[Federal Register: April 30, 2007 (Volume 72, Number 82)]
[Notices]
[Page 21286-21298]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap07-87]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Amsted Industries, Inc.; Proposed Final Judgment
and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act (``APPA''), 15 U.S.C. 16(b)-(h), that a proposed Final
Judgment, Hold Separate Stipulation and Order, and Competitive Impact
Statement have been filed with the United States District Court for the
District of Columbia in United States of America v. Amsted Industries.
Inc., Civil Action No. 1:07-cv-00710. On April 18, 2007, the United
States filed a Complaint alleging that the acquisition by Amsted
Industries (``Amsted'') of the end-of-car cushioning assets (``EOCCs'')
of FM Industries (``FMI''), a subsidiary of Progress Rail Services
Holding Corporation, violated Section 7 of the Clayton Act, 15 U.S.C.
18, and Section 2 of the Sherman Act, 15 U.S.C. 2. The proposed Final
Judgment, filed at the same time as the Complaint, requires Amsted to
divest without compensation all FMI intangible assets and all FMI tools
and patterns used for imparting the shape, form, or finish to EOCCs.
The proposed Final Judgment also requires Amsted to license royalty
free and in perpetuity certain Amsted intangible assets and to make
available all Amsted tools and patterns used for imparting the shape,
form, or finish to EOCCs. Finally, the proposed Final Judgment requires
Amsted to release market participants from restrictive covenants, as
well as to notify the United States of future transactions.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection at the U.S. Department of
Justice, Antitrust Division, Antitrust Documents Group, 325 7th Street,
NW., Room 215, Washington, DC 20530 (telephone: 202-514-2481), on the
Department of Justice's Web site at http://www.usdoj.gov/atr, and at
the Clerk Office of the Clerk of the United States District Court for
the District of Columbia. Copies of these materials may be obtained
from the Antitrust Division upon request and payment of the copying fee
set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Maribeth Petrizzi, Chief, Litigation II, Antitrust Division,
Department of Justice, Washington, DC 20530, (telephone: 202-307-0924).
J. Robert Kramer II,
Director of Operations, Antitrust Division.
United States District Court for the District of Columbia
United States of America, Department of Justice, Antitrust
Division, 1401 H Street, NW., Suite 3000, Washington, DC 20530,
Plaintiff, v. Amsted Industries, Inc., Two Prudential Plaza, 180
North Stetson Street, Suite 1800, Chicago, IL 60601, Defendant. Case
No. 1:07-CV-00710. Judge: Bates, John D. Deck Type: Antitrust. Date
Stamp: April 18, 2007.
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil antitrust
action to obtain equitable and other relief against defendant Amsted
Industries, Inc. (``Amsted'') to remedy the harm to competition caused
by Amsted's acquisition of FM Industries (``FMI''). The United States
alleges as follows:
I. Nature of Action
1. Prior to Amsted's acquisition of FMI on December 1, 2005, the
two firms vigorously competed with each other to sell new and
reconditioned end-of-car cushioning units (``IEOCCs'') to railroads
throughout the United States.
2. Amsted's acquisition of FMI has reduced the number of new EOCC
suppliers from two to one, resulting in a merger to monopoly. The
transaction also has reduced the number of reconditioned EOCC suppliers
from three to two. Amsted's acquisition of FMI consolidated 90 percent
of all EOCC sales in the United States.
3. The transaction has substantially lessened competition in the
design, manufacture, and sale of new and reconditioned EOCCs and has
created a monopoly in the design, manufacture, and sale of new EOCCs.
As a result, prices for new and reconditioned EOCCs have increased and
likely will continue to increase, the quality of EOCCs likely will
decline, innovation relating to EOCCs likely will decline, and services
currently offered in the EOCC markets have become and will continue to
be less favorable to railroad customers. The United States, through
this suit, asks the court to declare the defendant's conduct illegal
and to restore the benefits of competition that were lost as a result
of the transaction.
II. Jurisdiction and Venue
4. The United States brings this action against defendant Amsted
under Section 15 of the Clayton Act, 15 U.S.C. 25, as
[[Page 21287]]
amended, to prevent and restrain Amsted from continuing to violate
Section 7 of the Clayton Act, 15 U.S.C. 18, and Section 2 of the
Sherman Act, 15 U.S.C. 2.
5. Defendant designs, manufactures, and sells new and reconditioned
EOCCs in the flow of interstate commerce. Defendant's activities in
designing, manufacturing, and selling EOCCs substantially affect
interstate commerce. This Court has subject matter jurisdiction over
this action and over the defendant pursuant to Section 12 of the
Clayton Act, 15 U.S.C. 22, and 28 U.S.C. 1331, 1337(a), and 1345.
6. Venue is proper in this district pursuant to 28 U.S.C. 1391(c).
Defendant has consented to venue and personal jurisdiction in this
judicial district.
III. Parties to the Transaction
7. Amsted is a Delaware corporation with its principal place of
business in Chicago, Illinois. Amsted's EOCC sales in the United States
are made through its wholly owned subsidiary, ASF-Keystone. ASF-
Keystone is a Delaware corporation with its principal place of business
in Granite City, IL. Amsted is a diversified manufacturer of industrial
components for the railroad, vehicular, and construction markets.
Amsted's products include a range of railroad car parts, including
couplers, side frames, bolsters, draft gears, and EOCCs. In 2005,
Amsted had approximately $2.5 billion in sales. Amsted's EOCC
manufacturing facility is located in Camp Hill, PA. Amsted's new and
reconditioned EOCCs are shipped to customers throughout the United
States and account for approximately $22 million in sales.
8. Progress Rail Services Holding Corporation (``Progress Rail'')
is a Delaware corporation with its principal place of business in
Albertville, AL and is a wholly owned subsidiary of Caterpillar, Inc.,
a Delaware corporation. Progress Rail is one of the largest suppliers
of new and reconditioned railroad car parts, rail and trackwork
components, and railroad car repair services to the railroad industry
in the United States. Progress Rail has manufacturing facilities in 23
states, Canada, and Mexico. In 2005, Progress Rail had approximately
$1.2 billion in sales.
9. Progress Rail's EOCC sales in the United States were made
through its wholly owned subsidiary, FMI, formerly a Texas corporation
with its principal place of business and EOCC manufacturing facility in
Fort Worth, TX. FMI shipped new and reconditioned EOCCs to customers
throughout the United States. In 2005, FMI had sales of approximately
$24 million.
IV. The Transaction
10. On December 1, 2005, Amsted and Progress Rail completed an
asset swap by which Progress Rail conveyed to Amsted its wholly owned
subsidiary, FMI. On April 25, 2006, Amsted dismantled FMI by firing its
employees and disposing of virtually all FMI plant equipment through an
auction.
V. Trade and Commerce
A. The Relevant Product Markets
11. All freight cars undergo considerable stress from
``longitudinal'' forces, or forces exerted along the length of the
train. During transit, freight cars are subjected to alternating
longitudinal forces called draft and buff forces. Draft forces are
pulling forces caused by train acceleration when freight cars are
stretched or pulled apart. Buff forces are compressive forces caused by
train deceleration when freight cars are pushed together. Freight cars
also undergo considerable stress during switching and coupling at train
depots. In order for a railroad to connect one freight car to another,
it must collide the cars at significant speed. The impacts sustained
during switching and coupling, like draft and buff forces, can cause
serious damage to sensitive cargo inside a freight car.
12. All freight cars are equipped with some type of energy
absorption device to mitigate the effects of draft, buff, and coupling
stresses. The most common device is a draft gear, which provides the
minimum protection required for safe railroad operation. Draft gears
rely on friction between two steel plates to absorb and dissipate the
energy created by longitudinal forces impacting the freight car.
Another type of device is commonly referred to as an ``elastomeric
device.'' Elastomeric devices are lightweight and low cost, but they
are not suitable for all applications as they return much of the
absorbed energy back into the draft system.
13. Railroads must use EOCCs, a specialized energy absorption
device, when transporting sensitive cargos on freight cars. These shock
absorbing devices use hydraulics (e.g., pressurized nitrogen gas and
oils) to minimize longitudinal forces by absorbing and dissipating the
maximum buff, draft, and coupling forces experienced during transit. By
reducing and absorbing the forces exerted on freight cars, EOCCs ensure
that sensitive cargo is not damaged during transit. Each EOCC unit
consists of a piston, shaft, cylinder, end bells, and a rod that
attaches the piston to the freight car coupler. Each EOCC-equipped
freight car requires two EOCCs, one at each end of the freight car.
