MSC.Software Corporation has agreed to settle Federal Trade Commission allegations that its 1999 acquisitions of Universal Analytics, Inc. (UAI) and Computerized Structural Analysis & Research Corp. (CSAR) violated federal antitrust laws by eliminating competition and monopolizing the market for advanced versions of Nastran, an engineering simulation software program used throughout the aerospace and automotive industries. Under the terms of the proposed settlement, MSC must divest at least one clone copy of its current advanced Nastran software, including the source code. The divestiture will be through royalty-free, perpetual, non-exclusive licenses to one or two acquirers who must be approved by the FTC.
"Because MSC eliminated its only advanced Nastran competitors, the Commission has required MSC to replicate and license its key assets to restore competition," stated Joe Simons, Director of the FTC's Bureau of Competition. Simons added that "even transactions such as these - which were not reported to the government before consummation - eventually will reach our radar screen if they harm consumers. Companies that 'scramble the eggs' may be required to divest not only the assets acquired but also additional assets that may be needed to restore the lost competition."
MSC, based in Santa Ana, California, is the largest supplier of computer-aided engineering simulation software in the world. In 2001, MSC's annual worldwide revenue was $236 million. MSC was the dominant Nastran supplier, with an estimated 90 percent of worldwide revenue. UAI and CSAR each had sales amounting to an estimated five percent of worldwide revenue.
The National Aeronautics and Space Administration (NASA) first developed Nastran as a simulation software tool for linear structural analysis to be used throughout NASA research centers and projects. Nastran is used in the product development process to stimulate how design concepts respond to real world environments, such as differing loads and pressures. Nastran analysis improves the product development process, reduces the need for building prototypes, and shortens the time to market for new products. MSC, UAI and CSAR each enhanced the original NASA-developed version of Nastran and supplied their respective advanced versions for commercial use.
In a complaint issued in October 2001, the FTC alleged that MSC's 1999 acquisitions of UAI and CSAR substantially lessened competition and tended to create a monopoly in the relevant markets by eliminating actual, direct, and substantial competition between MSC, UAI, and CSAR; by creating and enhancing MSC's power to raise prices above a competitive level or to withhold or delay product development and enhancements; and by preventing other suppliers of engineering software from acquiring UAI and CSAR and increasing competition.
The proposed settlement, announced today for public comment, requires MSC.Software to divest the key intellectual property of its advanced Nastran software. In order to restore competition, MSC would be required to grant royalty-free, perpetual licenses for its current version of MSC's advanced Nastran software, including its Nastran source code, as well as all intellectual property acquired in its acquisitions of UAI and CSAR. In addition, the proposed settlement requires MSC to permit certain customers to terminate paid-up licenses entered into since the acquisitions and requires MSC to refund a portion of the advance consideration paid by MSC's customers. The proposed divestiture is designed to re-establish a market of two or more firms vying to add enhancements to meet the evolving needs of the aerospace, automotive, and other industries. The order requires MSC to complete the divestiture within 150 days after Commission acceptance of the proposed order for public comment.
The Commission vote to accept the proposed consent agreement and place a copy on the public record was 5-0, with Commissioner Mozelle Thompson issuing a separate statement. In his statement, Thompson said that although he voted to accept the agreement, he is "concerned that industry and the private bar do not mistakenly make too much of the fact that the Commission did not require an up-front buyer for this licensing divestiture." According to Thompson, the FTC, as a general rule, is more likely to require that parties present up-front buyers for assets when divesting less than an ongoing business. However, in this unique case, the FTC decided to resolve its concerns about MSC.Software's two consummated acquisitions by accepting an order requiring a prompt divestiture to restore lost competition, he said. "I am comfortable with the remedial action in this particular instance," Thompson said, "because the Commission has fully vetted the divestiture package's market acceptability with industry incumbents. Thus, I am fully confident that the asset package will function successfully in the marketplace and facilitate viable competition."
An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until September 13, 2002, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: The 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.
The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: firstname.lastname@example.org; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC Matter No. D. 9299)
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