[Federal Register Volume 88, Number 93 (Monday, May 15, 2023)]
[Notices]
[Pages 31007-31031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-10343]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. ASSA ABLOY AB, 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,
Asset Preservation Stipulation and Order, and Competitive Impact
Statement have been filed with the United States District Court for the
District of Columbia in United States of America v. ASSA ABLOY AB, et
al., Civil Action No. 22-2791-ACR. On September 15, 2022, the United
States filed a Complaint alleging that ASSA ABLOY AB's proposed
acquisition of the Hardware and Home Improvement division of Spectrum
Brands Holdings, Inc. would violate section 7 of the Clayton Act, 15
U.S.C. 18. The proposed Final Judgment, filed on May 5, 2023, requires
ASSA ABLOY to divest its EMTEK-branded business, its Schaub-branded
business, its August-branded business, and its Yale-branded multifamily
and residential smart lock business in the United States and Canada. It
also requires ASSA ABLOY and Spectrum Brands to submit to oversight by
a monitoring trustee, who will have the power and authority to monitor
ASSA ABLOY's and Spectrum Brands' compliance with the Asset
Preservation Stipulation and Order and proposed Final Judgment.
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 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,
Deputy Director Civil Enforcement Operations, 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., ASSA ABLOY AB, Klarabergsviadukten 90, Stockholm,
Sweden SE-111 64, and, Spectrum Brands Holdings, Inc., 3001 Deming
Way, Middleton, WI 53562, Defendants.
Complaint
The United States brings this antitrust lawsuit to stop Defendant
ASSA ABLOY AB (``ASSA ABLOY'') from acquiring a division of Defendant
Spectrum Brands Holdings, Inc. (``Spectrum'')--ASSA ABLOY's largest
competitor in supplying the $2.4 billion residential door hardware
industry in the United States. Foreshadowing the anticompetitive
effects of the proposed transaction, ASSA ABLOY internally predicted
that, as a result of the transaction, one of its residential door
hardware brands would be ``in a better pricing negotiation position and
can expect to increase prices.''
The Defendants are close head-to-head competitors whose rivalry has
benefitted consumers and who are part of a trio that today dominates
the concentrated U.S. residential door hardware industry. But this
entrenched position was not enough for ASSA ABLOY, whose CEO insisted
just last year that the company ``ha[s] to make sure we stop or buy''
competitors before they ``can grow.'' For ASSA ABLOY, which has a long
history of buying firms in the industry, purchasing Spectrum's Hardware
and Home Improvement division (``Spectrum HHI'') is the latest step in
its attempts to advance the trend toward concentration in the
residential door hardware industry.
The proposed transaction, which would leave American consumers with
only two significant producers of residential door hardware, violates
the Clayton Act in at least two separate antitrust markets in the
United States: (1) premium mechanical door hardware
[[Page 31008]]
and (2) smart locks, which are wirelessly connected digital door locks.
In the premium mechanical door hardware market, the proposed
transaction would be a merger to near-monopoly, where the merged firm
would account for around 65% of sales, becoming more than ten times
larger than its next-largest competitor. In the market for smart locks,
the proposed transaction would cut off competition in a fast-growing
door hardware segment, leaving the merged firm with more than a 50%
share and only one remaining meaningful competitor--an effective
duopoly. In both of these relevant markets, the proposed transaction
easily surpasses the thresholds that trigger a presumptive violation of
the Clayton Act.
Historically, competition between Defendants to sell residential
door hardware to showrooms, home improvement stores, builders, online
retailers, home security companies, and other customers has generated
lower prices, higher quality, exciting innovations, and superior
customer service. As outlined in detail below, the head-to-head
competition between the Defendants is significant. They regularly
reduce price to win business from each other and respond to each
other's competitive initiatives with innovation and better offerings.
For example, one of Spectrum's top ``strategic imperatives'' in 2021
was to invest heavily in better service and pricing for its premium
mechanical door hardware brands (Baldwin Estate and Baldwin Reserve) in
order to recapture market share from its ``chief competitor,'' ASSA
ABLOY's EMTEK brand. Similarly, ASSA ABLOY has recently invested in a
new lineup of smart locks designed to ``take [a half] bay'' (i.e., take
shelf space) from Spectrum's Kwikset brand and its other large
competitor in major home improvement stores. The proposed transaction
would eliminate those benefits altogether.
Acknowledging the harm that their proposed transaction would cause
to competition, the Defendants have offered to sell off selected
portions of ASSA ABLOY's globally integrated business. But offering a
complex divestiture of carved-out assets from a globally-integrated
business in an attempt to remedy a deal that presents a massive
competitive problem would leave American consumers to bear the
significant risks that the divestiture would fail to preserve the
intensity of existing competition. Regardless of who the unknown buyer
turns out to be, such a hazardous corporate restructuring would be
inadequate to remedy the harms of Defendants' anticompetitive deal. The
only remedy that will preserve competition is to stop the proposed
transaction outright. Therefore, the United States of America brings
this lawsuit to enjoin ASSA ABLOY's proposed acquisition of Spectrum
HHI because it violates Section 7 of the Clayton Act, 15 U.S.C. 18. The
United States alleges as follows:
Introduction
1. American homeowners and renters routinely rely on residential
door hardware to meet their most basic privacy and security needs.
Because virtually every door in every home in the United States has
door hardware on it, about $2.4 billion of residential door hardware is
sold in the United States each year.
2. The residential door hardware industry in the United States is
concentrated. Spectrum, which owns the Baldwin and Kwikset brands, and
ASSA ABLOY, which owns the August, EMTEK, and Yale brands, are, after
many years of competition, the largest and third-largest producers of
residential door hardware in the United States, collectively accounting
for more than half of sales. Together with the other major supplier,
the three largest producers account for about 75% of sales, with the
remaining sales attributed to much smaller players.
3. In September 2021, ASSA ABLOY agreed to pay $4.3 billion to
acquire Spectrum HHI. If consummated, this transaction would eliminate
important head-to-head competition and move the residential door
hardware industry ever closer toward monopoly.
4. While the transaction would further consolidate the entire
residential door hardware industry, its harm would likely be felt most
acutely by customers seeking to purchase two distinct categories of
residential door hardware: (1) premium mechanical door hardware and (2)
smart locks. Head-to-head competition between Defendants has made these
products more responsive to the changing economic, aesthetic,
technological, and security demands of American households--lowering
prices, fostering innovation, increasing the variety and quality of
offerings, and improving customer service. The proposed transaction
would end that important competition and deprive American consumers of
the benefits of such competition in the future.
5. In premium mechanical door hardware, Defendants are by far the
two largest producers and closest rivals in the United States through
ASSA ABLOY'S EMTEK brand and Spectrum HHI's Baldwin Estate and Baldwin
Reserve brands. Based on information gathered thus far, the Defendants
collectively accounted for approximately 65% of sales in 2021. The
Defendants are strong and regular competitors in this market, as the
market shares would suggest and the Defendants' own documents indicate.
6. In smart locks, Defendants are the two largest producers in the
United States, primarily through ASSA ABLOY's August and Yale brands
and Spectrum HHI's Kwikset brand. Based on information gathered thus
far, they collectively accounted for about 50% of sales in 2021.
Defendants have both invested significantly in efforts to win smart
lock market share from each other, making them two of the three
dominant incumbents in the growing smart lock market that have scale,
resources, and access to distribution that dwarf all other competitors.
The proposed transaction would consolidate the smart lock market into a
duopoly.
7. ASSA ABLOY and Spectrum were keenly aware that their proposed
deal presented serious anticompetitive issues as they negotiated which
firm would bear the risk of inevitable objections from antitrust
enforcers. Spectrum insisted that ASSA ABLOY commit in the purchase
agreement to divest assets to try to secure antitrust clearance, but
ASSA ABLOY executives were reluctant to make a divestiture commitment
because they worried it would ``put [their] future at risk.'' In
September 2021, only four days before the transaction was announced,
Spectrum's CEO tried to assuage ASSA ABLOY's concerns, suggesting it
could have its cake and eat it too--appease antitrust enforcers with a
divestiture commitment structured in a way ``where you don't put the
assets you want at risk.''
8. Defendants put that strategy into action in the summer of 2022,
when they proposed to divest, to an as-yet unidentified buyer, portions
of ASSA ABLOY business units that make and sell residential door
hardware in the United States. But divesting carved-out assets from the
globally integrated business apparatus that made them successful cannot
be relied upon to replicate the intensity of competition that exists
today between ASSA ABLOY and Spectrum HHI and therefore would be an
unacceptable remedy.
9. The proposed transaction violates Section 7 of the Clayton Act,
15 U.S.C. 18, and should be enjoined.
Defendants and the Proposed Transaction
10. ASSA ABLOY is a publicly traded Swedish stock company
headquartered in Stockholm, Sweden. It is a globally
[[Page 31009]]
integrated conglomerate that manufactures and sells a wide array of
access solutions products--including residential and commercial door
hardware, doors, and electronic access control systems. ASSA ABLOY
sells residential door hardware in the United States under the August,
EMTEK, Sure-Loc, Valli & Valli, and Yale brands. Yale, in particular,
is an iconic ``master brand,'' dating back more than 150 years, which
``has strong recognition in residential markets worldwide.'' ASSA ABLOY
is the third largest producer of residential door hardware in the
United States (including premium mechanical door hardware and smart
locks), as well as the largest producer of commercial door hardware in
the United States. In 2021, ASSA ABLOY earned revenues of approximately
$3.5 billion in the United States and approximately $9.1 billion
worldwide.
11. ASSA ABLOY is a creature of corporate consolidation. It was
established in 1994 through the merger of Swedish lock maker ASSA AB
and Finnish lock maker Abloy Oy. Since then, ASSA ABLOY has been on a
decades-long acquisitions spree--buying more than 300 businesses in 27
years, including all of the companies that now constitute ASSA ABLOY's
multi-billion-dollar residential door hardware business. It acquired
Yale in 1999, EMTEK in 2000, Valli & Valli in 2008, August in 2017, and
Sure-Loc in 2021. It also acquired South Korean smart-lock manufacturer
iRevo in 2007 and Chinese smart-lock manufacturer Digi in 2014. These
acquisitions and others by ASSA ABLOY have increased concentration in
the door hardware industry.
12. Spectrum is a publicly-traded Delaware corporation
headquartered in Middleton, Wisconsin. It is a diversified, global
branded consumer products company with four divisions: (1) Home and
Personal Care, (2) Global Pet Care, (3) Home and Garden, and (4)
Hardware and Home Improvement. In 2021, Spectrum earned revenues of
approximately $3.2 billion in the United States and approximately $4.6
billion worldwide.
13. Spectrum's Hardware and Home Improvement division, referred to
herein as ``Spectrum HHI,'' is headquartered in Lake Forest,
California. It is the largest producer of residential door hardware in
the United States, and it also manufactures and sells commercial door
hardware, residential plumbing hardware (e.g., kitchen and bathroom
faucets), and builders' hardware. Spectrum HHI sells residential door
hardware, including premium mechanical door hardware and smart locks,
in the United States under the Baldwin Estate, Baldwin Reserve, Baldwin
Prestige, and Kwikset brands, and it also manufactures private-label
residential door hardware for third parties. In 2021, Spectrum HHI
earned revenues of approximately $1.4 billion in the United States.
14. Spectrum HHI is also the result of decades of consolidation in
the residential door hardware industry. Black & Decker (renamed Stanley
Black & Decker in 2010) acquired Kwikset in 1989, Baldwin and Weiser (a
Canadian residential door hardware company) in 2003, and Taiwanese
door-lock manufacturer Tong Lung Metal in 2012, before selling all four
companies to Spectrum in 2012 and 2013.
Defendants' Residential Door Hardware Brands Sold in the United States
[GRAPHIC] [TIFF OMITTED] TN15MY23.040
[[Page 31010]]
15. On September 8, 2021, ASSA ABLOY and Spectrum signed an asset
and stock purchase agreement under which ASSA ABLOY would acquire
Spectrum HHI for approximately $4.3 billion. The post-transaction ASSA
ABLOY would be an industry behemoth, with almost $5 billion in annual
sales in the United States alone, and it would become the largest
producer of residential door hardware in the United States, in addition
to already being the largest producer of commercial door hardware in
the United States.
Industry Background
16. The proposed transaction involves products--residential door
hardware--that Americans use every day to enter, leave, and secure
their homes and interior living spaces, such as bedrooms, bathrooms,
and home offices.
17. Doors used in a residence are almost always hinged or sliding
(e.g., pocket doors). Residential door hardware is the hardware affixed
to a residential hinged or sliding door that is used to open, close, or
lock the door.
18. Residential door hardware is either (1) mechanical, meaning
that it functions only by physical operation at the door (e.g.,
physically turning a handle or knob and, for exterior doors, using a
key), or (2) digital, meaning that it can be operated electronically
and, in some cases, remotely.
A. Mechanical Residential Door Hardware
19. Mechanical residential door hardware has interior components
(the ``chassis'') and exterior components (the ``trim''). The chassis
consists of a latching or locking mechanism and other components. Trim
consists of hardware used to operate the latching or locking
mechanism--most commonly a knob or lever for the latch and a mechanical
turn piece for the lock--and surrounding pieces of decorative hardware.
Chassis and trim for residential door hardware are usually purchased
together as a set, known as a lock set, but they can also sometimes be
purchased separately. The locking mechanism (e.g., deadbolt) is the
most common element of a lock set to be purchased separately.
20. Mechanical residential lock sets are sold in a wide variety of
functions, hardware types, designs, price points, and materials.
Exterior lock sets have a locking function, but many interior lock sets
do not. Interior lock sets usually serve one of three different
functions: ``passage'' (turn and latch from both sides, no lock),
``privacy'' (turn and latch from both sides, lock with privacy button
from inside), or ``dummy'' (no turn, latch, or lock). Exterior lock
sets serve what is known as an ``entrance'' function (turn and latch
from both sides, keyed locking on exterior, turn-piece locking from
interior).
