across the United
States every day.
2. Danfoss and Eaton are two of only three suppliers of hydraulic
orbital motors (``orbital motors'') and hydraulic steering units
(``steering units'') used in tractors, wheel loaders, lifts, and other
types of mobile off-road equipment in the United States. Orbital
motors, also
[[Page 39060]]
called ``low-speed, high-torque'' motors, are a low-cost way to move
heavy loads in a slow, and thus controlled, way. Steering units direct
hydraulic fluid in response to commands from equipment operators and
are necessary for any hydraulic steering system to function. Three of
every four orbital motors and four of every five steering units
purchased in the United States are supplied by either Danfoss or Eaton.
3. Competition between Danfoss and Eaton has driven prices down and
spurred the production of new and better orbital motors and steering
units. The proposed merger would eliminate this competition, leading to
higher prices, lower quality, and diminished innovation.
4. As a result, the proposed acquisition would substantially lessen
competition in the market for the design, manufacture, and sale of
orbital motors and steering units for mobile off-road equipment in the
United States in violation of Section 7 of the Clayton Act, 15 U.S.C.
18.
II. Defendants and the Transaction
5. Danfoss is a global corporation headquartered in Nordborg,
Denmark that specializes in the manufacturing of components and
engineering technologies for, inter alia, hydraulics for off-road
machinery. Danfoss's Power Solutions division produces hydraulic pumps,
motors, valves and steering solutions, as well as electronic
components, software, motors, and converters. The Power Solutions
division accounted for 35% of Danfoss's [euro]6.3 billion in revenue in
2019.
6. Eaton is a global corporation headquartered in Dublin, Ireland
that focuses on power management solutions for electrical, hydraulics,
aerospace, and vehicle applications. Eaton Hydraulics, based in Eden
Prairie, Minnesota, consists of a Fluid Conveyance Division that sells
hoses and other fluid conveyance products and a Power & Motion Controls
Division offering hydraulic motors, power units, valves, and steering
units. The Power & Motion Controls division had sales of $2.2 billion
in 2019.
7. On January 21, 2020, Danfoss and Eaton signed an agreement under
which Danfoss will acquire Eaton's hydraulics business in exchange for
$3.3 billion.
III. Jurisdiction and Venue
8. The United States brings this action under Section 15 of the
Clayton Act, 15 U.S.C. 25, to prevent and restrain Defendants from
violating Section 7 of the Clayton Act, 15 U.S.C. 18.
9. Defendants design, manufacture, and sell orbital motors and
steering units for mobile off-road equipment throughout the United
States, and their activities in these areas substantially affect
interstate commerce. This Court therefore 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.
10. 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 under 28 U.S.C.
1391(b) and (c).
IV. Industry Background
A. Hydraulic Systems
11. Most heavy industrial and agricultural operations rely on
specialized equipment to perform work ``off-road'' (e.g., in a
construction site, a field, a forest, a mine, or on a golf course). The
predominant drive technology for this equipment is a hydraulic system,
which uses hydraulic fluid to generate power.
12. The basic architecture of a hydraulic system includes a
reservoir for hydraulic fluid; a pump to move that fluid; valves to
control the liquid in various ways (e.g., pressure, flow, or
direction); a motor to convert hydraulic pressure into mechanical
energy; and components that accomplish the intended task, such as
cylinders.
13. Mobile off-road equipment often has multiple hydraulic systems.
Each system serves one of three functions: To carry out the steering
commands given by a driver, to propel equipment forward, or to make the
equipment perform its intended work function (e.g., to operate the
forks on a forklift or raise a scissor lift's platform).
14. Original Equipment Manufacturers (``OEMs'') of mobile off-road
equipment select components of hydraulic systems individually,
considering the performance requirements of the equipment at issue,
price, and the space available to house the components selected. To
determine components for a new platform, OEMs may solicit bids, seek
the services of a distributor, collaborate with a preferred provider,
or use in-house engineers as experts.
B. Orbital Motors
15. While all hydraulic motors turn hydraulic pressure into
mechanical energy, there are different designs that can be used for
mobile equipment: Gear motors, orbital motors, vane motors, and piston
motors. Each design presents a different value proposition in terms of
power, pressure, fluid displacement, torque, and rotational speed. OEMs
consider each of these performance characteristics, as well as price
and physical size, when selecting a motor to be used in a particular
hydraulic system.
16. There is a direct relationship between a motor's power metrics
and its price. In addition to being more expensive, a motor that is
more powerful than necessary for the job has less operating efficiency.
Thus, OEMs prefer products that meet, but do not exceed, their desired
performance specifications. Once selected, it is difficult and
expensive for an OEM to switch motor designs because of the need to
retrofit the equipment to the new motor.
17. Orbital motors have a rotating gear design consisting of an
external gear ring and an inner gear star. When the internal gear star
rotates in a planetary-type movement, fluid that has been inserted by a
pump is displaced between every gear tooth. The result is a high torque
output at a low rotational speed. For this reason, orbital motors are
also referred to as ``low- speed, high torque'' motors.
18. Orbital motors are in the ``low-to-medium'' power category of
motors, generating fewer than 100 kilowatts of power. However, an
orbital motor is efficient and generates high output levels of torque
at low rotational speeds, which makes it easier to control the movement
of heavy loads. Orbital motors are also uniquely attractive to OEMs
because they come in a standard compact size, which OEMs can count on
when designing mobile off-road equipment.
19. Because orbital motors are more commoditized and thus less
expensive than other motors that produce similar amounts of torque,
they are considered a ``workhorse'' motor for many OEMs that design
mobile off-road equipment, and can be used for the ``work'' or
``propel'' functions for a long list of mobile off-road equipment,
including potato harvesters, wheel loaders, skid steer loaders, aerial
lifts, asphalt pavers, rollers, salt spreaders, harvesters, and street
sweepers.
20. In contrast to orbital motors, piston motors are higher
powered, higher priced, larger, and often inefficient for an
application that is appropriate for an orbital motor. Similarly, gear
and vane motors fail to meet an orbital motor's performance metrics for
torque.
C. Hydraulic Steering Units
21. An OEM designing a power steering system for mobile off-road
equipment can choose from three different steering technologies:
[[Page 39061]]
Hydraulic, electrohydraulic, and electric. Hydraulic steering systems--
by far the most common technology used in off-road equipment--use
commands from a driver to turn a vehicle's wheels using hydraulic
fluid. Electrohydraulic steering systems build on hydraulic steering
systems by adding electronically-controlled components that make
steering with a joystick or GPS-guided steering function possible.
Electric steering does not require hydraulics components and instead
generates the power assist needed for steering through electric motors.
22. Hydraulic steering systems move pressurized hydraulic fluid
through a circuit to control cylinders connected to the wheels of
mobile off-road equipment. The piece of a hydraulic steering system
that determines the direction that the fluid moves and provides
pressure control is called a steering unit.
23. All hydraulic steering systems--even those with some electronic
components--require a steering unit. If an OEM wished to design around
a steering unit for mobile off-road equipment, it would have to shift
the entirety of the steering system from hydraulic technology to the
more expensive electric technology.
V. The Relevant Markets Threatened by the Acquisition
A. Relevant Product Markets
24. An OEM in need of an orbital motor's performance
characteristics for a mobile off-road vehicle design would not simply
substitute an alternative motor technology. No other motor offers the
same combination of (1) efficiency (i.e., operating power necessary for
the intended use), (2) torque output, and (3) low price. Vane and gear
motors do not meet the torque output performance metrics of an orbital
motor, and piston and electric motors are more expensive and less
efficient than an orbital motor. In order for a customer to switch to
any of these alternative technologies, that customer would need to
downgrade its performance expectations, engage in a costly redesign, or
spend significantly more money.
25. Because of these factors, in the event of a small but
significant increase in price by a hypothetical monopolist of orbital
motors, substitution away from orbital motors would be insufficient to
render the price increase unprofitable. Orbital motors for mobile off-
road equipment are therefore a line of commerce, or relevant product
market, for purposes of analyzing the effects of the acquisition under
Section 7 of the Clayton Act, 15 U.S.C. 18.
26. Similarly, an increase in the price of hydraulic steering
systems would not cause OEM customers to replace a hydraulic steering
system in mobile off-road equipment with electric steering technology.
Electric steering technology--the only alternative steering system that
does not require a hydraulic steering unit--is largely unproven and
more expensive than hydraulic steering technology. Electric steering,
for example, is vulnerable in wet terrains and often lacks the power
necessary to move cylinders connected to the wheels of large off-road
equipment. Finally, the switching costs from hydraulic steering to
electric steering are high and would require a costly redesign by OEMs.
27. Because of these factors, in the event of a small but
significant increase in price by a hypothetical monopolist of steering
units, substitution away from steering units would be insufficient to
render the price increase unprofitable. Steering units for mobile off-
road equipment are therefore a line of commerce, or relevant product
market, for purposes of analyzing the effects of the acquisition under
Section 7 of the Clayton Act, 15 U.S.C. 18.
B. Geographic Markets
28. OEMs located in the United States cannot reasonably turn to
suppliers without a U.S. presence for the supply of orbital motors or
steering units for mobile off-road equipment. Long lead times due to
international shipping and unexpected delays in the delivery of
products can cause significant business disruption. Customers similarly
require that suppliers warehouse new and replacement parts to avoid
costly delays or interruptions to business operations and expect local
service and support from suppliers.
29. A hypothetical monopolist of orbital motors or steering units
sold in the United States could profitably impose a small but
significant non-transitory increase in price for orbital motors or
steering units without losing sufficient sales to render the price
increase unprofitable. Nor would the price increase be defeated by
arbitrage, e.g., by OEMs purchasing through subsidiaries located
outside the United States. Accordingly, the relevant geographic market
for the purposes of analyzing the effects of the acquisition on orbital
motors and steering units for mobile off-road equipment under Section 7
of the Clayton Act, 15 U.S.C. 18, is the United States.
VI. Danfoss's Proposed Acquisition of Eaton's Hydraulics Business Is
Likely To Result in Anticompetitive Effects
30. The proposed transaction would lessen competition and harm
customers for orbital motors and steering units for mobile off-road
equipment in the United States by eliminating the substantial head-to-
head competition that currently exists between Danfoss and Eaton.
Customers would pay higher prices and receive lower quality and service
for orbital motors and steering units as a result of the acquisition.
31. In the United States, Danfoss and Eaton are the two largest
suppliers of orbital motors for mobile off-road equipment, with market
shares of approximately 53% and 24%, respectively. The only other major
supplier of orbital motors for mobile off-road equipment has a 9% share
of the market. Together, Danfoss and Eaton would account for over 75%
of sales of orbital motors in United States.
32. In the United States, Danfoss and Eaton are the two largest
suppliers of steering units for mobile off-road equipment, with market
shares of approximately 43% and 41%, respectively. The only other major
supplier of steering units for mobile off-road equipment has a
considerably smaller market share of less than 1%. Together, Danfoss
and Eaton would account for approximately 84% of sales of steering
units in the United States.
