[Federal Register Volume 61, Number 27 (Thursday, February 8, 1996)]
[Notices]
[Pages 4793-4800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2657]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States of America vs. Pacific Scientific Company; Proposed
Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final
Judgment, Stipulation, and Competitive Impact Statement have been filed
with the United States District Court for the District of Columbia In
United States vs. Pacific Scientific Company, Civ. No. 96-0165. The
proposed Final Judgment is subject to approval by the Court after the
expiration of the statutory 60-day public comment period and compliance
with the Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16(b)-
(h).
On January 30, 1996, the United States filed a Complaint seeking to
enjoin a transaction by which Pacific Scientific agreed to acquire Met
One, Inc. Pacific Scientific and Met One are major manufacturers of
drinking water particle counters. The Complaint alleged that the
proposed acquisition would substantially lessen competition in the
manufacture and sale of drinking water particle counters in the United
States in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18,
and Section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1.
The proposed Final Judgment orders defendant to sell all of Pacific
Scientific's U.S. assets and rights relating to the research and
development, manufacture and sale of Pacific Scientific's Drinking
Water Quality Monitoring Systems, other than real property, and Met
One's software relating to Drinking Water Quality Monitoring Systems,
and other assets if necessary to make an economically viable competitor
in the manufacture and sale of drinking water particle counters. The
Stipulation effects a hold separate agreement that, in essence,
requires Pacific Scientific to ensure that, until the divestiture
mandated by the Final Judgment has been accomplished, Met One's
operation will be held separate and apart from, and operated
independently of, Pacific Scientific's assets and businesses. A
Competitive Impact Statement filed by the United States describes the
Complaint, the proposed Final Judgment, and remedies available to
private litigants.
Public comment is invited within the statutory 60-day comment
period. Such comments, and the responses thereto, will be published in
the Federal Register and filed with the Court. Written comments should
be directed to Craig W. Conrath, Chief, Merger Task Force, Antitrust
Division, Room 3700, 1401 H Street NW., Washington, D.C. 20530 (202-
307-5779). Copies of the Complaint, proposed Final Judgment and
Competitive Impact Statement are available for inspection in Room 207
of the U.S. Department of Justice, Antitrust Division, 325 7th Street
NW., Washington, D.C. 20530 (telephone: (202) 514-2481), and at the
office of the Clerk of the United States District Court for the
District of Columbia, Third Street and Constitution Avenue NW.,
Washington, D.C. 20001.
Copies of any of these materials may be obtained upon request and
payment of a copying fee.
Constance K. Robinson,
Director of Operations, Antitrust Division.
United States District Court for the District of Columbia
In the matter of: United States of America, Plaintiff vs.
Pacific Scientific Company, a corporation; Defendant Docket No.: 96-
0165.
Stipulation
It is stipulated by and between the undersigned parties, by their
respective attorneys, as follows:
(1) The Court has jurisdiction over the subject matter of this
action and over each of the parties hereto, and venue of this action is
proper in the District for the District of Columbia.
(2) The parties stipulate that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act (15
U.S.C. Sec. 16), and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn its consent,
which it may do at any time before the entry of the proposed Final
Judgment by serving notice thereof on defendant and by filing that
notice with the Court.
(3) Pacific Scientific shall abide by and comply with the
provisions of the proposed Final Judgment pending entry of the Final
Judgment, and shall, from the date of the signing of this Stipulation,
comply with all the terms and provisions of the proposed Final Judgment
as though the same were in full force and effect as an order of the
Court.
(4) Pacific Scientific shall prepare and deliver reports in the
form required by the provisions of paragraph B of Section VII of the
proposed Final Judgment commencing no later than February 29, 1996, and
every thirty days thereafter pending entry of the Final Judgment.
[[Page 4794]]
(5) In the event plaintiff withdraws its consent, as provided in
paragraph 2 above, or if the proposed Final Judgment is not entered
pursuant to this Stipulation, this Stipulation shall be of no effect
whatever, and the making of this stipulation shall be without prejudice
to any party in this or any other proceeding.
Dated: January 26, 1996.
For Plaintiff United States of America.
Craig W. Conrath,
Attorney, U.S. Department of Justice, Antitrust Division, Merger Task
Force, 1401 H Street NW., Washington, D.C. 20005, (202) 307-5779.
For the Defendant Pacific Scientific Company.
Donald I. Baker,
Baker & Miller, PLLC, 700 Eleventh Street, NW., Suite 615, Washington,
D.C. 20004, (202) 637-9499, Attorney For Pacific Scientific Company.
In the United States District Court for the District of Columbia
In the matter of: United States of America, Plaintiff v. Pacific
Scientific Company, a corporation Defendant. Civil Action No.: 96-
0165.
