[Federal Register Volume 63, Number 68 (Thursday, April 9, 1998)]
[Notices]
[Pages 17454-17460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9372]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Lehman Brothers Holdings Inc. and L-3
Communications Holdings, Inc.; Proposed Final Judgment and Competitive
Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. sections 16(b)-(h), that a Complaint, proposed
Final Judgment, Stipulation and Order, and Competitive Impact Statement
have been filed with the United States District Court for the District
of Columbia, in United States v. Lehman Brothers Holdings Inc. and L-3
Communications Holdings, Inc., Civil Action No. 1:98CV00796.
On March 27, 1998, the United States filed a Complaint seeking an
injunction enjoining L-3 Communications Holdings, Inc. and its parent
Lehman Brothers Holdings Inc. from acquiring AlliedSignal Inc.'s Ocean
Systems and ELAC Nautik GmbH sonar business, or from entering into or
carrying out any agreement, understanding or plan, the effect of which
would be to combine the sonar business of AlliedSignal Inc.
(``AlliedSignal'') and L-3 Communications Corp. (``L-3
Communications''), a wholly owned subsidiary of L-3 Communications
Holdings, Inc. The Complaint alleges that because Lockheed Martin
Corporation (``Lockheed Martin'') owns 34.0 percent of the common stock
of L-3 Communications and controls three seats on the L-3
Communications Board of Directors, the acquisition by L-3
Communications of the sonar business of AlliedSignal would lessen
competition substantially in the production and sale of towed sonar
arrays to the U.S. Department of Defense (``DoD'') in violation of
Section 7 of the Clayton Act, 15 U.S.C. Section 18. Under the proposed
Final Judgment, filed the same day as the Complaint, L-3 Communications
has agreed to: (1) Maintain a ``firewall'' whereby it prevents the
sharing of non-public information relating to the sonar businesses of
L-3 Communications and Lockheed Martin, and (2) not enter into any
joint bidding or teaming agreements with Lockheed Martin to bid on DoD
contracts relating to towed sonar arrays.
Public comment is invited within the statutory 60-day comment
period. Such comments and responses thereto will be published in the
Federal Register and filed with the Court. Comments should be directed
to J. Robert Kramer, II, Chief, Litigation II Section, Antitrust
Division, U.S. Department of Justice, 1401 H Street, N.W., Suite 3000,
Washington, D.C. 20530 [telephone: (202) 307-0924].
Constance K. Robinson,
Director of Operations & Merger Enforcement Antitrust Division.
Stipulation and Order
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 United States District Court 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. 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 defendants and by filing that
notice with the Court.
(3) Defendant shall abide by and comply with the provisions of the
proposed Final Judgment pending entry of the Final Judgment by the
Court, or until expiration of time for all appeals of any Court ruling
declining entry of the proposed Final Judgment, and shall, from the
date of the signing of this Stipulation by the parties, 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) This Stipulation shall apply with equal force and effect to any
amended proposed Final Judgment agreed upon in writing by the parties
and submitted to the Court.
(5) In the event plaintiff withdraws its consent, as provided in
paragraph 2 above, or in the event the proposed Final Judgment is not
entered pursuant to this Stipulation, and the time has expired for all
appeals of any Court ruling declining entry of the proposed Final
Judgment, and the Court has not otherwise ordered continued compliance
with the terms and provisions of the proposed Final Judgment, then the
parties are released from all further obligations under this
Stipulation, and the making of this Stipulation shall be without
prejudice to any party in this or any other proceeding.
(6) Defendants represent that the provisions ordered in the
proposed Final Judgment can and will be made, and that defendants will
later raise no claim of hardship or difficulty as grounds for asking
the Court to modify any of the provisions contained therein.
Dated: March 26, 1998.
[[Page 17455]]
For Plaintiff United States of America:
Willie L. Hudgins, Esquire,
(D.C. Bar # 37127), U.S. Department of Justice, Antitrust Division,
Litigation II, Suite 3000, Washington, D.C. 20005, (202) 307-0924.
For Defendant Lehman Brothers Holdings Inc.
Karen Muller,
Vice President, Lehman Brothers Holdings Inc., 3 World Financial
Center, New York, NY 10285, (212) 526-2728.
For Defendant L-3 Communications Holdings, Inc.
