United States v. General Electric Company; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. General Electric Company; Proposed Final

Judgment and Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. 16(b) through (h), that a proposed Final

Judgment, Stipulation, and Competitive Impact Statement have been filed

with the United States District Court for the District of Montana,

Missoula Division, in United States v. General Electric Company, Civil

Action No. 96-121-M-CCL. Copies of the Complaint, proposed Final

Judgment, and Competitive Impact Statement are available for inspection

at the Department of Justice in Washington, DC, in Room 300, 325

Seventh Street, NW., and at the Office of the Clerk of the United

States District Court for the District of Montana, 301 South Park, Room

542, Helena, MT 59626.

The Complaint in this case, filed in August 1996, alleged that

General Electric had entered into agreements that violated Sections 1

and 2 of the Sherman Act, 15 U.S.C. 1 and 2, with hospitals in the

United States. The District Court dismissed the government's Section 2

claims, leaving for adjudication whether GE's agreements, by

restraining trade, had violated Section 1. The challenged agreements

were part of license agreements between GE and the hospitals in which

the hospitals agreed, as a condition for obtaining a license for GE's

advanced diagnostic materials for the servicing of their GE imaging

equipment (such as MRIs, CT scanners, x-ray machines, etc.), that they

would not compete with GE in servicing medical equipment for others.

The proposed Final Judgment enjoins GE from restraining, in

connection with such licenses, a licensee's right to service medical

equipment for third parties. Section IV(B) of the Final Judgment

prohibits GE from requiring

[[Page 40738]]

that a potential licensee give GE information regarding that person's

practice with regard to the provision of third-party service. Section

IV(C) enjoins GE from representing that GE has a policy or general

practice of refusing to license operating or service materials for

medical equipment, or of refusing to provide training thereon, because

an end-user offers third-party medical equipment service. Section IV(D)

prohibits GE from offering to sell or license operating or service

materials on terms that vary depending on whether the end-user has

provided, does provide, or will provide third-party medical equipment

service. Public comment is invited within 60 days of the date of this

notice. Such comments, and responses thereto, will be published in the

Federal Register and filed with the Court. Comments should be directed

to Mary Jean Moltenbrey, Chief, Civil Task Force, Antitrust Division,

Department of Justice, Suite 300, 325 7th Street, NW., Washington, DC

20530 (telephone: 202/616-5935).

Rebecca P. Dick,

Director of Civil Non-Merger Enforcement, Antitrust Division.

Stipulation and Order

Cause No. CV-96-121-M-CCL

The undersigned parties, by their respective attorneys, stipulate

that:

1. The Court has jurisdiction over the subject matter of this

action and over each of the parties, and venue of this action is proper

in the Missoula Division of the District of Montana.

2. The Court may enter and file a Final Judgment in the form

attached upon the motion of any party or upon the Court's own motion at

any time after compliance with the Antitrust Procedures and Penalties

Act (15 U.S.C. 16(b)-(h)), and without further notice to any party or

other proceedings, provided that the United States has not withdrawn

its consent, which it may do at any time before the entry of the

proposed Final Judgment by serving notice on the defendant and by

filing that notice with the Court.

3. The defendant agrees to comply with the proposed Final Judgment

pending its approval of the Court, and shall, from the date of signing

this Stipulation, comply with all the terms and provisions of the

proposed Final Judgment as though it were in full force and effect as

an order of the Court.

4. If the United States withdraws its consent, then the parties are

released from all further obligations under this Stipulation, and the

making of this Stipulation shall be without prejudice to any party in

this or any other proceeding.

5. The parties request that the Court acknowledge the terms of this

Stipulation by entering the Order in this Stipulation and Order.

Dated: ____________

Respectfully submitted,

For Plaintiff United States of America:

Joel I. Klein,

Assistant Attorney General.

A. Douglas Melamed,

Principal Deputy Assistant Attorney General.

John M. Nannes,

Deputy Assistant Attorney General.

Rebecca P. Dick,

Director of Civil Non-Merger Enforcement.

