United States v. General Electric Company; Response to Public Comments

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. General Electric Company; Response to Public

Comments

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16(b) through (h), that a Public Comment

and the Response of the United States 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, Competitive

Impact Statement, Public Comment, and the Response of the United States

are available for inspection at the Department of Justice in

Washington, D.C., in Room 215, 325 Seventh Street, N.W., and the Office

of the Clerk of the United States District Court for the District of

Montana, 301 South Park, Room 542, Helena, Montana 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. Secs. 1 and 2, by requiring

hospitals that licensed certain diagnostic software from GE to agree

not to compete with GE in unrelated service markets. On July 14, 1998,

the United States filed a proposed Final Judgment and a Stipulation

signed by the parties allowing for entry of the Final Judgment

following compliance with the Tunney Act. The United States also filed

a Competitive Impact Statement (``CIS''), which it published, along

with the proposed Final Judgment, in the Federal Register. See 63 FR

40737 (1998).

The proposed Final Judgment enjoins GE from agreeing with any

licensee that the licensee will not service third-party medical

equipment, or from otherwise restraining the licensee from providing

third-party service as a condition of licensing certain advanced

service materials. The proposed Final Judgment also requires GE to

implement a compliance program, and provides procedures that the United

States may utilize to determine and secure GE's compliance.

Under the Tunney Act, interested parties have 60 days from the date

the proposed Final Judgment and CIS are published in the Federal

Register to submit to the United States any comments they have on the

Judgment. The 60-day period for public comments relating to this matter

expired on September 28, 1998. The United States received only one

Comment. The Comment and the Responses thereto, are hereby published in

the Federal Register and have been filed with the Court.

Rebecca P. Dick,

Director of Civil Non-Merger Enforcement, Antitrust Division.

Ronald S. Katz, Esq.,

General Counsel, ISNI, Coudert Brothers, 4 Embarcadero Center, Ste.

3300, San Francisco CA 94111, Telephone: 415-986-1300.

United States District Court for the District of Montana Missoula

Division

United States of America, Plaintiff, v. General Electric

Company, Defendant. CV 96-121-M-CCL, PUBLIC COMMENT OF INDEPENDENT

SERVICE NETWORK INTERNATIONAL PURSUANT TO 15 U.S.C. Sec. 16(b), (d).

Pursuant to 15 U.S.C. Sec. 16(b), (d), of the Antitrust Procedures

and Penalty Acts (``APPA'') Independent Service Network International

(``ISNI''), a trade association of 157 maintainers of high technology

equipment, including medical equipment of the type at issue in this

matter,\1\ submits this public comment to the Competitive Impact

Statement (``CIS'') published in the Federal Register at 63 FR 40737.

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\1\ InnoServ Technologies, Inc., which General Electric Medical

Systems (``GEMS'') is attempting to acquire, is a member of ISNI,

but, because of conflict of interest considerations, has not been

informed of or consulted about this public comment. Similarly, this

comment is not intended to express any views of Serviscope, an ISNI

member acquired by GEMS in August, 1998. See attached Declaration of

Claudia Betzner, para. 6.

The Innoserv conflict arises from another simultaneous consent

decree between the U.S. and General Electric, described in a CIS at

63 FR 39894. Although that CIS informs the D.C. District Court about

this consent decree, the CIS in this case, for reasons known only to

the parties, does not inform this Court about that consent decree.

That the two decrees are related is evidenced by the GEMS press

release on the consent decrees, which stated that GEMS settled this

suit in order ``to obtain clearance to complete the Innoserv

acquisition * * *'' See attached Declaration of Claudia Betzner,

Exhibit A.

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I. Introduction

This proposed consent decree grants GEMS the right to commit a per

se violation of the antitrust laws, i.e., to prohibit hospital service

organizations from licensing GEMS' advanced service materials unless

the hospital agrees that such service materials may not be used by

part-time employees. As will be detailed below, there is no

justification for such a limitation, which could well distort the

market, particularly in sparsely populated areas like Montana. Because

per see violations of the antitrust laws are by definition contrary to

public policy, it is not possible for the Court to make a determination

that this consent decree is in the public interest pursuant to Sec. (e)

of the APPA.

A public interest determination is particularly important in this

case because it involves the cost of healthcare, a subject important to

all Americans, and because GEMS has a high market share in the relevant

markets, which it has extended through recent aggressive transactions

unopposed by the Government. Therefore, pursuant to APPA Sec. (f) and

based on the showing detailed below, ISNI respectfully requests that

the Court not make a determination that this consent decree is in the

public interest. ISNI also respectfully requests that the Court

authorize ISNI to appear at any hearing that the court may convene in

order to determine whether this consent decree is in the public

interest.

II. ISNI and its Interest in this Proceeding

ISNI, an association of 157 independent service organizations

(``ISOs''), i.e., organizations servicing equipment manufactured by

others (see Betzner Decl., Exhibit B for a list of members), is a non-

profit corporation incorporated in the District of Columbia. In

competition with the Service organizations of manufacturers, the

members of ISNI service various types of high-technology equipment,

including medical equipment of the type that is the subject of the CIS.

ISNI's members account for over $1.5 billion in commerce.

The purpose of ISNI for the past fourteen years has been to promote

and maintain a closer union and organization of ISOs. Specifically ISNI

develops educational methods to increase awareness about ISOs and

studies economic and legal problems confronting them. ISNI also serves

as a clearing house for information and data relating to its members'

businesses and ISNI promotes better relations among providers,

distributors and manufacturers of supplies and services.

