UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
In the Matter of
COOPER INDUSTRIES, INC., a corporation.
DOCKET NO. C-3469
ORDER REOPENING AND MODIFYING ORDER
I. The Complaint and Order
On August 15, 1997, Cooper Industries, Inc. ("Cooper"), the respondent named in the above-referenced consent order ("Order") issued by the Commission on October 26, 1993, filed its Petition to Reopen and Vacate Consent Order ("Petition"). Cooper asks that the Commission reopen and vacate the Order pursuant to Section 5(b) of the Federal Trade Commission Act ("FTC" Act"), 15 U.S.C. §45(b), and Section 2.51 of the Commission's Rules of Practice and Procedure, 16 C.F.R. § 2.51, based on changed facts and the public interest and consistent with the Statement of Federal Trade Commission Policy Concerning Prior Approval And Prior Notice Provisions, issued on June 21, 1995 ("Prior Approval Policy Statement").(1) The thirty-day public comment period on Cooper's Petition ended on September 15, 1997. No comments were received.
The Commission has determined to grant, in part, Cooper's Petition by reopening the Order and modifying it to set aside the requirements of Paragraph II through VII, but to deny the request to vacate the Order. Rather, the Commission has determined to substitute for the prior approval requirement of Paragraph VIII the prior notification and waiting period requirements of Section 7A of the Clayton Act, 15 U.S.C. § 18a, commonly referred to as the Hart-Scott-Rodino ("HSR") Act, for all non-HSR reportable acquisitions otherwise meeting the specifications of Paragraphs VIII and IX. This modification therefore eliminates the need for the separate prior notification requirement of Paragraph IX, and the Commission has determined to set aside that paragraph.
The complaint in this matter alleges that Cooper's agreement to acquire the Fusegear Group, including Brush Fuses, Inc. ("Brush"), from BTR plc violated Section 5 of the FTC Act, and that the acquisition of the Fusegear Group, including Brush, would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, 15 U.S.C. § 18, by lessening competition and tending to create a monopoly in the market for low voltage industrial fuses ("LVI Fuses") in the United States.
The resulting Order became final on October 29, 1993.(2) Paragraph III of the Order requires Cooper to grant a license within twelve months to a licensee, who has received prior approval by the Commission, to obtain and use the LVI Fuse Technology and Know-how to manufacture any and all types of LVI Fuses that had been manufactured by or for Brush and sold within the United States within the last three years prior to the acquisition of Brush by Cooper ("License"). Paragraph II orders Cooper to divest the Brush Assets to the licensee, but only to the extent the licensee chooses to acquire those assets. Paragraphs IV and V contain additional requirements related to maintaining the Brush Assets pending divestiture and to an interim supply agreement. Paragraph VI provides for the appointment of a trustee should Cooper fail to grant the License and divest within the requisite period, and Paragraph VII specifies Cooper's notification and reporting obligations. The purpose of the License and divestiture is to remedy the lessening of competition in the LVI Fuse market and to assist the licensee to manufacture, distribute, and sell a full line of LVI Fuses.(3) Cooper failed to grant the License within the time required, and the Commission approved the appointment of a trustee, on February 12, 1996. The trustee also failed to grant the License before his term expired on February 15, 1997.
II. The Petition
In its Petition, Cooper describes its and the trustee's efforts to license and asserts, with supporting affidavits,(4) that despite these efforts, a licensee for the LVI Fuse Technology and Know-how has not been found. Cooper believes that the value of the License and related assets now is reduced to such an extent that "no willing buyer is likely to come forward."(5) It also asserts that the prior approval and prior notice requirements of the Order are "unique" and that "there is no 'credible risk' that Cooper will undertake an anticompetitive and unreportable transaction." Cooper further argues that the de minimis nature of less that $3.5 million sales specified in Paragraph IX is prima facie evidence of the Commission's lack of concern about such acquisitions and that, therefore, such prior notification is unnecessary.
