Martin Marietta Corporation; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 941 0038]

Martin Marietta Corporation; 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 Martin Marietta, a Maryland-based corporation, to acquire

General Dynamics Corporation's Space Systems Division and would

prohibit, among other things, the respondent's Expendable Launch

Vehicle (ELV) division from disclosing to its satellite division any

non-public information that its ELV division receives from a satellite

manufacturer, and would require the respondent to give a copy of the

final consent order to U.S. satellite owners or manufacturers before

obtaining any non-public information from them.

DATES: Comments must be received on or before June 13, 1994.

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:

Ann Malester, FTC/S-2224, Washington, DC 20580. (202) 326-2682.

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 Martin Marietta Corporation

(``Martin Marietta''), of certain assets of the Space Systems Division

of General Dynamics Corporation (``General Dynamics''), and it now

appearing that Martin Marietta, hereinafter sometimes referred to as

proposed respondent, is willing 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 Martin Marietta is a corporation, organized,

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

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

located at 6801 Rockledge Drive, Bethesda, Maryland 20817.

2. Proposed respondent admits all the jurisdictional facts set

forth in the draft of complaint here attached.

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. This agreement shall not become a 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. Provided, however, if, prior to the date the Commission

issues its complaint and decision, proposed respondent notifies the

Commission in writing that it has abandoned its proposed acquisition as

described in the draft of complaint and has withdrawn any related

notifications filed pursuant to Section 7A of the Clayton Act, as

amended, 15 U.S.C. 18a, the Commission will not issue its complaint and

decision.

5. 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 here attached, or that

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

facts, are true.

6. 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 Sec. 2.34 of the Commission's

Rules, and if proposed respondent has not notified the Commission that

it has abandoned its proposed acquisition pursuant to paragraph 4 of

this agreement, the Commission may, without further notice to proposed

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

with the draft of complaint here attached 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.

7. 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. ``Martin Marietta'' or ``Respondent'' means Martin Marietta

Corporation, its predecessors, subsidiaries, divisions, groups and

affiliates controlled by Martin Marietta, and their respective

directors, officers, employees, agents and representatives, and their

respective successors and assigns.

B. ``Astronautics'' means Martin Marietta's Astronautics Company,

an entity with its principal place of business at P.O. Box 179, Denver,

Colorado 80201, which is engaged in, among other things, the research,

development, manufacture and sale of Expendable Launch Vehicles and

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

subsidiaries, successors, and assigns, and the officers, employees or

agents of Astronautics' divisions, subsidiaries, successors and

assigns.

C. ``Astro Space'' means Martin Marietta's Astro Space Company, an

entity with its principal place of business at P.O. Box 800, Princeton,

New Jersey 08543-800, which is principally engaged in the research,

development, manufacture and sale of Satellites, its officers,

employees, agents, divisions, subsidiaries, successors and assigns, and

the officers, employees or agents of Astro Space's divisions,

subsidiaries, successors and assigns.

D. ``General Dynamics'' means General Dynamics Corporation, a

corporation organized, existing and doing business under the laws of

Delaware with its principal place of business at 3190 Fairview Park

Drive, Falls Church, Virginia 22042-4523.

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

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

other business or legal entity.

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

G. ``Expendable Launch Vehicle'' means a vehicle that launches

satellites from the Earth's surface that is consumed during the process

of launching a Satellite and therefore cannot be launched more than one

time.

H. ``Satellite'' means an unmanned machine that is launched from

the Earth's surface for the purpose of transmitting data back to Earth

and which is designed either to orbit the Earth or travel away from the

Earth.

I. ``Acquisition'' means the acquisition by Martin Marietta of

substantially all of the assets relating to General Dynamics

Corporation's Space Systems Division.

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

public domain furnished by a Satellite owner or manufacturer to

Astronautics or General Dynamics in their capacity as providers of

Expendable Launch Vehicles and (a) if written information, designated

in writing by the Satellite owner or manufacturer 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, identified as proprietary information in writing by

the Satellite owner or manufacturer prior to the disclosure or within

thirty (30) days after such disclosure. Non-Public Information shall

not include (i) information already known to Martin Marietta, (ii)

information which subsequently falls within the public domain through

no violation of this Order by Martin Marietta, (iii) information which

subsequently becomes known to Martin Marietta from a third party not in

breach of a confidential disclosure agreement with such Satellite owner

or manufacturer, or (iv) information after six (6) years from the date

of disclosure of such Non-Public information to Martin Marietta or such

other period as agreed to in writing by Martin Marietta and the

Satellite owner or manufacturer.

II

It is further ordered That: A. Martin Marietta shall not, absent

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

provide, disclose, or otherwise make available to Astro Space any Non-

Public Information; and

B. Martin Marietta shall use any Non-Public Information obtained by

Astronautics only in Astronautics' capacity as a provider of Expendable

Launch Vehicles, absent the prior written consent of the proprietor of

Non-Public Information.

III

It is further ordered That Martin Marietta shall deliver a copy of

this order to any United States Satellite owner or manufacturer prior

to first obtaining any information relating to the owner's or

manufacturer's Satellites outside the public domain either from the

Satellite owner or manufacturer or through the Acquisition.

