Alliant Techsystems Inc.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 941 0123]

Alliant Techsystems Inc.; 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

permit, among other things, Alliant Techsystems Inc. (Alliant), a

Minnesota-based defense contractor, to acquire Hercules Inc.'s

propellant division, Hercules Aerospace Company, under certain

conditions, and would require Alliant to prevent its newly acquired

propellant division from sharing non-public information with Alliant's

ammunition and munitions division. Alliant also would have to notify

its propellant customers of the Commission order before obtaining any

non-public information from them.

DATES: Comment must be received on or before January 30, 1995.

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

Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Laura Wilkinson, FTC/S-2224, Washington, DC 20580. (202) 326-2830.

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

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. 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)).

Agreement Containing Consent Order

The Federal Trade Commission (``the Commission''), having initiated

an investigation of the acquisition by Alliant Techsystems Inc.

(``Alliant''), of certain assets of the Hercules Aerospace Company of

Hercules Incorporated (``Hercules''), and it now appearing that

Alliant, hereinafter sometimes referred to as proposed respondent, is

wiling to enter into an agreement containing an order to refrain from

certain acts and to provide for other relief:

It is hereby agreed by and between proposed respondent, by its duly

authorized officers and attorneys, and counsel for the Commission that:

1. Proposed respondent Alliant is a corporation, organized,

existing, and doing business under and by virtue of the laws of the

State of Delaware, with its office and principal place of business

located at 600 Second Street, NE., Hopkins, Minnesota 55343.

2. Proposed respondent admits all the jurisdictional facts set

forth in the draft of complaint.

3. Proposed respondent waives:

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.

4. Proposed respondent shall submit with this agreement an initial

report signed by the proposed respondent setting forth in precise

detail the manner in which the proposed respondent will comply with

Paragraphs II and III of the order when and if entered. Such report

will not become part of the public record unless and until the

accompanying agreement and order are accepted by the Commission. At the

time such report is submitted, proposed respondent may request

confidentiality for any portion thereof with a precise showing of

justification therefor.

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 proposed respondent, 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, in disposition of the proceeding.

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

constitute an admission by proposed respondent that the law has been

violated as alleged in the draft of complaint, 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, if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Section 2.34 of the

Commission's Rules, the Commission may, without further notice to

proposed respondent, (1) issue its complaint corresponding in form and

substance with the draft of complaint and its decision containing the

following order to refrain from certain acts 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 U.S. Postal Service of the complaint and

decision containing the agreed-to order to proposed respondent's

address as stated in this agreement shall constitute service. Proposed

respondent waives any right it 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 respondent has read the draft of complaint and order

contemplated hereby. Proposed respondent understands that once the

order has been issued, it will be required to file one or more

compliance reports showing that it has fully complied with the order.

Proposed respondent further understands that it 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. ``Alliant'' or ``Respondent'' means Alliant Techsystems Inc.,

its predecessors, subsidiaries, divisions, groups and affiliates

controlled by Alliant, and their respective directors, officers,

employees, agents and representatives, and their respective successors

and assigns.

B. ``Defense Systems'' means Alliant's Defense Systems Business

Group, an unincorporated division of Alliant with its principal place

of business at 600 Second Street, NE., Hopkins, Minnesota 55343, as

well as its officers, employees, agents, divisions, subsidiaries,

successors, and assigns, and the officers, employees or agents of

Defense System's divisions, subsidiaries, successors and assigns.

Defense Systems is principally engaged in the research, development,

manufacture and sale of Weapons and weapon systems.

C. ``Hercules'' means Hercules Incorporated, a corporation

organized, existing and doing business under the laws of Delaware with

its principal place of business at Hercules Plaza, Wilmington, Delaware

19894-0001.

D. ``Person'' means any natural person, corporate entity,

partnership, association, joint venture, government entity, trust or

other business or legal entity.

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

F. ``Propellant or Explosives'' means substances used to propel or

activate Weapons.

G. ``Weapons'' means ammunition and munitions.

H. ``Acquisition'' means the acquisition by Alliant of

substantially all of the assets and stock relating to Hercules

Aerospace Company, an unincorporated division of Hercules.

I. ``Non-Public Information'' means any information not in the

public domain furnished by a Weapons developer, manufacturer or systems

contractor to Alliant in Alliant's capacity as a provider of Propellant

or Explosives; provided (a) if written information is furnished, it is

designated in writing by the Weapons developer, manufacturer or systems

contractor as proprietary information by an appropriate legend,

marking, stamp, or positive written identification on the face thereof,

or (b) if oral, visual or other information is furnished, it is

identified as proprietary information in writing by the Weapons

developer, manufacturer or systems contractor prior to the disclosure

to Alliant or within thirty (30) days after such disclosure. Non-Public

Information shall not include (i) information already known to Alliant,

(ii) information which subsequently falls within the public domain

through no violation of this Order by Alliant, (iii) information which

subsequently becomes known to Alliant from a third party not in breach

of a confidential disclosure agreement with a Weapons developer,

manufacturer or systems contractor, or (iv) information after six (6)

years from the date of disclosure to Alliant or such other period as

agreed to in writing by Alliant and the Weapons developer, manufacturer

or systems contractor.

II

It is further ordered that:

A. Alliant shall not, absent the prior written consent of the

proprietor of Non-Public Information, provide, disclose, or otherwise

make available to Defense Systems any Non-Public Information; and

B. Alliant shall use any Non-Public Information it obtains only in

its capacity as a provider of Propellant or Explosives, absent the

prior written consent of the proprietor of Non-Public Information.

