Hughes Danbury Optical Systems, Inc., Hughes Electronics Corporation, General Motors Corporation; Consent Agreement With Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 961 0018]

Hughes Danbury Optical Systems, Inc., Hughes Electronics

Corporation, General Motors Corporation; Consent Agreement With

Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Consent Agreement.

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SUMMARY: This Consent Agreement, accepted subject to final Commission

approval, settles alleged violations of federal law prohibiting unfair

or deceptive acts or practices and unfair methods of competition

arising from the purchase of the business and selected assets of the

Itek Optical Systems Division of Litton Industries by Hughes Danbury

Optical Systems, Inc. (``HDOS''). The proposed complaint alleges that

the acquisition, if consummated, would violate Section 7 of the Clayton

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

amended, in the market for the research, development, manufacture and

sale of an Airborne Laser (``ABL'') system for use in the U.S. Air

Force's ABL program. The ABL program currently envisions developing an

ABL system that would utilize a customized 747 aircraft to fly at high

altitudes near the forward edge of a battle area to locate and destroy

incoming short-range ballistic missiles. Two teams--with The Boeing

Company and Rockwell International Corporation as the primary

contractors--have been awarded contracts to develop a concept design

for an ABL demonstrator. The proposed consent order would, among other

things, prohibit the respondents from enforcing the exclusivity

provisions contained in a teaming agreement--between HDOS and Xinetics,

Inc.--so that Xinetics will be free to supply the Boeing team with

deformable mirrors for the ABL program. The respondents have also

entered into an Interim Agreement with the Commission in which they

agreed to be bound by the proposed consent order as of February 9,

1996.

DATES: Comments must be received on or before April 22, 1996.

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

Room H-159, Sixth Street and Pennsylvania Avenue, NW., Washington, DC

20580.

FOR FURTHER INFORMATION CONTACT: William J. Baer, FTC/H-374,

Washington, DC 20580 (202) 326-2932; or Ann B. Malester, FTC/S-2308,

Washington, DC 20580 (202) 326-2682.

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

Trade

[[Page 6848]]

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 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

Section 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 of the Itek Optical Systems

Division of Litton Systems, Incorporated (``Itek''), by Hughes Danbury

Optical Systems, Incorporated (``HDOS''), which is a wholly-owned

subsidiary of Hughes Aircraft Company, which is a wholly-owned

subsidiary of Hughes Electronics Corporation (``Hughes''), which is a

wholly-owned subsidiary of General Motors Corporation (``GM''), and it

now appears that HDOS, Hughes and GM, hereinafter sometimes referred to

as proposed respondents, are willing to enter into an agreement

containing an order to refrain from certain acts and providing for

other relief:

It is hereby agreed by and between proposed respondents, by their

duly authorized officers and attorneys, and counsel for the Commission

that:

1. Proposed respondent HDOS 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

100 Wooster Road, Danbury, Connecticut 06810.

2. Proposed respondent Hughes 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

7200 Hughes Terrace, Los Angeles, California 90045.

3. Proposed respondent GM 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

3044 W. Grand Blvd., Detroit, Michigan 48202.

4. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint here attached.

5. 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.

6. Proposed respondents shall submit within thirty (30) days of the

date this agreement is signed by proposed respondents an initial

report, pursuant to Section 2.33 of the Commission's Rules, signed by

the proposed respondents setting forth in detail the manner in which

the proposed respondents will comply with Paragraph II and Paragraph

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.

7. 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

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, in disposition of the

proceeding.

8. 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.

9. 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 Section 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 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 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.

10. Proposed respondents have read the draft of complaint and order

contemplated hereby. Proposed respondents understand that once the

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

compliance reports showing that 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. ``HDOS'' means Hughes Danbury Optical Systems, Inc., its

officers, employees, agents and representatives, predecessors,

successors, and assigns; its subsidiaries, divisions, groups and

affiliates controlled by HDOS, and the respective officers, employees,

agents, and representatives, successors and assigns of each.

B. ``Hughes'' means Hughes Electronics Corporation, its officers,

employees, agents and representatives, predecessors, successors, and

assigns; its subsidiaries, divisions, groups and affiliates controlled

by Hughes, and the respective officers, employees, agents, and

representatives, successors and assigns of each.

C. ``GM'' means General Motors Corporation, its officers,

employees, agents and representatives, predecessors, successors, and

assigns; its subsidiaries, divisions, groups and affiliates controlled

by GM, and the respective officers, employees, agents, and

representatives, successors and assigns of each.