Christopher C. Cambria,
Vice President, Secretary and General Counsel, L-3 Communications
Corporation, 600 Third Avenue, New York, NY 10016, (212) 805-5634.
IT IS SO ORDERED by the Court, this ________ day of March, 1998.
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United States District Judge
Final Judgment
Whereas, plaintiff, the United States of America, filed its
Complaint in this action on March 27, 1998, and plaintiff and
defendants 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, defendants have agreed to be bound by the provisions
of this Final Judgment pending its approval by the Court;
And Whereas, plaintiff intends to require defendants to preserve
competition by: (1) Preventing employees, officers or directors of
Lockheed Martin who serve on the Board of Directors of L-3
Communications, or those nominated by Lockheed Martin to the Board of
Directors of L-3 Communications, from influencing, directly or
indirectly, the operation of the Ocean Systems and ELAC assets being
acquired by L-3 Communications from Allied Signal, and (2) prohibiting
the disclosure of non-public information between L-3 Communications and
Lockheed Martin relating to the Ocean Systems and ELAC businesses and
Lockheed Martin's sonar and mine warfare businesses;
And Whereas, defendants have represented to the plaintiff that they
will not enter into any joint bidding or teaming agreements with
Lockheed Martin to bid on DoD contracts relating to towed arrays, but
that they will be permitted to enter into contracts or subcontracts
with Lockheed Martin which relate to towed arrays after DoD has awarded
a contract;
And Whereas, defendants have represented to the plaintiff that they
can effectuate the preservation of competition by constructing and
enforcing a firewall and agreeing not to enter into joint bidding or
teaming agreements with Lockheed Martin to bid on DoD contracts
relating to towed arrays and that defendants will later raise no claims
to hardship or difficulty as grounds for asking the Court to modify any
of the 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 each of the parties hereto and
over the subject matter of this action. The Complaint states a claim
upon which relief may be granted against defendants, as hereinafter
defined, under Section 7 of the Clayton Act, as amended, 15 U.S.C. 18.
II. Definitions
As used in this Final Judgment:
A. ``AlliedSignal'' means AlliedSignal, Inc.
B. ``L-3 Communications'' means L-3 Communications Corporation and
L-3 Communications Holdings, Inc., and their directors, employees,
agents, representatives, predecessors, successors and assigns.
C. ``Lockheed Martin'' means Lockheed Martin Corporation, its
directors, officers, employees, agents, predecessors, successors and
assigns; its subsidiaries, divisions, groups, affiliates, partnerships
and joint ventures controlled by Lockheed Martin Corporation;
businesses Lockheed Martin Corporation acquires or merges with; and the
respective directors, officers, employees, agents, predecessors,
successors and assigns of each.
D. ``Limited Officer or Director'' means (1) any employee, officer
or director of Lockheed Martin, who is also a member of the Board of
Directors of, or an officer of, L-3 Communications, or (2) any member
of the Board of Directors of L-3 Communications nominated by Lockheed
Martin.
E. ``Ocean Systems'' means the business units and assets of
AlliedSignal to be acquired by L-3 Communications through operation of
the Purchase Agreement dated December 22, 1997, including AlliedSignal
Ocean Systems business unit and AlliedSignal ELAC Nautik GmbH.
F. (1) ``Non-Public Ocean Systems Information'' means any
information relating to the business of Oceans Systems not in the
public domain, including, but not limited to, Ocean Systems' plans
concerning current and future DoD contracts.
(2) Non-Public Ocean Systems Information shall not include: (a)
Information that, subsequent to the time L-3 Communications signs the
Stipulation and Order in this matter, falls within the public domain
through no violation of this order by L-3 Communications; or (b)
information that, subsequent to the time L-3 Communications signs the
Stipulation and Order in this matter, becomes known to Lockheed Martin
from a third party not known by L-3 Communications or Lockheed Martin
to be in breach of a confidential disclosure agreement.
G. (1) ``Non-Public Lockheed Martin Information'' means any
information not in the public domain relating to sonar and mine warfare
products of Lockheed Martin, including, but not limited to, Lockheed
Martin's plans concerning current and future DoD contracts.
(2) Non-Public Lockheed Martin Information shall not include: (a)
Information that, subsequent to the time L-3 Communications signs the
Stipulation and Order in this matter, falls within the public domain
through no violation of this order by L-3 Communications; or (b)
information that, subsequent to the time L-3 Communications signs the
Stipulation and Order in this matter, becomes known to L-3
Communications from a third party not known by L-3 Communications to be
in breach of a confidential disclosure agreement.
