[Federal Register: September 1, 1998 (Volume 63, Number 169)]
[Notices]
[Page 46452-46454]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01se98-71]
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FEDERAL TRADE COMMISSION
[Docket 9286]
Summit Technology, Inc.; and VISX, Inc.; Analysis To Aid Public
Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreements.
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SUMMARY: The two consent agreements in these matters settle alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the complaint that
the Commission issued on March 24, 1998, and the terms of the consent
orders--embodied in the consent agreements--that would settle most of
these allegations.
DATES: Comments must be received on or before November 2, 1998.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
William Baer or Willard Tom, FTC/H-374, Washington, DC 20580. (202)
326-2932 or 326-2786.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade
[[Page 46453]]
Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 3.25(f) of the
Commission's Rules of Practice (16 CFR 3.25(f)), notice is hereby given
that the above-captioned consent agreements containing consent orders
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, have been placed on the public
record for a period of sixty (60) days. The following Analysis to Aid
Public Comment describes the terms of the consent agreements, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement packages can be obtained from the FTC Home Page
(for August 21, 1998), on the World Wide WEb, at ``http://www.ftc.gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, NW.,
Washington, DC 20580, either in person or by calling (202) 326-3627.
Public comment is invited. Such comments or views will be considered by
the Commission and will be available for inspection and copying at its
principal office in accordance with Section 4.9(b)(6)(ii) of the
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted agreements to proposed
consent orders from Summit Technology, Inc. (``Summit''), located at 21
Hickory Drive, Waltham, Massachusetts 02154 and VISX, Inc. (``VISX''),
located at 3400 Central Expressway, Santa Clara, California 95051.
The proposed consent orders (``Orders'') have been placed on the
public record for sixty (60) days for reception of comments by
interested persons. Comments received during this period will become
part of the public record. After sixty (60) days, the Commission will
again review the agreements and the comments received and will decide
whether it should withdraw from the agreements or make final the
agreements' proposed orders.
On March 24, 1998, the Commission issued a complaint alleging that
Summit and VISX violated Section 5 of the FTC Act, as amended, 15
U.S.C. Sec. 45 (the ``Complaint''). The Orders, if issued by the
Commission, would settle all of the allegations of the Complaint
against Summit and settle part of the allegations of the Complaint
against VISX (the ``Complaint'').
The Complaint alleges that Summit and VISX are competitors in the
market for photorefractive keratectomy (``PRK''), a form of eye surgery
that corrects refractive vision disorders through the use of
specialized, computer-guided laser equipment that reshapes the cornea.
Summit and VISX each own patents related to PRK, and are also the only
firms whose PRK laser systems have received marketing approval from the
U.S. Food and Drug Administration.
As set forth in the Complaint, on or about June 3, 1992, VISX and
Summit pooled most of their existing patents related to PRK (as well as
certain future ones) in a newly created partnership called Pillar Point
Partners (``PPP''). According to the Complaint, this pooling
arrangement eliminated horizontal competition between VISX and Summit.
The U.S. Department of Justice and the Federal Trade Commission's
Antitrust Guidelines for the Licensing of Intellectual Property (April
6, 1995) (the ``Guidelines'') address the analysis of intellectual
property licensing in general, and patent pool arrangements such as
that between Summit and VISX in particular. The Guidelines recognize
that intellectual property licensing arrangements are ``typically
welfare-enhancing and procompetitive.'' Guidelines Sec. 3.1. However,
``antitrust concerns may arise when a licensing arrangement harms
competition among entities that would have been actual or likely
potential competitors in a relevant market in the absence of the
license''--what the Guidelines call a ``horizontal relationship'' Id.
With respect to pooling arrangements, the Guidelines repeat the same
analytical principles. The Guidelines note that pooling arrangements
``may provide procompetitive benefits by integrating complementary
technologies, reducing transaction costs, clearing blocking positions,
and avoiding costly infringement litigation.'' Guidelines Sec. 5.5.
However, where pooling arrangements ``are mechanisms to accomplish
naked price fixing or market division,'' or where they ``diminish
competition among entities that would have actual or likely potential
competitors in a relevant market in the absence of the cross-license''
they are subject to challenge. Id.
In this case, the Complaint alleges that Summit and VISX were
horizontal competitors at the time they formed PPP, because they could
and would have competed with one another in the sale or lease of PRK
equipment by using their own technology embodied in their respective
patents. In addition, Summit and VISX could have engaged in competition
with each other in connection with the licensing of technology related
to PRK. The pooling arrangement restricted both forms of competition.
Price competition in the sale or lease of PRK equipment was restricted
because, under the PPP agreement, VISX and Summit were required to pay
a fixed ``per procedure fee'' to PPP for each PRK procedure performed
with its machinery That ``per procedure fee''--set at the higher of the
two proposals submitted by VISX and Summit to PPP ($250)--functioned as
a price floor. Because each firm was obligated to pay $250 per use into
the pool, neither had any incentive to lower the usage charge below
that level. In the absence of the pool, Summit and VISX would have
competed with each other, resulting in lower prices to doctors and
consumers for the use of each company's PRK equipment.