33. As articulated in the Horizontal Merger Guidelines issued by
the Department of Justice and the Federal Trade Commission (the
``Horizontal Merger Guidelines'' \1\), the Herfindahl-Hirschman Index
(or ``HHI,'' as described in Appendix A) is a widely used measure of
market concentration. Market concentration is often a useful way of
measuring the likely anticompetitive effects of an acquisition. The
more concentrated a market, the higher the likelihood that a
transaction will result in a meaningful reduction in competition and
harm customers. Markets in which the HHI exceeds 2,500 points are
considered highly concentrated, and transactions that result in highly
concentrated markets and increase the HHI by more than 200 points are
presumed to be likely to enhance market power.
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\1\ U.S. Department of Justice and the Federal Trade Commission,
Horizontal Merger Guidelines, available at https://www.justice.gov/atr/file/810276/download (Aug. 19, 2010).
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34. In the market for orbital motors for mobile off-road equipment,
the pre-merger HHI is 3,605 and the post-merger HHI is 6,087,
representing an increase in the HHI of 2,482. In the market for
[[Page 39062]]
steering units for mobile off-road equipment, the pre-merger HHI is
4,155 and the post-merger HHI is 8,273, representing an increase in the
HHI of 4,118. Under the Horizontal Merger Guidelines, the proposed
acquisition will result in highly concentrated markets for both orbital
motors and steering units for mobile off-road equipment and is thus
presumed likely to enhance market power.
35. The HHI indicators of highly concentrated markets and enhanced
market power are consistent with historical head-to-head competition
between Danfoss and Eaton to supply orbital motors and steering units
for mobile off-road equipment. Danfoss and Eaton compete directly on
price, quality, product innovation, delivery, and technical service,
and the competition between them has benefited U.S. customers of
orbital motors and steering units for mobile off-road equipment.
Danfoss and Eaton have a reputation for high-quality orbital motors and
steering units, product developments that benefit OEMs, an extensive
network of distributors throughout the United States, and localized
customer support and service. As a result, Danfoss and Eaton are
considered to be the two primary--and sometimes the only two--suppliers
of orbital motors and steering units to customers in the United States.
36. For all of these reasons, the proposed transaction between
Danfoss and Eaton likely would substantially lessen competition in the
design, manufacture, and sale of orbital motors and steering units for
mobile off-road equipment sold to customers in the United States and
lead to higher prices, decreased quality of delivery and service, and
diminished innovation.
VII. Absence of Countervailing Factors
37. Entry into the design, manufacture, and sale of orbital motors
and steering units for mobile off-road equipment sold in United States
is unlikely to be timely, likely, or sufficient to prevent the harm to
competition caused by Danfoss's acquisition of Eaton's hydraulics
business. A new entrant must have the technical capabilities necessary
to design, manufacture, and sell orbital motors and steering units that
meet customer requirements for quality, performance, and reliability.
Additionally, a new entrant must have the requisite scale, an
established reputation, and an extensive network of distributors to
supply to all customers throughout the United States.
38. As a result of these entry barriers, entry into the market for
the design, manufacture, and sale of orbital motors and steering units
for mobile off-road equipment sold to customers in United States would
not be timely, likely, or sufficient to defeat the substantial
lessening of competition that likely would result from Danfoss's
acquisition of Eaton's hydraulics business.
VIII. Violations Alleged
39. Danfoss's proposed acquisition of Eaton's hydraulics business
likely would substantially lessen competition in the design,
manufacture, and sale of orbital motors and steering units for mobile
off-road equipment in the United States in violation of Section 7 of
the Clayton Act, 15 U.S.C. 18.
40. Unless enjoined, the proposed acquisition would likely have the
following anticompetitive effects, among others, related to the
relevant market:
1. A substantial lessening of competition generally;
2. an elimination of actual and potential head-to-head competition
between Danfoss and Eaton; and
3. a likely increase in prices and decrease in quality and
innovation.
IX. Request for Relief
41. The United States requests that this Court:
1. Adjudge and decree that Danfoss's acquisition of Eaton's
hydraulics business would be unlawful and violate Section 7 of the
Clayton Act, 15 U.S.C. 18;
2. preliminarily and permanently enjoin and restrain Defendants and
all persons acting on their behalf from consummating the proposed
acquisition of Eaton's hydraulics business by Danfoss, or from entering
into or carrying out any other contract, agreement, plan, or
understanding which would combine Eaton's hydraulics business with
Danfoss;
3. award the United States its costs for this action; and
4. award the United States such other and further relief as the
Court deems just and proper.
Dated: July 14, 2021
Respectfully submitted,
Counsel for Plaintiff United States:
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Richard Powers,
Acting Assistant Attorney General, Antitrust Division
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Kathleen S. O'Neill,
Senior Director of Investigation and Litigation, Antitrust Division
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Jay D. Owen,
Acting Chief,
Defense, Industrials, and Aerospace Section, Antitrust Division
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SoYoung Choe,
Acting Assistant Chief, Defense, Industrials, and Aerospace Section,
Antitrust Division
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Rebecca Valentine * (D.C. Bar #989607)
Bashiri Wilson (D.C. Bar # 998075)
Trial Attorneys
Defense, Industrials, and Aerospace Section, Antitrust Division, 450
Fifth Street NW, Suite 8700, Washington, DC 20530, Telephone: (202)
476-0432, Facsimile: (202) 514-9033, Email:
[email protected].
* Lead Attorney To Be Noticed
Appendix A
Definition of the Herfindahl-Hirschman Index
``HHI'' means the Herfindahl-Hirschman Index, a commonly
accepted measure of market concentration. It 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 percent, 30 percent, 20
percent, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 =
2,600). The HHI takes into account the relative size distribution of
the firms in a market and approaches zero when a market consists of
a large number of small firms. 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 above
2,500 are considered to be highly concentrated. See Horizontal
Merger Guidelines Sec. 5.3. Transactions that increase the HHI by
more than 200 points in highly concentrated markets are presumed to
be likely to enhance market power under the guidelines issued by the
U.S. Department of Justice and Federal Trade Commission. See id.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Danfoss A/S, and Eaton
Corporation PLC, Defendants.
Case No: 1:21-cv-1880-CJN
[Proposed] Final Judgment
Whereas, Plaintiff, United States of America, filed its Complaint
on July 14, 2021,
And Whereas, the United States and Defendants, Danfoss A/S
(``Danfoss'') and Eaton Corporation plc (``Eaton''), have consented to
entry of this Final Judgment without the taking of testimony, 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 relating to any issue of fact or law;
And Whereas, Defendants agree to make a divestiture to remedy the
loss of competition alleged in the Complaint;
And Whereas, Defendants represent that the divestiture and other
relief required by this Final Judgment can and will be made and that
Defendants will
[[Page 39063]]
not later raise a claim of hardship or difficulty as grounds for asking
the Court to modify any provision of this Final Judgment;
Now therefore, 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 (15 U.S.C. 18).
II. Definitions
As used in this Final Judgment:
A. ``Danfoss'' means Defendant Danfoss A/S, a Danish corporation
with its headquarters in Nordborg, Denmark, its successors and assigns,
and its subsidiaries, divisions, groups, affiliates, partnerships, and
joint ventures, and their directors, officers, managers, agents, and
employees.
B. ``Eaton'' means Defendant Eaton Corporation plc, an Irish
corporation with its headquarters in Dublin, Ireland, its successors
and assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
C. ``Interpump'' means Interpump Group S.p.A., an Italian
corporation with its headquarters in Sant'llario d'Enza, Reggio Emilia,
its successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees.
D. ``Acquirer'' means Interpump Group S.p.A. or another entity
approved by the United States in its sole discretion to which
Defendants divest the Divestiture Assets.
E. ``Danfoss Orbital Motor Business'' means Danfoss's global
business of designing, manufacturing, and selling its OMP X, OMR X,
OMEW, OMH, OMS, OMM, OML, CE, RE, RC, RS, DH, DS, DT, DR, D9, HB, HK,
and WS models of orbital motor products.
F. ``Danfoss Hydraulic Steering Unit Business'' means Danfoss's
global business of designing, manufacturing, and selling its OSPM,
OSPP, LAGB, LAGU, LAGS, LAGC, LAGL, and LAGZ models of hydraulic
steering unit products.
G. ``Danfoss Hydraulic Steering Unit IP Licenses'' means worldwide,
non-exclusive, royalty-free, perpetual, paid-up, irrevocable licenses
to the intellectual property listed in Exhibit 1.
H. ``Eaton Orbital Motor Assets'' means all of Eaton's assets used
to manufacture its HP 30, VIS 30, VIS 40, and VIS 45 models of orbital
motor products.
I. ``Eaton Hydraulic Steering Unit Assets'' means all of Eaton's
assets used to manufacture its Series 10 and Series 20 models of
hydraulic steering unit products.
J. ``Eaton Orbital Motor IP Licenses'' means worldwide, non-
exclusive, royalty-free, perpetual, paid-up, irrevocable licenses to
the intellectual property listed in Exhibit 2.
K. ``Eaton Hydraulic Steering Unit IP Licenses'' means worldwide,
non-exclusive, royalty-free, perpetual, paid-up, irrevocable licenses
to the intellectual property listed in Exhibit 3.
L. ``Char Lynn IP License'' means a non-exclusive, irrevocable,
fully paid-up, royalty-free, perpetual license to use the ``Char Lynn''
trademark to market models HP 30, VIS 30, VIS 40, and VIS 45, or their
equivalents, of orbital motors.
M. ``Divestiture Assets'' means the Danfoss Divestiture Assets and
the Eaton Divestiture Assets.
N. ``Divestiture Date'' means the date on which the Divestiture
Assets are divested to the Acquirer pursuant to this Final Judgment.
O. ``Danfoss Divestiture Assets'' means (i) all assets, located in
Zhenjiang, China as of January 21, 2020, including lapping machines,
grinders, testers, measurement devices, and any other assets that the
United States, in its sole discretion, deems to be necessary for the
manufacture of Danfoss's S70 model hydraulic steering unit product and
(ii) all of Defendants' rights, titles, and interests in and to the
Danfoss Orbital Motor Business, the Danfoss Hydraulic Steering Unit
Business, and all other property and assets, tangible and intangible,
wherever located, relating to or used in connection with the Danfoss
Orbital Motor Business or Danfoss Hydraulic Steering Unit Business,
including:
1. The facility located at 110 Bill Bryan Blvd., Hopkinsville, KY
42240 (the ``Hopkinsville Facility'');
2. the facility located at ul. Logistyezna 1, 55-040 Kobierzyce,
Wroclaw (Poland) (the ``Wroclaw Facility'');
3. the facility located at Ludwigsluster Chaussee 5, 19370, Parchim
(Germany) (the ``Parchim Facility'');
4. all other real property, including fee simple interests, real
property leasehold interests and renewal rights thereto, improvements
to real property, and options to purchase any adjoining or other
property, together with all buildings, facilities, and other
structures;
6. all tangible personal property, including fixed assets,
machinery and manufacturing equipment, tools, vehicles, inventory,
materials, office equipment and furniture, computer hardware, and
supplies;
7. all contracts, contractual rights, and customer relationships,
and all other agreements, commitments, and understandings, including
supply agreements, teaming agreements, and leases, and all outstanding
offers or solicitations to enter into a similar arrangement;
8. all licenses, permits, certifications, approvals, consents,
registrations, waivers, and authorizations issued or granted by any
governmental organization, and all pending applications or renewals;
9. all records and data, including (a) customer lists, accounts,
sales, and credits records, (b) production, repair, maintenance, and
performance records, (c) manuals and technical information Defendants
provide to their own employees, customers, suppliers, agents, or
licensees, (d) records and research data concerning historic and
current research and development activities, including designs of
experiments and the results of successful and unsuccessful designs and
experiments, and (e) drawings, blueprints, and designs;
10. the Danfoss Hydraulic Steering Unit IP Licenses;
11. all intellectual property owned, licensed, or sublicensed,
either as licensor or licensee, including (a) patents, patent
applications, and inventions and discoveries that may be patentable,
(b) registered and unregistered copyrights and copyright applications,
and (c) registered and unregistered trademarks, trade dress, service
marks, trade names, and trademark applications; and
12. all other intangible property, including (a) commercial names
and d/b/a names, (b) technical information, (c) computer software and
related documentation, know-how, trade secrets, design protocols,
specifications for materials, specifications for parts, specifications
for devices, safety procedures (e.g., for the handling of materials and
substances), quality assurance and control procedures, and design
tools, and (d) rights in internet websites and internet domain names.
