MacDermid, Inc., et al.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 991-0167]

MacDermid, Inc., et al.; 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 January 21, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Ave., NW, Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Morris Bloom, FTC/S-3418, 600

Pennsylvania Ave., NW, Washington, D.C. 20580. (202) 326-2707.

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 thirty (30) 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 December 22, 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, NW,

Washington, D.C. 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW,

Washington, D.C. 20580. Two paper copies of each comment should be

filed, and should be accompanied, if possible, by a 3\1/2\ inch

diskette containing an electronic copy of the comment. 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 Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, an Agreement Containing Consent Orders

(``Agreement'') from MacDermid, Inc. (``MacDermid'') and Polyfibron

Technologies, Inc. (``Polyfibron'') to resolve competitive concerns

arising out of MacDermid's proposed acquisition of Polyfibron. The

Agreement includes a proposed Decision and Order (the ``proposed

Order'') which would require MacDermid and Polyfibron (``respondents'')

to divest the Polyfibron business of producing and selling liquid

photopolymers; to terminate their respective agreements to distribute

sheet photopolymers in North America (MacDermid's 1998 distribution

agreement with Asahi Chemical Industry Co., Ltd. (``Asahi''), and

Polyfibron's 1995 distribution agreement with BASF Lacke + Farben AG

(``BASF'')); and to cease and desist from inviting, entering into or

participating in any agreements with other photopolymer manufacturers

that have as their effect any allocation, division or illegal

restriction of competition. The Agreement also includes an Order to

Maintain Assets which requires respondents to preserve the Polyfibron

business of producing and selling liquid photopolymers as a viable,

competitive, and ongoing business until the divestiture is achieved.

The proposed Order has been placed on the public record for thirty

(30) days for reception of comments by interested persons. Comments

received during this period will become part of the public record.

After thirty (30) days, the Commission will review the Agreement and

comments received and decide whether to withdraw its acceptance of the

Agreement or make final the Agreement's proposed Order.

The proposed complaint alleges that the acquisition, if

consummated, would violate Section 7 of the Clayton Act, 15 U.S.C. 18,

as amended, and Section 5 of the Federal Trade Commission Act (``FTC

Act''), 15 U.S.C. 45, as amended,

[[Page 778]]

in the following markets: (1) The research, development, manufacture,

and sale of liquid photopolymers for use in the manufacture of

flexographic printing plates for printing on packaging materials, such

as corrugated containers and multi-wall bags (``Liquid

Photopolymers''); and (2) the research, development and sale of solid

sheet photopolymers for use in the manufacture of flexographic printing

plates for printing on packaging materials such as plastic bags and

other flexible packaging, as well as corrugated containers and multi-

wall bags (``Sheet Photopolymers'').

The proposed complaint alleges that the Liquid Photopolymer market

in North America is highly concentrated, and that the proposed

acquisition of Polyfibron by MacDermid represents a virtual merger to

monopoly in that market.

The proposed complaint also alleges that the Sheet Photopolymer

market in North America is highly concentrated, with the pre-merger

market being dominated by two firms, E.I. du Pont de Nemours & Co.,

Inc. (``DuPont'') and Polyfibron (selling its own-manufactured Sheet

Photopolymer products, and those of BASF under the 1995 distribution

agreement). Other firms that participate in the North American Sheet

Photopolymer market are niche players with minor market shares. While

MacDermid does not produce Sheet Photopolymers, it entered into a

distribution agreement with Asahi in 1998 that gives it the right--

which it has not yet exercised--to distribute and sell Asahi's Sheet

Photopolymer products in North America. The proposed complaint alleges

that the existence of the respective distribution agreements means that

the present duopoly in the sale of Sheet Photopolymers in North America

would be further entrenched, because the only two likely entrants, BASF

and Asahi, are bound by the distribution agreements to sell only

through polyfibron and MacDermid, respectively.

