[Federal Register: January 14, 2003 (Volume 68, Number 9)]
[Notices]
[Page 1861-1871]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ja03-74]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Northrup Grumman Corporation and TRW Inc.;
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant tot he Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment and
Competitive Impact Statement have been filed with the United States
District Court for the District of Columbia in United States v.
Northrop Grumman Corporation and TRW, Inc., Civil No. 1:02 CV 02432
(GK).
On December 11, 2002, the United States filed a Complaint alleging
that Northrop's acquisition of TRW would lessen competition
substantially in development, production, and sale of radar
reconnaissance satellite systems and electro-optical/infrared
reconnaissance satellite systems, and the payloads for those systems,
in the United States, in violation of section 7 of the Clayton Act, 15
U.S.C. 18. The proposed Final Judgment, filed the same time as the
Complaint, requires the defendant Northrop to act in a non-
discriminatory manner in making teaming and purchase decisions on
programs in which, by virtue of the
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acquisition of TRW, it will be able to compete as both a prime
contractor and the supplier of the payloads for the program. Copies of
the Complaint, the proposed Final Judgment, and Competitive Impact
Statement are available for inspection at the U.S. Department of
Justice, Antitrust Division, Suite 215 North, 325 7th Street, NW.,
Washington, DC 20004 (telephone: 202-514-2692), and at the Clerk's
Office of the U.S. Court for the District of Columbia, 333 Constitution
Avenue, NW., Washington, DC 20001.
Public comment is invited within 60-days of the date of this
notice. Such comments and responses thereto will be published in the
Federal Register and filed with the Court. Comments should be directed
to J. Robert Kramer, II, Chief, Litigation II Section, Antitrust
Division, U.S. Department of Justice, 1401 H Street, NW., Suite 3000,
Washington, DC 20530 (telephone: (202) 307-0924).
Constance K. Robinson,
Director of Operations.
Competitive Impact Statement
The United States, pursuant to section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files
this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On December 11, 2002, the United States filed a civil antitrust
Complaint alleging that the proposed acquisition by Northrop Grumman
Corporation (``Northrop'') of TRW Inc. (``TRW'') would violate
section 7 of the Clayton Act, 15 U.S.C. 18. The Complaint alleges
that Northrop is one of two companies that can supply certain
payloads used in reconnaissance satellite systems sold to the U.S.
Government, and that TRW is one of only a few companies with the
capability to act as a prime contractor on U.S. reconnaissance
satellite programs that use these payloads. The payloads at issue
include radar sensors, which detect objects through radio waves, and
electro-optical/infrared (``EO/IR'') sensors, which detect radiation
emitted or reflected from objects within the electromagnetic
spectrum from far infrared through far ultraviolet. The Complaint
alleges that Northrop's acquisition of TRW will give Northrop the
incentive and ability to lessen competition by favoring its in-house
payload and/or prime contractor capabilities to the detriment or
foreclosure of its competitors, and/or by refusing to sell, or
selling only at disadvantageous terms, its in-house capabilities to
its competitors. It further alleges that the acquisition will harm
the U.S. Government because it will pose an immediate danger to
competition in two current or future programs, the Space Based Radar
and the Space Based InfraRed System-Low programs.
The prayer for relief in the Complaint seeks: (1) a judgment
that the proposed acquisition would violate section 7 of the Clayton
Act, and (2) a permanent injunction preventing any contract,
agreement, understanding, or plan the effect of which would be to
combine Northrop and TRW.
When the Complaint was filed, the United States also filed a
proposed settlement that would permit Northrop to complete its
acquisition of TRW, but require that Northrop submit to strict
oversight by the U.S. Department of Defense (``DoD'') to ensure that
Northrop does not use its position as a combined reconnaissance
satellite system prime contractor and reconnaissance satellite
payload provider to harm competition for or in reconnaissance
satellite system programs.
The proposed Final Judgment requires that, when Northrop: (1) Is
the prime contractor for a U.S. Government satellite program; (2)
has the responsibility to select a radar or EO/IR payload; and (3)
has the opportunity to select its own payload, Northrop will select
the payload on a competitive and non-discriminatory basis. It also
requires that Northrop act in a non-discriminatory manner in
providing information to its own in-house team and to its payload
competitors, and in making personnel, resource allocation, and
satellite system design decisions. These non-discrimination
provisions would apply, for example, to Northrop's post-merger
selection of a payload provider for the SBIRS-Low program, for which
TRW has already been selected as the prime contractor. To ensure
that these provisions of the Final Judgment are enforced, the decree
requires that the Secretary of Defense appoint a Compliance Officer
to oversee Northrop's selection process, and provides for the
Secretary of the Air Force to resolve any disputes.
The proposed Final Judgment also requires that, when Northrop is
a competitor or a potential competitor to be the prime contractor on
a U.S. Government reconnaissance satellite system program in which
Northrop has the opportunity to select its own radar or EO/IR
payload, Northrop will supply other prime contractors with the
Northrop payload in a manner that does not favor Northrop's in-house
team. It further requires that Northrop negotiate and enter into
non-exclusive teaming agreements with other prime contractors that
desire to use the Northrop payloads, which agreements may not favor
Northrop's in-house team. To ensure that these goals are achieved,
the proposed Final Judgment provides for direct oversight of
Northrop's teaming decisions by the Compliance Officer and
ultimately by the Secretary of the Air Force.
The proposed final Judgment further requires that Northrop
maintain its payload and satellite prime businesses as separate
entities, establish firewalls, and take other actions to protect the
information provided by other payload providers or prime
contractors. Northrop's actions in this regard again would be
subject to review by the Compliance Officer.
In addition to the continuing oversight of the Compliance Office
and DoD generally, the parties to the proposed Final Judgment shall
be subject to the continuing supervisory jurisdiction of the Court
over the Final Judgment and the independent authority of the
Antitrust Division to ensure compliance with, and seek enforcement
of, all provisions of the Judgment. The Antitrust Division to ensure
compliance with, and seek enforcement of all provisions of the
Judgment. The Antitrust Division is authorized to seek from Northrop
a civil penalty of up to $10 million for each violation of the
proposed Final Judgment.
The plaintiff and defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry
of the proposed Final Judgment would terminate the action, except
that the Court would retain jurisdiction to construe, modify, or
enforce the provisions of the proposed Final Judgment and punish
violations thereof.
II. Description of Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Northrop is a Delaware corporation with its principal place of
business in Los Angeles, California. Northrop is one of two leading
suppliers of radar and EO/IR payloads for reconnaissance satellite
systems. Northrop's primary radar and EO/IR operations are in its
Electronic Systems Sector facilities in Baltimore, Maryland and
Azusa. California. In 2001, Northrop represented net sales of
approximately $13.6 billion, including $4.7 billion in sales by its
Electronic Systems Sector.
TRW is an Ohio corporation with its principal place of business
in Cleveland, Ohio. The company's offices are located in California,
Ohio, Georgia, and Florida. Its Space & Electronics and System
divisions produce sophisticated satellite systems. In fact, TRW is
one of the few companies with the ability to serve as a prime
contractor for reconnaissance satellite system. In 2001, TRW has
sales of roughly $16.4 billion, including $5.2 billion form the
Space & Electronics and Systems divisions.
On June 30, 2002, Northrop and TRW entered into an agreement
pursuant to which Northrop would acquire TRW in a transaction valued
at approximately $7.8 billion. The parties closed the transaction on
December 11, 2002.
B. The Relevant Markets
Reconnaissance systems are electronic systems that gather and
transmit information that maybe useful to the United States'
military and intelligence forces. These systems may be located on a
number of types of platforms, including aircraft and, most relevant
for the purposes of this case satellites. Reconnaissance systems may
gather information using various types of sensors, but the most
relevant types for purposes of this proceeding are radar and EO/IR.
Reconnaissance satellite systems have advantages, and face
challenges, that are not applicable to airborne or other types of
reconnaissance systems. Reconnaissance satellite systems can gather
information about a given geographic area for a much longer time
than any other system, and can provide survelliance over geographic
areas that aircraft or other platforms cannot reach. Because they
operate at such great distances
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from their targets, however, space-based systems also require much
more capable and sophisticated sensors than do other kinds of
reconnaissance systems. Furthermore, because space based systems
cannot be maintained or repaired once they are launched, the
components of the system must be designed and manufactured to
withstand the rigors of constant use, over many years, without
requiring any refurbishment or repair. Finally, components of
reconnaissance satellite systems must be hardened against radiation,
able to withstand the harsh environment of space, and capable of
operating in substantial temperature ranges.