Mary Jean Moltenbrey,

Chief, Civil Task Force.

Susan L. Edelheit,

Assistant Chief, Civil Task Force.

Sherry Scheel Matteucci,

United States Attorney, District of Montana, P.O. Box 1478, Billings,

MT 59103, (406) 657-6101.

Fred E. Haynes,

John R. Read,

Jon. B. Jacobs,

Joan H. Hogan,

Peter J. Mucchetti,

Attorneys for the United States, Antitrust Division, United States

Department of Justice, 325 Seventh Street, N.W., Suite 300, Washington,

DC 20530, (202) 514-5038.

Bernard M. Hollander,

Senior Trial Attorney.

For Defendant General Electric Company:

Richard L. Rosen,

David S. Eggert,

Kathleen A. Behan,

Arnold & Porter, 555 12th Street, N.W., Washington, DC 20004,

Dan K. Webb,

W. Gordon Dobie,

Winston & Strawn, 35 West Wacker Drive, Chicago, IL 60601,

Randy J. Cox,

Boone, Karlberg & Haddon, 300 Central Square, 201 West Main, P.O. Box

9199, Missoula, MT 59807.

So Ordered on this ____ day of ____________,

1998.______________________________

Hon. Charles C. Lovell,

United States District Judge.

Competitive Impact Statement

This Competitive Impact Statement (``CIS'') sets forth the

information necessary to enable the Court and the public to evaluate

the proposed consent judgment that the parties have filed in this case,

a Final Judgment that would terminate the litigation. The CIS, which

explains why the proposed Judgment is in the public interest, is filed

pursuant to the requirements of the Antitrust Procedures and Penalties

Act of 1974 (``APPA''), 15 U.S.C. 16. The APPA subjects proposed

consent judgments in government antitrust cases to public scrutiny and

comment, after which the Court may enter the judgment if it finds that

it is in the public interest.

I.

Nature and Purpose of the Proceedings

The United States filed the Complaint in this civil antitrust suit

on August 1, 1996. The Complaint alleged that GE has entered into

agreements with hospitals in the United States that illegally

restrained trade in violation of Section 1 of the Sherman Act, 15

U.S.C. 1, and that constituted a combination to monopolize in violation

of Section 2 of that act, 15 U.S.C. 2. The agreements alleged to be

illegal are provisions of license agreements under which the hospitals

have been granted the right to use specialized diagnostic software and

other tools and manuals developed by GE (``advanced service

materials'') on the GE medical imaging equipment owned by the

hospitals. The advanced service materials enable service personnel to

more quickly calibrate and repair the GE medical imaging equipment.

Under the agreements challenged in this case, the licensee hospitals

agreed not to compete with GE in the servicing of any medical imaging

equipment or medical equipment, in exchange for the right to use the

valuable advanced service materials.

GE is the world's leading manufacturer of medical imaging equipment

(such as magnetic resonance imagers, computed tomography scanners, and

x-ray machines) and is the leading servicer of such machines in the

United States. Hospitals with in-house service capabilities are actual

or potential competitors of GE in the servicing of medical imaging

equipment and other medical equipment. The agreements harmed

competition by foreclosing actual and potential competition from

offering service. To remedy the competitive harm done by the illegal

agreements, the Complaint asks the Court to declare the agreements to

be unlawful and to enter an injunction barring GE from enforcing or

renewing the illegal agreements.

The government and GE have reached a proposed settlement that

eliminates the need for a trial in this case. The settlement terms are

found in the parties' proposed Final Judgment. The parties have

stipulated that the Court may enter this Judgment after compliance with

the APPA, unless the government first withdraws its consent. The

Court's entry of the Judgment will terminate this civil action against

GE,

[[Page 40739]]

except that the Court will retain jurisdiction over any future

proceedings to construe, modify, or enforce the judgment, or to punish

violations of its provisions. Entry of the Judgment would not

constitute evidence against, or an admission by, any party with respect

to any issue of fact or law involved in the case and is conditioned

upon the Court's finding that its entry is in the public interest, as

provided by Section 2(e) of the APPA, 15 U.S.C. 16(e).

