United States v. Smiths Group plc, et al.; Proposed Final Judgment and Competitive Impact Statement, 17281-17295 [2017-07099]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 82, Number 67 (Monday, April 10, 2017)]
[Notices]
[Pages 17281-17295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07099]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Smiths Group plc, et al.; Proposed Final 
Judgment and Competitive Impact Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 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. Smiths Group plc, et al., 
Civil Action No. 1:17-cv-00580. On March 30, 2017, the United States 
filed a Complaint alleging that Smiths Group plc's (``Smiths') proposed 
acquisition of Morpho Detection, LLC and Morpho Detection 
International, LLC (``Morpho'') from Safran S.A. would violate Section 
7 of the Clayton Act, 15 U.S.C. 18. The proposed Final Judgment, filed 
at the same time as the Complaint, requires Smiths to divest Morpho's 
global explosive trace detection business.
    Copies of the Complaint, proposed Final Judgment, and Competitive 
Impact Statement are available for inspection on the Antitrust 
Division's Web site at https://www.justice.gov/atr and at the 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, including the name of the submitter, and 
responses thereto, will be posted on the Antitrust Division's Web site, 
filed with the Court, and, under certain circumstances, published in 
the Federal Register. Comments should be directed to Maribeth Petrizzi, 
Chief, Litigation II Section, Antitrust Division, Department of 
Justice, 450 Fifth Street NW., Suite 8700, Washington, DC 20530 
(telephone: 202-307-0924).

Patricia A. Brink,
Director of Civil Enforcement.

United States District Court For the District of Columbia

    United States of America, U.S. Department of Justice, Antitrust 
Division, 450 Fifth Street NW., Suite 8700, Washington, DC 20530, 
Plaintiff, v. Smiths Group PLC, 4th Floor, 11-12 St. James Square, 
London, SW1Y 4LB, United Kingdom, SAFRAN S.A., 2, boulevard du 
General-Martial-Valin, Paris Cedex 15, 75724, France, Morpho 
Detection, LLC, 7151 Gateway Boulevard, Newark, CA 94560, and Morpho 
Detection International, LLC, 2201 W. Royal Lane, Suite 150, Irving, 
Texas 75063, Defendants.

Case No.: 17-cv-00580
Judge: Rosemary M. Collyer
FILED: 03/30/2017

COMPLAINT

    The United States of America (``United States''), acting under the 
direction of the Attorney General of the United States, brings this 
civil antitrust action to enjoin the proposed acquisition of the global 
explosive detection business of Morpho Detection, LLC and Morpho 
Detection International, LLC (collectively ``Morpho'') from Safran S.A. 
by Smiths Group plc (``Smiths'') and to obtain other equitable relief. 
The United States alleges as follows:

I. NATURE OF THE ACTION

    1. Smiths proposes to acquire Morpho, a California-based wholly 
owned subsidiary of Safran S.A. Smiths and Morpho are two of the three 
leading providers of desktop explosive trace detection (``ETD'') 
devices and related services in the United States. ETD devices are used 
to detect trace amounts of explosives or narcotics on persons or 
objects in airports and other high-risk critical infrastructure sites.
    2. Smiths' acquisition of Morpho would eliminate competition 
between Smiths and Morpho for desktop ETD devices sold for passenger 
air travel or air cargo transport in the United States. The competition 
between Smiths and Morpho in the development, engineering, production, 
distribution, sales, and servicing of desktop ETD devices in the United 
States has benefitted customers. Smiths and Morpho compete directly on 
price, innovation, and quality of service. The proposed acquisition 
would give Smiths the ability and the incentive to raise prices or 
decrease the quality of service for desktop ETD devices sold for 
passenger air travel or air cargo transport to customers. The 
elimination of Morpho, an aggressive bidder and

[[Page 17282]]

low-cost provider, would reduce Smiths' incentive to compete on price 
and service post merger. Further, because Morpho has actively worked to 
advance its ETD technology, it provides Smiths an incentive to innovate 
that will be lost as a result of this acquisition. As a result, the 
proposed acquisition likely would substantially lessen competition in 
the development, engineering, production, distribution, sale, and 
servicing of desktop ETD devices sold for passenger air travel or air 
cargo transport in the United States, in violation of Section 7 of the 
Clayton Act, 15 U.S.C. 18.

