Cooper Industries, Inc

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11\ THE MATTER OF COOPER INUSTRIES, INe.

MODIFYING ORDER IN REGARD TO ALLEGED VIOLA TION OF SEC. 7 OF THE CLAYTON ACT AND SEe. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3469. Consent Order, Oct. 1993--Modifing Order, Dec. , 1997 This order reopens a 1993 consent order -- that required the respondent to divest certain assets and to license certain tec1mology for manufacturing industrial fuses -- and this order modifies the consent order by setting aside provisions of the consent order which required Cooper to license and divest low-voltage industral fuse technology that it gained in its acquisition of Brush Fuses, Inc. and by substitutig a provision requirg prior Commssion approval of certain acquisitions with a provision requiring prior notification. ORDER REOPENIG AND MODIFYING ORDER I. THE COMPLAINT A'\D ORDER On August IS , 1997, Cooper Industries, Inc. ("Cooper ), the respondent named in the above-referenced consent order ("order issued by the Commission on October 26 1993 , filed its Petition to Reopen and Vacate Consent Order ("Petition ). Cooper asks that the Commission reopen and vacate the order pursuant to Section 5(b) of the Federal Trade Commission Act ("FTC" Act"), IS U.S. C. 45(b), and Section 2.51 of the Commission s Rules of Practice and Procedure, 16 CFR 2. , based on changed facts and the public interest and consistent with the Statement of Federal Trade Commission Policy Concerning Prior Approval And Prior Notice Provisions, issued on June 21 , 1995 ("Prior Approval Policy Statement"). 1 The thirty-day public comment period on Cooper Petition ended on September 15 1997. No comments were received. The Commission has detennined to grant, in part, Cooper Petition by reopening the order and modifying it to set aside the requirements of paragraph 11 through V11, but to deny the request to vacate the order. Rather, the Commission has detennined to substitute for the prior approval requirement of paragraph VIl the prior notification and waiting period requirements of Section 7 A of the Clayton Act, IS U. e. 18a, commonly refened to as the Hart-Scott-Rodino ("HSR") Act, for all non-HSR reportable GO Fed. Reg. 39745-47 (Aug. 3, 1995); 4 Trade Reg. Rep- (CCH) - 13 241 COOPER INDUSTRIES, INe. 603 602 Modifying Order acquisitions otherwise meeting the specifications of paragraphs VII and IX. This modification therefore eliminates the need for the separate prior notification requirement of paragraph IX, and the Commission has detem1ined to set aside that paragraph. The complaint in this matter aUeges that Cooper s agreement to acquire the Fusegear Group, including Brush Fuses, Inc. ("Brush" from BTR pic violated Section 5 of the FTC Act, and that the acquisition of the Fusegear Group, including Brush, wO)lld violate Section 5 ofthe FTC Act and Section 7 ofthe Clayton Act, 15 U.se. , by lessening competition and tending to create a monopoly in the market for low voltage industrial fuses ("LVI Fuses ) in the United States.

The resulting order became final on October 29, 1993.' Paragraph II of the order requires Cooper to grant a license within twelve months to a licensee, who has received prior approval by the Commission, to obtain and use the LVI Fuse Technology and Know-how to manufacture any and aU types of LVI Fuses that had been manufactured by or for Brush and sold within the United States within the last three years prior to the acquisition of Brush by Cooper License ). Paragraph II orders Cooper to divest the Brush Assets to the licensee, but only to the extent the licensee chooses to acquire those assets. Paragraphs IV and V contain additional requirements related to maintaining the Brush Assets pending divestiture and to an interim supply agreement. Paragraph VI provides for thc appointment of a trustee should Cooper fail to grant the License and divest within the requisite period, and paragraph VII specifies Cooper s notification and reporting obligations. The purpose ofthe License and divestiture is to remedy the lessening of competition in the LVI Fuse market and to assist the licensee to manufacture, distribute, and sell a full line of LVI Fuses. J Cooper failed to grant the License within the time required, and the Commission approved the appointment of a trustee on February 12, 1996. The trustec also failed to grant the License before his term expired 'in February 15 , 1997. II. THE PETITION In its Petition, Coopcr describes its and the trustee s efforts to license and asserts, with supporting affdavits: that despite these efforts, a licensee for the LVI Fuse Technology and Know-how has .' 116 FTC 1243 (1993). 4 OrderAffdavitsIIof James R. Dccnand III.A , Associate General Counsel, and Homer Blalock, Trustee ).