Final Judgment
Whereas plaintiff, United States of America (hereinafter ``United
States'') having filed its Complaint herein, and defendant, by their
respective attorneys, having consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law
herein, and without this Final Judgment constituting any evidence
against or an admission by any party with respect to any issue of law
or fact herein;
And whereas, defendant has agreed to be bound by the provisions of
this Final Judgment pending its approval by the Court;
And whereas, prompt and certain divestiture of certain assets is
the essence of this agreement;
And whereas, the parties intend to require defendant to divest, as
a viable line of business, the Drinking Water Quality Monitoring Assets
so as to ensure, to the sole satisfaction of the plaintiff, that the
Acquirer will be able to manufacture and sell Drinking Water Quality
Monitoring Systems as a viable, ongoing line of business;
And whereas, defendant has represented to plaintiff that the
divestitures required below can and will be made and that defendant
will later raise no claims of hardship or difficulty as grounds for
asking the Court to modify any of the divestiture provisions contained
below;
Now, therefore, before the taking of any testimony, and without
trial or adjudication of any issue of fact or law herein, and upon
consent of the parties hereto, it is hereby ordered, adjudged, and
decreed as follows:
I. Jurisdiction
This Court has jurisdiction over the subject matter of this action
and over each of the parties hereto. The Complaint states a claim upon
which relief may be granted against the defendant under Section 7 of
the Clayton Act, as amended (15 U.S.C. Sec. 18).
II. Definitions
As used in this Final Judgment:
A. ``Drinking Water Quality Monitoring Systems'' means water
particle detection systems used in the evaluation of potable water,
including but not limited to: (1) on-line systems, such as the ``Water
Particle Counting System'' (WPCSTM), (2) portable systems, such as
the VersaCount LVTM/LogEasyTM integrated water sample
particle counting system, and (3) laboratory-based systems, such as
stationary liquid batch sample particle counting systems.
B. ``Pacific Scientific'' means defendant Pacific Scientific
Company, a California corporation with its headquarters in Newport
Beach, California, and includes its successors and assigns, their
subsidiaries, affiliates, directors, officers, managers, agents and
employees.
C. ``Met One'' means Met One, Inc., a California corporation with
its headquarters in Grants Pass, Oregon, and its successors and
assigns, their subsidiaries, affiliates, directors, officers, managers,
agents and employees.
D. ``Drinking Water Quality Monitoring Assets'' means all of
Pacific Scientific's U.S. assets and rights relating to the research
and development, manufacture and sale of Pacific Scientific's Drinking
Water Quality Monitoring Systems, other than real property, and Met
One's software relating to Drinking Water Quality Monitoring Systems.
Drinking Water Quality Monitoring Assets include, but are not limited
to, all Pacific Scientific rights to patents, trade secrets,
technology, know-how, specifications, designs, drawings, processes,
production information, manufacturing information, testing and quality
control data, servicing information, research materials, technical
information, distribution information, information stored on management
information systems (and specifications sufficient for the Acquirer to
use such information), software specific to drinking water qualify
monitoring systems, inventory sufficient for the Acquirer to complete
all safety and efficacy studies, studies or tests necessary to obtain
EPA or other governmental approvals, and all data, contractual rights,
materials and information relating to obtaining EPA approvals and other
government or regulatory approvals within the United States, and
certain rights to brand or trade names (excluding the HIAC/Royco,
Royco, Pacific Scientific, and Met-One trade names). Drinking Water
Quality Monitoring Assets also include all Pacific Scientific customer
lists, customer information, prospects, mailing lists, quotations and
proposals for Drinking Water Quality Monitoring Systems and their
applications, service contracts for Drinking Water Quality Monitoring
Systems and their applications, advertising materials, advertising
assistance, marketing training, and marketing assistance for Drinking
Water Quality Monitoring Systems and their applications, and copies of
and rights to software and technical information for Drinking Water
Quality Monitoring Systems and their applications. Drinking Water
Quality Monitoring Assets shall include assets sufficient, to the sole
satisfaction of the plaintiff, to ensure that the Acquirer will be able
to manufacture and sell Drinking Water Quality Monitoring Systems as a
viable, ongoing line of business.
E. ``Divestiture Assets'' means the Drinking Water Quality
Monitoring Assets, or such lesser portion thereof as is sufficient to
ensure, to the sole satisfaction of the plaintiff, that the Acquirer
will be able to manufacture and sell Drinking Water Quality Monitoring
Systems as a viable, ongoing line of business.
F. ``Acquirer'' means the entity or entities to whom Pacific
Scientific shall divest the Divestiture Assets.
III. Applicability
A. The provisions of this Final Judgment apply to the defendant,
its successors and assigns, their subsidiaries, affiliates, directors,
officers, managers, agents, and employees, and all other persons in
active concert or participation with any of them who shall have
received actual notice of this Final Judgment by personal service or
otherwise.