14. Other energy absorption devices, such as draft gears and
elastomeric devices, do not provide the necessary level of cushioning
required by customers shipping sensitive goods on freight cars. EOCCs
therefore are critical components for freight cars carrying sensitive
commodities, such as steel coils, automobile products, electronics,
lumber, and paper products. Railroads and new freight car builders do
not consider the price or availability of draft gears or elastomeric
devices when soliciting prices for EOCCs from prospective suppliers.
15. Though sensitive cargos can be transported by ``intermodal''
freight cars with articulated connectors, railroads cannot substitute
intermodal transportation for freight cars equipped with EOCCs.
Intermodal freight cars are specially designed railcars that allow
standard cargo containers to be stacked for rail transport. The cars
must travel in groups connected by a ``slackless'' articulated coupling
system. The coupling system transfers longitudinal forces to the ends
of the intermodal group, protecting the containers from damage.
Intermodal freight cars with articulated connectors do not provide
sufficient cushioning for sensitive commodities, cannot physically
transport certain sensitive commodities (such as automobiles and
certain lumber products), and are subject to additional costs and
operational constraints. When soliciting prices for EOCCs from
prospective suppliers, railroad customers do not consider the cost or
availability of transporting goods using intermodal freight cars.
16. Accordingly, railroad customers can use only freight cars
equipped with EOCCs to carry certain sensitive goods and cannot
substitute draft gears, elastomeric devices, or intermodal transport
for EOCCs on freight cars.
17. Railroad customers use either new or reconditioned EOCCs when
equipping freight cars. However, customers building new freight cars
almost always are required to use only new EOCCs in construction. Thus,
customers building new freight cars would be unable to substitute
reconditioned EOCCs in building new cars.
18. Similarly, customers servicing older freight cars that have
been in service for more than a decade almost always choose
reconditioned EOCCs because the cost of reconditioned units is
substantially lower than the cost of
[[Page 21288]]
new units. Thus, customers are unlikely to substitute new EOCCs for
reconditioned EOCCs for use on older freight cars.
19. A small but significant increase in the price of new EOCCs
would not cause purchasers to substitute draft gear, elastomeric
devices, intermodal cars, or reconditioned EOCCs so as to make such a
price increase unprofitable. Accordingly, the design, manufacture, and
sale of new EOCCs is a separate and distinct line of commerce and a
relevant product market for the purpose of analyzing the effects of the
acquisition under Section 7 of the Clayton Act and Section 2 of the
Sherman Act.
20. A small but significant increase in the price of reconditioned
EOCCs would not cause purchasers to substitute draft gear, elastomeric
devices, intermodal cars, or new EOCCs so as to make such a price
increase unprofitable. Accordingly, the design, manufacture, and sale
of reconditioned EOCCs is a separate and distinct line of commerce and
a relevant product market for the purpose of analyzing the effects of
the acquisition under Section 7 of the Clayton Act and Section 2 of the
Sherman Act.
B. The Relevant Geographic Market
21. All EOCCs in the United States are designed, manufactured, and
sold in the United States. Amsted sells, and FMI sold, EOCCs to
customers located throughout the United States.
22. The United States is the relevant geographic market for
purposes of analyzing the effects of the acquisition under Section 7 of
the Clayton Act and Section 2 of the Sherman Act.
C. Anticompetitive Effects
23. Before Amsted's acquisition of FMI, the markets for EOCCs were
highly concentrated. For new EOCCs, the merging entities were the only
two suppliers. For reconditioned EOCCs, the market was limited to three
suppliers, and the merging parties had a combined market share of over
80%. The markets became substantially more concentrated following the
acquisition. Using the Herfindahl-Hirschman Index (``HHI''), an
explanation of which appears in Appendix A attached hereto, the
transaction resulted in a post-merger concentration of over 7000 (an
increase of over 2700) in the market for reconditioned EOCCs, while the
consolidation in the market for new EOCCs resulted in a monopoly.
24. Amsted and FMI directly constrained each other's prices,
limiting overall price increases for new and reconditioned EOCCs
despite significant materials cost increases. Before the transaction,
Amsted created forecasts that contemplated significant price increases
resulting from the merger. These price increases were aimed at
achieving certain margin targets each year that would result in total
additional profits of over $17 million during the first three years
following the acquisition. According to the forecasts, achieving this
goal would require an overall price increase of 4% in 2006, 10% in
2007, and 5% in 2008, beyond increases in costs.
25. Amsted pricing data shows that Amsted raised prices
substantially following its acquisition of FMI. For new EOCCs,
customers who did not have the pricing protection of long-term
contracts paid on average approximately 14% more in February 2006 than
they did in November 2005. For reconditioned EOCCs, customers without
long-term contracts paid an average increase of approximately 5% during
the same time period.
26. Purchasers of new and reconditioned EOCCs in the United States
benefitted from the vigorous and aggressive competition between Amsted
and FMI through lower prices, higher quality, more innovation, and
better service. Without the competitive constraint of head-to-head
competition from FMI, Amsted has had and will continue to have the
ability to exercise market power by raising prices, lowering product
quality, decreasing services, and lessening product innovation.
27. The acquisition by Amsted of FMI has removed a significant
competitor in the already highly concentrated new and reconditioned
EOCC markets. The resulting substantial increase in concentration and
loss of competition has denied EOCC customers the benefits of
competition, in violation of Section 7 of the Clayton Act and Section 2
of the Sherman Act.
D. Entry Into the Production and Sale of New and Reconditioned EOCCs
28. Entry into the design, manufacture, and sale of new or
reconditioned EOCCs will not be timely, likely, or sufficient to
counter the anticompetitive effects of the transaction. A new entrant
to either market would require certifications and approvals from the
Association of American Railroads (``AAR''), including facility
certification and design certification for each EOCC model to be
manufactured or reconditioned. Additionally, the AAR requires that a
new entrant undergo a conditional approval period during which
production is monitored and significantly limited.
29. It is essential that a new entrant into either the new or
reconditioned EOCC markets have sufficient technical know-how regarding
the product in order to design and sell EOCCs. Thus, a new entrant must
invest in significant design and engineering expertise in order to
create the necessary tooling and intellectual property required to
successfully manufacture new or reconditioned EOCCs according to AAR
standards and railroad customer requirements.
30. A new entrant into the new or reconditioned EOCC markets also
must produce EOCCs in sufficient quantities and with sufficiently
consistent quality to assure railroad customers that the new and
reconditioned EOCCs will provide the necessary level of cushioning
required to protect sensitive cargo. Achieving this quality reputation
requires an additional investment in time and money by any new entrant.
31. Although the manufacturing processes for new and reconditioned
EOCCs are similar, both require unique inputs that are not readily
available in the marketplace. For example, the manufacture of new EOCCs
requires the use of patented designs and proprietary molds that are not
needed in the reconditioning process. Similarly, the manufacture of
reconditioned EOCCs requires the application of certain machining
techniques and testing processes that are unique to the EOCC
reconditioning market.
32. Therefore, entry by any firm into the new or reconditioned EOCC
markets would not be timely, likely, or sufficient to counter
anticompetitive price increases imposed by Amsted.
VI. First Cause of Action (Violation of Section 7 of the Clayton Act)
33. The United States incorporates the allegations of paragraphs 1
through 32 above.
34. On or about December 1, 2005, Amsted acquired FMI and its
associated EOCC assets used in the manufacture of new and reconditioned
EOCCs. The effect of this acquisition has been substantially to lessen
competition in interstate trade and commerce in violation of Section 7
of the Clayton Act.
35. The transaction has had the following effects, among others:
a. Competition in the new and reconditioned EOCC markets has been
lessened substantially;
b. Actual and potential competition between Amsted and FMI in the
design, manufacture, and sale of new and reconditioned EOCCs in the
United States has been eliminated; and
[[Page 21289]]
c. Prices for new and reconditioned EOCCs have increased and likely
will continue to increase, the quality of EOCCs likely will decline,
innovation relating to EOCCs likely will decline, and services
currently offered in the EOCC markets have become and will continue to
be less favorable to railroad customers.
