Automatic Data Processing, Inc.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[Docket No. 9282]

Automatic Data Processing, Inc.; 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 amended

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 August 25, 1997.

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: William J. Baer, Federal Trade

Commission, H-374, 6th and Pennsylvania Ave., NW, Washington, DC 20580.

(202) 326-2932.

Howard Morse, Federal Trade Commission, S-3627, 6th and

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Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2949.

Eric D. Rohlck, Federal Trade Commission, S-3627, 6th and

Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2681.

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

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 3.25 of

the Commission's Rules of Practice (16 CFR 3.25), 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 sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home Page (for June 18, 1997), on

the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A paper

copy can be obtained from the FTC Public Reference Room Room H-130,

Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580,

either in person or by calling (202) 326-3627. 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)).

Analysis to Aid Public Comment on the Provisionally Accepted Consent

Order

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

public comment, from Automatic Data Processing, Inc. (``ADP''), an

Agreement Containing Consent Order (``Agreement''). The Agreement has

been placed on the public record for sixty days for receipt of comments

from interested persons.

Comments received during this period will become part of the public

record. After sixty 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 order

(``Order'').

The Commission issued an administrative complaint on November 13,

1996, charging ADP with violations of Section 5 of the Federal Trade

Commission Act, 15 U.S.C. 45, and Section 7 of the Clayton Act, 15

U.S.C. 18, for its April 1, 1995, acquisition of assets from AutoInfo,

Inc. (``Acquisition''). The Complaint alleged that prior to the

Acquisition, AutoInfo and ADP were vigorous, head-to-head competitors

(Complaint at para. 36) and the principal or only competitors in five

product markets: (1) Automotive used parts and assemblies interchange;

(2) computerized automotive salvage yard management systems that use an

interchange; (3) electronic communication systems using an interchange

used to buy and sell used automotive parts and assemblies; (4) the

integrated network consisting of an interchange, yard management

systems and communication systems; and (5) the collection and provision

of salvage yard inventory data to customers that provide such data as

part of estimating products sold to insurance companies (Complaint at

Paras. 16-30). The Complaint charged that the effect of the Acquisition

may be substantially to lessen competition or tend to create a monopoly

in the relevant markets, that through the acquisition agreement, ADP

engaged in unfair methods of competition, that ADP attempted to

monopolize the relevant product markets, and that ADP monopolized the

relevant product markets (Complaint at Paras. 42-49).

According to the Complaint, entry into the relevant product markets

would not be timely, likely or sufficient in magnitude, character and

scope to deter or counteract anticompetitive effects of the

Acquisition. The interchange is based on a database that took many

years to develop and would be difficult and time-consuming to attempt

to reproduce (Complaint at para. 39). The interchange is a key input to

the yard management systems and electronic communication systems, and

without entry into the interchange market, it is also unlikely that

timely or sufficient entry will occur (Complaint at para. 39). Entry

would also be difficult, time-consuming and unlikely in yard management

systems, electronic communication systems, and salvage yard information

services because of the large number of customers ADP currently has

using these products and services. According to the Complaint, salvage

yards are reluctant to rely upon a new entrant without a significant

number of other salvage yard customers participating in the network

(Complaint at para. 40). the Compliant also alleged that timely or

sufficient entry is unlikely in the collection and dissemination of

salvage yard inventory data largely because of the time, expense, and

difficulty in collecting salvage yard inventory data independent of ADP

and because ADP is the gatekeeper of salvage yard inventory data

through its control of the interchange, integrated yard management

systems, electronic communication systems, and salvage yard information

systems (Complaint at para. 39).

The Complaint alleged that the Acquisition was part of a two-step

plan by ADP to acquire the leading information service providers to the

salvage industry and thereby acquire market power. ADP acquired such

market power by first acquiring Hollander, Inc., in 1992, a provider of

salvage yard information services with the largest customer base, and

then acquiring the AutoInfo assets in 1995, a provider with the second

largest customer base (Complaint at para. 33).

The Complaint alleged that the Acquisition would, among other

things, eliminate AutoInfo as an actual, substantial, and direct

competitor, increase or potentially increase prices or reduce

technological improvements or innovations in the relevant product

markets, increase barriers to entry, harm users of the former-AutoInfo

products, and give ADP market and monopoly power in the relevant

product markets (Complaint at para. 33).

