UNITED STATES
OF AMERICA ___________________________________
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In the Matter of )
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THE BOEING COMPANY, ) File No. 971-0006
a corporation. )
___________________________________)
AGREEMENT CONTAINING CONSENT ORDER The Federal Trade Commission ("Commission"), having initiated an investigation of the acquisition of Rockwell International Corporation's Aerospace and Defense business by The Boeing Company ("Boeing"), and it now appearing that Boeing, hereinafter sometimes referred to as "proposed respondent," is willing to enter into an agreement containing an order to refrain from certain acts and to deliver certain assets, and providing for certain other relief: IT IS HEREBY AGREED by and between proposed respondent, by its duly authorized officers and attorneys, and counsel for the Commission that:
ORDER I. IT IS ORDERED that, as used in this order, the following definitions shall apply:
II. IT IS FURTHER ORDERED that Respondent shall not hold Teledyne Ryan liable for any damages or costs resulting from the replacement of Respondent as the supplier of Tier II Plus Wings. III. IT IS FURTHER ORDERED that:
IV. IT IS FURTHER ORDERED that Respondent shall not assert or enforce any proprietary rights in any Tier II Plus Wings Special Tooling and Special Test Equipment or Tier II Plus Wings Engineering and Design Data delivered pursuant to Paragraph III. of this order. V. IT IS FURTHER ORDERED that:
VI. IT IS FURTHER ORDERED that:
VII. IT IS FURTHER ORDERED that:
VIII. IT IS FURTHER ORDERED that:
IX. IT IS FURTHER ORDERED that Respondent shall deliver a copy of this order to any Space Launch Vehicle manufacturer prior to obtaining, either from the Space Launch Vehicle manufacturer or through the Acquisition, any information outside the public domain relating to that manufacturer's Space Launch Vehicle. X. IT IS FURTHER ORDERED that Respondent shall comply with all terms of the Interim Agreement, attached to this order and made a part hereof as Appendix I. XI. IT IS FURTHER ORDERED that within sixty (60) days of the date this order becomes final and annually for the next ten (10) years on the anniversary of the date this order becomes final, and at such other times as the Commission may require, Respondent shall file a verified written report with the Commission setting forth in detail the manner and form in which it has complied and is complying with Paragraphs II. through X. of this order. Respondent shall include in its reports information sufficient to identify all Space Launch Vehicle Manufacturers with whom Respondent has entered into an agreement for the research, development, manufacture or sale of Space Launch Vehicle Propulsion Systems. XII. IT IS FURTHER ORDERED that Respondent shall notify the Commission at least thirty (30) days prior to any proposed change in Respondent, such as dissolution, assignment, sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or sale of any division or any other change in Respondent that may affect compliance obligations arising out of the order. XIII. IT IS FURTHER ORDERED that, for the purpose of determining or securing compliance with this order, subject to any legally recognized privilege and applicable United States Government national security requirements, upon written request, and on reasonable notice, Respondent shall permit any duly authorized representative of the Commission:
XIV. IT IS FURTHER ORDERED that this order shall terminate twenty (20) years from the date this order becomes final, except as otherwise provided in this order. Signed this _____ day of _____________, 1996. APPENDIX I UNITED STATES OF AMERICA ____________________________________
)
In the Matter of )
)
THE BOEING COMPANY, ) File No. 971-0006
a corporation. )
____________________________________)
INTERIM AGREEMENT This Interim Agreement is by and between The Boeing Company ("Boeing"), a corporation organized and existing under the laws of the State of Delaware, and the Federal Trade Commission ("Commission"), an independent agency of the United States Government, established under the Federal Trade Commission Act of 1914, 15 U.S.C. § 41, et seq. PREMISES WHEREAS, Boeing has proposed to acquire Rockwell International Corporation's Aerospace and Defense business; and WHEREAS, the Commission is now investigating the proposed Acquisition to determine if it would violate any of the statutes the Commission enforces; and WHEREAS, if the Commission accepts the Agreement Containing Consent Order ("Consent Agreement"), the Commission will place it on the public record for a period of at least sixty (60) days and subsequently may either withdraw such acceptance or issue and serve its Complaint and decision in disposition of the proceeding pursuant to the provisions of Section 2.34 of the Commission's Rules; and WHEREAS, the Commission is concerned that if an understanding is not reached preserving competition during the period prior to the final issuance of the Consent Agreement by the Commission (after the 60-day public notice period), there may be interim competitive harm and divestiture or other relief resulting from a proceeding challenging the legality of the proposed Acquisition might not be possible, or might be less than an effective remedy; and WHEREAS, Boeing entering into this Interim Agreement shall in no way be construed as an admission by Boeing that the proposed Acquisition constitutes a violation of any statute; and WHEREAS, Boeing understands that no act or transaction contemplated by this Interim Agreement shall be deemed immune or exempt from the provisions of the antitrust laws or the Federal Trade Commission Act by reason of anything contained in this Interim Agreement, NOW, THEREFORE, Boeing agrees, upon the understanding that the Commission has not yet determined whether the proposed Acquisition will be challenged, and in consideration of the Commission's agreement that, at the time it accepts the Consent Agreement for public comment, it will grant early termination of the Hart-Scott-Rodino waiting period, as follows:
Dated: Accepted for public comment by the Commission on December 5, 1996. Donald S. Clark UNITED STATES OF AMERICA ______________________________
)
)
In the Matter of )
) Docket No.