III. Standard for Reopening and Modifying Final Orders
Section 5(b) of the FTC Act, 15 U.S.C. § 45(b), provides that the Commission
shall reopen an order to consider whether it should be modified if the respondent
"makes a satisfactory showing that changed conditions of law or fact" so
require. A satisfactory showing sufficient to require reopening is made when a request to
reopen identifies significant changes in circumstances and shows that the changes
eliminate the need for the order or make continued application of it inequitable or
harmful to competition. S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979) (significant
changes or changes causing unfair disadvantage); Louisiana-Pacific Corp., Docket
No. C-2956, Letter to John C. Hart (June 5, 1986) at 4. (unpublished) ("Hart
IV. Reopening and Modifying the Order Is in the Public Interest
As Cooper described in its Petition, supported by the required affidavits, it and the trustee seemingly have done all that is possible to grant the License. Immediately after the Order became final, Cooper notified all those companies thought to be likely potential acquirers of the License that the License was available. The availability of the License also was widely advertised, first by Cooper and then by the trustee. Although both Cooper and the trustee received serious inquiries, each of the initially interested parties declined to pursue the License after performing a more detailed evaluation. Cooper asserts that now, more than four years since the Order became final, the value of the License and related assets is reduced to such an extent that "no willing buyer is likely to come forward."(9)
Although the fact that the passage of time has reduced the value of the assets was foreseeable and thus does not constitute the change in fact necessary to justify reopening the order, it would be futile to continue to require Cooper to grant a License and inequitable to require it to keep paying a trustee to attempt the same. Accordingly, Cooper has demonstrated an affirmative need to reopen the Order.
In balancing whether Cooper has demonstrated that the reasons to set aside the licensing, divestiture, and related requirements outweigh the need to continue to impose these obligations on Cooper, the Commission notes that the purpose of the Order was to increase competition by granting a License to a licensee to manufacture, distribute, and sell a full line of LVI Fuses. Such a licensee could not be found, and the evidence indicates that the value of the License is now so reduced that such a licensee will not be found, regardless of the additional effort. The diligent attempts of the trustee to market the License demonstrate that further attempts to license, even at no minimum price, are likely to be fruitless.(10) Because there is no need to continue to require Cooper either to attempt to grant a License or to maintain the Brush Assets (as it has since those assets were acquired), the divestiture obligations of the Order should be set aside.
V. Prior Approval Policy Statement
In its Petition, Cooper also asks the Commission to vacate the prior approval and prior notification provisions of Paragraphs VIII and IX. Paragraph VIII and Paragraph IX together prohibit Cooper, for ten years, from making any acquisition of interests in or assets of specified entities without either the prior approval of the Commission or HSR-type prior notification. The value of the acquired entity's sales of LVI Fuses in each of the three years preceding such acquisition determines whether prior approval or prior notification is required. Cooper contends that these prior approval and prior notice requirements are unique and asserts that prior approval is unwarranted because "there is no 'credible risk' that Cooper will undertake an anticompetitive and unreportable transaction."(11) It adds that the de minimis level of sales that triggers Paragraph IX's prior notification provision is prima facie evidence that the Commission was particularly unconcerned about such acquisitions, and, therefore, that prior notification also is unwarranted.(12)
The Commission, in its Prior Approval Policy Statement, "concluded that a general policy of requiring prior approval is no longer needed," citing the availability of the premerger notification and waiting period requirements of the HSR Act to protect the public interest in effective merger law enforcement. Prior Approval Policy Statement at 2. The Commission announced that it will "henceforth rely on the HSR process as its principal means of learning about and reviewing mergers by companies as to which the Commission had previously found a reason to believe that the companies had engaged or attempted to engage in an illegal merger." As a general matter, "Commission orders in such cases will not include prior approval or prior notification requirements." Id.
The Commission stated that it will continue to fashion remedies as needed in the public interest, including ordering narrow prior approval or prior notification requirements in certain limited circumstances. The Commission said in its Prior Approval Policy Statement that "a narrow prior approval provision may be used where there is a credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for the provision, attempt the same or approximately the same merger." The Commission also said that "a narrow prior notification provision may be used where there is a 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." Id. at 3. As explained in the Prior Approval Policy Statement, the need for a prior notification requirement will depend on circumstances such as the structural characteristics of the relevant markets, the size and other characteristics of the relevant markets, the size and other characteristics of the market participants, and other relevant factors.