The proposed complaint further alleges that the effect of the

acquisition may be to substantially lessen competition and to tend to

create a monopoly by, among other things, eliminating direct

competition between MacDermid and Polyfibron in the manufacture,

distribution and sale of Liquid Photopolymers, entrenching the existing

duopoly in North America in the sale of Sheet Photopolymers, increasing

the likelihood that purchasers of Liquid Photopolymers and Sheet

Photopolymers will be forced to pay higher prices, increasing the

likelihood that technical and sales services provided to customers will

be reduced, and increasing the likelihood that innovation will be

reduced. Customers have complained that the effect of the transaction

would be increased prices for Liquid Photopolymers and Sheet

Photopolymers and reduced technical service, support, and innovation.

The proposed complaint further alleges that entry into the relevant

markets would not be timely, likely, or sufficient to deter or offset

the adverse effects of the acquisition on competition. Entry is

difficult in this market because of the length of time it would take

and the expense that would be incurred in building appropriate chemical

production facilities; the difficulty of perfecting the underlying

polymer chemistry without violating existing patents; the need to offer

to customers plate-making equipment on a consignment or lease basis and

the concurrent difficulty and cost of obtaining a source of supply for

plate-making equipment; and the difficulty of gaining recognition in a

marketplace in which customers are reluctant to change from proven

suppliers. In addition, the proposed complaint alleges that most

customers in the relevant market for Liquid Photopolymers are engaged

in long-term equipment and material supply contracts with either

MacDermid or Polyfibron, further reducing the number of customers

available to a new entrant at any given time.

Finally, the proposed complaint alleges that the respondents have

allocated markets for the sale of photopolymers with competitors, or

invited competitors to allocate markets for the sale of photopolymers.

Specifically, the complaint alleges that beginning in 1995, when

MacDermid first entered the market for the production and sale of

Liquid Photopolymers (by virtue of its acquisition of Hercules, Inc.'s

photopolymer business), MacDermid and Asahi agreed to allocate markets

such that Macdermid would not compete in the sale of Liquid

Photopolymers in Japan and in other areas of the world in which Asahi

sold Liquid Photopolymers while Asahi would not compete in the sale of

Liquid Photopolymers in North America. In the case of Polyfibron, the

proposed complaint alleges that during the same period of 1995 through

1998, Polyfibron engaged in discussions with Asahi that had as their

purpose the division of markets between the two companies. The proposed

complaint alleges that on several occasions during this time period,

Polyfibron invited Asahi to agree not to compete in the sale of Sheet

Photopolymers and Liquid Photopolymers in North America in return for

Polyfibron's agreement not to compete in the sale of Sheet

Photopolymers and Liquid Photopolymers in Japan.

The proposed Order is designed to remedy the anticompetitive

effects of the acquisition in the North American markets for Liquid

Photopolymers and Sheet Photopolymers, as alleged in the complaint, by

requiring the divestiture of Polyfibron's Liquid Photopolymer business,

by requiring the respondents to terminate their respective distribution

agreements with Asahi and BASF, and by requiring the respondents to

cease and desist from entering into, inviting or participating in any

agreements to allocate, divide or illegally restrict competition in the

relevant markets.

Under the terms of the proposed Order, respondents are required to

divest Polyfibron's North American Liquid Photopolymer business to

Chemence, Inc. (``Chemence''), no later than twenty (20) days after the

date the Order becomes final. Chemence currently produces adhesives,

sealants and photopolymers for making printing stamps, using technology

similar to that involved in Liquid Photopolymers. Chemence also

produces a small amount of Liquid Photopolymers in its facilities in

Alpharetta, Georgia, as well as in the United Kingdom.

Divestiture of Polyfibron's Liquid Photopolymer business to

Chemence is designed to promote the viability and competitiveness of

the divested business by placing the business in the hands of a company

with extensive expertise in photopolymer technology, expertise in

related chemistries, and economies of scale resulting from shared

research and development, overhead and production. The divestiture

package, in turn, will permit Chemence to penetrate the North American

market. It provides Chemence with a photopolymer technology that is

well-known, well-respected and proven in the marketplace, access to

plate-making equipment that it may offer to its resin customers, a

sales and technical support force that is well-known in the industry,

customer lists, and long-term equipment/resin supply contracts with

those customers.