21. Mechanical residential door hardware is sold at retail in the
United States through several different channels. Entry level and
medium-grade hardware is primarily sold in mass-market retail stores,
such as ``big box'' home improvement stores and hardware stores.
Premium mechanical door hardware, by contrast, is sold primarily
through specialized dealers, such as decorative hardware showrooms.
Mechanical residential door hardware is also sold through e-commerce
websites, such as Build.com and the websites of brick-and-mortar
retailers.
Examples of Premium Mechanical Door Hardware
[GRAPHIC] [TIFF OMITTED] TN15MY23.041
22. Door hardware used on residences differs in many ways from door
hardware used in commercial settings. Residential door hardware is less
complex, less costly, and less durable than commercial door hardware.
Commercial door hardware also includes several product categories that
have no residential analogue, including door closers, exit devices, and
electronic access control hardware.
B. Digital Residential Door Hardware
23. Most residential door hardware and essentially all interior
residential door hardware is mechanical, but certain American consumers
are increasingly selecting exterior residential door hardware that is
digital.
24. The primary type of digital door hardware used in a residential
setting is a digital door lock, which is a deadbolt that is operated
electronically. One type of digital door locks, referred to herein
[[Page 31011]]
as ``smart locks,'' can be operated and/or monitored through a wireless
connection to another electronic device. The other type of digital door
locks (``non-connected locks'') have no wireless connection and are
electronically operated via a device physically connected to the
deadbolt, such as an electronic keypad. Some digital door locks are
sold as a lock set that includes mechanical trim, such as a knob or
lever.
Examples of the Two Types of Digital Door Locks
[GRAPHIC] [TIFF OMITTED] TN15MY23.042
25. Smart locks make a wireless connection to another device
through a variety of technology protocols, primarily including Wi-Fi,
Bluetooth, and low-power mesh-network protocols (e.g., Z-Wave, Zigbee,
or Thread). The user typically operates the lock from an application on
a smart phone or similar device.
26. In the United States, smart locks make up a growing share of
residential digital door lock sales and residential door hardware sales
generally. In 2021, smart locks accounted for about two-thirds of
residential digital door locks sold in the United States, and smart
lock sales in the United States have approximately doubled in only
three years, growing to more than $420 million in 2021.
27. Digital door locks, including smart locks, are sold at retail
in the United States through several different channels, primarily
including mass-market retail stores, such as big box home improvement
stores, and e-commerce websites, such as Amazon.com. Smart locks are
also sold through consumer electronics stores and specialized dealers,
such as home security companies and home technology integrators.
C. The Residential Door Hardware Industry in the United States
28. In the United States, about 75% of all residential door
hardware sold each year is made by ASSA ABLOY, Spectrum, and their
largest competitor. Each of these companies offers a full portfolio of
residential door hardware products through multiple brands, including
both mechanical and digital door hardware that spans a wide range of
product features and price points. The remaining approximately 25% of
residential door hardware sold in the United States is made by a large
assortment of much smaller door hardware producers. Unlike the three
dominant firms, each of these smaller producers usually sells
residential door hardware under a single brand and specializes in one
or two segments of residential door hardware.
29. Defendants' residential door hardware brands sold in the United
States are as follows:
------------------------------------------------------------------------
ASSA ABLOY
Product brand(s) Spectrum brand(s)
------------------------------------------------------------------------
Premium Mechanical Door Hardware EMTEK Valli & Baldwin Estate
Valli. Baldwin Reserve.
Smart Locks..................... Yale August....... Kwikset.
Non-Connected Digital Door Locks Yale.............. Kwikset.
Non-Premium Mechanical Door Yale Sure-Loc..... Baldwin Prestige
Hardware. Kwikset.
------------------------------------------------------------------------
30. Residential door hardware producers, including Defendants,
distribute their products to retailers directly or through wholesale
distributors. Producers only rarely sell residential door hardware
directly to end-customers.
31. Residential door hardware end-customers include homeowners, who
may purchase a single lock set, and landlords, general contractors, and
residential builders, who may purchase hundreds or thousands of
different pieces of door hardware in a variety of styles and functions
to outfit every type of door in a residential development.
Relevant Markets
A. Product Markets
32. Each of the products described below constitutes a line of
commerce, as that term is used in Section 7 of the Clayton Act, and
each of those is a relevant product market in which the potential
competitive effects of this proposed transaction can be assessed
[[Page 31012]]
within the context of the broader marketplace for residential door
hardware.
1. Premium Mechanical Door Hardware
33. Premium mechanical door hardware is residential door hardware
made of high-quality, durable metals (primarily forged brass and cast
bronze), and is highly customizable, design-driven, and constructed
with superior craftsmanship. Such hardware is also offered in a wide
variety of styles, designs, and finishes. These peculiar
characteristics create a look and feel to the hardware that is distinct
from other mechanical door hardware and connotes quality, style, and
luxury. For example, Spectrum's Baldwin Reserve and Baldwin Estate
brands position their door hardware as ``door couture,'' and ASSA
ABLOY's EMTEK brand ``present[s] more like a fashion house than [a]
hardware company.'' Accordingly, these distinguishing features also
command distinct price points that are significantly higher than other
types of mechanical door hardware--on average, premium mechanical door
hardware is about twice as expensive as its non-premium analogues. More
than $260 million of premium mechanical door hardware was sold in the
United States in 2021.
34. Premium mechanical door hardware, unlike other mechanical door
hardware, is sold primarily through specialized dealers, such as
decorative hardware showrooms, door and window shops, and building-
supply retailers known as ``lumberyards.'' Premium mechanical door
hardware is not sold through mass-market retailers, such as ``big box''
home improvement stores. The specialized dealers that sell premium
mechanical door hardware typically offer high levels of customer
service, including in-store displays that exhibit the hardware's
customizability and craftsmanship and sales personnel skilled in
designing and ordering hardware to exacting standards. These dealers
also cater to a distinct group of premium clientele--typically,
discerning homeowners with significant disposable income--and do not
offer or offer only a limited selection of non-premium mechanical door
hardware. Intermediaries, such as interior designers, are sometimes
also involved in selecting and ordering premium mechanical door
hardware.
Example of EMTEK and Baldwin Reserve In-Store Displays
[GRAPHIC] [TIFF OMITTED] TN15MY23.043
35. Brands of premium mechanical door hardware are recognized by
customers and industry participants as ``premium'' or ``luxury''
producers. The largest and most well-known of these brands are owned by
Defendants: EMTEK (ASSA ABLOY), Baldwin Reserve (Spectrum), and Baldwin
Estate (Spectrum). These three brands collectively account for
approximately two-thirds of the sales of premium mechanical door
hardware in the United States. ASSA ABLOY also owns Valli & Valli,
which is a smaller premium mechanical door hardware brand sold in the
United States. Defendants use, among other things, high price points,
premium product features, distribution through specialized retailers,
and marketing to distinguish these brands from their other, non-premium
mechanical door hardware brands, such as Kwikset, Yale, and Sure-Loc.
There are premium mechanical door hardware brands not owned by
Defendants, but none of them accounts for more than 6% of sales in the
United States, and most of them account for 2% or less.
36. Producers of premium mechanical door hardware in the United
States, including ASSA ABLOY and Spectrum HHI, offer a core lineup of
product categories that correspond to the lineup of locks and lock sets
needed to fully outfit a home. These core categories of premium
mechanical door hardware include entrance lock sets (also called
``entry sets''), interior knob and lever lock sets (i.e., passage,
privacy, and dummy functions), and deadbolts. Other makers of premium
mechanical door hardware, including ASSA ABLOY and Spectrum HHI, also
sell one or more categories of premium mechanical
[[Page 31013]]
sliding door hardware (e.g., pocket-door hardware).
37. Even when products are not necessarily substitutes for one
another (e.g., entry sets and passage sets), products sold under
similar competitive conditions may be aggregated for analytical
convenience. While not necessarily substitutes for one another, the
various categories of premium mechanical door hardware (passage sets,
privacy sets, dummy sets, entry sets, deadbolts, pocket door hardware,
and barn door hardware) are sold under similar competitive conditions
and thus may be grouped together for analytical purposes.
38. Premium mechanical door hardware constitutes a relevant product
market. Premium mechanical door hardware satisfies the well-accepted
``hypothetical monopolist'' test set forth in the U.S. Department of
Justice's and Federal Trade Commission's Horizontal Merger Guidelines
(``Merger Guidelines''). A hypothetical monopolist of premium
mechanical door hardware would find it profitable to impose a small but
significant and non-transitory increase in price on such products
because relatively few purchasers would substitute away to other types
of door hardware in response to such a price increase. Because other
types of door hardware (e.g., commercial door hardware and non-premium
mechanical door hardware) do not offer quality, aesthetics, or
customization that is comparable to premium mechanical door hardware,
customers desiring these product features have no reasonable
substitutes for premium mechanical door hardware.
39. As alleged above, premium mechanical door hardware also
exhibits virtually all of the ``practical indicia'' that courts use to
identify relevant antitrust product markets: industry or public
recognition, peculiar characteristics and uses, distinct customers,
distinct prices, sensitivity to price changes, and specialized
vendors.\1\
---------------------------------------------------------------------------
\1\ See Brown Shoe Co. v. United States, 370 U.S. 294, 325
(1962).
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2. Smart Locks
40. Smart locks use wireless connections to allow the user to lock
and unlock the door without using a key or physically operating the
door hardware. That wireless connection also allows the user to operate
and monitor the smart lock remotely and integrate the lock into a
broader home security or ``smart home'' ecosystem, such as Amazon
Alexa, Apple HomeKit, or Google Home. The physical range of remote
operation varies by wireless protocol and degree of integration, but
the physical range of shorter-range wireless protocols, such as
Bluetooth, can also be extended through the use of a Wi-Fi hub, which
most smart lock producers offer as part of a bundle with the smart lock
or separately. The additional technology (hardware and software)
incorporated into smart locks also corresponds to significantly higher
price points than other kinds of digital door locks that lack this
technology--on average, smart locks are about twice as expensive as
non-connected locks. More than $420 million of smart locks were sold in
the United States in 2021.
41. Industry participants and consumers recognize that smart locks
are distinct from mechanical door hardware and non-connected digital
door locks. Smart locks also offer technological functionality that
mechanical door hardware cannot offer: the ability to lock and unlock a
door without a physical key, the ability to monitor and operate a lock
remotely, and the ability to integrate a lock into a smart home
ecosystem or home security system. The latter two technological
functions (remote operation/monitoring and integration) also
distinguish smart locks from non-connected digital door locks and are
sought by a distinct set of technologically savvy customers who value
security, convenience, and connectivity. Accordingly, neither
mechanical door hardware nor non-connected locks are reasonable
substitutes for smart locks. Likewise, commercial door hardware is not
a reasonable substitute for smart locks for the reasons alleged above.
Additionally, smart locks are sold through a variety of channels, but,
unlike other types of residential door hardware, smart locks are also
sold through firms that specialize in consumer electronics and home
security technology, including especially consumer electronics
retailers, home security companies, and smart home companies.
42. Smart locks constitute a relevant product market. Smart locks
satisfy the well-accepted hypothetical monopolist test set forth in the
Merger Guidelines. A hypothetical monopolist of smart locks would find
it profitable to impose a small but significant and non-transitory
increase in price on such products because relatively few purchasers
would substitute away to other types of door hardware in response to
such a price increase. As alleged above, smart locks also exhibit
virtually all of the ``practical indicia'' that courts use to identify
relevant antitrust product markets: industry or public recognition,
peculiar characteristics and uses, distinct customers, distinct prices,
sensitivity to price changes, and specialized vendors.\2\
---------------------------------------------------------------------------
\2\ See id.
---------------------------------------------------------------------------
B. Geographic Market
43. The United States is a relevant geographic market within the
meaning of Section 7 of the Clayton Act for the product markets alleged
herein. Defendants have agreed that the relevant geographic market is
no broader than the United States. Moreover, prices for premium
mechanical door hardware and smart locks are set in the United States,
independent of pricing elsewhere, and residential door hardware sold
outside the United States is often not compatible with doors used in
the United States.
Anticompetitive Effects
44. The proposed transaction would eliminate competition between
ASSA ABLOY and Spectrum HHI and significantly consolidate already
concentrated markets. Freed from having to compete against its largest
rival in the markets for premium mechanical door hardware and smart
locks, ASSA ABLOY would acquire not only Spectrum HHI but also the
opportunity to profit by, among other things, raising prices, reducing
product quality, reducing investments in innovation, and reducing
levels of service. The proposed transaction would also increase the
likelihood of coordination.
A. The Proposed Transaction Is Presumptively Unlawful
45. The more that a proposed transaction would increase
concentration in a market, the more likely it is that the proposed
transaction may substantially lessen competition, as prohibited by the
Clayton Act. Mergers that significantly increase concentration in
already concentrated markets are presumptively anticompetitive and
therefore presumptively unlawful. As the Supreme Court held, any
transaction resulting in ``a firm controlling an undue percentage share
of the relevant market,'' including a firm that would ``control[] at
least 30%'' of the market, and ``a significant increase in the
concentration of firms in that market is so inherently likely to lessen
competition substantially that it must be enjoined.'' \3\ For such
transactions, including ASSA ABLOY's proposed acquisition of Spectrum
HHI, their ``size makes them inherently suspect in light
[[Page 31014]]
of Congress' design in [Clayton Act Section 7] to prevent undue
concentration.'' \4\ Thus, such transactions are entitled to a
presumption of illegality under Supreme Court precedent.
---------------------------------------------------------------------------
\3\ United States v. Phila. Nat'l Bank, 374 U.S. 321, 363
(1963).
\4\ Id.