A reconnaissance satellite system consists of one or more
satellites and associated ground facilities for support and data
processing. A reconnaissance satellite has two primary components--
the unmanned spacecraft itself, generally known as the ``bus,'' and
one or more assemblies of sensors and other components, usually
refereed to as the ``Payload.'' The payload enables the satellite to
perform a specific reconnaissance mission. While the bus and the
payload are separate products, the system and its payload have to be
jointly developed because their performance is interdependent. The
lead (``prime'') contractor for a reconnaissance satellite system
has overall responsibility for the design, development, production,
and integration of the system components. The prime contractor
typically produces the spacecraft, and either produces or procures
the ground facility components. The prime contractor may also
produce or acquire launch vehicles or services for the satellites.
The prime contractor typically acquires the payload from another
manufacturer, and the U.S. Government relies on prime contractors to
select payloads based on their competitive merits so as to optimize
over all system performance.
TRW is one of the few companies that has the capability to be
the prime contractor on a U.S. reconnaissance satellite system.
Northrop is one of only two companies that has the capability to be
the radar or EO/IR payload provider on U.S. reconnaissance satellite
systems.
Radar Reconnaissance Satellite Systems
Radar is the process of sending out radio waves and listening
for the echoes that result when they strike and bounce off an
object. The United States deploys many types of radars using
distinctive signal processing technologies. Imaging radars, for
example, can create photograph-like images and identify and track
moving targets. Because radars can see through clouds, operate at
night, and function independently of the energy emitted by a target,
radar reconnaissance satellite systems will be able to gather
information of a type and under conditions that cannot be duplicated
by other types of reconnaissance satellite systems.
The Space-Based Radar (``SBR'') program is a DoD program
intended to develop and produce an operational radar reconnaissance
satellite system. The Request for Proposal for SBR is expected to be
issued in early 2003, and the first SBR satellite launch is
scheduled for 2010. TRW is one of a few companies with the
capability to be the prime contractor for the SBR program. The only
companies with the capability to supply the advanced radar sensors
for the SBR program are Northrop and one other company, both of
which have been developing their radar capabilities, and receiving
funds and evaluations from the U.S. Government, in anticipation of
the SBR program. It is expected that the potential prime contractors
and radar reconnaissance satellite payload providers will have to
form teams for the SBR competition no later than 2003.
The Complaint alleges that the development, production, and sale
of radar reconnaissance satellite systems is a product market. As
described above, the mission and performance characteristics of such
systems are sufficiently different from the mission and performance
characteristics of non-radar reconnaissance satellite systems, and
from non-space-based radar reconnaissance systems, that a small but
significant increase in prices for radar reconnaissance satellite
systems would not cause the only customer, the U.S. Government, to
switch to other types of systems so as to make such a price increase
unprofitable and unsustainable.
The Complaint also alleges that the development, production and
sale of radar reconnaissance satellite payloads is a product market.
As described above, the mission and performance characteristics of
such payloads are sufficiently different from the mission and
performance characteristics of non-radar reconnaissance satellite
payloads, and from non-space-based radar reconnaissance payloads
that a small but significant increase in prices for radar
reconnaissance satellite payloads would not cause the only customer,
the U.S. Government, or prime contractors competing to provide
reconnaissance systems to the U.S. Government, to switch to other
types of systems or other types of payloads, so as to make such a
price increase unprofitable and unsustainable.
EO/IR Reconnaissance Satellite Systems
EO/IR systems detect electromagnetic radiation emitted or
reflected from objects within the spectrum from far infrared to far
ultraviolet. These components are used to detect, locate, identify,
or track a target. EO/IR Early Warning (``EW'') systems are used in
missile defense programs to detect the hot plumes of a missile
launch. EO/IR sensors may be found on a number of different
platforms, including aircraft and satellites, and are already used
as part of the Defense Support Program (``DSP'') satellite system to
provide early missile warning.
The current programs designed to provide space-based EO/IR
reconnaissance capabilities are called the Space-Based Infrared
System (``SBIRS'') High and SBIRS-Low. SBIRS-High will provide a
system of satellites orbiting thousands of miles above the earth,
scanning large sections of the planet for signs of a missile launch,
and warning of that event if it occurs. One of TRW's competitors
will serve as the prime contractor for SBIRS-High, and Northrop will
supply the EO/IR payload. SBIRS-High will serve to provide
essentially the same mission as the current DSP program, but will
employ higher-performance instrumentation. SBIRS-Low is a planned
system of satellites in lower-earth orbit that will ``acquire'' a
missile and track it so that it may be intercepted. The acquisition
function proposed for SBIRS-Low is similar to the work being done by
DSP and planned for SBIRS-High; in contrast, the tracking function
planned for SBIRS-Low is a different and much more technically
difficult one.
The Missile Defense Agency (``MDA''), Which Controls the SBIRS
program, established a ``national team'' for SBIRS-Low in April
2002, naming TRW as the prime contractor. The MDA plan calls for a
continuing competition between the only two potential payload
suppliers. Northrup and another company, throughout the SBIRS-Low
program. The competition between the two SBIRS-Low payload suppliers
is to be run by TRW as the prime contractor. TRW, with nominal
oversight from the United States, will choose the winner of the
payload competition.
The Complaint alleges that the development, production, and sale
of EO/IR systems can provide coverage of geographic areas that
cannot be reached by other EO/IR systems and can provide persistent
coverage of specific geographic areas. Further, EO/IR systems can
detect missile launches and track missiles better than other types
of reconnaissance systems. A small but significant increase in
prices for space-based EO/IR systems would not cause the only
customer, the U.S. Government, to switch to other types of systems
so as to make such a price increase unprofitable and unsustainable.
The Complaint also alleges that the development, production and
sale of EO/IR reconnaissance satellite payloads is a product market.
Space-based EO/IR payloads are specially designed to work in a
space-based EO/IR reconnaissance satellite system: other space-based
payloads cannot perform the same missions or be used in EO/IR
reconnaissance satellite systems. A small but significant increase
in prices for EO/IR reconnaissance satellite payloads would not
cause the only customer, the U.S. Government, or prime contractors
competing to provide reconnaissance systems to the U.S. Government,
to switch to other types of systems or other types of payloads, so
as to make such a prime increase unprofitable and unsustainable.
C. Harm to Competition as a Consequence of the Acquisition
If Northrop purchases TRW, it will own one of the few companies
capable of competing as a prime contractor for radar or EO/IR
reconnaissance satellite systems. TRW has demonstrated its
technical, financial, and organizational ability to bid for, win,
and perform on complex U.S. Government space systems by competing
for and winning a number of such programs. Similarly, Northrop is
one of only two companies with the capability to produce the
payloads to be used on radar and EO/IR reconnaissance satellite
systems.
Absent the protections afforded by the proposed consent decree,
Northrop would have to incentive and ability post-merger to deny its
competitors access to either its prime contractor or payload
capabilities. If
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Northrop has already been chosen to be a prime, it will have the
incentive and ability to choose its own payload, lessening the
incentive of competitors to compete for the program, and harming the
U.S. Government by diminishing innovation and increasing program
costs.
A further effect of the merger is the threat that it poses to
proprietary information of rival primes and payload suppliers that
enter into teaming agreements with Northrop. Absent the protections
afforded by the proposed Final Judgment, a reconnaissance satellite
system prime contractor that teams with Northrop risks the loss of
its proprietary information to the former TRW's satellite system
business, and a radar or EO/IR supplier that teams with the former
TRW satellite system business risks the loss of its proprietary
information to Northrop.
Effect of the Merger on the SBR Program
If Northrop owns TRW, it will have the incentive to deny access
to the Northrop payloads if it believes that doing so will lessen
the ability of its competitors to compete successfully for the
specific reconnaissance satellite system program. This incentive
will be strongest when Northrop believes that the presence on a team
of either the Northrop payload or the TRW prime contractor
capabilities provides the greatest chance of deciding the
competition in that team's favor.
The SBR program is an immediate example of how the merged firm
would have the ability and incentive to deny its competitors access
to a Northrop payload. TRW plans to compete to be the prime
contractor for the SBR program, and is a likely bidder on future
space-based radar programs as well. Northrop is one of only two
companies with the ability to provide payloads for radar
reconnaissance satellite system programs, including the SBR program.
