[Federal Register Volume 77, Number 48 (Monday, March 12, 2012)]
[Notices]
[Pages 14523-14525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5851]
[[Page 14523]]
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FEDERAL TRADE COMMISSION
[File No. 111 0122]
Western Digital Corporation; Analysis of Agreement Containing
Consent Order to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles 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 draft
complaint and the terms of the consent order--embodied in the consent
agreement--that would settle these allegations.
DATES: Comments must be received on or before April 4, 2012.
ADDRESSES: Interested parties may file a comment online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``Western Digital, File
No. 111 0122'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/westerndigitalhitachiconsent, by
following the instructions on the Web-based form. If you prefer to file
your comment on paper, mail or deliver your comment to the following
address: Federal Trade Commission, Office of the Secretary, Room H-113
(Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Benjamin Gris (202-326-3468), FTC,
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC
20580.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 2.34 the
Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that
the above-captioned consent agreement containing a consent order to
cease and desist, having been filed with and accepted, subject to final
approval, by the Commission, has been placed on the public record for a
period of thirty (30) days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for March 5, 2012), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from the FTC Public
Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., Washington, DC
20580, either in person or by calling (202) 326-2222.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before April 4, 2012.
Write ``Western Digital, File No. 111 0122'' on your comment. Your
comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to
remove individuals' home contact information from comments before
placing them on the Commission Web site.
Because your comment will be made public, you are solely
responsible for making sure that your comment does not include any
sensitive personal information, like anyone's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number. You are also solely
responsible for making sure that your comment does not include any
sensitive health information, like medical records or other
individually identifiable health information. In addition, do not
include any ``[t]rade secret or any commercial or financial information
which is obtained from any person and which is privileged or
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do
not include competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form, with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
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Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/westerndigitalhitachiconsent by following the instructions on the
web-based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
If you file your comment on paper, write ``Western Digital, File
No. 111 0122'' on your comment and on the envelope, and mail or deliver
it to the following address: Federal Trade Commission, Office of the
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW.,
Washington, DC 20580. If possible, submit your paper comment to the
Commission by courier or overnight service.
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before April 4, 2012. You can find more information,
including routine uses permitted by the Privacy Act, in the
Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
Analysis of Agreement Containing Consent Order to Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted from
Western Digital Corporation (``Western Digital''), subject to final
approval, an Agreement Containing Consent Order (``Consent
Agreement''), designed to remedy the likely anticompetitive effects
resulting from Western Digital's proposed acquisition of Viviti
Technologies Ltd., formerly known as Hitachi Global Storage
Technologies Ltd. (``HGST''), a wholly-owned subsidiary of Hitachi,
Ltd. (``Hitachi'')
Pursuant to an agreement dated March 7, 2011, Western Digital
intends to acquire HGST from Hitachi for approximately $4.5 billion in
cash and Western Digital stock. The proposed merger would result in a
merger to duopoly in the market for 3.5 inch hard disk drives used in
desktop computers (``desktop HDDs''). The Commission's Complaint
alleges that the proposed Acquisition, if consummated, would violate
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5
of the Federal Trade Commission Act, as
[[Page 14524]]
amended, 15 U.S.C. 45, by lessening competition in the market for
desktop HDDs.
The Consent Agreement remedies the alleged violation by replacing
the lost competition in the desktop HDD market that would result from
the proposed acquisition. Under the terms of the Consent Agreement,
Western Digital will divest to Toshiba Corporation (``Toshiba'') all of
the assets relating to the manufacture and sale of desktop HDDs
necessary to replicate HGST's position in the desktop HDD business. The
Consent Agreement requires Western Digital to provide Toshiba with
access to employees involved in the research, development, and
production of desktop HDDs, cross license all intellectual property
necessary to manufacture and sell desktop HDDs, and to supply Toshiba
with up to 50 percent of certain critical components needed for the
divested business. In addition, the Consent Agreement requires Western
Digital to contract manufacture desktop HDDs for Toshiba at cost until
Toshiba is able to manufacture these products on its own.
The Consent Agreement has been placed on the public record for 30
days to solicit comments from interested persons. Comments received
during this period will become part of the public record. After 30
days, the Commission will again review the Consent Agreement and the
comments received, and will decide whether it should withdraw from the
Consent Agreement, modify it, or make final the accompanying Decision
and Order.
II. The Products and Structure of the Market
HDDs are key inputs into computers and other electronic devices
used to store and allow fast access to data. HDDs are used in various
end-use applications including desktop and mobile computers, and in
enterprise computing applications.
