Adobe Systems Incorporated, et al., Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 941 0059]

Adobe Systems Incorporated, et al., Proposed Consent Agreement

With Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

require, among other things, two software firms to divest Aldus

Corporation's FreeHand professional-illustration software and name to

Altsys Corporation within six months after the merger takes place. In

addition, for ten years, it would require the respondents to obtain

Commission approval before acquiring any stock or other interest in any

firm engaged in the development or sale of professional-illustration

software for the Macintosh or Power Macintosh.

DATES: Comments must be received on or before October 4, 1994.

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

room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:Mary Lou Steptoe, FTC/H-374,

Washington, D.C. 20580. (202) 326-2556.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the

Commission's Rules of Practice (16 CFR 2.34), notice is hereby given

that the following consent agreement containing a consent order to

divest, 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. 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

Sec. 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

In the Matter of Adobe Systems Incorporated a corporation, and

Aldus Corporation a corporation.

Agreement Containing Consent Order

The Federal Trade Commission (``Commission'') having initiated an

investigation of the proposed acquisition by Adobe Systems Incorporated

(``Adobe'') of the stock of Aldus Corporation (``Aldus''), and it now

appearing that Adobe and Aldus, hereinafter sometimes referred to as

``proposed respondents'' are willing to enter into an Agreement

Containing Consent Order (``Agreement'') to divest certain assets, and

to provide for certain other relief,

It Is Hereby Agreed by and between Adobe, By its duly authorized

officers and its attorneys, Aldus, by its duly authorized officers and

its attorneys, and counsel for the Commission that:

1. Proposed respondent Adobe is a corporation organized, existing,

and doing business under and by virtue of the laws of the State of

California, with its office and principal place of business located at

1585 Charleston Road, Mountain View, California, 94039.

2. Proposed respondent Aldus is a corporation organized, existing,

and doing business under and by virtue of the laws of the State of

Washington, with its office and principal place of business located at

411 First Avenue South, Seattle, Washington, 98104.

3. Proposed respondents admit all the jurisdictional facts set

forth in the draft of Complaint here attached.

4. Proposed respondents waive:

(a) Any further procedural steps;

(b) The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

(c) All rights to seek judicial review or otherwise to challenge or

contest the validity of the Order entered pursuant to this Agreement;

and

(d) Any claim under the Equal Access to Justice Act.

5. This Agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

Agreement is accepted by the Commission it, together with the draft of

Complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this Agreement and so notify the proposed respondents, in which

event it will take such action as it may consider appropriate, or issue

and serve its Complaint (in such form as the circumstances may require)

and decision is disposition of the proceeding.

6. This Agreement is for settlement purposes only and does not

constitute an admission by proposed respondents that the law has been

violated as alleged in the draft of Complaint here attached, or that

the facts as alleged in the draft Complaint, other than jurisdictional

facts, are true.

7. This Agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

Rules, the Commission may, without further notice to proposed

respondents: (1) Issue its Complaint corresponding in form and

substance with the draft of Complaint here attached and its decision

containing the following Order to divest and cease and desist in

disposition of the proceeding; and (2) make information public with

respect thereto. When so entered, the Order shall have the same force

and effect and may be altered, modified, or set aside in the same

manner and within the same time provided by statute for other orders.

The Order shall become final upon service. Delivery by the United

States Postal Service of the Complaint and decision containing the

agreed to Order to proposed respondents' addresses as stated in this

Agreement shall constitute service. Proposed respondents waive any

right they may have to any other manner of service. The Complaint may

be used in construing the terms of the Order, and no agreement,

understanding, representation, or interpretation not contained in the

Order or the Agreement may be used to vary or contradict the terms of

the Order.

8. Proposed respondents have read the proposed Complaint and Order

contemplated hereby. They understand that once the Order has been

issued, they will be required to file one or more compliance reports

showing they have fully complied with the Order. Proposed respondents

further understand that they may be liable for civil penalties in the

amount provided by law for each violation of the Order after it becomes

final.

Order

I

It is ordered, that, as used in this Order, the following

definitions shall apply:

A. ``Adobe'' means Adobe Systems Incorporated, its predecessors,

divisions, subsidiaries, groups and affiliates that it controls, and

their respective directors, officers, employees, agents and

representatives, and their respective successors and assigns.

B. ``Aldus'' means Aldus Corporation, its predecessors, divisions,

subsidiaries, groups and affiliates that it controls, and their

respective directors, officers, employees, agents and representatives,

and their respective successors and assigns.

C. ``Respondents'' means Adobe and Aldus.

D. ``Altsys'' means Altsys Corporation, a Texas corporation located

at 269 West Renner Parkway, Richardson, Texas, 75080-9604.

E. ``Professional Illustration Software'' means a complete path-

based illustration program native to Apple Macintosh or Power Macintosh

computers, targeted to meet the needs of professional customers whose

function is to create graphics for internal and external clients to be

used in publications printed on a printing press, and excludes Computer

Aided Design (CAD) and 3D programs.