ISNI appears in Appendix C of the Pre-discovery Disclosure

Statement of the United States filed in this matter on May 16, 1997.

Page C-1 of that

[[Page 69668]]

document is headed ``List of individuals who may have relevant

information'' and number four under that heading reads

Individuals associated with industry associations * * * that

likely possess information pertaining to: (a) the prices of medical

equipment; (b) the functions of different types of medical

equipment; (c) regulations for imaging equipment; and/or (d) market

data, including trends in the medical equipment or service

industries. (See Appendix C-58 to C-60.)

The seventh name listed on page C-58 of that document is that of

Claudia Betzner, ISNI's Executive Director. Therefore, the Government

acknowledges that ISNI has relevant information related to the

proceeding.

ISNI has participated in various legal proceedings on behalf of its

members. For example, ISNI, then known as Computer Service Network

International, filed a friend-of-the-court brief which was cited by the

United States Supreme Court in its landmark antitrust decision

concerning service aftermarkets, Eastman Kodak Co. v. Image Technical

Services, Inc., et Al., 504 U.S. 451, 462 n.6 (1992). Also, pursuant to

the order of Chief Judge Thomas P. Griesa of the Southern District of

New York (Betzner Decl., Exhibit C), ISNI has been granted the right to

intervene for purposes of appeal in the proceeding concerning the

termination of the IBM consent decree, United States of America v.

International Business Machines Corporation, 52 CIV. 72-344 (TPG),

currently pending the U.S. Court of Appeals for the Second Circuit.

ISNI has filed a brief in that proceeding.

In his order, Judge Griesa found that ``ISNI has a legitimate

interest in appealing from the May ruling, and it is in the public

interest to allow ISNI to appeal'' (Id at 2). Similarly, it is in the

public interest for ISNI to intervene in this proceeding because, as a

result of GEMS' anticompetitive practices, a dwindling number of its

members compete with GEMS to service the equipment involved in this

case. The reasons that the number is dwindling are that GEMS has a

large market share; it has aggressively extended that market share

through the transactions described below, unopposed by the U.S.

government; and its advanced diagnostics are an essential facility

necessary to compete in the relevant markets. Now GEMS may further its

stranglehold on the service market by precluding, pursuant to the

Proposed Final Judgment, ISOs and hospital service organizations from

cooperating in certain ways, such as ISOs providing part-time employees

for hospital service organizations, serving as agents for hospital

service organizations, or joint-venturing with hospital service

organizations.

Such cooperation is particularly important in sparsely populated

areas like Montana, which may not have enough medical equipment of

various types to justify full-time employees. Like businesses

throughout history, hospital service organizations may find it most

efficient from time to time to employ part-time personnel, and,

depending on market conditions, it may be economic for an ISO to

provide such part-time personnel. The Proposed Final Judgment, however,

prevents this perfectly normal working of a free and open market.

The reasons that it is in the public interest for ISNI to intervene

in this matter are cogently set forth in the Government's complaint in

this matter. The complaint clearly targets GEMS' practice of

constraining competition from the hospital or its employees. For

example, paragraph 32 of the Complaint describes how under the

offending GEMS licensing agreement, ``* * * the hospitals also agreed

to prohibit their service employees from competing with G.E. during the

employees' business and off hours'' (emphasis added).

Paragraph 33 of the Complaint quotes a ``continuing

representation'' from the hospitals in GE's standard licensing

agreement: ``You [the hospital] have no full or part-time employee who

services any type of medical equipment of any person or entity other

than you'' (emphasis added). Paragraph 37 of the Complaint states that

to effectuate ``* * * its agreements not to compete, G.E. * * *

provided valuable advanced diagnostics and training in exchange for the

licensees' commitment that neither the licensees nor their employees

would compete with G.E. in servicing medical equipment or provide

service for medical equipment sold to other health care facilities by

GE's competitors; and * * * to enforce the agreements not to compete

when it discovered that licensees or their employees were servicing

other health care providers' medical equipment'' (emphasis added).

These agreements against hospitals and their employees resulted in

the following ``Harm to Competition'' described in the Complaint:

38. GE's agreements with its licensees have eliminated

significant actual or potential high-quality, low-cost competitors

throughout the United States from numerous markets for servicing

medical equipment.

* * * * *

40. Throughout the United States, health care providers that use

imaging equipment have been forced to pay supra-competitive prices

to have their equipment serviced.

41. Medical equipment owners and operators, and their patients,

have been denied the benefits of free and open competition in the

servicing of medical equipment in Montana and throughout the United

States.

42. Medical equipment owners and operators, and their patients,

have been denied the benefits of free and open competition in the

sale of medical equipment in Montana and throughout the United

States.

43. Less service has been purchased by medical equipment owners

and operators than would have been purchased in the absence of GE's

restraints.

44. By preventing hospitals with in-house service organizations

from servicing other manufacturers' equipment, GE's agreements have

made it more costly and difficult for those manufacturers to sell

their imaging equipment in areas where they lack a significant

installed base.

45. GE's agreements with its licensees in Montana have

disadvantaged many of GE's competitors in selling imaging equipment

in Montana and have reduced customer choice.