The relevant line of commerce in which to analyze the effects of
the Acquisition is desktop HDDs. Desktop HDDs are utilized in non-
portable desktop or tower personal computers. Consumers of these
products demand HDDs with the highest available capacity at the lowest
price per gigabyte. Desktop HDDs are the only HDDs that meet these
specifications. As a result, customers would likely not switch to a
different kind of HDD in response to a five to ten percent increase in
the price of desktop HDDs in sufficient numbers to make that price
increase unprofitable for a hypothetical monopolist.
The relevant geographic market for desktop HDDs is worldwide. Most
HDDs, including desktop HDDs, are manufactured in Asia and are shipped
to customers worldwide. Also, most large customers negotiate the
purchase price of desktop HDDs at a global level.
The desktop HDD market is highly concentrated, with three
manufacturers currently in the market. After Western Digital's
acquisition of HGST, Western Digital's market share would increase to
approximately 50 percent, and the number of suppliers of desktop HDDs
would decrease from three to two.
III. Entry
Neither new entry nor repositioning and expansion sufficient to
deter or counteract the likely anticompetitive effects of the proposed
acquisition in the desktop HDD market is likely to occur. Deterrents to
entry into the desktop HDD market include high capital expenditures and
intellectual property barriers. Because the market for desktop HDDs is
mature with limited growth potential, it is unlikely that a potential
competitor would have the incentive to make the substantial investments
necessary to enter this market.
IV. Effects of the Acquisition
The proposed acquisition likely would result in anticompetitive
effects in the market for desktop HDDs. The structure and
characteristics of this highly concentrated and mature market, where
competitors sell largely homogenous products and have substantial
insight into their competitors' price and output levels, suggests that
the two remaining firms in the market would likely find it possible and
profitable to coordinate on pricing or output. In addition, HDD
customers generally wish to have at least three suppliers available to
them. The fact that customers have a strong desire to source their
desktop HDD purchases from several suppliers simultaneously in order to
obtain competitive pricing and adequate supply suggests that the
transaction could result in unilateral effects as well.
V. The Consent Agreement
The Consent Agreement resolves the competitive concerns raised by
Western Digital's proposed acquisition of HGST by requiring the
divestiture of HGST's assets relating to the manufacture and sale of
desktop HDDs to Toshiba. This divestiture must occur within fifteen
days after the acquisition but may be extended an additional fifteen
days, if necessary, to allow for regulatory approval in other
jurisdictions.
Toshiba has the industry experience, reputation, and resources to
replace HGST as an effective competitor in the desktop HDD market.
Headquartered in Tokyo, Japan, Toshiba is a diversified manufacturer
and marketer of advanced electronic and electrical products spanning
digital consumer products, electronic devices and components, power
systems, industrial and social infrastructure systems, and home
appliances. Toshiba does not currently compete against Western Digital
or HGST in the sale of desktop HDDs, but it does manufacture HDDs for
use in mobile and enterprise applications. Because Toshiba has
extensive experience manufacturing these other types of HDDs, and has a
worldwide infrastructure for the research, development, and sale of
desktop HDDs, Toshiba is well-positioned to replace the competition
that will be eliminated as a result of the proposed transaction.
Pursuant to the Consent Agreement, Toshiba would receive all of the
assets necessary to replicate HGST's market position in the desktop HDD
business, including sixteen desktop HDD production lines, representing
the capacity to produce more than twenty million desktop HDD units per
year, along with the product designs for HGST's most recent and
advanced desktop HDD products. The Consent Agreement further requires
Western Digital to provide Toshiba with access to HGST and/or Western
Digital employees involved in the research, development, and production
of desktop HDDs. In addition, the Consent Agreement also requires
Western Digital to cross license all intellectual property necessary to
manufacture and sell desktop HDDs and to supply Toshiba with up to 50
percent of certain critical components needed for the divested
business. The Consent Agreement also requires Western Digital to
contract manufacture desktop HDDs for Toshiba at cost until Toshiba is
able to manufacture these products on its own. A divestiture of HGST's
desktop HDD assets to Toshiba will enable Toshiba to compete
immediately with the merged entity.
The Commission has appointed Phillip Comerford, Jr., Managing
Director and Head of the Mergers & Acquisitions Group of ING Capital
LLC, as Interim Monitor to oversee the divestiture of the desktop HDD
assets. In order to ensure that the Commission remains informed about
the status of the proposed divestiture, the Consent Agreement requires
the parties to file periodic reports with the Commission until the
divestiture is accomplished.