H. DoD means U.S. Department of Defense.
III. Firewall
A. L-3 Communications shall not discuss, provide, disclose, or
otherwise make available, directly or indirectly, to any Limited
Officer or Director any Non-Public Ocean Systems Information.
B. L-3 Communications shall require each Limited Officer or
Director to refrain from discussing, providing, disclosing or otherwise
making available, directly or indirectly, any Non-Public Lockheed
Martin Information to any employee or officer of L-3 Communications or
to any member of the Board of Directors of L-3 Communications, except
any other Limited Officer or Director.
C. The restrictions set forth in Paragraphs III.A and III.B of this
Order
[[Page 17456]]
shall not prohibit the otherwise lawful exchange by L-3 Communications
and Lockheed Martin of such Non-Public Ocean Systems Information or
such Non-Public Lockheed Martin Information that may be necessary (1)
to obtain or perform any contract or subcontract between L-3
Communications and Lockheed Martin, with the exception of the
prohibitions set forth in Section IV, or (2) to obtain or perform any
related contracts or subcontracts between or among L-3 Communications,
Lockheed Martin and any third party (including any governmental
agency).
D. L-3 Communications shall conduct all business relating to Ocean
Systems without the vote, concurrence, attendance or other
participation of any kind whatsoever of any Limited Officer or
Director.
E. Limited Officers or Directors shall not be counted for purposes
of establishing a quorum in connection with any matter relating to
Ocean Systems.
F. L-3 Communications shall not provide any Limited Officer or
Director with any type of compensation that is based in whole or in
part on the profitability or performance of Ocean Systems; provided,
however, that any Limited Officer or Director may receive as
compensation for his or her serving on the L-3 Communications Board of
Directors such compensation as is provided generally to other members
of the L-3 Communications Board of Directors in accordance with L-3
Communications' ordinary practice, or compensation that is based on the
overall profitability or performance of L-3 Communications.
IV. Prohibitions on Certain Joint Bidding and Teaming Agreements
A. L-3 Communications shall not enter into any joint bidding or
teaming agreements with Lockheed Martin to bid on DoD contracts
relating to towed arrays. L-3 Communications shall not provide any Non-
Public Ocean Systems Information nor receive any Non-Public Lockheed
Martin Information for the purpose of entering into any joint bidding
or teaming agreements with Lockheed Martin for the purpose of bidding
on DoD contracts relating to towed arrays. These prohibitions do not
restrict L-3 Communications from entering into any contract or
subcontract with Lockheed Martin which relates to towed arrays, after
DoD has awarded a contract.
V. Affidavits
A. Within sixty (60) calendar days after the filing of the
Complaint in this matter, L-3 Communications, shall certify to the
Plaintiff whether it has complied with Sections III and IV above.
B. For each year during the term of this Final Judgment, L-3
Communications shall file with the Plaintiff, on or before the
anniversary date of the filing of the Complaint, an affidavit as to the
fact and manner of its compliance with the provisions of Sections III
and IV above.
C. Until such time that this Final Judgment shall expire, L-3
Communications shall preserve all records of all efforts to comply with
the Final Judgment.
VI. Compliance Inspection
For purposes of determining or securing compliance with the Final
Judgment and subject to any legally recognized privilege, from time to
time:
A. Duly authorized representatives of the United States Department
of Justice (``DOJ''), upon written request of the Attorney General or
of the Assistant Attorney General in charge of the Antitrust Division,
and on reasonable notice to L-3 Communications made to its principal
offices, shall be permitted:
1. Access during office hours of L-3 Communications to inspect and
copy all books, ledgers, accounts, correspondence, memoranda, and other
records and documents in the possession or under the control of L-3
Communications, who may have counsel present, relating to the matters
contained in this Final Judgment; and
2. Subject to the reasonable convenience of L-3 Communications and
without restraint or interference from it, to interview, either
informally or on the record, its officers, employees, and agents, who
may have counsel present, regarding any such matters.
B. Upon the written request of the Attorney General or of the
Assistant Attorney General in charge of the Antitrust Division, made to
L-3 Communication's principal offices, L-3 Communications shall submit
written reports, under oath if requested, with respect to any matter
relating to the Final Judgment.
