[Federal Register: July 21, 2008 (Volume 73, Number 140)]
[Notices]
[Page 42349-42351]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy08-46]
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FEDERAL TRADE COMMISSION
[File No. 081 0079]
Flow International Corporation; Analysis of the Proposed Consent
Order to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint and the terms of the consent order -- embodied in the consent
agreement -- that would settle these allegations.
DATES: Comments must be received on or before August 8, 2008.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Flow International, File No. 081 0079,'' to
facilitate the organization of comments. A comment filed in paper form
should include this reference both in the text and on the envelope, and
should be mailed or delivered to the following address: Federal Trade
Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania
Avenue, N.W., Washington, D.C. 20580. Comments
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containing confidential material must be filed in paper form, must be
clearly labeled ``Confidential,'' and must comply with Commission Rule
4.9(c). 16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment
filed in paper form be sent by courier or overnight service, if
possible, because U.S. postal mail in the Washington area and at the
Commission is subject to delay due to heightened security precautions.
Comments that do not contain any nonpublic information may instead be
filed in electronic form by following the instructions on the web-based
form at http://secure.commentworks.com/ftc-Flow. To ensure that the
Commission considers an electronic comment, you must file it on that
web-based form.
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\1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See Commission Rule 4.9(c),
16 CFR 4.9(c).
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The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. All timely and responsive public comments, whether filed
in paper or electronic form, will be considered by the Commission, and
will be available to the public on the FTC website, to the extent
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes
every effort to remove home contact information for individuals from
the public comments it receives before placing those comments on the
FTC website. More information, including routine uses permitted by the
Privacy Act, may be found in the FTC's privacy policy, at (http://
www.ftc.gov/ftc/privacy.shtm).
FOR FURTHER INFORMATION CONTACT: Charles Harwood or Joseph Lipinsky,
FTC Northwest Regional Office, 600 Pennsylvania Avenue, NW, Washington,
D.C. 20580, (206) 220-6350.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 2.34 of
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given
that the above-captioned consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of thirty (30) days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for July 10, 2008), on the World Wide Web, at (http://www.ftc.gov/os/
2008/07/index.htm). A paper copy can be obtained from the FTC Public
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington,
D.C. 20580, either in person or by calling (202) 326-2222.
Public comments are invited, and may be filed with the Commission
in either paper or electronic form. All comments should be filed as
prescribed in the ADDRESSES section above, and must be received on or
before the date specified in the DATES section.
Analysis of Agreement Containing Consent Order to Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Order (``Consent
Agreement'') from Flow International Corporation (``Flow''). The
proposed Consent Agreement is designed to remedy the likely
anticompetitive effects arising from Flow's proposed acquisition of
OMAX Corporation (``OMAX''). Under the terms of the Consent Agreement,
Flow will grant a royalty-free license to two Omax patents relating to
waterjet controllers to any firm that seeks a license.
II. Background
Flow and OMAX are the leading manufacturers of waterjet cutting
systems in the United States. Waterjet cutting systems use high
pressure water and garnet to cut a wide variety of materials from steel
to stone. The two companies have developed PC-based controllers that
automatically compensate for the unique characteristics of how the
waterjet cuts, such as taper (the waterjet expands after leaving the
nozzle, forming a cone shape) and lag (the faster the cutting head
moves, the more the waterjet will trail behind the cut). The
controllers and related technology differentiate these two firms from
other competitors in the marketplace. However, the controllers and
related technology are also the subject of ongoing litigation between
the two companies. In 2004, OMAX filed suit alleging that Flow's
products infringed its patents pertaining to controllers. Flow
counterclaimed alleging that OMAX infringed its patents pertaining to
controllers.
Flow, a publicly traded company headquartered in Kent, Washington,
is the leading manufacturer of waterjet cutting systems in the United
States market. OMAX is a privately-held company headquartered in Kent,
Washington. OMAX owns two very broad U.S. patents covering its
controller. OMAX's controller is a significant factor behind its
position as the second leading supplier of waterjet cutting systems in
the United States.
On December 5, 2007, Flow signed an exclusive option agreement to
negotiate the acquisition of OMAX. Under the agreement, Flow and OMAX
will work to negotiate a definitive agreement for Flow to acquire OMAX.