The prime contractors and radar payload providers must work together
at an early stage to develop an integrated system that can perform
the mission required by the SBR program. The competition for the SBR
program will be between teams, each with a potential prime
contractor and potential payload provider. The U.S. Government will
choose the team that offers the best value. No prime contractor/
radar payload teams have yet been formed.
An important factor in competing for the SBR program is the
performance of the radar payload. The purpose of any space-based
radar program is to gather and transmit information with the use of
radar technology, and the team with the best-performing radar will
have an advantage in the competition. The U.S. Government is likely
to prefer Northrop to supply the SRB payload, and so is more likely
to award the prime contract to a team including a Northrop payload.
The prime contractors and Northrop are aware of this.
After the proposed acquisition, Northrop will thus have the
ability and incentive to foreclose SBR prime contractor competitors
by denying them the Northrop payload or by making personnel,
investment, design, and other payload-related decisions that
disadvantage those competitors. Northrop's incentive to do so is
straightforward--by winning both the SBR prime contractor
competition and the SBR payload competition, it will make more money
than if it wins only the SBR payload competition under existing DoD
regulations. Northrop could not earn the same profit by simply
raising its payload price because DoD has the ability to audit
defense subcontractor costs and prevent overcharging through various
pressures and the threat of lost future business. In economic terms,
Northrop is not able to extract all of the economic rents at the
payload level. The ability to obtain additional, otherwise
unobtainable, profits by being both the prime contractor and the
payload supplier gives Northrop the incentive to foreclose
competitors.
Absent the protections afforded by the proposed consent decree,
the United States would be harmed because innovation in the SBR
program and similar future programs would be lessened, and the
United States would be less likely to obtain a radar reconnaissance
satellite system that includes both the best prime contractor and
the best radar payload provider.
Effect of the Merger on the SBIRS-Low Program
If the post-merger Northrop has already been chosen to be the
prime contractor on an EO/IR reconnaissance satellite system
program, it will have the incentive and ability to choose its own
payload for that system and program on a basis other than the
competitive merits. If Northrop should choose its own payload under
these circumstances, it would lessen the ability and incentive of
competitors to compete for the payload, and thus harm the United
States by diminishing innovation and increasing program costs.
Prior to the merger, TRW was selected as the prime contractor
for SBIRS-Low, and has the authority to choose the EO/IR payload
that will be used on the satellite, subject to the approval of the
U.S. Government. Before that selection is made, the government's
SBIRS-Low acquisition strategy calls for a continuing competition
between Northrop and the only other supplier to provide the payload.
Under an agreement with the U.S. Government, TRW was given broad
authority to run that competition and determine the winner. This
authority has passed to, and may be exercised by, Northrop through
its purchase of TRW.
Northrop will benefit after the acquisition if the Northrop EO/
IR payload is chosen for SBIRS-Low. Northrop will receive the
additional profit generated by the EO/IR payload contract, and will
be in an improved position to win future EO/IR payload contracts
because of the experience gained through SBIRS-Low. Northrop thus
has the incentive to influence the competition to increase the
chances that its payload will be chosen.
Even though the U.S. Government has the authority to approve the
SBIRS-Low payload choice made by a post-merger Northrop, Northrop as
the prime contractor will still have the ability to influence the
competition. Northrop would be able to effect design changes to the
SBIRS-Low satellite or the system as a whole that would favor the
Northrop payload or increase the costs to competitors of designing
and producing a winning payload.
Northrop's post-merger ability to influence the selection of
itself as the supplier for the SBIRS-Low payload will substantially
lessen competition by reducing the ability of its competitor to win
the award even if its payload is a better value for the United
States. The United States will be harmed by its inability to obtain
the best-quality SBIRS-Low payload at the lowest cost.
Entry
Successful entry into the complex, high technology markets for
radar reconnaissance satellite systems, radar reconnaissance
satellite payloads, EO/IR reconnaissance satellite systems, and EO/
IR reconnaissance satellite payloads would not be timely, likely, or
sufficient to deter any unilateral or coordinated exercise of market
power as a result of the transaction. It would be extremely
difficult for a new entrant to establish the technological expertise
required to compete successfully in any of these markets.
competitions are intermittent and infrequent, and require a
substantial initial investment.
Potential Harm
The Complaint summarizes the potential harm to competition
resulting from the proposed merger. It alleges that the transaction
will likely have the following anticompetitive effects, among
others: competition generally in the development, production, and
sale of radar reconnaissance satellite systems, radar reconnaissance
satellite payloads, EO/IR reconnaissance satellite systems, and EO/
IR reconnaissance satellite payloads would be substantially
lessened; prices for radar reconnaissance satellite systems, radar
reconnaissance satellite payloads, EO/IR reconnaissance satellite
systems, and EO/IR reconnaissance satellite payloads would likely
increase; and quality and innovation in each of these markets would
decline.
III. Explanation of the Proposed Final Judgment
The vertical combination of Northrop and TRW offers benefits to
the United States that could not be obtained if structural relief
were imposed. See section VI, infra. The United States, therefore,
has consented in the unique circumstances of this case to the strict
behavioral remedies described below. The proposed Final Judgment
preserves competition in the relevant radar or EO/IR reconnaissance
satellite system and payload markets by requiring specific non-
discriminatory conduct from Northrop to prevent the foreclosure from
these markets of competing prime contractors and payload providers.
Section IV.A of the proposed Final Judgment sets out requirements to
ensure that Northrop will select the payload on a non-discriminatory
basis when Northrop has already been selected as the prime
contractor for a given reconnaissance satellite system program. This
section addresses immediate competitive concerns related to
Northrop's post-merger conduct in the SBIRS-Low program, as well as
conduct in future reconnaissance satellite system programs where
Northrop is selected as the prime contractor.
[[Page 1865]]
Section IV.B ensures that, after the merger, Northrop will make
its payloads available on a non-discriminatory basis to other prime
contractor competitors in those reconnaissance satellite system
programs for which Northrop has not yet been selected as the prime
contractor or the payload provider. It addresses immediate
competitive concerns related to Northrop's post-merger conduct in
the SBR program, as well as conduct in future reconnaissance
satellite system programs for which Northrop is a prime contract
competitor and has the opportunity to select its own radar or EO/IR
payload. Section IV.F establishes firewall provisions designed to
protect the confidential business information of Northrop's
satellite prime competitors and radar and EO/IR payload competitors.
Four final Sections of the proposed Final Judgment ensure compliance
with its terms. Section V provides for the appointment of a
Compliance Officer and defines his or her powers and
responsibilities; Section VI reserves important investigatory and
enforcement powers for the Antitrust Division of the United States
Department of Justice; Section VII permits the Court to impose
substantial civil penalties for violations of the Final Judgment;
and Section VIII confirms the Court's continuing jurisdiction to
modify and enforce the proposed Final Judgment.
Non-Discrimination
Section IV.A of the proposed Final Judgment establishes that
when Northrop is the prime contractor for a reconnaissance satellite
system program, is responsible for selecting the payload, and has
the opportunity to select its own payload, Northrop must select the
payload on a competitive and non-discriminatory basis. To ensure
that it makes an impartial payload selection, Northrop must propose
and obtain approval of payload source selection criteria from the
Compliance Officer and communicate the criteria to all competing
payload suppliers. Should the Compliance Officer not approve the
criteria, the Secretary of the Air Force shall have the sole
discretion to approve, alter, or set the selection criteria. Under
these circumstances, Northrop shall also provide information
regarding its reconnaissance satellite systems to its in-house
proposal teams and bona fide payload competitors, and make all
personnel, resource allocation, and satellite system design
decisions on a non-discriminatory basis. If Northrop selects its own
payload, it must fully explain the basis for that selection to and
seek the prior approval of the Compliance Officer. Where, however,
Northrop notifies the Compliance Officer that it has elected not to
use or supply its payload to itself as prime contractor, it need not
comply with the above requirements.
Section IV.B requires that when Northrop is either a competitor
or potential competitor for a prime contractor position on a
reconnaissance satellite system program in which it has the
opportunity to select its own payload, it must supply its payload on
a non-discriminatory basis to all prime contractors that have
expressed to Northrop a potential desire to utilize it. To that end,
Northrop is required to supply its payload and related information
to all such prime contractors in a manner that does not favor its
in-house proposal team. For the purpose of bidding on satellite
competitions and similar activities, it must also negotiate in good
faith with such prime contractors to enter into commercially
reasonable nonexclusive teaming agreement and contracts that do not
discriminate in favor of its in-house proposal team. These teaming
agreements will be subject to the approval of the Compliance Officer
and the Secretary of the Air Force. Northrop also must, on a non-
discriminatory basis, make all personnel, resource allocation, and
design decisions concerning its payload and provide information
regarding its payload to contractors with which it has teamed. If
the Compliance Officer concludes that Northrop has failed to comply
with these requirements, the Secretary of the Air Force has the sole
discretion to decide with whom, and on what terms, Northrop enters
into such teaming relationships.
