For Your Information: September 2, 1997
The Federal Trade Commission today announced the following actions.
Commission action regarding applications for approval: Following a public comment period, the Commission has ruled on an application for approval of a transaction from the following:
- The FTC has granted the application of Phillips Petroleum Company, of Bartlesville, Oklahoma, to divest approximately 160 miles of its natural gas pipeline system in Oklahoma to KN Gas Gathering, Inc., a subsidiary of KN Energy, Inc., of Lakewood, Colorado. The divestiture of this pipeline is required under a March 1997 consent order settling charges that Phillips' acquisition of gas gathering assets from ANR Pipeline Company violated antitrust laws because it would substantially reduce competition for natural gas gathering services in areas of five Oklahoma counties. The divestiture is intended to restore competition. (See Dec. 30, 1996 news release for more details about this case; Docket No. C-3728; Commission vote to approve the divestiture was 4-0). Staff contact is Elizabeth Piotrowski, 202-326-2623.
Consent agreements given final approval: Following a public comment period, the Commission has made final a consent agreement with the following entity. The Commission action makes the consent order binding on the respondent.
- The order with Cadence Design Systems, Inc., of San Jose, California, settles charges that its $400 million acquisition of Cooper & Chyan Technology, Inc. would substantially reduce competition for "routing" software used to automate the design of integrated circuits, or microchips. Routing tools are used in conjunction with other microchip design tools through a software infrastructure known as a layout environment. Chip designers are more likely to purchase a routing tool with an interface to a layout environment for which a full set of compatible design tools is available, the FTC said. The merger would reduce the incentives of Cadence to permit competing suppliers of routing tools to obtain access to Cadence's layout environments. Therefore, routing tool developers would find it more difficult to enter the routing tool market successfully, or they would have to enter simultaneously at the router and the layout environment levels. The result would be less innovation, higher prices and reduced services, the FTC charged. The order is designed to restore competition by requiring Cadence to allow developers of commercial integrated circuit routing tools to participate in the Cadence "Connections Program" and any other Cadence independent software interface programs that enable independent software developers to develop and sell interfaces to Cadence layout tools and environments. Cadence will be required to offer participation to independent software developers on terms no less favorable than those applicable to any other participant in the program, which currently has approximately 100 partners. (See May 8, 1997 news release for more details regarding this case; Docket No. C-3761; Commission vote to issue order as final was 4-1 with Commissioner Mary L. Azcuenaga concurring in part and dissenting in part and Commissioner Roscoe B. Starek, III, dissenting.)
- Chairman Robert Pitofsky, Commissioner Janet D. Steiger and former Commissioner Christine A. Varney voted in the majority. In a statement, Pitofsky and Steiger said that "[t]he Commission's proposed complaint alleges a well-established vertical theory of competitive harm." They noted that "[w]hen considering the effects of mergers in dynamic, innovative high-tech markets, such as those present here, it is particularly important to investigate whether such mergers will create barriers to entry. New entrants often bring innovation to the market, and the threat of entry leads incumbents to innovate." They stated that "[t]he proposed remedy in this matter preserves opportunities for new entrants . . ." while also preserving any efficiencies resulting from the merger.
- In her statement, Commissioner Azcuenaga said she found reason to believe that the transaction is a horizontal violation of Section 7 because it combines Cooper & Chyan, the only firm currently marketing a constraint-driven, shape-based integrated circuit routing tool, with Cadence, an actual potential entrant in that market. She observed that although "it is a close question whether Cadence was a potential entrant or already an entrant," Cadence had the interest, economic incentive and capacity to enter and satisfied even the strictest legal standard for an actual potential entrant. Commissioner Azcuenaga observed that whether or not Cadence had a commercially viable product at the time of the transaction, "the actual potential competition doctrine applies to firms that have not yet perfected a product and completed all the steps necessary to entry."
- Commissioner Azcuenaga disagreed with the imposition of the vertical remedy, observing that Cooper & Chyan's successful entry into the relevant market for routing tools without having access to Cadence's layout environment undercut the notion that dual level entry is necessary. She also expressed concern that the remedy "may embroil the Commission unnecessarily in complex commercial disputes."
- In his dissenting statement, Commissioner Starek said, "To justify the complaint and order, the Commission once again invokes the specter of anticompetitive 'foreclosure' as a direct consequence of the transaction. As I have made clear on previous occasions, foreclosure theories are generally unconvincing as a rationale for antitrust enforcement. The current case provides scant basis for revising this conclusion. . . The logic of the complaint is fundamentally flawed. Even if we assume arguendo -- as the complaint in this case does -- that Cadence is 'dominant' in the supply of software components complementary to the router, the fact remains that it has no incentive to restrict the supply of routers."
Regarding the consent order, Starek said: "Not only am I unpersuaded that Cadence's acquisition of CCT is likely to reduce competition in any relevant market, but . . . I would find the order unacceptable even were I convinced as to liability." For example, "[e]ven apart from the usual problems with 'most favored nations' clauses in consent orders, this order . . . will require that the Commission continuously regulate the prices and other conditions of access." Starek concluded, "Because I do not accept the Commission's theory of liability in this case, and because I find the prescribed remedy at best unenforceable and at worst competitively harmful, I dissent." Staff contact is William J. Baer 202-326-2932 or Howard Morse, 202-326-2949.
Copies of the documents referenced above 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. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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