IV

It is further ordered That 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 compiled 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 Satellite owners or

manufacturers with whom Respondent has entered an agreement for the

research, development, manufacture or sale of Expendable Launch

Vehicles.

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 have counsel present, regarding such matters.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has provisionally

accepted an agreement containing a proposed Consent Order from Martin

Marietta Corporation (``Martin Marietta''), under which Martin

Marietta's satellite division would be prohibited from gaining access

to any non-public information that Martin Marietta's expendable launch

vehicle division receives from competing satellite producers in its

capacity as a provider of launch vehicles.

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.

Martin Marietta is a significant competitor in the market for the

manufacture and sale of satellites. On December 22, 1993, Martin

Marietta agreed to acquire General Dynamics Corporation's Space Systems

Division, which manufactures the Atlas expendable launch vehicles.

Following this acquisition, Martin Marietta would be the only United

States supplier in the market for Atlas-class expendable launch

vehicles as well as a competitor in the satellite market. 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

Martin Marietta's satellite division could gain access to competitively

significant and non-public information concerning other satellite

suppliers' products. As a result, the proposed acquisition increases

the likelihood that competition between satellite suppliers would

decrease and that advancements in satellite research, innovation, and

quality would be reduced.

The proposed Consent Order prohibits Martin Marietta from

disclosing any non-public information Martin Marietta receives in its

capacity as a provider of expendable launch vehicles from a satellite

owner or manufacturer to Martin Marietta's satellite division. Under

the proposed Order, Martin Marietta may only use such information in

its capacity as a provider of expendable launch vehicles. Non-public

information is defined in the Order as any information not in the

public domain furnished by a satellite owner or manufacturer to Martin

Marietta's expendable launch vehicle division or General Dynamics in

their capacity as providers of expendable launch vehicles 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 satellites by

limiting the ability of one significant competitor to use information

obtained from other competitors.

Under the provisions of the Consent Order, Martin Marietta is also

required to deliver a copy of the Order to any United States satellite

owner or manufacturer prior to obtaining any information that is

outside the public domain. One year from the date the Order becomes

final and annually thereafter for nine (9) years, Martin Marietta 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.

Donald S. Clark,

Secretary.

Dissenting Statement of Commissioner Deborah K. Owen on Proposed

Consent Agreement With Martin Marietta Corp. File No. 941-0038

Respondent Martin Marietta Corporation manufactures satellites,

which are launched into orbit by expendable launch vehicles, some of

which it also manufactures. It proposes to acquire the Space Systems

Division of General Dynamics Corporation, which manufactures Atlas-

class expendable launch vehicles. The theory of the complaint is that

if this acquisition is consummated, Martin Marietta's launch vehicle

division will gain access to trade secrets concerning the products of

other satellite manufacturers, and will transfer such information to

Martin Marietta's satellite division, which will use it to injure its

competitors. The Commission's order would enjoin Martin Marietta from

misusing its rivals' confidential information in this manner.

Vertical integration, and combinations designed to achieve the

efficiencies of such integration, are common phenomena, particularly in

the aerospace industry. Accordingly, it would seem that there are

already ample opportunities for the sort of abusive information-sharing

which concerns the Commission. However, equally common are contractual

obligations between vertically integrated companies, and firms that do

business with one of their divisions, to prevent the sharing of those

firms' confidential business information with other parts of the

conglomerate with which they compete. The question then is whether such

contracts are sufficient to avoid any competitive problem, or whether

government-imposed requirements are necessary; if there exists a

significant number of substantiated incidents of such activity, then

private agreements would not seem adequate. However, the opposite

appears to be the case.

While various Commission personnel have, in recent years, exhorted

the business community to be sensitive to antitrust concerns stemming

from the sharing of business information, Commission enforcement

actions in this area have been rare, and no case has involved the

strategic misuse of proprietary information so as to injure a

competitor. Furthermore, Martin Marietta currently manufactures both

satellites and launch vehicles, and is already privy to competitively

significant information from other satellite manufacturers, yet I am

unaware of any instance where it has been alleged that proprietary

information has been used for exclusionary purposes by Martin Marietta,

or indeed by any other aerospace manufacturer. As a result, it seems

fair to conclude that contractual obligations prohibiting such

behavior, coupled with the threat of business tort and treble-damage

antitrust suits, are sufficient deterrents. Moreover, as the amount of

available business in the aerospace industry continues to dwindle, it

is hard to imagine that developing a reputation for abusing

confidential information would enhance any company's competitiveness.

The Commission's proposed consent is somewhat puzzling in its

coverage. If the theory of the complaint is correct--that Martin

Marietta's dominant power in the launch vehicle market would facilitate

anticompetitive information-sharing in the satellite market--why would

the company stop there? The theory would seem to support as well

allegations of other exclusionary and tying practices, yet these are

not included. The Commission, correctly I believe, concluded that there

was no evidence to support such charges; I therefore find it strange

that it chose to go forward on the equally speculative information-

sharing allegations.

In short, I do not believe that the evidence supports the theory

behind the Commission's complaint, nor that a Commission order would be

superior to privately negotiated confidentiality agreements for

protecting the trade secrets of satellite manufacturers. I dissent.

[FR Doc. 94-8743 Filed 4-11-94; 8:45 am]

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