B. Pacific Scientific shall require, as a condition of the sale or
other disposition of all or substantially all of the Divestiture Assets
other than as provided in this Final Judgment, that the acquiring party
or parties agree to be
[[Page 4795]]
bound by the provisions of this Final Judgment.
IV. Requirement to Hold Separate
Prior to the divestiture contemplated by this Final Judgment:
A. Pacific Scientific shall preserve, hold, and continue to operate
the business of Pacific Scientific and the business of Met One as
ongoing businesses, with their assets, management, and operations
separate, distinct, and apart from one another. Pacific Scientific
shall use all reasonable efforts to maintain the business of Pacific
Scientific and the business of Met One as viable and active
competitors.
There shall be no exchange between Pacific Scientific or Met One of
any confidential business information (other than accounting
information required in the ordinary course of business) or any
technology or know-how.
B. Pacific Scientific shall not, without the consent of the United
States, sell, lease, assign, transfer, or otherwise dispose of, or
pledge as collateral for loans (except such loans and credit facilities
as are currently outstanding or replacements or substitutes therefor)
the Divestiture Assets or any business assets of Met One, except that
any such asset that is replaced in the ordinary course of business with
a newly purchased asset may be sold or otherwise disposed of, provided
the newly purchased asset is identified as a replacement for an asset
to be divested.
C. In its efforts to preserve and maintain the business of Pacific
Scientific and the business of Met One as viable and active
competitors, the obligations of Pacific Scientific shall include, but
are not limited to: preserving all equipment, all rights to brand or
trade names, patents, trade secrets, technology, know-how,
specifications, designs, drawings, processes, production information,
manufacturing information, testing and quality control data, servicing
information, research materials, technical information, distribution
information, customer lists, information stored on management
information systems (and specifications sufficient for the Acquirer to
use such information), software specific to Pacific Scientific's or Met
One's divestiture assets, inventory sufficient for the Acquirer to
complete all safety and efficacy studies, studies or tests necessary to
obtain EPA or other governmental approvals, and all data, contractual
rights, materials and information relating to obtaining EPA approvals
and other government or regulatory approvals within the United States.
These obligations do not preclude sales in the ordinary course of
business.
D. Pacific Scientific shall provide and maintain sufficient working
capital to maintain the Divestiture Assets business and the business of
Met One as viable, ongoing businesses.
E. Pacific Scientific shall provide and maintain sufficient lines
and sources of credit to maintain the Divestiture Assets business and
the business of Met One as viable, ongoing businesses.
F. Pacific Scientific shall preserve the business assets of Pacific
Scientific and Met One in a state of repair equal to their state of
repair as of the date of Pacific Scientific's acquisition of Met One.
G. Pacific Scientific shall maintain on behalf of the businesses of
Pacific Scientific and Met One in accordance with sound accounting
practice, separate, true and complete financial ledgers, books and
records reporting the profit and loss and liabilities of the businesses
on a monthly and quarterly basis.
H. Pacific Scientific shall refrain from terminating or reducing
any current employment, salary, or benefit agreements for any
management, engineering, or other technical personnel employed by Met
One or by Pacific Scientific in connection with the Divestiture Assets
business of Pacific Scientific, except in the ordinary course of
business, without the prior approval of the United States.
I. Pacific Scientific shall refrain from taking any action that
would have the effect of reducing the scope or level of competition
between the businesses of Pacific Scientific and Met One without the
prior approval of the United States.
J. Pacific Scientific shall refrain from taking any action that
would jeopardize its ability to divest the Divestiture Assets as a
viable ongoing line of business.
K. When an agreement has been reached for the sale of the
Divestiture Assets that is satisfactory to the plaintiff in its sole
discretion, Pacific Scientific may be released from the restrictions of
this Part IV once the divestiture sale has been consummated, in the
sole discretion of the plaintiff. Such release shall become effective
when plaintiff so notifies the Court.
V. Divestiture of Assets
A. Pacific Scientific is hereby ordered and directed, within 30
days of the date this Order is entered, to divest the Divestiture
Assets. Plaintiff, in its sole discretion, may agree to an extension of
this time period, and shall notify the Court in such circumstances.
B. Divestiture of the Divestiture Assets under Section V.A shall be
accomplished in such a way as to satisfy the United States that the
Divestiture Assets can and will be operated by the Acquirer as a
viable, ongoing line of business.
Divestiture of the Divestiture Assets under Section V.A shall be
made to a purchaser for whom it is demonstrated to the sole
satisfaction of the United States that (1) the purchase is for the
purpose of competing effectively in the manufacture and sale of
Drinking Water Quality Monitoring Systems, and (2) the Acquirer has the
managerial, operational, and financial capability to compete
effectively in the manufacture and sale of Drinking Water Quality
Monitoring Systems.