Despite these pernicious effects, the government has agreed in

Sec. V(g) of the Proposed Final Judgment in this matter that GE is not

prohibited ``* * * from agreeing with a licensee of Defendant's

Operating and Service Materials that such materials may be used only by

the Licensee's full-time employees.'' As will be detailed below, there

is no justification whatsoever for this agreement, which distorts the

workings of free and open competition. It is a per se violation of the

antitrust laws, which by definition is not in the public interest and

should not be countenanced by this Court.

III. GEMS' Monopoly and its Successful Efforts to Maintain and

Extend it

According to its own press release, ``E.G. Medical Systems, based

in Milwaukee, WIS., is a $4.5 billion global provider of medical

diagnostic imaging systems, services and solutions with 16,000

employees worldwide.'' (Betzner Decl., Exhibit A.) According to the

Complaint in this matter, ``health care providers spend over three

billion dollars each year to service and repair all types of medical

equipment'' (para. 1), ``GE is the world's largest manufacturer of

imaging equipment'' (para. 4), and GE's licensing agreements with

hospitals ``* * * reduced competition in servicing medical equipment''

(para. 5).

Furthermore, GEMS has extended and maintained its market power by a

number of recent aggressive transactions unopposed by the U.S.

government:

August, 1994: strategic alliance with Advanced NMR

Systems, Inc.

[[Page 69669]]

regarding very high field magnetic resonance systems. (Betzner Decl.,

Exhibit D.)

June, 1995: five-year agreement with Columbia/HCA

Healthcare Corp. covering the service of all diagnostic imaging

equipment in the hospital chain, which at that time consisted of 320

hospitals. (Id., Exhibit E.)

February, 1996: acquisition of National Medical

Diagnostics, Inc., which at the time of acquisition provided medical

equipment maintenance services to 220 hospitals in 23 states. (Id.,

Exhibit F.)

August, 1996: acquisition of Specialty Underwriters, a

seller of maintenance insurance to the healthcare industry, and

Maintenance Management, which provides service for medical equipment.

(Id., Exhibit G.)

August, 1997: investment of $5.1 million in Advanced NMR

Systems, Inc., an extension of the August 1994 alliance described

above. (Id., Exhibit H.)

December, 1997: five-year marketing pact with INPHACT, a

provider of on-line radiology services for radiologists. (Id., Exhibit

I.)

August 1998: acquired Serviscope, a medical equipment

maintenance and asset management company that was one of the few

potential candidates to compete with GEMS to acquire Innoserv. (Id. at

para 6.)

September, 1998: pending acquisition of imaging business

of Elscint (Id., Exhibit J).

With each of these transactions, GEMS got stronger both absolutely

and also relative to its much smaller hospital and ISO competitors. For

GEMS to dictate when these hospital competitors can use part-time

employees distorts free and open competition and has no justification

whatsoever.

IV. Non-Compliance With The APPA

A. The CIS Does Not Provide the Required Information on the

Restrictions on Part-time Employees

Sec. (b)(3) of the APPA requires the CIS to recite ``an explanation

of the proposal for a consent judgment, including an explanation of * *

* relief to be obtained thereby, and the anticipated effects on

competition of such relief.'' The information required by Sec. (b) has

not been provided with respect to the part-time employee issue. Indeed,

no information has been provided explaining or justifying GE's ability

to restrict hospital competitors from using part-time employees. The

reason for this lack of information is that there is no justification

for this distortion of free and open competition, a fact which prevents

this Court from determining that this Proposed Final Judgment is in the

public interest.

Speaking about this case, the InnoServ CIS, 63 FR 39894, 39899,

states that ``GE * * * agreed to all of the relief that the Government

was seeking. * * *'' That is simply not true. Paragraph 3 of the Prayer

for Relief in the Complaint reads as follows:

That GE, its officers, directors, agents, employees,

subsidiaries, and successors, and all other persons acting or

claiming to act on its behalf, be permanently enjoined, restrained

and prohibited from, in any manner, directly or indirectly,

continuing, enforcing, or renewing these agreements, or from

engaging in any other confirmation, conspiracy, agreement,

understanding, plan, program, or other arrangement limiting

competition in the service of medical equipment, except for

reasonable limitations on the use of copyrighted software and

manuals themselves. Clearly the unjustified limitation on the use of

part-time employees by hospital service organizations is contrary to

this prayer for relief because (1) that limitation is part of the

enjoined agreement and (2) that limitation is an arrangement

``limiting competition in the service of medical equipment.'' Id.

B. The Proposed Final Judgment Is Not In the Public Interest

APPA Sec. (e) requires this court to determine that the entry of

judgment is in the public interest by considering among other things,

``the competitive impact of such judgment.'' Because of the part-time

employee prohibition, the competitive impact of this judgment would be

negative.

This Court can take judicial notice that since time immemorial

employers have been using part-time employees to adjust to market

conditions. The flexibility to use part-time employees is critical to

being competitive: if one hires a full-time employee when only a part-

time employee is needed, then one's costs are too high; if one does not

hire a part-time employee when there is sufficient work for such an

employee, then one's production is insufficient.

The need for part-time employees is particularly acute in sparsely

populated areas like Montana. The CIS itself acknowledges this fact by

acknowledging at page 40739 that (1) ``[h]ospitals are reluctant to

purchase a piece of imaging equipment unless someone near their

facility can service it'' and (2) ``[b]ecause manufacturers cannot

economically place their own service engineers in areas [like Montana]

where they do not have a large installed base, they need someone else

in those areas who is qualified to service their equipment.'' Because

the installed base is not large, that ``someone else'' may well be a

part-time employee, especially in the critical early stages of the

creation of an installed base of equipment.