The non-discrimination rules of Section IV.A and IV.B are the
central provisions of this proposed Final Judgment and apply to a
wide variety of conduct: the provision of information to competitors
and in-house teams, payload selection criteria, payload selection,
entering into contracts or teaming agreements, and numerous other
decisions affecting such matters as personnel, design and
investment. The term ``discriminate'' is defined in Section II.N. of
the proposed Final Judgment as meaning ``to choose or advantage
Northrop or to reject or disadvantage a Northrop prime or payload
competitor for any reason other than the competitive merits;
provided, however, that the determination of compliance or non-
compliance with the non-discrimination provisions of this Final
Judgment shall take into account that different firms will take
different competitive approaches that may result in differences,
individually or collectively * * *'' in a number of factors.
What this means in practice is that the United States will
require Northrop to be equally aggressive in supporting all
competing teams. While different firms will follow different
competitive and technical approaches when competing for
reconnaissance satellite systems and payloads, differences in
treatment must be merit-driven. Northrop will not be permitted to
favor its in-house approach and undermine competing teams and their
innovation approaches. The proposed Final Judgment recognizes that
discrimination may result from either a single event, such as a
important design decision, or from a series of smaller actions.
Sections IV.A and IV.B of the Final Judgment preserve
competition by providing other payload and prime contract
competitors the opportunity to provide meaningful competition in
their respective markets and by ensuring that Northrop makes payload
selections in the best interests of the U.S. Government. Absent
these requirements, Northrop could deny other payload competitors
access to its reconnaissance satellite systems information or make
discriminatory selections regarding its satellite systems, thereby
precluding competitors from competing to provide the payload.
Likewise, Northrop could deny access to its payloads and thereby
deny its prime contractor competitors the opportunity to provide
meaningful competition, and deny the U.S. Government the benefits of
that competition. These provisions ensure that DoD has the maximum
possible number of potential teaming possibilities in response to a
request for proposals and that the highest-value payload and
reconnaissance satellite system are selected. Absent these
provisions, foreclosure by Northrop would reduce incentives to
innovate and reduce the number of innovation approaches, thus
harming the U.S. Government.
Firewalls
Section IV.F of the proposed Final Judgment requires that
Northrop maintain its payload business separate and apart from its
satellite prime business.\1\ These provisions prevent the flow of
information between the two businesses by requiring Northrop to
establish separate communication networks, maintain separate
locations, and use reasonable efforts to avoid transferring
employees between the businesses. These firewall provisions further
prevent Northrop's payload business from making available to its
satellite prime business any non-public information provided by a
prime contract competitor to Northrop as the payload provider. This
will preserve competition by assuring other prime contract
competitors that their confidential reconnaissance satellite system
information will not be shared with Northrop's satellite prime
business, thereby encouraging them to team their satellite systems
with Northrop's payloads, providing DoD with the maximum number of
teaming possibilities, and preserving the greatest number of
innovation paths. Similar provisions assure other payload
competitors that their confidential payload information will not be
shared with Northrop's payload business.
---------------------------------------------------------------------------
\1\ The proposed Final Judgment describes this business as the
``current TRW Space & Electronics Satellite Systems business.'' This
unit, which conducts TRW's satellite system prime contracting
business, will conduct that business for the combined company, and
the proposed Final Judgment will apply to any future reorganization.
---------------------------------------------------------------------------
Enforcement
To assure compliance with the Final Judgment. Section V requires
the Secretary of Defense to appoint a Compliance Officer who, by the
terms of the Final Judgment, has all necessary investigative and
enforcement powers. The Compliance Officer, an employee of the U.S.
Government, is authorized to hire, at the expense of Northrop, a
team of contractors and other technical personnel to assist him or
her in monitoring and ensuring compliance with the proposed Final
Judgment. The team is limited to ten hired consultants, absent the
approval of the Secretary of the Air Force to increase that number.
Northrop may not object to the Compliance Officer selected by the
Secretary of Defense, must use its best efforts to assist the
Compliance Officer, and may take no action to interfere with or
impede his or her duties. In practice, it is expected that the
Compliance Officer will be proactive and will intercede early on to
address and remedy any issues informally.
[[Page 1866]]
The consequences of a violation of the proposed Final Judgment,
apart from the significant civil penalties discussed below, are
severe and substantial. Under Section IV.A of the proposed Final
Judgment, if the Compliance Officer concludes that Northrop
discriminated in its own favor in either its payload selection or
the selection process, the Secretary of the Air Force is given ``the
sole discretion to choose the [p]ayload supplier'' and to dismiss
Northrop's selection. Under Section IV.B of the proposed final
Judgment, if the Compliance Officer concludes that Northrop
discriminated in favor of its in-house team, or failed to negotiate
in good faith or enter into a commercially reasonable teaming
agreement or contract, the Secretary of the Air Force is given ``the
sole discretion to decide with whom, and on what terms, Northrop
enters into such teaming relationships. * * * '' In effect, if the
Compliance Officer determines that Northrop has discriminated in its
own favor in a manner prohibited by the proposed Final Judgment, the
Secretary of the Air Force is authorized to reverse any decision
made by Northrop and to determine whether and on what terms Northrop
will participate in the bid under consideration. These provisions
collectively ensure that the U.S. Government, after the merger, will
be able to detect discriminatory conduct prohibited by the proposed
Final Judgment and to remedy quickly any selection or agreement that
violates the proposed Final Judgment.
Sections VI, VII and VIII of the proposed Final Judgment confirm
the significant investigative and enforcement authority of the
Antitrust Division of the U.S. Department of Justice in this matter
and the continuing supervisory jurisdiction of the Court in
implementing the Judgment. The Antitrust Division, among other
things, will be permitted to inspect and copy Northrop's documents;
interview Northrop's officers, employees, or agents; and request
reports from Northrop. The Antitrust Division will also have the
discretion to seek enforcement of the proposed Final Judgment from
the Court, which may order Northrop to pay civil penalties of up to
$10 million for each violation of the Final Judgment. It is
anticipated that the Antitrust Division and the General Counsel of
the DoD will work closely together in enforcing the terms of the
Final Judgment, and the Antitrust Division may take enforcement
actions either on the recommendation of the General Counsel of the
DoD or on its own initiative.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in Federal court to recover three
times the damages the person has suffered, as well as costs and
reasonable attorney's fees. Entry of the proposed Final Judgment
will neither impair nor assist the bringing of any private antitrust
damage action. Under the provisions of section 5(a) of the Clayton
Act (15 U.S.C. 16(a)), the proposed Final Judgment has no prima
facie effect in any subsequent private lawsuit that may be brought
against the defendants.
V. Procedures Available For Modification of the Proposed Final Judgment
The United States and defendants have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, if 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. 15 U.S.C. 16(e).
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. 15 U.S.C. 16(b). Any person who wishes
to comment should do so within sixty (60) days of the date of
publication of this Competitive Impact Statement in the Federal
Register. The United States will evaluate and respond to the
comments. All comments will be given due consideration by the United
States Department of Justice, which remains free to withdraw its
consent to the proposed Final Judgment at any time prior to entry.
The comments and the United States' responses will be filed with the
Court and published in the Federal Register. Written comments should
be submitted to: J. Robert Kramer II, Chief, Litigation II Section,
Antitrust Division, United States Department of Justice, 1401 H
Street, NW., Suite 3000, Washington, DC 20530.
The proposed Final Judgment provides that the Court will retain
jurisdiction over this action, and the parties may apply to the
Court for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against defendants
Northrop and TRW. The United States could have brought suit and
sought preliminary and permanent injunctions against Northrop's
acquisition of TRW.
When the United States determines that a horizontal or vertical
merger would result in a substantial lessening of competition, it
generally seeks to block the merger or obtain structural relief.
However, when a merger offers significant efficiencies, which cannot
be obtained absent the merger or if a structural remedy is imposed,
the United States will consider behavioral remedies.