The Commission also announced, in its Prior Approval Policy Statement, its intention "to initiate a process for reviewing the retention or modification of these existing requirements" and invited respondents subject to such requirements "to submit a request to reopen the order." Id. at 4. The Commission determined that, "when a petition is filed to reopen and modify an order pursuant to . . .[the Prior Approval Policy Statement], the Commission will apply a rebuttable presumption that the public interest requires reopening of the order and modification of the prior approval requirement consistent with the policy announced" in the Statement. Id.
The presumption is that setting aside the prior approval requirement of Paragraph VIII is in the public interest. The record contains no evidence suggesting that this matter presents the limited circumstances identified in the Prior Approval Policy Statement as appropriate for retaining a narrow prior approval provision, i.e., a credible risk that, but for the prior approval provision, the respondent would attempt the same or approximately the same merger.
Prior notification, however, is appropriate for acquisitions that fall below the HSR threshold for the relevant market because the acquisition in this matter was just such a non-reportable acquisition, acquisitions of LVI Fuses from other producers are still possible, and, thus, a credible risk exists that Cooper could engage in future anticompetitive acquisitions that would not be subject to the premerger notification and waiting period requirements of the HSR Act. Cooper argues that the de minimis level of acquisitions requiring Paragraph IX prior notification shows that the Commission has no concern for such acquisitions, but Cooper has presented no facts to support that assertion. Although such small acquisitions may not have required prior approval, they raise potential antitrust concerns sufficient to require prior notification. Accordingly, prior notification should be required for all acquisitions and may now be incorporated in one paragraph.
Accordingly, IT IS ORDERED that this matter be, and it hereby is, reopened; and
IT IS FURTHER ORDERED that the Order be, and it hereby is, modified to set aside
Paragraphs II through VII and Paragraph IX, as of the effective date of this order; and
On the anniversary of the date on which this Order becomes final, and on every anniversary thereafter for the following nine (9) years, Cooper shall file with the Commission a verified written report of its compliance with Paragraph VIII of the Order.
The prior notifications required by this Paragraph VIII shall be given on the
Notification and Report Form set forth in the Appendix to Part 803 of Title 16 of the Code
of Federal Regulations, as amended (hereinafter referred to as "the
Notification"), and shall be prepared and transmitted in accordance with the
requirements of that part, except that no filing fee will be required for any such
notification, notification shall be filed with the Secretary of the Commission,
notification need not be made to the United States Department of Justice, and notification
is required only of respondent and not of any other party to the transaction. Respondent
shall provide the Notification to the Commission at least thirty (30) days prior to
consummating any such transaction (hereinafter referred to as the "first waiting
period"). If, within the first waiting period, representatives of the Commission make
a written request for additional information, respondent shall not consummate the
transaction until twenty (20) days after substantially complying with such request for
additional information. Early termination of the waiting periods in this paragraph may be
requested and, where appropriate, granted by letter from the Bureau of Competition.
Notwithstanding, prior notification shall not be required by this paragraph for a
transaction for which notification is required to be made, and has been made, pursuant to
Section 7A of the Clayton Act, 15 U.S.C. § 18a.
ISSUED: December 15, 1997
1. 60 Fed. Reg. 39745-47 (Aug. 3, 1995); 4 Trade Reg. Rep. (CCH) ¶ 13,241.
2. 116 F.T.C. 1243 (1993).
3. Order ¶ ¶ II and III.A.
4. Affidavits of James R. Deen, Associate General Counsel, and Homer Blalock, Trustee.
5. Petition at 11.
6. See also United States v. Louisiana-Pacific Corp., 967 F.2d 1372, 1376-77 (9th Cir. 1992) ("A decision to reopen does not necessarily entail a decision to modify the order. Reopening may occur even where the petition itself does not plead facts requiring modification.").
7. Letter to Joel E. Hoffman, Damon Corp., C-2916 [1979-1983 Transfer Binder] Trade Reg. Rep. (CCH) ¶ 22,207 at 22,585 (March 29, 1983)("Damon Letter").
8. 8 See Federated Department Stores, Inc. v. Moitie, 425 U.S. 394 (1981) (strong public interest considerations support repose and finality).
9. Petition at 11.
10. The respondent made the same showing in Promodes, S.A., Docket No. 9228, in which the trustee accomplished divestiture of only some of the supermarkets to be divested. Order Granting Request to Reopen and Modify, 117 F.T.C. 37 (1994).
11. Petition at 14.