An obvious source of part-time employees for a hospital service

organization is a local ISO. Because the ISO might not have enough for

its employees to do in a sparsely populated area, it could be economic

for the ISO to provide such an employee or to enter into other mutually

advantageous relationships with a hospital service organization. Such

relationships could include becoming the service agent for the hospital

service organization or joint venturing with a hospital service

organization. Under Sec. 5(g) of the Proposed Final Judgment, however,

GEMS could choose not to license advanced service materials to such a

hospital solely because a part-time employee may be using GE's advanced

service materials.

There is absolutely no justification for this distortion of free

and open competition. The only possible justification--security of the

advanced service materials--is debunked by the CIS itself at page

40739:

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 hospital 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 * * * 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.

Obviously the same security that prevents hospitals from unauthorized

use of the advanced software materials would also prevent such use by

part-time employees of the hospitals.

This fact makes the agreement allowed by the Proposed Final

Judgment--i.e., a license agreement between GE and a hospital

prohibiting the hospital from allowing part-time employees to use GE's

advanced service materials--a non-ancillary agreement to allocate

territories or customers.

Indeed, it is just a potentially milder version of the agreement on

which the

[[Page 69670]]

Government brought suit. That agreement was that hospitals could not

compete with G.E. for service customers if the hospitals wanted GEMS'

advanced service materials for their own use. The new agreement is that

hospitals using part-time employees cannot compete with G.E. for

service customers if the hospitals want GEMS' advanced service

materials for the hospitals' own use. Such agreements are illegal per

se, as the United States demonstrates at Appendix B-1 of its Pre-

Discovery Disclosure Statement filed with this Court on May 16, 1997:

Non-ancillary agreements between actual or potential competitors

to allocate territories or customers are illegal per se because they

are ``naked restraints of trade with no purpose except stifling of

competition.'' Palmer v. BRG of Georgia, 498 U.S. 46, 49-50 (1990).

Such agreements are anticompetitive regardless of whether the

parties split a market within which both do business or whether they

merely reserve one market for one and another for the other. Id. An

agreement not to compete in terms of price or output, without some

pro-competitive justification, is simply `inconsistent with the

Sherman Act's command that price and supply be responsive to

consumer preference. National Collegiate Athletic Association v.

Board of Regents of the University of Oklahoma, 468 U.S. 85, 109-

10(1984). Moreover, `the existence of a vertical aspect to the

relationship between [GE and its hospital licensees] does not

foreclose per se treatment of agreements to eliminate competition

between them.' United States v. General Electric Co. (Order of March

18, 1997), 1997-1 CCH Trade Cases, at 71,765, pp. 79,408-409 (citing

Palmer) * * * (emphasis added).

The underscored references to output and supply mentioned above relate

directly to the employment of part-time employees, a factor which

effects output/supply.

This Court has also recognized the per se nature of the challenged

agreements at page five of its March 18, 1997 slip opinion in this

matter:

While it is true that restraints which are ancillary to a

legitimate transaction are exempt from the per se rule, the

government has alleged in the complaint that the agreements not to

compete are not ancillary restraints * * * Of course, GE may offer

evidence to refute the allegation later in this litigation, but for

now the allegation is sufficient to withstand the motion to dismiss.

Not only did GE not refute this allegation, but also the CIS now

acknowledges at page 40739 that ``* * * [t]he non-compete agreements

are not ancillary to any legitimate business interest that GE had in

licensing advanced service materials * * *''

Therefore, these agreements, with their totally unjustified

prohibition on part-time employees, are still per se violations of the

antitrust laws. As such, this Court should not determine that a consent

decree that permits them is in the public interest because the Supreme

Court has already determined that such agreements are ``naked

restraints of trade with no purpose except stifling of competition.''

Palmer, 498 U.S. at 49-50.

C. The CIS Asserts, Incredibly, That There Were No Materials Which the

United States Considered Determinative in Formulating the Consent

Decree

APPA Sec. (b) requires the United States to publish with the CIS

``* * * any other materials and documents which the United States

considered determinative in formulating such proposal * * *'' The CIS

at 40741 states, incredibly, that ``The government considered no

materials or documents determinative in formulating the proposed Final

Judgment.''

This Court can take judicial notice that antitrust cases are among

the most complex, document-intensive cases in the Federal Courts. This

Court should respond in the same way as another District Court Judge

responded to the same incredible claim: with incredulity and with an

order to produce documents required by law. U.S. v. Central Contracting

Co., Inc., 537 F. Supp. 571, 575, 577 (E.D.Va. 1982):

The Act [APPA] clearly does not require a full airing of Justice

Department files, but the Court cannot countenance plaintiff's claim

that though Congress enacted sunshine legislation the courts may

blandly (and blindly) accept government certification in case after

case that no document or materials, by themselves or in the

aggregate, led to a determination by the government that it should

enter into a consent decree * * *

* * * * *

This does not require full disclosure of Justice Department

files . . . or defendant's files, but it does require a good faith

review of all pertinent documents and materials and a disclosure of

those which meet the above [APPA] criterium.

