Statement of Commissioner Mary L. Azcuenaga
Concurring in Part and Dissenting in Part

in Cadence Design Systems, Inc., File No. 971-0033

The acquisition of Cooper & Chyan Technology, Inc. (Cooper & Chyan), by Cadence Design Systems, Inc. (Cadence), combines the only firm currently marketing a constraint-driven, shape-based integrated circuit routing tool with a firm that was, at least until the acquisition, on the verge of entry into this market. I find reason to believe that the proposed merger would violate Section 7 of the Clayton Act under a horizontal, potential competition theory of law. I dissent from the complaint because it fails to allege a horizontal violation of law and because I do not find reason to believe that the transaction would violate the law under the vertical theory that is alleged in the complaint. I support the part of the order that addresses the horizontal problem, although I question whether it is sufficient. The classic horizontal remedy would be divestiture of either the Cooper & Chyan routing tool or the Cadence routing tool that has not yet reached the market. I do not support the rest of the order.

Despite the absence of a horizontal allegation in the complaint, the majority nevertheless has addressed the horizontal competition issue in paragraph III of the proposed consent order, which imposes a ten-year prior notice provision. Under the Commission's policy, prior notification provisions are imposed to prevent a recurrence of an anticompetitive merger.⁽¹⁾ This prior notice provision seems to address the prospect of another anticompetitive, horizontal merger in the market for "Integrated Circuit Routing Tools." Any further acquisition by Cadence of a firm marketing such a tool would present obvious horizontal issues, but should not require any additional vertical cure. To the extent that this proposed order provides a vertical remedy for any possible market foreclosure or increased barriers to entry, a duplicate vertical order against Cadence would be unnecessary.

Paragraph II of the proposed order requires Cadence to allow developers of "Commercial Integrated Circuit Routing Tools" to participate in its connections program on "terms no less favorable than" the terms offered to any other participant. According to the Analysis to Aid Public Comment at page 7, this provision is intended to eliminate the need for dual level entry so that a future developer of "Commercial Integrated Circuit Routing Tools" will not also need to develop an environment comparable to Cadence's environment.

I question this aspect of the case for several reasons.⁽²⁾ First, Cooper & Chyan was successful in developing and marketing its routing program before it obtained access to Cadence's environment program. This success suggests that access to Cadence's environment is not necessary to the success of an entrant in the routing tool market. Second, although Cadence initially denied Cooper & Chyan access to its connections program, it reversed course and granted the access. To the extent that Cadence may have capitulated to pressure from customers to grant access, that capitulation would suggest that Cadence has little or no power to deny access to its connections program to a product that its customers want. Third, this remedy is premised on the allegation in paragraph 16 of the Complaint that "Cadence does not, however, have incentives to provide access to a Cadence integrated circuit layout environment to suppliers of integrated circuit layout tools that compete with Cadence products." To the extent that a Section 7 order may be based on incentives, the incentives appear to be at least as likely to go the other way. If another company develops an innovative, advanced router, one would assume that Cadence would have incentives to welcome the innovative product to its suite of connected design tools, thereby enhancing the suite's utility to customers.

Paragraph II of the proposed order may be counterproductive and may result in substantial enforcement costs for the Commission. Because Paragraph II bars Cadence from charging developers of "Commercial Integrated Circuit Routing Tools" a higher access fee than developers of other design tools, one possible, unintended consequence of the order is that Cadence may reduce or eliminate discounting of access fees. In addition, enforcement of the provision of the order requiring Cadence to provide access to the connections program to developers of "Commercial Integrated Circuit Routing Tools" on terms "no less favorable than the terms applicable to any other participants" may well embroil the Commission in complex commercial disputes.

I concur in the acceptance of Paragraph III of the proposed order and dissent from the acceptance of Paragraph II of the proposed order.

1. According to the "Statement of Federal Trade Commission Policy Concerning Prior Approval and Prior Notice Provisions" (June 21, 1995), the Commission imposes such prior notice requirements only on a finding of "credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for an order, engage in an otherwise unreportable anticompetitive merger."

2. The majority is mistaken to the extent they believe I take issue with Section 4 of the U.S.Department of Justice Merger Guidelines (June 14, 1984). See Statement of Chairman Robert Pitofsky and Commissioners Janet D. Steiger and Christine A. Varney written in response to this statement and the dissenting statement of Commissioner Starek.