With respect to this transaction, DoD, the only customer for the
highly complex reconnaissance satellite systems affected by the
transaction, determined that, with an appropriate decree resolving
the vertical integration problems identified, the proposed
acquisition offers the possibility of increased competition for DoD
space requirements generally and of significant competitive benefits
to DoD that would not be realized if the merger did not occur.
Following a thorough review of the transaction, DoD concluded that
entry of the proposed Final Judgment would remedy its potential
anticompetitive effects, while permitting the potential achievements
of significant benefits. Given the DoD's conclusion that the United
States would benefit from the transaction if the competitive
problems could be remedied, and given the importance of a vertically
integrated firm structure to the achievement of those benefits, the
Department of Justice determined that the proposed Final Judgment,
containing strict behavioral prohibitions and significant potential
sanctions, is the best available means of satisfying the public
interest in competition. Neither the Department of Justice nor the
DoD considers this proposed Final Judgment to be a general approval
of behavioral remedies for all vertical or horizontal mergers, but
rather consider it appropriate here under the unique circumstances
of this case.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a 60-day comment
period, after which the court shall determine whether entry of the
proposed Final Judgment ``is in the public interest.'' In making
that determination, the court may consider--
(1) the competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) the impact of entry of such judgment 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). As the Court of Appeals for the District of
Columbia Circuit has held, the APPA permits a court to consider,
among other things, the relationship between the remedy secured and
the specific allegations set forth in the government's complaint,
whether the decree is sufficiently clear, whether enforcement
mechanisms are sufficient, and whether the decree may positively
harm third parties. See United States v. Microsoft Corp., 56 F.3d
1448, 1458-62 (D.C. Cir. 1995).
In conducting this inquiry, ``the [C]ourt 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.'' \2\ Rather ``absent
a showing of corrupt failure of the government to discharge its
duty, the Court,
[[Page 1867]]
in making its public interest finding, should * * * carefully
consider the explanations of the government in the competitive
impact statement and its responses to comments in order to determine
whether those explanations are reasonable under the circumstances.''
\3\
---------------------------------------------------------------------------
\2\ 119 Cong. Rec. 24598 (1973). See also United States v.
Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public
interest'' determination can be made properly on the basis of the
Competitive Impact Statement and Response to Comments filed pursuant
to the APPA. Although the APPA authorizes the use of additional
procedures, 15 U.S.C. 16(f), those procedures are discretionary. A
court need not invoke any of them unless it believes that the
comments have raised significant issues and that further proceedings
would aid the court in resolving those issues. See H.R. Rep. No. 93-
1463, 93rd Cong. 2d See. 8-9 (1974), reprinted in 1974 U.S.C.C.A.N.
6535, 6538.
\3\ United States v. Mid-America Dairymen, Inc., 1977-1 Trade
Cas. [para] 61,508, at 71,980 (W.D. Mo. 1977).
---------------------------------------------------------------------------
Accordingly, with respect to the adequacy of the relief secured
by the decree, a court may not ``enage in an unrestricted evaluation
of what relief would best serve the public.'' United States v. BNS
Inc., 858 F.2d 456, 462 (9th Cir. 1988), (quoting United States v.
Bechtek Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also,
Microsoft, 56 F.3d 1458 (D.C. Cir. 1995). Precedent requires that
``[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instanc, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is `within the reaches of the public
interest.' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.'' \4\
---------------------------------------------------------------------------
\4\ United States v. Bechtel, 658 F.2d at 666 (internal
citations omitted)(emphasis added); accord United States v. BNS
Inc., 858 F.2d at 463; United States v. Nat'l Broadcasting Co., 449
F. Supp. 1127, 1143 (C.D. Cal. 1978); United States v. Gillette Co.,
406 F. Supp. at 715. See also United States v. Am. Cyanamid Co., 719
F.2d 558, 565 (2d Cir. 1983).
---------------------------------------------------------------------------
The proposed Final Judgment, therefore, should not be reviewed
under a standard of whether it is certain to eliminate every
anticompetitive effect of a particular practice or whether it
mandates certainty of free competition in the future. Court approval
of a final judgment requires a standard more flexible and less
strict than the standard required for a finding of liability. ``[A]
proposed decree must be approved even if it falls short of the
remedy the court would impose on its own, as long as it falls within
the range of acceptability or is `within the reaches of public
interest'.'' \5\
---------------------------------------------------------------------------
\5\ United States v. Am. Tel. and Tel Co., 552 F. Supp. 131, 150
(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S.
1001 (1983) (quoting United States v. Gillette Co., 406 F. Supp. at
716); see also United States v. Alcan Aluminum, Ltd., 605 F. Supp.
619. 622 (W.D. Ky. 1985).
---------------------------------------------------------------------------
VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that the United States considered in formulating
the proposed Final Judgment.
For Plaintiff United States of America:
J. Robert Kramer II, Chief, Litigation II Section, PA Bar No.
23963.
Maribeth Petrizzi, Assistant Chief, Litigation II Section.
Robert W. Wilder, Trial Attorney, Virginia Bar No. 14479, U.S.
Department of Justice, Antitrust Division, 1401 H St., NW., Suite
3000, Washington, DC 20530, (202) 307-0924, (202) 307-6283
(Facsimile).
Dated: December 23, 2002.
Certificate of Service
I, Robert W. Wilder, hereby certify that on December 23, 2002, I
caused copies of the foregoing Competitive Impact Statement to be
served on defendants Northrop Grumman Corporation and TRW, as
indicated below:
Counsel for Defendant Northrop Grumman: James R. Loftis, III,
Esquire, Gibson, Dunn & Crutcher LLP, 1050 Connecticut Ave. NW.,
Suite 900, Washington, DC 20036-5306, Telephone No.: (202) 955-8500,
Facsimile No.: (202) 467-0539, Via Facsimile and U.S. Mail.
Counsel for Defendant TRW Corporation: Brian C. Mohr, Esquire,
Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, NW.,
Washington, DC 20005-2111, Telephone No.: (202) 371-7774, Facsimile
No.: (202) 661-9067, Via Facsimile and U.S. Mail.
Robert W. Wilder, Virginia Bar No. 14479, U.S. Department of
Justice, Antitrust Division, 1401 H. Street, NW., Suite 3000,
Washington, DC 20530, Telephone No.: (202) 307-6336.
Stipulation and Order
It is hereby Stipulated by and between the undersigned parties,
subject to approval and entry by the Court, that:
1. The Court has jurisdiction over the subject matter of this
action and over each of the parties hereto, and venue of this action
is proper in the United States District Court for the District of
Columbia.
2. The parties stipulate that a Final Judgment in the form
hereto attached may be filed with an entered by the Court, upon the
motion of any party or upon the Court's own motion, at any time
after compliance with the requirements of the Antitrust Procedure
and Penalties Act (15 U.S.C. 16), and without further notice to any
party or other proceedings, provided that the United States has not
withdrawn its consent, which it may do at any time before the entry
of the proposed Final Judgment by serving notice thereof on
defendants and by filing that notice with the Court.
3. Defendants shall abide by and comply with the provisions of
the proposed Final Judgment pending entry of the Final Judgment by
the Court, or until expiration of time for all appeals of any Court
ruling declining entry of the proposed Final Judgment, and shall,
from the date of the signing of this Stipulation by the parties,
comply with all the terms and provisions of the proposed Final
Judgment as though they were in full force and effect as an order of
the Court.
4. This Stipulation shall apply with equal force and effect to
any amended proposed Final Judgment agreed upon in writing by the
parties and submitted to the Court.
5. If the United States has withdrawn its consent, as provided
in paragraph 2 above, or if the proposed Final Judgment is not
entered pursuant to this Stipulation, the time has expired for all
appeals of any Court ruling declining entry of the proposed Final
Judgment, and the Court has not otherwise ordered continued
compliance with the terms and provision of the proposed Final
Judgment, then the parties are released from all further obligations
under this Stipulation, and the making of this Stipulation shall be
without prejudice to any party in this or any other proceeding.
6. Defendants represent that the required actions set forth in
Sections IV and V of the proposed Final Judgment can and will be
implemented and followed and that the defendants will later raise no
claim of hardship or difficulty as grounds for asking the Court to
modify any of the provisions contained therein.
7. This Stipulation shall be effective only upon the closing of
the Northrop Grumman/TRW transaction.
Respectfully submitted,
For Plaintiff
United States of America: J. Robert Kramer II, Pennsylvania Bar
No. 23963, Chief, Litigation II Section, Antitrust Division, U.S.