D. ``Itek'' means Itek Optical Systems Division of Litton Systems,

Incorporated, its officers, employees, agents and representatives,

[[Page 6849]]

predecessors, successors, and assigns; its subsidiaries, divisions,

groups and affiliates controlled by Itek, and the respective officers,

employees, agents, and representatives, successors and assigns of each.

E. ``Respondents'' means HDOS, Hughes and GM.

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

G. ``Xinetics'' means Xinetics Incorporated, a corporation

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

of the Commonwealth of Massachusetts, with its office and principal

place of business located at 410 Great Road #6, Littleton,

Massachusetts 01460.

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

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

other business or legal entity.

I. ``HDOS/Xinetics Letter of Intent'' means the Letter of Intent

entered into on September 21, 1995, between HDOS and Xinetics in which

HDOS expresses its intention to use Xinetics as a supplier of any

Deformable Mirror which may be required for the Phillips Laboratory

Airborne Laser Program.

J. ``Phillips Laboratory Airborne Laser Program'' is a United

States Air Force Advanced Technology Demonstration program to develop

and then demonstrate the necessary technologies to acquire, track, and

destroy theater ballistic missiles during the boost phase of flight.

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

public domain received or developed by Itek in its capacity as a

subcontractor to Lockheed Martin Corporation for the Phillips

Laboratory Airborne Laser Program. Non-Public ABL Information shall not

include: (i) information which subsequently falls within the public

domain through no violation of this order by Respondents, or (ii)

information which subsequently becomes known to Respondents not in

breach of a confidential disclosure agreement.

II

It is further ordered that Respondents shall not enforce or attempt

to enforce any provision contained in the HDOS/Xinetics Letter of

Intent, or take any other action, that would inhibit Xinetics from

teaming or otherwise contracting with any other person for the purpose

of bidding on, designing, developing, manufacturing, or supplying any

part of the Phillips Laboratory Airborne Laser Program.

III

It is further ordered that:

A. Respondents shall not receive, gain access to or in any manner

obtain any Non-Public ABL Information without the express written

permission of Lockheed Martin Corporation.

B. Upon request from Lockheed Martin Corporation, Respondents shall

provide to Lockheed Martin Corporation any Non-Public ABL Information

in a timely fashion not to exceed seven (7) days from the receipt of

such request. Respondents may require payment for their own direct

costs in providing such information.

IV

It is further ordered that Respondents shall comply with all terms

of the Interim Agreement, attached to this order and made a part hereof

as Appendix I.

V

It is further ordered that within sixty (60) days of the date this

order becomes final and every sixty days thereafter for the first year

after this order becomes final, and at such other times as the

Commission may require, Respondents shall file a verified written

report with the Commission setting forth in detail the manner and form

in which they have complied and are complying with this order.

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 Paragraph II and Paragraph III of the

order. Respondents shall include in their compliance reports copies of

all written communications, all internal memoranda, and all reports and

recommendations concerning compliance with the provisions in Paragraph

II and Paragraph III of the order.

VI

It is further ordered that Respondents shall notify the Commission

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

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

emergence of a successor corporation, or the creation or dissolution of

subsidiaries or any other change in the corporate Respondents that may

affect compliance obligations arising out of the order.

VII

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

securing compliance with this order, Respondents 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 any Respondent relating to any matters contained in this

order; and

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

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

of that Respondent, who may have counsel present, regarding such

matters.

Interim Agreement

This Interim Agreement is by and between Hughes Danbury Optical

Systems, Incorporated (``HDOS''), Hughes Electronics Corporation

(``Hughes''), and General Motors Corporation (``GM''), three

corporations organized and existing under the laws of the State of

Delaware (collectively referred to as ``Proposed Respondents''), and

the Federal Trade Commission (the ``Commission''), an independent

agency of the United States Government, established under the Federal

Trade Commission Act of 1914, 15 U.S.C. Sec. 41, et seq. (collectively,

the ``Parties'').