Although no entity but the Government can know what these documents

are, they should include at least the documents, if any, which led the

Government to conclude that it was reasonable to permit GE to distort

free and open competition by having the ability to limit its

competitors from having part-time employees. These documents or

documents like them must exist or else there is no reasoned basis for

the consent decree. If they do not exist, then the Antitrust Division

is not acting in a professional, competent manner.

V. This Court Should Authorize ISNI to Participate in any Public

Interest Hearing That the Court May Convene

APPA Sec. (f) authorizes this Court to ``authorize full or limited

participation in proceedings before the court by interested persons or

agencies, including . . . intervention as a party pursuant to the

Federal Rules of Civil Procedure . . .'' The defects of the CIS

described above amply justify such an authorization.

As mentioned in Sec. II above, the ISNI has the interest, expertise

and the experience to aid the Court. At the very least, the Court

should order a hearing before making its public interest determination

and should permit the ISNI to participate in that hearing.

VI. Conclusion

Because the Proposed Final Judgment permits GEMS to engage in a per

se violation of the antitrust laws, it is by definition not in the

public interest. It will raise healthcare costs and reduce choice for

patients. Therefore, ISNI respectfully requests the Court not to

approve the Proposed Final Judgment.

Respectfully submitted.

Dated: September 24, 1998

By

Ronald S. Katz, Esq.,

General Counsel, ISNI.

Coudert Brothers,

4 Embarcadero Center, Ste. 3300, San Francisco, CA 94111, Telephone:

415-986-1300.

Certificate of Service

This certifies that on December 10, 1998, I caused copies of the

foregoing Public Comment of Independent Service Network

International to be served as indicated upon the parties to this

action and courtesy copies to be served as indicated upon each

commenter:

By hand:

Richard L. Rosen, Esquire, Arnold & Porter, 555 12th Street,

Washington, D.C. 20004, Counsel for General Electric Company

By first-class mail

Ronald S. Katz, Esquire, Coudert Brothers, 4 Embarcadero Center,

Suite 3300, San Francisco, CA 94111, Counsel for the Independent

Service Network International

Joan H. Hogan

Jon B. Jacobs, Joan H. Hogan, Peter J. Mucchetti,

Antitrust Division, United States Department of Justice, Liberty Place

Building, 325 7th Street, N.W., Suite 300, Washington, D.C. 20530,

(202) 616-5935.

Attorneys for the United States.

Responses to Public Comment.

Pursuant to the requirements of the Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (``APPA'' or

[[Page 69671]]

``Tunney Act''), the United States hereby responds to the public

comment received regarding the proposed Final Judgment in this case.

I. Background

On August 1, 1996, the United States filed the Complaint in this

matter, alleging that General Electric Company (``GE'') has violated

Sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2, by

requiring hospitals that licensed certain diagnostic software from GE

to agree not to compete with GE in unrelated service markets. On July

14, 1998, the United States filed a proposed Final Judgment and a

Stipulation signed by the parties allowing for entry of the Final

Judgment following compliance with the Tunney Act. The United States

also filed a Competitive Impact Statement (``CIS''), which it

published, along with the proposed Final Judgment, in the Federal

Register. See 63 Fed. Reg. 40737 (1998).

As is explained more fully in the Complaint, CIS, and various

memoranda filed in this matter, GE, the world's largest manufacturer of

medical imaging equipment, is also a leading provider of service for

all types and brands of medical equipment. Many hospitals with in-house

service departments also want to offer service to other nearby

hospitals or clinics. In sparsely populated rural areas, such as

Montana, these hospitals may be the only service providers other than

GE that are qualified to service certain equipment. GE regularly

granted these hospitals licenses that permitted them to use GE's

software (``advanced service materials'') to service their own medical

imaging equipment, but only if the hospitals agreed not to compete with

GE to service other customers, even though the hospitals would not use

GE's software to provide that service. These agreements harmed

competition by foreclosing actual and potential competitors from

offering service. The United States alleged that these agreements not

to compete were per se illegal.

The proposed Final Judgment prohibits certain conduct, requires GE

to implement a compliance program, and provides procedures that the

United States may utilize to determine and secure GE's compliance. The

proposed Final Judgment enjoins GE from agreeing with any licensee that

the licensee will not service third-party medical equipment. It 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 it. 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, 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. Section IV(B)

prohibits GE from requiring that a potential licensee give GE

information regarding that person's provision of third-party service.

Section IV(C) enjoins GE from representing that it 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.

Under the Tunney Act, interested parties have 60 days from the date

the proposed Final Judgment and CIS are published in the Federal

Register to submit to the United States any comments they have on the

Judgment. The United States then files with the court any such

comments, along with its responses, and published them in the Federal

Register. 15 U.S.C. Sec. 16(d). Provided that nothing in the public

comments alters its conclusion that the proposed Final Judgment is in

the public interest, the United States files a motion with the court

asking for entry of the Judgment. The court thereafter must make its

own determination of whether the proposed Final Judgment is in the

public interest. 15 U.S.C. Sec. 16(e).

The 60-day period for public comments relating to this matter

expired on September 28, 1998. The United States received only one

comment, that of Independent Service Network International (``ISNI'').

ISNI, based in Washington, D.C., is a trade association of 157

maintainers of high technology equipment, including some Independent

Service Organizations (``ISOs'') that service medical imaging

equipment. The United States has carefully considered the views

expressed in ISNI's Comment. Nothing in the Comment has altered the

United States' conclusion that the proposed Final Judgment is in the

public interest. Accordingly, once ISNI's Comment and this Response are

published in the Federal Register, as required by the Tunney Act, the

United States will file a motion with this Court seeking entry of the

proposed Final Judgment.