Department of Justice, 1401 H Street, NW., Suite 3000, Washington,
DC 20530, Telephone: (202) 307-0924, Facsimile: (202) 307-6283.
For Defendant
Northrop Grumman Corporation: Robert E. Nelson, Corporate Vice
President, Business Strategy, Northrop Grumman Corporation, 1840
Century Park East, Los Angeles, California 90067, Telephone: (310)
201-3493, Fax: (310) 201-3494.
For Defendant TRW Inc.: William B. Lawrence, Ohio State Bar No.
0031971, Executive Vice President, General Counsel, and Secretary,
TRW, Inc., 1900 Richmond Road, Cleveland, Ohio 44124, Telephone:
(216) 291-7230, Fax: (216) 291-7872.
Dated: December 11, 2002.
Order
It is so ordered, this----------day of----------, 2002.
-----------------------------------------------------------------------
United States District Court Judge
Final Judgment
Whereas, plaintiff, United States of America, filed its
Complaint in this action on December 11, 2002, and plaintiff and
defendants, Northrop Grumman Corporation (``Northrop'') and TRW Inc.
(``TRW''), by their respective attorneys, have consented to the
entry of this Final Judgment without trial or adjudication of any
issue of fact or law herein, and without this Final Judgment
constituting any evidence against or an admission by any party with
respect to any issue of fact or law herein: and
Whereas, defendants have agreed to be bound by the provisions of
this Final Judgment pending its approval by the Court; and
Whereas, plaintiff requires defendants to agree to certain
procedures for the purpose of remedying the loss of competition
alleged in the Complaint; and
Whereas, defendants have represented to the United States that
the procedures required below can and will be implemented and
followed and that defendants will later raise no claim of hardship
or difficulty as grounds for asking the Court to modify any of the
provisions contained below:
Now Therefore, before the taking of any testimony, and without
trial or adjudication
[[Page 1868]]
of any issue of fact or law herein, and upon consent of the parties
hereto, it is ordered, Adjudged and Decreed as follows:
I. Jurisdiction
This Court has jurisdiction over each of the parties hereto and
over the subject matter of this action. The Complaint states a claim
upon which relief may be granted against defendants under Section 7
of the Clayton Act, as amended (15 U.S.C. 18).
II. Definition
As used in this Final Judgment:
A. ``Northrop'' means defendant Northrop Grumman Corporation, a
Delaware corporation with its headquarters in Los Angeles,
California, its successors and assigns, and its subsidiaries,
division, groups, affiliates, partnerships and joint ventures, and
their directors, officers, managers, agents, and employees and,
after consummation of the acquisition of TRW, all TRW businesses,
subsidiaries, divisions, groups, affiliates, partnerships and joint
ventures, and their directors, officers, managers, agents, and
employees acquired by Northrop.
B. ``TRW'' means defendant TRW Inc., an Ohio corporation with
its headquarters in Cleveland, Ohio, its successors and assigns, and
its subsidiaries, divisions, groups, affiliates, partnerships and
joint ventures, and their directors, officers, managers, agents, and
employees.
C. ``Defendants'' means, collectively or individually as the
context requires, Northrop and/or TRW.
D. ``DoD'' means the United States Department of Defense.
E. ``Secretary of Defense'' means the United States Secretary of
Defense, the Deputy Secretary of Defense, or the Secretary of
Defense's designee.
F. ``Secretary of the Air Force'' means the United States
Secretary of the Air Force or the Secretary of the Air Force's
designee.
G. ``Prime'' or ``Prime Contractor'' means any entity engaged in
the research, development, manufacture, sale and/or integration of
Satellite Systems that sells or competes to sell Satellite Systems
directly to the United States government.
H. ``Payload'' means the assembly or assemblies on a Satellite
that, using electro-optical technology, infrared technology, or
radar technology, enable a Satellite to perform a specific mission.
Payload also shall include, with the assembly or assemblies, all
related components, software, interfaces, any other items within the
assembly or assemblies that enable the Payload to perform its
contemplated function, and all related technical data and
information customarily provided by a Payload supplier to a Prime
Contractor prior to entering into, or ion the course of working
pursuant to, a teaming agreement or contract. Data and information
customarily provided includes the types of data and information
provided by Northrop to its inhouse Prime contract proposal team.
Payload expressly excludes those payloads whose primary mission is
communications.
I. ``Satellite'' means an unmanned vehicle that is launched with
a Payload for the purpose of collecting and/or transmitting data
back to Earth and that is designed either to orbit the Earth or to
travel away from the Earth.
J. ``Satellite Systems'' means any Satellite and a system or
series of systems designed, developed, or utilized in connection
with the operation of a Satellite and corresponding subsystems and
ground systems. Satellite Systems also shall include all information
related to interfaces and any other defining parameters or
specifications that enable the Payload to perform its contemplated
function, and all related technical data and information,
customarily provided by a Satellite Systems Prime Contractor to a
Payload supplier prior to entering into, or in the course of working
pursuant to, a teaming agreement or contract. Information and data
customarily provided includes the types of information and data
provided by Northrop to its in-house Payload proposal team.
K. ``Northrop Payload Business'' means that portion of Northrop
engaged in the research, development, manufacture, or sale of
Payloads, excluding former TRW Payload entities.
L. ``Northrop Satellite Prime Business'' means that portion of
Northrop, or the TRW entity acquired by Northrop, that is engaged in
the Satellite Systems integration business, including the research,
development, manufacture, or sale of Satellite Systems or otherwise
conducting business as a Satellite Systems integrator, and that
performs contracts directly for the United States government.
M. ``United States Government Satellite Program'' or ``Program''
means any Satellite program executed by the DoD, which includes the
National Reconnaissance Office.
N. ``Discriminate'' means to choose or advantage Northrop, or to
reject or disadvantage a Northrop Prime or Payload competitor, in
the procurement process for any reason other than the competitive
merits; provided, however, that the determination of compliance or
non-compliance with the non-discrimination provisions of this Final
Judgment shall take into account that different firms will take
different competitive approaches that may result in differences,
individually and collectively, in price, schedule, quality, data,
personnel, investment (including but not limited to, independent
research and development), technology, innovations, design, and
risk.
O. The terms ``and'' and ``or'' have both conjunctive and
disjunctive meanings.
P. The terms ``he'' and ``his'' also include ``she'' and
``her.''
III. Applicability
This Final Judgment applies to Northrop and TRW, as defined
above, and all other persons in active concert or participation with
any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
IV. Required Conduct
A. When Northrop is the Prime Contractor for a United States
Government Satellite Program, has the responsibility to select a
Payload for the Satellite, and has the opportunity to select its own
Payload, the following is required:
(1) Northrop shall:
(a) Select the Payload on a competitive and non-discriminatory
basis:
(b) on a non-discriminatory basis, provide information, as set
forth in Definition J, regarding Satellite Systems to its in-house
Payload proposal teams and any bona fide Payload competitors;
(c) make all personnel, resource allocation, and design
decisions regarding Satellite Systems on a non-discriminatory basis;
and
(d) propose non-discriminatory Payload source selection
criteria, obtain approval from the Compliance Officer (as defined in
Section V, below) for such criteria before the Payload providers are
formally solicited, and communicate the approved source selection
criteria to all competing Payload suppliers. The Compliance Officer
shall not unreasonably withhold approval of the selection criteria
and shall approve or reject the selection criteria within ten (10)
business days of receipt of the criteria. If the Compliance Officer
does not approve of the source selection criteria proposed by
Northrop, the Compliance Officer shall refer the matter to the
Secretary of the Air Force, who shall have the sole discretion to
set non-discriminatory source selection criteria to be used by
Northrop. The Secretary of the Air Force shall approve or alter the
source selection criteria within five (5) business days of the
decision of the Compliance Officer.
(2) When Northrop is the Prime Contractor for a United States
Government Satellite Program, if it has decided to select a Northrop
Payload, it shall seek the prior approval of the Compliance Officer
and fully explain the reasons for the proposed source selection. The
Compliance Officer shall review the proposed selection of Northrop,
and shall approve or reject the selection within ten (10) business
days of receiving the selection. If the Compliance Officer concludes
that Northrop discriminated in its own favor, either in its Payload
selection or the selection process, he shall refer the matter to the
Secretary of the Air Force, who shall have the sole discretion to
choose the Payload supplier. The Secretary of the Air Force shall
approve or alter the selection within ten (10) business days of the
decision of the Compliance Officer.