THE BOEING COMPANY, )
a corporation. )
)
______________________________)
COMPLAINT The Federal Trade Commission ("Commission"), having reason to believe that Respondent, The Boeing Company ("Boeing"), a corporation subject to the jurisdiction of the Commission, has agreed to acquire the Aerospace and Defense Business of Rockwell International Corporation ("Rockwell"), a corporation subject to the jurisdiction of the Commission, in violation of Section 5 of the Federal Trade Commission Act ("FTC Act"), as amended, 15 U.S.C. § 45, and that such an acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18 and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45; and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its Complaint, stating its charges as follows: I. DEFINITIONS 1. "High Altitude Endurance Unmanned Air Vehicle" means any unmanned aircraft designed to perform high-altitude, broad-area reconnaissance missions and manufactured for sale to the United States Department of Defense. 2. "Tier II Plus" or "Global Hawk" means the Tier II Plus High Altitude Endurance Unmanned Air Vehicle currently being developed for the Department of Defense's Advanced Research Projects Agency. 3. "Tier III Minus" or "DarkStar" means the Tier III Minus High Altitude Endurance Unmanned Air Vehicle currently being developed for the Department of Defense's Advanced Research Projects Agency. 4. "Tier II Plus Team" means Teledyne Ryan Aeronautical and the group of subcontractors, including Rockwell Aerospace and Defense, which are currently developing Tier II Plus. 5. "Tier III Minus Team" means the team comprised of Boeing and Lockheed Martin Corporation which is currently developing Tier III Minus. 6. "Space Launch Vehicle" means any vehicle designed to launch satellites or persons into space. 7. "Space Launch Vehicle Propulsion System" means any device that is used to provide propulsion to a Space Launch Vehicle. 8. "Respondent" means Boeing. II. RESPONDENT 9. Respondent is a corporation organized and existing under and by virtue of the laws of the state of Delaware, with its office and principal place of business located at 7755 East Marginal Way South, Seattle, Washington 98108. 10. Respondent is engaged in, among other things, the research, development, manufacture and sale of High Altitude Endurance Unmanned Air Vehicles and Space Launch Vehicles. 11. For purposes of this proceeding, Respondent is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. § 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 U.S.C. § 44. III. ACQUIRED COMPANY 12. Rockwell Aerospace and Defense Business ("Rockwell Aerospace and Defense") is a division of Rockwell, a corporation organized and existing under and by virtue of the laws of the state of Delaware, with its principal office and place of business located at 2201 Seal Beach Boulevard, Seal Beach, California 90740. 13. Rockwell Aerospace and Defense is engaged in, among other things, the research, development, manufacture and sale of wings for High Altitude Endurance Unmanned Air Vehicles, and Space Launch Vehicle Propulsion Systems. 14. Rockwell Aerospace and Defense is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. § 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 U.S.C. § 44. IV. THE ACQUISITION 15. On or about July 31, 1996, Boeing entered into an Agreement and Plan of Merger, whereby Boeing would acquire Rockwell Aerospace and Defense for approximately $3.025 billion ("Acquisition"). V. THE RELEVANT MARKETS 16. For purposes of this Complaint, the relevant lines of commerce in which to analyze the effects of the Acquisition are:
17. For purposes of this Complaint, the United States is the relevant geographic area in which to analyze the effects of the Acquisition in all relevant lines of commerce. VI. STRUCTURE OF THE MARKETS 18. The market for the research, development, manufacture and sale of High Altitude Endurance Unmanned Air Vehicles is highly concentrated as measured by the Herfindahl-Hirschman Index ("HHI") or the two-firm and four-firm concentration ratios ("concentration ratios"). Respondent and Rockwell are members of the only two teams which produce High Altitude Endurance Unmanned Air Vehicles. 19. Respondent, through the Acquisition, would be a member of both the Tier II Plus Team and the Tier III Minus Team. 20. The market for Space Launch Vehicle Propulsion Systems is highly concentrated as measured by the HHI or concentration ratios. 