II.

Description of the Practices Giving Rise to the Alleged Violations

of the Antitrust Laws

GE sells a wide variety of medical imaging equipment. Hospitals,

clinics, and doctors use such equipment to create images of the body's

internal structure. Complaint at para. 4. Such equipment is essential

to the diagnosis of numerous injuries and illnesses. Id, at para. 16.

Imaging equipment, like other medical equipment, requires regular,

high-quality service. Such service ensures that the equipment functions

accurately and reliably. Id. atpara. 1. Some hospitals employ and

retain service engineers ``in house'' to service the hospital's medical

equipment. Id. at Paras. 3, 22. Other hospitals hire outside parties

such as GE to service their imaging equipment. GE services many types

of medical equipment, including equipment manufactured by other

companies. Id. at para. 20.

GE has developed advanced service materials that enable service

engineers to service certain GE imaging equipment much more quickly

than otherwise possible. Id. at para. 27. GE makes the advanced service

materials available to hospitals with in-house service groups. Such

hospitals may be actual or potential competitors to GE in servicing

other health care providers' medical equipment. Id. at Paras. 3, 23,

31.

To gain access to GE's advanced service materials, however,

hospitals licensing GE's advanced service materials have had to agree

not to compete with GE in servicing third-parties' medical imaging

equipment or other medical equipment. The specific terms of this

agreement changed somewhat over time. The 1988 to 1992 version of the

license agreement for the advanced service materials restricted the

hospital licensee from servicing any other person's medical imaging

equipment; the 1992 to 1996 version was broader, restricting the

licensee from servicing any other person's medical equipment (which

would include non-imaging medical equipment); and the 1996 to present

version--adopted in the face of the government's investigation--is

narrower, restricting the licensee from servicing any other person's GE

diagnostic imaging equipment that is of the same type (i.e., modality)

as the model(s) for which the hospital has licensed advanced service

materials from GE. More than 500 potentially competing hospitals have

agreed to these restrictions. Id. at Paras. 32, 33, 35.

The non-compete agreements are not ancillary to any legitimate

business interest that GE had in licensing advanced service materials

particularly since they were not reasonably necessary to prevent the

hospitals from using the advanced service materials on third-party

equipment, in a manner not authorized by the license agreements. As a

result of software security procedures adopted by GE, the advanced

service materials will only work on the specific GE machine to which

the license agreement relates. Furthermore, the advanced service

materials are model specific, i.e., the advanced service materials for

one model of GE imaging equipment cannot be used on another model, even

if the two models are of the same ``modality'' (e.g., if both are GE CT

scanners), and cannot be used on other manufacturers' equipment. Id. at

para. 30. Given the machine and model-specific nature of the software,

the restrictions imposed by the license agreements on third-party

service are unrelated to any legitimate interest GE has in preventing

the unauthorized use of its software. Id. at para. 8.

By exacting a commitment from hospitals not to provide any outside

service in competition with GE in exchange for the advanced service

materials, the complaint alleged that GE has harmed competition for the

service of medical equipment. Id. at Paras. 38-41. Hospitals have been

forced to abandon their efforts to provide medical equipment service to

other nearby health care facilities, id. at Paras. 31, 39, and other

hospitals have, consequently, paid supra-competitive prices for

equipment service and purchased less service than they otherwise would

have paid. Id. at Paras. 40, 43.

GE's license restrictions have also reduced competition in the sale

of medical imaging equipment. Health care facilities need prompt and

affordable repairs for their imaging equipment. Because of the cost and

delays of travel, proximity to a service provider is an important

consideration when a hospital is considering the purchase of medical

imaging equipment. Hospitals are reluctant to purchase a piece of

imaging equipment unless someone near their facility can service it.

Id. at Paras. 17, 19.