Provided, however, that the Danfoss Divestiture Assets do not
include (i) rights, titles, or interests in real property or tangible
personal property located in Zhenjiang, China that is used to
manufacture CE, RE, RC, and WS model orbital motor products that, at
the Divestiture Date, are sold exclusively to
[[Page 39064]]
customers outside of the United States; (ii) rights, titles, or
interests in real property or tangible personal property located in
Nordborg, Denmark that is used to manufacture OMEWF model orbital motor
products that, at the Divestiture Date, are sold exclusively to
customers outside of the United States; or (iii) intellectual property
listed in Exhibit 1.
P. ``Eaton Divestiture Assets'' means all of Defendants' rights,
titles, and interests in and to the Eaton Orbital Motor Assets, the
Eaton Hydraulic Steering Unit Assets, and all other property and
assets, tangible and intangible, wherever located, relating to or used
in connection with the Eaton Orbital Motor Assets or the Eaton
Hydraulic Steering Unit Assets, including:
1. The Char Lynn IP License;
2. the Eaton Orbital Motor IP Licenses;
3. the Eaton Hydraulic Steering Unit IP Licenses;
4. the Eaton Divested Equipment and all other tangible personal
property, including fixed assets, machinery and manufacturing
equipment, tools, vehicles, inventory, materials, office equipment and
furniture, computer hardware, and supplies;
5. all contracts, contractual rights, and customer relationships,
and all other agreements, commitments, and understandings, including
supply agreements, teaming agreements, and leases, and all outstanding
offers or solicitations to enter into a similar arrangement;
6. all licenses, permits, certifications, approvals, consents,
registrations, waivers, and authorizations issued or granted by any
governmental organization, and all pending applications or renewals;
7. all records and data, including (a) customer lists, accounts,
sales, and credits records, (b) production, repair, maintenance, and
performance records, (c) manuals and technical information Defendants
provide to their own employees, customers, suppliers, agents, or
licensees, (d) records and research data concerning historic and
current research and development activities, including designs of
experiments and the results of successful and unsuccessful designs and
experiments, and (e) drawings, blueprints, and designs;
8. all intellectual property owned, licensed, or sublicensed,
either as licensor or licensee, including (a) patents, patent
applications, and inventions and discoveries that may be patentable,
(b) registered and unregistered copyrights and copyright applications,
and (c) registered and unregistered trademarks, trade dress, service
marks, trade names, and trademark applications; and
9. all other intangible property, including (a) commercial names
and d/b/a names, (b) technical information, (c) computer software and
related documentation, know-how, trade secrets, design protocols,
specifications for materials, specifications for parts, specifications
for devices, safety procedures (e.g., for the handling of materials and
substances), quality assurance and control procedures, and design
tools, and (d) rights in internet websites and internet domain names.
Provided, however, that the Eaton Divestiture Assets do not
include: (i) Real property, (ii) tangible property, including fixed
assets, machinery, and manufacturing equipment, used to manufacture
Eaton's Series 20 model of hydraulic steering unit products; (iii) the
Char Lynn trademark; (iv) intellectual property listed in Exhibit 2;
(v) intellectual property listed in Exhibit 3; (vi) paint line assets
used for the Eaton Orbital Motor Assets or Eaton Hydraulic Steering
Unit Assets; or (vii) at the option of Acquirer, heat treat ovens,
phosphate lines, or 80 ton broach used for the Eaton Orbital Motor
Assets; or the HMS line used for the Eaton Hydraulic Steering Unit
Assets.
Q. ``Eaton Divested Equipment'' means machining, assembly, and test
assets relating to or used in connection with the production lines used
for the Eaton Orbital Motor Assets or Eaton Hydraulic Steering Unit
Assets. Provided, however, that the Eaton Divested Equipment does not
include paint line assets used for the Eaton Orbital Motor Assets or
Eaton Hydraulic Steering Unit Assets.
R. ``Including'' means including, but not limited to.
S. ``Relevant Personnel'' means all full-time, part-time, or
contract employees of Danfoss wherever located, that the United States,
in its sole discretion, deems to be primarily involved in the design,
manufacture, or sale of Danfoss's OMP X, OMR X, OMEW, OMH, OMS, OMM,
OML, CE, RE, RC, RS, DH, DS, DT, DR, D9, HB, HK, and WS models of
orbital motor products and Danfoss's S70, OSPM, OSPP, LAGB, LAGU, LAGS,
LAGC, LAGL, and LAGZ models of hydraulic steering unit products, at any
time between January 21, 2020, and the Divestiture Date.
Provided, however, Relevant Personnel does not include employees of
Danfoss that the United States, in its sole discretion, deems to be
primarily engaged in human resources, legal, or other general or
administrative support functions. The United States, in its sole
discretion, will resolve any disagreement relating to which employees
are Relevant Personnel.
T. ``Regulatory Approvals'' means any approvals or clearances
pursuant to filings under antitrust, competition, or other U.S. or
international laws that are required for Acquirer's acquisition of the
Divestiture Assets to proceed.
U. ``Transaction'' means the proposed acquisition by Danfoss of
certain assets and equity interests from Eaton, pursuant to the Stock
and Asset Purchase Agreement between Eaton Corporation PLC as the
Seller and Danfoss A/S as the Buyer, dated January 21, 2020.
III. Applicability
A. This Final Judgment applies to Danfoss and Eaton, as defined
above, and all other persons in active concert or participation with
any Defendant who receive actual notice of this Final Judgment.
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 business units that include the
Divestiture Assets, Defendants must require any purchaser to be bound
by the provisions of this Final Judgment. Defendants need not obtain
such an agreement from Acquirer.
IV. Divestitures
A. Defendant Danfoss is ordered and directed, within sixty (60)
calendar days after the Court's entry of the Asset Preservation
Stipulation and Order in this matter, to divest the Divestiture Assets
in a manner consistent with this Final Judgment to Interpump or another
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 will notify the Court of any extensions.
B. If Defendant Danfoss has not received all Regulatory Approvals
within sixty (60) calendar days after the Court's entry of the Asset
Preservation Stipulation and Order in this matter, and Acquirer or
Defendant Danfoss has initiated contact with any governmental entity to
seek any Regulatory Approval within five (5) calendar days after the
Court's entry of the Asset Preservation Stipulation and Order in this
matter, the time period provided in Paragraph IV.A will be extended
until ten (10) calendar days after that Regulatory Approval is
received. This extension allowed for securing Regulatory Approvals may
be
[[Page 39065]]
no longer than thirty (30) calendar days past the time period provided
in Paragraph IV.A, unless the United States, in its sole discretion,
consents to an additional extension.
C. Defendants must use best efforts to divest the Divestiture
Assets as expeditiously as possible. Defendants must take no action
that would jeopardize the completion of the divestiture ordered by the
Court, including any action to impede the permitting, operation, or
divestiture of the Divestiture Assets.
D. Unless the United States otherwise consents in writing,
divestiture pursuant to this Final Judgment must include the entire
Divestiture Assets and must 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 Acquirer as part of a viable, ongoing business
of designing, manufacturing, and selling orbital motors and hydraulic
steering units for mobile off-road equipment and that the divestiture
to Acquirer will remedy the competitive harm alleged in the Complaint.
E. The divestiture must 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,
to compete effectively in the design, manufacture and sale of orbital
motors and hydraulic steering units for mobile off-road equipment.
F. The divestiture must be accomplished in a manner that satisfies
the United States, in its sole discretion, that none of the terms of
any agreement between Acquirer and Defendant Danfoss gives Defendants
the ability unreasonably to raise Acquirer's costs, to lower Acquirer's
efficiency, or otherwise interfere in the ability of Acquirer to
compete effectively in the design, manufacture, and sale of orbital
motors and hydraulic steering units for mobile off-road equipment.
G. In the event Defendant Danfoss is attempting to divest the
Divestiture Assets to an Acquirer other than Interpump, Defendant
Danfoss promptly must make known, by usual and customary means, the
availability of the Divestiture Assets. Defendant Danfoss must inform
any person making an inquiry relating to a possible purchase of the
Divestiture Assets that the Divestiture Assets are being divested in
accordance with this Final Judgment and must provide that person with a
copy of this Final Judgment. Defendants must offer to furnish to all
prospective Acquirers, subject to customary confidentiality assurances,
all information and documents relating to the Divestiture Assets that
are customarily provided in a due diligence process; provided, however,
that Defendants need not provide information or documents subject to
the attorney-client privilege or work-product doctrine. Defendants must
make all information and documents available to the United States at
the same time that the information and documents are made available to
any other person.
H. Defendants must provide prospective Acquirers with (1) access to
make inspections of the Divestiture Assets; (2) access to all
environmental, zoning, and other permitting documents and information
relating to the Divestiture Assets; and (3) access to all financial,
operational, or other documents and information relating to the
Divestiture Assets that would customarily be provided as part of a due
diligence process. Defendants also must disclose all encumbrances on
any part of the Divestiture Assets, including on intangible property.
I. Defendants must cooperate with and assist Acquirer in
identifying and, at the option of Acquirer, in hiring all Relevant
Personnel, including:
1. Within ten (10) business days following the filing of the
Complaint in this matter, Defendant Danfoss must identify all Relevant
Personnel to Acquirer and the United States, including by providing
organization charts covering all Relevant Personnel.
2. Within ten (10) business days following receipt of a request by
Acquirer, the United States, or the monitoring trustee, Defendant
Danfoss must provide to Acquirer, the United States, and the monitoring
trustee additional information relating to Relevant Personnel,
including name, job title, reporting relationships, past experience,
responsibilities, training and educational histories, relevant
certifications, and job performance evaluations. Defendant Danfoss must
also provide to Acquirer, the United States, and the monitoring trustee
information relating to the current and accrued compensation and
benefits of Relevant Personnel, including most recent bonuses paid,
aggregate annual compensation, current target or guaranteed bonus, if
any, any retention agreement or incentives, and any other payments due,
compensation or benefit accrued, or promises made to the Relevant
Personnel. If Defendant Danfoss is barred by any applicable law from
providing any of this information, Defendant Danfoss must provide,
within ten (10) business days following receipt of the request, the
requested information to the full extent permitted by law and also must
provide a written explanation of Defendant Danfoss's inability to
provide the remaining information, including specifically identifying
the provisions of the applicable laws.