21. Respondent, through the proposed Acquisition, would be engaged in the research, development, manufacture and sale of a wide range of Space Launch Vehicles and Space Launch Vehicle Propulsion Systems. VII. BARRIERS TO ENTRY 22. Entry into the market for the research, development, manufacture and sale of High Altitude Endurance Unmanned Air Vehicles would not occur in a timely manner to deter or counteract the adverse competitive effects described in Paragraph 26 because of, among other things, the difficulty involved in developing the technology and expertise necessary to produce High Altitude Endurance Unmanned Air Vehicles. 23. Entry into the market for the research, development, manufacture and sale of High Altitude Endurance Unmanned Air Vehicles is not likely to occur to deter or counteract the adverse competitive effects described in Paragraph 26 because of, among other things, the expense required to develop the technology and expertise necessary to produce High Altitude Endurance Unmanned Air Vehicles. 24. Entry into the market for the research, development, manufacture and sale of Space Launch Vehicle Propulsion Systems would not occur in a timely manner to deter or counteract the adverse competitive effects described in Paragraph 26 because of, among other things, the difficulty involved in developing the technology and expertise necessary to produce Space Launch Vehicle Propulsion Systems. 25. Entry into the market for the research, development, manufacture and sale of Space Launch Vehicle Propulsion Systems is not likely to occur to deter or counteract the adverse competitive effects described in Paragraph 26 because of, among other things, the expense required to develop the technology and expertise necessary to produce Space Launch Vehicle Propulsion Systems. VIII. EFFECTS OF THE ACQUISITION 26. The effects of the Acquisition may be substantially to lessen competition and to tend to create a monopoly in the United States markets for High Altitude Endurance Unmanned Air Vehicles and Space Launch Vehicles in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, in the following ways, among others:
IX. VIOLATIONS CHARGED 27. The Acquisition described in Paragraph 15 constitutes a violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. 28. The Acquisition described in Paragraph 15, if consummated, would constitute a violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45. IN WITNESS WHEREOF, the Federal Trade Commission has caused this Complaint to be signed by the Secretary and its official seal to be affixed, at Washington, D.C. this _____ day of __________, A.D. 1996. By the Commission. Donald S. Clark SEAL ANALYSIS OF PROPOSED CONSENT
ORDER The Federal Trade Commission ("Commission") has accepted, subject to final approval, an agreement containing a proposed Consent Order from The Boeing Company ("Boeing") designed to remedy the anticompetitive effects likely to result from Boeing's proposed acquisition of Rockwell International Corporation's Aerospace and Defense business ("Rockwell Aerospace and Defense"). The proposed Consent Order enables Teledyne Ryan, the prime contractor for the Tier II Plus high altitude endurance unmanned air vehicle ("HAE UAV"), to replace Boeing as its teammate and wing supplier for Tier II Plus, without incurring any significant cost or risk, by requiring Boeing, at Teledyne Ryan's request, to deliver to Teledyne Ryan all of the assets needed to manufacture wings for the Tier II Plus and provide technical assistance to Teledyne Ryan. In addition, the proposed Consent Order prohibits Boeing's space launch vehicle division from gaining access to any non-public information that Boeing's space launch vehicle propulsion system division will receive after the acquisition from competing space launch vehicle providers. The proposed Consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the agreement and any comments received and will decide whether it should withdraw from the agreement or make final the agreement's proposed Order. On or about July 31, 1996, Boeing agreed to acquire Rockwell Aerospace and Defense for approximately $3.025 billion. The proposed complaint alleges that the acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act as amended, 15 U.S.C. § 45, in the markets for HAE UAVs and space launch vehicles. The proposed Consent Order would remedy the alleged violations in each market. First, Boeing and Rockwell are members of the only two teams currently competing in the design and development of HAE UAVs. Boeing and its teammate Lockheed Martin are currently developing the Tier III Minus HAE UAV, and Teledyne Ryan and a team of subcontractors, including Rockwell Aerospace and Defense, are currently developing the Tier II Plus HAE UAV. HAE UAVs are unmanned aircraft used to perform high-altitude, broad area reconnaissance. These aircraft are controlled from the ground and transmit reconnaissance sensor data on a