[Federal Register Volume 64, Number 56 (Wednesday, March 24, 1999)]
[Notices]
[Pages 14249-14251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7210]
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FEDERAL TRADE COMMISSION
[File No. 9810329]
Medtronic Inc.; Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before May 24, 1999.
ADDRESS: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pa. Ave., N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT: Stephen Riddell or Mark Menna, FTC/H-
2105, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580, (202) 326-
2721 or (202) 326-2722.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the above-captioned consent agreement containing a consent
order to cease and desist, having been filed with and accepted, subject
to final approval, by the Commission, has been placed on the public
record for a period of sixty (60) days. The following Analysis to Aid
Public Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for March 8, 1999), on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W., Washington,
D.C. 20580, either in person or by calling (202) 326-3627. Public
comment is invited. Such comments or views will be considered by the
Commission and will be available for inspection and copying at its
principal office in accordance with Section 4.9(b)(6)(ii) of the
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).
Analysis of the Proposed Consent Order and Draft Complaint to Aid
Public Comment
The Federal Trade Commission (``Commission'') has accepted for
public comment from Medtronic, Inc. (``Medtronic'' or ``proposed
Respondent'') an Agreement Containing Consent Order (``the proposed
consent order''). The proposed Respondent has also reviewed a draft
complaint contemplated by the Commission. The proposed consent order is
designed to remedy likely anticompetitive effects arising from the
acquisition of Avecor Cardiovascular, Inc. (``Avecor''). Both Medtronic
and Avecor are medical technology companies that compete in the
manufacture and sale of non-occlusive arterial pumps, perfusion devices
used in heart/lung machines. The proposed consent order remedies the
acquisition's anticompetitive effects by requiring Medtronic to divest
Avecor's non-occlusive arterial pump assets (``Avecor Pump Assets'') as
a viable, on-going product line. Medtronic has entered into an
agreement to divest the Avecor Pump Assets to Baxter Healthcare
Corporation (``Baxter'').
Medtronic, which is headquartered in Minneapolis, Minnesota, is
engaged in the research, development, manufacture and sale of medical
devices, including implantable devices, such as pacemakers and
defibrillators, which regulate heart rhythm; tissue and mechanical
heart valves; coronary stents; and perfusion devices for heart/lung
machines. Medtronic's perfusion devices include non-occlusive arterial
pumps. Medtronic's Bio-Pump is the market leader in non-occlusive
arterial pumps. Avecor, also headquartered in Minneapolis, Minnesota,
is engaged in the research, development, manufacture and sale of
perfusion devices, including,
[[Page 14250]]
among other things, non-occlusive arterial pumps. Avecor introduced its
non-occlusive arterial pump is the Fall of 1997. Avecor's pump, which
utilizes different technology, is still in the early stages of gaining
market acceptance. Some in the industry believe that this new pump may
offer consumers advantages over the Bio-Pump and other conventional
non-occlusive pumps.
Pursuant to an Agreement and Plan of Merger (``Merger Agreement''),
signed July 12, 1998, and as subsequently amended, Medtronic agreed to
acquire 100% of the voting stock of Avecor for approximately $106
million. The proposed Complaint alleges that the Merger Agreement
violates Section 5 of the FTC Act, as amended, 15 U.S.C. Sec. 45, and
that the acquisition violates Section 7 of the Clayton Act, as amended,
15 U.S.C. Sec. 15, and Section 5 of the FTC Act, as amended, 15 U.S.C.
45, in the United States market for the research, development,
manufacture and sale of non-occlusive arterial pumps.
The draft complaint alleges that medtronic's proposed acquisition
of Avecor would lessen competition in the United States market for
research, development, manufacture and sale of non-occlusive arterial
pumps. Arterial pumps are a perfusion device used primarily to stand in
for the heart and lungs during surgical procedures involving those
organs. Perfusion devices are products that handle blood in heart/lung
machines. These devices circulate and oxygenate the blood and regulate
body temperature during heart bypass surgery and other procedures where
the heart must be relieved of its pumping function. Arterial pumps
circulate the blood. According to the complaint, there are no
competitive substitutes for non-occlusive arterial pumps.
The complaint alleges that the United States is the relevant
geographic market in which to analyze the effects of the proposed
acquisition.
The complaint alleges that the United States market for research,
development, manufacture and sale of non-occlusive arterial pumps is
highly concentrated, and would become significantly more concentrated
as a result of the acquisition. Premerger concentration in this market,
as measured by the Herfindahl-Hirschamann Index,\1\ exceeds 5,700, and
the acquisition would increase the HHI by more than 340 to more than
6,050.