III. Response to the Comment of Independent Service Network

International

ISNI's primary concern with the proposed Final Judgment relates to

Section V(g), which states: ``[N]othing in this Final Judgment shall be

construed . . . to prevent Defendant from agreeing with a licensee of

[its advanced service materials] . . . that such materials may be used

only by the licensee's full-time employees.'' ISNI contends that

because the proposed Final Judgment does not prohibit GE from agreeing

with its hospital licensees that part-time employees may not use GE's

software and because, it asserts, such agreements would be per se

violations of the Sherman Act, the proposed Final Judgment is not in

the public interest. ISNI Comment at 7. ISNI believes that in the

absence of such licensing restrictions, ISO's (including, presumably,

some of ISNI's members) might ``share'' an employee with a hospital on

a part-time basis, who then would use GE's software to repair the

hospital's equipment. ISNI Comment at 10-11.

ISNI also contends that the United States failed to comply with the

Tunney Act because in ISNI's view it did not adequately explain why the

Judgment does not prohibit these restrictions regarding use by part-

time employees, and because the United States did not identify any

determinative documents. ISNI Comment at 9-15. ISNI urges the Court to

hold a hearing on the public interest determination and seeks to

participate at that hearing.

A. The Proposed Final Judgment Adequately and Properly Remedies the

Violation Alleged in the Complaint.

ISNI's principal objection to the proposed Final Judgment--that it

does not prohibit GE from entering into agreements with its licensees

restricting the use of its software to certain employees--fails to

raise an appropriate issue for consideration under the Tunney Act. The

agreements to which ISNI objects are not of the type that were

challenged in the United States' Complaint.

The Complaint in this case challenges agreements not to compete

that GE required of hospitals that wished to secure GE's advanced

service materials. Complaint para. 31. These noncompete agreements

between GE and the hospitals that are its actual or potential

competitors in the third-party service business were unrelated to any

legitimate interest of GE. An agreement between horizontal competitors

not to compete is tantamount to an agreement

[[Page 69672]]

to allocate markets and is the type of restraint that is so likely to

have anticompetitive effects that it is deemed to be per se illegal

under the antitrust laws. See, e.g., Palmer v. BRG of Georgia, Inc.,

498 U.S. 46 (1990) (per curiam). The proposed Final Judgment prohibits

GE from enforcing any such existing agreements and from entering into

any similar agreements in the future. It provides full and complete

relief for the violations alleged in the Complaint.

ISNI is complaining about other potential provisions in GE's

licensing agreements--restrictions not challenged in the Complaint--

that do restrict the way in which the hospital licensees may use GE's

software. GE's licenses contain a number of these provisions. For

example, the license requires the hospital to commit that ``[n]either

[the] hospital nor any of [the hospital's] employees will permit any

one other than [the hospital's] service employee . . . to have access

to or to use any part of the [advanced service materials].'' These

restrictions are similar to those found in many software licenses in

order to prevent against misappropriation or to limit the license to

certain categories of users. Contrary to ISNI's assertions, such

provisions typically found in GE's licenses, including provisions

regarding that only full-time employees use GE's software, do not

prohibit licensee hospitals with part-time employees from competing

with GE for third-party service customers. Licensee hospitals may even

use their part-time employees to provide that service. The restrictions

questioned by ISNI concern who within the hospital may use GE's

software, not the provision of third-party service. The Complaint did

not allege that such restrictions on use violate the antitrust laws,

and thus the proposed Final Judgment does not prohibit them. See CIS at

8.

The Tunney Act does not contemplate judicial review of the

government's determination of which conduct to challenge or which

violations to allege in the Complaint. The government's decision not to

challenge particular conduct based on the facts and law before it at a

particular time, like any other decision not to prosecute, ``involves a

complicated balancing of a number of factors which are peculiarly

within [the government's] expertise.'' Heckler v. Chaney, 470 U.S. 821,

831 (1985). The United States has wide discretion within the reaches of

the public interest to resolve potential litigation. See United States

v. Western Elec. Co., 993 F.2d 1572, 1577 (D.C. Cir. 1993). Moreover,

in conducting its Tunney Act evaluation, the Court must not look beyond

the Complaint ``to evaluate claims that the government did not make and

to inquire as to why they were not made.'' United States v. Microsoft,

56 F.3d, 1448, 1459 (D.C. Cir. 1995). Last year, the United States

Court of Appeals for the District of Columbia Circuit stated that

courts, in making their public interest determination:

Must examine the decree in light of the violations charged in

the complaint and should withhold approval only if any of the terms

appear ambiguous, if the enforcement mechanism is inadequate, if

third parties will be positively injured, or if the decree otherwise

makes ``a mockery of judicial power.''

Massachusetts School of Law at Andover, Inc. v. United States, 118

F.3d 776, 783 (D.C. Cir. 1997), quoting United States v. Microsoft

Corp., 56 F.3d 1448, (D.C. Cir. 1995).

