UNITED STATES OF AMERICA
In the matter of
Docket No. C-3818
ORDER REOPENING AND MODIFYING ORDER
On October 14, 1999, Compaq Computer Corporation ("Compaq") filed with the Commission its "Petition of Compaq Computer Corporation to Reopen and Modify Order" ("Petition"). Compaq is the successor to Digital Equipment Corporation ("Digital"), the respondent named in the consent order issued by the Commission on July 14, 1998, in Docket No. C-3818 ("Order"). Compaq became Digital's successor under the Order when it acquired Digital on June 11, 1998. In the Petition, Compaq asks that the Commission set aside Paragraph II of the Order, the provision requiring Compaq to license Alpha microprocessor technology to Advanced Micro Devices, Inc. ("AMD") or to a licensee that receives the prior approval of the Commission. For the reasons stated below, the Commission has determined to grant the Petition.
I. THE ORDER
The Order requires Compaq to license its Alpha microprocessor technology to two firms, and to evaluate the possibility of purchasing microprocessors from another. Specifically, Paragraph II of the Order, the provision that Compaq has petitioned the Commission to set aside, requires Compaq to license Alpha microprocessor technology to AMD, or to a licensee that receives the prior approval of the Commission. Paragraph III of the Order requires Compaq to license Alpha microprocessor technology to Samsung Electronics Co., Ltd. ("Samsung"), or to a licensee that received the prior approval of the Commission, and requires Compaq to procure Alpha microprocessors from such licensee. Finally, Paragraph IV of the Order requires Compaq to evaluate International Business Machines, Inc. ("IBM") or some other manufacturer of microprocessors as an additional foundry for Compaq's supply of Alpha microprocessors.
The purpose of the Order is to prevent Intel Corporation ("Intel"), the world leader in markets for microprocessors,(1) from acquiring additional market power through its purchase of microprocessor fabrication facilities from Digital in 1998. As part of a settlement of patent litigation between Digital and Intel, Digital sold most of its Semiconductor Division to Intel ("Acquisition"). Digital retained from its Semiconductor Division only its intellectual property relating to the Alpha microprocessor and its Alpha microprocessor design team. Intel acquired all of Digital's microprocessor fabrication facilities, and entered into an agreement to supply Digital with Alpha microprocessors for seven years.(2)
Intel was and is the dominant supplier of microprocessors. In 1998, Intel had a 90% share, and Digital had approximately a one percent share, of dollar sales of general-purpose microprocessors.(3) Barriers to entry into the relevant markets for microprocessors were high.(4)
The Complaint in this matter alleged that the Acquisition was "likely to create uncertainty regarding the future competitive viability of Alpha and thereby maintain and enhance Intel's market power."(5) Specifically, by putting the production of Digital's Alpha microprocessors in the hands of Intel, the Acquisition would have given "Intel the opportunity to delay production of Alpha microprocessors, impede the development of new generations of Alpha microprocessors, and otherwise undermine the competitiveness of Alpha."(6) In addition, the Acquisition would have made it "less likely that Digital would maintain the sales force to continue 'merchant market' sales" of Alpha microprocessors to manufacturers other than Digital.(7)
This is an unusual antitrust remedy. Ordinarily, a merger or acquisition remedy provides for the divestiture of assets by the acquiring firm. By contrast, this Order creates a remedy relating to assets that were not acquired, but were expressly retained by Compaq, the selling firm. Nevertheless, this remedy has the effect of ensuring continued Alpha microprocessor production by requiring Compaq, the firm possessing rights to Alpha microprocessor technology, to develop alternative sources of supply for Alpha microprocessors by licensing Alpha microprocessor technology to firms other than Intel.