Premises

Whereas, HDOS has proposed to acquire the Itek Optical Systems

Division of Litton Systems, Incorporated (``Itek''); and

Whereas, the Commission is now investigating the proposed

acquisition to determine if it would violate any of the statutes the

Commission enforces; and

Whereas, if the Commission accepts the Agreement Containing Consent

Order (``Consent Agreement''), the Commission will place it on the

public record for a period of at least sixty (60) days and subsequently

may either withdraw such acceptance or issue and serve its Complaint

and decision in disposition of the proceeding pursuant to the

provisions of Section 2.34 of the Commission's Rules; and

Whereas, the Commission is concerned that if an understanding is

not reached, preserving competition during the period prior to the

final acceptance of the Consent Agreement by the Commission (after the

60-day public notice period), there may be interim competitive harm and

divestiture or other relief resulting from a proceeding challenging the

legality of the proposed acquisition might not be possible, or might be

less than an effective remedy; and

[[Page 6850]]

Whereas, Proposed Respondents entering into this Interim Agreement

shall in no way be construed as an admission by Proposed Respondents

that the proposed acquisition constitutes a violation of any statute;

and

Whereas, Proposed Respondents understand that no act or transaction

contemplated by this Interim Agreement shall be deemed immune or exempt

from the provisions of the antitrust laws or the Federal Trade

Commission Act by reason of anything contained in this Interim

Agreement.

Now, therefore, the Parties agree, upon the understanding that the

Commission has not yet determined whether the proposed acquisition will

be challenged, and in consideration of the Commission's agreement that,

at the time it accepts the Consent Agreement for public comment, it

will grant early termination of the Hart-Scott-Rodino waiting period,

as follows:

1. Proposed Respondents agree to execute and be bound by the terms

of the Order contained in the Consent Agreement, as if it were final,

from the date the Consent Agreement is accepted for public comment by

the Commission.

2. Proposed Respondents agree to deliver within three (3) days of

the date the Consent Agreement is accepted for public comment by the

Commission, a copy of the Consent Agreement and a copy of this Interim

Agreement to the United States Department of Defense, The Boeing

Company, Lockheed Martin Corporation and Xinetics Incorporated.

3. Proposed Respondents agree to submit within thirty (30) days of

the date the Consent Agreement is signed by the Proposed Respondents,

an initial report, pursuant to Section 2.33 of the Commission's Rules,

signed by the Proposed Respondents setting forth in detail the manner

in which the Proposed Respondents will comply with Paragraph II and

Paragraph III of the Consent Agreement.

4. Proposed Respondents agree that, from the date the Consent

Agreement is accepted for public comment by the Commission until the

first of the dates listed in subparagraphs 4.a and 4.b, they will

comply with the provisions of this Interim Agreement:

a. Ten (10) business days after the Commission withdraws its

acceptance of the Consent Agreement pursuant to the provisions of

Section 2.34 of the Commission's Rules;

b. The date the Commission issues its Complaint and Decision and

Order.

5. Proposed Respondents waive all rights to contest the validity of

this Interim Agreement.

6. For the purpose of determining or securing compliance with this

Interim Agreement, Proposed Respondents 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 any Proposed Respondent relating to any matters

contained in this Interim Agreement; and

b. Upon five (5) days' notice to any Proposed Respondent and

without restraint or interference from it, to interview officers,

directors, or employees of that Proposed Respondent, who may have

counsel present, regarding any such matters.

7. This Interim Agreement shall not be binding until accepted by

the Commission.

Analysis of Proposed Consent Order to Aid Public Comment

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

to final approval, an agreement containing a proposed Consent Order

from General Motors Corporation, Hughes Electronics Corporation

(``Hughes''), and Hughes Danbury Optical Systems, Inc. (``HDOS''),

collectively referred to as ``respondents.'' The proposed Consent Order

prohibits respondents from enforcing exclusivity provisions in a

teaming agreement between HDOS and Xinetics Incorporated for the U.S.

Air Force's Airborne Laser (``ABL'') program. In addition, the proposed

Consent Order prohibits respondents from obtaining information not in

the public domain developed or obtained by the Itek Optical Systems

Division of Litton Systems, Inc., in its capacity as a member of the

Boeing-Lockheed Martin team for the ABL program without the express

written permission of Lockheed Martin Corporation.

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.

On September 26, 1995, HDOS entered into a letter of intent to

purchase the business and selected assets of the Itek Optical Systems

Division of Litton Industries, Inc. (``Itek''). The proposed complaint

alleges that the acquisition, if consummated, would violate Section 7

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

Federal Trade Commission Act, as amended, 15 U.S.C. Sec. 45, in the

market for the research, development, manufacture and sale of an

Airborne Laser system for use in the U.S. Air Force's Airborne Laser

program.

The Airborne Laser program is the premier anti-missile program in

the Department of Defense's Theater Missile Defense System. As

currently envisioned, the ABL system will utilize a customized 747

aircraft to fly at high altitudes near the forward edge of a battle

area to locate and destroy incoming short-range ballistic missiles. The

ABL system would intercept an enemy missile during its launch or boost

phase by focusing a high energy laser beam on the missile's fuel tank

to rupture the tank and destroy the missile. Destruction of the missile

during launch would cause the warhead to fall on enemy territory. If

the ABL system works as planned, an enemy could find it impossible to

launch its missiles for fear of contaminating its own territory with

nuclear, chemical or biological warheads.