If, after the public comment period, the Commission determines that
Toshiba is not an acceptable acquirer of
[[Page 14525]]
the assets to be divested, or that the manner of the divestiture is not
acceptable, Western Digital must unwind the divestiture and divest the
assets within 180 days of the date the Order becomes final to another
Commission-approved acquirer. If Western Digital fails to divest the
assets within the 180 days, the Commission may appoint a trustee to
divest the relevant assets.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement, and it is not intended to constitute an official
interpretation of the Consent Agreement or to modify its terms in any
way.
By direction of the Commission.
Donald S. Clark,
Secretary.
Statement of the Federal Trade Commission Concerning Western Digital
Corporation/Viviti Technologies Ltd. and Seagate Technology LLC/Hard
Disk Drive Assets of Samsung Electronics Co. Ltd.
After a thorough investigation the Federal Trade Commission has
challenged Western Digital Corporation's (``Western Digital'') proposed
acquisition of Viviti Technologies Ltd., formerly known as Hitachi
Global Storage Technologies (``HGST''). This challenge comes several
months after the Federal Trade Commission closed its investigation of
Seagate Technology LLC's (``Seagate'') acquisition of Samsung
Electronics Co. Ltd.'s hard disk drive assets (``Samsung''). The two
proposed transactions were announced within weeks of each other, and
both had potential implications for competition in the same product
markets. Commission staff reviewed both matters at the same time in
order to understand the effects on competition resulting from each
transaction on its own, as well as the cumulative effect on the
relevant markets if both transactions were allowed to be consummated.
The evidence gathered in the Commission's investigation revealed
that the relevant product markets in which to assess the competitive
impact of the proposed transactions are based on specific end-uses for
hard disk drives (``HDDs'')--such as desktop, notebook, and
enterprise--because product features, pricing, and competition differ
by end-use applications. For many of these end-uses, we did not have
reason to believe that the proposed transactions would result in
effects that would have justified a challenge. In the 3.5 inch desktop
HDD (``desktop HDD'') market, however, we had reason to believe the
consummation of both of these acquisitions would result in likely
anticompetitive effects. The Commission came to this conclusion based
on the evidence from interviews with market participants, testimony of
the parties' executives, and documents produced by the parties and
other industry participants.
The Commission determined after its investigation that there were
significant differences between the competitive implications of the two
proposed mergers. Since in each case the acquiring firm was a strong
competitor, attention turned to the characteristics of the two firms
that were to be acquired in these proposed transactions--HGST and
Samsung. Based on this analysis, it was clear that an independent HGST
was much more likely to be an effective competitive constraint in the
desktop HDD market than would an independent Samsung.
In particular, HGST has been a strong, high quality and innovative
competitor in the desktop HDD market. Moreover, HGST has been
identified by a number of industry participants as a key driver of
aggressive price competition in the desktop HDD market in 2010, and was
well-positioned to grow its desktop HDD business in the near future. In
contrast, Samsung had struggled to be competitive in the desktop HDD
market. In a market for desktop HDDs containing only Western Digital,
HGST, and the combined Seagate/Samsung entity, HGST would retain the
ability and incentive to act as an effective constraint on desktop HDD
pricing. By contrast, Samsung would be less likely to serve as a
meaningful constraint on pricing in a desktop HDD market consisting of
Western Digital/Hitachi, Seagate, and Samsung. Based on these
considerations, the Commission made the decision to challenge the
Western Digital/HGST transaction while clearing the Seagate/Samsung
transaction, and to preserve the competitiveness of the desktop HDD
market by requiring Western Digital to divest HGST's desktop HDD assets
to Toshiba Corporation under the terms of a proposed Consent Agreement.
As we have explained in other cases, each merger that comes before
the Commission is investigated and considered based on the particular
facts presented. These investigations bear out the assertion in our
Horizontal Merger Guidelines that our review of mergers ``is a fact-
specific process through which the Agencies, guided by their extensive
experience, apply a range of analytical tools to the reasonably
available and reliable evidence to evaluate competitive concerns in a
limited period of time.'' \2\
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\2\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger
Guidelines Sec. 1 (2010), available at http://www.ftc.gov/os/2010/08/100819hmg.pdf.
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In addition to the scrutiny they have received from the Commission,
many other antitrust enforcement agencies investigated these mergers.
Commission staff cooperated with agencies in Australia, Canada, China,
the European Union, Japan, Korea, Mexico, New Zealand, Singapore, and
Turkey, and worked closely with the agencies' investigative teams on
the timing of review, substantive analyses, and potential remedies,
during the pendency of these investigations. This close cooperation
with foreign antitrust enforcers helped ensure an outcome that
benefited consumers in the United States.
[FR Doc. 2012-5851 Filed 3-9-12; 8:45 am]
BILLING CODE 6750-01-P