Second Cause of Action (Violation of Section 2 of the Sherman Act)
36. The United States incorporates the allegations of paragraphs 1
through 32 above.
37. On or about December 1, 2005, Amsted willfully created monopoly
power by acquiring FMI, its only competitor in the manufacture and sale
of new EOCCs. The effect of this acquisition has been to create a
monopoly in violation of Section 2 of the Sherman Act.
38. The transaction has had the following effects, among others:
a. The combination created a monopoly for the sale of new EOCCs in
the United States;
b. Actual and potential competition between Amsted and FMI in the
design, manufacture, and sale of new EOCCs in the United States has
been eliminated; and
c. Prices for new EOCCs have increased and likely will continue to
increase, the quality of new EOCCs likely will decline, innovation
relating to new EOCCs likely will decline, and services currently
offered in the new EOCC market have become and will continue to be less
favorable to railroad customers.
VII. Requested Relief
39. The United States requests that this Court:
a. Adjudge and decree the acquisition of FMI and its assets by
defendant Amsted to violate Section 7 of the Clayton Act, 15 U.S.C. 18
and Section 2 of the Sherman Act, 15 U.S.C. 2;
b. Compel Amsted to divest all FMI EOCC intangible assets, in
addition to all tools and patterns used for imparting the shape, form,
or finish of EOCC components, and to take any further actions necessary
to restore the market to the competitive position that existed prior to
the acquisition;
c. A ward the United States the cost of this action; and
d. Grant the United States such other and further relief as the
case requires and the Court deems just and proper.
Respectfully submitted,
April 18, 2007.
For Plaintiff United States:
/s/--------------------------------------------------------------------
Gerald F. Masoudi Bar No. 466120,
Deputy Assistant Attorney General.
/s/--------------------------------------------------------------------
J. Robert Kramer II,
Director of Operations.
/s/--------------------------------------------------------------------
Maribeth Petrizzi Bar No. 435204,
Chief, Litigation II Section.
Dorothy B. Fountain Bar No. 439469,
Assistant Chief, Litigation II Section.
/s/--------------------------------------------------------------------
C. Scott Hataway Bar No. 473942,
Raven M. Norris,
Robert W. Wilder,
Attorneys U.S. Department of Justice Antitrust Division, Litigation
II Section, 1401 H Street, NW., Suite 3000, Washington, DC 20530.
Appendix A--Herfindahl-Hirschman Index
``HHI'' means the Herfindahl-Hirschman Index, a commonly
accepted measure of market concentration. It is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers. For example, for a market
consisting of four firms with shares of thirty, thirty, twenty, and
twenty percent, the HHI is 2600 (30\2\ + 30\2\ + 20\2\ + 20\2\ =
2600). The HHI takes into account the relative size and distribution
of the firms in a market and approaches zero when a market consists
of a large number of firms of relatively equal size. The HHI
increases both as the number of firms in the market decreases and as
the disparity in size between those firms increases.
Markets in which the HHI is between 1000 and 1800 points are
considered to be moderately concentrated and those in which the HHI
is in excess of 1800 points are considered to be highly
concentrated. Transactions that increase the HHI by more than 100
points in highly concentrated markets presumptively raise antitrust
concerns under the Horizontal Merger Guidelines issued by the U.S.
Department of Justice and the Federal Trade Commission. See
Horizontal Merger Guidelines Sec. 1.51.
Final Judgment
Whereas, plaintiff, United States of America, filed its Complaint
on April 18, 2007, and the United States and defendant, Amsted
Industries, Inc. (``Amsted''), by their respective attorneys, have
consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law, and without this Final
Judgment constituting any evidence against or admission by any party
regarding any issue of fact or law;
And whereas, Amsted agrees to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt and
certain divestiture of certain rights and assets by Amsted to assure
that competition is substantially restored;
And whereas, the United States requires Amsted to make certain
divestitures, grant certain licenses, release all market participants
of any Restrictive Covenants, and provide notification of any future
transactions within 10 years of this Final Judgment for the purpose of
remedying the lost competition alleged in the Complaint;
And Whereas, Amsted has represented to the United States that the
divestitures, license grants, release of Restrictive Covenants, and
notification of future transactions, as required below, can and will be
made and that Amsted will later raise no claim of hardship or
difficulty as grounds for asking the Court to modify any of the
divestiture provisions contained below;
Now Therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is Ordered, Adjudged and Decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against Amsted under Section 7 of the Clayton
Act, 15 U.S.C. 18, as amended, and Section 2 of the Sherman Act, 15
U.S.C. 2.
II. Definitions
As used in this Final Judgment:
A. ``Amsted'' means defendant Amsted Industries, Inc., a Delaware
corporation with its headquarters in Chicago, IL, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
B. ``FMI'' means FM Industries, Inc., a Texas corporation and
former subsidiary of Progress Rail, engaged in the development,
production, and sale of EOCCs until it was acquired by Amsted on
December 1, 2005.
C. ``Progress Rail'' means Progress Rail Services Holding
Corporation, a Delaware corporation with headquarters in Albertville,
AL, its successors and assigns, and its subsidiaries, divisions,
groups, affiliates, partnerships, and joint ventures, and their
directors, officers, managers, agents and employees.
D. ``EOCC'' means end-of-car cushioning unit, a hydraulic energy
absorption device used to absorb and dissipate buff, draft, and
coupling forces exerted on freight railcars.
E. ``Acquirer'' means Wabtec Corporation, the entity to whom Amsted
[[Page 21290]]
shall divest the Divested Assets and grant the Supplemental Asset
License.
F. ``Alternative Acquirer'' means the entity to whom Amsted shall
divest the Divested Assets and grant the Supplemental Asset License in
the event that the Acquirer is unable or unwilling to receive the
Divested Assets or the Supplemental Asset License.
G. ``Divested Assets'' means all FMI intangible assets owned or
controlled by Amsted and all FMI tools and patterns owned or controlled
by Amsted and used for imparting the shape, form, or finish to EOCC
components, including:
1. All detail and arrangement drawings, customer drawings,
schematics, blueprints, designs, design validation testing reports, and
design review notes;
2. All specifications, manufacturing plans, assembly instructions,
standard operating procedures, and work instructions related to the
manufacturing process, including those related to tool speeds, feeds,
special cutting tools, materials used, grinding and polishing, plating
temperatures and processes, material thicknesses, seals, welding, and
heat treatment;
3. All dies, castings, patterns, molds, models, toolings, fixtures,
jigs, and gages;
4. All safety procedures and quality assurance documentation and
instructions, including quality control plans, inspection frequency and
criteria, work instructions, testing criteria, supplier manufacturing
requirements, regulatory certifications, testing equipment
specifications, surface finish instrument specifications, pressure/
leakage testing and specifications, gage specifications, product
validation, qualification, acceptance, and rejection criteria, and all
related empirical performance measurements, data, and reports;
5. All supplier contact lists, customer contact lists, material
lists, materials safety data sheets, substitute material lists,
historic pricing and sales volume information, customer complaints,
product serialization data, warranty information, product failure
reports, market analyses, and all contracts, agreements, leases,
commitments, or understandings with suppliers or customers;
6. All intellectual property (``IP'') assets or rights that have
been used in the development, production, servicing, and sale of EOCCs,
including but not limited to the names ``FMI,'' ``FM Industries,'' and
``Freight Master,'' all patents, including FMI's patented active draft
technology (U.S. patent number 6,237,733 ``Internal neutral Positioning
Spring''), all licenses, rights, and sublicenses, trademarks, trade
names, service marks, service names, technical information, computer
software and related documentation, know-how, trade secrets, approvals,
certifications, advertising literature, and all manuals and technical
information provided to the employees, customers, suppliers, agents, or
licensees of FMI; and
7. All research data concerning historic and current research and
development efforts, including designs of experiments, and the results
of unsuccessful designs and experiments relating to the production and
design of EOCCs.
Among the Divested Assets, the divestiture of U.S. Patent number
6,237,733 ``Internal Neutral Positioning Spring'' will be transferred
subject to a perpetual, royalty-free license to Amsted.
H. ``Person'' means any natural person, corporate entity,
partnership, association, joint venture, government entity, or trust.