The ABL program is currently in the Demonstrator Concept Design

phase (Phase I). Two teams have each been awarded $21.4 million

contracts to develop a concept design for an ABL demonstrator. The

prime contractors for the two teams are The Boeing Company (``Boeing'')

and Rockwell International Corporation (``Rockwell''). The Air Force

plans to release the Request For Proposal (``RFP'') for the building of

an ABL demonstrator (Phase II) in May 1996. In January 1997, one of the

two teams will be awarded $700 million to build the Phase II ABL

demonstrator based on its Phase I design.

Both Hughes and Itek are participating in the ABL program. Hughes

is exclusively teamed with Rockwell. Itek is a member of the Boeing

team through an exclusive teaming agreement with Lockheed Martin. Both

Hughes and Itek are responsible for designing and supplying an adaptive

optics system for their respective teams.

Both teams will utilize an adaptive optics system as a part of

their ABL demonstrator design to improve the accuracy and intensity of

the ABL's laser beam. Adaptive optics systems compensate for

distortions in light waves caused by atmospheric turbulence by

recording and comparing wavefront characteristics and feeding this

information to an array of deformable mirrors. A deformable mirror is a

thin, flexible mirror

[[Page 6851]]

equipped with electromechanical actuators. The mirror's actuators

respond to an electrical signal from a computer and alter the mirror's

shape to counteract the distortions of the atmosphere. Deformable

mirrors are critical to the effective functioning of the adaptive

optics system.

There are only two viable manufacturers of deformable mirrors for

the ABL, Itek and Xinetics. Itek has exclusively contracted with

Lockheed Martin to supply deformable mirrors to the Boeing team.

Xinetics has exclusively contracted with Hughes to supply deformable

mirrors to the Rockwell team.

The standard Merger Guidelines entry analysis utilizing a two year

time period is not applicable to the ABL competition. The ABL Phase I

concept design review is scheduled to occur in March 1996 and the bids

for Phase II are expected to be due in July of 1996. Therefore, the

only viable entrants are firms with the current capability to supply

deformable mirrors. Itek and Xinetics are the only firms that currently

possess the expertise, personnel and facilities required to design and

fabricate deformable mirrors.

Respondents' acquisition of Itek poses serious antitrust concerns.

Following the acquisition, the Boeing-Lockheed Martin team would not be

able to replace Hughes/Itek as the supplier of its deformable mirrors

for the ABL competition. This would allow Hughes to: (1) increase the

bid prices for the ABL competition by raising the price of the

deformable mirrors on both teams; (2) decrease its investment in

technology or quality on one or both teams' designs; and/or (3) gain

access to competitively sensitive information relating to the Boeing

team's technical design and cost for its entire adaptive optics system.

Under the proposed Consent Order, respondents are prohibited from

enforcing the exclusivity provisions contained in Hughes's teaming

agreement with Xinetics for the ABL program. Xinetics will be free to

supply the Boeing team with deformable mirrors for the ABL program.

This will ensure that the Boeing team will have an alternate source of

deformable mirrors for the ABL competition. The purpose of this

provision of the Consent Order is to constrain Hughes's ability to

raise the price of both teams' bids or decrease its investment in

technology or quality on one or both teams' designs for the ABL

competition.

Under the proposed Consent Order, respondents are also prohibited

from receiving, gaining access to, or obtaining in any manner, without

Lockheed Martin's approval, information not in the public domain that

was developed or obtained by Itek in its capacity as a member of the

Boeing team for the ABL program. The purpose of this provision of the

Consent Order is to ensure that the Rockwell team will not have access

to competitively sensitive information relating to the technical design

and cost of the Boeing team's adaptive optics system for the ABL

competition.

In order to preserve competition in the market for the research,

development, manufacture and sale of an Airborne Laser system for use

in the U.S. Air Force's Airborne Laser program during the period prior

to the Commission's issuance of the Consent Order (after the 60-day

public notice period), respondents have entered into an Interim

Agreement with the Commission in which they agreed to be bound by the

proposed Consent Order as of the date the Commission accepted the

proposed Consent Order for public comment.

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

the proposed Order, and it is not intended to constitute on official

interpretation of the agreement and proposed Order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 96-4005 Filed 2-21-95; 8:45 am]

BILLING CODE 6750-01-M