---------------------------------------------------------------------------
46. The Herfindahl-Hirschman Index (``HHI'') is a measure of market
concentration widely accepted by economists and courts in evaluating
the level of competitive vigor in a market and the likely competitive
effects of an acquisition. HHI values (or ``points'') are calculated by
summing the squares of the individual firms' market shares.
Accordingly, HHI values range from 0 in markets with no concentration
to 10,000 in markets where one firm has a 100% market share. As
recognized in the Merger Guidelines, if the post-transaction HHI would
be more than 2,500, and the transaction would increase the HHI by more
than 200 points, then the transaction would result in a highly
concentrated market, and the transaction is presumed likely to enhance
market power and substantially lessen competition.
47. The proposed transaction is presumptively unlawful under the
Merger Guidelines as well because it would significantly increase
concentration in at least two markets that would be highly concentrated
post-transaction:
----------------------------------------------------------------------------------------------------------------
Post-merger Combined share
Market HHI HHI increase (%)
----------------------------------------------------------------------------------------------------------------
Premium Mechanical Door Hardware................................ >4,000 >1,600 ~65
Smart Locks..................................................... >3,000 >1,200 ~50
----------------------------------------------------------------------------------------------------------------
48. So large and expansive are Defendants' businesses and so
concentrated is the residential door hardware industry already, that
the proposed transaction would also be presumptively unlawful under
multiple alternative definitions of the relevant product market,
including a product market as broad as all residential door hardware in
the United States. In such a market, for example, the proposed
transaction would increase the HHI by more than 500 points and would
result in an HHI of more than 3,000.
B. The Proposed Transaction Would Eliminate Head-to-Head Competition
Between ASSA ABLOY and Spectrum HHI
49. ASSA ABLOY and Spectrum HHI have competed vigorously for years
to be leaders in the United States markets for premium mechanical door
hardware and for smart locks. That competition has yielded tangible
benefits for American consumers, primarily including lower prices, new
and better products, and improved customer service. The proposed
transaction would eliminate Defendants' important competition with each
other, to the detriment of consumers.
1. Premium Mechanical Door Hardware
50. ASSA ABLOY and Spectrum HHI acknowledge internally that their
EMTEK, Baldwin Reserve, and Baldwin Estate brands are each other's
``chief,'' ``main,'' ``primary,'' ``major,'' ``biggest,'' and
``closest'' competitor. EMTEK (ASSA ABLOY) is the ``market leader in
premium residential door hardware,'' accounting for about 45% of all
sales in the United States. Baldwin Reserve and Baldwin Estate
(Spectrum) are collectively several times larger than their next
largest competitor and account for about 20% of sales of premium
mechanical door hardware in the United States.
51. Baldwin's importance as a competitor to EMTEK and the benefits
that competition has for consumers also became apparent when Baldwin
had some struggles. For example, in 2021, a Baldwin sales manager
internally assessed that EMTEK had been able ``to almost recklessly
take more price'' (i.e., impose price increases) because Baldwin,
EMTEK's ``biggest competitor,'' had ``fallen down,'' meaning it had
fallen short as a competitor.
52. EMTEK displaced Baldwin as the premium market leader several
years ago. But Spectrum HHI has made it a top ``strategic
imperative[]'' to take steps to ``reaffirm Baldwin as the luxury door
hardware leader.'' The thrust of Spectrum's Baldwin strategy is to
invest [REDACTED] dollars over a multi-year period to improve, among
other things, Baldwin's pricing, customer service, and products in
order specifically to ``[r]ecapture the leadership position in luxury
door hardware from chief competitor Emtek.''
53. The head-to-head rivalry between EMTEK and Baldwin to achieve
``leader'' status in the premium mechanical door hardware market has
been a boon to American consumers in areas including better prices,
service, and products.
a. Lower Prices
54. EMTEK, Baldwin Reserve, and Baldwin Estate regularly offer
special discounts to their customers to win business from the other or
to keep a customer from switching to the other.
55. For example, EMTEK regularly has provided additional discounts
to win business away from Baldwin or prevent an EMTEK customer from
switching to Baldwin. EMTEK offers additional discounts [REDACTED], and
has instructed its salespeople that they [REDACTED].
56. Baldwin Reserve and Baldwin Estate also offer customers special
discounts to compete against EMTEK. Between January 2017 and March
2022, more than [REDACTED] of Baldwin's requests for special discounts
that mentioned a competitor referenced competition from EMTEK as the
reason for Baldwin's price concession--far more than any other
competitor. The narratives associated with these ``price change
requests'' illuminate how aggressively Baldwin and EMTEK compete on the
basis of price. To take one example, in 2021, Baldwin offered an
unusually deep discount on ``high end custom[]'' door hardware from
both the Baldwin Reserve and Baldwin Estate brands to a residential
architecture firm that was building several single-family homes;
Baldwin did so ``to keep Emtek OUT!'' and win [REDACTED] of dollars in
new sales to the customer.
57. In addition to price-change-request discounts, Baldwin also
offered targeted additional discounts on its Baldwin Reserve brand in
2021 as part of a broader effort to ``attack an Emtek stronghold'' with
lumberyard and door and window shop customers, which resell premium
mechanical door hardware to end-customers. The Baldwin Reserve brand
had been ``launched to attack'' EMTEK's ``beachhead'' among these
customers in 2011, but by 2021 it had not yet been able to make
sufficient headway. Accordingly, Baldwin took several
[[Page 31015]]
measures to ``get back on track'' with these customers, including
offering ``more aggressive'' discounts to EMTEK customers in an effort
to get them to switch to Baldwin.
58. Competition between Defendants' premium mechanical door
hardware brands also constrains increases to list prices, which are
published prices used as reference points for discounts. For example,
in 2019, Spectrum HHI senior executives proposed raising the list
prices of Baldwin Reserve and Baldwin Estate by [REDACTED], but
acknowledged that they would first ``need to understand Emtek's recent
price increase.'' Baldwin's director of sales responded that raising
Baldwin prices by [REDACTED] would be ``insane'' because EMTEK had
raised prices by only [REDACTED], making a [REDACTED] price increase
``the max'' Baldwin could pursue while ``still be[ing] competitive.''
b. Better Customer Service
59. Competition between EMTEK and Baldwin pushes the two to offer
customers better levels of service, primarily in the form of faster
order fulfillment (or ``lead times'') and provision of complimentary
in-store displays.
60. Lead times are an important facet of competition in the premium
mechanical door hardware market because customers value speedy order
fulfillment. EMTEK, in particular, prides itself on having ``the
shortest lead times in the industry,'' which it often credits for
allowing it to win business away from competitors, including
specifically from Baldwin. For example, an EMTEK sales director wrote
in July 2020 that he ``believe[d] a large part of [EMTEK's] demand
increase is as a result of our short lead times,'' noting specifically
that those lead times empowered EMTEK to refuse discounts to customers
that had no other option but EMTEK: ``We are being careful not to
respond to last minute price discount requests for product that cannot
be sourced from another supplier within an acceptable lead time.''
EMTEK similarly observed in September 2020 that one of its ``Top 3
Result Drivers'' was that its short lead times were ``allowing share
grab'' because ``[c]ompetitors have long lead times.''
61. Baldwin has made investments to improve its lead times to
compete better against EMTEK, which has benefited consumers. Most
recently, as part of its broader strategic imperative, beginning in
2021, to ``recapture the leadership position'' from EMTEK, Baldwin
invested heavily to shorten its lead times to match EMTEK's. It did so
through its ``Quick Ship'' program, the crux of which is to shorten
lead times by stocking more inventory, which in turn is intended to
``remove Emtek['s] lead time advantage'' and ``[r]ebuild showroom
loyalty and brand preference.''
62. The use of complimentary in-store displays is another facet of
competition between EMTEK and Baldwin because such displays are an
important sales aid for showrooms and similar dealers. Because in-store
displays help dealers sell door hardware and would otherwise be a
substantial cost to the dealer (hundreds or thousands of dollars per
display), giving away displays is a way for producers to curry favor
with dealers. That favor can help to displace competitors by securing
better real estate on the showroom floor and earning elevated status as
a ``preferred'' or ``priority'' brand at the dealer.
63. Accordingly, to compete against each other, EMTEK and Baldwin
give away showroom displays, which benefits consumers. EMTEK especially
focuses on providing dealers with free in-store displays, which is one
of its ``key strategies.'' Baldwin spends substantial sums each year
providing free in-store displays in ``tiers'' based on the dealer's
estimated annual sales volume. Baldwin also uses free displays to
target EMTEK. In 2021, it made a concerted effort to provide free
displays to lumberyard and door and window shop customers, and it
reserved the largest and most expensive free displays for the dealers
``that have a large Emtek presence.''
d. New Products, Styles, and Finishes
64. Because aesthetics, customization, and expansive optionality
are distinguishing features of premium mechanical door hardware, it is
important for producers to continuously respond to design trends by
offering new products, styles, and finishes. EMTEK has been known for
years as a new product introduction ``machine,'' and Baldwin has
likewise sought for years to increase the speed and quantity of its new
product introductions to compete better against EMTEK. The resulting
increase in product options has benefitted consumers.
65. If the proposed transaction were to proceed, the merged firm
would likely reduce options available to consumers in the premium
mechanical door hardware market, including potentially curtailing the
introduction of new product lines or even eliminating entire brands or
product lines. Immediately after the proposed transaction was publicly
announced, Spectrum HHI sales personnel internally anticipated that the
merged firm would ``[p]ut a bullet in [Baldwin] Reserve'' and ``fold
Emtek on the high end,'' meaning eliminate more expensive EMTEK product
lines, such as door hardware for mortise locks. That prediction
contrasted sharply with Baldwin's pre-merger strategy to expand its
product offerings in order to compete better against EMTEK.
2. Smart Locks
66. ASSA ABLOY's August and Yale brands and Spectrum HHI's Kwikset
brand are ``top competitors'' of one another in the market for smart
locks in the United States, in which ASSA ABLOY and Spectrum HHI are
two of three dominant incumbents. Head-to-head competition between
these brands has resulted in lower prices and new and innovative smart
lock products, which have benefited consumers.
a. Lower Prices
67. Competition between Defendants' smart lock brands constrains
price increases. For example, in December 2019, the head of ASSA
ABLOY's Global Smart Residential group explained to ASSA ABLOY's CEO
that the company was unable to raise prices on ASSA ABLOY's smart locks
because of ``strong competition'' from its two largest rivals,
including Spectrum HHI's Kwikset. And ASSA ABLOY's CEO was told that
any evidence of Spectrum HHI ``raising prices on Kwikset smart locks''
would be an ``opportunity to take price,'' i.e., increase prices. In
fact, one source of additional revenue that ASSA ABLOY expects to
realize from acquiring Spectrum HHI is to ``increase [the] price of
Yale products'' by leveraging Spectrum HHI's ``scale and pricing
power,'' especially in big box (also known as ``Do It Yourself'' or
``DIY'') home improvement stores. ASSA ABLOY anticipates that, ``[w]ith
scale from [Spectrum HHI], Yale will be in a better pricing negotiation
position and can expect to increase prices.''
68. Competition between Defendants' smart lock brands has also
often resulted in Defendants lowering their prices to win business from
the other or to prevent a customer from switching to the other. One
example was a request for proposals in 2020 to supply a home security
company with smart locks, in which Spectrum HHI's Kwikset was ``going
against Yale predominantly.'' ASSA ABLOY's Yale had made a ``very
competitive . . . offer,'' and, in response, Kwikset decided to make a
``margin challenged'' bid because, in the assessment of Spectrum HHI's
chief marketing officer, the home security company is ``one of few,
bigger swing
[[Page 31016]]
players in this type of market to make a bet on and I don't want Yale
to get it.'' In another example, in 2021, Yale was ``trying to undercut
[Kwikset's] pricing again'' for a smart home company, and in response,
Kwikset lowered its pricing ``to keep Yale out of there.''
69. ASSA ABLOY has more recently taken ``an aggressive approach''
on pricing to take smart lock market share from Spectrum HHI's Kwikset
in DIY home improvement stores. Starting in 2021, ASSA ABLOY
implemented a strategy to organically grow its smart lock business in
the United States, primarily by growing in the DIY sales channel, in
which it has historically been under-exposed, and where Kwikset
benefits from an incumbent position. ASSA ABLOY sought to do so by
introducing ``new entry-to-mid'' price point smart locks under the Yale
brand to compete with its two largest rivals, including Kwikset, and
``take [a half] bay [i.e., shelf space] in entry-to-mid from'' one or
both of them, thereby significantly increasing its share of sales in
the DIY channel. Before the new smart locks could be rolled out in the
third quarter of 2022, ASSA ABLOY sought to use an ``aggressive'' price
reduction on its existing smart lock products to ``get a foothold into
Home Depot'' and greatly expand the number of Home Depot locations that
carry Yale or August smart locks.
70. The centerpiece of ASSA ABLOY's ``focused retail strategy'' is
the introduction of a new version of its Yale Assure smart lock, also
called the 400 Series, which will offer price points 15-25% lower than
Yale's existing smart locks for equivalent functionality, putting
Yale's smart locks on par with the pricing of Spectrum's Kwikset's
smart locks.
b. New and Innovative Smart Locks
71. Competition between ASSA ABLOY and Spectrum HHI has also
spurred innovation and the introduction of new smart locks, which has
benefited consumers. For example, as alleged in paragraphs 69-70, ASSA
ABLOY developed a new line of smart locks--the Yale 400 Series--to
compete against Kwikset. The 400 Series locks will not only be sold at
lower prices than Yale's existing smart locks, but they will also be
30% smaller, giving them a sleeker, more compact appearance. The 400
Series will also offer new features, including a [REDACTED]. Beyond the
400 Series, ASSA ABLOY is also developing other, lower-priced smart
locks in response to ``low cost lock leaders'' including Kwikset.