3. At the request of Acquirer, Defendants must promptly make
Relevant Personnel available for private interviews with Acquirer
during normal business hours at a mutually agreeable location.
4. Defendants must not interfere with any effort by Acquirer to
employ any Relevant Personnel. Interference includes offering to
increase the compensation or improve the benefits of Relevant Personnel
unless (a) the offer is part of a company-wide increase in compensation
or improvement in benefits that was announced prior to January 21, 2020
or (b) the offer is approved by the United States in its sole
discretion. Defendants' obligations under this Paragraph will expire
six (6) months after the Divestiture Date.
5. For Relevant Personnel who elect employment with Acquirer within
one hundred-eighty (180) calendar days of the Divestiture Date,
Defendant Danfoss must waive all non-compete and non-disclosure
agreements; vest and pay to the Relevant Personnel (or to Acquirer for
payment to the employee) on a prorated basis any bonuses, incentives,
other salary, benefits or other compensation fully or partially accrued
at the time of the transfer of the employee to Acquirer; vest any
unvested pension and other equity rights; and provide all other
benefits that those Relevant Personnel otherwise would have been
provided had the Relevant Personnel continued employment with
Defendants, including any retention bonuses or payments. Defendants may
maintain reasonable restrictions on disclosure by Relevant Personnel of
Defendants' proprietary non-public information that is unrelated to the
design, manufacture, and sale of orbital motors and hydraulic steering
units and not otherwise required to be disclosed by this Final
Judgment.
J. Defendant Danfoss must warrant to Acquirer that (1) the
Divestiture Assets will be operational and without material defect on
the date of their transfer to Acquirer; (2) there are no material
defects in the environmental, zoning, or other permits relating to the
operation of the Divestiture Assets; and (3) Defendant Danfoss has
disclosed all encumbrances on any part of the Divestiture Assets,
including on intangible property. Following the sale of the Divestiture
Assets, Defendants must not undertake, directly or indirectly,
challenges to the environmental, zoning, or other permits
[[Page 39066]]
relating to the operation of the Divestiture Assets.
K. Defendants must assign, subcontract, or otherwise transfer all
contracts, agreements, and customer relationships (or portions of such
contracts, agreements, and customer relationships) included in the
Divestiture Assets, including all supply and sales contracts, to
Acquirer; provided, however, that for any contract or agreement that
requires the consent of another party to assign, subcontract, or
otherwise transfer, Defendants must use best efforts to accomplish the
assignment, subcontracting, or transfer. Defendants must not interfere
with any negotiations between Acquirer and a contracting party.
L. Defendants must use best efforts to assist Acquirer to obtain
all necessary licenses, registrations, and permits to operate the
Divestiture Assets. Until Acquirer obtains the necessary licenses,
registrations, and permits, Defendants must provide Acquirer with the
benefit of Defendants' licenses, registrations, and permits to the full
extent permissible by law.
M. Within twelve (12) months after the Court's entry of the Asset
Preservation Stipulation and Order in this matter, Defendants must
relocate the Eaton Divested Equipment to one or more locations as
specified by Acquirer. In order to fulfill this obligation, the Eaton
Divested Equipment must be fully operational at the new location(s).
The United States, in its sole discretion, may agree to one or more
extensions of this time period not to exceed six (6) months in total.
N. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date,
Defendant Danfoss must enter into a supply contract or contracts for
heat treatment services for the Danfoss Divestiture Assets located in
Wroclaw, Poland; gerotors for Eaton's S10 model of hydraulic steering
units; spools, sleeves, and gear sets for Danfoss's OSPP model of
hydraulic steering units; shafts for Danfoss's OMS model of orbital
motors; and the components for Eaton's HP30 2-speed model 22 orbital
motor product listed in Exhibit 4, sufficient to meet Acquirer's needs,
as determined by Acquirer, for a period of up to twelve (12) months, on
terms and conditions reasonably related to market conditions for the
supply of heat treatment services, gerotors, spools, sleeves, gear
sets, shafts, and the components listed in Exhibit 4. Any amendment to
or modification of any provision of any such supply contract is subject
to approval by the United States, in its sole discretion. The United
States, in its sole discretion, may approve one or more extensions of
any supply contract for a total of up to an additional six (6) months.
If Acquirer seeks an extension of the term of any supply contract,
Defendants must notify the United States in writing at least sixty (60)
days prior to the date the supply contract expires. Acquirer may
terminate a supply contract, or any portion of a supply contract,
without cost or penalty at any time upon commercially reasonable
notice.
O. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date,
Defendants must enter into a supply contract for HP 30, VIS 30, VIS 40,
and VIS 45 models of orbital motor products and S10 and S20 models of
hydraulic steering unit products sufficient to meet Acquirer's needs,
as determined by Acquirer, for a period of up to eighteen (18) months,
on terms and conditions reasonably related to market conditions for the
supply of HP/VIS orbital motors and S10 and S20 Hydraulic Steering
Units. Any amendment to or modification of any provision of any such
supply contract is subject to approval by the United States, in its
sole discretion. The United States, in its sole discretion, may approve
one or more extensions of any supply contract for a total of up to an
additional six (6) months. If Acquirer seeks an extension of the term
of any supply contract, Defendants must notify the United States in
writing at least sixty (60) days prior to the date the supply contract
expires. Acquirer may terminate a supply contract, or any portion of a
supply contract, without cost or penalty at any time upon commercially
reasonable notice.
P. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date,
Defendant Danfoss must enter into a contract to provide transition
services for back office, accounting, human resources, information
technology services and support, and employee health and safety for the
Divestiture Assets, and technical training services and support for the
Eaton Divestiture Assets for a period of up to twelve (12) months on
terms and conditions reasonably related to market conditions for the
provision of the transition services. Any amendment to or modification
of any provision of a contract to provide transition services is
subject to approval by the United States, in its sole discretion. The
United States, in its sole discretion, may approve one or more
extensions of any contract for transition services for a total of up to
an additional six (6) months. If Acquirer seeks an extension of the
term of any contract for transition services, Defendants must notify
the United States in writing at least three (3) months prior to the
date the contract expires. Acquirer may terminate a contract for
transition services, or any portion of a contract for transition
services, without cost or penalty at any time upon commercially
reasonable written notice. The employee(s) of Defendants tasked with
providing transition services must not share any competitively
sensitive information of Acquirer with any other employee of
Defendants.
Q. For a period of one (1) year following the Divestiture Date,
Defendants must not initiate customer-specific communications to
solicit any customer for the portion of that customer's business
covered by a contract, agreement, or relationship (or portion thereof)
that is included in the Divestiture Assets; provided, however, that:
(1) Defendants may respond to inquiries initiated by customers and
enter into negotiations at the request of such customers (including
responding to requests for quotation or proposal) to supply any
business, whether or not such business was included in the Divestiture
Assets; and (2) Defendants must maintain a log of telephonic,
electronic, in-person, and other communications that constitute
inquiries or requests from customers within the meaning of this
Paragraph and make it available to the United States for inspection
upon request. The United States, in its sole discretion, may agree to
one or more extensions of this time period not to exceed six (6) months
in total.
R. If any term of an agreement between Defendants and Acquirer,
including an agreement to effectuate the divestiture required by this
Final Judgment, varies from a term of this Final Judgment, to the
extent that Defendants cannot fully comply with both, this Final
Judgment determines Defendants' obligations.
V. Appointment of Divestiture Trustee
A. If Defendants have not divested the Divestiture Assets within
the period specified in Paragraph IV.A, Defendants must immediately
notify the United States of that fact in writing. Upon application of
the United States, which Defendants may not oppose, the Court will
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 by the Court,
only the divestiture trustee will have the right to
[[Page 39067]]
sell the Divestiture Assets. The divestiture trustee will have the
power and authority to accomplish the divestiture to an Acquirer
acceptable to the United States, in its sole discretion, at a price and
on terms obtainable through reasonable effort by the divestiture
trustee, subject to the provisions of Sections IV, V, and VI of this
Final Judgment, and will have other powers as the Court deems
appropriate. The divestiture trustee must sell the Divestiture Assets
as quickly as possible.
C. Defendants may not object to a sale by the divestiture trustee
on any ground other than malfeasance by the divestiture trustee.
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 of proposed divestiture
required by Section VI.
D. The divestiture trustee will serve at the cost and expense of
Defendant Danfoss pursuant to a written agreement, on terms and
conditions, including confidentiality requirements and conflict of
interest certifications, approved by the United States in its sole
discretion.
E. The divestiture trustee may hire at the cost and expense of
Defendant Danfoss any agents or consultants, including investment
bankers, attorneys, and accountants, that are reasonably necessary in
the divestiture trustee's judgment to assist with the divestiture
trustee's duties. These agents or consultants will be accountable
solely to the divestiture trustee and will serve on terms and
conditions, including confidentiality requirements and conflict-of-
interest certifications, approved by the United States in its sole
discretion.
F. The compensation of the divestiture trustee and agents or
consultants hired by the divestiture trustee must 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. If the divestiture trustee and Defendant Danfoss are
unable to reach agreement on the divestiture trustee's compensation or
other terms and conditions of engagement within fourteen (14) calendar
days of the appointment of the divestiture trustee by the Court, the
United States, in its sole discretion, may take appropriate action,
including by making a recommendation to the Court. Within three (3)
business days of hiring an agent or consultant, the divestiture trustee
must provide written notice of the hiring and rate of compensation to
Defendant Danfoss and the United States.
G. The divestiture trustee must account for all monies derived from
the sale of the Divestiture Assets sold by the divestiture trustee and
all costs and expenses so incurred. Within thirty (30) calendar days of
the Divestiture Date, the divestiture trustee must submit that
accounting to the Court for approval. After approval by the Court of
the divestiture trustee's accounting, including fees for unpaid
services and those of agents or consultants hired by the divestiture
trustee, all remaining money must be paid to Defendant Danfoss and the
trust will then be terminated.
H. Defendants must use best efforts to assist the divestiture
trustee to accomplish the required divestiture. Subject to reasonable
protection for trade secrets, other confidential research, development,
or commercial information, or any applicable privileges, Defendants
must provide the divestiture trustee and agents or consultants retained
by the divestiture trustee with full and complete access to all
personnel, books, records, and facilities of the Divestiture Assets.
Defendants also must provide or develop financial and other information
relevant to the Divestiture Assets that the divestiture trustee may
reasonably request. Defendants must not take any action to interfere
with or to impede the divestiture trustee's accomplishment of the
divestiture.
I. The divestiture trustee must maintain complete records of all
efforts made to sell the Divestiture Assets, including by filing
monthly reports with the United States setting forth the divestiture
trustee's efforts to accomplish the divestiture ordered by this Final
Judgment. The reports must 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 must describe in detail each
contact.
J. If the divestiture trustee has not accomplished the divestiture
ordered by this Final Judgment within six (6) months of appointment,
the divestiture trustee must promptly provide the United States with 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
for completing the divestiture. Following receipt of that report, the
United States may make additional recommendations to the Court. The
Court thereafter may enter such orders as it deems appropriate to carry
out the purpose of this Final Judgment, which may include extending the
trust and the term of the divestiture trustee's appointment by a period
requested by the United States.
K. The divestiture trustee will serve until divestiture of all
Divestiture Assets is completed or for a term otherwise ordered by the
Court.
