General Railway Signal Co

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IN THE MATTER OF GENERAL RAILWAY SIGNAL CO., ET AL.

MODIFYING ORDER IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT AND SEC. (2) OF THE CLAYTON ACT Docket C-837. Consent Order, Sept. 1964-Modifying Order, Nov. , 1986 The Federal Trade Commission has modified a 1964 consent order (66 F. C. 882) by permitting American Standard Corp., a successor to original respondent Westinghouse Air Brake, to engage in activities necessary to participate in lawful joint ventures. The FTC found that respondent "has adequately demonstrated that evolving technological and economic factors in the railroad signaling equipment and systems industry have created a competitive need for American Standard to participate in joint ventures.

ORDER MODIFYING CONSENT ORDER ISSUED SEPTEMBER 24, 1964 On April 8, 1986, American Standard Inc. ("American Standard" successor to respondent Westinghouse Air Brake Co. ("W ABCO" filed a "Request To Reopen Proceeding and Terminate Order" ("Request"), pursuant to Section 5(b) of the Federal Trade Commission Act, 15 V. C. 45(b), and Section 2.51 of the Commission s Rules of Practice. The Request asks the Commission to reopen the proceeding and vacate the consent order issued September 24, 1964, CCorder ) in its entirety. In the alternative, the Request asks the Commission to modify the order "to permit conduct that is otherwise permissible under the antitrust laws, including conduct that is reasonably ancillary to the formation or operation of lawful joint ventures, exempt from application of the antitrust laws, or beyond the subject matter jurisdiction ofthe FTC."

After reviewing the Request and other relevant information, the Commission has concluded that it is in the public interest to modify the order to permit American Standard to engage in conduct that is ancilary to and reasonably necessary for the formation or operation of any joint venture that is lawful under the antitrust laws. American Standard has adequately demonstrated that evolving technological and economic factors in the railroad signaling equipment arid systems industry have created a competitive need for American Standard to participate in joint ventures to research, develop and produce integrated railroad systems and to bid for "turnkey" railroad projects. The order s present language, designed to restrain conduct that might facilitate collusive agreements, could be interpreted to prohibit other- 182 FEDERAL TRAm; COMMISSION DECISIONS Modifyi-;g Order 108 F.T:C. wise lawful joint venture activity. It is in the public interest to modify the order to enable American Standard to participate in otherwise lawful joint venture activity because the competitive injury American Standard will likely sutler if it cannot engage in such lawful activity is not outweighed by any need to retain the order in its current form.' American Standard also seeks modification of the order to clarify that its terms do not prohibit conduct statutorily exempt from application of the antitrust laws or beyond the subject matter jurisdiction of the Commission under Section 5(a) of the Federal Trade Commission Act, as amended. Such limitations, however, already apply to this order and all other orders of the Commission. Therefore a modification merely to restate existing law is unnecessary. American Standard has not made an adequate showing that changed conditions offact or law, or the public interest, require vacation of the order in its entirety. The order contains provisions that enjoin horizontal agreements concerning prices, territories, markets customers and certain other matters, which are generally per se unlawful. American Standard has not demonstrated that these provisions harm its competitive posture and, accordingly, has not demonstrated a need to modify these provisions. The order contains several other provisions, including restrictions on the use of requirements contracts and cumulative volume discounts and on exchanges of information about price or other terms of sale. The Commission finds that the asserted changes in fact and law relied upon by American Standard do not provide a basis for vacating these provisions.

Although the domestic signaling industry has become less concentrated since the order was entered, the signaling market remains highly concentrated and is dominated, as it was at the time the order was entered, by two firms, one of which is American Standard. Little new entry has occurred since the order was entered, and foreign signaling firms continue to face substantial barriers to entry. Given this continued market structure, the changes in the domestic signaling industry cited by American Standard do not constitute unforeseeable changes in fact suffcient to require termination of the order provisions prohibiting requirements contracts, cumulative volume discounts and information exchanges.

Asserted changes in law since 1964 also do not require termination ofthese provisions. The legality of requirements contracts has always I The order s provisions are OIimed OIthoriwntOl! conduct and agreements. The order language prohibiling agreements with "any other person, persons or business entity not a party hereto" is limited by the existing exemption for any "bona fide offer, agreement or transaction with any other person, peri\ons or business entity to purchase Or sell railroad aignOlling and control systems or railroad signaling equipment at prices, terms or conditions of sale independenlly determined and offered and independently accepted, " The new modification for Jawful joint venture activities wil be a further limitation. The "any other person not a party hereto" bnguage wi!), in practical effect, mean only vendors of signaling equipment or systems. 181 Modifying Order been determined by a rule of r-"ason a.nalysis. Although certain factors, such as the extent of market foreclosure, have received different degrees of emphasis under the rule of reason since the order was entered, this does not rise to the level of a change in law suffcient to reopen and vacate the order. The order reflects a determination that the respondents could use requirements contracts to achieve anticompetitive effects, rather than a determination that all requirements contracts are per se anticompetitive. Similarly, the cases cited by American Standard with respect to volume discounts do not establish a fundamental change in law requiring modification of the order. These cases merely articulate the statutory defenses provided by Section 2(a) of the Clayton Act, 15 V. C. 13(a), as amended, and such defenses are already available under the order even though not explicitly set forth therein. See FTC v. Ruberoid 343 V.S. 470 (1952); William H. Rorer, Inc. Docket No. 8599, 104 F. C. 544 (1984). To the extent that such defenses migbt have been deemed inapplicable because the prohibition of cumulative volume discounts is premised upon the allegations of the complaint that such discounts violated Section 5 ofthe Federal Commission Act as well as Section 2(a) of the Clayton Act, the Commission, in the public interest, has determined that the statutory defenses should apply.

American Standard also has not identified public interest considerations suffcient to warrant termination of these provisions of the order. The Commission may determine that the public interest requires reopening of an order if the respondent demonstrates that it is competitively disadvantaged by the order. When such a showing is made, the Commission will weigh the reasons favoring the modification against any reasons not to make the modification. American Standard, however, has not made a threshold showing that it is competitively disadvantaged by these provisions, except to the extent that the order may be construed to prohibit lawful joint ventures. Accordingly, the public interest does not require reopening and termination or modification of these provisions.

Accordingly, it is ordered that this order be and it hereby is reopened and that the Commission s order issued on September 24 1964, be and it hereby is modified to include a new subparagraph (4), at 66 F. C. 882, 893 (1964), to read as follows: (4) Nothing contained in the foregoing paragraphs of the order shall be construed to prohibit respondent W ABCO from engaging in any conduct or entering into any agreement that is ancillary to and reasonably necessary for the formation or operation of a joint venture that is lawful under the antitrust laws.

184 F"DERAL TRADE COMMISSION DECISIONS Modifying Order 108 F.