Modifying Order 124 FTC. not been found. Cooper believes that the value of the License and related assets now is reduced to such an extent that "no willing buyer ,,5 It also asserts thatis likely to come forward. the prior approval and prior notice requirements of the order are "unique" and that "there is no 'credible risk' that Cooper will undertake an anti competitive and unreportable transaction. " Cooper further argues that the de minimis nature of Jess that 53.5 million sales specified in paragraph IX is prima facie evidence of the Commission s lack of cone em about such acquisitions and that, therefore, such prior notification is unnecessar. Il. STANDARD FOR REOPENING AND MODIFYING FINAL ORDERS Section 5(b) of the FTC Act, 15 U.S.e. 45(b), provides that the Commission shall reopen an order to consider whether it should be modified if the respondent "makes a satisfactory showing that changed conditions oflaw or fact" so require. A satisfactory showing suffcient to require reopening is made when a request to reopen identifies significant changes in circumstances and shows that the changes eliminate the need for the order or make continued application of it inequitable or harmful to competition. S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979) (significant changes or changes causing unfair disadvantage); Louisiana-Pacific Corp. , Docket No. 2956, Letter to John e. Hart (June 5 , 1986) at 4. (unpublished) Hart Letter Section 5(b) also provides that the Commission may modify an order when, although changed circumstances would not require reopening, the Commission determines that the public interest so requires. Respondents are therefore invited in petitions to reopen to show how the public interest warants the requested modification. Hart Letter at 5. ; 16 CFR 2. 51. In such a ease, the respondent must demonstrate as a threshold matter some affrmative need to modify the order For example, it may be in the public interest to modify an order "to relieve any impediment to effective competition that may result from the order. Damon Corp. 101 FTC 689, 692 (1983). Once such a showing of need is made, the Commission will balance the reasons favoring the requested modification against any reasons not to make the modification. Damon L( tter at 2. The Commission also 5 Petition at 1l.