L. If the United States determines that the divestiture trustee is
not acting diligently or in a reasonably cost-effective manner, the
United States may recommend that the Court appoint a substitute
divestiture trustee.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
agreement with an Acquirer other than Interpump to divest the
Divestiture Assets, Defendants or the divestiture trustee, whichever is
then responsible for effecting the divestiture, must notify the United
States of the proposed divestiture. If the divestiture trustee is
responsible for completing the divestiture, the divestiture trustee
also must notify Defendants. The notice must 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.
B. Within fifteen (15) calendar days of receipt by the United
States of the notice required by Paragraph VI.A, the United States may
request from Defendants, the proposed Acquirer, other third parties, or
the divestiture trustee additional information concerning the proposed
divestiture, the proposed Acquirer, and other prospective Acquirers.
Defendants and the divestiture trustee must furnish the additional
information requested within fifteen (15) calendar days of the receipt
of the request, unless the United States provides written agreement to
a different period.
C. Within forty-five (45) calendar days after receipt of the notice
required by Paragraph VI.A or within twenty (20) calendar days after
the United States has been provided the additional information
requested pursuant to Paragraph VI.B, whichever is later, the United
States will provide written notice to Defendants and any divestiture
[[Page 39068]]
trustee that states whether the United States, in its sole discretion,
objects to the proposed Acquirer or any other aspect of the proposed
divestiture. Without written notice that the United States does not
object, a divestiture may not be consummated. 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. Upon objection by
Defendants pursuant to Paragraph V.C, a divestiture by the divestiture
trustee may not be consummated unless approved by the Court.
D. No information or documents obtained pursuant to this Section
may 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
evaluating a proposed Acquirer or securing compliance with this Final
Judgment, or as otherwise required by law.
E. In the event of a request by a third party for disclosure of
information under the Freedom of Information Act, 5 U.S.C. 552, the
United States Department of Justice's Antitrust Division will act in
accordance with that statute, and the Department of Justice regulations
at 28 CFR part 16, including the provision on confidential commercial
information, at 28 CFR 16.7. Persons submitting information to the
Antitrust Division should designate the confidential commercial
information portions of all applicable documents and information under
28 CFR 16.7. Designations of confidentiality expire ten (10) years
after submission, ``unless the submitter requests and provides
justification for a longer designation period.'' See 28 CFR 16.7(b).
F. If at the time that a person furnishes information or documents
to the United States pursuant to this Section, that person represents
and identifies in writing information or documents for which a claim of
protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules
of Civil Procedure, and marks each pertinent page of such material,
``Subject to claim of protection under Rule 26(c)(1)(G) of the Federal
Rules of Civil Procedure,'' the United States must give that person ten
(10) calendar days' notice before divulging the material in any legal
proceeding (other than a grand-jury proceeding).
VII. Financing
Defendants may not finance all or any part of Acquirer's purchase
of all or part of the Divestiture Assets.
VIII. Asset Preservation
Defendants must take all steps necessary to comply with the Asset
Preservation Stipulation and Order entered 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 required by this Final Judgment has been completed,
each Defendant must deliver to the United States an affidavit, signed
by each Defendant's Chief Financial Officer and General Counsel,
describing in reasonable detail the fact and manner of that Defendant's
compliance with this Final Judgment. The United States, in its sole
discretion, may approve different signatories for the affidavits.
Defendant Eaton's obligations under this Paragraph IX.A shall cease
thirty (30) calendar days after the closing of the Transaction.
B. Each affidavit required by Paragraph IX.A must include: (1) 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, an
interest in the Divestiture Assets, and describe in detail each contact
with such persons during that period; (2) a description of the efforts
Defendants have taken to solicit buyers for and complete the sale of
the Divestiture Assets and to provide required information to
prospective Acquirers; and (3) a description of any limitations placed
by Defendants on information provided to prospective Acquirers.
Objection by the United States to information provided by Defendants to
prospective Acquirers must be made within fourteen (14) calendar days
of receipt of the affidavit, except that the United States may object
at any time if the information set forth in the affidavit is not true
or complete.
C. Defendants must keep all records of any efforts made to divest
the Divestiture Assets until one (1) year after the Divestiture Date.
D. Within twenty (20) calendar days of the filing of the Complaint
in this matter, each Defendant must deliver to the United States an
affidavit signed by that Defendant's Chief Financial Officer and
General Counsel that describes in reasonable detail all actions that
Defendant has taken and all steps that Defendant has implemented on an
ongoing basis to comply with Section VIII of this Final Judgment. The
United States, in its sole discretion, may approve different
signatories for the affidavits.
E. If a Defendant makes any changes to the actions and steps
described in affidavits provided pursuant to Paragraph IX.D, the
Defendant must, within fifteen (15) calendar days after any change is
implemented, deliver to the United States an affidavit describing those
changes.
F. Defendants must keep all records of any efforts made to comply
with Section VIII until one (1) year after the Divestiture Date.
X. Appointment of Monitoring Trustee
A. Upon application of the United States, which Defendants may not
oppose, the Court will appoint a monitoring trustee selected by the
United States and approved by the Court.
B. The monitoring trustee will have the power and authority to
monitor Defendants' compliance with the terms of this Final Judgment
and the Asset Preservation Stipulation and Order entered by the Court
and will have other powers as the Court deems appropriate. The
monitoring trustee will have no responsibility or obligation for
operation of the Divestiture Assets.
C. Defendants may not object to actions taken by the monitoring
trustee in fulfillment of the monitoring trustee's responsibilities
under any Order of the Court on any ground other than malfeasance by
the monitoring trustee. Objections by Defendants must be conveyed in
writing to the United States and the monitoring trustee within ten (10)
calendar days of the monitoring trustee's action that gives rise to
Defendants' objection.
D. The monitoring trustee will serve at the cost and expense of
Defendant Danfoss pursuant to a written agreement, on terms and
conditions, including confidentiality requirements and conflict of
interest certifications, approved by the United States in its sole
discretion.
E. The monitoring trustee may hire, at the cost and expense of
Defendant Danfoss, any agents and consultants, including investment
bankers, attorneys, and accountants, that are reasonably necessary in
the monitoring trustee's judgment to assist with the monitoring
trustee's duties. These agents or consultants will be solely
accountable to the monitoring trustee and will serve on terms and
conditions, including confidentiality requirements
[[Page 39069]]
and conflict-of-interest certifications, approved by the United States
in its sole discretion.
F. The compensation of the monitoring trustee and agents or
consultants retained by the monitoring trustee must be on reasonable
and customary terms commensurate with the individuals' experience and
responsibilities. If the monitoring trustee and Defendant Danfoss are
unable to reach agreement on the monitoring trustee's compensation or
other terms and conditions of engagement within fourteen (14) calendar
days of the appointment of the monitoring trustee, the United States,
in its sole discretion, may take appropriate action, including by
making a recommendation to the Court. Within three (3) business days of
hiring any agents or consultants, the monitoring trustee must provide
written notice of the hiring and the rate of compensation to Defendant
Danfoss and the United States.
G. The monitoring trustee must account for all costs and expenses
incurred.
H. Defendants must use best efforts to assist the monitoring
trustee to monitor Defendants' compliance with their obligations under
this Final Judgment and the Asset Preservation Stipulation and Order.
Subject to reasonable protection for trade secrets, other confidential
research, development, or commercial information, or any applicable
privileges, Defendants must provide the monitoring trustee and any
agents or consultants retained by the monitoring trustee with full and
complete access to all personnel, books, records, and facilities of the
Divestiture Assets. Defendants may not take any action to interfere
with or to impede accomplishment of the monitoring trustee's
responsibilities.
I. The monitoring trustee must investigate and report on
Defendants' compliance with this Final Judgment and the Asset
Preservation Stipulation and Order, including compliance with all
supply and transition service agreements and progress of production
line transfers. The monitoring trustee must provide periodic reports to
the United States setting forth Defendants' efforts to comply with
their obligations under this Final Judgment and under the Asset
Preservation Stipulation and Order. The United States, in its sole
discretion, will set the frequency of the monitoring trustee's reports.
J. The monitoring trustee will serve until the divestiture of all
the Divestiture Assets is finalized pursuant to either Section IV or
Section V of this Final Judgment, Defendants have complied with the
terms of the transition services agreements and supply contracts
provided for in Paragraphs IV.N, IV.O, and IV.P of this Final Judgment,
and Defendants have fulfilled all their obligations under Paragraphs
IV.M and IV.Q of this Final Judgment, unless the United States, in its
sole discretion, determines a different period is appropriate.
K. If the United States determines that the monitoring trustee is
not acting diligently or in a reasonably cost-effective manner, the
United States may recommend that the Court appoint a substitute.
XI. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment or of related orders such as the Asset Preservation
Stipulation and Order or of determining whether this Final Judgment
should be modified or vacated, upon written request of an authorized
representative of the Assistant Attorney General for the Antitrust
Division, and reasonable notice to Defendants, Defendants must permit,
from time to time and subject to legally recognized privileges,
authorized representatives, including agents retained by the United
States:
1. To have 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, relating to any matters contained in this Final Judgment. The
interviews must 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 for the Antitrust Division, Defendants must
submit written reports or respond to written interrogatories, under
oath if requested, relating to any matters contained in this Final
Judgment.
C. No information or documents obtained by the United States
pursuant to this Section may 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. In the event of a request by a third party for disclosure of
information under the Freedom of Information Act, 5 U.S.C. 552, the
Antitrust Division will act in accordance with that statute, and the
Department of Justice regulations at 28 CFR part 16, including the
provision on confidential commercial information, at 28 CFR 16.7.
Defendants submitting information to the Antitrust Division should
designate the confidential commercial information portions of all
applicable documents and information under 28 CFR 16.7. Designations of
confidentiality expire ten (10) years after submission, ``unless the
submitter requests and provides justification for a longer designation
period.'' See 28 CFR 16.7(b).
E. If at the time that Defendants furnish information or documents
to the United States pursuant to this Section, Defendants represent and
identify in writing information or documents for 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,'' the United States must give
Defendants ten (10) calendar days' notice before divulging the material
in any legal proceeding (other than a grand jury proceeding).
XII. Firewall
A. For a period of two (2) years following the filing of this
Proposed Final Judgment, Defendants must implement and maintain
procedures to prevent any employees of Defendants from sharing
competitively sensitive information relating to the Divestiture Assets
with personnel of Defendants with responsibilities relating to
Danfoss's or Eaton's design, manufacture, and sale of hydraulic orbital
motors or hydraulic steering units.
B. Defendants, within thirty (30) calendar days of the Court's
entry of the Asset Preservation Stipulation and Order, must submit to
the United States a document setting forth in detail the procedures
implemented to effect compliance with this Section. Upon receipt of the
document, the United States will inform Defendants within ten (10)
business days whether, in its sole discretion, the United States
approves or rejects Defendants' compliance plan. Within ten (10)
business days of receiving a notice of rejection, Defendants must
submit a revised compliance plan. The United
[[Page 39070]]
States may request that the Court determine whether Defendants'
proposed compliance plan fulfills the requirements of Paragraph XII.A.
XIII. Limitations on Reacquisitions
Defendants may not reacquire any part of or any interest in the
Divestiture Assets during the term of this Final Judgment without prior
authorization of the United States.
