United States v. Halliburton Company; Public Comment and Plaintiff's Response

DEPARTMENT OF JUSTICE

Antitrust Division

[Civil No. 98-CV-2340 (TPJ)]

United States v. Halliburton Company; Public Comment and

Plaintiff's Response

Pursuant to the Antitrust Procedures and Penalities Act, 15 U.S.C.

16(b)-(h), the United States of America hereby publishes below the

comment received on the proposed Final Judgment in United States v.

Halliburton Company, et al., Civil No. 98-CV-2340 (TPJ), filed in the

United States District Court for the District of Columbia, together

with the United States' response to the comment.

Copies of the comment and response are available for inspection in

Room 215 of the U.S. Department of Justice, Antitrust Division, 325

Seventeh Street, N.W., Washington, DC 20530 (telephone: 202/514-2481)

and at the office of the Clerk of the United States District Court for

the District of Columbia, 333 Constitution Avenue, N.W., Washington, DC

20001. Copies of these materials may be obtained upon request and

payment of a copying fee.

Constance K. Robinson,

Director of Operations, Antitrust Division.

Plaintiff's Response to Public Comment

Pursuant to the requirements of the Antitrust Procedures and

Penalties Act, 15 U.S.C.A. 16(b)-(h) (1997) (``Tunney Act''), the

United States hereby responds to the single public comment received

regarding the proposed Final Judgment in this case.

I. Background

On September 29, 1998, the United States Department of Justice

(``the Department'') filed the Complaint in this matter. The Complaint

alleges that the proposed merger of Halliburton Company

(``Halliburton'') and Dresser Industries, Inc. (``Dresser'') would

combine two of only four companies that provide logging-while-drilling

(``LWD'') tools and services for oil and natural gas drilling and are

the only sources of current and likely future innovations in new or

improved LWD tools. LWD tools provide data during drilling for oil on

the type of formation being drilled, whether there is oil in the

formation, and the ease with which the oil can be extracted from the

formation. LWD tools are mounted on the drill string and measure and

transmit data while the drilling is ongoing that allow the drillers to

determine if changes should be made in the drilling. Also mounted on

the drill string with LWD tools are measurement-while-drilling

(``MWD'') tools. MWD tools measure and transmit data while the drilling

is ongoing about the direction and angle of the drill bit. Because it

is necessary that LWD tools and MWD tools be compatible, customers who

want to use both types of tools on a particular drilling project

usually obtain them from the same company. The proposed merger would

reduce competition and likely lead to higher prices for LWD services,

reduce LWD service quality, and slow the pace of LWD-related

innovation, in violation of Section 7 of the Clayton Act, 15 U.S.C.A.

18 (1997).

Simultaneously with the filing of the Complaint, the Plaintiff

filed the

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proposed Final Judgment and a Stipulation and Order signed by all the

parties that allows for entry of the Final Judgment following

compliance with the Tunney Act. A Competitive Impact Statement

(``CIS'') was also filed, and subsequently published in the Federal

Register on November 2, 1998. The CIS explains in detail the provisions

of the proposed Final Judgment, the nature and purposes of these

proceeding, and the transaction giving rise to the alleged violation.

To prevent the competitive harm, the proposed Final Judgment

requires the defendants to divest Halliburton's worldwide LWD business,

including virtually all of Halliburton's LWD tools, enough of its MWD

tools for use with the LWD tools, manufacturing, workshop, and testing

and repair equipment, a U.S. facility, the right to hire employees of

the LWD business, and worldwide, royalty-free, irrevocable licenses to

the intellectual property used in connection with the use, manufacture

or sale of the transferred tools.

The sixty-day comment period for public comments expired on January

1, 1999. The Department received only one comment.\1\ The comment was

prepared by Mr. Geoffrey A. Mantooth, an attorney, on behalf of his

client, Mr. Serge A. Scherbatskoy.

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\1\ The comment is attached. The Department plans to publish

promptly the comment and this response in the Federal Register. The

Department will provide the Court with a certificate of compliance

with the requirements of the Tunney Act and file a motion for entry

of the Final Judgment once publication takes place.

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II. Response to the Public Comment

Mr. Mantooth observes that the proposed Final Judgment ``attempts

to distinguish between `LWD Service' and `MWD Services,' and allows

Halliburton to keep some of its MWD Services.'' Mr. Mantooth then

states that the proposed Final Judgment ``does not give any basis or

reason for the definitions of LWD and MWD. The distinction between LWD

and MWD appears to arbitrary and without merit.'' Mr. Mantooth

continues by citing classifications of LWD and MWD tools that appear in

Schedule A of the proposed Final Judgment, contrasting these

classifications with descriptions appearing in an industry trade

journal (copy attached to his comment), and concluding that in that

particular journal ``the distinction between LWD and MWD is clearly

blurred.'' Mr. Mantooth ends his letter with a request for ``a more

realistic definition'' of LWD Services. He provides no suggestions for

doing so.

Mr. Mantooth's comment appears to be arguing either that the

Department should have alleged a broader market and required

divestiture of more MWD assets, or that the proposed Final Judgment's

description of the divestiture assets is not sufficiently specific or

clear. Neither argument is adequate to support a conclusion that the

public interest would not be served by entry of the proposed Final

Judgment.