I. ``Restrictive Covenants'' means all agreements, contracts,
understandings, or arrangements between Amsted and any other person
restricting competition in the development, production, and sale of
EOCCs, including non-compete agreements between Amsted and former FMI
employees; non-compete agreements between Amsted and current or former
Amsted employees; and any exclusivity arrangements between Amsted and
any of its suppliers or customers. The term Restrictive Covenants does
not include Section 8.7 ``Post-Closing Non-Compete'' of Amsted's Asset
Purchase Agreement with Progress Rail dated December 1, 2005. The term
Restrictive Covenants does not include agreements between Amsted and
Amsted's current and former employees to the extent those agreements
prevent the disclosure of confidential information.
J. ``Supplemental Asset License'' means a perpetual royalty-free
license to and copy of all Amsted's intangible assets used in the
development, production, or sale of EOCCs, and a limited license to use
certain Amsted tangible assets used in the development, production, or
sale of EOCCs, including:
1. All detail and arrangement drawings, customer drawings,
schematics, blueprints, designs, design validation testing reports, and
design review notes;
2. All specifications, manufacturing plans, assembly instructions,
standard operating procedures, and work instructions related to the
manufacturing process, including those related to tool speeds, feeds,
special cutting tools, materials used, grinding and polishing, plating
temperatures and processes, material thicknesses, seals, welding, and
heat treatment;
3. The use for two (2) years of all Amsted-owned or controlled
dies, castings, patterns, molds, models, toolings, fixtures, jigs, and
gages employed by Amsted suppliers in the production of EOCC
components;
4. All safety procedures and quality assurance documentation and
instructions, including quality control plans, inspection frequency and
criteria, work instructions, testing criteria, supplier manufacturing
requirements, testing equipment specifications, surface finish
instrument specifications, pressure/leakage testing and specifications,
gage specifications, product validation, qualification, acceptance, and
rejection criteria, and all related empirical performance measurements,
data, and reports; and
5. Amsted's patented active draft technology, U.S. Patent number
6,357,612 ``Rail Car Cushioning Device;''
The term ``Supplemental Asset License'' shall not include tangible or
intangible assets exclusively used in the production or sale of
products other than EOCCs, and also shall not include Amsted cost data,
price data, revenue data, research and development information, or
customer contract information.
III. Applicability
A. This Final Judgment applies to Amsted, as defined above, and all
other persons in active concert or participation with it who receive
actual notice of this Final Judgment by personal service or otherwise.
B. Amsted shall require, as a condition of the sale or other
disposition of all or substantially all of their assets or of lesser
business units that include the Divested Assets, or the assets
underlying the Supplemental Asset License, that the purchaser will
agree to be bound by the provisions of this Final Judgment.
IV. Divestiture
A. Amsted is hereby ordered and directed, within sixty (60)
calendar days after the filing of the Complaint in this matter, or five
(5) days after notice of the entry of this Final Judgment by the Court,
whichever is later, to divest the Divested Assets and grant the
Supplemental Asset License to the Acquirer, all in a manner consistent
with this Final Judgment. The United States, in its sole discretion,
may agree to one or more extensions of this time period not to exceed
sixty (60) days in
[[Page 21291]]
total, and shall notify the Court in such circumstances. Amsted agrees
to use its best efforts to divest the Divested Assets and grant the
Supplemental Asset License as expeditiously as possible. Amsted also
agrees that it shall receive no compensation or anything of value for
divesting the Divested Assets or granting the Supplemental Asset
License pursuant to this Final Judgment.
B. In accomplishing the divestiture and licenses ordered by this
Final Judgment, Amsted promptly shall inform the Acquirer that the
Divested Assets and Supplemental Asset License are being conveyed
pursuant to this Final Judgment and provide the Acquirer a copy of this
Final Judgment. Amsted shall offer to furnish to the Acquirer, subject
to customary confidentiality assurances, all information and documents
relating to the Divested Assets and Supplemental Asset License
customarily provided in a due diligence process, except such
information or documents subject to the attorney-client or work-product
privileges. Amsted shall make available such information to the United
States at the same time that such information is made available to any
other person.
C. Amsted shall permit the Acquirer to have reasonable access to
personnel and to any and all financial, operational, or other documents
and information customarily provided as part of a due diligence
process. Amsted shall provide information giving the identity and
function of the personnel involved in the operation and management of
both Amsted and FMI to enable the Acquirer to make offers of
employment. Amsted will not interfere with any negotiations by the
Acquirer to employ any Amsted employee.
D. Amsted shall unilaterally release all persons from any
Restrictive Covenants related to the production, development, or sale
of EOCCs. If after one year from the entry of this Final Judgment, the
Acquirer has failed to deliver an EOCC manufactured or reconditioned by
the Acquirer to a railroad industry customer, Amsted shall also
unilaterally release Progress Rail from Section 8.7 of Amsted's Asset
Purchase Agreement with Progress Rail dated December 1, 2005 (''Post-
Closing Non-Compete'').
E. Amsted shall preserve and maintain the Divested Assets and the
assets licensed under the Supplemental Asset License and shall not
license, transfer, encumber, or otherwise impair the value of such
assets while the divestiture is pending.
F. Amsted shall use commercially reasonable efforts to facilitate
the transfer of EOCC cores from Amsted's facilities at the request of
railroad customers. Amsted shall take no action the effect of which is
to interfere with or impede the transfer of EOCC cores owned by
railroad customers to the Acquirer or the ability of the Acquirer to
compete effectively in the sale of reconditioned EOCCs.
G. Amsted shall not take any action that will impede in any way the
permitting, operation, or divestiture of the Divested Assets or
Supplemental Asset License.
H. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV of this Final Judgment shall include
the entire Divested Assets and Supplemental Asset License, and shall be
accomplished in such a way as to satisfy the United States, in its sole
discretion, that the Divested Assets and Supplemental Asset License can
and will be used by the Acquirer as part of an economically viable,
ongoing business engaged in the production and sale of EOCCs in the
United States. The divestiture shall be accomplished so as to satisfy
the United States, in its sole discretion, that:
1. The Divestiture Assets and Supplemental Asset License will
remain viable and that the divestiture will remedy the competitive harm
alleged in the Complaint; and
2. None of the terms of any agreement between the Acquirer and
Amsted gives Amsted the ability unreasonably to raise the Acquirer's
costs, to lower the Acquirer's efficiency, or otherwise to interfere in
the ability of the Acquirer to compete effectively in the production
and sale of EOCCs.
V. Appointment of Trustee To Effect Divestiture
A. In the event that the Acquirer is unable or unwilling to receive
the Divested Assets and Supplemental Asset License, Amsted shall notify
the United States of that fact in writing. Upon application of the
United States, the Court shall appoint a trustee selected by the United
States and approved by the Court to effect the divestiture of the
Divested Assets and the grant of the Supplemental Asset License in a
manner consistent with this Final Judgment to an Alternative Acquirer
approved by the United States in its sole discretion.
B. Amsted shall use commercially reasonable efforts to facilitate
the transfer of EOCC cores from Amsted's facilities at the request of
railroad customers. Amsted shall take no action the effect of which is
to interfere with or impede the transfer of EOCC cores owned by
railroad customers to the Alternative Acquirer or the ability of the
Alternative Acquirer to compete effectively in the sale of
reconditioned EOCCs.
C. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section V of this Final Judgment shall include
the entire Divested Assets and Supplemental Asset License, and shall be
accomplished in such a way as to satisfy the United States, in its sole
discretion, that the Divested Assets and Supplemental Asset License can
and will be used by the Alternative Acquirer as part of an economically
viable, ongoing business engaged in the production and sale of EOCCs in
the United States. The divestiture shall be accomplished so as to
satisfy the United States, in its sole discretion, that:
1. The Alternative Acquirer has the intent and capability
(including the necessary managerial, operational, technical, and
financial capability) to compete effectively in the production and sale
of EOCCs;
2. None of the terms of any agreement between the Alternative
Acquirer and Amsted gives Amsted the ability unreasonably to raise the
Alternative Acquirer's costs, to lower the Alternative Acquirer's
efficiency, or otherwise to interfere in the ability of the Alternative
Acquirer to compete effectively in the production and sale of EOCCs;
and
3. The Divested Assets and Supplemental Asset License will remain
economically viable and the divestiture will remedy the competitive
harm alleged in the Complaint.