XIV. 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.
XV. 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 a civil contempt
action, a motion to show cause, or a similar action brought by the
United States relating to an alleged violation of this Final Judgment,
the United States may establish a violation of this Final Judgment and
the appropriateness of a 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 the
competition the United States alleges 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 an enforcement proceeding in which the Court finds that
Defendants have violated this Final Judgment, the United States may
apply to the Court for an extension of this Final Judgment, together
with other relief that may be appropriate. In connection with a
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 all other costs including
experts' fees, incurred in connection with that effort to enforce this
Final Judgment, including in the investigation of the potential
violation.
D. For a period of four (4) years following the expiration of this
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 (4) years following
the filing of the enforcement action; (2) all appropriate contempt
remedies; (3) additional relief needed to ensure the Defendant complies
with the terms of this Final Judgment; and (4) fees or expenses as
called for by this Section.
XVI. Expiration of Final Judgment
Unless the Court grants an extension, this Final Judgment will
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 continuation of this Final
Judgment is no longer necessary or in the public interest.
XVII. 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 by making available to the
public copies of this Final Judgment and the Competitive Impact
Statement, public comments thereon, and any response to comments by the
United States. Based upon the record before the Court, which includes
the Competitive Impact Statement and, if applicable, 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
-----------------------------------------------------------------------
United States District Judge
Exhibit 1--Danfoss Hydraulic Steering Unit Licenses Granted to Acquirer
----------------------------------------------------------------------------------------------------------------
Patent No. Title Country Grant date
----------------------------------------------------------------------------------------------------------------
EP 1 910 151..................... Electrohydraulic Steering System Denmark............. 6-Oct-10.
with Cut-Off Valve and Sensor.
EP 1 910 151..................... Electrohydraulic Steering System France.............. 6-Oct-10.
with Cut-Off Valve and Sensor.
EP 1 910 151..................... Electrohydraulic Steering System Germany............. 6-Oct-10.
with Cut-Off Valve and Sensor.
EP 1 910 151..................... Electrohydraulic Steering System Great Britain....... 6-Oct-10.
with Cut-Off Valve and Sensor.
EP 1 910 151..................... Electrohydraulic Steering System Italy............... 6-Oct-10.
with Cut-Off Valve and Sensor.
CN 101233040..................... Electrohydraulic Steering System China............... 12-Oct-11.
with Cut-Off Valve and Sensor.
US 7,677,351..................... Electrohydraulic Steering System USA................. 16-Mar-10.
with Cut-Off Valve and Sensor.
3410349.......................... Plug............................... European Design..... 7-Oct-16.
304354829........................ Plug............................... China............... 14-Nov-17.
----------------------------------------------------------------------------------------------------------------
Exhibit 2--Eaton Orbital Motor Licenses Granted to Acquirer
----------------------------------------------------------------------------------------------------------------
Patent No. Title Country Grant date
----------------------------------------------------------------------------------------------------------------
201380038257.X................... COMBINED MOTOR AND BRAKE ROTATING China............... 28-Dec-16.
BRAKE-RELEASE PISTON.
2895739.......................... COMBINED MOTOR AND BRAKE ROTATING European Patent
BRAKE-RELEASE PISTON. Convention.
6214652.......................... COMBINED MOTOR AND BRAKE ROTATING Japan............... 29-Sep-17.
BRAKE-RELEASE PISTON.
9175563.......................... COMBINED MOTOR AND BRAKE WITH United States....... 3-Nov-15.
ROTATING BRAKE-RELEASE PISTON.
[[Page 39071]]
EP2875237........................ FREEWHEEL HYDRAULIC MOTOR.......... European Patent 28-Mar-18.
Convention.
602013035067.1................... FREEWHEEL HYDRAULIC MOTOR.......... Germany............. 28-Mar-18.
EP2875237........................ FREEWHEEL HYDRAULIC MOTOR.......... Great Britain....... 28-Mar-18.
502018000016462.................. FREEWHEEL HYDRAULIC MOTOR.......... Italy............... 28-Mar-18.
9551222.......................... FREEWHEEL HYDRAULIC MOTOR.......... United States....... 24-Jan-17.
----------------------------------------------------------------------------------------------------------------
Exhibit 3--Eaton Hydraulic Steering Unit Licenses to Acquirer
----------------------------------------------------------------------------------------------------------------
Patent No. Title Country Grant date
----------------------------------------------------------------------------------------------------------------
6769249.......................... LOW SLIP STEERING SYSTEM AND United States....... 3-Aug-03.
IMPROVED FLUID CONTROLLER THEREFOR.
6769451.......................... POWER BEYOND STEERING UNIT WITH United States....... 3-Aug-03.
BYPASS.
6782698.......................... STEERING CONTROL UNIT WITH LOW NULL United States....... 31-Aug-03.
BAND LOAD SENSING BOOST.
EP2250068........................ FLUID CONTROLLER WITH MULTIPLE Denmark............. 10-Jul-13.
FLUID METERS.
EP2250068........................ FLUID CONTROLLER WITH MULTIPLE France.............. 10-Jul-13.
FLUID METERS.
602009017015.5................... FLUID CONTROLLER WITH MULTIPLE Germany............. 10-Jul-13.
FLUID METERS.
EP2250068........................ FLUID CONTROLLER WITH MULTIPLE Great Britain....... 10-Jul-13.
FLUID METERS.
EP2250068........................ FLUID CONTROLLER WITH MULTIPLE Italy............... 10-Jul-13.
FLUID METERS.
EP2250068........................ FLUID CONTROLLER WITH MULTIPLE Spain............... 10-Jul-13.
FLUID METERS.
8225603.......................... FLUID CONTROLLER WITH MULTIPLE United States....... 24-Jul-12.
FLUID METERS.
3010785B1........................ FLUID CONTROLLER WITH LOAD SENSE European Patent 17-Jun-14.
AND FLOW AMPLIFICATION. Convention.
9920776.......................... FLUID CONTROLLER WITH LOAD SENSE United States....... 20-Mar-18.
AND FLOW AMPLIFICATION.
4725695.......................... FLUID CONTROLLER AND FLUID METER Japan............... 22-Apr-11.
BYPASS ARRANGEMENT.
529996........................... FLUID CONTROLLER AND FLUID METER South Korea......... 14-Nov-11.
BYPASS ARRANGEMENT.
----------------------------------------------------------------------------------------------------------------
Exhibit 4--Orbital Motor Components for Eaton's HP30 2-Speed Model 22
Orbital Motor Product
------------------------------------------------------------------------
Component part No. Part description
------------------------------------------------------------------------
8483-000.................................. Shaft.
8731-000.................................. Front Retainer.
6037923-001............................... Bearing Housing.
202879-004................................ Drive Spacer.
5992182-008............................... Drive.
5992182-010............................... Drive.
9004-002.................................. Quad Ring.
8732-000.................................. Backup Washer.
6212-000.................................. Dust Seal.
6037922-001............................... Adapter Plate.
6181-000.................................. Bearing Spacer.
9001-002.................................. Thrust Bearing Washer.
9001-003.................................. Thrust Bearing Washer.
9001-004.................................. Thrust Washer.
9002-003.................................. Thrust Bearing.
9002-004.................................. Thrust Bearing.
9003-002.................................. Radial Bearing.
16292-100................................. Cap Screw.
15045-000................................. Seal.
25001-046................................. O Ring.
------------------------------------------------------------------------
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Danfoss A/S, and Eaton
Corporation PLC, Defendants.
Civil Action No.: 1:21-cv-1880-CJN
Competitive Impact Statement
In accordance with the Antitrust Procedures and Penalties Act, 15
U.S.C. 16(b)-(h) (the ``APPA'' or ``Tunney Act''), the United States of
America files this Competitive Impact Statement relating to the
proposed Final Judgment filed in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On January 21, 2020, Defendant Danfoss A/S (``Danfoss'') entered
into a binding agreement with Defendant Eaton Corporation (``Eaton'')
to acquire Eaton's hydraulics business for approximately $3.3 billion
in cash. The United States filed a civil antitrust Complaint on July
14, 2021 seeking to enjoin the proposed transaction. The Complaint
alleges that the likely effect of this transaction would be to
substantially lessen competition in the design, manufacture, and sale
of orbital motors and hydraulic steering units in the United States in
violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
At the same time the Complaint was filed, the United States filed a
proposed Final Judgment and an Asset Preservation Stipulation and Order
(``Stipulation and Order''), which are designed to remedy the loss of
competition alleged in the Complaint.
Under the proposed Final Judgment, which is explained more fully
below, Defendant Danfoss is required to divest the following assets:
The Danfoss Orbital Motor Business; the Danfoss Steering Unit Business;
the Eaton Orbital Motor Assets; the Eaton Steering Unit Assets, and
certain Intellectual Property (collectively ``The Divestiture
Assets''). Under the terms of the Stipulation and Order, Defendants
must take certain steps to ensure that the Divestiture Assets that must
be divested are operated as ongoing, economically viable, competitive
Divestiture Assets for the design, manufacture, and sale of orbital
motors and steering units and must take all other actions to preserve
and maintain the full economic viability, marketability, and
competitiveness of the Divestiture Assets to be divested.
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 will terminate this action, except that the
Court will retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
[[Page 39072]]
II. Description of Events Giving Rise to the Alleged Violation
(A) The Defendants and the Proposed Transaction
Danfoss and Eaton are global corporations based in Nordborg,
Denmark and Dublin, Ireland, respectively, that manufacture components
of hydraulic power systems for industrial and agricultural use.
Defendants' hydraulic components make it possible to steer, propel, and
operate equipment used to pave roads, harvest produce, construct
buildings, and perform other heavy industrial and agricultural tasks
across the United States every day. Pursuant to a Transaction Agreement
dated January 21, 2020, Danfoss intends to acquire Eaton's hydraulics
business for approximately $3.3 billion.
(B) The Competitive Effects of the Transaction
The Complaint alleges that the transaction as proposed will lead to
anticompetitive effects in the markets for the design, manufacture, and
sale of hydraulic orbital motors (``orbital motors'') and hydraulic
steering units (``steering units'').
a. Relevant Product Markets
The Complaint alleges that orbital motors for mobile off-road
equipment and steering units for mobile off-road equipment are lines of
commerce, or relevant product markets, for purposes of analyzing the
effects of the acquisition under Section 7 of the Clayton Act, 15
U.S.C. 18. Orbital motors, also called ``low-speed, high-torque''
motors, are a low-cost way to move heavy loads in a slow, and thus
controlled, way. Steering units direct hydraulic fluid in response to
commands from equipment operators and are necessary for any hydraulic
steering system to function.
In the event of a small but significant increase in price by a
hypothetical monopolist of orbital motors, the Complaint alleges that
substitution away from orbital motors would be insufficient to render
the price increase unprofitable. Other technologies, such as vane,
gear, piston, or electric motors, do not offer the same level of
performance, are less efficient, or cost more than an orbital motor.
Therefore, these technologies are not reasonable substitutes for
orbital motors. Orbital motors for mobile off-road equipment are
therefore a line of commerce, or relevant product market, for purposes
of analyzing the effects of the acquisition under Section 7 of the
Clayton Act, 15 U.S.C. 18.