real time basis. HAE UAVs are being designed to satisfy the Defense Airborne Reconnaissance Office's goal of providing the U.S. military with the ability to obtain responsive and continuous reconnaissance data from anywhere within enemy territory, day or night, as the needs of the warfighter dictate. Under its teaming agreement with Lockheed Martin, Boeing is responsible for providing, among other things, the wings, launch station and avionics for Tier III Minus. As a subcontractor to Teledyne Ryan for Tier II Plus, Rockwell is responsible for providing only the aircraft's wings. The proposed acquisition therefore would position Boeing as a member of both competing HAE UAV teams while Boeing would stand to earn a far greater share of the revenue from its participation on the Tier III Minus team than it could earn from its role as the wing supplier for the Tier II Plus team. The acquisition is likely to lead to anticompetitive effects in the HAE UAV market. Because the proposed acquisition would cause Boeing to be a member of the only two competing HAE UAV teams, Boeing would be in a position to raise price and/or reduce quality on one or both teams. Boeing would not only have the opportunity to diminish competition, but would also have the incentive to cause the Tier II Plus team to become non-competitive because Boeing stands to earn significantly more revenue from its participation in the Tier III Minus program than it would earn as a supplier of wings to the Tier II Plus team. Moreover, if the Tier II Plus system became non-competitive, or simply less competitive, Boeing would then be in a position to also raise the price of the Tier III Minus system. The proposed consent agreement resolves the likely anticompetitive effects of the acquisition in the HAE UAV market by enabling Teledyne Ryan to replace Rockwell Aerospace and Defense, which would be owned by Boeing after the acquisition, as the Tier II Plus wing supplier without incurring any significant costs or risk. As a result, Boeing will either agree to supply Tier II Plus wings in a competitive manner after the acquisition or be replaced by Teledyne Ryan. Specifically, under the terms of the Order, Boeing is required to deliver, upon request from Teledyne Ryan, to business locations in the United States designated by Teledyne Ryan, at no cost to Teledyne Ryan, all of the assets needed to produce Tier II Plus wings, including the special tooling, special test equipment, engineering data and design data. Teledyne Ryan can request that Boeing deliver such assets at anytime prior to six months from the date the Order becomes final, provided Teledyne Ryan and Boeing have not agreed to a new contract for Boeing to supply wings for Tier II Plus. This ensures that Boeing will have the incentive to compete vigorously to remain a supplier of wings for Tier II Plus. In addition, Boeing is prohibited from asserting or enforcing any proprietary rights in such equipment or data, or holding Teledyne Ryan liable for any damages or costs resulting from the replacement of Boeing as the Tier II plus wing supplier. In order to ensure a smooth transition of the wing manufacturing to a new supplier and to offset any lost learning curve efficiencies, the proposed Order requires Boeing to provide technical assistance, not to exceed four man years over a one year period, at no cost to Teledyne Ryan. Because Teledyne Ryan may need Boeing's assistance in resolving any technical issues that arise during the upcoming Tier II Plus flight tests, the Order requires Boeing to provide additional technical assistance through the duration of such tests. Finally, in order to prevent the anticompetitive flow of competitively sensitive information, the order establishes a "firewall" between Boeing's Tier III Minus business and the Rockwell North American Aircraft Division that is currently providing Tier II Plus wings. Boeing is also a significant competitor in the research, development, manufacture and sale of space launch vehicles, and is expected to bid for the upcoming Department of Defense ("DoD") Evolved Expendable Launch Vehicle ("EELV") program. The EELV competition is expected to produce the next generation of launch vehicles to replace all current medium to heavy launchers -- Lockheed Martin's Atlas, Titan II and Titan IV series, and McDonnell Douglas's Delta series -- with a single family of vehicles capable of launching medium and heavy payloads into orbit at a significantly lower cost. The EELV will handle the bulk of the U.S. government's launch requirements after the year 2000 and is also expected to be used for commercial applications. Boeing, McDonnell Douglas, Lockheed Martin and Alliant Techsystems