D. After the appointment of a trustee becomes effective, only the
trustee shall have the right to convey the Divested Assets and
Supplemental Asset License. The trustee shall have the power and
authority to accomplish the divestiture to an Alternative Acquirer
approved by the United States, subject to the provisions of Sections
IV, V, and VI of this Final Judgment, and shall have such other powers
as this Court deems appropriate. The divestiture of the Divested Assets
and the grant of the Supplemental Asset License shall be made without
any cost to the Alternative Acquirer or any compensation to Amsted.
Subject to Section V(E) of this Final Judgment, the trustee may hire at
the cost and expense of Amsted any investment bankers, attorneys,
accountants, or any other agents and outside contractors who shall be
solely accountable to the trustee, reasonably necessary in the
trustee's judgment to assist in the divestiture.
[[Page 21292]]
E. Amsted shall not object to a grant or conveyance by the trustee
on any ground other than the trustee's malfeasance. Any such objections
by Amsted must be in writing to the United States and the trustee
within ten (10) calendar days after the trustee has provided the notice
required under Section VI.
F. The trustee shall serve at the cost and expense of Amsted, on
such terms and conditions as the United States approves, and shall
account for all costs incurred from the conveyance of the Divested
Assets and Supplemental Asset License. The compensation of the trustee
and any professionals and agents retained by the trustee shall be
reasonable in light of the fair market value of the Divested Assets and
Supplemental Asset License, and based on a fee arrangement providing
the trustee with an incentive based on the speed with which the
divestiture is accomplished.
G. Amsted shall use its best efforts to assist the trustee in
accomplishing the required divestiture. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities relating to the assets to be divested, and the
Supplemental Asset License; and Amsted shall develop financial and
other information relevant to such business as the trustee may
reasonably request, subject to customary confidentiality protection.
Amsted shall take no action to interfere with or to impede the
trustee's accomplishment of the divestiture.
H. After appointment, the trustee shall file monthly reports with
the United States and the Court setting forth the trustee's efforts to
accomplish the divestiture ordered under this Final Judgment. To the
extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. Such reports shall include the name, address, and telephone
number of each person who, during the preceding month, made an offer to
acquire, expressed an interest in acquiring, entered into negotiations
to acquire, or was contacted or made an inquiry about acquiring, any
interest in the Divested Assets or Supplemental Asset License and shall
describe in detail each contact with any such person. The trustee shall
maintain full records of all efforts made to divest the Divested Assets
or grant the Supplemental Asset License.
I. If the trustee has not accomplished such divestiture within six
(6) months after its appointment, the trustee shall promptly file with
the Court a report setting forth (1) the trustee's efforts to
accomplish the required divestiture; (2) the reasons, in the trustee's
judgment, why the required divestiture has not been accomplished; and
(3) the trustee's recommendations. To the extent such reports contain
information that the trustee deems confidential, such reports shall not
be filed in the public docket of the Court. The trustee shall at the
same time furnish such report to the United States who shall have the
right to make additional recommendations consistent with the purpose of
the trust. The Court thereafter shall enter such orders as it shall
deem appropriate to carry out the purpose of the Final Judgment, which
may, if necessary, include extending the trust and the term of the
trustee's appointment by a period requested by the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, the trustee shall notify the United States and
Amsted of any proposed divestiture required by Section V of this Final
Judgment. The notice shall set forth the details of the proposed
divestiture and grant of the Supplemental Asset License, and list the
name, address, and telephone number of each person not previously
identified who offered or expressed an interest in or desire to acquire
any ownership interest in the Divested Assets or the Supplemental Asset
License together with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Amsted, the
proposed Alternative Acquirer, any other third party, or the trustee if
applicable, additional information concerning the proposed divestiture,
the proposed Alternative Acquirer, and any other potential Alternative
Acquirer. Amsted and the trustee shall furnish any additional
information requested within fifteen (15) calendar days of the receipt
of the request, unless the parties shall otherwise agree.
C. Within (a) thirty (30) calendar days after receipt of the notice
or (b) twenty (20) calendar days after the United States has been
provided the additional information requested from Amsted, the proposed
Alternative Acquirer, any third party, or the trustee, whichever is
later, the United States shall provide written notice to Amsted and the
trustee stating whether or not it objects to the proposed divestiture.
If the United States provides written notice that it does not object,
the divestiture may be consummated, subject only to Amsted's limited
right to object to the conveyance under Section V(E) of this Final
Judgment. Absent written notice that the United States does not object
to the proposed Alternative Acquirer or upon objection by the United
States, the divestiture proposed under Section V shall not be
consummated. Upon objection by Amsted under Section V(E), the
divestiture proposed under Section V shall not be consummated unless
approved by the Court.
VII. Financing
Amsted shall not finance all or any part of any purchase or
divestiture made pursuant to Section IV or V of this Final Judgment.
VIII. Hold Separate
Until the divestiture required by this Final Judgment has been
accomplished, Amsted shall take all steps necessary to comply with the
Hold Separate Stipulation and Order entered by this Court. Amsted shall
take no action that would jeopardize the divestiture ordered by this
Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestiture has been completed under Section IV or V, Amsted shall
deliver to the United States an affidavit as to the fact and manner of
its compliance with Section IV or V of this Final Judgment. Each such
affidavit shall describe in detail each contact with any person who,
during the preceding thirty (30) days, made an offer to acquire,
expressed an interest in acquiring, entered into negotiations to
acquire, or was contacted or made an inquiry about acquiring, any
interest in the Divested Assets or Supplemental Asset License including
the Acquirer or any potential Alternative Acquirer. Each such affidavit
shall also include a description of the efforts Amsted has taken to
convey the Divested Assets and Supplemental Asset License, and to
provide required information to the Acquirer, including the
limitations, if any, on such information. Assuming the information set
forth in the affidavit is true and complete, any objection by the
United States to information provided by Amsted, including limitations
on the information, shall be made within fourteen (14) calendar days of
receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Amsted shall deliver to the United States an affidavit
that describes all actions Amsted has taken and all
[[Page 21293]]
steps Amsted has implemented on an ongoing basis to comply with Section
VIII of this Final Judgment. Amsted shall deliver to the United States
an affidavit describing any changes to the efforts and actions outlined
in Amsted's earlier affidavits filed pursuant to this section within
fifteen (15) calendar days after the change is implemented.
C. Amsted shall keep all records of all efforts made to preserve
the Divested Assets and to convey the Divested Assets and Supplemental
Asset License until one year after such divestiture has been completed.
X. Compliance Inspection
A. For the purpose of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the United States
Department of Justice, including consultants and other persons retained
by the United States, shall, upon written request of a duly authorized
representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to Amsted, be permitted:
1. Access during Amsted's office hours to inspect and copy, or at
the United States' option, to require Amsted to provide copies of, all
books, ledgers, accounts, records and documents in the possession,
custody, or control of Amsted, relating to any matters contained in
this Final Judgment; and
2. To interview, either informally or on the record, Amsted's
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Amsted.
B. Upon the written request of a duly authorized representative of
the Assistant Attorney General in charge of the Antitrust Division,
Amsted shall submit written reports, under oath if requested, relating
to any of the matters contained in this Final Judgment as may be
requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by Amsted
to the United States, Amsted represents and identifies in writing the
material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(7) of the Federal Rules of
Civil Procedure, and Amsted marks each pertinent page of such material,
``Subject to claim of protection under Rule 26(c)(7) of the Federal
Rules of Civil Procedure,'' then the United States shall give Amsted
ten (10) calendar days notice prior to divulging such material in any
legal proceeding (other than a grand jury proceeding).
XI. Notification of Future Transactions
A. Unless such transaction is otherwise subject to the reporting
and waiting period requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C. 18a (the ``HSR Act''),
Amsted shall not, without notifying the United States, directly or
indirectly acquire any assets of or any interest, including any
financial, security, loan, equity, or management interest, in the
development, production, or sale of EOCCs in the United States if the
value of such acquisition exceeds $1,000,000. This notification
requirement shall run for a period of ten years.