72. Kwikset has likewise innovated new smart locks in response to
ASSA ABLOY. For example, it is developing a smart lock to compete
against the pricing and features of Yale's existing Assure smart lock,
including to ``match the flexibility offered by Yale.'' Kwikset also
developed a new Z-Wave smart lock in 2021 with features that were
``absolutely necessary to catch up to where Yale has been for many
years.''
C. The Proposed Transaction Would Make Anticompetitive Coordination
More Likely
73. In the premium mechanical door hardware market, the proposed
transaction would eliminate important competition among major rivals
and create an even more dominant firm within a highly concentrated
market. As a result, there is an increased risk that harm from tacit or
other forms of coordination would become more likely due to the
proposed transaction.
74. In the smart lock market, the proposed transaction would make
coordination more likely by creating a duopoly consisting of the merged
firm and its largest competitor, collectively accounting for more than
70% of sales in the market. In that market structure, the two dominant
firms would have an increased ability to analyze and plan for one
another's conduct. By increasing the likelihood of interdependent
behavior among competitors in the smart lock market, the proposed
transaction may substantially lessen competition and keep prices high
in that market.
Absence of Countervailing Factors
75. New entry or expansion by existing competitors in response to
an exercise of market power by the post-transaction firm would not be
likely, timely, or sufficient in its magnitude, scope, or character to
deter or fully offset the proposed transaction's likely anticompetitive
effects.
76. Barriers to merger-induced entry and expansion are high in the
market for premium mechanical door hardware. First, significant
financial investment and time are needed to earn and maintain market
recognition as a ``premium'' or ``luxury'' brand. Second, premium
brands require an exceptionally broad product offering to be
competitive, which is expensive and time consuming to design and
manufacture at scale. Third, the customer base of specialized dealers
is highly fragmented and costly to serve, requiring large upfront
investments in a widespread and knowledgeable sales force and costly
marketing collateral (e.g., in-store displays). Fourth, ASSA ABLOY'S
EMTEK and Spectrum's Baldwin have developed an entrenched and dominant
physical and reputational presence in showrooms and other dealers,
which would be very difficult to displace. As Baldwin's sales director
observed after the proposed transaction was announced, the combination
of EMTEK and Baldwin ``should be able to dominate every showroom in the
country.''
77. Barriers to entry and expansion are also high in the smart
locks market. First, it is costly to develop competitive smart lock
products, both initially and over time, because doing so requires
sophisticated software and hardware engineering capabilities. Second,
it takes time and money to break through as a brand that is known and
trusted by consumers. Large incumbents like ASSA ABLOY and Spectrum HHI
have a structural advantage in branding because they have been able to
build up strong brand recognition over time, which has created a
virtuous cycle in which brand recognition spurs increased sales, which
further grows the incumbents' market presence, which in turn spurs
further increased sales, and so on. It would be difficult for a new
entrant or a smaller existing competitor to disrupt that structural
advantage. Third, significant operational scale is needed to serve many
of the most important groups of smart lock customers, especially big-
box home improvement stores, consumer electronics stores, home
builders, and home security companies.
78. Neither the premium mechanical door hardware market nor the
smart lock market has any unique structural barriers to collusion. Any
barriers to collusion in these markets are no greater than in other
industries and therefore would not overcome the normal presumption that
the increased concentration resulting from the proposed transaction
would increase the likelihood of interdependent behavior among
competitors, such as tacit collusion.
79. The proposed transaction is also unlikely to generate
verifiable, merger-specific efficiencies sufficient to prevent or
outweigh the anticompetitive effects that the proposed transaction is
likely to cause in the relevant markets.
Defendants' Proposed Divestitures Are Insufficient To Remedy the
Proposed Transaction's Anticompetitive Effects
80. ASSA ABLOY and Spectrum have known all along that their
proposed transaction presented significant antitrust concerns. The
obvious antitrust problems triggered much hand-wringing and negotiation
at the highest levels of both companies about how to handle the ``anti-
trust situation'' the transaction would create. In July 2021, during
due
[[Page 31017]]
diligence for the proposed transaction, ASSA ABLOY executives were
``having daily calls on antitrust'' and acknowledged early on that the
overlap between EMTEK and Baldwin would be ``the biggest focus'' for
competition enforcers. Spectrum wanted assurance that ASSA ABLOY would
do whatever it would take to appease antitrust enforcers' objections,
but ASSA ABLOY jealously guarded the collection of assets it had
acquired, particularly the assets that make up its ``Yale Global
business,'' and it was reluctant to commit to divest them.
81. Ultimately, Defendants' discussions about how to navigate
inevitable antitrust objections became so contentious that the
transaction's anticompetitive nature nearly sank the proposed deal
before it could be signed. On the afternoon of September 7, 2021, hours
before the proposed transaction was announced, ASSA ABLOY's CEO wrote
to Spectrum's CEO that, based on unresolved disagreements about how to
handle the antitrust risks of the proposed transaction, ASSA ABLOY had
``come to the conclusion to withdraw from the process and proceed with
other opportunities.''
82. Although Defendants were apparently able to resolve their
disagreements at the eleventh hour, the proposed transaction's
antitrust problems remained. Accordingly, in the summer of 2022, ASSA
ABLOY and Spectrum effectively conceded that their proposed transaction
would harm competition by proposing a ``remedy'' to antitrust enforcers
that would involve ASSA ABLOY selling off parts of its business units
that that sell residential door hardware in the United States. Selling
that incomplete package of assets would not replicate the intensity of
competition that exists today.
83. The touchstone of any appropriate antitrust remedy is the
immediate, durable, and complete preservation of competition. Merely
transplanting assets from one firm to another is not an effective
antitrust remedy because it creates unacceptable risks of diluting the
intensity of competition--the risk of creating a firm with less
incentive, ability, or resources than the original owner to use the
divested assets in service of competition, the risk of entanglement or
conflict between the buyer and seller of the divested assets, and the
risk of the buyer liquidating or redeploying the divested assets.
Defendants bear the heavy burden of establishing that any remedy they
propose meets these exacting standards, especially given the
substantial competitive problems their proposed deal presents, and they
cannot meet that burden here.
84. Defendants have not disclosed all of the details of their
proposed ``remedy'' and have not identified any potential buyer for
divested assets, but they have disclosed some information about the
assets they propose to divest to try to ``fix'' their flawed
transaction. In particular, the parties offered to divest portions of
ASSA ABLOY's Mechanical Residential business unit relating only to the
EMTEK brand and portions of ASSA ABLOY's Global Smart Residential
business unit relating only to Yale and August smart locks sold in the
United States and Canada. These partial divestitures would be
insufficient to preserve the intensity of existing competition. They
would split up existing business units, cutting off the divested assets
from the organization, resources, and efficiencies that have allowed
ASSA ABLOY to be a leading competitor in the United States premium
mechanical door hardware and smart lock markets.
85. The parties' proposed divestitures would be insufficient even
if a transfer of assets were executed flawlessly, but the complex
carving out (and in some cases splitting) of manufacturing capacity,
warehouses, personnel, intellectual property, supply chain
relationships, and other resources is virtually guaranteed to be
anything but flawless. American consumers should not be forced to
underwrite this risky experiment in corporate reorganization. The only
way to ensure that does not happen is to block Defendants' proposed
transaction.
Jurisdiction and Venue
86. The United States brings this action, and this Court has
subject-matter jurisdiction over 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.
87. Defendants are engaged in, and their activities substantially
affect, interstate commerce. ASSA ABLOY and Spectrum sell products to
numerous customers located throughout the United States.
88. This Court has personal jurisdiction over each Defendant under
Section 12 of the Clayton Act, 15 U.S.C. 22. ASSA ABLOY and Spectrum
both transact business in this District. ASSA ABLOY and Spectrum have
also both consented to personal jurisdiction in this District.
89. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C.
22, and under 28 U.S.C. 1391(b) and (c). ASSA ABLOY and Spectrum both
reside in this District.
Violation Alleged
90. The United States hereby incorporates the allegations of
paragraphs 1 through 89 above as if set forth fully herein.
91. Unless enjoined, ASSA ABLOY's proposed acquisition of Spectrum
HHI may lessen competition substantially and tend to create a monopoly
in premium mechanical door hardware and smart locks in the United
States, in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
92. Among other things, the proposed acquisition would:
a. eliminate significant present and future head-to-head
competition between ASSA ABLOY and Spectrum HHI;
b. reduce competition generally in the relevant markets;
c. reduce competition to innovate in the relevant markets;
d. cause prices to rise for customers in the relevant markets;
e. cause a reduction in product quality in the relevant markets;
and
f. cause a reduction in customer service in the relevant markets.
Relief Requested
93. Plaintiff requests that the Court:
a. adjudge and decree that ASSA ABLOY's proposed acquisition of
Spectrum HHI is unlawful and violates Section 7 of the Clayton Act, 15
U.S.C. 18;
b. permanently enjoin and restrain Defendants and all persons
acting on their behalf from consummating the proposed transaction or
from entering into or carrying out any other contract, agreement, plan,
or understanding, the effect of which would be to combine ASSA ABLOY
and Spectrum HHI;
c. award the United States the costs of this action; and
d. award the United States such other relief that the Court deems
just and proper.
Dated this 15th day of September, 2022.
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA:
JONATHAN S. KANTER (DC Bar #473286)
Assistant Attorney General for Antitrust
DOHA G. MEKKI
Principal Deputy Assistant Attorney General for Antitrust
ANDREW J. FORMAN (DC Bar #477425)
Deputy Assistant Attorney General for Antitrust
RYAN DANKS
Director of Civil Enforcement
CRAIG W. CONRATH
Senior Trial Advisor for Civil Litigation
[[Page 31018]]
KATRINA ROUSE (DC Bar #1014035)
Chief, Defense, Industrials, and Aerospace Section
JAY D. OWEN
Assistant Chief, Defense, Industrials, and Aerospace Section
SOYOUNG CHOE
Assistant Chief, Defense, Industrials, and Aerospace Section
MATTHEW R. HUPPERT (DC Bar #1010997) *
SILVIA J. DOMINGUEZ-REESE
MATTHEW C. FELLOWS (DC Bar #1736656)
CHRISTINE A. HILL (DC Bar #461048)
GABRIELLA MOSKOWITZ (DC Bar #1044309)
REBECCA Y. VALENTINE (DC Bar #989607)
Trial Attorneys
United States Department of Justice
Antitrust Division
450 Fifth Street NW, Suite 8700
Washington, DC 20530
Telephone: (202) 476-0383
Fax: (202) 514-9033
Email: [email protected]
DAVID E. DAHLQUIST
Senior Litigation Counsel
United States Department of Justice
Antitrust Division
209 South LaSalle Street, Suite 600
Chicago, Illinois 60604
Email: [email protected]
* LEAD ATTORNEY TO BE NOTICED
In the United States District Court for the District of Columbia
UNITED STATES OF AMERICA, Plaintiff, v. ASSA ABLOY AB, et al.,
Defendants.
Civil No. 1:22-cv-02791-ACR
Proposed Final Judgment
Whereas, Plaintiff, United States of America, filed its Complaint
on September 15, 2022;
And whereas, the United States and Defendants, ASSA ABLOY AB
(``ASSA ABLOY'') and Spectrum Brands Holdings, Inc. (``Spectrum'') have
consented to entry of this Final Judgment 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 certain divestitures;
And whereas, Defendants represent that the divestitures and other
relief required by this Final Judgment can and will be made and that
Defendants will 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. ``ASSA ABLOY'' means Defendant ASSA ABLOY AB, a publicly traded
Swedish stock company headquartered in Stockholm, Sweden, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees.
B. ``Spectrum'' means Defendant Spectrum Brands Holdings, Inc., a
Delaware corporation with its headquarters in Middleton, Wisconsin, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees.
C. ``Fortune'' means Fortune Brands Innovations, Inc., a Delaware
corporation with its headquarters in Deerfield, Illinois, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees.
D. ``Acquirer'' or ``Acquirers'' means Fortune or another entity,
approved by the United States in its sole discretion, to which ASSA
ABLOY divests the Divestiture Assets.
E. ``Divestiture Assets'' means (1) the Premium Mechanical
Divestiture Assets; and (2) the Smart Lock Divestiture Assets.
F. ``Divestiture Date'' means the date on which the closing of the
transaction between ASSA ABLOY and Acquirer occurs.
G. ``Door'' means a swinging door or pocket door used for ingress
to a room, closet, dwelling, or passageway, but does not include
cabinet doors, rolling doors, garage doors, and, except to the extent
located at Residences, delivery locker doors.
H. ``Including'' means including, but not limited to.
I. ``Multifamily'' means, with respect to any buildings containing
more than one Residence, whether or not such buildings have mixed uses,
Residences in such buildings, along with common areas associated with
Residences in such buildings, including entrances and exits (but not
educational, medical, retail, commercial, industrial, or professional
areas not associated with Residences).
J. ``Premium Mechanical Divestiture Business'' means ASSA ABLOY's
(1) Emtek branded business, and (2) Schaub branded business.
K. ``Premium Mechanical Divestiture Assets'' means, at the option
of Acquirer, all of ASSA ABLOY's rights, titles, and interests in and
to all property and assets, tangible and intangible, wherever located,
relating to or used in connection with the Premium Mechanical
Divestiture Business, including:
1. the Emtek brand name and the Schaub brand name, including the
right to the exclusive and unlimited worldwide use of the Emtek brand
name and the Schaub brand name in all sales channels, as well as all
registered and unregistered trademarks, trade dress, service marks,
trade names, and trademark applications, relating to the Emtek and
Schaub trademarks;
2. leasehold interest to the real property and facilities located
at 600 Baldwin Park Boulevard, City of Industry, California;
3. 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;
4. all 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, including those issued or
granted by any governmental organization, and all pending applications
or renewals;
7. all records and data, including (i) customer lists, accounts,
sales, and credits records, (ii) production, repair, maintenance, and
performance records, (iii) manuals and technical information ASSA ABLOY
provides to its own employees, customers, suppliers, agents, or
licensees, (iv) 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 (v) drawings, blueprints, and designs;
8. in addition to the intellectual property assets listed in
Paragraph II.K.1., all other intellectual property
[[Page 31019]]
owned, licensed, or sublicensed, either as licensor or licensee,
including (i) patents, patent applications, and inventions and
discoveries that may be patentable, (ii) registered and unregistered
copyrights and copyright applications, and (iii) registered and
unregistered trademarks, trade dress, service marks, trade names, and
trademark applications; and
9. all other intangible property, including (i) commercial names
and d/b/a names, (ii) technical information, (iii) 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, (iv) design
tools and simulation capabilities, and (v) rights in internet websites
and internet domain names.