Because manufacturers cannot economically place their own service

engineers in areas where they do not have a large installed base, they

need someone else in those areas who is qualified to service their

equipment. Id. at para. 19. Hospitals with in-house service departments

could provide such service for a given manufacturer's equipment. Id. at

Paras. 3, 39. But, because GE exacted agreements from hospitals not to

provide third-party service, the complaint alleged that GE has

disadvantaged its equipment manufacturing competitors. Id. at para. 44.

As a result, GE has restrained health care facilities in Montana and

similar areas from purchasing imaging equipment from manufacturers

other than GE, even though the equipment may have better suited the

facilities' needs. Id. at Paras. 42, 45.

In addition to alleging that GE's license agreements violated

Section 1 for the reasons set forth above, the complaint alleged that

the license agreements for advanced service materials between GE and

the hospitals constituted a combination between GE and the hospitals

that had the specific intent of excluding competition in violation of

Section 2 of the Sherman Act. Id. at para. 47. Shortly after the

complaint was filed, GE moved to dismiss both the Section 1 and Section

2 claims. The Court denied GE's motion as to the government's Section 1

claims; however, the Court dismissed the Section 2 claims because the

complaint did not allege that the hospitals shared GE's intent to

monopolize the service markets for medical equipment. Thus, only the

Section 1 claims remain in the case. The proposed settlement resolves

those claims.

III.

Explanation of the Proposed Consent Judgment

The proposed Final Judgment sets forth the conduct that GE is

prohibited from engaging in, certain conduct that GE may engage in

without violating the Judgment, the compliance program that GE must

follow, and the procedures available to the government to determine and

secure compliance with the Final Judgment.

A. Prohibited Conduct

Section IV(a) of the Final Judgment prohibits GE from entering into

or enforcing any agreement in conjunction with the licensing of

advanced service materials or related training whereby (a) the end-user

represents that it has not,

[[Page 40740]]

does not, or will not perform third-party medical equipment service or

(b) the end-user is prevented or restrained from providing third-party

service. The Judgment defines third-party service to mean the service

of any medical equipment in the United States not owned, leased, or

operated by the party performing the service. Section IV(B) prohibits

GE from requiring that a potential licensee give GE information

regarding that person's current or prospective practice with regard to

the provision of third-party service. Section IV(C) enjoins GE from

stating publicly or to any end-user of medical equipment that GE has a

policy or general practice of refusing to license advanced service

materials for medical equipment, or of refusing to provide training

thereon, because an end-user offers third-party medical equipment

service. Section IV(D) prohibits GE from offering to sell or license

advanced service materials to end-user of medical equipment on terms

that vary depending on whether the end-user has provided, does provide,

or will provide third-party medical equipment service.

B. Limiting Conditions

Section V of the Final Judgment sets forth certain conduct that the

Judgment does not prohibit. Section V clarifies that the Judgment does

not prohibit GE from refusing to license its advanced service materials

to independent service organizations or to any other person who is not

an end-user of GE medical equipment. The Final Judgment also does not

limit GE's pricing discretion as long as its pricing does not otherwise

violate the Judgment. Section V also makes clear that the Final

Judgment does not prohibit GE from using site-specific or equipment-

specific licensing of its advanced service materials or from limiting

the use of the licensed materials to an end-user's full-time employees.

The Final Judgment also does not prohibit GE from implementing security

procedures intended to prevent the misappropriation or unauthorized use

of its advanced service materials.

The limiting conditions are consistent with the relief sought in

the Complaint. The Complaint alleged that GE has used its advanced

service materials to induce hospitals with in-house service capability

to agree not to compete with GE in the servicing of medical equipment.

The Complaint did not allege that GE's refusal to license its

intellectual property to any or all persons who might seek such

licenses violated the antitrust laws, and the Final Judgment is silent

as to that conduct.

C. Defendant's Compliance Program

Section VI of the proposed Final Judgment requires GE to distribute

copies of the Judgment to certain employees and to provide notice of

the change in its licensing policy to the licensees of its advanced

service materials. Within seventy-five (75) days of its entry, GE must

certify that it has distributed all such materials. Finally, under

Section VIII of the proposed Final Judgment, GE will make its records

and personnel available to the Justice Department upon reasonable

notice in order to determine or secure its compliance with the

Judgment.

