Accord to Require Divestiture of Competing Network
Automatic Data Processing, Inc. has agreed to settle Federal Trade Commission charges that its 1995 acquisition of AutoInfo, Inc. assets resulted in a monopoly and substantially lessened competition. ADP has agreed to divest the computer systems and automobile salvage-yard parts trading network it illegally acquired from AutoInfo. The settlement would reestablish a competitor to ADP by requiring a quick divestiture: ADP would have to divest the AutoInfo assets as an ongoing business, so that the new competitor could immediately service AutoInfo's former customers and compete to gain new customers for its automobile salvage yard information services, the FTC said.
"This merger demonstrates very clearly the impact that enforcement of the antitrust laws can have on a wide variety of people," said William J. Baer, Director of the FTC's Bureau of Competition. "Ultimately, the costs of ADP's illegally acquired monopoly would have been borne by salvage yards; auto insurance companies; intermediaries who help gather, manipulate and disseminate information; auto repair firms; and consumers, both for the repair of their cars and as insured individuals who pay regular premiums. This settlement incorporates the relief the Commission sought in its litigation against ADP. It will provide a complete remedy to the concerns described in the Commission's complaint -- it will restore competition, and thereby restore competitive prices."
The FTC had alleged in its November 1996 administrative complaint that ADP's acquisition of AutoInfo assets was part of a plan to acquire monopoly power and raise prices in five distinct markets within the salvage yard information management industry. A trial before an administrative law judge had been set to begin on July 15. Under today's settlement, ADP would be required to quickly divest the former AutoInfo assets, and to grant the acquirer an unrestricted license to the Hollander Interchange, now the industry standard for the cross-indexed numbering system for parts that is used to identify groups of parts that are interchangeable.
"The FTC has moved aggressively to ensure that the restored competitor can offer an immediate alternative to ADP," Baer said. "The settlement in this matter makes clear that the Commission will act to protect consumers from anticompetitive mergers by requiring the acquiring firm to put back into the marketplace what was illegally taken."
ADP, based in Roseland, New Jersey, provides information services and develops and sells computerized information systems to a variety of industries, including auto salvage yards and insurance companies. In the April 1995 acquisition at issue, ADP obtained substantially all of AutoInfo's assets involved in providing information services to salvage yards as well as providing inventory data about salvage yard parts to entities that provide computerized information systems to automobile insurance companies. ADP's overall plan to monopolize the industry, which culminated with the AutoInfo asset acquisition, included its 1992 acquisition of Hollander, Inc., which provided salvage yard information services and had the largest customer base, the FTC alleged.
According to the FTC's administrative complaint, automobile salvage yards use the ADP and former-AutoInfo products in buying and selling used parts and parts-assemblies for automobiles and small trucks. The salvage yards purchase wrecks, dismantle them, and sell the parts and parts-assemblies to auto repair shops, consumers, and other salvage yards. Computerized information systems -- yard management systems -- automate the process of managing parts inventories, and are linked to electronic communications networks that enable salvage yards to search electronically for parts in the inventories of other yards. An interchange -- a cross-indexed numbering system for parts that identifies which are interchangeable -- is a critical component of this computerized inventory-management and communications system.
Prior to the acquisition, the FTC alleged, ADP sold the Hollander Interchange, the Hollander Yard Management System, and an electronic communications network called the Electronic Data Exchange Network (EDEN). ADP competed fiercely with AutoInfo, which sold its AutoInfo yard management system (Classic, Checkmate and Checkmate Jr.) and the ORION/RTS electronic communications network both of which used the AutoInfo Interchange. The two companies also collected salvage yard inventory data and sold products or information related to estimating software used by insurance companies to determine the cost of repairing a damaged vehicle.
The FTC alleged that these markets are highly concentrated and difficult to enter, noting that ADP had at least 80 percent of the yard management systems market and was the only provider of electronic communications systems. After the acquisition, the complaint charged,
ADP now owns the principal and, in some cases, the only products in the relevant markets." The result, the FTC alleged, was that ADP could increase prices and reduce innovation in the relevant markets. Moreover, the FTC said, since the acquisition, ADP has not updated the former AutoInfo Interchange and has switched former AutoInfo yard management system customers from the AutoInfo Interchange to a revised version of the Hollander Interchange.
The proposed consent agreement to settle the FTC charges is being announced today for public comment before the Commission determines whether to make it final. It would require ADP to divest, within 150 days from initial acceptance of the order for comment or within 60 days after the order is final, the former AutoInfo assets, which include AutoInfo's yard management systems and electronic communications systems, the AutoInfo Interchange, and the AutoInfo Parts Locator, a computerized on-line telephone service offered to the auto casualty insurance industry. Included in the divestiture of the yard management and communication systems are the customer bases for each of the products. If the divestiture is not completed on time, the order would allow the FTC to appoint a trustee to divest, in addition to the those assets, Compass -- a group of telephone voice line networks used to trade auto salvage parts -- and, if necessary to accomplish the divestiture, additional ancillary assets.
The order would require ADP to grant the acquirer a paid-up, perpetual, non-exclusive license to the Hollander Interchange, and to provide updates to the Interchange for at least three years. This would allow the acquirer and its customers and licensees to use the identical Hollander Interchange as ADP for a period of time until it can create its own updates, and then differentiate and improve the Hollander Interchange. The acquirer also would have the right to sublicense the Hollander Interchange. "By divesting the former AutoInfo products with the AutoInfo customer network and rights to the Hollander Interchange, the remedy is designed to allow the businesses to be immediately competitive," Baer explained.
Further, the order would require ADP, for one year after the divestiture, to allow its customers who entered into a contract for ADP's yard management or electronic communications systems (when they did not have the choice to buy an AutoInfo product) to switch to the acquirer's systems without penalty. It also would prohibit ADP from restricting its employees from accepting employment with the acquirer and, for one year, from trying to hire any of the acquirer's personnel; and require ADP, for one year, to allow the acquirer to draw on ADP's technical assistance.
In addition, for 10 years, the order would prohibit ADP from restricting its customers' ability to connect to and receive or transmit inventory data through the acquirer's products and would require ADP to provide information necessary for the acquirer or its licensees to create interfaces with ADP's products. Finally, for 10 years, the order would require ADP to obtain FTC approval before reacquiring any AutoInfo assets; and require it to notify the Commission before acquiring other assets used in yard management systems or communications systems for salvage yards.
(This was the second law-enforcement action brought by the FTC in connection with this merger. In the first, the FTC alleged that ADP's filing for pre-merger antitrust review was deficient. The company paid a $2.97 million civil penalty in April 1996 to resolve those charges.)
The Commission vote to accept the proposed consent agreement for public comment was 5-0. A notice regarding this case will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the proposed consent agreement and other documents associated with the FTC's cases against ADP are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC Docket No. D9282)
Office of Public Affairs
202-326-2161 or 202-326-2180
William J. Baer, 202-326-2932
Howard Morse, 202-326-2949
Eric D. Rohlck, 202-326-2681