L. ``Premium Mechanical Divestiture Relevant Personnel'' means, at
the option of Acquirer, all full-time, part-time, or contract employees
of ASSA ABLOY, wherever located, whose job responsibilities relate in
any way to the Premium Mechanical Divestiture Business, at any time
between September 8, 2021, and the Divestiture Date. Subject to
Acquirer's election, the United States, in its sole discretion, will
resolve any disagreement relating to which employees are Premium
Mechanical Divestiture Relevant Personnel.
M. ``Regulatory Approvals'' means (1) any approvals or clearances
pursuant to filings under antitrust or competition laws that are
required for the Transaction to proceed; and (2) 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.
N. ``Residences'' means single family homes and residential units
within Multifamily dwellings, whether owned or whether leased or
offered for long-term or short-term use by a unit or home owner
directly or through a third party, including apartments, co-ops, and
condominiums, and properties provided by AirBnB, VRBO and similar
businesses, but not including hotel rooms, rooms in medical and long-
term care facilities, dormitory rooms, and prison cells.
O. ``Smart Lock'' means a wireless connected digital lock affixed
to a Door, but does not include any of the product categories listed in
Appendix A.
P. ``Smart Lock Divestiture Business'' means: (1) the August
branded business, and (2) the Yale branded Multifamily and residential
Smart Lock businesses in the U.S. and Canada (including Yale Real
Living), but does not include (i) the Yale branded commercial business
anywhere in the world, and (ii) all other Yale branded businesses
anywhere in the world.
Q. ``Smart Lock Divestiture Assets'' means the (1) Yale Brand and
Trademarks; and (2) at the option of Acquirer, all of ASSA ABLOY's
rights, titles, and interests in and to all property and assets,
tangible and intangible, wherever located, relating to or used in
connection with the Smart Lock Divestiture Business, including:
i. The Premises Sublease Agreement, by and between VINA--CPK
COMPANY LIMITED and ASSA ABLOY Smart Product Vietnam Co., Ltd., dated
July 23, 2019;
ii. 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;
iii. all tangible personal property, including fixed assets,
machinery and manufacturing equipment, tools, vehicles, inventory
(including Yale branded residential mechanical inventory), materials,
office equipment and furniture, computer hardware, and supplies;
iv. 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;
v. all licenses, permits, certifications, approvals, consents,
registrations, waivers, and authorizations, including those issued or
granted by any governmental organization, and all pending applications
or renewals;
vi. all records and data, including (i) customer lists, accounts,
sales, and credits records, (ii) production, repair, maintenance, and
performance records, (iii) manuals and technical information Defendants
provide to their own employees, customers, suppliers, agents, or
licensees, (iv) 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 (v) drawings, blueprints, and designs;
vii. all intellectual property owned, licensed, or sublicensed,
either as licensor or licensee, including (i) patents, patent
applications, and inventions and discoveries that may be patentable,
(ii) registered and unregistered copyrights and copyright applications,
and (iii) registered and unregistered trademarks, trade dress, service
marks, trade names, and trademark applications;
viii. all other intangible property, including (i) commercial names
and d/b/a names, (ii) technical information, (iii) 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, (iv) design
tools and simulation capabilities, (v) rights in internet websites and
internet domain names;
ix. an exclusive, perpetual, irrevocable, royalty-free, and
sublicensable license to install, copy, modify, create derivative works
of, and use solely in the United States and Canada, any access control
systems designed for Residences including mobile applications and
backend ecosystems, including the Yale Access software platform,
provided, however, that nothing in this paragraph prohibits ASSA ABLOY
from retaining, for use outside the United States and Canada, an
independent instance of any internally developed access control system
designed for Residences; and
R. ``Smart Lock Divestiture Relevant Personnel'' means, at the
option of Acquirer, all full-time, part-time, or contract employees of
ASSA ABLOY, wherever located, whose job responsibilities relate in any
way to the Smart Lock Divestiture Business, at any time between
September 8, 2021 and the Divestiture Date. The United States, in its
sole discretion, will resolve any disagreement relating to which
employees are Smart Lock Divestiture Relevant Personnel.
S. ``Transfer of Smart Lock Foreign Divestiture Assets'' means
transfer of the Smart Lock Divestiture Assets located at Lot A10, Ba
Thien II IP, Thien Ke, Binh Xuyen, Vinh Phuc Vietnam.
T. ``Transaction'' means the proposed acquisition of Spectrum's
Hardware and Home Improvement Division by ASSA ABLOY, pursuant to a
purchase agreement dated September 8, 2021, as amended.
U. ``Yale Brand and Trademarks'' means the ownership and exclusive
and unrestricted use of the Yale brand name and the business goodwill
associated therewith in the U.S. and Canada for all current and future
residential uses and all current and future Multifamily Smart
[[Page 31020]]
Lock uses (including all interconnect-style Smart Locks for Multifamily
uses and nexTouch Smart Locks for Multifamily uses and any future
products with similar functionality and applications as interconnect
and nexTouch Smart Locks in Residential and Multifamily uses).
III. Applicability
A. This Final Judgment applies to ASSA ABLOY and Spectrum, 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 V and Section VI 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. Additional Relief
If, after three years following the Divestiture Date and until the
date that is five years from entry of this Final Judgment, the
monitoring trustee determines, after investigation and consultation
with the United States, ASSA ABLOY and Acquirer, that:
a. Acquirer's competitive intensity in the residential Smart Locks
business has diminished relative to ASSA ABLOY's competitive intensity
in that business as of the Divestiture Date; and
b. Such diminishment in competitive intensity is in material part
due to limitations on Acquirer's right to use the rights held by ASSA
ABLOY to the Yale brand name or trademarks in the U.S. and Canada as of
the Divestiture Date, then
the monitoring trustee may, after consultation with the United States,
provide a written report of the monitoring trustee's conclusions to the
United States. Upon receiving such report, the United States, in its
sole discretion, will have the ability to seek leave of the Court to
re-open this proceeding specifically to seek only the grant of
additional Yale brand name or trademark rights (including the ability
to use those rights to compete for any category or customer segment) in
the U.S. and Canada to Acquirer.
V. Divestiture of the Premium Mechanical Divestiture Assets
A. ASSA ABLOY is ordered and directed, within 3 calendar days after
the closing of the Transaction, to divest the Premium Mechanical
Divestiture Assets in a manner consistent with this Final Judgment to
Acquirer, except that, for individual assets subject to Regulatory
Approvals, ASSA ABLOY is ordered and directed to divest such assets by
the later of 3 calendar days after the closing of the Transaction or 15
days after the relevant Regulatory Approvals have been received. The
United States, in its sole discretion, may agree to one or more
extensions of these time periods not to exceed 30 calendar days in
total for each time period, and ASSA ABLOY must notify the Court of any
extensions agreed to by the United States.
B. At the option of the Acquirer, for all contracts, agreements,
and customer relationships (or portions of such contracts, agreements,
and customer relationships) included in the Premium Mechanical
Divestiture Assets, ASSA ABLOY must, assign or otherwise transfer all
contracts, agreements, and customer relationships, to the Acquirer
within the deadlines set forth in Paragraph V.A. ASSA ABLOY must not
interfere with any negotiations between Acquirer and a contracting
party.
C. Subject to Paragraph V.A, ASSA ABLOY must use best efforts to
divest the Premium Mechanical Divestiture Assets as expeditiously as
possible. ASSA ABLOY 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
Premium Mechanical Divestiture Assets.
D. Unless the United States otherwise consents in writing,
divestiture pursuant to this Final Judgment must include the entire
Premium Mechanical Divestiture Assets.
E. In the event ASSA ABLOY is attempting to divest the Divestiture
Assets to an Acquirer other than Fortune, ASSA ABLOY promptly must make
known, by usual and customary means, the availability of the
Divestiture Assets. ASSA ABLOY 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. ASSA ABLOY 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 ASSA ABLOY need not provide information or documents subject to
the attorney-client privilege or work-product doctrine. ASSA ABLOY 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.
F. At the option of the Acquirer, ASSA ABLOY must provide
prospective Acquirers with (1) access to make inspections of the
Premium Mechanical Divestiture Assets; (2) access to all material
environmental, zoning, and other permitting documents and information
relating to the Premium Mechanical Divestiture Assets; and (3) access
to all financial, operational, or other documents and information
relating to the Premium Mechanical Divestiture Assets, in each case,
that would customarily be provided as part of a due diligence process.
ASSA ABLOY also must disclose all material encumbrances on any part of
the Premium Mechanical Divestiture Assets, including on intangible
property.
G. At the option of the Acquirer, ASSA ABLOY must cooperate with
and assist Acquirer in identifying and hiring all Premium Mechanical
Divestiture Relevant Personnel, including:
1. Within 10 business days following the receipt of a request by
Acquirer, ASSA ABLOY must identify all Premium Mechanical Divestiture
Relevant Personnel to Acquirer and the United States, including by
providing organization charts covering all Premium Mechanical
Divestiture Relevant Personnel.
2. Within 10 business days following receipt of a request by
Acquirer or the United States, ASSA ABLOY must provide to Acquirer and
the United States additional information relating to Premium Mechanical
Divestiture Relevant Personnel, including name, job title, reporting
relationships, past experience, responsibilities, training and
educational histories, relevant certifications, and job performance
evaluations. ASSA ABLOY must also provide Acquirer and the United
States information relating to current and accrued compensation and
benefits of Premium Mechanical Divestiture Relevant Personnel,
including most recent bonuses paid, aggregate annual compensation, any
current target or guaranteed bonuses, if any, any retention agreement
or incentives, and any other payments due, compensation or benefits
accrued, or promises made to the Premium Mechanical Divestiture
Relevant Personnel. If ASSA ABLOY is barred by any applicable law from
providing any of this information, ASSA ABLOY must provide, within 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 to
[[Page 31021]]
Acquirer and the United States of ASSA ABLOY's inability to provide the
remaining information, including specifically identifying the
provisions of the applicable laws.
3. At the request of Acquirer, ASSA ABLOY must promptly make
Premium Mechanical Divestiture Relevant Personnel available for private
interviews with Acquirer during normal business hours at a mutually
agreeable location.
4. ASSA ABLOY must not interfere with any effort by Acquirer to
employ any Premium Mechanical Divestiture Relevant Personnel.
Interference includes offering to increase the compensation or improve
the benefits of Premium Mechanical Divestiture Relevant Personnel
unless (i) the offer is part of a company-wide increase in compensation
or improvement in benefits that was announced prior to September 8,
2021, or (ii) the offer is approved by the United States in its sole
discretion. ASSA ABLOY's obligations under this Paragraph V.G.4. will
expire 180 calendar days after the Divestiture Date.
5. For Premium Mechanical Divestiture Relevant Personnel who elect
employment with Acquirer within 180 calendar days of the Divestiture
Date, ASSA ABLOY must waive all non-compete and non-disclosure
agreements; vest and pay to the Premium Mechanical Divestiture 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 Premium Mechanical
Divestiture Relevant Personnel otherwise would have been provided had
the Premium Mechanical Divestiture Relevant Personnel continued
employment with ASSA ABLOY, including any retention bonuses or
payments. ASSA ABLOY may maintain reasonable restrictions on disclosure
by Premium Mechanical Divestiture Relevant Personnel of ASSA ABLOY's
proprietary non-public information that is unrelated to the Premium
Mechanical Divestiture Assets and not otherwise required to be
disclosed by this Final Judgment.
6. For a period of 180 calendar days from the Divestiture Date,
ASSA ABLOY may not solicit to rehire any Premium Mechanical Divestiture
Relevant Personnel who were hired by Acquirer within 90 calendar days
of the Divestiture Date unless (a) an individual is terminated or laid
off by Acquirer or (b) Acquirer agrees in writing that ASSA ABLOY may
solicit to rehire that individual. Nothing in this Paragraph V.G.6.
prohibits ASSA ABLOY from advertising employment openings using general
solicitations or advertisements and rehiring Premium Mechanical
Divestiture Relevant Personnel who apply for an employment opening
through a general solicitation or advertisement.
H. At the option of the Acquirer, ASSA ABLOY must warrant to
Acquirer that (1) the Premium Mechanical Divestiture Assets will be
operational in all material respects 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 Premium Mechanical Divestiture Assets; and (3) ASSA
ABLOY has disclosed all material encumbrances on any part of the
Premium Mechanical Divestiture Assets, including on intangible
property. Following the sale of the Premium Mechanical Divestiture
Assets, ASSA ABLOY must not undertake, directly or indirectly,
challenges to the environmental, zoning, or other permits relating to
the operation of the Premium Mechanical Divestiture Assets.
I. At the option of the Acquirer, ASSA ABLOY must use best efforts
to assist Acquirer to obtain all necessary licenses, registrations, and
permits to operate the Premium Mechanical Divestiture Business. Until
Acquirer obtains the necessary licenses, registrations, and permits,
ASSA ABLOY must provide Acquirer with the benefit of ASSA ABLOY's
licenses, registrations, and permits to the full extent permissible by
law.
J. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date, ASSA
ABLOY must enter into a supply contract or contracts for all products
necessary to operate the Premium Mechanical Divestiture Business for a
period of up to 12 months, on terms and conditions reasonably related
to market conditions for the provision of such products, as agreed to
by Acquirer.