C. No information or documents obtained by the means provided in
Section V of this Final Judgment shall be divulged by a representative
of the plaintiff 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 L-3
Communications to DOJ, L-3 Communications represents and identifies in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the Federal
Rules of Civil Procedure, and L-3 Communications 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 ten (10)
calendar days notice shall be given by DOJ to L-3 Communications prior
to divulging such material in any legal proceeding (other than a grand
jury proceeding) to which L-3 Communications is not a party.
VII. Applicability
This Final Judgment applies to defendants; to each of their
officers, directors, agents, employees, successors, assigns,
subsidiaries, divisions, and any other organizational units of any
kind; and to 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.
VIII. 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 or carrying out of this Final
Judgment, for the modification of any of the provisions hereof, for the
enforcement of compliance herewith, and for the punishment of any
violations hereof.
IX. Termination
This Final Judgment shall continue in force until such time as
Lockheed Martin owns less than five percent of the voting securities of
L-3 Communications and there are no Limited Officers or Directors on
the L-3 Communications Board of Directors.
IX. Public Interest
Entry of this Final Judgment is in the public interest.
Dated: ________________, 1998.
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United States District Judge
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), files
this Competitive Impact Statement relating to the proposed Final
[[Page 17457]]
Judgment submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On March 27, 1998, the United States filed a civil antitrust
Complaint alleging that the proposed acquisition by L-3 Communications
Corporation (``L-3 Communications''), a wholly owned subsidiary of L-3
Communications Holdings, Inc., of the AlliedSignal Ocean Systems
business unit (``Ocean Systems''), a wholly owned business unit of
AlliedSignal Inc. (``AlliedSignal''), and AlliedSignal ELAC Nautik GmbH
(``ELAC''), a wholly owned subsidiary of AlliedSignal Deutschland GmbH,
which is a wholly owned subsidiary of AlliedSignal, would violate
Section 7 of the Clayton Act, 15 U.S.C. 18.
The Complaint alleges that the acquisition would violate Section 7
of the Clayton Act because Lockheed Martin Corporation (``Lockheed
Martin'') owns 34.0% of the common stock of L-3 Communications and
controls three of ten seats on the L-3 Communications Board of
Directors, and Lockheed Martin and Ocean Systems are the two leading
competitors in the design, development, manufacture and sale of towed
sonar arrays (``towed arrays'') to the U.S. Department of Defense
(``DoD''). If L-3 Communications were to acquire Ocean Systems, L-3
Communications and Lockheed Martin would become competitors. Towed
arrays are sonar systems consisting of very long hose-like structures
that are towed behind surface ships and submarines for the purpose of
detecting submarines or torpedoes, depending on the type of array. The
arrays are linked to electronic signal processing equipment on board
the ship or submarine towing the array. This equipment processes the
sounds picked-up by the arrays to determine the source of the sound.
As described in the Complaint, since towed arrays are sold to DoD
and there are no foreign producers to which DoD or its U.S. prime
contractors could reasonably turn to purchase these arrays, the
relevant geographic market is the United States.
The prayer for relief in the Complaint seeks: (1) A judgment that
the proposed acquisition would violate Section 7 of the Clayton Act;
and (2) a permanent injunction preventing L-3 Communications from
acquiring Ocean Systems and ELAC.
When the Complaint was filed, the United States also filed a
proposed settlement that would permit L-3 Communications to complete
its acquisition of Ocean Systems and ELAC, and preserve competition in
the relevant market, by requiring L-3 Communications to establish and
maintain a ``firewall'' whereby it would refrain from discussing with
or disclosing to any employee, officer or director of Lockheed Martin,
or person nominated by Lockheed Martin, who is also a member of the
Board of Directors of, or an officer of, L-3 Communications any non-
public information relating to the Ocean Systems and ELAC businesses.
The firewall also requires that these same individuals not share with
L-3 Communications any non-public information of Lockheed Martin
relating to Lockheed Martin's sonar and mine warfare products.
Additionally, the settlement prohibits L-3 Communications from entering
into joint bidding or teaming agreements with Lockheed Martin for the
purpose of bidding on DoD contracts for towed arrays. The settlement
does not however, bar L-3 Communications from entering into a contract
or subcontract with Lockheed Martin which relates to towed arrays,
after DoD has awarded a contract. The settlement is embodied in a
Stipulation and Order and a proposed Final Judgment.