PPP has also had an anticompetitive effect in the market for PRK
technology licensing. Under the PPP agreement, only PPP can license to
third parties the PRK patents contributed by VISX and Summit, but VISX
and Summit each retain a veto power over licensing of any of the
patents in the pool. In effect, this provision of the pool gave each
firm a veto over the licensing of the other's patents. Whereas prior to
the pool, each firm could have licensed its own patents unilaterally,
after the pool no patent could be licensed without the consent of both
companies. Since its formation, the Complaint alleges that PPP has not
licensed its patents to any third-party manufacturers and any offers
have been economically prohibitive.
The Guidelines add that if a pooling arrangement has an
anticompetitive effect in the relevant markets, the Commission should
consider whether the pool is ``reasonably necessary to achieve
procompetitive efficiencies.'' Guidelines, Sec. 4.2. In analyzing
whether the pool is ``reasonably necessary,'' the Guidelines further
instruct that
The existence of practical and significantly less restrict
alternatives is relevant to a determination of whether a restraint
is reasonably necessary. If it is clear that the parties could have
achieved similar efficiencies by means that are significantly less
restrictive, then the [FTC] will not give weight to the parties'
efficiency claim. In making this assessment, however, the [FTC] will
not engage in a search for a theoretically least restrictive
alternative that is not realistic in the practical prospective
business situation faced by the parties.
Id.
Summit and VISX contended that PPP reduced the uncertainty and
expense associated with the patent litigation that would have
inevitably ensued without PPP, and PPP allows both parties to be in the
market, when patent infringement
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might have precluded one or both from coming to market. As to the first
part of that argument, Summit and VISX could have achieved these
efficiencies by any number of significantly less restrictive means,
including simple licenses or cross-licenses that did not dictate prices
to users or restrict entry. As to the second part of that argument, the
Complaint alleges that patent infringement would not have precluded
either firm from coming to market.
After concluding that there was reason to believe that the pooling
of patents by VISX and Summit was anticompetitive and that PPP was not
reasonably necessary to achieve any procompetitive efficientcies, the
FTC issued the Complaint. Thereafter, Summit and VISX decided to enter
into agreements with the FTC to end the dispute. The Order achieve all
of the goals of Counts I and II of the Complaint. As discussed below,
PPP has been dissolved and the Orders require Summit and VISX to make
pricing and licensing decisions independently. In essence, the Orders
return VISX and Summit to the status of competitors in the PRK
industry.
The Orders prohibit Summit and VISX (a) from agreeing in any way to
fix the prices they charge for the use of their PRK lasers and patents,
including the ``per-procedure fee'' charged to doctors each time he or
she uses one of the firms' PRK lasers, and (b) from agreeing in any way
to restrict each other's licensing rights and decisions for their PRK
lasers and patents.
The Orders require Summit and VISX to cross-license, on a royalty-
free and non-exclusive basis the patents each firm contributed to PPP.
Although the Complaint contends that VISX and Summit could have
competed absent the pool, subsequent sunk-cost investments in reliance
on the pool make a cross-license desirable to approximate the
competitive conditions that would have been achieved by this point in
time had the pool not been formed.
The Orders also require Summit and VISX (a) to take no action
inconsistent with the dissolution of PPP, except to the extent
necessary for PPP to wind up its affairs and to defend or settle
litigation in which it is a defendant, and (b) to return the PPP
patents to the firm that contributed them to PPP.
The Orders further require Summit and VISX to give notice of the
Orders to any person that previously requested a license to use any of
the PPP patents in the manufacture, assembly or sale of PRK equipment
since June 3, 1992 (the date PPP was created). Summit and VISX must
also give notice to their customers that they have the opportunity to
stop using the lasers without any penalty or continuing obligation
(with certain exceptions as set forth in the Orders). Customers that
entered into any agreement with Summit or VISX between June 3, 1992
(the date PPP was formed) and June 5, 1998 (the date of PPP's
dissolution) that included an obligation to pay a per-procedure fee to
license any of the PPP patents will have the opportunity to stop using
the laser covered by the patents and negotiate a new licensing
agreement with their current licensor or, alternatively, seek a
licensing agreement with a competitor. This provision is necessary to
restore competitive conditions to those which would have existed had
there been no pool at the time these contracts were entered into.
The Orders also compel Summit and VISX to fulfill certain standard
notification, reporting and inspection requirements.
The Orders will terminate upon the expiration of the last PPP
patent to expire.
The purpose of this analysis is to facilitate public comment on the
Orders, and it is not intended to constitute an official interpretation
of the agreements and the Orders or to modify them in any way.
Additionally, the proposed consent orders have been entered into for
settlement purposes only, and do not constitute admissions by Summit
and VISX that the law has been violated as alleged in the Complaint.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-23448 Filed 8-31-98; 8:45 am]
BILLING CODE 6750-01-M