See also Uniled Siaies v. Louisiana-Pacifc CO/p. 967 r. 2d 1372, 1376-77 (9th Cif. 1992) ("A decision to reopen does not necessarily entail a decision to modify the order. Reopening may OCClir even where the petition itself does not plead facts requiring modification. 7 Letter to Joel E. Hoffman, Damon Corp. , C-2916 f1979-1983 Transfer Binders Trade Reg- Rep. (CCI-I) '122 207 at 22,585 (March 29, 1983)("Damon Letter COOPER INUSTRIES, INC. 605 602 Modifying Order will consider whether the particular modification sought is appropriate to remedy the identified harm. Id. at 4. The language of Section 5(b) plainly anticipates that the burden is on the petitioner to make a "satisfactory showing" of changed conditions to obtain reopening of the order. The legislative history also makes it clear that the petitioner has the burden of showing, other than by conclusory statements, why an order should be modified. The Commission "may properly decline to reopen an order if a request is merely conclusory or otherwise fails to set forth specific facts demonstrating in detail the nature of the changed conditions and the reasons why these conditions require the requested modification of the order." S. Rep. No. 96-500, 96th Cong., 1st Sess. 9- 10 (1979); see also Rule 2.51(b) (requiring affdavits in support of petitions to reopen and modify). If the Commission determines that the petitioner has made the required showing, the Commission must reopen the order to consider whether modification is required and, if so, the nature and extent of the modification. The Commission is not required to reopen the order, however, if the petitioner fails to meet its burden of making the satisfactory showing required by the statute. The petitioner s burden is not a light one given the public interest in repose and the finality of Commission orders. IV. REOPENING AND MODIFYING THE ORDER IS IN THE PUBLIC INTEREST As Cooper described in its Petition, supported by the required affdavits, it and the trustee seemingly have done all that is possible to grant the License. Immediately after the ordcr became final Cooper notified all those companies thought to be likely potential acquirers of the License that the License was available. The availability of the License also was widely advertised, first by Cooper and then by the trustee. Although both Cooper and the trustee received serious inquiries, each of the initially interested parties declined to pursue. the License after performing a more detailed evaluation. Cooper asserts that now, more than four years since the order became final, the value of the License and related assets is reduced to such an extent that "no willing buyer is likely to come forward. ,,9 Although the fact that the passage of time has reduced the value of the assets was foreseeable and thus does not constitute the change See Federated Department Stores, Inc. v. Moitie 425 U.S. 394 (1981)(strong public interest considerations support repose and finality). 9 Petition at 11 Modifying Order 124 FTC in fact necessary to justify reopening the order, it would be futile to continue to require Cooper to grant a License and inequitable to require it to keep paying a trustee to attempt the same. Accordingly, Cooper has demonstrated an affrmative need to reopen the order. In balancing whether Cooper has demonstrated that the reasons to set aside the licensing, divestiture, and related requircments outweigh the need to continuc to impose these obligations on Cooper the Commission notes that the purpose of the order was to increase competition by granting a License to a licensee to manufacture distribute, and sell a ful1line of LVI Fuses. Such a licensee could not be found, and the evidence indicates that the value of the License is now so reduced that such a licensee will not be found, regardless of the additional effort. The diligent attempts of the trustee to market the License demonstrate that further attcmpts to license, even at no minimum price, are likely to be fruitless. 10 Because there is no need to continue to require Cooper either to attempt to grant a License or to maintain the Brush Assets (as it has since those assets were acquired), the divestiture obligations of the order should be set aside. v. PRJOR APPROVAL POLICY STATEMENT In its Petition, Cooper also asks the Commission to vacate the prior approval and prior notification provisions of paragraphs VII and IX. Paragraph VII and paragraph IX together prohibit Cooper for ten years, from making any acquisition of interests in or assets of specified entities without either the prior approval ofthe Commission or HSR-type Plior notification. The value of thc acquired entity sales of LVI Fuses in each of the three years preceding such acquisition determincs whether prior approval or prior notification is required. Cooper contends that these prior approval and prior notice requirements are unique and asserts that prior approval is unwarranted because "there is no 'credible risk' that Cooper will undertake an anticompetitive and umeportable transaction. " JJ It adds that the de minimis level of sales that triggers paragraph IX's prior notification provision is prima facie evidence that the Commission was paricularly unconcemed about such acquisitions, and, therefore that prior notification also is unwarranted. 12 The respondent made the same showmg m Promodcs, S. , Docket No. 9228, lT which t e trustee accomplished divestiture of only some of the supermarkets to be divested, Order Granting 10 Request to Reopen and \tlodify, 117 FTC 37 (1994) Petition at 14.

, COOPER INDUSTRIES, INe. 607 602 Modifying Order The Commission, in its Prior Approval Policy Statement concluded that a general policy of requiring prior approval is no longer needed " citing the availability of the premerger notification and waiting period requirements of the HSR Act to protect the public interest in effective merger law enforcement. Prior Approval Policy Statement at 2. The Commission announced that it will "henceforth rely on the HSR process as its principal means of learning about and reviewing mergers by companies as to which the Commission had previously found a reason to believe that the companies had engaged or attempted to engage in an illegal merger." As a general matter Commission orders in such cases will not include prior approval or prior notification requirements. Id.

The Commission stated that it will continue to fashion remedies as needed in the public interest, including ordering narrow prior approval or prior notification requirements in certain limited circumstances. The Commission said in its Prior Approval Policy Statement that "a narow prior approval provision may be used where there is a credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for the provision attempt the same or approximately the same merger. " The Commission also said that "a narrow prior notification provision may be used where there is a credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for an order, engage in an otherwise umeportable anti competitive merger. Id. at 3. As explained in the Prior Approval Policy Statement, the need for a prior notification requirement will depend on circumstances such as the structural characteristics of the relevant markets, the size and other characteristics ofthe relevant markets, the size and other characteristics of the market participants, and other relevant factors.