Upon closing, Flow would pay approximately $109 million in cash and
stock with the potential for a contingent earn-out in two years of up
to $26 million. The closing will also settle the long-running and
expensive patent litigation between Flow and OMAX.
III. The Draft Complaint
The draft complaint alleges that the transaction may substantially
lessen competition in the market for the development, manufacture,
marketing, and sale of waterjet cutting systems. A waterjet cutting
system contains four main parts: (1) Pump, (2) cutting head, (3)
cutting table, and (4) controller.
Waterjet cutting systems are used by a wide variety of industrial
machine tool customers. These customers range from job shops, which
produce a wide variety of short-run parts, and use waterjet cutting
systems to complement their traditional milling machines, lasers and
flame cutters, to aerospace shops that use waterjet cutting systems
because they cut without damaging materials that are affected by heat,
such as titanium and aluminum. Industrial machine tool customers, as
well as others, can increase cutting speed and minimize set-up time by
using a waterjet cutting system instead of an alternative cutting
technology. Cutting speed is affected by pump pressure, the number of
cutting heads used on the system, and the sophistication of the
controller. Controllers are often the least expensive means of
improving cutting speed and have the further virtue of reducing set-up
time if they are easily programmable. To compensate for the unique
characteristics of how the waterjet cuts, controllers can improve the
quality of the cut by, among other things, automatically adjusting the
speed of the cut.
Both Flow and OMAX produce waterjet cutting systems that feature
relatively inexpensive yet sophisticated PC-based controllers that
compensate for the unique characteristics of how the waterjet cuts.
These controllers make Flow and OMAX each other's closest
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competitors because only they manufacture waterjet cutting systems with
the most advanced and efficient controllers.
The relevant geographic market within which to analyze the likely
effects of the proposed transaction is the United States. The draft
complaint further alleges that new entry would not prevent or
counteract the anticompetitive effects of this acquisition. New
entrants and existing competitors are deterred by the risk of violating
the OMAX patents from developing and producing competitive waterjet
cutting systems. Developing an efficient controller that clearly works-
around the potential reach of OMAX's patents would likely be an
expensive and time-consuming process, with no guarantee of success.
The draft complaint also alleges that Flow's acquisition of OMAX,
if consummated, may substantially lessen competition in the market for
the development, manufacture, marketing, and sale of waterjet cutting
systems in the United States in violation of Section 7 of the Clayton
Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. Sec. 45, by eliminating direct
competition between Flow and OMAX and increasing the likelihood that
Flow will unilaterally exercise market power.
IV. The Terms of the Consent Agreement
The proposed Consent Agreement will remedy the Commission's
competitive concerns about the proposed acquisition. Under the terms of
the proposed consent order, Flow must grant a royalty-free license to
each competitor who seeks to license the two broad OMAX patents
relating to controllers that Flow will acquire with its acquisition of
OMAX.
Currently Flow and OMAX are each other's closest competitor because
they each offer an efficient PC-based controller that compensates for
the unique characteristics of how a waterjet cuts. OMAX's two patents
make the development of such a controller substantially more expensive
and risky. Requiring Flow to grant a royalty-free license to these
patents will ensure that other firms are able to replace the
competition that would otherwise have been eliminated by the proposed
acquisition.
While Flow has two patents relating to controllers, its patents are
significantly narrower in scope than the OMAX patents and, as a result,
do not prevent current or future competitors from offering a viable
waterjet cutting system. Current and future competitors will not need
licenses to these narrow patents in order to compete effectively in
this market. Other aspects of Flow's and OMAX's business, such as
customer lists, brand names, key employees, or the other parts of
waterjet cutting systems, are easily duplicated by current competitors
or future entrants. Consequently, to restore the competition lost by
Flow's acquisition of OMAX, the proposed consent order eliminates the
entry barrier faced by current waterjet cutting system competitors and
future entrants by giving them a royalty-free license to the OMAX
patents.
V. Opportunity for Public Comment
The proposed consent order has been placed on the public record for
30 days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After 30 days, the Commission will again review the proposed consent
order and the comments received and will decide whether it should
withdraw from the agreement or make the proposed consent order final.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the proposed consent order, in order to aid the
Commission in its determination of whether to make the proposed consent
order final. This analysis is not intended to constitute an official
interpretation of the proposed consent order nor is it intended to
modify the terms of the proposed consent order in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E8-16506 Filed 7-18-08: 8:45 am]
BILLING CODE 6750-01-S