Since November 1996, this matter has been in pretrial discovery

before an administrative law judge, with trial scheduled to begin on

July 15, 1997. The matter was removed from administrative adjudication

on May 22, 1997, on a joint motion of ADP and Commission counsel, so

the Commission could consider the Agreement. The Agreement Containing

Consent Order would, if finally accepted by the Commission, settle the

charge alleged in the Complaint.

Paragraph II of the Order accepted for public comment would require

ADP to divest, to an acquire or acquirers and in a manner that receives

the prior approval of the Commission, the following assets,

collectively known as the ``AutoInfo Assets'':

(1) The former-AutoInfo yard management systems, including,

among other things, Checkmate, Checkmate Jr., Classic, the BidPad,

PartPad, accounting and management modules, source codes,

application program interfaces, data formats, communications

protocols, and customer, supplier and service contracts;

(2) The former-AutoInfo communication systems, including ORION/

RTS, AutoMatch, AutoXchange, and ORION Exchange communication

systems, including, among other things, source codes, application

program interfaces, data formats, communication protocols, customer,

supplier and service contracts, and ADP's rights and obligations

with respect to current and former subscribers to CalQwik;

(3) A non-exclusive, paid-up license to all research and

development done by or for

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ADP Claims Solutions Group, Inc.'s Parts Services Division for any

new yard management system or communication system;

(4) The AutoInfo Interchange, including the assets used in the

development and maintenance of the AutoInfo Interchange; and

(5) The former-AutoInfo Parts Locator, a computerized on-line

telephone service that is offered to the automobile casualty

insurance industry, which uses ORION/RTS, and, among other things,

software that provides access to the ORION/RTS database, and

customer, supplier and service contracts.

Paragraph II of the Order also requires that ADP divest its rights

and obligations as the data collector for the Automotive Recyclers

Association (``ARA'') International Database. The proposed Order

provides that, in the alternative to a divestiture of the data

collector rights, ADP can terminate its rights as the ARA Database

Collector pursuant to the contract with the ARA.

ADP would be required to divest the AutoInfo Assets absolutely and

in good faith, as an on-going business, to an acquirer within 150 days

from the date the Commission accepted the Agreement Containing Consent

Order for public comment or 60 days after the Order becomes final,

whichever is later, or be subject to civil penalties and the

possibility of a trustee being appointed pursuant to Paragraph III of

the Order. The trustee would have the right to divest not only the

AutoInfo Assets, but also the Compass network of voice lines (``Trustee

Assets''). If the trustee is unable to divest the Trustee Assets

consistent with the Commission's purpose, the trustee may divest

additional ancillary assets of ADP related to the Trustee Assets and

effect such other arrangements as are necessary to satisfy the

requirements of the Order.

Paragraph II.A. of the proposed Order states that the purpose of

the divestiture is to maintain the divested assets as on-going

businesses, to continue use of the former-AutoInfo businesses in the

same manner as before ADP acquired AutoInfo when ADP and AutoInfo were

competitors, and to remedy the lessening of competition resulting from

the Acquisition as alleged in the Commission's complaint.

Since the Acquisition, ADP, has not updated the former-AutoInfo

Interchange and has switched the former-AutoInfo yard management system

customers (Checkmate, Checkmate, Jr. and Classic users) from the

AutoInfo Interchange to the Hollander Interchange with some integration

of the AutoInfo Interchange. Because the merger has led to a migration

to a single interchange, the proposed Order would require ADP to grant

a paid-up, perpetual, non-exclusive license to the Hollander

Interchange with updates from ADP for at least a three-year period. The

Hollander Interchange is an important component for trading salvage

parts and the proposed Order would allow for the identical Hollander

Interchange to be used by the acquirer and its customers and licensees

for a period of time.

The acquirer would be free to create its own updates to the

Hollander Interchange. This would allow the acquirer to differentiate

and improve the Hollander Interchange during the time it is receiving

updates from ADP and thereafter. Paragraph IV.B. would assist the

acquirer in writing updates by requiring ADP to provide to the acquirer

at the time of divestiture, a copy of, and non-exclusive license to,

all computer programs and databases, and a list of and sources for all

information, used by ADP to update the Hollander Interchange.

