Under the terms of a proposed consent order with the Federal Trade Commission, Computer Sciences Corporation's ("CSC") proposed $568 million acquisition of Mynd Corporation ("Mynd") would be allowed to proceed, provided that CSC divests Mynd's claims assessment system, known as Claims Outcome Advisor ("COA"), to Insurance Services Office, Inc. ("ISO"). The proposed order would settle charges that CSC's acquisition of Mynd would have illegally reduced competition in the U.S. market for claims assessment systems. Comprised of computer software and other intellectual property, claims assessment systems are used by insurance companies and others to evaluate appropriate payments for claims of bodily injury and to evaluate return-to-work plans in workers compensation matters.
According to the Commission's complaint, CSC's acquisition of Mynd as proposed would violate Section 5 of the Federal Trade Commission Act and Section 7 of the Clayton Act, by illegally reducing competition in the U.S. market for claims assessment systems. CSC and Mynd are the leading companies nationwide that have developed and marketed such systems. CSC, through its Financial Services Group, headquartered in Austin, Texas, currently provides support services along with application software to insurance companies, banking, consumer finance companies and investment companies. Mynd, headquartered in Columbia, South Carolina, provides consulting services, along with packaged software solutions, to the insurance and financial services industries.
The complaint alleges that the market for claims assessment systems in the United States is highly concentrated and that CSC and Mynd are the only significant competitors for the provision of such systems. Accordingly, CSC's proposed acquisition of Mynd would create a monopoly or near monopoly in this market, with entry by competitors neither timely, likely nor sufficient to deter or offset the adverse competitive effects of the transaction. In addition, the FTC contends that without relief, the proposed acquisition would eliminate actual direct and substantial competition between CSC and Mynd in this market, with the result being reduced innovation stemming from delayed or reduced product development.
The proposed order would remedy the anticompetitive effects of the transaction by requiring CSC to divest Mynd's claims assessments systems, COA, to ISO. The order would also require CSC and Mynd to dismiss all intellectual property claims against Neuronworks - the original developers of COA - to enable Neuronworks to perform COA-related consulting or other work in conjunction with ISO or another acquirer. Through the order, CSC and Mynd would be required to "release, hold harmless and indemnify" ISO (or another acquirer) from liability for any past, current or future claims arising from Mynd's and Neuronworks' acts prior to the date of the COA divestiture. Each of these requirements is designed to allow the company that acquires COA to compete freely in the market, free from claims of intellectual property infringement by CSC. Finally, CSC and Mynd would be required to divest other assets related to the COA system, including customer lists, contracts, intellectual property and other intangible assets that would enable the acquiring company to compete as soon as possible following the divestiture.
If, at the time the order is made final, the FTC does not approve of the divestiture to ISO, the respondents would have three months to divest Mynd's claims assessment business to another Commission-approved buyer. If the divestiture is not completed within that time, the Commission would appoint a trustee who would have the authority to divest the assets. In addition, under the terms of an Order to Maintain Assets, the respondents would be required to maintain Mynd's COA system as a viable competitive asset and run it as it would in the ordinary course of business pending its divestiture.
Under the order, CSC and Mynd would also have to provide the FTC with an initial report detailing how they will comply with the divestiture requirements and with regular reports regarding its compliance with the order until the assets have been satisfactorily divested. The term of the order is 10 years.
A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment until January 19, 2001, 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.
The Commission vote to accept the proposed consent agreement and publish a summary in the Federal Register for public comment was 5-0.
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 complaint, consent agreement and analysis to aid public comment are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the online complaint form. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
Mitchell J. Katz,
Office of Public Affairs
Daniel J. Silver,
Bureau of Competition
(FTC File No. 001-0088)