The proposed Order requires that respondents divest all trade

secrets, know-how, trade marks and trade names, intellectual property,

intangible assets, tangible assets including equipment, and supply

contracts and business information (including purchasing, sales,

marketing, licensing, and similar information) relating to

[[Page 779]]

Polyfibron's Liquid Photopolymer business. The proposed Order also

requires that respondents provide incentives to certain employees

identified by the acquirer as important to the continued

competitiveness and viability of the Liquid Photopolymers business, to

facilitate their transfer and the transfer of know-how to the acquirer.

The proposed Order to Maintain Assets requires that respondents

preserve the Polyfibron Liquid Photopolymer business as a viable and

competitive business until it is transferred to the Commission-approved

acquirer. It includes an obligation on respondents to build and

maintain a sufficient inventory of Liquid Photopolymers to ensure there

is no shortage of supply during the period that the business is being

transitioned to the Commission-approved acquirer, and obligations to

maintain an adequate workforce.

Both the proposed Order and the Order to Maintain Assets include

provisions designed to protect the Commission-approved acquirer during

the transition period from the possibility that respondents might

target customers on the customer lists being transferred to the

Commission-approved acquirer. The provisions prohibit respondents from

soliciting Liquid Photopolymer customers of Polyfibron for the

transition period, which in any event is not to exceed ninety (90) days

from the date the assets to be divested are transferred to the

Commission-approved acquirer.

If, following receipt and review of public comments regarding the

proposed Order, the Commission determines to disapprove the divestiture

to Chemence, respondents are required to rescind the transaction with

Chemence and divest Polyfibron's Liquid Photopolymers business, within

three (3) months, to an acquirer that receives the prior approval of

the Commission. The proposed Order also provides that if respondents

fail to divest the Liquid Photopolymers business as required by the

proposed Order, the Commission may appoint a Divestiture Trustee to

divest the business along with any assets related to the business that

are necessary to effect the purposes of the proposed Order.

Under the terms of the proposed Order, respondents are required to

terminate their distribution agreements with BASF and Asahi. These

provisions of the proposed Order are designed to remedy the foreseeable

anticompetitive effects of maintaining the existing duopoly in the sale

of Sheet Photopolymers in North America. Presently, DuPont and

Polyfibron represent over ninety (90) percent of the sales of Sheet

Photopolymers in North America. The investigation revealed that prices

for Sheet Photopolymers in North America are considerably higher than

prices for Sheet Photopolymers in other areas of the world where all of

the major world players--DuPont, Polyfibron, BASF and Asahi--compete

for business. Furthermore, the investigation revealed evidence of

coordinated price activity in the sale of Sheet Photopolymers in North

America among the two major firms. By requiring the respondents to

terminate the distribution agreements with BASF and Asahi, the order

frees BASF and Asahi to enter the North American market independently,

and thereby to act as a competitive counterweight to DuPont and

respondents.

Finally, the proposed Order requires that respondents cease and

desist from inviting, creating, maintaining, adhering to, participating

in, or enforcing any agreement with any producer of photopolymer

products to allocate, divide or illegally restrict competition in the

relevant markets. This provision of the proposed Order is designed to

further enhance competition in the North American markets for Liquid

Photopolymers and Sheet Photopolymers by ensuring that no potential

entrant into these markets refrains from entering because of any

illegal invitations from or arrangements with the respondents.

The proposed Order requires respondents to provide the Commission,

within thirty (30) days of the date the Agreement is signed, with an

initial report setting forth in detail the manner in which respondents

will comply with the provisions relating to the divestiture of assets.

The proposed Order further requires respondents to provide the

Commission with a report of compliance with the Order within thirty

(30) days following the date the Order becomes final and every thirty

(30) days thereafter until they have complied with the divestiture

provisions of the Order. Furthermore, the Order requires respondents to

report annually to the Commission, for ten (10) years, regarding their

compliance with the provisions of the Order relating to the Sheet

Photopolymer distribution agreements and market allocation agreements.

The purpose of this analysis is to facilitate public comment on the

proposed Order. This analysis is not intended to constitute an official

interpretation of the Agreement or the proposed Order or in any way to

modify the terms of the Agreement or the proposed Order.

By direction of the Commission.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 00-260 Filed 1-5-00; 8:45 am]

BILLING CODE 6750-01-M