II. THE PETITION
Compaq petitions the Commission to set aside Paragraph II of the Order on public interest grounds. In its petition, Compaq reports that it cannot license Alpha microprocessor technology to AMD on the terms required by the Order because AMD has declined Compaq's offer of a license.(8) Compaq argues that there are no viable substitute licensees for Alpha microprocessor technology, and that it would be unlikely that a divestiture trustee could locate another licensee that would satisfy the purposes of the Order.(9) Compaq also argues that enforcement of Paragraph II of the Order is unnecessary because the objectives of the Order have already been accomplished. In this regard, Compaq reports that it no longer relies on Intel for its supply of Alpha microprocessors,(10) and contends that its licensing of Alpha technology to Samsung and its discussions with IBM exceed the requirements of Paragraphs III and IV of the Order.(11) Finally, Compaq argues that enforcement of Paragraph II of the Order would be counterproductive.(12)
III. STANDARD FOR REOPENING AND
Section 5(b) of the Federal Trade Commission 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 Corporation, Docket No. C-2956, Letter to John C. Hart (June 5, 1986), at 4 (unpublished) ("Hart Letter").(13)
Section 5(b) also provides that the Commission may modify an order when, although changed circumstances would not require reopening, the Commission determines that the public interest so requires. Respondents are therefore invited in petitions to reopen to show how the public interest warrants the requested modification. Hart Letter at 5; 16 C.F.R. § 2.51. In such a case, the respondent must demonstrate as a threshold matter some affirmative need to modify the order. Damon Corporation, Docket No. C-2916, Letter to Joel E. Hoffman, Esq. (March 29, 1983), 1979-83 Transfer Binder, FTC Complaints and Orders, (CCH) ¶22,007, p. 22,585 ("Damon Letter"), at 2. For example, it may be in the public interest to modify an order "to relieve any impediment to effective competition that may result from the order." Damon Corporation, 101 F.T.C. 689, 692 (1983). Once such a showing of need is made, the Commission will balance the reasons favoring the requested modification against any reasons not to make the modification. Damon Letter at 2. The Commission also will consider whether the particular modification sought is appropriate to remedy the identified harm. Damon Letter at 4.
The language of Section 5(b) plainly anticipates that the burden is on the petitioner to make a "satisfactory showing" of changed conditions to obtain reopening of the order. The legislative history also makes clear that the petitioner has the burden of showing, other than by conclusory statements, why an order should be modified. The Commission "may properly decline to reopen an order if a request is merely conclusory or otherwise fails to set forth specific facts demonstrating in detail the nature of the changed conditions and the reasons why these changed conditions require the requested modification of the order." S. Rep. No. 96-500, 96th Cong., 1st Sess. 9-10 (1979); see also Rule 2.51(b) (requiring affidavits in support of petitions to reopen and modify). If the Commission determines that the petitioner has made the necessary showing, the Commission must reopen the order to consider whether modification is required and, if so, the nature and extent of the modification. The Commission is not required to reopen the order, however, if the petitioner fails to meet its burden of making the satisfactory showing required by the statute. The petitioner's burden is not a light one in view of the public interest in repose and the finality of Commission orders. See Federated Department Stores, Inc. v. Moitie, 425 U.S. 394 (1981) (strong public interest considerations support repose and finality).
IV. IT IS IN THE PUBLIC INTEREST
Public interest considerations warrant setting aside the requirement of Paragraph II of the Order that Compaq license Alpha microprocessor technology to AMD or to another licensee approved by the Commission.(14) Compaq has demonstrated an affirmative need to set aside Paragraph II, and the reasons for modifying the Order outweigh the reasons for leaving the Order unchanged.
The need to modify the Order has been precipitated by AMD's decision not to license Alpha microprocessor technology according to the terms of Paragraph II. The Commission is satisfied that this decision was made unilaterally by AMD and was not the result of any failure of Compaq to comply with its obligations under the Order.