(3) In the event Northrop notifies the Compliance Officer in
writing that: (i) Northrop, as the Prime Contractor, elects not to
use the Northrop Payload; or (ii) the Northrop Payload Business
elects not to supply its Payload to the Northrop Satellite Prime
Business. Northrop need not comply with the requirements of Section
IV.A after such notice.
B. When Northrop is a competitor (or, for potential future
Programs, when Northrop has the capability to compete and has taken
steps in anticipation of potentially competing) to be the Prime
Contractor on a United States Government Satellite Program in which
Northrop has the opportunity to select its own Payload, the
following is required:
(1) Northrop shall:
(a) For each Program or potential future Program for which a
Prime Contractor notifies Northrop that it potentially desires to
[[Page 1869]]
have Northrop supply the Payload, supply such Prime Contractor its
Payload in a manner that does not discriminate in favor of its in-
house proposal team against any other Prime Contractor on any basis,
including but not limited to, price, schedule, quality, data,
personnel, investment (including but not limited to, independent
research and development), technology, innovations, design, and
risk;
(b) for each Program or potential future Program for which a
Prime Contractor notifies Northrop of a bona fide potential desire
to have Northrop supply the Payload, negotiate in good faith with
such Prime Contractor to enter into commercially reasonable
nonexclusive teaming agreements and contracts for the purpose of
bidding on Satellite competitions and similar activities; such
agreements and contracts shall not discriminate in favor of its in-
house proposal team against any other Prime Contractor on any basis,
including but not limited to, price, schedule, quality, data,
personnel, investment (including but not limited to, independent
research and development), technology, innovations, design, and
risk;
(c) prior to entering into any such teaming agreements and
contracts, provide to the Compliance Officer copies of such
agreements for his approval. The Compliance Officer shall not
unreasonably withhold approval of such agreements and contracts, and
shall approve or reject the agreements and contracts within five (5)
business days of receipt of the agreement or contract. If the
compliance Officer does not approve of the terms of an agreement or
contract, the Compliance Officer shall refer the matter to the
Secretary of the Air Force, and Northrop shall enter into teaming
agreements and contracts on specific terms as required by the
Secretary of the Air Force, in his sole discretion, such decision to
be made within five (5) days of the decision of the Compliance
Officer;
(d) on a non-discriminatory basis, provide information, as set
forth in Definition H, regarding its Payload to its in-house
proposal team(s) and to any Prime Contractor that has notified
Northrop of a bona fide potential desire to have Northrop supply its
Payload or with which Northrop has teamed to supply its Payload; and
(e) make all personnel, resource allocation, and design
decisions regarding the Payload on a non-discriminatory basis
between its in-house proposal team(s) and any Prime Contractor with
which Northrop has teamed to supply its Payload.
(2) If the Compliance Officer concludes that Northrop has
discriminated in favor of its in-house proposal team, failed to
negotiate a teaming agreement or contract in good faith, or refused
to enter into a commercially reasonable teaming agreement or
contract, the Compliance Officer shall refer the matter to the
Secretary of the Air Force who shall have the sole discretion to
decide with whom, and on what terms. Northrop enters into such
teaming relationships, such decision to be made within five (5)
business days of the decision of the Compliance Officer.
(3) Notwithstanding any provisions of this Section IV.B,
Northrop may refuse to supply a Payload to any Satellite Systems
Prime if the number and/or burden of Satellite Systems Primes
seeking the benefit of this Section becomes unreasonably large. In
such event, Northrop shall notify the compliance Officer, who shall
review the decision and make a recommendation to the Secretary of
the Air Force within ten (10) business days. The Secretary of the
Air Force shall have the sole discretion to decide with whom, and on
what terms. Northrop enters into such teaming relationships, such
decision to be made within ten (10) business days of the decision of
the Compliance Officer.
(4) In the event that Northrop notifies the Compliance Officer
in writing that: (i) Northrop, as the Prime Contractor, elects not
to use the Northrop Payload; or (ii) the Northrop Payload business
elects not to supply its Payload to the Northrop Satellite Prime
Business; or (iii) Northrop elects not to compete at either the
Prime or Payload level. Northrop need not comply with the
requirements of Section IV.B after such notice.
C. When the Northrop Payload Business enters into teaming
agreements or contracts or similar intra-company arrangements that
function as teaming agreements with the Northrop Satellite Prime
Business or with any other potentially competing Prime Contractor
for any Program or potential future Program, and the team engages in
joint investment or development activity for that Program, the
provisions in this Final Judgment requiring non-discriminatory
behavior shall not require that Northrop disclose the products and/
or other results of such joint investments or developments of one
team to any other team for the Program or potential future Program.
D. The provision of any information, technology, or product to
any party pursuant to this Final Judgment shall be subject to
appropriate confidentiality agreements on the treatment of
competition-sensitive, national security-sensitive, ITAR-controlled,
and/or proprietary information.
E. No provision of this Final Judgment shall require Northrop to
provide products, services, or technology to any party without
commercially reasonable compensation.
F. Northrop shall maintain the current TRW Space & Electronics
Satellite Systems business (``S&E Business'') separate and apart
from the Northrop Payload Business. To assure the above. Northrop:
(1) Shall establish a separately protected communications
network for the S&E Business as distinct from the Northrop Payload
Business:
(2) shall maintain separate physical locations for each such
business:
(3) shall use commercially reasonable efforts to avoid
transferring employees between the S&E Business and the Northrop
Payload Business, and shall not transfer personnel, including
employees and independent contractors, between the S&E Business and
the Northrop Payload Business without first requiring such
transferred personnel to acknowledge the restrictions of this Final
Judgment as set forth herein. Records of such transfers, and copies
of any such acknowledgments, shall be maintained during the term of
this Final Judgment, and shall be available for inspection. Northrop
shall notify the Compliance Officer of any such transfers:
(4) shall now allow the S&E Business to provide, disclose, or
otherwise make available to the Northrop Payload Business any non-
public information of any Payload competitor. All non-public
information that a Payload competitor provides to the S&E Business
shall be used only in Northrop's capacity as a Prime Contractor. The
Northrop Payload Business shall not provide, disclose, or otherwise
make avaiable to the S&E Business any non-public information of any
Prime Contractor. All non-public information that a Prime Contractor
provides to the Northrop Payload Business shall be used only in
Northrop's capacity as a Payload supplier; provided, however, that
the provisions of this paragraph shall not apply if the owner of the
information consents to a broader lawful use of that information.
(5) shall within fifteen (15) business days of the closing of
the transaction, submit a detailed plan for maintaining the Northrop
Payload Business separate and apart from the S&E Business to the
General Counsel of the DoD and the Assistant Attorney General in
charge of the Antitrust Division, and the Assistant Attorney General
in charge of the Antitrust Division, in consultation with the
General Counsel of the DoD, shall in his sole discretion make
changes to such plan to ensure compliance with the terms of this
Final Judgment; and
(6) provided, that nothing in this Final Judgment shall require
a separation of Northrop's Payload team and the team for the S&E
Business at the implementation stage of a Program that has been
awarded to Northrop at the Prime and Payload level.
G. Northrop shall inform all personnel of both the Northrop
Payload Business and the S&E Business of the terms and requirements
of this Final Judgment and require all personnel to adhere to such
provisions.
H. When this Final Judgment places time limits on certain
actions by the Compliance Officer and the Secretary of the Air
Force, such limits may be modified by mutual agreement between the
Compliance Officer or the Secretary of Air Force and Northrop.
I. (1) Northrop shall bear all its costs of monitoring,
complying with, or enforcing this Final Judgment, and all such
reasonable costs of the DoD arising solely from monitoring,
complying with, or enforcing this Final Judgment, excluding the
salaries and benefits of United States government employees, and
including but not limited to, the costs of the Compliance Officer
and the costs associated with the retention of third parties to
assist the Compliance Officer.
(2) Northrop shall not charge to the DoD, either directly or
indirectly, any costs of DoD referred to in Section IV.I(1).