F. ``FreeHand'' means the Professional Illustration Software

program marketed and solid by Aldus under the name ``Aldus FreeHand''

pursuant to a Software License Agreement with Altsys dated as of July

20, 1987, as amended (the ``License''); Aldus source code incorporated

in FreeHand (for use in FreeHand); the name ``FreeHand'' (but not the

name ``Aldus''); the FreeHand customer names and addresses together

with FreeHand specific information in the Aldus database (but not the

underlying database application software); and all marketing,

advertising, training and technical support information and materials

for FreeHand.

G. ``Illustrator'' means the Professional Illustration Software

program marketed and sold by Adobe under the name ``Illustrator.''

H. ``Altsys Agreement'' means the July 11, 1994, agreement between

Aldus and Altsys, attached as Confidential Appendix A hereto.

I. ``Acquisition'' means the stock acquisition of Aldus by Adobe.

J. ``Commission'' means the Federal Trade Commission.

II

It is further ordered, that, pending divestiture of FreeHand,

Respondents shall take such action as is necessary to maintain the

viability and marketability of FreeHand and shall not cause or permit

the destruction, removal from the market, wasting, deterioration or

impairment of FreeHand. Pending divestiture of FreeHand, employees of

Respondents involved in the development, marketing, or sale of

Illustrator or FreeHand shall not be involved in the development,

marketing or sale of the other product; and employees of Respondents

involved in the development, marketing or sale of Illustrator or

FreeHand shall not receive or have access to or the use of any

``material confidential information'' not in the public domain, with

respect to the other product except as such information would be

available to those employees in the normal course of business if the

Acquisition had not taken place. (``Material confidential

information,'' as used herein, means competitively sensitive or

proprietary information not independently known from sources other than

those employees involved in the development, marketing, or sale of

FreeHand or Illustrator.)

III

It is further ordered, that within six (6) months after the

Acquisition is consummated Respondents shall absolutely and in good

faith divest FreeHand to Altsys in accordance with the Altsys

agreement. Adobe and Aldus shall comply with all the terms of the

Altsys Agreement, except that the License shall be terminated no later

than six (6) months after the Acquisition. The purpose of the

divestiture is to ensure the continuation of FreeHand as an ongoing

viable Professional Illustration Software program, to maintain FreeHand

as an independent competitor in the Professional Illustration Software

business, and to remedy the lessening of competition resulting from the

Acquisition as alleged in the Commission's Complaint.

IV

It is further ordered, that, within sixty (60) days after the date

this Order becomes final and every sixty (60) days thereafter until

Respondents have fully complied with the provisions of Paragraphs II

and III of this Order, Respondents shall submit to the Commission a

verified written report setting forth in detail the manner and form in

which they intend to comply, are complying, or have complied with those

provisions. Respondents shall include in their compliance reports,

among other things that are required from time to time, a full

description of the efforts being made to comply with Paragraphs II and

III of this Order.

V

It is further ordered, that for a period of ten (10) years from the

date on which this Order becomes final, Respondents shall not, without

the prior approval of the Commission, directly or indirectly, through

subsidiaries, partnerships, or otherwise:

A. Acquire any stock, share capital, equity or other interest in

any concern, corporate or noncorporate, then engaged in the development

or sale of Professional Illustration Software, provided, however, that

an acquisition of such stock, share capital, equity or other interest

will be exempt from the requirements of this paragraph if it is solely

for the purpose of investment and Respondents will hold no more than

one percent of the shares of any class of security traded on a national

securities exchange or authorized to be quoted in an interdealer

quotation system of a national securities association registered with

the United States Securities and Exchange Commission; or

B. Acquire any Professional Illustration Software or acquire or

enter into any exclusive license to Professional Illustration Software;

Provided, however, that such an acquisition will be exempt from the

requirements of this paragraph if the purchase price is less than

$2,000,000 (two million dollars).

VI

It is further ordered, that, for a period of ten (10) years from

the date this order becomes final, unless Respondents are required to

seek prior approval from the Commission pursuant to Paragraph V,

Respondents shall not, without providing advance written notification

to the Commission, directly or indirectly, through subsidiaries,

partnerships, or otherwise, acquire any Professional Illustration

Software or any exclusive license to Professional Illustration

Software;

Said notification shall be given on the Notification and Report

Form set forth in the Appendix to Part 803 of Title 16 of the Code of

Federal Regulations as amended (hereinafter referred to as ``the

Notification''). Respondents shall provide to the Commission at least

ten days prior to acquiring any such interest (hereinafter referred to

as the ``first waiting period''), both the Notification and

supplemental information either in Respondents' possession or

reasonably available to Respondents. Such supplemental information

shall include a copy of the proposed acquisition agreement; the names

of the principal representatives of each Respondent and of the firm

Respondents desire to acquire who negotiated the acquisition agreement;

and any management or strategic plans discussing the proposed

acquisition. If, within the first waiting period, representatives of

the Commission make a written request for additional information,

Respondents shall not consummate the acquisition until twenty days

after submitting such additional information. Early termination of the

waiting periods in this paragraph may be requested and, where

appropriate, granted in the same manner as is applicable under the

requirements and provisions of the Hart-Scott-Rodino Antitrust

Improvements Act of 1976, 15 U.S.C. 18a.