The proposed Final Judgment requires L-3 Communications to
implement the firewall and begin adding by the prohibitions on entering
into joint bidding or teaming agreements with Lockheed Martin or DoD
contracts for towed arrays immediately upon the filing of the proposed
Final Judgment and the Complaint in this matter. L-3 Communications
must maintain the firewall and abide by the prohibitions on certain
joint bidding and teaming agreements for the duration of the proposed
Final Judgment. The proposed Final Judgment continues in force until
such time as Lockheed Martin owns less than five percent of the voting
securities of L-3 Communications and there are no employees, officers
or directors of Lockheed Martin, or persons nominated by Lockheed
Martin, on the L-3 Communications Board of Directors. L-3
Communications must certify to DOJ sixty (60) calendar days after the
filing of the Complaint in this matter and annually thereafter the
steps it has taken to comply with the provisions set forth in the
proposed Final Judgment.
The terms of the Stipulation and Order entered into by the parties
apply to ensure that the Ocean Systems and ELAC businesses to be
acquired by L-3 Communications shall be maintained as independent
competitors of Lockheed Martin.
The plaintiff and defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate the 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 Defendants and the Proposed Transaction
Lehman Brothers Holdings, Inc. is a Delaware corporation
headquartered in New York, New York. Its business activities are in
financial services and merchant and investment banking. In 1997, Lehman
Brothers Holdings, Inc. had net revenues of $3.8 billion.
L-3 Communications Holdings, Inc. is a Delaware corporation
headquartered in New York, New York. L-3 Communications is a leading
provider of sophisticated secure communication systems and specialized
communication products including high data-rate communications systems,
microwave components, avionics, and telemetry and instrumentation
products. In 1997, L-3 Communications had sales of approximately $700
million.
On December 22, 1997, L-3 Communications and AlliedSignal entered
into a Purchase Agreement, whereby L-3 Communications would acquire
from AlliedSignal its Ocean Systems and ELAC businesses. This
transaction, which would give Lockheed Martin, through its ownership
interest in L-3 Communications, influence over, and access to non-
public information of, the other leading competitor in the design,
development, manufacture and sale of towed arrays to DoD, precipitated
the government's suit.
B. Towed Arrays Market
Towed arrays are sonar systems designed to be towed by a submarine
or a surface vessel. Towed arrays deployed by submarines are designed
to detect other submarines. The arrays are long, hose-like structures
measuring up to a thousand feet or longer that contain specially
designed acoustic sensors, called hydrophones, which pick up sound. The
arrays include electronics that convert the acoustical waves from
analog to digital form and transmit that data to electronic processors
on board the submarine. Processing the data involves such functions as
distinguishing the sounds generated by submarines from the sounds made
by other sources, such as whales. The construction of the hose-like
structure containing the hydrophones and
[[Page 17458]]
electronics requires specialized skills which few companies possess.
Towed arrays deployed by submarines must be designed to withstand the
extreme environmental stresses of operation in the ocean depths.
Towed arrays deployed by surface combat vessels are designed to
detect submarines and torpedoes. They have different mechanisms for
deploying, reeling in and storing the arrays and face different
environmental stresses than those deployed by submarines. Towed arrays
used by surface combat vessels are towed at much greater speed than
those towed by submarines or non-combat ships and require engineering
solutions to deal with the ``noise'' generated by dragging the array
through the water. Towed arrays deployed by non-combat surface ships
are designed to detect submarines, but not torpedoes. Only about ten
percent of towed arrays for surface ships are those designed for non-
combat ships.
There are no substitutes for towed arrays and therefore no other
products to which DoD or U.S. prime contractors could turn in the face
of a small but significant and non-transitory price increase by
suppliers of towed arrays.
C. Harm to Competition as a Consequence of the Acquisition
Ocean Systems and Lockheed Martin are the two leading firms in the
design and production of towed arrays. Over ninety percent of the towed
arrays deployed by submarines have been designed and built by Lockheed
Martin and Ocean Systems. Over eighty percent of the towed arrays
deployed by surface combat ships were built by Ocean Systems and
Lockheed Martin (and companies it acquired). The other company that
previously built towed arrays for surface combat ships has not won a
DoD contract for towed arrays in over a decade. Because of their prior
experience and repeated success in winning DoD towed array contracts,
Lockheed Martin and Ocean Systems are likely to be the primary
providers of towed arrays purchased by DoD in the future.
