Autodesk, Inc.; Softdesk, Inc.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 971-0049]

Autodesk, Inc.; Softdesk, Inc.; 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 or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would prohibit, among other things, Autodesk--a

San Rafael, California-based developer and marketer of computer-aided

design (CAD) software which intends to acquire Softdesk, Inc.--from

reacquiring the ``IntelliCADD'' CAD engine that Softdesk recently sold

to Boomerang Technology, Inc. The complaint accompanying the consent

agreement alleged that Autodesk's $90 million acquisition of Softdesk,

as originally proposed, would have substantially lessened competition

in the development and sale of CAD software engines.

DATES: Comments must be received on or before June 9, 1997.

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

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

FOR FURTHER INFORMATION CONTACT: Howard Morse, Federal Trade

Commission, S-3627, 6th St. and Pennsylvania Ave., NW., Washington, DC

20580. (202) 326-2949.

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 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 March 31, 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, 6th Street and Pennsylvania Avenue, NW., Washington, DC 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 (``the Commission'') has accepted,

subject to final approval, an Agreement Containing Consent Order

(``Agreement'') from Autodesk, Inc. (``Autodesk'') and Softdesk, Inc.

(``Softdesk'').

The proposed Order has been placed on the public record for sixty

(60) days for reception of comments from 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.

The Commission's investigation of this matter concerns a proposed

acquisition by Autodesk of Softdesk. In December 1996, Autodesk and

Softdesk entered into an Agreement and Plan of Reorganization whereby

Autodesk will acquire 100% of the voting securities of Softdesk in

exchange for share of Autodesk common stock with a value of $90 million

(the ``Acquisition'').

The Agreement Containing Consent Order would, if finally accepted

by the Commission, settle charges that the Autodesk acquisition of

Softdesk as originally proposed may have substantially lessened

competition in the development and sale of computer aided design

(``CAD'') engines for Windows-based personal computers in the United

States or in North America. The Commission has reason to believe that

Autodesk's original proposal to acquire Softdesk violates Section 5 of

the Federal Trade Commission Act and that the acquisition, if

consummated, would have violated Section 7 of the Clayton Act and

Section 5 of the Federal Trade Commission Act, unless an

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effective remedy eliminates likely anticompetitive effects.

The Proposed Complaint

According to the Commission's proposed complaint, Autodesk is a

public company that develops and markets computer-aided design

(``CAD'') software for use in the architecture, engineering and

construction (the ``AEC'') industry. Autodesk offers a portfolio of

software products including a CAD engine marketed and sold under the

name ``AutoCAD,'' for use on Windows-based personal computers. Autodesk

has had annual sales in excess of $530 million. Softdesk has had annual

sales in excess of $40 million. Softdesk offers a portfolio of

applications software that is used in conjunction with and to

supplement CAD engines, primarily AutoCAD. Softdesk also was developing

and had tested a CAD engine, referred to as ``IntelliCADD,'' for use on

personal computers that would be used as a substitute and replacement

of AutoCAD.

According to the Commission's proposed complaint, a relevant line

of commerce within which to analyze the effects of Autodesk's

acquisition of Softdesk is the market for CAD engines for Windows-based

personal computers. CAD engines are critical to architects and

engineers to plan and design everything from manufactured products, to

buildings, to utilities, and water treatment plants. The complaint

alleges that there are no economic substitutes for CAD engines for

Windows-based personal computers. CAD engines for Unix-based computers,

the only theoretical alternative, are inadequate substitutes because of

the higher costs to acquire the hardware and software and higher costs

to maintain and service.

The Commission's proposed complaint further alleges that Autodesk

is the dominant provider of Windows-based CAD engines, accounting for

nearly 70% of the installed base, and alleges that the relevant U.S. or

world market for Windows-based CAD engines is highly concentrated.

The complaint further alleges that de novo entry or fringe

expansion into the relevant market sufficient to deter or defeat

reductions in competition resulting from Autodesk's acquisition of

Softdesk and the IntelliCADD technology would not be timely or likely.

According to the proposed complaint, developing a CAD engine would

require an expenditure of substantial sunk costs and would be time-

consuming. The large installed base of AutoCAD users necessitates that

any new CAD engine developed and offered in the market offer file

compatibility and transferability to AutoCAD in order to gain sales.

Users of AutoCAD have a large number of drawings in the AutoCAD format.

Moreover, many users must share files they create with others who must

be able to read and edit those files using their CAD software. Since

most engineers use AutoCAD, any alternative CAD engine must have the

capability to read and be compatible with AutoCAD files without losing

substantial amounts of data or information.

According to the complaint, Softdesk's IntelliCADD product was

being developed to compete directly with and to replace AutoCAD as a

pc-based CAD engine. IntelliCADD was in the final stages of testing and

was within months of introduction to the market when the current

proposal by Autodesk to acquire Softdesk was announced. The IntelliCADD

product, if brought to market, would have provided direct and

significant competition to Autodesk in that it offered file

compatibility and file transferability with AutoCAD, a feature that

other pc-based CAD engines currently in the market do not offer.

Furthermore, the Commission's complaint also alleges that some

customers have already altered their buying decisions in anticipation

of the introduction of IntelliCADD by delaying or postponing purchasing

AutoCAD.

After being advised by Commission staff of these competitive

concerns, Softdesk sold and transferred all of its rights and title to

the IntelliCADD product to Boomerang Technology, Inc. (``Boomerang'')

on February 21, 1997. Boomerang is a company created and owned by the

developer of the IntelliCADD product, a former Softdesk employee.

Boomerang now has full rights and title to the IntelliCADD product and

has assigned its rights to Visio Corporation (``Visio''). As a result,

the IntelliCADD product is now under the control of an entity

independent of Autodesk and Softdesk, which is free to fully develop

and market the IntelliCADD product.

The proposed complaint alleges that the acquisition by Autodesk of

the IntelliCADD product would have substantially lessened competition

by, among other things, eliminating actual and potential competition to

Autodesk's AutoCAD product, likely resulting in continued high prices

for CAD engines.

The Proposed Consent Agreement

The proposed Order accepted for public comment contains provisions

that would prohibit either Autodesk or Softdesk from re-acquiring the

IntelliCADD product, or any entity that owns or controls the

IntelliCADD technology, without prior notice to the Commission for a

period of ten (10) years. The purpose of this prohibition is to ensure

the continued development and sale of the IntelliCADD product to

compete with the merged Autodesk/Softdesk, to ensure that the

IntelliCADD product remains in the hands of an independent competitor

in the development and sale of CAD engines for Windows-based personal

computers, and to remedy the lessening of competition as alleged in the

Commission's complaint.

The proposed order would also prohibit Autodesk or Softdesk from

enforcing any non-compete or confidentiality agreements against any

former employees of Softdesk whose primary responsibility was the

development of the IntelliCADD product that may now or in the future be

an employee of Boomerang or its assigns. The purpose of these

provisions is to ensure that Boomerang or its assigns remain a viable

competitor to Autodesk and Softdesk in the development and sale of the

IntelliCADD product, thereby fostering a competitive environment for

the sale of CAD engines for Windows-based personal computers.

Pending final issuance of this proposed order, Autodesk and

Softdesk have also entered into an Interim Agreement whereby they have

agreed to be bound to the provisions and terms of the proposed Order

pending and until final issuance by the Commission.

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

aspects of the proposed Order. This analysis is not intended to

constitute an official interpretation of the Agreement or the proposed

Order or in any way to modify the terms of the Agreement or the

proposed Order.

Donald S. Clark,

Secretary.

[FR Doc. 97-8940 Filed 4-7-97; 8:45 am]

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