K. 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
up to two extensions of any supply contract for a period of 12 months
each. Any supply contract extension will be on terms and conditions
reasonably related to market conditions for the provision of such
products, as agreed to by Acquirer. If Acquirer seeks an extension of
the term of any supply contract, ASSA ABLOY must notify the United
States in writing at least 30 calendar 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, other than
payment of any amounts due thereunder, upon 15 calendar days' written
notice. The employees of ASSA ABLOY tasked with servicing any supply
contracts must not share any competitively sensitive information of
Acquirer with any other employee of ASSA ABLOY.
L. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date, ASSA
ABLOY must enter into a contract to provide transition services to
cover all services necessary to operate the Premium Mechanical
Divestiture Business, including services for back office, human
resources, accounting, employee health and safety, and information
technology services and support for a period of up to 12 months on
terms and conditions reasonably related to market conditions for the
provision of the transition services, as agreed to by Acquirer.
M. 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 12 months. Any
contract extension will be on terms and conditions reasonably related
to market conditions for the provision of such services, as agreed to
by Acquirer. If Acquirer seeks an extension of the term of any contract
for transition services, ASSA ABLOY must notify the United States in
writing at least 30 calendar days 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, other than payment of any amounts due thereunder, at any time
upon 15 calendar days' written notice. The employees of ASSA ABLOY
tasked with providing transition services must not share any
competitively sensitive information of Acquirer with any other employee
of ASSA ABLOY.
N. If any term of an agreement between ASSA ABLOY and Acquirer,
including an agreement to effectuate the divestiture required by this
Final Judgment, varies from a term of this Final Judgment including as
[[Page 31022]]
implemented by the Asset Preservation and Stipulation and Order entered
contemporaneously herewith, to the extent that ASSA ABLOY cannot fully
comply with both, this Final Judgment as so implemented determines ASSA
ABLOY's obligations.
VI. Divestiture of Smart Lock Divestiture Assets
A. ASSA ABLOY is ordered and directed, within 3 calendar days after
the closing of the Transaction, to divest the Smart Lock Divestiture
Assets in a manner consistent with this Final Judgment to Acquirer,
except that, for individual assets subject to Regulatory Approvals,
ASSA ABLOY is ordered and directed to divest such assets by the later
of 3 calendar days after the closing of the Transaction or 15 days
after the relevant Regulatory Approvals have been received. The United
States, in its sole discretion, may agree to one or more extensions of
these time periods not to exceed 30 calendar days in total for each
time period, and ASSA ABLOY must notify the Court of any extensions
agreed to by the United States.
B. At the option of Acquirer, for all contracts, agreements, and
customer relationships (or portions of such contracts, agreements, and
customer relationships) included in the Smart Lock Divestiture Assets,
ASSA ABLOY must assign or otherwise transfer all contracts, agreements,
and customer relationships, to the Acquirer within the deadlines set
forth in Paragraph VI.A. ASSA ABLOY must not interfere with any
negotiations between Acquirer and a contracting party.
C. Subject to Paragraph VI.A, ASSA ABLOY must use best efforts to
divest the Smart Lock Divestiture Assets as expeditiously as possible.
ASSA ABLOY 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 Smart Lock Divestiture
Assets. To incentivize ASSA ABLOY to achieve Transfer of Smart Lock
Foreign Divestiture Assets as expeditiously as possible, after December
31, 2023, ASSA ABLOY is ordered to pay to the United States $50,120 per
day until ASSA ABLOY achieves Transfer of Smart Lock Foreign
Divestiture Assets, provided, however, that such payments will not be
due if ASSA ABLOY can demonstrate to the United States, after
consultation with the monitoring trustee, that (1) Transfer of Smart
Lock Foreign Divestiture Assets was delayed due to a force majeure
event, or (2) operational control has otherwise been given to the
Acquirer such that the purposes of the divestiture have been carried
out. If ASSA ABLOY relies on point (2) of this provision, it shall
confer with the United States in an effort to reach agreement on
whether the steps taken carry out the purposes of the divestiture, and
if the parties are unable to reach agreement, ASSA ABLOY may ask the
Court to resolve this issue. The United States' agreement to an
extension pursuant to Paragraph VI.A. will not relieve ASSA ABLOY of
the requirement to make these payments. If ASSA ABLOY demonstrates to
the United States that unanticipated material difficulties not due to
the actions or inaction of ASSA ABLOY have resulted in unavoidable
delays to achieve Transfer of Smart Lock Foreign Divestiture Assets,
the United States may, in its sole discretion, agree to forgo some or
all of the payments.
D. Unless the United States otherwise consents in writing,
divestiture pursuant to this Final Judgment must include all Smart Lock
Divestiture Assets.
E. In the event ASSA ABLOY is attempting to divest the Divestiture
Assets to an Acquirer other than Fortune, ASSA ABLOY promptly must make
known, by usual and customary means, the availability of the
Divestiture Assets. ASSA ABLOY 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. ASSA ABLOY 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 ASSA ABLOY need not provide information or documents subject to
the attorney-client privilege or work-product doctrine. ASSA ABLOY 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.
F. At the option of Acquirer, ASSA ABLOY must provide prospective
Acquirers with (1) access to make inspections of the Smart Lock
Divestiture Assets; (2) access to all material environmental, zoning,
and other permitting documents and information relating to the Smart
Lock Divestiture Assets; and (3) access to all financial, operational,
or other documents and information relating to the Smart Lock
Divestiture Assets, in each case, that would customarily be provided as
part of a due diligence process. ASSA ABLOY also must disclose all
material encumbrances on any part of the Smart Lock Divestiture Assets,
including on intangible property.
G. At the option of Acquirer, ASSA ABLOY must cooperate with and
assist Acquirer in identifying and, hiring all Smart Lock Divestiture
Relevant Personnel, including:
1. Within 10 business days following the receipt of a request by
Acquirer, ASSA ABLOY must identify all Smart Lock Divestiture Relevant
Personnel to Acquirer and the United States, including by providing
organization charts covering all Smart Lock Divestiture Relevant
Personnel.
2. Within 10 business days following receipt of a request by
Acquirer or the United States, ASSA ABLOY must provide to Acquirer and
the United States additional information relating to Smart Lock
Divestiture Relevant Personnel, including name, job title, reporting
relationships, past experience, responsibilities, training and
educational histories, relevant certifications, and job performance
evaluations. ASSA ABLOY must also provide Acquirer and the United
States information relating to current and accrued compensation and
benefits of Smart Lock Divestiture Relevant Personnel, including most
recent bonuses paid, aggregate annual compensation, any current target
or guaranteed bonuses, if any, any retention agreement or incentives,
and any other payments due, compensation or benefits accrued, or
promises made to the Smart Lock Divestiture Relevant Personnel. If ASSA
ABLOY is barred by any applicable law from providing any of this
information, ASSA ABLOY must provide, within 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 to
Acquirer and the United States of ASSA ABLOY's inability to provide the
remaining information, including specifically identifying the
provisions of the applicable laws.
3. At the request of Acquirer, ASSA ABLOY must promptly make Smart
Lock Divestiture Relevant Personnel available for private interviews
with Acquirer during normal business hours at a mutually agreeable
location.
4. ASSA ABLOY must not interfere with any effort by Acquirer to
employ any Smart Lock Divestiture Relevant Personnel. Interference
includes offering to increase the compensation or improve the benefits
of Smart Lock Divestiture Relevant Personnel unless
[[Page 31023]]
(a) the offer is part of a company-wide increase in compensation or
improvement in benefits that was announced prior to September 8, 2021,
or (b) the offer is approved by the United States in its sole
discretion. ASSA ABLOY's obligations under this Paragraph VI.G.4. will
expire 180 calendar days after the Divestiture Date.
5. For Smart Lock Divestiture Relevant Personnel who elect
employment with Acquirer within 180 calendar days of the Divestiture
Date, ASSA ABLOY must waive all non-compete and non-disclosure
agreements; vest and pay to the Smart Lock Divestiture 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; vested any unvested pension and other equity
rights; and provide all other benefits that those Smart Lock
Divestiture Relevant Personnel otherwise would have been provided had
the Smart Lock Divestiture Relevant Personnel continued employment with
ASSA ABLOY, including any retention bonuses or payments. ASSA ABLOY may
maintain reasonable restrictions on disclosure by Smart Lock
Divestiture Relevant Personnel of ASSA ABLOY's proprietary non-public
information that is unrelated to the Smart Lock Divestiture Assets and
not otherwise required to be disclosed by this Final Judgment.
6. For a period of 180 calendar days from the Divestiture Date,
ASSA ABLOY may not solicit to rehire any Smart Lock Divestiture
Relevant Personnel who were hired by Acquirer within 90 calendar days
of the Divestiture Date unless (i) an individual is terminated or laid
off by Acquirer or (ii) Acquirer agrees in writing that ASSA ABLOY may
solicit to rehire that individual. Nothing in this Paragraph VI.G.6.
prohibits ASSA ABLOY from advertising employment openings using general
solicitations or advertisements and rehiring any Smart Lock Divestiture
Relevant Personnel who apply for an employment opening through a
general solicitation or advertisement.
H. At the option of the Acquirer, ASSA ABLOY must warrant to
Acquirer that (1) the Smart Lock Divestiture Assets will be operational
in all material respects 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 Smart Lock Divestiture Assets; and (3) ASSA ABLOY has disclosed all
material encumbrances on any part of the Smart Lock Divestiture Assets,
including on intangible property. Following the sale of the Smart Lock
Divestiture Assets, ASSA ABLOY must not undertake, directly or
indirectly, challenges to the environmental, zoning, or other permits
relating to the operation of the Smart Lock Divestiture Assets.
I. At the option of the Acquirer, ASSA ABLOY must use best efforts
to assist Acquirer to obtain all necessary licenses, registrations, and
permits to operate the Smart Lock Divestiture Business. Until Acquirer
obtains the necessary licenses, registrations, and permits, ASSA ABLOY
must provide Acquirer with the benefit of ASSA ABLOY's licenses,
registrations, and permits to the full extent permissible by law.
J. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date, ASSA
ABLOY must enter into a supply contract or contracts for all products
necessary to operate the Smart Lock Divestiture Business, including
nexTouch and Interconnect branded products produced by ASSA ABLOY prior
to the Divestiture Date, for a period of up to 12 months, on terms and
conditions reasonably related to market conditions for the provision of
such products, as agreed to by Acquirer.
K. 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
up to two extensions of any supply contract of 12 months each. Any
contract extension will be on terms and conditions reasonably related
to market conditions for the provision of such products, as agreed to
by Acquirer. If Acquirer seeks an extension of the term of any supply
contract, ASSA ABLOY must notify the United States in writing at least
30 calendar 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, other than payment of any amounts
due thereunder, upon 15 calendar days' written notice. The employees of
ASSA ABLOY tasked with servicing any supply contracts must not share
any competitively sensitive information of Acquirer with any other
employee of ASSA ABLOY.
L. At the option of Acquirer, and subject to approval by the United
States in its sole discretion, on or before the Divestiture Date, ASSA
ABLOY must enter into a contract to provide transition services to
cover (1) all services necessary to operate the Smart Lock Divestiture
Business, including services for back office, human resources,
accounting, employee health and safety, and information technology
services and support, and (2) all services necessary to operate the
manufacturing facility at Lot A10, Ba Thien II IP, Thien Ke, Binh
Xuyen, Vinh Phuc, Vietnam, for a period of up to 12 months on terms and
conditions reasonably related to market conditions for the provision of
the transition services.
M. 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 12 additional months,
provided, however, that any contract extension will be on terms and
conditions reasonably related to market conditions for the provision of
such services. If Acquirer seeks an extension of the term of any
contract for transition services, ASSA ABLOY must notify the United
States in writing at least 30 calendar days 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, other than payment of any amounts due thereunder, at
any time upon 15 calendar days' written notice. The employees of ASSA
ABLOY tasked with providing transition services must not share any
competitively sensitive information of Acquirer with any other employee
of ASSA ABLOY.
N. ASSA ABLOY will have the right to use the Yale brand name in the
U.S. and Canada solely for commercial products not sold for Residences
for a transitional, wind-down period of up to twelve (12) months
following the Divestiture Date. (For these purposes only, Residences
does not include commercial products sold in order to fulfill orders in
connection with the Yale Accentra platform for up to six months
following the Divestiture Date and Acquirer may elect, with consent of
the United States, to extend this term for an additional six months.)
ASSA ABLOY must within 30 days following the Divestiture Date commence
a brand transition for its Yale branded commercial products in the U.S.
and Canada, which shall be completed no later than twelve (12) months
after commencement, in connection with the wind-down described above in
this Paragraph. In addition, ASSA ABLOY will have the right to use the
Yale brand name in the U.S. and Canada solely for commercial products
for a transitional,
[[Page 31024]]
wind-down for a period of up to two (2) years following the Divestiture
Date with respect to sales of commercial products in connection with
honoring any specification or quote, in each case issued prior to the
Divestiture Date.
For the avoidance of doubt, nothing in this proposed Final Judgment
limits or prohibits Acquirer's use of any non-Yale brand for any
purpose.
O. If any term of an agreement between ASSA ABLOY and Acquirer,
including an agreement to effectuate the divestiture required by this
Final Judgment, varies from a term of this Final Judgment including as
implemented by the Asset Preservation and Stipulation and Order entered
contemporaneously herewith, to the extent that ASSA ABLOY cannot fully
comply with both, this Final Judgment as so implemented determines ASSA
ABLOY's obligations.
P. At the option of Acquirer, if at any time after the Divestiture
Date, Acquirer notifies ASSA ABLOY in writing of any patents that (1)
are owned by ASSA ABLOY as of the Divestiture Date; (2) are not
licensed or otherwise transferred to Acquirer under Paragraphs
II.Q.2.vii; and (3) were contemplated by ASSA ABLOY to be used in the
Smart Lock Divestiture Business prior to the Divestiture Date as set
forth in the Product Development Roadmap attached to the Stock Purchase
Agreement, such patents will automatically be deemed licensed to
Acquirer under Paragraph II.Q.2.vii.