The Commission also announced, in its Prior Approval Policy Statement, its intention "to initiate a process for reviewing the retention or modification ofthese existing requirements" and invited respondents subject to such requirements "to submit a request to reopen the order. Id. at 4. The Commission determined that when a petition is filed to reopen and modify an order pursuant to. . . (the Prior Approval Policy Statement), the Commission will apply a rebuttable presumption that the public interest requires reopening of the order and modification of the prior approval requirement consistent with the policy announced" in the Statement. Id. Modifying Order 124 F. The presumption is that setting aside the prior approval requirement of paragraph VII is in the public interest. The record contains no evidence suggesting that this matter presents the limited circumstances identified in the Prior Approval Policy Statement as appropriate for retaining a narrow prior approval provision i. e. credible risk that, but for the prior approval provision, the respondent would attempt the same or approximately the same merger. Prior notification, however, is appropriate for acquisitions that fall below the HSR threshold for the relevant market because the acquisition in this matter was just such a non-reportable acquisition acquisitions ofl VI Fuses ITom other producers are still possible, and thus, a credible risk exists that Cooper could engage in future anti competitive acquisitions that would not be subject to the premerger notification and waiting period requirements of the HSR Act. Cooper argues that the de minimis level of acquisitions requiring paragraph IX prior notification shows that the Commission has no concern for such acquisitions, but Cooper has presented no facts to support that assertion. Although such small acquisitions may not have required prior approval, they raise potential antitrust concerns suffcient to require prior notification. Accordingly, prior notification should be required for all acquisitions and may now be incorporated in one paragraph.

Accordingly, It is ordered that this matter be, and it hereby is reopened; and It is further ordered That the order be, and it hereby is, modified to set aside paragraphs II through VII and paragraph IX, as of the effective date of this order; and It is further ordered that paragraph VII of the order be, and it hereby is, modified, as of the effective date of this order, tD read as follows:

It is further ordered That for ten (10) years from the date this order becomes final, respondent shall not, without prior notification to the Commission, directly or indirectly, through subsidiaries partnerships, or otherwise:

A. Acquire any stock, share capital, equity or other interest in any concern, corporate or non-corporate, which manufactures (either directly or indirectly), and sells the Relevant Product (other than sales to subsidiaries or divisions of the concern) in or into the United States; or COOPER INDUSTRIES, INe. 609 602 Modifying Order B. Acquire any assets used for, or previously used for (and still suitable for use for) the manufacture and sale in or into the United States of the Relevant Product from any conccrn, corporate or non-corporate, except in the ordinary course of business. On the anversar of the date on which this order becomes final and on every anniversary thereafter for the following nine (9) years Cooper shall file with the Commission a verified written report of its compliance with paragraph VII of the order. The prior notifications required by this paragraph VII shall be given on the Notification and Report Form set forth in the Appendix to Par 803 of Title 16 of the Code of Federal Regulations, as amended (hereinafter referred to as "the Notification ), and shall be prepared and transmitted in accordance with the requirements of that part except that no filing fee will be required for any such notification notification shall be filed with the Secretary of the Commission notification need not be made to the United States Department of Justice, and notification is required only of respondent and not of any other party to the transaction. Respondent shall provide the Notification to the Commission at least thirty (30) days prior to consummating any such transaction (hereinafter referred to as the first waiting period"). If, within the first waiting period representatives of the Commission make a written request for additional information, respondent shall not consummate the transaction until twenty (20) days after substantially complying with such request for additional information. Early termination of the waiting periods in this paragraph may be request cd and, where appropriate, granted by letter from the Bureau of Competition. Notwithstanding, prior notification shall not be required by this paragraph for a transaction for which notification is required to be made, and has been made, pursuant to Section 7 A of the Clayton Act 15 U. e. 18a.

Commissioner Starek concurring in the result only. 610 FEDERAL TRADE COMMISSI00I DECISIONS Complaint 124 FTC.