Northrop shall not charge to DoD, either directly or indirectly, any
of Nortrop's costs, referred to in Section IV.I(1), including any
remedial costs, as defined by Section IV.I(3); provided, however,
that costs referred to in Sectin IV.I(1) incurred by Northrop, other
than remedial costs, associated with normal business activities that
could reasonably have been undertaken by Northrop in the absence of
this Final Judgment are not subject to the
[[Page 1870]]
charging restrictions of this Section IV.I(2), whether or not such
activities are affected by this Final Judgment; and further provided
that, in the event that the Antitrust Division seeks to have the
Court find Northrop in contempt or impose civil penalties and the
conduct at issue is held by the Court to be compliant with the non-
discrimination provisions of this Final Judgment, the remedial costs
disallowed pursuant to this Section may be charged to DoD.
(3) remedial costs are those costs, incurred by Northrop,
relating directly to the administration of measures to remedy
conduct of Northrop in violation of this Final Judgment, where the
following conditions are met:
(a) the conduct of Northrop was not undertaken pursuant to prior
written direction or approval of the Compliance Officer:
(b) the Secretary of the Air Force has taken action in
accordance with Sections IV.A(2) or IV.B(2) indicating concurrence
with the Compliance Officer's conclusion that Northrop has engaged
in conduct in violation of this Final Judgment with respect to a
United States Government Satellite Program; and
(c) said costs are incurred after the date of the Secretary of
the Air Force's action.
V. Appointment of Compliance Officer
To effect the procedures set forth in this Final Judgment, the
Secretary of Defense shall appoint a Compliance Officer, who shall
be an employee of the United States government. The Compliance
Officer shall oversee compliance by the defendants with the terms of
this Final Judgment, and shall have the power and authority to
oversee such compliance and such other powers as this Court deems
appropriate.
A. To perform his duties and responsibilities, and subject to
any legally recognized privilege, the Compliance Officer may:
(1) Investigate any complaint or representation made to him or
made available to him with respect to any matter arising in relation
to or connected with compliance by Northrop with this Final
Judgment;
(2) interview any Northrop personnel, subject to the reasonable
convenience of such personnel, without restraint or interference by
Northrop;
(3) during normal business hours, inspect and copy any document
in the possession, custody of Northrop;
(4) during normal business hours, obtain reasonable access to
any systems or equipment to which Northrop personnel have access;
(5) during normal business hours, obtain access to and inspect
any physical facility, building, or other premises to which Northrop
personnel have access;
(6) require Northrop to provide compilations of documents, data,
and other information to Compliance Officer in such form as the
Compliance Officer may direct;
(7) solicit and accept comments from third parties;
(8) utilize DoD or other United States government staff as
appropriate to assist in the execution of the Final Judgment;
(9) hire, at the cost and expense of Northrop, a third party (or
third parties) to assist in the execution of this Final Judgment,
which third party (or third parties) shall be solely accountable to
the Compliance Officer, and shall have such duties responsibilities
as determined by the Compliance Officer and that do not exceed the
Compliance Officer's duties and responsibilities as set forth in the
Final Judgment; provided, however, that the professional staff
(including third party consultants) reporting to the Compliance
Officer shall be no larger than ten (10) persons (measured by full-
time equivalents), with such maximum to be expanded solely with the
permission of the Secretary of the Air Force as necessary to the
execution of this Final Judgment; and provided that such
professional staff (including third party consultants) shall
maintain the confidentiality of business sensitive or proprietary
information and documents of Northrop or any other person; and
(10) advise Northrop as soon as practical of the material nature
of assertions or allegations of noncompliance that the Compliance
Officer intends to investigate and, within reasonable time limits
set by the Compliance Officer, attempt to resolve any deficiencies
in Northrop's performing its obligations under this Final Judgment.
B. Defendants shall not object to the Compliance Officer chosen
by the Secretary of Defense.
C. Defendants shall use their best efforts to assist the
Compliance Officer in accomplishing the procedures established in
this Final Judgment. Defendants shall take no action to interfere
with or to impede the Compliance Officer's accomplishment of these
procedures.
D. Defendants shall furnish to the Compliance Officer a
compliance report, to be submitted as directed by the Compliance
Officer, but in any event no less frequently than on an annual basis
or more frequently than quarterly. The compliance report shall
contain an affidavit that describes the actions defendants have
taken and the steps defendants have implemented to comply with the
terms of this Final Judgment. The Compliance Officer may direct
defendants to include in their report any other information the
Compliance Officer deems useful or necessary.
E. The Compliance Officer shall report in writing on an annual
basis to the Secretary of the Air Force, the General Counsel of the
DoD and the Assistant Attorney General in charge of the Antitrust
Division a summary of the actions the Compliance Officer has
undertaken in performing his duties pursuant to this Final Judgment.
Such report shall include any compliance reports submitted by
defendants to the Compliance Officer pursuant to Subsection D above.
If the Compliance Officer is unable to perform his duties for
whatever reason the Compliance Officer shall promptly notify the
above individuals. The Secretary of Defense shall then appoint
another Compliance Officer. The Secretary of Defense shall have the
sole discretion to replace the Compliance Officer at any time when
the Secretary of Defense considers such action appropriate.
F. If the Compliance Officer has reason to believe that there
has been a failure of the defendants to comply with any term of this
Final Judgment, he shall notify the Secretary of the Air Force and
the General Counsel of the DoD. As soon as practical, the Compliance
Officer shall inform Northrop that he has notified the Secretary of
the Air Force and the general Counsel of the DoD of the failure and
the material nature of the assertion or allegation of noncompliance.
VI. Compliance
A. For the purposes of determining or securing compliance with
this Final Judgment, or of determining whether the Final Judgment
should be modified or vacated and subject to any legally recognized
privilege, from time to time duly authorized representatives of the
Antitrust Division, including consultants and other persons retained
by plaintiff, shall upon written request of a duly authorized
representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice of defendants be
permitted:
(1) Access during defendants office hours to inspect and copy or
at plaintiff's option to require defendants to provide copies of,
all books, ledgers, correspondence, memoranda, accounts, records,
and documents in the possession, custody, or control of defendants
relating to any matters contained in this Final Judgment; and
(2) To interview, either informally or on the record defendants
officers, employees, or agents, who may have their individual
counsel present regarding such matters. The interviews shall be
subject to the reasonable convenience of the interviewee and without
restraint or interference by defendants.
B. Upon the written request of the Attorney general or of the
Assistant Attorney General in charge of the Antitrust Division,
defendants shall submit such written reports under oath if
requested, with respect to any matter contained in the Final
Judgment and the Stipulation and Order.
C. No information or documents obtained by the means provided in
this Section shall be divulged by a representative of plaintiff to
any person other than a duly authorized representative of the
Executive Branch of the United States, except in the course of legal
proceedings to which the United States is a party (including grand
jury proceedings), or for the purpose of securing compliance with
this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by
defendants to plaintiff, defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the
Federal Rules of Civil Procedure, and defendants mark each pertinent
page of such material. ``Subject to claim of protection under Rule
26(c)(7) of the Federal Rules Civil Procedure,'' then ten (10)
business days notice shall be given by plaintiff to defendants prior
to divulging such material in any legal proceeding (other than a
grant jury proceeding) to which defendants are not a party.
E. When the General Counsel of the DoD has reason to believe
that there has been a failure by the defendants to comply with any
[[Page 1871]]
term of this Final Judgment, the General Counsel of the DoD shall
notify the Assistant Attorney General in charge of the Antitrust
Division.
F. The Assistant Attorney General in charge of the Antitrust
Division shall have the sole discretion to seek appropriate
enforcement of this Final Judgment with the Court, either as the
result of a referral or on the Antitrust Division's own initiative.
VII. Civil Penalties
The Court may order Northrop to pay a civil penalty of up to $10
million for each violation of this Final Judgment.
VIII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this
Final Judgment to apply to this Court at any time for further orders
and directions as may be necessary or appropriate to carry out or
construe this Final Judgment, to modify any of its provisions, to
enforce compliance, and to punish violations of its provisions.
IX. Third Party Rights
Nothing in this Final Judgment is intended to confer upon any
other persons any rights or remedies of any nature whatsoever
hereunder or by reason of this Final Judgment.
X. Expiration of Final Judgment
This Final Judgment shall expire seven (7) years from the date
of entry; provided that, before the expiration of this Final
Judgment, plaintiff, after consultation with DoD, may petition the
Court to extend the Final Judgment for a period of up to three (3)
years. In no event shall the terms of this Final Judgment exceed a
period of ten (10) years.
XI. Public Interest Determination
Entry of this Final Judgment is in the public interest.
Date: --------------
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16
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United States District Judge
[FR Doc. 03-623 Filed 1-13-03; 8:45 am]
BILLING CODE 4410-11-M