C. Pacific Scientific shall take all reasonable steps to accomplish
quickly the divestitures contemplated by this Final Judgment.
D. Pacific Scientific agrees that, if it fails to divest the
Divestiture Assets within the time specified in Section V.A, it shall
not oppose nor contest in any way a civil contempt penalty of not more
than $100,000 as may be recommended and moved for by the United States.
Pacific Scientific further agrees that, if it fails to divest the
Divestiture Assets within the time specified in Section V.A, it shall
not oppose nor contest in any way civil contempt penalties of not more
than $10,000 per day, for each day after the date the United States
moves for the appointment of a trustee pursuant to Section VI.A until
the date it consents to appointment of a trustee pursuant to Section
VI, as may be recommended and moved for by the United States.
VI. Appointment of Trustee
A. In the event that Pacific Scientific has not divested the
Divestiture Assets within 30 days of the date this Order is entered,
the Court shall, on application of the United States, appoint a trustee
selected by the United States to effect the divestiture of the
Divestiture Assets. Unless plaintiff otherwise consents in writing, the
divestiture shall be accomplished in such a way as to satisfy
plaintiff, in its sole discretion, that the Divestiture Assets can and
will be used by the Acquirer as a viable on-going line of business. The
Divestiture shall be made to an Acquirer for whom it is demonstrated to
plaintiff's sole satisfaction that the Acquirer has the managerial,
operational, and financial capability to compete effectively, and that
none of the terms of the divestiture agreement interfere with the
ability of the purchaser to compete effectively.
[[Page 4796]]
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture at the best price then obtainable upon a reasonable effort
by the trustee, subject to the provisions of Section VII of this Final
Judgment, and shall have such other powers as the Court shall deem
appropriate. The trustee shall have the power and authority to hire at
the cost and expense of defendant any investment bankers, attorneys, or
other agents reasonably necessary in the judgment of the trustee to
assist in the divestiture, and such professionals and agents shall be
solely accountable to the trustee. The trustee shall have the power and
authority to accomplish the divestiture at the earliest possible time
to a purchaser acceptable to plaintiff, and shall have such other
powers as this Court shall deem appropriate. Defendant shall not object
to a sale by the trustee on any grounds other than the trustee's
malfeasance, or on the grounds that the sale is contrary to the express
terms of this Final Judgment. Any such objections by defendant must be
conveyed in writing to plaintiff and the trustee within ten (10) days
after the trustee has provided the notice required under Section VII.
C. The trustee shall serve at the cost and expense of Pacific
Scientific, on such terms and conditions as the Court may prescribe,
and shall account for all monies derived from the sale of the assets
sold by the trustee and all costs and expenses so incurred. After
approval by the Court of the trustee's accounting, including fees for
its services and those of any professionals and agents retained by the
trustee, all remaining money shall be paid to Pacific Scientific and
the trust shall then be terminated. The compensation of such trustee
and that of any professionals and agents retained by the trustee shall
be reasonable in light of the value of the Divestiture Assets and based
on a fee arrangement providing the trustee with an incentive based on
the price and terms of the divestiture and the speed with which it is
accomplished.
D. Pacific Scientific shall use its best efforts to assist the
trustee in accomplishing the required divestiture. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel books,
records, and facilities of Pacific Scientific and Met One, and
defendant shall develop financial or other information relevant to such
assets as the trustee may reasonably request, subject to reasonable
protection for trade secret or other confidential research,
development, or commercial information. Defendant shall take no action
to interfere with or to impede the trustee's accomplishment of the
divestiture.
E. After its appointment, the trustee shall file monthly reports
with the parties and the Court setting forth the trustee's efforts to
accomplish the divestiture ordered under this Final Judgment. If the
trustee has not accomplished such divestiture within six (6) months
after its appointment, the trustee shall thereupon promptly file with
the Court a report setting forth (1) the trustee's efforts to
accomplish the required divestiture, (2) the reasons, in the trustee's
judgment, why the required divestiture has not been accomplished, and
(3) the trustee's recommendations. The trustee shall at the same time
furnish such report to the parties, who shall each have the right to be
heard and to make additional recommendations consistent with the
purpose of the trust. The Court shall thereafter enter such orders as
it shall deem appropriate in order to carry out the purpose of the
trust, which may, if necessary, include extending the trust and the
term of the trustee's appointment by a period requested by the United
States.
F. The Acquirer shall not, without the prior written consent of the
United States, sell any of the acquired assets to, or combine any of
the acquired assets with those of, Pacific Scientific during the life
of this decree. Furthermore, the Acquirer shall notify plaintiff 45
days in advance of any proposed sale of all or substantially all of the
assets, or control over those assets, acquired pursuant to this Final
Judgment.