B. Such notification shall be provided to the United States in the
same format as, and per the instructions relating to, the Notification
and Report Form set forth in the Appendix to Part 803 of Title 16 of
the Code of Federal Regulations as amended, except that the information
requested in Items 5 through 9 of the instructions must be provided
only about EOCCs. Notification shall be provided at least thirty (30)
days prior to acquiring any such assets or interest, and shall include,
beyond what may be required by the applicable instructions, the names
of the principal representatives of the parties to the agreement who
negotiated the agreement, and any management or strategic plans
discussing the proposed transaction. If within the 30-day period after
notification, representatives of the United States make a written
request for additional information, Amsted shall not consummate the
proposed transaction or agreement until twenty (20) days after
submitting all such additional information. Early termination of the
waiting periods in this paragraph may be requested and, where
appropriate, granted in the same manner as is applicable under the
requirements and provisions of the HSR Act and rules promulgated
thereunder. This Section shall be broadly construed and any ambiguity
or uncertainty regarding the filing of notice under this Section shall
be resolved in favor of filing notice.
XII. No Reacquisition
Amsted may not reacquire any part of the Divested Assets or any
right, title or interest in the Supplemental Asset License during the
term of this Final Judgment.
XIII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten years from the date of its entry.
XV. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Date:------------------------------------------------------------------
Court approval subject to procedures of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
-----------------------------------------------------------------------
United States District Judge.
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment submitted for entry
in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
This case was brought because Defendant Amsted Industries, Inc.
(``Amsted'') acquired all of the assets of
[[Page 21294]]
FM Industries, Inc. (``FMI''), a business unit of Progress Rail
Services Holding Corporation, Inc. (``Progress Rail'').\1\ On April 25,
2006, Amsted dismantled FMI by firing its employees and disposing of
virtually all FMI plant equipment through an auction. The United States
filed a civil antitrust Complaint on April 18, 2007, alleging that the
acquisition lessened competition substantially for the design,
manufacture, and sale of new and reconditioned end-of-car cushioning
units (``EOCCs'') in violation of Section 7 of the Clayton Act, 15
U.S.C. 18, and Section 2 of the Sherman Act, 15 U. S. C. 2. This loss
of competition has impacted the rail industry through higher prices,
reduced services, and decreased innovation.
---------------------------------------------------------------------------
\1\ Progress Rail was subsequently acquired by Caterpillar Inc.
on May 16, 2006.
---------------------------------------------------------------------------
At the same time the Complaint was filed, the United States also
filed a Hold Separate Stipulation and Order and proposed Final
Judgment, which are designed to eliminate the anticompetitive effects
of the acquisition. Under the proposed Final Judgment, Amsted is
required to divest without compensation all intellectual property and
other intangible assets that it acquired from Progress Rail. In
addition, Amsted is required to grant a perpetual, royalty-free license
to certain Amsted-generated intellectual property and notify the United
States of future acquisitions related to EOCCs. Under the terms of the
Hold Separate Stipulation and Order, Amsted will take steps to ensure
that the divested assets remain economically viable during the pendency
of the ordered divestiture.
The United States and the defendant have stipulated that the
proposed Final Judgment may be entered after compliance with the APPA.
Entry of the proposed Final Judgment would terminate this action,
except that the Court would retain jurisdiction to construe, modify, or
enforce the provisions of the proposed Final Judgment and to punish
violations thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Parties to the Consummated Transaction
Amsted is a diversified manufacturer of industrial components for
the railroad, vehicular, and construction markets. Its products include
a range of railroad car parts, including couplers, side frames,
bolsters, draft gears; and EOCCs. Amsted's EOCC sales in the United
States are made through its wholly owned subsidiary, ASF-Keystone. ASF-
Keystone is a Delaware corporation with its principal place of business
in Granite City, IL.
Progress Rail, a wholly owned subsidiary of Caterpillar, Inc., is
one of the largest suppliers of new and reconditioned railroad car
parts, rail and trackwork components, and railroad car repair services
to the railroad industry in the United States. Progress Rail's EOCC
sales in the United States were made through its wholly owned
subsidiary, FMI, formerly a Texas corporation with its principal place
of business and EOCC manufacturing facility in Fort Worth, Texas.
Prior to the merger, Amsted and FMI were the only two manufacturers
of new EOCCs and two of only three manufacturers of reconditioned
EOCCs. The transaction lessened competition substantially for these
products. As a result, prices for new and reconditioned EOCCs have
increased and likely will continue to increase, the quality of EOCCs
likely will decline, innovation relating to EOCCs likely will decline,
and services currently offered in the EOCC markets have become and will
continue to be less favorable to railroad customers.
B. The Relevant Product Market: End-of-Car Cushioning Units
Railroad freight cars undergo considerable stress during transit
due to longitudinal forces known as draft and buff forces. Draft forces
are pulling forces caused by train acceleration when freight cars are
stretched or pulled apart. Buff forces are compressive forces caused by
train deceleration when freight cars are pushed together. If not
absorbed and dissipated, the energy from draft and buff forces can
cause considerable damage to both car and cargo. Freight cars also
undergo considerable stress during switching and coupling at train
depots. In order for a railroad to connect one freight car to another,
it must collide the cars at significant speed. The impact sustained
during switching and coupling, like draft and buff forces, can cause
serious damage to sensitive cargo inside a freight car.
Railroads must equip all freight cars with energy absorption
devices to mitigate the effects of draft, buff, and coupling stresses.
The most common device is known as a draft gear, which provides the
minimum protection required for safe railroad operation. Draft gears
rely on friction between two steel plates to absorb and dissipate the
energy created by longitudinal forces impacting the freight car.
Another type of device is commonly referred to as an ``elastomeric''
device. These devices use an elastic substance (e.g., rubber) and steel
coils to absorb the draft, buff, and coupling stresses. Elastomeric
devices are lightweight and low cost, but they are not suitable for all
applications as they return much of the absorbed energy back into the
draft system. Neither draft gears nor elastomers are sufficient to
protect sensitive cargos.
When transporting sensitive cargos in traditional freight cars,
railroads must use EOCCs to absorb and dissipate the maximum buff,
draft, and coupling forces. These devices use hydraulics (e.g.,
pressurized nitrogen gas and oils) to minimize longitudinal forces and
ensure that sensitive cargo is not damaged during transit. Each EOCC
unit consists of a piston, shaft, cylinder, end bells, and a rod that
attaches the piston to the freight car coupler. Each EOCC-equipped
freight car requires two EOCCs, one at each end of the freight car.
EOCCs are critical components for freight cars carrying sensitive
commodities, such as steel products, automobile products, electronics,
lumber, and paper products. Other energy absorption devices, such as
draft gears and elastomeric devices, do not provide the necessary level
of cushioning required by customers shipping sensitive goods on freight
cars. Railroads and new freight car builders do not consider prices or
availability of draft gears or elastomeric devices when soliciting
prices for EOCCs from prospective suppliers.
Though sensitive cargos can be transported by ``intermodal''
freight cars with articulated connectors, railroads cannot substitute
intermodal transportation for freight cars equipped with EOCCs,
Intermodal freight cars are specially designed railcars that allow
standard cargo containers to be stacked for rail transport. The cars
must travel in groups connected by a ``slackless'' articulated coupling
system. The coupling system transfers longitudinal forces to the ends
of the intermodal group, protecting the containers from damage. Despite
their suitability for certain applications, intermodal freight cars do
not provide sufficient cushioning for some sensitive commodities,
cannot physically transport certain sensitive commodities (such as
automobiles and certain lumber products), and are typically much more
expensive to own and operate than freight cars equipped with EOCCs. The
intermodal groups must also travel to the same destination due to their
slackless connection. Because of these additional costs and operational
constraints, intermodal rail transportation in North America tends to
be most economical for large shipments manufactured outside of
[[Page 21295]]
North America and imported by sea. When soliciting prices for EOCCs
from prospective suppliers, railroad customers do not consider the cost
of transporting goods using intermodal freight cars with articulated
connectors.
Railroad customers may use either new or reconditioned EOCCs when
equipping freight cars. However, customers building new freight cars
are almost always required to use only new EOCCs in construction.
Though higher cost, these new units are highly durable and invariably
protected by an industry standard ten-year warranty. The vast majority
of customers building new freight cars would be unable to use
reconditioned EOCCs in construction. Similarly, customers servicing
older freight cars that have been in service for more than a decade
almost always choose reconditioned EOCCs because the cost of
reconditioned units is substantially lower than the cost of new units.
Thus, customers are unlikely to substitute new EOCCs for reconditioned
EOCCs for use on older freight cars.