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\1\ The Herfindahl-Hirschmann Index, or ``HHI,'' is a
measurement of market concentration calculated by summing the
squares of the individual market shares of all participants in the
market. Under section 1.51 of the Horizontal Merger Guidelines
issued April 2, 1992, by the Federal Trade Commission and the
Department of Justice, the Commission considers concentration levels
exceeding 1,800 as ``highly concentrated'' and concentration levels
between 1,000 and 1,800 as ``moderately concentrated.''
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According to the draft complaint, entry into the United States
market for research, development, manufacture and sale of non-occlusive
arterial pumps is difficult and would not be timely, likely or
sufficient to prevent the adverse competitive effects that may result
from the proposed acquisition.
The proposed consent order remedies the Commission's competitive
concerns about the proposed acquisition. Under Paragraph II of the
proposed consent order, Medtronic must divest all of the assets
relating to Avecor's non-occlusive arterial pump to Baxter or to
another acquirer approved by the Commission. Baxter is a major producer
of medical devices used in cardiac surgery and has substantial
experience in the research, development, manufacture and sale of other
perfusion devices used in cardiac surgery bypass operations. Baxter
also is a major provider of perfusion services. In the event that
Medtronic does not sell these assets to Baxter or another Commission-
approved buyer within ninety (90) days of the Order's becoming final,
the Commission may appoint a trustee to divest the Avecor Pump Assets.
The Commission's purpose in evaluating possible purchasers of
divested assets is to maintain the competitive environment that existed
prior to the acquisition. A proposed buyer must not itself present
competitive problems. The Commission believes that Baxter is well
qualified to operate the divested assets and that divestiture to Baxter
will not be anticompetitive in this market.
The proposed consent order requires Medtronic to provide
substantial assistance to the buyer of the Avecor Pump Assets to enable
the buyer to obtain FDA approval to manufacture and market the Avecor
pumps and reservoirs to use with the pump. First, Medtronic must
contract manufacture a supply of the Avecor pumps and the reservoirs
used with the Avecor pumps for a year while the buyer establishes its
own manufacturing capability. Medtronic must continue to supply the
buyer with such reservoirs for a second year if the buyer determines
that it needs additional time to establish the manufacturing capability
to produce a reservoir to use with the Avecor pump. Second, Medtronic
must provide technical assistance to help the buyer obtain necessary
FDA approvals and to acquire the capability to manufacture the Avecor
pump. Finally, the proposed consent order provides the buyer with the
opportunity to hire Avecor employees associated with the Avecor Pump
Assets.
In order to facilitate the smooth transfer of assets and ensure
that the buyer will get the assistance necessary to independenty
manufacture the Avecor pump, the proposed consent order also provides
for the appointment of an interim trustee. The interim trustee will
serve until the acquirer has received all necessary FDA approvals to
manufacture the Avecor pump and becomes an independent producer of the
Avecor pump.
Under certain circumstances if the Commission-approved buyer fails
to become a viable, independent manufacturer and seller of Avecor pump,
the Commission may terminate the divestiture and appoint a divestiture
trustee to find a new buyer for the Avecor pump assets. If, prior to
obtaining the necessary FDA approvals and beginning to manufacture
Avecor pump and a compatible reservoir, the buyer stops selling the
Avecor pump for 60 days or otherwise fails to make good faith efforts
to sell it, the Commission may step in and terminate the divestiture.
The Commission may also terminate the divestiture if the buyer fails to
make good faith efforts to obtain the necessary FDA approvals.
Similarly, the Commission may revoke the divestiture if the buyer fails
to obtain the FDA approvals or to begin manufacturing within one year.
Under this last scenario, the Commission may refrain from revoking the
divestiture (for a second year) if it appears that the buyer is likely
to obtain the FDA approvals or begin to manufacture the products in
that time period.
The proposed consent order also required Medtronic to provide to
the Commission a report of compliance with the divestiture and
assistance provisions of the proposed consent order within sixty (60)
days following the date the proposed consent order becomes final and
every ninety (90) days thereafter until Medtronic has completed the
divestiture and the acquire has obtained all necessary FDA approvals
and has become an independent manufacturer of the Avecor pump and a
reservoir that can be used with the Avecor pump. The proposed consent
order also requires Medtronic to notify the Commission at least thirty
(30) days prior to any change in the structure of Medtronic that may
affect compliance with the proposed consent order.
[[Page 14251]]
The proposed consent order has been placed on the public record for
sixty (60) days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After sixty (60) days, the Commission will again review the agreements
and the comments received and will decide whether it should withdraw
the argument or make the proposed consent order final.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to
facilitate public comment on the proposed consent order, including the
proposed sale of the Avecor pump assets to Baxter, in order to aid the
Commission in its determination of whether to make the proposed consent
order final. This analysis is not intended to constitute an official
interpretation of the proposed consent order, nor is it intended to
modify the terms of the proposed consent order in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-7210 Filed 3-23-99; 8:45 am]
BILLING CODE 6750-01-M