Q. At the option of Acquirer, for a period of five years following
the Divestiture Date, Acquirer will have the right to request and
receive a code base assessment of the Yale Access control system once
per year to inventory the proprietary libraries comprising the Yale
Access control system and confirm whether any of the baseline libraries
are included within ASSA ABLOY's U.S. or Canadian products.
R. At the option of Acquirer, Acquirer may purchase all of ASSA
ABLOY's inventory as of the Divestiture Date that is branded Yale in
the residential mechanical space, subject to the terms and conditions
of the supply agreement in Paragraph VI.J, but without restriction on
how or where it is sold to residential or, solely with respect to such
inventory, Multifamily customers.
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 their
respective obligations under the Asset Preservation Stipulation and
Order entered by the Court.
IX. Affidavits
A. Within 20 calendar days of the entry of the Asset Preservation
Stipulation and Order in this matter, and every 30 calendar days
thereafter until the divestitures required by this Final Judgment have
been completed, ASSA ABLOY must deliver to the United States and the
monitoring trustee, if one has been appointed, an affidavit, signed by
each the Chief Financial Officer and General Counsel of its Americas
division, describing in reasonable detail the fact and manner of ASSA
ABLOY's compliance with this Final Judgment. The United States, in its
sole discretion, may approve different signatories for the affidavits.
B. Each affidavit required by Paragraph IX.A. must include: (1) a
description of the efforts ASSA ABLOY has taken to complete the sale of
any of the Divestiture Assets and to provide required information to
Acquirer; and (2) a description of any limitations placed by ASSA ABLOY
on information provided to Acquirer. Objection by the United States to
information provided by ASSA ABLOY to Acquirer must be made within 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. ASSA ABLOY must keep all records of any efforts made to divest
the Divestiture Assets until one year after the Divestiture Date.
D. Within 20 calendar days of entry of the Asset Preservation
Stipulation and Order in this matter, ASSA ABLOY must deliver to the
United States an affidavit, signed by the Chief Financial Officer and
General Counsel of its America's division, that describes in reasonable
detail all actions that ASSA ABLOY has taken and all steps that ASSA
ABLOY 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 ASSA ABLOY makes any changes to actions and steps described
in affidavits provided pursuant to Paragraph IX.D., ASSA ABLOY must,
within 15 calendar days after any change is implemented, deliver to the
United States an affidavit describing those changes.
F. ASSA ABLOY must keep all records of any efforts made to comply
with Section VIII until one 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, after consultation with Defendants, 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 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
ASSA ABLOY 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 ASSA
ABLOY, 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 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 ASSA ABLOY are unable
to reach agreement on the monitoring trustee's compensation or other
terms and conditions of engagement within 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
[[Page 31025]]
three business days of hiring any agents or consultants, the monitoring
trustee must provide written notice of the hiring and the rate of
compensation to Defendants and the United States.
G. The monitoring trustee must account for all costs and expenses
incurred.
H. ASSA ABLOY and Acquirer 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, ASSA ABLOY and Acquirer must
provide the monitoring trustee and agents or consultants retained by
the monitoring trustee with full and complete access to all personnel,
books, records, and facilities of the Divestiture Assets. ASSA ABLOY
and Acquirer 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 ASSA
ABLOY's compliance with this Final Judgment, the Asset Preservation
Stipulation and Order, and any inter-party agreements between Acquirer
and ASSA ABLOY relating to the divestiture, including by investigating
and reporting pursuant to Section IV of this Final Judgment and
regarding compliance with the terms of this Final Judgment. During any
period while any transition services or supply agreements entered into
pursuant to Sections V and VI of this Final Judgment are in effect, or
any period while a proceeding may be reopened by the United States
pursuant to Section IV of this Final Judgment, 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 later of (1) the
expiration of the terms of all transition services agreements or supply
agreements entered pursuant to Sections V and VI of this Final Judgment
or (2) the conclusion of any proceeding reopened by the United States
pursuant to Section IV of this Final Judgment, or, if no such
proceeding is reopened prior to the date that is five (5) years from
entry of this Final Judgment, five (5) years from entry 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. Dispute Resolution
A. ASSA ABLOY and Acquirer will each have the right to initiate an
expedited dispute resolution process in the event of a dispute over the
extent of either party's rights under this Final Judgment, including
whether an application is Multifamily, commercial, or residential and
whether the intellectual property rights set forth in Paragraph
II.Q.2.vii have been transferred. In any such dispute over whether an
application is Multifamily, commercial or residential, ASSA ABLOY will
bear the burden of proof and all ambiguities in the agreement with
respect to whether an application is Multifamily, commercial or
residential will be construed against it; the losing party will pay all
expenses. With respect to a dispute under any supply agreement pursuant
to Paragraphs V.J, V.K, VI.J, or VI.K of this Final Judgment and until
the expiration of the Final Judgment, ASSA ABLOY and Acquirer will each
have the right to initiate a one-day binding arbitration to be held
within 15 days of notice by either party.
B. This Section XI will not be interpreted to limit or impact the
monitoring trustee's responsibilities under Section X.
XII. 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.
XIII. No Reacquisition
ASSA ABLOY 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. Public Disclosure
A. No information or documents obtained pursuant to any provision
of this Final Judgment 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 the proposed Acquirer or securing
compliance with this Final Judgment, or as otherwise required by law.
B. In the event of a request by a third party, pursuant to the
Freedom of Information Act, 5 U.S.C. 552, for disclosure of information
obtained pursuant to any provision of this Final Judgment, 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 10 years after submission, ``unless the
submitter requests and provides justification for a longer designation
period.'' See 28 CFR 16.7(b).
C. If at the time that Defendants furnish information or documents
to the United States pursuant to any provision of this Final Judgment,
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
[[Page 31026]]
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 10 calendar
days' notice before divulging the material in any legal proceeding
(other than a grand jury proceeding).
XV. 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.
XVI. 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. 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 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 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 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.
XVII. Expiration of Final Judgment
Unless the Court grants an extension, this Final Judgment will
expire 10 years from the date of its entry, except that after five
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
divestitures have been completed and continuation of this Final
Judgment is no longer necessary or in the public interest.
XVIII. 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
United States District Court for the District of Columbia
UNITED STATES OF AMERICA, Plaintiff, v. ASSA ABLOY AB, et al.,
Defendants.
Civil No. 1:22-cv-02791-ACR
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 related to the proposed
Final Judgment filed in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On September 8, 2021, Defendants ASSA ABLOY AB (``ASSA ABLOY'') and
Spectrum Brands Holding, Inc. (``Spectrum'') signed an asset and stock
purchase agreement under which ASSA ABLOY would acquire Spectrum's
Hardware and Home Improvement division for approximately $4.3 billion.
The United States filed a civil antitrust Complaint on September 15,
2022, seeking to enjoin the proposed acquisition. The Complaint alleges
that the likely effect of this acquisition may be to substantially
lessen competition for the premium mechanical door hardware and smart
locks markets in the United States in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18.
The parties vigorously litigated this case for more than seven
months and, with the assistance of a mediator, have now reached a
proposed settlement. The United States files this Competitive Impact
Statement simultaneously with a proposed Final Judgment and an Asset
Preservation Stipulation and Order (``Stipulation and Order'').
Under the proposed Final Judgment, which is explained more fully
below, ASSA ABLOY is required to make certain divestitures to Fortune
Brands Innovations, Inc. (``Fortune'') or to another entity approved by
the United States in its sole discretion. The proposed Final Judgment
provides for financial penalties if ASSA ABLOY does not complete the
divestiture of assets located outside the United States within a
specified period of time. It also provides for appointment of a
monitoring trustee to monitor Defendants' compliance with the terms of
the proposed Final Judgment, the Stipulation and Order, and any inter-
party agreements between ASSA ABLOY and the acquirer that relate to the
divestiture. The monitoring trustee will also monitor the acquirer's
success in competing in the market for residential smart locks with the
assets divested.
Under the terms of the Stipulation and Order, ASSA ABLOY must take
certain steps to operate, preserve, and maintain the full economic
viability, marketability, and competitiveness of the divested assets
until the divestitures ordered in the proposed Final Judgment are
complete. The Stipulation and Order requires Defendants to abide by and
comply with the provisions of the proposed Final Judgment until it is
entered by the Court.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the
[[Page 31027]]
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.
II. Description of Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Complete descriptions of the Defendants and their proposed
acquisition are found in the Complaint, filed September 15, 2022. (Dkt.
No. 1). ASSA ABLOY is a globally integrated conglomerate that
manufactures and sells a wide array of access solutions products--
including residential and commercial door hardware, doors, and
electronic access systems. In the United States, ASSA ABLOY competes in
the market for premium mechanical door hardware using the Emtek and
Schaub brands and in the market for smart locks using the August and
Yale brands. ASSA ABLOY had about $3.5 billion in sales in the United
States in 2021.
Spectrum's Hardware and Home Improvement division is the largest
residential door hardware producer in the United States. Notably, it
competes using the widely known Kwikset brand as well as the Baldwin
Estate, Baldwin Reserve, and Baldwin Prestige brands. It had about $1.4
billion in sales in the United States in 2021.
On September 8, 2021, ASSA ABLOY agreed to buy Spectrum's Hardware
and Home Improvement division for approximately $4.3 billion.
B. The Competitive Effects of the Transaction
Complete descriptions of the potential effects on competition in
the markets for both premium mechanical door hardware and for smart
locks are found in the Complaint. (Dkt. No. 1). In the markets for
smart locks and premium mechanical door hardware, ASSA ABLOY and
Spectrum are close competitors and share enormous market shares that
render the merger presumptively anticompetitive.
As alleged in the Complaint, the proposed transaction would have
threatened competition in at least two separate antitrust markets in
the United States: (1) premium mechanical door hardware and (2) smart
locks, which are wirelessly connected digital door locks. In the
premium mechanical door hardware market, the proposed transaction would
be a merger to near-monopoly, where the merged firm would account for
around 65% of sales, becoming more than ten times larger than its next-
largest competitor. In the market for smart locks, the proposed
transaction would cut off competition in a fast-growing door hardware
segment, leaving the merged firm with more than a 50% share and only
one remaining meaningful competitor--an effective duopoly. In both of
these markets, the proposed transaction easily surpasses the thresholds
that trigger a presumptive violation of the Clayton Act.
Historically, competition between Defendants to sell residential
door hardware to showrooms, home improvement stores, builders, online
retailers, home security companies, and other customers has generated
lower prices, higher quality, exciting innovations, and superior
customer service. The head-to-head competition between the Defendants
is significant. They regularly reduce price to win business from each
other and respond to each other's competitive initiatives with
innovation and better offerings. For example, one of Spectrum's top
``strategic imperatives'' in 2021 was to invest heavily in better
service and pricing for its premium mechanical door hardware brands
(Baldwin Estate and Baldwin Reserve) in order to recapture market share
from its ``chief competitor,'' ASSA ABLOY's Emtek brand. Similarly,
ASSA ABLOY has recently invested in a new lineup of smart locks
designed to ``take [a half] bay'' (i.e., take shelf space) from
Spectrum's Kwikset brand and its other large competitor in major home
improvement stores. The proposed transaction would eliminate those
benefits altogether.
III. Alternatives to the Proposed Final Judgment and Summary of
Settlement Rationale
As an alternative to the proposed Final Judgment, the United States
considered either (1) proceeding to verdict and continuing to request
the Court to enter a permanent injunction blocking the proposed merger
between ASSA ABLOY and Spectrum or (2) accepting earlier divestitures
that Defendants proposed.
The United States identified several concerns with the divestiture
proposals. The divestiture agreement restricted the rights of Fortune
to use the Yale brand name to sell products outside of residential
smart locks, including important products in the multifamily segment.
This would have limited Fortune's incentive to invest in the Yale brand
and curtailed its ability to use that brand to compete for customers
who sought Yale locks that could be used in all aspects of residential
and multifamily buildings. The supply agreement between ASSA ABLOY and
Fortune lacked specific enforcement terms and risked Fortune's ability
to supply an important customer base. While the Emtek and Schaub assets
ASSA ABLOY proposed to divest represented mostly a separate, ongoing
business unit, the disparity between the potential competitive
significance of those assets and the Yale branded residential smart
lock assets would have increased incentives for tacit coordination
between the post-merger ASSA ABLOY and Fortune. Finally, the
divestiture, as initially proposed, included a lengthy period of
transition and entanglement in which ASSA ABLOY and Fortune would have
shared--for an indefinite period--an important smart locks
manufacturing facility in Vietnam.
Under the guidance of a mediator, a settlement was reached,
ultimately culminating in the proposed Final Judgment described below.
This proposed Final Judgment provides greater relief than earlier
offers by the Defendants. In particular, the proposed Final Judgment:
Expands the scope of the Yale-related intellectual
property to be divested to Fortune or an alternative acquirer. This
includes the unrestricted right to use the Yale brand in the United
States and Canada for any smart locks used in single- and multi-family
residences, the right to use the Yale brand for mechanical residential
products, as well as an irrevocable license to the Yale Access software
platform for associated end uses in the United States and Canada. It
also includes rights to the Interconnect and nexTouch brands, which are
important to the multifamily segment. These provisions will improve
Fortune's or an alternative acquirer's incentives to invest in the
divested brands and preserves the acquirer's ability to use those
brands to compete against ASSA ABLOY in the future, including in ways
and with products not contemplated today.
Mandates a shortened transition period for entanglements
between ASSA ABLOY and the acquirer and subjects ASSA ABLOY to
significant daily penalties if it fails to transfer certain smart lock
assets located in Vietnam by December 31, 2023.