A small but significant increase in the price of new EOCCs would
not cause purchasers to substitute draft gear, elastomeric devices,
intermodal cars, or reconditioned EOCCs so as to make such a price
increase unprofitable. Accordingly, the design, manufacture, and sale
of new EOCCs is a separate and distinct line of commerce and a relevant
product market for the purpose of analyzing the effects of the
acquisition under Section 7 of the Clayton Act, 15 U.S.C. 18, and
Section 2 of the Sherman Act, 15 U.S.C. 2. Likewise, a small but
significant increase in the price of reconditioned EOCCs would not
cause purchasers to substitute draft gear, elastomeric devices,
intermodal cars, or new EOCCs so as to make such a price increase
unprofitable. Accordingly, the design, manufacture, and sale of
reconditioned EOCCs is also a separate and distinct line of commerce
and a relevant product market for the purpose of analyzing the effects
of the acquisition under Section 7 of the Clayton Act and Section 2 of
the Sherman Act.
C. The Relevant Geographic Market
All EOCCs in the United States are designed, manufactured, and sold
in the United States. Amsted sells, and FMI sold, EOCCs to customers
located throughout the United States. The United States is the relevant
geographic market for purposes of analyzing the effects of the
acquisition under Section 7 of the Clayton Act and Section 2 of the
Sherman Act.
D. The Competitive Effects of the Transaction on End-of-Car Cushioning
Prior to Amsted's acquisition of FMI, the markets for EOCCs were
highly concentrated. For new EOCCs, the merging entities were the only
two suppliers.\2\ For reconditioned EOCCs, the market was limited to
three suppliers, and the merging parties controlled over 80% of the
market. Thus, the markets were highly concentrated and became
substantially more so following the acquisition. Using the Herfindahl-
Hirschman Index (``HHI''),\3\ the consolidation in the market for
reconditioned EOCCs resulted in a post-merger concentration of over
7000 (an increase of over 2700), while the consolidation in the market
for new EOCCs resulted in a monopoly.
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\2\ American Hydraulics, Inc. is the only other manufacturer
certified by the Association of American Railroads (``AAR'') to
build new units. However, American Hydraulics historically has had
no revenue in this product area, and customers uniformly viewed the
merging parties as the only suppliers of new EOCCs.
\3\ ``HHI'' means the Herfindahl-Hirschman Index, a commonly
accepted measure of market concentration. It is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers. For example, for a market
consisting of four firms with shares of thirty, thirty, twenty, and
twenty percent, the HHI is 2600 (30\2\ + 30\2\ + 20\2\ + 20\2\ =
2600). The HHI takes into account the relative size and distribution
of the firms in a market and approaches zero when a market consists
of a large number of firms of relatively equal size. The HHI
increases both as the number of firms in the market decreases and as
the disparity in size between those firms increases. Markets in
which the HHI is between 1000 and 1800 points are considered to be
moderately concentrated, and those in which the HHI is in excess of
1800 points are considered to be concentrated. Transactions that
increase the HHI by more than 100 points in concentrated markets
presumptively raise antitrust concerns under the Horizontal Merger
Guidelines issued by the U.S. Department of Justice and the Federal
Trade Commission. See Merger Guidelines ] 1.51.
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Amsted and FMI directly constrained each other's prices, limiting
overall price increases for new and reconditioned EOCCs. Prior to the
transaction, Amsted created forecasts that contemplated significant
price increases resulting from the merger. These price increases were
aimed at achieving certain margin targets each year that would result
in total additional profits of over $17 million during the first three
years following the transaction. According to the forecasts, achieving
this goal would require an overall price increase of 4% in 2006, 10% in
2007, and 5% in 2008, beyond materials cost increase surcharges. Amsted
pricing data shows that Amsted raised prices substantially following
its acquisition of FMI. For new EOCCs, customers who did not have the
pricing protection of long-term contracts paid on average approximately
14% more in February 2006 than they did in November 2005. For
reconditioned EOCCs, customers without long-term contracts paid an
average increase of approximately 5% more during the same time period.
Purchasers of new and reconditioned EOCCs in the United States
benefitted from vigorous and aggressive competition between Amsted and
FMI through lower prices, higher quality, more innovation, and better
service. Without the competitive constraint of head-to-head competition
from FMI, Amsted has had and will continue to have the ability to
exercise market power by raising prices, lowering product quality,
lessening innovation, and decreasing the level of services.
Entry into the design, manufacture, and sale of new or
reconditioned EOCCs will not be timely, likely, or sufficient to
counter the anticompetitive effects of the transaction. A new entrant
to either market would require certifications and approvals from the
Association of American Railroads (``AAR''), including facility
certification and design certification for each EOCC model to be
manufactured or reconditioned. Additionally, the AAR requires that a
new entrant undergo a conditional approval period during which
production is monitored and significantly limited.
It is also essential that a new entrant into either the new or
reconditioned EOCC markets have sufficient technical know-how regarding
the product in order to design and sell EOCCs. Thus, a new entrant must
invest in significant design and engineering expertise in order to
create the necessary tooling and intellectual property required to
successfully manufacture new or reconditioned EOCCs according to AAR
standards and railroad customer requirements.
A new entrant into the new or reconditioned EOCC markets also must
produce EOCCs in sufficient quantities and with sufficiently consistent
quality to assure railroad customers that the new and reconditioned
EOCCs will provide the necessary level of cushioning required to
protect sensitive cargo. Achieving this quality reputation requires an
additional investment in time and money by any new entrant.
Although the manufacturing processes for new and reconditioned
EOCCs are similar, both require unique inputs that are not readily
available in the marketplace. For example, the manufacture of new EOCCs
requires the use of patented designs and proprietary molds that are not
needed in the reconditioning process. Similarly, the
[[Page 21296]]
manufacture of reconditioned EOCCs requires the application of certain
machining techniques and testing processes that are unique to the EOCC
reconditioning market.
For these reasons, entry by any firm into the new or reconditioned
EOCC markets would not be timely, likely, or sufficient to counter
anticompetitive price increases imposed by Amsted.
III. Explanation of the Proposed Final Judgment
Because the FMI business was discontinued as a result of the
transaction and Amsted now has only one facility that manufactures
EOCCs, the divestiture of a going concern in this case would be
difficult and potentially disruptive to the railroad industry. Instead,
the divestiture and license requirements of the proposed Final Judgment
are designed to create an independent and economically viable
competitor by providing to a new entrant the market-specific
intellectual assets needed for successful competition. The proposed
Final Judgment requires that Amsted divest these assets, without
compensation, to a pre-approved acquirer operating in the railroad
industry. Amsted must divest all of the acquired FMI intangible assets
and all of the FMI tangible assets used for imparting the shape, form,
or finish to EOCC components. The divestiture includes all trademarks,
brands, certifications, patents, blueprints, drawings, castings, dies,
molds, toolings, fixtures, specifications, quality assurance plans,
manufacturing plans, and related financial data.
The proposed Final Judgment also requires Amsted to provide to the
acquirer a royalty-tree, perpetual license to all Amsted-generated
intangible assets and a limited license to the use of all Amsted-
generated casting patterns needed for the production of EOCC
components. The license should effectively fill any intellectual
property gaps in the FMI divestiture package and resolve questions
concerning the completeness of the available FMI assets. The license
includes all patents, blueprints, drawings, castings, dies, molds,
toolings, fixtures, specifications, quality assurance plans,
manufacturing plans, and product tracking information.
Combined with readily available manufacturing equipment, these
assets will provide the acquirer with immediate access to the technical
know-how required to make new and reconditioned EOCCs. The engineering
information should accelerate the AAR certification process, while also
providing customers with assurance that the designs used by the
acquirer are field tested and historically successful. The proposed
Final Judgment provides that for the divestiture to be approved, it
must be demonstrated to the satisfaction of the United States, in its
sole discretion, that the acquirer will enter the market to remedy the
competitive harm alleged in the Complaint. The divestiture must be made
to an acquirer that in the United States' judgment has the intent and
capability (including the necessary managerial, operational, technical,
and financial capability) to compete effectively in the design,
manufacture, and sale of EOCCs; the divestiture also must be
accomplished in a manner that satisfies the United States, in its sole
discretion, that none of the terms of any agreement between an acquirer
and the defendant gives the defendant the ability unreasonably to raise
the acquirer's costs, reduce the acquirer's efficiency, or otherwise
interfere in the ability of the acquirer to compete effectively in the
design, manufacture, and sale of EOCCs. The defendant must take all
reasonable steps necessary to accomplish the divestiture quickly and
must cooperate with the acquirer.