VII. Notification
A. Pacific Scientific or the trustee, whichever is then responsible
for effecting the divestiture required herein, shall notify plaintiff
of any proposed divestiture required by Section V or VI of this Final
Judgment. If the trustee is responsible, it shall similarly notify
Pacific Scientific. The notice shall set forth the details of the
proposed transaction and list the name, address, and telephone number
of each person not previously identified who offered or expressed an
interest or desire to acquire any ownership interest in the Divestiture
Assets, together with full details of the same. Within fifteen (15)
days after receipt of the notice, plaintiff may request additional
information concerning the proposed divestiture, the proposed
purchaser, and any other potential purchaser. Pacific Scientific or the
trustee shall furnish the additional information within fifteen (15)
days of the receipt of the request. Within thirty (30) days after
receipt of the notice or within fifteen (15) days after receipt of the
additional information, whichever is later, the United States shall
notify in writing Pacific Scientific and the trustee, if there is one,
if it objects to the proposed divestiture. If the United States fails
to object within the period specified, or if the United States notifies
in writing Pacific Scientific and the trustee, if there is one, that it
does not object, then the divestiture may be consummated, subject only
to Pacific Scientific's limited right to object to the sale under
Section VI.B. Upon objection by the United States or by Pacific
Scientific under Section VI.B, the proposed divestiture shall not be
accomplished unless approved by the Court.
B. Thirty (30) days from the date when this Order becomes final,
and every thirty (30) days thereafter until the divestiture has been
completed or a trustee is appointed, Pacific Scientific shall deliver
to plaintiff a written report as to the fact and manner of compliance
with Section V of this Final Judgment. Each such report shall include,
for each person who during the preceding thirty (30) days made an
offer, expressed an interest or desire to acquire, entered into
negotiations to acquire, or made an inquiry about acquiring any
ownership interest in the Divestiture Assets or any of them, the name,
address, and telephone number that person and a detailed description of
each contact with that person during that period. Pacific Scientific
shall maintain full records of all efforts made to divest all or any
portion of the Divestiture Assets.
VIII. Financing
Pacific Scientific shall not finance all or any part of any
purchase made pursuant to Sections V or VI of this Final Judgment
without the prior written consent of the United States.
IX. Compliance Inspection
For the purpose of determining or securing compliance with this
Final Judgment, and subject to any legally recognized privilege, from
time to time:
A. Duly authorized representatives of the United States, including
consultants and other persons retained by the plaintiff, shall, upon
the written request of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to Pacific Scientific made
to its principal offices, be permitted:
1. access during office hours to inspect and copy all books,
ledgers, accounts, correspondence, memoranda,
[[Page 4797]]
and other records and documents in the possession or under the control
of defendant, which may have counsel present, relating to any matters
contained in this Final Judgment; and
2. subject to the reasonable convenience of Pacific Scientific and
without restraint or interference from them, to interview Pacific
Scientific directors, officers, employees, and agents, who may have
counsel present, regarding any such matters.
B. Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division, made to Pacific Scientific at its
principal offices, Pacific Scientific shall submit written reports,
under oath if requested, with respect to any of the matters contained
in this Final Judgment as may be requested.
C. No information nor any documents obtained by the means provided
in this Section IX shall be divulged by any representative of the
United States to any person other than a duly authorized representative
of the Executive Branch of the United States, except in the course of
legal proceedings to which the United States is a party (including
grand jury proceedings), or for the purpose of securing compliance with
this Final Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by Pacific
Scientific to plaintiff, Pacific Scientific represents and identifies
in writing the material in any such information or documents for which
a claim of protection may be asserted under Rule 26(c)(7) of the
Federal Rules of Civil Procedure, and Pacific Scientific marks each
pertinent page of such material, ``Subject to claim of protection under
Rule 26(c)(7) of the Federal Rules of Civil Procedure,'' then plaintiff
shall give ten (10) days notice to Pacific Scientific prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding) to which Pacific Scientific is not a party.
X. Retention of Jurisdiction
Jurisdiction is retained by this Court for the purpose of enabling
any of the parties to this Final Judgment to apply to this Court at any
time for such further orders and directions as may be necessary or
appropriate for the construction, implementation, or modification of
any of the provisions of this Final Judgment, for the enforcement of
compliance herewith, and for the punishment of any violations hereof.
XI. Termination
This Final Judgment will expire on the tenth anniversary of the
date of its entry.
XII. Public Interest
Entry of this Final Judgment is in the public interest.
Dated:---------------------------------------------------------------
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16
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United States District Judge
United States District Court for the District of Columbia
In the matter of: United States of America, Plaintiff, v.
Pacific Scientific Company, Defendant. Case Number 1:96CV00165.