Under Paragraph IV.A. of the proposed Order, the acquirer of the

divested assets would have the right to sublicense the Hollander

Interchange and reproduce it in any form including electronic or

printed forms (other than the copyright-protected format of Hollander

Interchange books presently produced and sold by ADP). These rights

granted the acquirer pursuant to the Order should allow for a

competitive environment to emerge through development of the acquirer's

or its licensee's products and broaden the choices available to salvage

yard customers for parts trading.

Several provisions of the proposed Order are intended to ensure

that the acquirer would be a viable and competitive entity at the time

of divestiture. The Commission's Complaint alleges that ADP stopped

selling the former-AutoInfo yard management systems after the

Acquisition and that ADP had a virtual monopoly in the provision of

yard management systems to the salvage industry (Complaint at para. 24

and 32-38). New yard management system customers were denied the choice

of acquiring the AutoInfo yard management system from the date of the

Acquisition up to the time of the divestiture under the proposed Order.

Paragraph V of the proposed Order would facilitate those customers'

switching to the acquirer's products by requiring ADP, for a year, to

allow, without penalty, any customer who entered into a contract for

the Hollander Yard Management System or ADP's EDEN communication system

between April 1, 1995 (the date of the AutoInfo acquisition) and the

date of divestiture, to switch from ADP systems to a yard management

system or communication system of the acquirer.

Paragraph VII of the proposed Order would prohibit ADP, for ten

years, from restricting, or threatening to restrict any customer or

licensee of the Hollander Interchange from using or connecting to the

products of the acquirer, its licensees or the ARA Data Collector. To

facilitate interconnection, the proposed Order would also require ADP

to provide to the acquirer and its licensees specifications and

information reasonably necessary to create interfaces with ADP's yard

management and communication systems. The acquirer and its licensees

will be able to transmit inventory data using the Hollander Interchange

numbers even after the three-year time period prescribed in Paragraph

IV expires because ADP is required to grant a paid-up, perpetual, non-

exclusive license to the Hollander Interchange to the acquirer and its

licensees in connection with the collection or searching of inventory

data. This provision would allow customers to choose to access or

connect to other companies' products, thereby increasing their options

for buying and selling used parts and assemblies.

Paragraph VII of the proposed Order would not require ADP to give

acquirer and its licensees rights to sell or distribute updates of the

Hollander Interchange other than the rights specified in Paragraphs II

and IV, would not bar ADP from restricting transmission of Hollander

Interchange numbers to persons other than the acquirer or its

licensees, and would not require ADP to create the interfaces to

connect to its products or to repair any customer's Hollander yard

management system or EDEN communication system if the product's

functionality is damaged by use of the acquirer's or licensees'

products.

Paragraph VI of the proposed Order would require ADP to cooperate

with the acquirer in hiring persons knowledgeable about interchange,

yard management systems, and communication systems from ADP; ADP would

be prohibited from restricting or threatening to restrict any person

employed by ADP's Parts Services division or formerly by AutoInfo, Inc.

at any time since January 1, 1995, from working for the acquirer; and,

ADP would be required to cooperate in effecting transfer of any

employee who chooses to transfer to the acquirer. For a year after the

date the acquirer hires an ADP employee, ADP is also prohibited from

re-hiring that person.

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The requirements of this Paragraph would assist the acquirer to obtain

technical expertise to serve its customers.

Paragraph VIII of the proposed Order would require ADP to obtain

prior approval from the Commission for any reacquisition of the assets

required to be divested. Certain acquisitions that would not require a

premerger filing under the Hart-Scott-Rodino Premerger Notification Act

would be subject to a prior notice requirement.

The proposed Order also would require ADP to provide periodic

reports of compliance (Paragraph IX), to notify the Commission of

changes in its corporate structure or status (Paragraph X), and to

permit authorized representatives of the Commission access to, among

other things, documents and memoranda relating to matters contained in

the Order (Paragraph XI). The proposed Order would terminate twenty

years from the date the Order is final.

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.

[FR Doc. 97-16608 Filed 6-24-97; 8:45 am]

BILLING CODE 6750-01-M