B. The Proposed Final Judgment Does Not Authorize GE to Include Any

Particular Restrictions in Its Licenses

ISNI suggests that Section V(g) of the proposed Final Judgment

grants GE the right to engage in per se illegal conduct. ISNI Comment

at 2. ISNI has misconstrued the impact of Section V of the Final

Judgment. Section V is intended to clarify the meaning of Section IV,

which contains the key prohibitions. Section V makes it clear that the

Judgment should not be read to prohibit certain conduct. It does not,

however, reach any conclusions as to whether that conduct is otherwise

lawful, nor does it authorize GE to engage in any particular activity.

Instead, as was stated in the CIS, the proposed Final Judgment is

silent as to whether any particular restriction addressed in Section V

would violate the antitrust laws. CIS at 8. Section V thus provides GE

with no defense to any later allegation, made by a private party or

even the United States, that the conduct described in Section V(g)

violated the antitrust laws. Furthermore, entry of a proposed Final

Judgment does not bar a private party from seeking and obtaining

appropriate antitrust remedies, whether or not the challenged conduct

is prohibited by the Final Judgment. In short, the proposed Final

Judgment does not authorize GE to include any particular restrictions

in its licenses.\1\

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\1\ Although the proposed Final Judgment does not authorize GE

to prevent a hospital's part-time employee from using its software,

and although the United States takes no position regarding the

validity of this particular restriction, ISNI's contention that this

restriction is illegal per se is wrong. The Supreme court has ruled

that certain conduct, such as the agreements challenged in this

case, is so inherently anticompetitive that it is illegal per se

under Section 1. See Palmer, 498 U.S. at 48-50. However, the per se

standard is generally not applied to restrictions on the way a

licensee can use software it has licensed, provided that the

restrictions do not restrain competition that would occur in the

absence of the license. An owner of intellectual property is

ordinarily not required to license others to use it, but may choose

to do so and to subject the licensee to reasonable restrictions and

conditions. Such restrictions and conditions often serve

procompetitive purposes by allowing licensors to exploit their

intellectual property rights and by encouraging others to make

similar investments. For these reasons, restrictions on the way a

licensee may use intellectual property are generally reviewed under

the rule of reason standard, which takes into account market

conditions and other relevant factors, rather than a per se

standard. See U.S. Department of Justice and the Federal Trade

Comm'n, Antitrust Guidelines for the Licensing of Intellectual

Property, 4 Trade Reg. Rep. (CCH) para. 13,132 at 20,735-36, 20740-

41 (1995).

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C. The United States Has Complied with the Tunney Act

1. The CIS Adequately Explains the Relief

ISNI contends that the United States failed to comply with the

Tunney Act because it did not explain why the Judgment does not

prohibit GE from agreeing with its licenses that only full-time

employees could use its software. ISNI mischaracterizes the CIS, which

states:

The limiting conditions are consistent with the relief sought in

the Complaint. The Complaint alleged that GE had 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.

CIS at 8.

2. There Were No Determinative Documents

ISNI next contends that the United States failed to comply with the

Tunney Act because it did not identify any determinative documents.

ISNI characterizes as ``incredible'' the CIS's statement that there

were no determinative materials or documents within the meaning of the

APPA that were considered in formulating the proposed Final Judgment.

ISNI Comment at 14.

The Tunney Act requires, in pertinent part, that the United States

make available to the public copies of the proposed final Judgment

``and any other materials and documents which the United States

considered determinative in formulating such proposal.'' 15 U.S.C.

Sec. 16(b) (emphasis added). Thus, the United States is required to

disclose only those documents that it considered

[[Page 69673]]

determinative in its decision to settle the case on the terms set forth

in the proposed Final Judgment. Documents that were determinative in

the decision to file the case need not be disclosed. During Senate

hearings on the Tunney Act, one witness specifically urged that ``as a

condition precedent to * * * the entry of a consent decree in a civil

case * * * the Department of Justice be required to file and make a

matter of public record a detailed statement of the evidentiary facts

on which the complaint * * * was predicated.'' \2\ Congress, however,

rejected that recommendation. ISNI's broad request for the documents

providing the good-faith basis for filing the Compliant is contrary to

the plain language of the Tunney Act and its legislative history and

therefore should be denied.

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\2\ The Antitrust Procedures and Penalties Act: Hearings on S.

782 and S. 1088 Before the Subcommittee on Antitrust and Monopoly of

the Senate Judiciary Committee, 93d Cong., 1st Sess. 26, 57 (1973)

(prepared statement of Maxwell M. Blecher, attorney).

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ISNI's request falls outside the scope of what courts have

interpreted to be determinative documents. Just last year, the United

States Court of Appeals for the District of Columbia Circuit, in a case

brought by the Antitrust Division challenging certain portions of the

American Bar Association's law school accreditation activities, held

that a third-party was not entitled to a wide range of documents in the

government's files. Massachusetts School of Law at Andover, Inc. v.

United States, 118 F.3d 776 (D.C. Cir. 1997). In that case, the United

States asserted that the determinative documents provision referred

``only to documents, such as reports to the government, `that

individually had a significant impact on the government's formulation

of relief--i.e., on its decision to propose or accept a particular

settlement.' '' Id. at 784. The court held that both the statutory

language and the legislative history supported this interpretation.

Indeed, the court noted that during the senate debate on the Tunney

Act, Senator Tunney himself cited a report to the government by an

outside expert analyzing the economic consequences of proposed relief

in an earlier case as exemplifying a ``determinative document.'' Id.\3\

The court also considered a broad disclosure requirement to be

inappropriate because it would directly interfere with the United

States' ability to negotiate settlement agreements. Id. at 784-85.