Judge: James Robertson. Deck Type: Antitrust. Date Stamp: 01/30/96.
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. Sec. 16(b)-(h),
files this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
The United States filed a civil antitrust Complaint on January 30,
1996, alleging that the proposed acquisition of all of the outstanding
shares of Met One, Inc. (``Met One'') by Pacific Scientific Company
(``Pacific Scientific'') would violate Section 7 of the Clayton Act, 15
U.S.C. Sec. 18, and Section 1 of the Sherman Antitrust Act, 15 U.S.C.
Sec. 1. Pacific Scientific and Met One are the nation's two leading
manufacturers of drinking water particle counters.
The Complaint alleges that the combination of these major
competitors would substantially lessen competition in the manufacture
and sale of drinking water particle counters in the United States. The
prayer for relief seeks: (1) a judgment that the proposed acquisition
would violate Section 7 of the Clayton Act, as amended, 15 U.S.C.
Sec. 18, and Section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1;
and (2) a preliminary and permanent injunction preventing Pacific
Scientific and Met One from carrying out the proposed merger, or any
similar agreement, understanding or plan.
Shortly before that suit was filed, a proposed settlement was
reached that would permit Pacific Scientific to complete its
acquisition of Met One's stock, yet preserve competition in the market
in which the transaction would raise significant competitive concerns.
A Stipulation and a proposed Final Judgment embodying the proposed
settlement were filed as well.
The Stipulation effects a hold separate agreement that, in essence,
requires Pacific Scientific to ensure that, until the divestiture
mandated by the Final Judgment has been accomplished, Met One's
operations will be held separate and apart from, and operated
independently of, Pacific Scientific's assets and businesses.
The proposed Final Judgment orders defendant to sell all of Pacific
Scientific's U.S. assets and rights relating to the research and
development, manufacture and sale of Pacific Scientific's Drinking
Water Quality Monitoring Systems, other than real property, and Met
One's software relating to Drinking Water Quality Monitoring Systems,
and other assets if necessary, to make an economically viable
competitor in the manufacture and sale of drinking water particle
counters.
The United States and Pacific Scientific have stipulated that the
proposed Final Judgment may be entered after compliance with the APPA.
Entry of the proposed Final Judgment would terminate this action,
except that the Court would retain jurisdiction to construe, modify, or
enforce the provisions of the proposed Final Judgment and to punish
violations thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendant and the Proposed Transaction
Defendant Pacific Scientific Company is a California corporation
with its headquarters in Newport Beach, California. Pacific Scientific
Company reported annual sales in 1994 of approximately $234,700,000.
HIAC/ROYCO, the division of Pacific Scientific that manufactures and
sells drinking water particle counters, reported 1994 sales of
$13,011,000, of which $1,270,000 came from drinking water particle
counter sales.
Met One, Inc. is a California corporation with its headquarters in
Grants Pass, Oregon. Met One reported net sales in 1994 of
approximately $11,800,000, of which approximately $1,180,000 came from
drinking water particle counter sales. Louis J. Petralli, Jr. is the
majority and controlling owner of Met One.
Pacific Scientific proposes to acquire all outstanding stock of Met
One for Pacific Scientific stock, and merge Met One into a newly
created acquisition subsidiary.
B. The Drinking Water Particle Counter Market
Drinking water particle counters are devices sold largely to
municipalities for the purpose of protecting against contamination of
public drinking water
[[Page 4798]]
supplies. The drinking water particle counters made and sold by
defendant are capable of detecting particles the size of potentially
deadly microorganisms that may exist in public drinking water supplies.
Drinking water particle counters such as those made by defendant
generally include four components: a sensor, which directs a laser beam
from a laser diode through the water being tested; a sampler, which
provides a means to transport a sample of the water in which the
particles are being counted undisturbed through the sensor; a counter,
which sorts the signals from the sensor by voltage and assigns a
particle size to the signals; and software, which translates data into
a readable format.
Because drinking water particle counters are able to detect
potentially harmful contaminants in public drinking water with greater
sensitivity and efficiency than other technologies, such as
turbiditymeters and microscopes, municipalities purchase them to
satisfy their concerns for the purity and safety of their drinking
water. For example, in 1993, 28 people in Milwaukee died as a result of
drinking water contamination by one such microorganism--
Cryptosporidium. At the time of that tragedy, Milwaukee had installed
turbiditymeters but had not installed drinking water particle counters.
Since 1993, Milwaukee has installed drinking water particle
counters.\1\
\1\ Turbiditymeters are not part of the relevant market.
Turbidity is an optical measurement of solid contamination suspended
as particles in a fluid. Turbiditymeters have significantly
different attributes than drinking water particle counters. For
example, turbiditymeters cannot detect small quantities of
microorganisms such as Cryptosporidium, as particle counters can.