are currently facing a down-selection from four to two contractors in the next phase of the EELV program. Rockwell, through its Rocketdyne Division ("Rocketdyne"), is one of the world's leading manufacturers of space launch vehicle propulsion systems. Currently, Boeing and McDonnell Douglas are planning to use Rocketdyne propulsion systems as part of their EELV proposals. Thus, the proposed acquisition would vertically integrate Boeing as an EELV bidder and a launch vehicle propulsion systems provider. Because an EELV manufacturer that is using a Rockwell propulsion system must work very closely with Rockwell in order to integrate that system into its EELV, Boeing and McDonnell Douglas have provided, and will continue to provide, a wide range of competitively sensitive proprietary design, performance, cost-related, marketing and business strategy information to Rockwell. If DoD selects the Boeing and McDonnell Douglas teams as the finalists for the EELV competition, Boeing's launch vehicle division could gain access to the proprietary information that McDonnell Douglas has provided to Rockwell's launch vehicle propulsion business, which could affect the prices and services that Boeing would offer. Thus, the proposed acquisition increases the likelihood that competition between the participants in the EELV program would decrease. In addition, Boeing also competes in the commercial market for space launch vehicles and Rockwell also supplies space launch propulsion systems to Boeing's commercial space launch vehicle competitors. As a result, the proposed acquisition may result in similar anticompetitive effects in future commercial space launch vehicle procurements. In addition to causing higher prices, the proposed acquisition may also reduce innovation in the commercial space launch vehicle market, as Boeing's competitors who use Rockwell propulsion systems will be less willing to invest in new space launch vehicle developments for fear that Boeing will be able to "free-ride" off their technological developments. To remedy the proposed acquisition's likely anticompetitive effects in the space launch vehicle market, the proposed Consent Order preserves the confidentiality of space launch vehicle suppliers' proprietary information by prohibiting Boeing's division that provides space launch vehicle propulsion systems from making any proprietary information from competing space launch vehicle manufacturers available to Boeing's space launch vehicle division. Under the proposed Consent Order, Boeing may only use such information in its capacity as a provider of space launch vehicle propulsion systems. Non-public information in this context includes any information not in the public domain that is designated as proprietary information by any space launch vehicle manufacturer that provides such information to Boeing as well as information not in the public domain provided by any space launch vehicle manufacturer to Rockwell prior to the acquisition. The purpose of the proposed Consent Order is to preserve the opportunity for full competition in the market for the research, development, manufacture and sale of space launch vehicles. The Commission has issued similar orders limiting potentially anticompetitive information transfers following mergers or acquisitions, including Lockheed Martin, (C-3685)(September 20, 1996); Raytheon Company, (C-3681)(September 10, 1996); Lockheed Corporation/Martin Marietta Corporation, (C-3576)(May 9, 1995); Alliant Techsystems Inc., (C-3567)(April 7, 1995); Martin Marietta, (C-3500)(June 28, 1994). Under the provisions of the proposed Consent Order, Boeing is required to deliver a copy of the Order to any space launch vehicle manufacturer prior to obtaining any information from such manufacturer that is outside of the public domain. The Order also requires Boeing to provide the Commission a report of compliance with the provisions of the Order within (60) days of the date the Order becomes final, and annually for the next (10) years on the anniversary of the date the Order becomes final. In order to preserve competition in the relevant markets during the period prior to the final acceptance of the proposed Consent Order (after the 60-day public notice period), Boeing has entered into an Interim Agreement with the Commission in which it has agreed to be bound by the proposed Consent Order as of the date the Commission accepts the proposed Consent Order subject to final approval. The purpose of this analysis is to facilitate public comment on the proposed Consent Order, and it is not intended to constitute an official interpretation of the agreement and proposed Consent Order or to modify in any way their terms. |