III

It is further ordered that Alliant shall deliver a copy of this

order to any United States Weapons developer, manufacturer or systems

contractor prior to first obtaining any Non-Public Information relating

to the developer's, manufacturer's or systems contractor's Weapons

either from the Weapons developer, manufacturer, or systems contractor

or through the Acquisition; provided that for Non-Public Information

described in Paragraph I. Section I.(b) of this order, Alliant shall

deliver a copy of this order within ten (10) days of the written

identification by the Weapons developer, manufacturer or systems

contractor.

IV

It is further ordered that:

A. Within sixty (60) days after the date this order becomes final,

Respondent shall submit to the Commission a verified written report

setting forth in detail the manner and form in which it intends to

comply, is complying, and has complied with Paragraphs II and III of

this order; and

B. One (1) year from the date this order becomes final, annually

for the next nine (9) years on the anniversary of the date this order

becomes final, and at such other times as the Commission may require,

Respondent shall file a verified written report with the Commission

setting forth in detail the manner and form in which it has complied

and is complying with this order. To the extent not prohibited by

United States Government national security requirements, Respondent

shall include in its reports information sufficient to identify all

United States Weapons developers, manufacturers or systems contractors

with whom Respondent has entered an agreement for the research,

development, manufacture or sale of Propellant or Explosives.

V

It is further ordered that Respondent shall notify the Commission

at least thirty days prior to any proposed change in Respondent, such

as dissolution, assignment or sale resulting in the emergence of a

successor corporation, the creation or dissolution of subsidiaries or

any other change in Respondent, that may affect compliance obligations

arising out of this order.

VI

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

securing compliance with this order, and subject to any legally

recognized privilege and applicable United States Government security

requirements, upon written request, and on reasonable notice,

Respondent shall permit any duly authorized representative 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 Respondent relating to any matters contained in this

order; and

B. Upon five (5) days' notice to Respondent and without restraint

or interference from it, to interview officers, directors, or employees

of Respondent, who may have counsel present, regarding such matters.

VII

It is further ordered that, this order shall terminate twenty (20)

years from the date this order becomes final.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted an

agreement to a proposed Consent Order from Alliant Techsystems Inc.

(``Alliant''), under which Alliant's ammunition and munitions divisions

would be prohibited from gaining access to any non-public information

from competing ammunition and munitions producers that Alliant receives

in its capacity as a provider of propellant.

The proposed Consent 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.

Alliant is a significant competitor in the market for ammunition

and munitions. Alliant proposes to acquire Hercules Incorporated's

aerospace division, the only United States supplier of propellant used

in large caliber ammunition. The proposed complaint alleges that the

acquisition, if consummated, would violate section 5 of the Federal

Trade Commission Act, as amended, 15 U.S.C. 45, and section 7 of the

Clayton Act, as amended, 15 U.S.C. 18, because Alliant's ammunition and

munitions divisions could gain access to competitively significant and

non-public information concerning other ammunition and munitions

suppliers' products due to Alliant's role as a supplier of propellant.

As a result, the proposed acquisition increases the likelihood that

competition between ammunition and munitions suppliers would decrease

and that advancements in ammunition and munitions research, innovation,

and quality would be reduced.

The proposed Consent Order prohibits Alliant from disclosing any

non-public information Alliant receives in its capacity as a provider

of propellant from an ammunition or munitions manufacturer to Alliant's

ammunition or munitions divisions. Under the proposed Order, Alliant

may only use such information in its capacity as a provider of

propellant. Non-public information is defined in the Order as any

information not in the public domain furnished by an ammunition or

munitions manufacturer to Alliant's propellant division and designated

as proprietary information.

The Commission anticipates that the effect of the proposed Order

will be to maintain the opportunity for full competition in the market

for the research, development, manufacture and sale of ammunition and

munitions by limiting the ability of one significant competitor to use

information obtained from other competitors.

Under the provisions of the Consent Order, Alliant is also required

to deliver a copy of the Order to any United States propellant

customers prior to obtaining any information from them that is outside

the public domain. One year from the date the Order becomes final and

annually thereafter for nine (9) years, Alliant will be required to

provide to the Commission a report of its compliance with the Order.

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.

Concurring Statement of Commissioner Mary L. Azcuenaga

In Alliant Techsystems Inc., File No. 941-0123

Today, the Commission accepts for public comment a consent

agreement that resolves allegations that the acquisition of the stock

and assets of Hercules Aerospace Company, an unincorporated division of

Hercules Incorporated, by Alliant Techsystems Inc. may substantially

lessen competition in the research, development, manufacture and sale

of propellant, explosives or weapons. I concur in the finding of reason

to believe the law has been violated, but write separately to add two

observations about the remedy.

First, the consent order omits the ten-year prior approval

provision that the Commission usually imposes in cases brought under

Section 7 of the Clayton Act. My vote in favor of accepting the consent

order despite this omission is based on the highly unusual facts of

this case. I continue to believe that prior approval requirements

should be standard in section 7 cases.

Second, the order prohibits Alliant from misusing or appropriating

nonpublic information obtained from a competitor in the development of

weapons. Although we have had few similar cases, recently the

Commission imposed a similar remedy in Martin Marietta Corp., Dkt. No.

3500 (June 22, 1994). I joined in that decision and again do so here.

Nonetheless, I question the extent to which this provision of the order

adds to the protection afforded by private contracts to respect

confidentiality and the extent to which the Commission can effectively

monitor compliance with this requirement. Enforcement experience and

further analysis may well suggest a need for different, more effective

remedies.

[FR Doc. 94-29574 Filed 11-30-94; 8:45 am]

BILLING CODE 6750-01-M