And, unlike drinking water particle counters, turbiditymeters do not
provide exact data for the size and number of particles in a given
medium. Municipalities do not consider turbiditymeters to be
substitutes for drinking water particle counters.
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Municipalities generally purchase drinking water particle counters
through formal bid procedures. Although price is an important factor,
municipalities also consider quality, reliability, service, and the
reputation of the qualifying firms. Municipalities routinely request
from each firm as part of that firm's bid package a list of references
from past successful bids. Municipalities also routinely invite
drinking water particle counter competitors to demonstrate the
capabilities of their respective devices prior to the municipality's
determination of the bid winner.
C. Competition Between Pacific Scientific and Met One
Pacific Scientific and Met One compete directly in the manufacture
and sale of drinking water particle counters. Pacific Scientific's
Water Particle Counting System and Met One's on-line particle counting
systems are regarded by municipalities as close substitutes, for they
offer similar functionality, performance and features.
Pacific Scientific and Met One recognize the rivalry between their
products in the relevant geographic market. Each firm has engaged in
comparative selling techniques and competitive pricing strategies
against the other firm in order to increase the likelihood of
successful sales. Through these activities, Pacific Scientific and Met
One have each operated as a significant competitive constraint on the
other's prices and have each provided impetus for technological
improvements in the other's systems. For example, when Met One was
awarded the 1994 contract for particle counters provided to the City of
San Francisco, Pacific Scientific wrote the city reminding it that
Pacific Scientific rather than Met One was the low bidder. In its
letter, Pacific Scientific also provided the city a detailed comparison
of the Pacific Scientific product versus the Met One product. It has
been common practice for municipalities to conduct side by side
evaluations or demonstrations of the Pacific Scientific and Met One
drinking water particle counters in considering the merits of each
product's software and hardware capabilities.
D. Anticompetitive Consequences of the Acquisition
The Complaint alleges that the acquisition of Met One, Inc. by
Pacific Scientific Company would reduce substantially or eliminate
competition in the drinking water particle counter market in the United
States and decrease incentives to maintain high levels of quality and
service and to keep prices low.
Specifically, the Complaint alleges that the acquisition would
increase concentration significantly in what is already a highly
concentrated market.\2\
\2\ The Herfindahl-Hirschman Index (``HHI'') is a widely-used
measure of market concentration. Following the acquisition, the
appropriate post-merger HHI, calculated from 1994 dollar sales,
would be 4842, an increase of 2108 from the premeger HHI.
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After the acquisition, the combined Pacific Scientific/Met One
entity would dominate the drinking water particle counter market. Based
on 1994 sales, the market share of the combined entity would be 65% of
drinking water particle counters sold in the United States.
The complaint also alleges that entry into the market by a new firm
selling drinking water particle counters would not likely be either
timely or sufficient to prevent the harm to competition caused by
Pacific Scientific's acquisition of Met One.
III. Explanation of the Proposed Final Judgment
The proposed Final Judgment would preserve competition in the
manufacture and sale of drinking water particle counters in the United
States. Within 30 days after entry of the Final Judgment, defendant
will divest certain of Pacific Scientific's U.S. assets and rights
relating to the research and development, manufacture and sale of
Pacific Scientific's Drinking Water Quality Monitoring Systems, other
than real property, and Met One's software relating to Drinking Water
Quality Monitoring Systems, and other assets if necessary, to create an
economically viable new competitor in the manufacture and sale of
drinking water particle counters (in general, the ``Divestiture
Assets'').
The proposed Final Judgment provides for the imposition of civil
contempt penalties as an additional incentive for defendant to carry
out the prompt divestiture of the Divestiture Assets and maintain
competition in the drinking water particle counter market.
If defendant fails to divest the Divestiture Assets within 30 days
after entry of the Final Judgment, the Court, upon application by the
United States, shall appoint a trustee nominated by the United States
to effect the divestiture of the Divestiture Assets. If a trustee is
appointed, the proposed Final Judgment provides that Pacific Scientific
will pay all costs and expenses of the trustee. The proposed Final
Judgment also provides that the compensation of the trustee and of any
professionals and agents retained by the trustee shall be both
reasonable in light of the value of the Divestiture Assets and based on
a fee arrangement providing the trustee with an incentive based on the
price and terms of the divestiture and the speed with which it is
accomplished. After appointment, the trustee will file monthly reports
with the parties and the Court setting forth the trustee's efforts to
accomplish the divestiture ordered under the proposed Final Judgment.
If the trustee has not accomplished the divestiture within six (6)
months after its appointment, the trustee shall promptly file with the
Court a report setting forth (1) the trustee's efforts to accomplish
the required divestiture, (2)
[[Page 4799]]
the reasons, in the trustee's judgment, why the required divestiture
has not been accomplished, and (3) the trustee's recommendations. At
the same time the trustee will furnish such report to the parties, who
will each have the right to be heard and to make additional
recommendations consistent with the purpose of the trust.
