The Federal Trade Commission today charged that Automatic Data Processing, Inc.'s 1995 acquisition of AutoInfo, Inc. assets created a monopoly that has raised prices and reduced the quality of service in the automobile salvage yard information management industry. The FTC said it is seeking an order that would require ADP to divest businesses and assets sufficient to restore competition to the industry.
ADP, based in Roseland, New Jersey, had $3 billion in revenues in 1995. It provides information services and develops and sells computerized information systems to a variety of industries, including auto salvage yards and insurance companies.
ADP acquired AutoInfo in April 1995, but later paid a $2.97 million civil penalty to resolve federal charges that its statutorily-required filing for pre-merger antitrust review was deficient, omitting, for example, documents that demonstrated, among other things, that there was an anticompetitive intent underlying the proposed acquisition, that the proposed acquisition would create serious competitive concerns, and that ADP believed that the acquisition of AutoInfo assets would give ADP a monopoly or virtual monopoly in several product markets. (See March 27, 1996 FTC news release.) In an administrative complaint issued today, the FTC alleged that the acquisition was part of an ADP plan to acquire the leading information service providers to the salvage industry and thereby acquire monopoly power. The plan included the acquisition of both Hollander, Inc. (completed in 1992) and AutoInfo, the FTC alleged.
"This case serves notice that companies cannot evade federal law requiring them to file for an antitrust review before they complete what could turn out to be an anticompetitive deal, and still expect to keep control of illegally-acquired businesses," said William J. Baer, Director of the FTC's Bureau of Competition. "ADP's unlawful plan to monopolize salvage information services and raise prices must not be allowed to succeed."
As a result of the acquisitions, today's FTC complaint alleges, ADP now has all or virtually all of the market for auto salvage yard information management systems. The result is the risk of higher prices and reduced service and technological improvements. Auto salvage yards and ADP customers have raised serious concerns about the merger, the FTC said.
In the complaint, the FTC alleges both that the AutoInfo acquisition substantially lessens competition and that ADP has illegally monopolized integrated computer systems that salvage yards use to inventory, buy and sell parts. That integrated group consists of: (1) an "interchange," a proprietary numbering system for auto parts and parts-assemblies used as a cross-index to determine parts and assemblies that are interchangeable; (2) computer software that uses the interchange numbering system to organize and manage a salvage yard's inventory of parts and assemblies; and (3) an electronic communications system that auto salvage yards use to buy used parts and assemblies from other yards, including the ability to search a central database that pools updated inventory of all subscribing yards. Whereas ADP and AutoInfo fiercely competed prior to the merger, ADP now is the only supplier of integrated computer systems for auto parts inventory exchange, the FTC charged. The complaint also alleges that ADP's acquisition gives ADP a monopoly in the collection and provision of salvage yard inventory data to firms that sell estimating software to insurance companies.
The FTC also alleged that, absent the divestitures it contemplates, entry by another firm would not be sufficient to deter ADP from raising prices or engaging in other anticompetitive activities. ADP's interchange is protected by copyright and is based on a database of information that took years to develop. Entry also is difficult because of the large number of customers ADP currently has using these products and services. These integrated computer systems create a network for buying and selling used parts and, consequently, salvage yards are reluctant to rely upon a new entrant without a significant number of other salvage yard customers participating in the network. ADP is the gatekeeper of salvage yard inventory data through its control of the interchange, integrated yard management systems and communications systems, so new entry into the collection and provision of inventory data to insurance companies is unlikely without FTC action, the complaint states.
The FTC issued a notice laying out the range of divestitures it might seek if the complaint is upheld following an administrative trial, including divestiture of one or more of the following:
- all the assets and businesses acquired from AutoInfo and a royalty-free license to the ADP Hollander Interchange (and all updates and improvements to it);
- all ADP assets that, prior to the merger, competed with AutoInfo;
- at the option of the acquirer, either of two ongoing businesses that would be created by dividing ADP's salvage yard information management services business into two equal competing businesses;
- the Hollander Interchange (or licensing of this Interchange, including all updates and improvements); and/or
- the AutoInfo Interchange (or licensing of it and all updates and improvements).
The proposed order also would prohibit ADP from attempting to restrict or limit any of its customers from switching suppliers or transferring to or receiving inventory data from any other company.
The Commission vote to issue the complaint and proposed order was 5-0. A hearing on the case will be scheduled shortly.
NOTE: The Commission issues a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. The complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing.
Copies of the complaint will be available shortly on the Internet at the FTC's World Wide Web site at http://www.ftc.gov (no period). The complaint and documents associated with the civil penalty case against ADP also are available 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.
(FTC File No. 951 0113)
Bonnie Jansen or Victoria Streitfeld
Office of Public Affairs
Bureau of Competition
William Baer, 202-326-2932
George S. Cary, 202-326-3741