Similarly, in another recent Antitrust Division case the Second Circuit

held that ``the range of materials that are `determinative' under the

Tunney Act is fairly narrow'' and that only documents that were ``a

substantial inducement to the government to enter into the consent

decree'' should be subject to disclosure. United States v. Bleznak, 153

F.3rd 16, 20-21 (2d Cir. 1998).\4\

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\3\ Congress enacted the Tunney Act in response to consent

judgments entered in 1971 in three cases involving acquisitions by

International Telephone and Telegraph Corporation (``ITT''),

including that of the Hartford Fire Insurance Company. The consent

judgments permitted ITT to retain Hartford. Subsequent Congressional

hearings revealed that the Antitrust Division had employed Richard

J. Ramsden, a financial consultant, to prepare a report analyzing

the economic consequences of ITT's possible divestiture of Hartford.

Ramsden concluded that requiring ITT to divest Hartford would have

adverse consequences on ITT and on the stock market generally. Based

in part on the Ramsden Report, the United States concluded that the

need for the divestiture of Hartford was outweighed by the

divestiture's projected adverse effects on the economy. In

explaining the determinative documents provision, Senator Tunney

stated, ``I am thinking here of the so-called Ramsden memorandum

which was important in the ITT case.'' 119 Cong. Rec. 24,605 (1973).

\4\The single case cited by ISNI--United States v. Central

Contracting Co., 537 F. Supp. 571 (E.D. Va. 1982)--has not been

followed by any other court. Moreover, even that opinion recognized

that the Tunney Act ``does not require full disclosure of Justice

Department files, or grand jury files, or defendant's files, but it

does require a good faith review of all pertinent documents and

materials and a disclosure of'' those ``materials and documents that

substantially contribute to the determination [by the government] to

proceed by consent decree * * *.'' Id. at 577.

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ISNI has given no reason to doubt the United States' assertion that

there are no determinative documents in this case. The United States

did not receive any expert reports or any other document that

substantially contributed to its determination to proceed with the

settlement.

D. The Court Need Not Hold a Hearing in Making Its Public Interest

Determination

ISNI requests that this Court convene a hearing before it makes its

public interest determination. I further requests that the Court

authorize ISNI to participate in the hearing. ISNI Comment at 15. The

United States believes that a hearing is unnecessary because ISNI has

already adequately expressed its views through the public comment

procedure, as provided by statute. See United States v. G. Heileman

Brewing Co., 563 F. Supp. 642, 650 (D. Del. 1983) (court denies request

for evidentiary hearing when ``those same issues have already been

raised by movants through the APPA's third-party comment procedure);

United States v. Carrols Development Corp., 454 F. Supp. 1215, 1221-22

(N.D.N.Y. 1978) (request for limited participation denied when ``the

moving parties have set forth their views in considerable detail in

briefs and affidavits filed with this Court as well as in written

comments submitted to the Government under the APPA''). If, however,

the Court determines that a hearing would be useful in making its

public interest determination, the United States would not object to

ISNI's appearance as an amicus curiae.

IV. Conclusion

After careful review of ISNI's Comment, the United States continues

to believe that entry of the proposed Final Judgment will provide an

effective and appropriate remedy for the antitrust violation alleged in

the Complaint and is therefore in the public interest. Upon the

publication of this Public Comment and the Response by the United

States in the Federal Register, the United States will move the Court

to enter the proposed Final Judgment. Once the United States moves for

entry of the proposed Final Judgment, the Tunney Act directs this Court

to determine whether its entry ``is in the public interest.'' 15 U.S.C.

Sec. 16(e). In making that determination, ``the court's function is not

to determine whether the resulting array of rights and liabilities is

one that will best serve society, but only to confirm that the

resulting settlement is within the reaches of the public interest.''

Western Elec. Co., 993 F.2d at 1576 (emphasis added, internal quotation

and citation omitted). This Court should evaluate the relief set forth

in the proposed Final Judgment and should enter the Judgment if it

falls within the government's ``rather broad discretion to settle with

the defendant within the reaches of the public interest.'' Microsoft,

56 F.3d at 1461; accord United States v. Associated Milk Producers, 534

F.2d 113, 117-18 (8th Cir. 1976), cert. denied, 429 U.S. 940 (1976).

Dated: December 9, 1998.

Respectfully submitted,

Jon B. Jacobs, Joan H. Hogan, Peter J. Mucchetti,

Attorneys for the United States

Bernard M. Hollander,

Senior Trial Attorney, Antitrust Division, U.S. Department of Justice,

325 Seventh Street, N.W., Suite 300, Washington, DC 20530, (202) 616-

5935.

Certificate of Service

This certifies that on December 9, 1998, I caused copies of the

foregoing Response to Public Comment to be served as indicated upon

the parties to this action and courtesy copies to be served as

indicated upon each commenter:

By facsimile & hand:

[[Page 69674]]

Richard L. Rosen, Esquire, Arnold & Porter, 555 12th Street,

Washington, D.C. 20004, Counsel for General Electric Company

By facsimile & first-class mail:

Ronald S. Katz, Esquire, Coudert Brothers, 4 Embarcadero Center,

Suite 3300, San Francisco, CA 94111, Counsel for Independent Service

Network International

Joan H. Hogan

[FR Doc. 98-33378 Filed 12-16-98; 8:45 am]

BILLING CODE 4410-11-M