The proposed Final Judgment requires that Pacific Scientific and
Met One be maintained separate and apart as independent entities prior
to the divestiture contemplated by the Final Judgment.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
Sec. 16(a), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against defendant.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and the defendant have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register. The United States will
evaluate and respond to the comments. All comments will be given due
consideration by the Department of Justice, which remains free to
withdraw its consent to the proposed Final Judgment at any time prior
to entry. The comments and the response of the United States will be
filed with the Court and published in the Federal Register.
Written comments should be submitted to: Craig W. Conrath, Chief,
Merger Task Force, Antitrust Division, United States Department of
Justice, 1401 H Street NW., Suite 3700, Washington, D.C. 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits of its Complaint against
Pacific Scientific. The United States is satisfied, however, that the
divestiture of the assets and other relief contained in the proposed
Final Judgment will preserve viable competition in the manufacture and
sale of drinking water particle counters that would otherwise be
adversely affected by the acquisition. Thus, the proposed Final
Judgment would achieve the relief the government would have obtained
through litigation, but avoids the time, expense and uncertainty of a
full trial on the merits of the government's Complaint.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty-day comment
period, after which the court shall determine whether entry of the
proposed Final Judgment ``is in the public interest.'' In making that
determination,
The court may consider--
(1) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) The impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. Sec. 16(e) (emphasis added). As the United States Court of
Appeals for the D.C. Circuit recently held, this statute permits a
court to consider, among other things, the relationship between the
remedy secured and the specific allegations set forth in the
government's complaint, whether the decree is sufficiently clear,
whether enforcement mechanisms are sufficient, and whether the decree
may positively harm third parties. See United States v. Microsoft, 56
F.3d 1448, 1461-62 (D.C. Cir. 1995).
In conducting this inquiry, ``the Court is nowhere compelled to go
to trial or to engage in extended proceedings which might have the
effect of vitiating the benefits of prompt and less costly settlement
through the consent decree process.'' \3\ Rather,
\3\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette
Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest''
determination can be made properly on the basis of the Competitive
Impact Statement and Response to Comments filed pursuant to the
APPA. Although the APPA authorizes the use of additional procedures,
15 U.S.C. 16(f), those procedures are discretionary. A court need
not invoke any of them unless it believes that the comments have
raised significant issues and that further proceedings would aid the
court in resolving those issues. See H.R. Rep. 93-1463, 93rd Cong.
2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News 6535,
6538.
Absent a showing of corrupt failure of the government to
discharge its duty, the Court, in making its public interest
finding, should * * * carefully consider the explanations of the
government in the competitive impact statement and its responses to
comments in order to determine whether those explanations are
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reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. para.
61,508, at 71,980 (W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, 462 (9th Cir. 1988) quoting United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083
(1981); see also Microsoft, 56 F.3d at 1460-62. Precedent requires
that--
The balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\4\
\4\ United States v. Bechtel, 648 F.2d at 666 (citations
omitted) (emphasis added); see United States v. BNS, Inc., 858 F.2d
at 463; United States v. National Broadcasting Co., 449 F. Supp.
1127, 1143 (C.D. Cal. 1978); United States v. Gillette Co., 406 F.
Supp. at 716. See also Microsoft, 56 F.3d at 1461 (whether ``the
remedies [obtained in the decree are] so inconsonant with the
allegations charged as to fall outside of the 'reaches of the public
interest.' '') (citations omitted).
[[Page 4800]]
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The proposed Final Judgment, therefore, should not be reviewed
under a standard of whether it is certain to eliminate every
anticompetitive effect of a particular practice or whether it mandates
certainty of free competition in the future. Court approval of a final
judgment requires a standard more flexible and less strict than the
standard required for a finding of liability. ``[A] proposed decree
must be approved even if it falls short of the remedy the court would
impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest.' (citations
omitted).''\5\
\5\ United States v. American Tel. and Tel Co., 552 F. Supp.
131, 150 (D.D.C. 1982), aff'd sub nom. Maryland v. United States,
460 U.S. 1001 (1983), quoting United States v. Gillette Co., supra,
406 F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F.
Supp. 619, 622 (W.D. Ky. 1985).
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: January 30, 1996.
Respectfully submitted,
John W. Van Lonkhuyzen,
Alexander Y. Thomas,
Trial Attorneys, U.S. Department of Justice, Antitrust Division, Merger
Task Force, 1401 H Street, NW., Suite 3700, Washington, DC 20530, (202)
307-6355.
[FR Doc. 96-2657 Filed 2-7-96; 8:45 am]
BILLING CODE 4410-01-M