Appoints a monitoring trustee to (1) ensure ASSA ABLOY's
compliance with the terms of the proposed Final Judgment, the
Stipulation and Order, and any inter-party agreements between ASSA
ABLOY and the acquirer relating to the divestiture and (2) determine,
for a period of up to five years after the entry of the Final Judgment,
whether
[[Page 31028]]
Fortune or an alternative acquirer has replicated the competitive
intensity in the residential smart locks business that was lost as a
result of ASSA ABLOY's acquisition of Spectrum's Hardware and Home
Improvement division and, if not, whether the diminishment in
competitive intensity is in material part due to limitations on the
acquirer's right to use the Yale brand name or trademarks in the United
States and Canada.
If the monitoring trustee makes such a determination, the
monitoring trustee may, after consultation with the United States,
provide a written report of that determination to the United States,
after which the United States may seek leave of the Court to reopen
this proceeding and seek divestiture of additional brand or trademark
rights.
The United States does not contend that the relief obtained by the
proposed Final Judgment will fully eliminate the risks to competition
alleged in the Complaint. The United States respectfully submits that
only a complete injunction preventing the original proposed merger
would have eliminated those risks. Alternatively, complete divestitures
of all relevant standalone business units necessary to fully compete
may have diminished those risks significantly. Based on the totality of
circumstances and risks associated with this litigation, however, the
United States has agreed to the proposed Final Judgment, which includes
additional provisions and protections to address some of the concerns
identified above. The United States believes the Court will conclude
the proposed Final Judgment is in the public interest under the Tunney
Act.
IV. Explanation of the Proposed Final Judgment
The proposed Final Judgment includes the following terms:
A. Divested Assets
The proposed Final Judgment requires ASSA ABLOY to divest to
Fortune, or to another acquirer approved by the United States in its
sole discretion, what the proposed Final Judgment defines as the
``Premium Mechanical Divestiture Assets,'' which include, at the option
of the acquirer, all of ASSA ABLOY's rights, titles, and interests in
and to all property and assets, tangible and intangible, wherever
located, relating to or used in connection with the ``Premium
Mechanical Divestiture Business,'' which consists of ASSA ABLOY's Emtek
and Schaub branded businesses. For example, as further detailed in the
proposed Final Judgment, the Premium Mechanical Divestiture Assets
include a facility in California, as well as machinery, equipment,
contracts, licenses, permits, and intellectual property. This
intellectual property includes the right to exclusive and unlimited
worldwide use, in all sales channels, of the Emtek brand names and
trademarks and Schaub brand name and trademarks. Pursuant to Paragraph
V.D of the proposed Final Judgment, unless the United States otherwise
consents in writing, the divestiture must include the entire Premium
Mechanical Divestiture Assets.
The proposed Final Judgment also requires ASSA ABLOY to divest to
Fortune, or to another acquirer approved by the United States in its
sole discretion, the ``Smart Lock Divestiture Assets,'' which includes,
at the option of the acquirer, all of ASSA ABLOY's rights, titles, and
interests in and to all property and assets, tangible and intangible,
wherever located, relating to or used in connection with the ``Smart
Lock Divestiture Business.'' As defined in the proposed Final Judgment,
the Smart Lock Divestiture Business consists of (1) the August branded
business and (2) the Yale branded multifamily and residential smart
lock businesses in the United States and Canada (including Yale Real
Living), but does not include (i) the Yale branded commercial business
anywhere in the world or (ii) all other Yale branded businesses
anywhere in the world. As further detailed in the proposed Final
Judgment, the Smart Lock Divestiture Assets include machinery,
equipment, contracts, licenses, permits, and intellectual property.
This intellectual property includes the right to the Yale brand name
and trademarks for uses in the United States and Canada, as well as a
license to the Yale Access software platform for use in the United
States in Canada. The Smart Lock Divestiture Assets also include a
facility in Vietnam. Pursuant to Paragraph VI.D of the proposed Final
Judgment, unless the United States consents in writing, the divestiture
must include all Smart Lock Divestiture Assets.
Paragraph VI.P of the proposed Final Judgment further provides
that, if at any time after the divestiture of the Smart Lock
Divestiture assets, the acquirer notifies ASSA ABLOY in writing of any
patents that (1) are owned by ASSA ABLOY as of the divestiture date,
(2) are not licensed or otherwise transferred to the acquirer pursuant
to the proposed Final Judgment, and (3) were contemplated by ASSA ABLOY
to be used in the Smart Lock Divestiture Business prior to the
divestiture date, as set forth in the Product Development Roadmap
attached to the Stock Purchase Agreement, then those patents will
automatically be deemed as licensed to the acquirer under the terms of
the proposed Final Judgment.
Paragraph VI.Q of the proposed Final Judgment provides that, for
five years after the divestiture of the Smart Lock Divestiture Assets,
the acquirer has the right to annually request and receive a code base
assessment of the Yale Access control system to inventory the
proprietary libraries comprising the Yale Access control system and
confirm whether any of the baseline libraries are included within ASSA
ABLOY's United States or Canadian products.
Paragraph VI.R of the proposed Final Judgment provides the acquirer
the option to purchase all of ASSA ABLOY's Yale branded inventory, as
of the divestiture date, relating to the residential mechanical space.
This purchase is subject to the terms of any supply agreement(s)
entered into pursuant to the proposed Final Judgment, but does not
restrict the acquirer on where or how it sells such inventory to
residential or multifamily customers.
Paragraph VI.N of the proposed Final Judgment provides ASSA ABLOY
the right to use the Yale brand name in the United States and Canada.
It provides for a twelve-month wind-down period during which ASSA ABLOY
can continue to use the Yale brand name for commercial products,
including in some limited circumstances associated with the Yale
Accentra platform and sold to multifamily residences. In addition, ASSA
ABLOY is permitted to continue to use the Yale brand name for
commercial products to fulfill specifications or quotes issued prior to
the divestiture.
B. Relevant Personnel
The proposed Final Judgment contains provisions intended to
facilitate the acquirer's efforts to hire certain employees.
Specifically, Paragraphs V.G and VI.G of the proposed Final Judgment
require ASSA ABLOY, at the option of the acquirer, 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 ASSA ABLOY must not interfere with any
negotiations by the acquirer to hire these employees. In addition, for
employees who elect employment with the acquirer, ASSA ABLOY must waive
all non-compete and non-disclosure agreements, vest all unvested
pension and other equity rights, provide any pay pro rata, provide all
compensation and
[[Page 31029]]
benefits that those employees have fully or partially accrued, and
provide all other benefits that the employees would generally be
provided had those employees continued employment with ASSA ABLOY,
including but not limited to any retention bonuses or payments.
C. Transitional Services Agreement
The proposed Final Judgment requires ASSA ABLOY to provide
transition services to maintain the viability and competitiveness of
the Premium Mechanical Divestiture Business and the Smart Lock
Divestiture Business in the period following the divestitures.
Specifically, Paragraphs V.L and VI.L of the proposed Final Judgment
require ASSA ABLOY, at the acquirer's option, to enter into transition
services agreements for all services necessary to operate the Premium
Mechanical Divestiture Business and Smart Lock Divestiture Business--
e.g., back office, human resources, accounting, employee health and
safety, and information technology services and support--for a period
of up to 12 months. Paragraph VI.L of the proposed Final Judgment also
requires that the applicable transition services agreement cover all
services necessary to operate the manufacturing facility located at Lot
A10, Ba Thien II IP, Thien Ke, Binh Xuyen, Vinh Phuc, Vietnam for a
period of up to 12 months. The acquirer may terminate the transition
services agreements, or any portion of them, without cost or penalty,
other than payment of any amounts due thereunder, at any time upon 15
calendar days' written notice. The United States, in its sole
discretion, may approve one or more extensions of any transition
services agreement for a total of up to an additional 12 months and 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. Employees of ASSA ABLOY tasked with supporting these
transition services agreements must not share any of Fortune's or
another acquirer's competitively sensitive information with any other
employee of ASSA ABLOY.
D. Supply Agreements
Paragraphs V.J and VI.J of the proposed Final Judgment require ASSA
ABLOY, at the acquirer's option, to enter into a supply contract or
contracts for all products necessary to operate the Premium Mechanical
Divestiture Business and the Smart Lock Divestiture Business, including
nexTouch and Interconnect branded products produced by ASSA ABLOY prior
to the divestiture date, for a period of up to twelve months. The
acquirer may terminate a supply contract, or any portion of it, without
cost or penalty, other than payment of any amounts due thereunder, at
any time upon 15 calendar days' written notice. The United States, in
its sole discretion, may approve up to two extensions of any supply
contract for a period of 12 months each, 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. This will help
to ensure that Fortune will not face disruption to its supply during an
important transitional period. Employees of ASSA ABLOY tasked with
supporting these supply contracts must not share any of Fortune's or
another acquirer's competitively sensitive information with any other
employee of ASSA ABLOY.
E. Monitoring Trustee
The proposed Final Judgment provides for the appointment of a
monitoring trustee to examine Defendants' compliance with the terms of
the proposed Final Judgment, the Stipulation and Order, and any
agreements between ASSA ABLOY and the acquirer relating to the
divestiture. The monitoring trustee will also monitor Fortune's
competitive intensity in the residential smart locks market relative to
ASSA ABLOY's pre-divestiture competitive intensity and, for a period of
up to five years after entry of the Final Judgment, may report to the
United States if that competitive intensity has diminished in material
part due to limitations on the acquirer's right to use the Yale brand
name or trademarks in the United States and Canada. Upon receipt of
such a report, the United States, in its sole discretion, will have the
ability to seek leave of the Court to reopen this proceeding to seek
additional relief.
The monitoring trustee will not have any responsibility or
obligation for the operation of the Premium Mechanical Divestiture
Assets or Smart Lock Divesture Assets. The monitoring trustee will
serve at Defendants' expense, on such terms and conditions as the
United States approves, in its sole discretion, 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 later of (1) the expiration of all transition
services agreements or supply agreements entered pursuant to the
proposed Final Judgment or (2) conclusion of any reopening of this
proceeding by the United States, as provided for by the proposed Final
Judgment, or if no such proceeding is reopened within five years of the
entry of the Final Judgment, five years from the entry of the Final
Judgment. The United States, in its sole discretion, may determine a
different period of time is appropriate for the monitor's term.
F. Penalty for Noncompliance
The proposed Final Judgment requires that ASSA ABLOY use best
efforts to complete the divestiture of Smart Lock Divestiture Assets as
quickly as possible, including the transfer of overseas assets in
Vietnam, to the acquirer. To incentivize ASSA ABLOY to effectuate this
transfer as expeditiously as possible, after December 31, 2023, the
proposed Final Judgment requires ASSA ABLOY to pay to the United States
$50,120 per day until the overseas assets have been transferred. Such
payments will not be due, however, if ASSA ABLOY can demonstrate to the
United States, after consultation with the monitoring trustee, that (1)
the transfer was delayed due to a force majeure event or (2)
operational control of the overseas assets has otherwise been given to
the acquirer. In the event ASSA ABLOY relies on such operational
control provision, ASSA ABLOY shall confer with the United States to
reach agreement on this, and if the parties are unable to reach an
agreement, ASSA ABLOY may ask the Court to resolve this issue.
G. Dispute Resolution
Paragraph XI.A of the proposed Final Judgment provides that ASSA
ABLOY and the acquirer will each have the right to initiate an
expedited dispute resolution process in the event of a dispute over the
extent of either party's rights under the proposed Final Judgment. This
provision does not apply to disputes between ASSA ABLOY and the United
States.
H. Other Provisions
Paragraphs V.E. and VI.E of the proposed Final Judgment outline
procedures to follow if ASSA ABLOY attempts to divest the Premium
Mechanical Divestiture Assets or the Smart Lock Divestiture Assets to
an acquirer other than Fortune, including what information should be
made available to prospective acquirers. ASSA ABLOY is required to
inform any such prospective acquirers that the assets are being
divested in accordance with the proposed Final Judgment, and
[[Page 31030]]
to provide to any prospective acquirer a copy of the proposed Final
Judgment.
The proposed Final Judgment also contains provisions designed to
promote compliance with and make enforcement of the Final Judgment as
effective as possible. Paragraph XVI.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.
Pursuant to Paragraph XVI.B of the proposed Final Judgment,
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.
Paragraph XVI.C of the proposed Final Judgment 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 XVI.C of the proposed Final Judgment 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 that effort to enforce this Final Judgment, including the
investigation of the potential violation.
Paragraph XVI.D of the proposed Final Judgment 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.
Finally, Section XVII of the proposed Final Judgment provides that
the Final Judgment will expire ten years from the date of its entry,
except that after five years from the date of its entry, the Final
Judgment may be terminated upon notice by the United States to the
Court and Defendants that the divestitures have been completed and
continuation of the Final Judgment is no longer necessary or in the
public interest.
V. 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.
VI. 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: Chief, Defense,
Industrials, and Aerospace Section, Antitrust Division, United States
Department of Justice, 450 Fifth St. NW, Suite 8300, Washington, DC
20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
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
[[Page 31031]]
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 mechanisms 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 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
also 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 the 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 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
In formulating the proposed Final Judgment, the United States
considered documents relating to ASSA ABLOY's proposed divestiture to
Fortune Brands. Because these documents were determinative in
formulating the proposed Final Judgment, copies are attached to the
Stipulation and Order to comply with 15 U.S.C. 16(b).
Dated: May 5, 2023
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA
-----------------------------------------------------------------------
Matthew R. Huppert (DC Bar #1010997)
Trial Attorney
United States Department of Justice
Antitrust Division
450 Fifth Street NW, Suite 8700
Washington, DC 20530
Telephone: (202) 476-0383
Email: [email protected]
David E. Dahlquist
Senior Trial Counsel
United States Department of Justice
Antitrust Division
209 South LaSalle Street, Suite 600
Chicago, Illinois 60604
Email: [email protected]
[FR Doc. 2023-10343 Filed 5-12-23; 8:45 am]
BILLING CODE 4410-11-P