Western Digital Corporation; Analysis of Agreement Containing Consent Order to Aid Public Comment, 14523-14525 [2012-5851]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 77, Number 48 (Monday, March 12, 2012)]
[Notices]
[Pages 14523-14525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5851]



[[Page 14523]]

=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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 https://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 https://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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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 https://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 https://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 https://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\
---------------------------------------------------------------------------

    \2\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger 
Guidelines Sec.  1 (2010), available at https://www.ftc.gov/os/2010/08/100819hmg.pdf.
---------------------------------------------------------------------------

    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