Although Paragraph II of the Order provides that, as an alternative to licensing AMD, Compaq license Alpha microprocessor technology to another licensee approved by the Commission, the Commission is persuaded that requiring Compaq to license Alpha microprocessor technology to a firm other than AMD would, under current circumstances, impose upon Compaq a burden not contemplated when the Order was issued. Based on the evidence provided by Compaq and on other information acquired by the Commission in the course of several related investigations regarding competitive conditions in the microprocessor industry, the Commission also is persuaded that there are no firms that are both willing to license Alpha microprocessor technology and able to exploit that technology in a manner that would accomplish the broader purpose of the Order. Accordingly, Compaq has made the necessary threshold showing of affirmative need.
As explained previously, this is an unusual merger or acquisition remedy. In most cases, the remedy requires the buyer to divest assets in order to restore competition that otherwise would be lost as a result of the acquisition. This Order binds Compaq, the seller. Its purpose is to prevent Intel, the buyer, from using its acquisition of Digital's microprocessor fabrication facilities to increase its dominance of markets for microprocessors. The requirement of Paragraphs II and III of the Order that Compaq license its Alpha technology is intended to protect and promote the Alpha microprocessor as an independent, viable and competitive technology. To achieve this goal, it is essential that any licensee under the Order be able and willing to expand the Alpha microprocessor's share of the markets for microprocessors. If a licensee were simply to "free ride" on the development efforts of Compaq and Samsung, and to compete with them for existing Alpha microprocessor customers, the licensee would reduce the incentives of Compaq and Samsung to continue to develop and promote the technology. The effect of such a license would be to undermine the purposes of the Order. The Commission is satisfied that those firms capable of designing original microprocessors around the Alpha architecture are not currently interested in licensing Alpha microprocessor technology on the terms set forth in Paragraph II of the Order. Thus, there are no countervailing public interest considerations that outweigh the reasons for granting the modification requested by Compaq.
In addition, the Commission has considered another factor that, while not determinative, weighs in favor of modifying the Order. There is now less need for a second license of Alpha microprocessor technology than there was at the time the Commission issued the Order. Compaq is no longer dependent on Intel for its supply of Alpha microprocessors. The licensing of Alpha microprocessor technology to Samsung appears to be proceeding successfully. The Commission also has information that, despite AMD's unwillingness to license Alpha technology, AMD is collaborating with Compaq and Samsung with respect to microprocessor technology in a manner that is likely to have procompetitive effects in markets for microprocessors.
Accordingly, IT IS ORDERED that this matter be, and it hereby is, reopened and that the Order be, and it hereby is, modified to set aside Paragraph II as of the effective date of this order.
By the Commission, Commissioner Swindle concurring in the result only and Commissioner Leary recused.
Donald S. Clark
ISSUED: February 10, 2000
1. Microprocessors are the silicon chips that process data in computers.
2. Complaint, Dkt. No. C-3818, at ¶¶ 6-10.
3. Id. at ¶ 16.
4. Id. at ¶¶ 18-22.
5. Id. at ¶ 23.
6. Id. at ¶ 23.b.
7. Id. at ¶ 23.a.
8. Petition at 14-16.
9. Id. at 17-19.
10. Id. at 5-6.
11. Id. at 10-14.
12. Id. at 20-22.
13. 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.").
14. Compaq does not claim that there are changed conditions of fact or law that require modification of the Order. Petition at 16. Given that the burden is on Compaq to make a "satisfactory showing" of changed conditions of law or fact, and given the Commission's determination to grant the Petition on public interest grounds, the Commission has not considered the question of whether changed conditions of fact or law exist here. In other instances where the Commission has modified an order due to the inability of the respondent or the trustee to find a buyer or licensee, the Commission has found each time that the modification was in the public interest, rather than required by a changed condition of fact. Rite Aid Corp., Dkt. No. C-3546 (FTC, May 18, 1998); Cooper Industries, Inc., 124 F.T.C. 602 (1997); The Stop & Shop Companies, Inc., 123 F.T.C. 1721 (1997); Institut Merieux S.A., 117 F.T.C. 473 (1994); Promodes, S.A., 116 F.T.C. 377 (1994); RSR Corporation, 98 F.T.C. 872 (1976).