The Department defined the product market as LWD services for

offshore drilling projects. This definition, which excluded MWD

services, was based on investigation and analysis, using judicial

precedent and the Horizontal Merger Guidelines issued jointly by the

Department and the Federal Trade Commission. As is set forth in

paragraphs 10 and 11 of the Complaint, MWD tools and LWD tools provide

different measurements--the former measure the direction and angle of

the drill bit, while the latter evaluate the formation through which

the drill bit is cutting. Many drillers purchase only MWD services, and

there are a number of firms that provide MWD services that do not

supply LWD services. While the component used to transmit data from MWD

tools does share characteristics with the component used to transmit

data from LWD tools, the tools themselves are distinct. Mr. Mantooth's

attachment to his letter focuses on the data transmission components,

not on the tools.\2\

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\2\ While Mr. Mantooth may believe the Department should have

alleged a broader product market, the public interest standard set

forth in the Tunney Act does not extend ``to evaluate claims that

the government did not make and to inquire as to why they were not

made.'' United States v Microsoft Corp., 56 F.3d 1448, 1459 (D.C.

Cir. 1995); see also United States v Associated Milk Producers,

Inc., 534 F.2d 113, 117-18 (8th Cir. 1976). Mr. Mantooth's comment,

to the extend it challenges the Department's product market, does

not therefore provide a reason to find that the proposed Final

Judgement fails to satisfy the public interest.

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Mr. Mantooth may not intend to disagree with the Department's

product market, but simply expressing a concern that there is

insufficient specificity in the description of the divestiture assets.

The Department believes that such a concern is unwarranted. Although

there are similarities in the two pieces of equipment cited in the

attachment to Mr. Mantooth's comment, the Department believes the list

of tools in Schedule A to the proposed Final Judgment is sufficiently

specific. HDS1, which is used to transmit data from MWD tools, and

HDSM, which is used to transmit data from LWD tools, are distinct

products. The Department is confident that prospective purchasers will

be able to get the equipment contemplated by the proposed Final

Judgment, and that the Department will be able to ensure that its

contemplated remedy is effected.

III. Conclusion

After careful consideration of the comment, the Plaintiff concludes

that Mr. Mantooth's comment does not change its determination that

entry of the proposed Final Judgment will provide an effective and

appropriate remedy for the antitrust violation alleged in the Complaint

and is in the public interest. The Plaintiff will move the Court to

enter the proposed Final Judgment after the public comment and this

Response has been published in the Federal Register, as 15 U.S.C. 16(d)

requires.

Dated this 27th day of January, 1999.

Respectively submitted,

Angela L. Hughes,

Member of The Florida Bar, #211052.

Robert L. McGeorge,

Joan H. Hogan,

Andrew K. Rosa,

Salvatore Massa,

U.S. Department of Justice, Antitrust Division, 325 7ty Street, NW,

Suite 500, Washington, D.C. 20530, (202) 307-6351.

Wofford, Zobal & Mantooth

Patent Attorneys

110 West Seventh, Suite 500, Fort Worth, Texas 76102

December 29, 1998.

Via Federal Express

Mr. Roger W. Fones,

Chief, Transportation, Energy and Agricultural Section, Antitrust

Division, 325 Seventh Street, N.W., Suite 500, Washington, D.C.

20530

Re: United States v. Halliburton Company, Case No. 98-CV-2340

Dear Mr. Fones: Pursuant to the invitation in the Federal

Register of November 2, 1998, (Volume 63, Number 211), the following

is a comment on the subject case:

The proposed final judgment attempts to distinguish between

``LWD Services'' and ``MWD Services'', and allows Halliburton to

keep some of its MWD Services.

Yet, the proposed final judgment does not give any basis or

reason for the definitions of LWD and MWD. The distinction between

LWD and MWD appears to be arbitrary and without merit. For example,

in Schedule A of the proposed final judgment, LWD includes CWRGM

Resistivity, DNSC Density, and SCWR Slim Resistivity Tool, while MWD

includes HDSM Directional Tool, HDS1 MWD Kits, and RX4 MLWD Surface

System. In the May 1998 issue of Hart's Petroleum Engineer

International, page 17 (copy enclosed), the distinction between LWD

and MWD is clearly blurred.

The undersigned would appreciate a more realistic definition of

LWD services. If there

[[Page 7210]]

are any questions, please do not hesitate to call.

Very Truly Yours,

Geoffrey A. Mantooth,

Attorney for Serge A. Scherbatskoy.

cc: United States District of Columbia (w/enclose)

The MWD Comparison Tables which is the enclosure to the letter sent

by Geoffrey A. Mantooth of Wofford, Zobal & Mantooth can be obtained

from the U.S. Department of Justice, Antitrust Division, 325 7th

Street, Room 215, Washington, D.C. 20530 (202/514-2481) or the United

States District Court, District of Columbia.

Certificate of Service

I hereby certify that I have caused a copy of the foregoing

Plaintiff's Response to Public Comments, as well as the attached copy

of the public comment received from Geoffrey A. Mantooth on behalf of

Serge A. Scherbatskoy, to be served on counsel for Defendants in this

matter by facsimile and first class mail, postage prepaid, at the

addresses set forth below.

Counsel for Defendant Halliburton Company:

Ky P. Ewing, Jr., Esquire,

Vinson & Elkins, 1455 Pennsylvania Avenue, N.W., Washington, D.C.

20004-1008, Telephone: (202) 639-6580, Facsimile: (202) 639-6604.

Counsel for Defendant Dresser Industries, Inc.:

Helen D. Jaffe, Esquire,

Weil, Gotshal & Manges, 767 Fifth Avenue, New York, NY 10153,

Telephone: (212) 310-8572, Facsimile: (212) 310-8007.

Dated: January 27, 1999.

Angela L. Hughes,

[FR Doc. 99-2715 Filed 2-10-99; 8:45 am]

BILLING CODE 4410-11-M