In 1998, DoD is expected to conduct a competition, known as the
Omnibus Competition, for the next generation of towed arrays to be
deployed by submarines and surface combat and non-combat vessels. The
award of this contract is expected to cover both design and production.
This contract will likely be awarded on the basis of ``best value''
which considers a bidder's price and the quality of its technical
proposal. The evaluation of the technical proposal generally includes
an assessment of the riskiness of the proposal and the bidder's prior
experience. Given their long history in designing and producing towed
arrays for DoD, Ocean Systems and Lockheed Martin likely will be the
leading contenders for the Omnibus contract, as well as for any future
DoD towed array contracts. Other potential competitors do not have the
experience of these two companies in the design and production of towed
arrays.
L-3 Communications' acquisition of Ocean Systems is likely
significantly to lessen competition for towed array contracts awarded
by DoD. Because Lockheed Martin sits on the Board of Directors of L-3
Communications, the acquisition could result in the two leading
providers of towed arrays to DoD having access to each other's business
plans, costs, pricing data and decisions, and other internal and
competitively sensitive information. The exchange of such information
could significantly decrease the willingness and ability of L-3
Communications and Lockheed Martin to engage in vigorous competition
for DoD contracts for towed arrays. Access to information revealing
each other's costs, pricing and technical efforts would provide them
with information that could decrease their incentive to bid
aggressively on DoD contracts and therefore could lead to higher prices
paid by DoD. Access to such information could also decrease their
incentive to minimize costs or to innovate in the design or manufacture
of towed arrays.
Successful entry into the production and sale of towed arrays is
difficult, and costly. Entry requires advanced technology, skilled
engineers, specialized know-how and costly customized equipment and
facilities. A potential entrant would have to engage in difficult,
expensive, and time consuming research to develop designs and
production processes that can economically and reliably produce towed
arrays. These designs and production processes must be perfected before
an entrant can successfully bid for a DoD towed array contract. It is
unrealistic to expect new entry in a timely fashion to protect
competition in upcoming DoD towed array competitions.
The Armed Forces of the United States rely on the ongoing, vigorous
competition between Ocean Systems and Lockheed Martin for the
development and production of towed arrays. The proposed acquisition
will lessen this competition, and will result in an increase in prices
paid by the United States and a decrease in innovation for towed arrays
and will, therefore, violate Section 7 of the Clayton Act.
The Complaint alleges that the transaction would have the following
effects, among others: competition generally in the innovation,
development, production and sale of towed arrays for military purposes
in the United States would be lessened substantially; actual and future
competition between Ocean Systems and Lockheed Martin in the
innovation, development, production and sale of towed arrays for
military purposes in the United States would be lessened substantially;
and prices for towed arrays for military purposes in the United States
would likely increase.
III. Explanation of the Proposed Final Judgment
The provisions of the proposed Final Judgment are designed to
eliminate the anticompetitive effects of the acquisition of Ocean
Systems by L-3 Communications.
The proposed Final Judgment requires L-3 Communications to
implement a firewall immediately upon the filing of the Complaint in
this matter and to certify with sixty (60) calendar days after the
filing of the Complaint that it has implemented the firewall provisions
set forth in the proposed Final Judgment. The firewall provisions
require that L-3 Communications shall not discuss, provide, disclose or
otherwise make available, directly or indirectly, any non-public
information relating to the Ocean Systems and ELAC businesses, to (1)
any employee, officer or director of Lockheed Martin, who is also a
member of the Board of Directors of, or an officer of, L-3
Communications, or (2) any member of the Board of Directors of L-3
Communications nominated by Lockheed Martin. Additionally, L-3
Communications must require that any member of the Board of Directors
of L-3 Communications who was either nominated by Lockheed Martin or
who is an employee, officer or director of Lockheed Martin refrain from
discussing, providing, disclosing or otherwise making available,
directly or indirectly, any non-public information of Lockheed Martin
relating to its sonar or mine warfare products. The firewall provisions
also require that L-3 Communications shall conduct all business
relating to Ocean Systems and ELAC without the vote, concurrence,
attendance or other participation of any individuals serving on the L-3
Communications Board of Directors who is an employee, officer or
director of Lockheed Martin or who was nominated by Lockheed Martin.