VII

One year from the date this Order becomes final, annually for the

next nine (9) years, and at other times as the Commission may require,

Respondents shall file with the Commission verified written reports

setting forth in detail the manner and form in which they have complied

and are complying with Paragraphs V and VI of this Order.

VIII

It is further ordered, that, for the purposes of determining or

securing compliance with this Order, and subject to any legally

recognized privilege, upon written request and on reasonable notice to

Respondents, Respondents shall permit any duly authorized

representatives of the Commission:

A. Access, during office hours and in the presence of counsel, to

inspect and copy all books, ledgers, accounts, correspondence,

memoranda and other records and documents in the possession or under

the control of Respondents relating to any matters contained in this

Order; and

B. Upon five (5) days notice to Respondents, and without restraint

or interference from Respondents, to interview officers or employees of

Respondents, who may have counsel present, regarding such matters.

IX

It is further ordered, that each Respondent shall notify the

Commission at least thirty (30) days prior to any proposed change in

such Respondent, such as dissolution, assignment, sale resulting in the

emergence of a successor, or the creation or dissolution of

subsidiaries or any other change that may affect compliance obligations

arising out of this Order.

Analysis of Proposed Consent Order to Aid Public Comment

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

to final approval, an Agreement Containing Consent Order from Adobe

Systems, Inc., (``Adobe'') and Aldus Corporation (``Aldus'')

(collectively, the ``Respondents'') in resolution of antitrust concerns

arising from Adobe's proposed acquisition of Aldus (the

``Acquisition'').

The proposed Consent Order (Order) has been placed on the public

record for sixty (60) days for reception 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 Agreement and the comments received and will decide whether it

should withdraw from the Agreement or make final the Agreement's

proposed Order.

Respondents Adobe and Aldus, which market, respectively, Adobe

Illustrator and Aldus FreeHand, are direct and substantial competitors

with respect to professional illustration software.

The Commission has reason to believe that Adobe's acquisition of

Aldus would substantially lessen competition in violation of Section 7

of the Clayton Act, as amended, 15 U.S.C. Sec. 18 and Section 5 of the

FTC Act, as amended, 15 U.S.C. Sec. 45. The proposed Order if issued by

the Commission, would settle the allegations of the Complaint.

The proposed complaint in this matter alleges that Adobe

Illustrator and Aldus FreeHand are the only illustration software

programs which offer features and performance characteristics enabling

graphics professionals efficiently and reliably to create and print

high-quality illustrations. It alleges that the proposed acquisition

would result in a monopoly in the market for professional illustration

software for use on Apple Macintosh and Power Macintosh computers. It

further alleges that even if the relevant market is broadened to

include the development and sale of all illustration software for use

on Apple Macintosh and Power Macintosh computers, or is broadened even

further to include the development and sale of illustration software

for use on IBM-compatible computers with the Windows operating

environment, the relevant market is highly concentrated and Adobe and

Aldus have a combined share of more than 35% of sales. The products in

the broader markets are differentiated and a significant share of sales

in the broader markets is accounted for by customers who regard

Illustrator and FreeHand as their first and second choices.

The complaint further alleges that entry into the market for

professional illustration software would not be timely, likely, or

sufficient in its magnitude, character, and scope to deter or

counteract anticompetitive effects of the Acquisition because

developing a professional illustration program is difficult and time

consuming, and marketing a technically comparable or even an improved

illustration program would be difficult and time consuming because of

network externalities associated with Illustrator's and FreeHand's

extensive installed user bases. Repositioning of other programs to

compete with Illustrator and FreeHand would also be difficult, time

consuming and unlikely.

The complaint alleges that the Acquisition, by combining

Illustrator and FreeHand, may substantially lessen competition or tend

to create a monopoly in the development and sale of professional

illustration software.

Under the terms of the proposed Order, the Respondents must divest

FreeHand to Altsys Corporation, along with Aldus source code

incorporated in FreeHand; the name ``FreeHand;'' the FreeHand customer

names and addresses together with FreeHand specific information in the

Aldus database; and marketing, advertising, training and technical

support information and materials for FreeHand.

The Order requires the Respondents to effect the divestiture of

FreeHand within six (6) months after the Acquisition is consummated.

The Order requires that prior to divesting FreeHand the Respondents

shall take all necessary actions to maintain the viability and

marketability of FreeHand.

The proposed Order would also prohibit the Respondents, for a

period of ten (10) years from the date the proposed Order becomes

final, from acquiring, without the prior approval of the Commission,

any stock, share capital, equity or other interest in any concern

engaged in the development or sale of professional illustration

software native to the Macintosh or Power Macintosh; or any such

professional illustration software or any exclusive license to such

professional illustration software, the purchase price of which is $2

million or more.

It is anticipated that the proposed Order would resolve the

competitive problems alleged in the Complaint. The purpose of this

analysis is to facilitate public comment on the proposed Order, and it

is not intended to constitute an official interpretation of the

agreement and proposed Order or to modify in any way their terms.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 94-19133 Filed 8-4-94; 8:45 am]

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