Similarly, in the event of a small but significant increase in
price by a hypothetical monopolist of steering units, the Complaint
alleges that substitution away from steering units would be
insufficient to render the price increase unprofitable. Electric
steering technology--the only alternative steering system that does not
require a hydraulic steering unit--is largely unproven and more
expensive than hydraulic steering technology. The switching costs from
hydraulic steering to electric steering are high and would require a
costly redesign by Original Equipment Manufacturers (``OEMs'').
Steering units for mobile off-road equipment are therefore a line of
commerce, or relevant product market, for purposes of analyzing the
effects of the acquisition under Section 7 of the Clayton Act, 15
U.S.C. 18.
b. Relevant Geographic Markets
The Complaint alleges that OEMs located in the United States wish
to avoid business disruption and cannot reasonably turn to suppliers
without a U.S. presence for the supply of orbital motors or steering
units for mobile off-road equipment. Long lead times due to
international shipping and unexpected delays in the delivery of
products can cause significant business disruption. Customers similarly
require that suppliers warehouse new and replacement parts to avoid
costly delays or interruptions to business operations and expect local
service and support from suppliers. Thus, a hypothetical monopolist of
orbital motors or steering units sold in the United States could
profitably impose a small but significant non-transitory increase in
price for orbital motors or steering units without losing sufficient
sales to render the price increase unprofitable. Nor would the price
increase be defeated by arbitrage, e.g., by OEMs purchasing through
subsidiaries located outside the United States. Accordingly, the
relevant geographic market for purposes of analyzing the effects of the
acquisition on orbital motors and steering units for mobile off-road
equipment under Section 7 of the Clayton Act, 15 U.S.C. 18, is the
United States.
c. Anticompetitive Effects of the Proposed Transaction
The Complaint alleges that the transaction as proposed would lessen
competition and harm customers for orbital motors and steering units
for mobile off-road equipment in the United States. The Herfindahl-
Hirschman Index (``HHI''), as articulated in the Horizontal Merger
Guidelines issued by the Department of Justice and the Federal Trade
Commission, measures the likely anticompetitive effects of an
acquisition by assessing how concentrated a market is. The more
concentrated a market, the higher the likelihood that a transaction
will result in a meaningful reduction in competition and harm
customers. HHI calculations in the markets for both orbital motors and
steering units indicate that the proposed acquisition will result in
highly concentrated markets and is thus presumed likely to enhance
market power.
The HHI indicators of highly concentrated markets and enhanced
market power are consistent with historical head-to-head competition
between Danfoss and Eaton to supply orbital motors and steering units
for mobile off-road equipment. Danfoss and Eaton compete directly on
price, quality, product innovation, delivery, and technical service,
and the competition between them has benefited U.S. customers of
orbital motors and steering units for mobile off-road equipment.
Danfoss and Eaton have a reputation for high-quality orbital motors and
steering units, product developments that benefit OEMs, an extensive
network of distributors throughout the United States, and localized
customer support and service. As a result, Danfoss and Eaton are
considered to be the two primary--and sometimes the only two--suppliers
of orbital motors and steering units to customers in the United States.
d. Difficulty of Entry
The Complaint alleges that entry of additional competition into the
design, manufacture, and sale of orbital motors and steering units sold
in North America is unlikely to be timely, likely, or sufficient to
prevent the harm to competition caused by Danfoss's acquisition of
Eaton's hydraulics business. A new entrant must have the technical
capabilities necessary to design, manufacture, and sell orbital motors
and steering units that meet customer requirements for quality,
performance, and reliability. Additionally, a new entrant must have the
requisite scale, an established reputation, and an extensive network of
distributors to supply to all customers throughout the United States.
III. Explanation of the Proposed Final Judgment
The relief required by the proposed Final Judgment will remedy the
loss of competition alleged in the Complaint by establishing an
independent and economically viable competitor in the market for the
design, manufacture, and sale of orbital motors and steering units.
[[Page 39073]]
Paragraph IV.A of the proposed Final Judgment requires Defendant
Danfoss, within 60 days after the entry of the Stipulation and Order by
the Court, to divest the Divestiture Assets to Interpump Group S.p.A.
(``Interpump'') or an alternative acquirer acceptable to the United
States, in its sole discretion. If the 60 days expire while Defendants
are waiting for regulatory approval from U.S. or international
regulators, Paragraph IV.B extends the time allowed for the divestiture
to take place to ten calendar days after the Regulatory Approval has
been received. The extension may be no longer than 30 calendar days,
unless the United States, in its sole discretion, consents to an
additional extension.
(A) Divestiture Assets
The Divestiture Assets consist of the Danfoss Divestiture Assets
and the Eaton Divestiture Assets. Taken together, the Divestiture
Assets will form a viable, ongoing business that can compete
effectively in the hands of an acquirer approved by the United States,
in its sole discretion. The combination of product model lines from
both Defendants ensures that an acquirer will have the breadth and
scale necessary to succeed while preserving Danfoss's headquarters in
Nordborg, Denmark, which houses businesses that are not being divested.
(B) Danfoss Divestiture Assets
The Danfoss Divestiture Assets are defined in Paragraph II.O as all
tangible and intangible assets relating to or used in connection with
the Danfoss Orbital Motor Business or the Danfoss Hydraulic Steering
Unit Business--including three facilities that are located in
Hopkinsville, Kentucky; Wroclaw, Poland; and Parchim, Germany. The
Danfoss Orbital Motor Business and Danfoss Hydraulic Steering Unit
Business, in turn, are defined by model of orbital motor or steering
unit in Paragraphs II.E and II.F and comprise Danfoss's business of
designing, manufacturing, and selling these orbital motors and steering
units in the United States. The Danfoss Divestiture Assets also include
assets necessary for the acquirer to manufacture Danfoss' S70 model of
steering unit, which currently is in development. Certain assets
located in Zhenjiang, China and Nordborg, Denmark are excluded from the
Danfoss Divestiture Assets because they are not used for the orbital
motors and hydraulic units at issue for sale to U.S. customers.
(C) Eaton Divestiture Assets
The Eaton Divestiture Assets are defined in Paragraph II.P as all
tangible and intangible assets relating to or used in connection with
the Eaton Orbital Motor Assets or the Eaton Hydraulic Steering Unit
Assets. The Eaton Orbital Motor Assets and Eaton Hydraulic Steering
Unit Asset, in turn, are defined by model of orbital motor or steering
unit in Paragraphs II.H and II.I and comprise all the assets used to
manufacture these models of orbital motors and steering units. Unlike
the Danfoss Divestiture Assets, the Eaton Divestiture Assets do not
include real property. Instead, the Eaton Orbital Motor Assets and
Eaton Hydraulic Steering Unit Assets will move to the divested facility
located in Hopkinsville, KY. The Eaton Divestiture Assets will include
all fixed assets, machinery, and manufacturing equipment for the Eaton
Orbital Motor Assets and Eaton Hydraulic Steering Unit Assets except
Eaton's Series 20 model of hydraulic steering unit products. The Eaton
Divestiture Assets also do not include the transfer of paint line
assets (see Paragraph II.Q), which are instead included in the Danfoss
Divestiture Assets.
(D) Intellectual Property
With the exceptions of the intellectual property listed in Exhibits
1, 2, or 3, and the Char Lynn license, all Intellectual Property
including, but not limited to (a) patents, patent applications, and
inventions and discoveries that may be patentable, (b) registered and
unregistered copyrights and copyright applications, and (c) registered
and unregistered trademarks, trade dress, service marks, trade names,
and trademark applications will be divested to the acquirer.
The intellectual property listed in Exhibits 1, 2, and 3 is
necessary for the Divestiture Assets as well as for assets that will be
retained by Defendant Danfoss. Consequently, the acquirer will receive
worldwide, non-exclusive, royalty-free, perpetual, paid-up, irrevocable
licenses to the intellectual property listed in Exhibits 1, 2, and 3.
Likewise, the acquirer will receive a worldwide, non-exclusive,
royalty-free, perpetual, paid-up, irrevocable license to use the Char
Lynn name, which is used for certain Eaton orbital motor models. This
license will allow the acquirer to transition these products to its own
product names.
(E) Divestiture Provisions
Section IV of the proposed Final Judgment contains additional
detail about how the divestitures should be carried out. Defendants are
required to act expeditiously (Paragraph IV.C), to divest the
Divestiture Assets in such a way as to satisfy the United States, in
its sole discretion, that the Divestiture Assets will be used as a part
of a viable ongoing business and will remedy the competitive harm
alleged in the Complaint (Paragraph IV.D). The divestiture must be made
to an acquirer that, in the United States' sole judgment, has the
intent and capability to compete effectively in the design, manufacture
and sale of orbital motors and hydraulic steering units for mobile off-
road equipment (Paragraph IV.E) and must be done in such a manner that
Defendants cannot interfere in the acquirer's efforts to compete
effectively in the design, manufacture, and sale of orbital motors and
hydraulic steering units for mobile off-road equipment. If the
Divestiture Assets are divested to an acquirer other than Interpump,
Paragraphs IV.G and IV.H require Defendants to make certain information
available to the prospective acquirer, including a copy of the proposed
Final Judgment.
Paragraph IV.I of the proposed Final Judgment contains provisions
intended to facilitate the acquirer's efforts to hire certain
employees. Specifically, Paragraph IV.I of the proposed Final Judgment
requires Defendant Danfoss to provide the acquirer and the United
States with organization charts and information relating to these
employees and to make them available for interviews. It also provides
that Defendants must not interfere with any efforts by the acquirer to
hire these employees. In addition, for employees who elect employment
with the acquirer, Defendant Danfoss must waive all non-compete and
non-disclosure agreements, vest and pay to these employees (or to the
acquirer for payment to the employee) on a prorated basis any bonuses,
incentives, other salary, benefits or other compensation fully or
partially accrued at the time of the transfer of the employee to the
acquirer; vest any unvested pension or other equity rights; and provide
all other benefits that the employees would generally be provided had
those employees continued employment with Defendants, including but not
limited to any retention bonuses or payments.
Paragraph IV.J of the proposed Final Judgment ensures that the
Divestiture Assets are unencumbered and operable from the first day
that the acquirer takes ownership. Paragraph IV.L ensures that the
acquirer will receive all necessary licenses, registrations, and
permits to
[[Page 39074]]
operate the Divestiture Assets once they are transferred.
Paragraph IV.K of the proposed Final Judgment will facilitate the
transfer to the acquirer of customers and other contractual
relationships that are included within the Divestiture Assets.
Defendants must transfer all contracts, agreements, and relationships
to the acquirer and must use best efforts to assign, subcontract, or
otherwise transfer contracts or agreements that require the consent of
another party before assignment, subcontracting, or other transfer.
Paragraph IV.M of the proposed Final Judgment requires Defendants
to accomplish the move of Eaton Divested Equipment, as defined in
Paragraph II.Q, to the acquirer's preferred location within 12 months
after the Court's entry of the Stipulation and Order. In the interim,
the supply contracts mandated by Paragraph IV.O will ensure that the
acquirer can serve its new customer base without disruption. Paragraphs
IV.M and IV.O allow the United States to extend the time to move the
Eaton Divested Equipment and the terms of the supply contracts up to an
additional six months if necessary.