D. Scope of the Proposed Final Judgment

The proposed Final Judgment expressly provides in Section II that

its provisions apply to GE, its officers, directors, agents, employees,

successors, and assigns, and to all other persons in active concert or

participation with any of them who have received actual notice of the

terms of the Judgment. Section IX provides that the proposed Final

Judgment will expire on the tenth anniversary of its entry.

E. Effect of the Proposed Final Judgment on Competition

Health care providers in the United States spend more than $3

billion a year for medical equipment service. The Department's lawsuit

sought to ensure access for these consumers to a wider choice of

medical-equipment service providers across the country by preventing GE

from using its advanced service materials to induce hospitals to agree

not to compete with GE in the provision of third-party service on

medical equipment. The proposed Final Judgment achieves this goal. It

should enable some hospitals with in-house service capability to

initiate or expand third-party service to other users of medical

equipment, thereby increasing actual and potential competition in the

markets for medical equipment service.

Entry of the Judgment should also increase the number of local

service providers that are available to act as service providers for

medical equipment manufacturers who lack a sufficient installed base in

an area to support one of their own field service engineers. By making

such manufacturer's equipment more competitive from a service

perspective, the Judgment should lead to increased competition among

manufacturers of medical equipment to the benefit of purchasers of such

equipment.

IV.

Remedies Available to Potential Private Plaintiffs

After entry to the proposed Final Judgment, any person who has been

harmed by the alleged violation will retain the same right to sue for

monetary damages and any other legal and equitable remedies that such

person had before its entry. A person may not use the Judgment,

however, as prima facie evidence in any subsequent private litigation,

pursuant to Section 5(a) of the Clayton Act, 15 U.S.C. 16(a).

V.

Procedures Available for Modification of the Proposed Judgment

The parties have stipulated that the Court may enter the proposed

Final Judgment after compliance with the APPA, provided that the United

States has not withdrawn its consent. The APPA conditions that entry

upon the Court's finding that the proposed Final Judgment is in the

public interest. 15 U.S.C. 16(e). Any person who wishes to comment on

the proposed Judgment may, for a sixty-day period subsequent to the

publishing of this document in the Federal Register, submit written

comments. All such comments must be addressed to the United States

Department of Justice, Antitrust Division, Attention: Ms. Mary Jean

Moltenbrey, 325 Seventh Street, N.W., Suite 300, Washington, D.C.

20530. The government will evaluate all comments submitted to determine

whether any reason exists for the withdrawal of its consent to the

proposed Final Judgment. The government will file any such comments and

its response to them with the Court and also publish them in the

Federal Register.

The proposed Final Judgment provides that the Court will retain

jurisdiction over this action in order to permit any of the parties to

apply for such orders as may be necessary or appropriate to construe or

modify the judgment, to enforce compliance with it, or to punish any

violations of its provisions.

VI.

Alternative to the Proposed Judgment

The government's alternative to the proposed final judgment is a

trial on the merits. Because the government considers the final

judgment to remedy fully the anticompetitive effects of GE's

agreements, not to compete, it does not believe that a trial would

result in any further relief.

[[Page 40741]]

VII.

Standard of Review Under the APPA for the Proposed Final Judgment

The APPA requires that proposed consent judgments in antitrust

cases brought by the government be subject to a sixty-day comment

period, after which the Court determines whether entry of the proposed

Final Judgment ``is in the public interest.'' In making this

determination, the Court may consider:

(1) the competitive impact of the judgment, including termination of

alleged violations, provisions for enforcement and modification,

duration or relief sought, anticipated effects of alternative

remedies actually considered, and any other considerations bearing

upon the adequacy of the judgment;

(2) the impact of entry of the judgment upon the public generally

and upon individuals alleging specific injury from the violations

set forth in the complaint including consideration of the public

benefit, if any, to be derived from a determination of the issues at

trial.