The proposed Final Judgment requires the defendant, within sixty
(60) days after the filing of the Complaint, or five (5) days after
notice of the entry of the Final Judgment by the Court, whichever is
later, (1) to divest the Divested Assets to the acquirer, and (2) to
grant the Supplemental Asset License to the acquirer. The defendant
agrees to use its best efforts to accomplish the license grant and
divestiture expeditiously.
In the event that the approved acquirer is unable or unwilling to
receive the divested assets, the Court will appoint a trustee selected
by the United States and approved by the Court to effect the
divestiture of the assets to an alternative acquirer acceptable to the
United States. Amsted will pay all costs and expenses of the trustee.
The trustee's commission will be structured so as to provide an
incentive for the trustee based on the speed with which the divestiture
is accomplished. After his or her appointment becomes effective, the
trustee will file monthly reports with the Court and the United States
setting forth his or her efforts to accomplish the divestiture. At the
end of 60 days, if the divestiture has not been accomplished, the
trustee and the United States will make recommendations to the Court,
which shall enter such orders as appropriate, in order to carry out the
purpose of the trust, including extending the trust or the term of the
trustee's appointment.
The proposed Final Judgment requires Amsted to release all industry
participants of restrictive covenants that might otherwise inhibit the
acquirer's access to employees, customers, or suppliers. Amsted must
also release Progress Rail from an acquisition-related ``covenant not
to compete'' if the acquirer is unable to deliver its first
manufactured or reconditioned unit within twelve months after the entry
of the Final Judgment.
Finally, the proposed Final Judgment prohibits Amsted from
acquiring any assets of or any interest in the development, production,
or sale of EOCCs in the United States if the value of such acquisition
exceeds $1,000,000 without first notifying the United States through
procedures set out in the Final Judgment, unless the transaction is
otherwise subject to the reporting and waiting period requirements of
the Hart-Scott-Rodino Antitrust Improvements Act. This notification
requirement runs for a period of ten years.
The provisions of the proposed Final Judgment will facilitate new
entry in order to eliminate the anti competitive effects of the
acquisition in the design, manufacture, and sale of EOCCs.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act (15 U.S.C. 15) provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act (15 U.S.C.
16(a)), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against the defendant.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and the defendant have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment.
[[Page 21297]]
Any person who wishes to comment should do so within sixty days of the
date of publication of this Competitive Impact Statement in the Federal
Register, or the last date of publication in a newspaper of the summary
of this Competitive Impact Statement, whichever is later. All comments
received during this period will be considered by the Department of
Justice, which remains free to withdraw its consent to the proposed
Final Judgment at any time prior to the Court's entry of judgment. The
comments and the response of the United States will be filed with the
Court and published in the Federal Register.
Written comments should be submitted to: Maribeth Petrizzi, Chief,
Litigation II Section, Antitrust Division, United States Department of
Justice, 1401 H Street, Suite 3000, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against the defendant. The
United States could have commenced litigation and sought a judicial
order requiring Amsted to recreate FMI as a separate business unit that
could be divested as a going concern. This alternative would have
substantially delayed relief while introducing a significant risk that
the divestiture would be unsuccessful. This alternative may have also
increased the potential for harm to the markets through supply
disruption and a decrease in available capacity. The United States is
satisfied that the divestiture and license described in the proposed
Final Judgment will facilitate entry in order to recreate competition
for the design, manufacture, and sale of EOCCs in the relevant markets
identified by the United States, and thus would achieve substantially
all of the relief that the United States would have obtained through
litigation, but without the cost and risks associated with trial.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty-day comment
period, after which the Court shall determine whether entry of the
proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
16(e)(1). In making that determination, the Court shall consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). As the United States Court of Appeals for
the District of Columbia Circuit has held, under the APPA a court
considers, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the decree is sufficiently clear, whether
enforcement mechanisms are sufficient, and whether the decree may
positively harm third parties. See United States v. Microsoft Corp., 56
F.3d 1448, 1458-62 (D.C. Cir. 1995).
With respect to the adequacy of the relief secured by the decree, a
court may not ``engage in an unrestricted evaluation of what relief
would best serve the public.'' United States v. BNS, Inc., 858 F.2d
456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648
F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62.
Courts have held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\4\
In making its public interest determination, a district court must
accord due respect to the government's prediction as to the effect of
proposed remedies, its perception of the market structure, and its
views of the nature of the case. United States v. Archer-Daniels-
Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003).
\4\ Cf. BNS, 858 F.2d at 463 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); Gillette, 406 F. Supp. at 716
(noting that, in this way, the court is constrained to ``look at the
overall picture not hypercritically, nor with a microscope, but with
an artist's reducing glass''). See generally Microsoft, 56 F.3d at
1461 (discussing whether ``the remedies [obtained in the decree are]
so inconsonant with the allegations charged as to fall outside of
the `reaches of the public interest' '').
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Court approval of a final judgment requires a standard that is more
flexible and less strict than the standard required for a finding of
liability. ``[A] proposed decree must be approved even if it falls
short of the remedy the court would impose on its own, as long as it
falls within the range of acceptability or is `within the reaches of
public interest.' `` United States v. Am. Tel. & Tel. Co., 552 F. Supp.
131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v.
Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom.
Maryland v. United States, 460 U.S. 1001 (1983); see also United States
v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985)
(approving the consent decree even though the court would have imposed
a greater remedy). The Court ``must accord deference to the
government's predications about the efficacy of its remedies, and may
not require the remedies to perfectly match the alleged violations
because this may only reflect underlying weaknesses in the government's
case or concessions made during negotiations.'' United States v. SBC
Commc'ns, Inc., Nos. 05-2102 and 05-2103, 2007 WL 1020746, at *16
(D.D.C. Mar. 29, 2007).
Moreover, the Court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the Court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place, `` it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue. Id.
at 1459-60. As this Court recently confirmed in SBC Commc'ns, courts
``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
[[Page 21298]]
mockery of judicial power.'' SBC Commc'ns, at *14.
In 2004, Congress amended the APPA to ensure that courts take into
account the above-quoted list of relevant factors when making a public
interest determination. Compare 15 U.S.C. 16(e) (2004) with 15 U.S.C.
16(e)(1) (2006) (substituting ``shall'' for ``may'' in directing
relevant factors for court to consider and amending list of factors to
focus on competitive considerations and to address potentially
ambiguous judgment terms). These amendments, however, did not change
the fundamental role of courts in reviewing proposed settlements. To
the contrary, Congress made clear its intent to preserve the practical
benefits of utilizing consent decrees in antitrust enforcement, adding
the unambiguous instruction ``[n]othing in this section shall be
construed to require the court to conduct an evidentiary hearing or to
require the court to permit anyone to intervene.'' 15 U.S.C. 16 (e)(2).
This language codified the intent of the original 1974 statute,
expressed by Senator Tunney in the legislative history: ``[t]he court
is nowhere compelled to go to trial or to engage in extended
proceedings which might have the effect of vitiating the benefits of
prompt and less costly settlement through the consent decree process.''
119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney). Rather:
[a]bsent a showing of corrupt failure of the government to
discharge its duty, the Court, in making its public interest
finding, should . . . carefully consider the explanations of the
government in the competitive impact statement and its responses to
comments in order to determine whether those explanations are
reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. (CCH)
] 61,508, at 71,980 (W.D. Mo. 1977).
This-Court recently examined the role of the district court in
reviewing proposed final judgments in light of the 2004 amendments,
confirming that the amendments ``effected minimal changes[] and that
this Court's scope of review remains sharply proscribed by precedent
and the nature of Tunney Act proceedings.'' See United States v. SBC
Commc'ns, Inc., Nos. 05-2102 and 05-2103, 2007 WL 1020746, at *9
(D.D.C. Mar. 29, 2007). This Court concluded that the amendments did
not alter the articulation of the public interest standard in
Microsoft. Id. at *15.
VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: April 18, 2007.
Respectfully submitted,
/s/--------------------------------------------------------------------
C. Scott Hataway Bar No. 473942,
U.S. Department of Justice, Antitrust Division, Lit II Section, 1401 H
Street NW., Washington, DC 20530 202-514-8380.
[FR Doc. 07-2087 Filed 4-27-07; 8:45am]
BILLING CODE 4410-11-M