Finally,
[[Page 17459]]
the proposed Final Judgment prohibits L-3 Communications from entering
into joint bidding or teaming agreements with Lockheed Martin for the
purpose of bidding on DoD contracts for towed arrays. This prohibition
does not bar L-3 Communications from entering into a contract or
subcontract with Lockheed Martin after DoD has awarded a towed array
contract.
The provisions of the Final Judgment preserve competition because
they will ensure that any business decisions made by L-3 Communications
concerning the Ocean Systems and ELAC businesses it is acquiring from
AlliedSignal will be made without sharing any non-public information
with Lockheed Martin or receiving any non-public information from
Lockheed Martin and because L-3 Communications and Lockheed Martin will
be required to compete separately for DoD towed array contracts.
IV. Remedies Available To Potential Private Litigants
Section 4 of Clayton Act (15 U.S.C. 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 cost and reasonable attorney's
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. 16(a)), the
proposed Final Judgment has no primi facie effect in any subsequent
private lawsuit that may be brought against defendants.
V. Procedures Available for Modification of the Proposed Final
Judgment
The United States and defendants 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 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 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 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: J. Robert Krammer II, Chief, Litigation II Section, Antitrust
Division, United States Department of Justice, 1401 H Street, NW, Suite
3000, 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 against defendants Lehman
Brothers Holdings Inc. and L-3 Communications Holdings, Inc. The United
States could have brought suit and sought preliminary and permanent
injunctions against L-3 Communications' acquisition.
The United States is satisfied that the provisions set forth in the
proposed Final Judgment will encourage viable competition in the
research, development, and production of towed arrays. The United
States is satisfied that the proposed relief will prevent the
acquisition from having anticompetitive effects in this market. The
provisions of the Final Judgment will restore the towed array market to
the competitive conditions that existed prior to the acquisition.
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, in any, to be derived from a determination of the
issues at trial.
15 U.S.C. 16(e) (emphasis added). As the Court of Appeals for the
District of Columbia Circuit recently held, the APPA 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 (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.'' \1\ Rather,
\1\ 119 Cong. Rec. 24598 (1973). See also 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. 93-1463,
93rd Cong. 2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & News
6535, 6538.
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absent a showing of corrupt failure of the government to discharge
its duty, the Court, in making its public interest findings, 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 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 1448 (D.C. Cir. 1995). Precedent
requires that
[t]he 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
[[Page 17460]]
whether the settlement is `within the reaches of the public
interest.' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\2\
\2\ United States v. Bechtel, 648 F.2d at 666 (internal
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 United States v. American Cyanamid
Co., 719 F.2d 558, 565 (2d Cir. 1983).
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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).'' \3\
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\3\ 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.
For Plaintiff United States of America:
J. Robert Kramer II,
Chief, Litigation II Section, PA Bar #23963.
Willie L. Hudgins,
Assistant Chief, Litigation II Section, DC Bar #37127.
and
Justin M. Dempsey,
Robert W. Wilder,
Trial Attorneys, U.S. Department of Justice, Antitrust Division, 1401 H
St., N.W., Suite 3000, Washington, D.C. 20530, 202-307-0924, 202-307-
6283 (Facsimile).
Dated: March 31, 1998.
Certificate of Service
I hereby certify under penalty of perjury that on this 1st day of
April, 1998, I caused copies of the foregoing COMPETITIVE IMPACT
STATEMENT to be served by first-class mail postage prepaid, upon the
following:
Christopher C. Cambria, Esq.,
Counsel for L-3 Communications Holdings, Inc., Vice President,
Secretary, and General Counsel, L-3 Communications Corp., 600 Third
Avenue, New York, NY 10016.
Joseph F. Wayland, Esq.,
Counsel for L-3 Communications Holdings, Inc., Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, NY 10017.
Karen Muller,
For Lehman Brother Holdings Inc., Vice President, Lehman Brothers
Holdings Inc., 3 World Financial Center, New York, NY 10285.
Justin M. Dempsey,
Attorney, Litigation II Section, U.S. Department of Justice, Antitrust
Division, 1401 H Street, N.W., Suite 3000, Washington, D.C. 20530,
(202) 307-0924.
[FR Doc. 98-9372 Filed 4-8-98; 8:45 am]
BILLING CODE 4410-11-M