15 U.S.C. 16(e).

The Court of Appeals for the D.C. Circuit has held that the APPA

permits a court to consider, among other things, the relationship

between the remedy secured and the specific allegations set forth in

the government's complaint, whether the decree is sufficiently clear,

whether enforcement mechanisms are sufficient, and whether the decree

may positively harm third parties. See United States v. Microsoft, 56

F.3d 1448, 1461-62 (D.C. Cir. 1995). In conducting this inquiry,

``[t]he Court is no where compelled to go to trial or to engage in

extended proceedings which might have the effect of vitiating the

benefits of prompt and less costly settlement through the consent

decree process.'' 119 Cong. Rec. 24598 (1973); See United States v.

Gillette Co., 406 F. Sup. 713, 715 (D. Mass. 1975.) A ``public

interest'' determination can be made properly on the basis of the

competitive impact statement and the government's response to the

comments filed pursuant to the APPA. Although the APPA authorizes the

use of additional procedures, 15 U.S.C. 16(f), those procedures are

discretionary. A court need not invoke any of them unless it believes

that the comments have raised significant issues and that further

proceedings would aid the court in resolving those issues. See H.R.

Rep. 93-1463, 93rd Cong. 2d Sess. 8-9 (1974), reprinted in U.S.C.C.A.N.

6535, 6538.

The Court of Appeals for this Circuit has held that a district

court judge, in making the public interest determination, should not

engage ``in an unrestricted evaluation of what relief would best serve

the public.'' Rather

[t]he balancing of competing social and political interests affected by

a proposed antitrust consent decree must be left, in the first

instance, to the discretion of the Attorney General. See United States

v. National Broadcasting Co., 449 F. Supp. 1127 (C.D. Cal. 1978). The

court's role in protecting the public interest is one of insuring that

the government has not breached its duty to the public in consenting to

the decree. The court is required to determine not whether a particular

decree is the one that will best serve society, but whether the

settlement is ``within the reaches of the public interest.'' Id. At

1143 (quoting United States v. Gillette Co., 406 F.Supp. 713, 716 (D.

Mass. 1975)). More elaborate requirements might undermine the

effectiveness of antitrust enforcement by consent decree.

United States v. Bechtel Corporation, 648 F.2d 660, 666 (9th Cir.

1981).

The proposed Final Judgment, therefore, should not be reviewed

under a standard of whether it is certain to eliminate every

anticompetitve effect of a particular practice. Court approval of a

final judgment requires a standard more flexible and less strict than

the standard required for a finding of liability. ``[A] proposed decree

must be approved even if it falls short of the remedy the court would

impose on its own, as long as it falls within the range of

acceptability or is `within the reaches of public interest.' '' United

States v. American Tel. and Tel. Co., 552 F. Supp. 131, 151 (D.D.C.

1982), aff'd. sub. nom. Maryland v. United States, 460 U.S. 1001

(1983), (quoting Gillette Co., 406 F. Supp. at 716 (citations

omitted)); United States v. Alcan Aluminum, Ltd., 605 F. Supp. 619, 622

(W.D. Ky. 1985).

VIII.

Determinative Materials and Documents

The APPA requires that the government file with the Court any

documents that the government considers to have been determinative in

formulating the proposed Final Judgment. 15 U.S.C. 16(b); see

Massachusetts School of Law v. United States, 118 F.3d 776, 784-85

(D.C. Cir. 1997). The government considered no materials or documents

determinative in formulating the proposed Final Judgment. It therefore

files no such documents.

Date: July 13, 1998.

Antitrust Division, Department of Justice.

Fred E. Haynes

John R. Read

Jon B. Jacobs

Joan H. Hogan

Peter J. Mucchetti,

Civil Task Force, 325 Seventh Street, N.W., Suite 300, Washington, D.C.

20530, (202) 514-0230.

[FR Doc. 98-20394 Filed 7-29-98; 8:45 am]

BILLING CODE 4410-11-M