Paragraphs IV.N and IV.O of the proposed Final Judgment address
supply contracts between Defendant Danfoss and the acquirer. Paragraph
IV.N requires Defendant Danfoss, at the acquirer's option, to enter
into a supply contract for certain services and components, such as
heat treatment services and gerotors, sufficient to meet the acquirer's
needs, as determined by the acquirer, for a period of up to 12 months.
The acquirer may terminate the supply contract, or any portion of it,
without cost or penalty at any time upon commercially reasonable
notice, and any amendments to or modifications of any provisions of a
supply contract are subject to approval by the United States in its
sole discretion. Paragraph IV.O requires Defendants to enter into a
supply contract for certain models of orbital motor and steering unit
products, for a period of up to 18 months. Upon the acquirer's request,
the United States, in its sole discretion, may approve one or more
extensions of the supply contracts contemplated in Paragraphs IV.N and
IV.O for up to an additional six months. This provision will help to
ensure that the acquirer will not face disruption to its supply of
these input products during an important transitional period.
The proposed Final Judgment requires Defendant Danfoss to provide
certain transition services to maintain the viability and
competitiveness of the Divestiture Assets during the transition to the
acquirer. Paragraph IV.P of the proposed Final Judgment requires
Defendant Danfoss, at the acquirer's option, to enter into a transition
services agreement for back office, accounting, human resources,
information technology services and support, employee health and
safety, and technical training services and support for a period of up
to 12 months. The acquirer may terminate the transition services
agreement, or any portion of it, without cost or penalty at any time
upon commercially reasonable notice. The paragraph further provides
that the United States, in its sole discretion, may approve one or more
extensions of this transition services agreement for a total of up to
an additional 6 months and that any amendments to or modifications of
any provisions of a transition services agreement are subject to
approval by the United States in its sole discretion. Paragraph IV.P
also provides that employees of Defendants tasked with supporting this
agreement must not share any competitively sensitive information of the
acquirer with any other employee of Defendants, unless such sharing is
for the sole purpose of providing transition services to the acquirer.
Paragraph IV.Q of the proposed Final Judgment requires Defendants
to refrain for one year from soliciting customers for the portion of
the customer's business that is transferring to the acquirer.
Defendants may respond to inquiries initiated by such customers and
enter into negotiations at the request of the customers but must
maintain a log of any such inquiries and requests. This provision gives
the acquirer time to establish a performance record with new customers
without interference from Defendants. Paragraph IV.Q allows the United
States to extend the time period of this provision up to an additional
six months if necessary.
Paragraph IV.R ensures that the terms of the proposed Final
Judgment supersede any terms of agreement between Defendants and the
acquirer that are inconsistent with the proposed Final Judgment.
(F) Divestiture Trustee Provisions
If Defendants do not accomplish the divestiture within the period
prescribed in Paragraph IV.A or IV.B of the proposed Final Judgment,
Section V of the proposed Final Judgment provides that the Court will
appoint a divestiture trustee selected by the United States to effect
the divestiture. If a divestiture trustee is appointed, the proposed
Final Judgment provides that Defendant Danfoss must pay all costs and
expenses of the trustee. The divestiture trustee's compensation must be
structured so as to provide an incentive for the trustee based on the
price and terms obtained and the speed with which the divestiture is
accomplished. After the divestiture trustee's appointment becomes
effective, the trustee must provide monthly reports to the United
States setting forth his or her efforts to accomplish the divestiture.
If the divestiture has not been accomplished within six months of the
divestiture trustee's appointment, the United States may make
recommendations to the Court, which will enter such orders as
appropriate, in order to carry out the purpose of the Final Judgment,
including by extending the trust or the term of the divestiture
trustee's appointment by a period requested by the United States.
(G) Monitoring Trustee Provisions
Section X of the proposed Final Judgment provides that the United
States may appoint a monitoring trustee who will have the power and
authority to investigate and report on Defendants' compliance with the
terms of the Final Judgment and the Stipulation and Order, including
compliance with all supply and transition service agreements and
progress of production line transfers, and will have other powers as
the Court deems appropriate. The monitoring trustee will not have any
responsibility or obligation for the operation of Defendants'
businesses. The monitoring trustee will serve at Defendant Danfoss'
expense, on such terms and conditions as the United States approves,
and Defendants must assist the monitoring trustee in fulfilling his or
her obligations. The monitoring trustee will provide periodic reports
to the United States and will serve until the divestiture of all the
Divestiture Assets is finalized pursuant to either Section IV or
Section V of this Final Judgment and Defendant Danfoss has complied
with the terms of the transition services agreements and supply
contracts provided for in this Final Judgment, unless the United
States, in its sole discretion, determines a different period is
appropriate.
(H) Firewall Provision
The relocation of the Eaton Divested Equipment to a location
specified by acquirer will require Defendants' employees to train
employees of the acquirer on how to properly operate the equipment.
Section XII of the proposed Final Judgment requires Defendants to
implement and maintain a firewall to prevent the exchange of
competitively sensitive information between Defendants and the
acquirer.
[[Page 39075]]
Specifically, Defendants must implement and maintain procedures to
prevent any employees of Defendants from sharing competitively
sensitive information relating to the Divestiture Assets with personnel
of Defendants with responsibilities relating to Danfoss's or Eaton's
design, manufacture, and sale of hydraulic orbital motors or hydraulic
steering units. Such a firewall will prevent competitively sensitive
information about the Divestiture Assets from being used to influence
business decisions relating to Danfoss's or Eaton's design,
manufacturing, or sale of orbital motors or steering units. The
implementation of these procedures for a two-year period will ensure
that the information cannot be used while it is still competitively
sensitive. After two years, any information will be sufficiently out of
date to no longer pose a risk and the firewall can be eliminated. Under
Paragraph XII.B, Defendants must, within 30 days of entry of the
Stipulation and Order, submit to the United States a document setting
forth in detail the procedures each has implemented to effect
compliance with Section XII. The United States will determine, in its
sole discretion, whether to approve or reject Defendants' proposed
compliance plans.
(I) Compliance and Enforcement Provisions
The proposed Final Judgment also contains provisions designed to
promote compliance with and make enforcement of the Final Judgment as
effective as possible. Paragraph XV.A provides that the United States
retains and reserves all rights to enforce the Final Judgment,
including the right 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
with the Final Judgment with the standard of proof that applies to the
underlying offense that the Final Judgment addresses.
Paragraph XV.B provides additional clarification regarding the
interpretation of the provisions of the proposed Final Judgment. The
proposed Final Judgment is intended to remedy the loss of competition
the United States alleges would otherwise be harmed by the transaction.
Defendants agree that they will abide by the proposed Final Judgment
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 XV.C provides that if the Court finds in an enforcement
proceeding that a Defendant has violated the Final Judgment, the United
States may apply to the Court for an extension of the Final Judgment,
together with such other relief as may be appropriate. In addition, to
compensate American taxpayers for any costs associated with
investigating and enforcing violations of the Final Judgment, Paragraph
XV.C provides that, in any successful effort by the United States to
enforce the Final Judgment against a Defendant, whether litigated or
resolved before litigation, the Defendant must reimburse the United
States for attorneys' fees, experts' fees, and other costs incurred in
connection with any effort to enforce the Final Judgment, including the
investigation of the potential violation.
Paragraph XV.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. 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.
(J) Term of the Final Judgment
Finally, Section XVI of the proposed Final Judgment provides that
the Final Judgment will expire 10 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
continuation of the Final Judgment is no longer necessary or in the
public interest.
IV. Remedies Available to Potential Private Plaintiffs
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 neither impairs
nor assists 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 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 U.S.
Department of Justice, which remains free to withdraw its consent to
the proposed Final Judgment at any time before 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, the comments and the United
States' responses will be published in the Federal Register unless the
Court agrees that the United States instead may publish them on the
U.S. Department of Justice, Antitrust Division's internet website.
Written comments should be submitted in English to: Jay Owen,
Acting Chief, Defense, Industrials, and Aerospace Section, Antitrust
Division, U.S. Department of Justice, 450 Fifth Street NW, Suite 8700,
Washington, DC 20530.
[[Page 39076]]
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
As an alternative to the proposed Final Judgment, the United States
considered a full trial on the merits against Defendants. The United
States could have continued the litigation and sought preliminary and
permanent injunctions against Danfoss's acquisition of certain assets
and equity interests of Eaton's hydraulics business. The United States
is satisfied, however, that the relief required by the proposed Final
Judgment will remedy the anticompetitive effects alleged in the
Complaint, preserving competition for the design, manufacture, and sale
of orbital motors and hydraulic steering units. Thus, the proposed
Final Judgment achieves 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.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
Under the Clayton Act and APPA, proposed Final Judgments or
``consent decrees'' in antitrust cases brought by the United States are
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. 16(e)(1). In making that determination,
the Court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory
factors, the Court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); 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 a
court's review of a proposed Final 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 U.S. 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 proposed Final Judgment is
sufficiently clear, whether its enforcement mechanisms are sufficient,
and whether it may positively harm third parties. See Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by
the proposed Final Judgment, a court may not ``make de novo
determination of facts and issues.'' United States v. W. Elec. Co., 993
F.2d 1572, 1577 (D.C. Cir. 1993) (quotation marks omitted); see also
Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152 F.
Supp. 2d 37, 40 (D.D.C. 2001); United States v. Enova Corp., 107 F.
Supp. 2d 10, 16 (D.D.C. 2000); 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.'' W.
Elec. Co., 993 F.2d at 1577 (quotation marks omitted). ``The court
should bear in mind the flexibility of the public interest inquiry: The
court's function is not to determine whether the resulting array of
rights and liabilities is one that will best serve society, but only to
confirm that the resulting settlement is within the reaches of the
public interest.'' Microsoft, 56 F.3d at 1460 (quotation marks
omitted); see also United States v. Deutsche Telekom AG, No. 19-2232
(TJK), 2020 WL 1873555, at *7 (D.D.C. Apr. 14, 2020). More demanding
requirements would ``have enormous practical consequences for the
government's ability to negotiate future settlements,'' contrary to
congressional intent. Microsoft, 56 F.3d at 1456. ``The Tunney Act was
not intended to create a disincentive to the use of the consent
decree.'' Id.
The United States' predictions about 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 by 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 W. Elec. Co., 900 F.2d at 309).
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 (``[T]he
`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
[[Page 39077]]
that the United States did not pursue. Microsoft, 56 F.3d at 1459-60.
In its 2004 amendments to the APPA, Congress made clear its intent
to preserve the practical benefits of using judgments proposed by the
United States in antitrust enforcement, Public Law 108-237 Sec. 221,
and added the unambiguous instruction that ``[n]othing in this section
shall be construed to require the court to conduct an evidentiary
hearing or to require the court to permit anyone to intervene.'' 15
U.S.C. 16(e)(2); 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 Enova Corp., 107 F.
Supp. 2d at 17).
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: July 14, 2021
Respectfully submitted,
For Plaintiff United States of America:
-----------------------------------------------------------------------
REBECCA VALENTINE* (D.C. Bar #989607), Trial Attorney,
Defense, Industrials, and Aerospace Section, Antitrust Division, 450
Fifth Street NW, Suite 8700, Washington, DC 20530, Telephone: (202)
476-0432, Facsimile: (202) 514-9033, Email:
[email protected].
*Lead Attorney To Be Noticed
[FR Doc. 2021-15728 Filed 7-22-21; 8:45 am]
BILLING CODE 4410-11-P