II. THE DEFENDANTS AND THE TRANSACTION

    3. Defendant Smiths Group plc is a London-based corporation with a 
U.S. subsidiary, Smiths Detection U.S., Inc. (``Smiths Detection''), 
headquartered in Edgewood, Maryland. Smiths is a globally diversified 
technology company that designs, manufactures and delivers products for 
the healthcare, energy and petrochemicals, threat and contraband 
detection, and telecommunications industries. Smiths' subsidiary, 
Smiths Detection, develops, engineers, produces, sells, and services a 
wide range of threat and contraband detection technologies, including 
X-ray, ETD devices, and infrared spectroscopy used at airports, ports 
and borders, and in critical infrastructure worldwide. Smiths is also 
the dominant supplier of aftermarket parts and service for its ETD 
devices. In 2015, Smiths' worldwide revenues were approximately $4.5 
billion. Smiths Detection's worldwide revenues were approximately $730 
million and U.S. revenues were approximately $225.7 million.
    4. Defendant Morpho, headquartered in Newark, California, is a 
division of Safran S.A. (``Safran''), a $17.3 billion aerospace and 
defense company based in Paris, France. Morpho focuses on the 
development, engineering, production, distribution, sale, and servicing 
of two categories of threat and contraband detection technologies and 
devices--computed tomography explosive detection systems and ETD 
devices--used at airports, air cargo facilities, and other high-risk 
critical infrastructure sites worldwide. Morpho is also the dominant 
supplier of aftermarket parts and service for its ETD devices. In 2015, 
Morpho's worldwide revenues were approximately $325 million, and its 
U.S. revenues were approximately $262 million.
    5. Pursuant to an agreement dated April 20, 2016, Smiths intends to 
purchase Morpho's explosive detection system and ETD device businesses. 
The value of the transaction is approximately $710 million.

III. JURISDICTION AND VENUE

    6. The United States brings this action pursuant to Section 15 of 
the Clayton Act, as amended, 15 U.S.C. 25, to prevent and restrain 
defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
    7. Defendants Smiths and Morpho develop, engineer, produce, 
distribute, sell, and service desktop ETD devices in the flow of 
interstate commerce. Defendants' activities in the development, 
engineering, production, distribution, sale, and servicing of desktop 
ETD devices substantially affect interstate commerce. The Court has 
subject matter jurisdiction over this action pursuant to Section 15 of 
the Clayton Act, 15 U.S.C. 25, and 28 U.S.C. 1331, 1337(a), and 1345.
    8. Defendants have consented to venue and personal jurisdiction in 
the District of Columbia. Venue is therefore proper in this District 
under Section 12 of the Clayton Act, 15 U.S.C. 22, and 28 U.S.C. 
1391(c).

IV. TRADE AND COMMERCE

A. Explosive Detection Industry Overview

    9. Equipment designed to detect and identify explosives is used 
across a broad spectrum of government agencies and private companies 
for security screening. This equipment includes ETD devices used at 
passenger checkpoints, visitor entry areas, or air cargo facilities 
throughout the United States. ETD devices may be stationary 
(``desktop'' ETDs) or mobile (``handheld'' ETDs).
    10. Desktop ETD devices are a secondary screening method. Secondary 
screening methods are employed after an alert is made by a primary 
screening device, such as an X-ray scanner or an explosive detection 
system. Desktop ETD devices detect trace amounts of explosive residue 
or other contraband on hands, belongings, and cargo from a tiny sample 
swabbed from the object and placed inside the detector.
    11. Desktop ETD devices used at airport checkpoints and air cargo 
facilities need an external power source and a controlled environment, 
but are considered more reliable and accurate than handheld ETD 
devices, and are capable of greater throughput. Generally, an ETD 
device's operational performance is evaluated on sensitivity, 
selectivity or identification, and speed.
    12. U.S. customers require desktop ETD vendors to have a local 
service network, with a ready supply of consumables and components. A 
local service presence allows vendors to provide training to new 
employees who operate their devices and provide timely repair and 
maintenance. Likewise, desktop ETDs require regular service, 
maintenance, and a ready supply of consumables, so having a local 
service presence enables vendors to respond expeditiously when a device 
requires attention, and reduces downtime that can slow the pace of 
passenger and baggage screening at airports and other critical 
facilities.

B. Desktop ETD Device Industry Regulation

    13. The Transportation Security Administration (``TSA'') mandates 
separate security performance screening standards for desktop ETD 
devices used for passenger air travel and for air cargo transport. 
Desktop ETD devices that meet the TSA threat certification standards 
are listed either on: (a) The Qualified Product List (``QPL'') for 
desktop ETD devices purchased by the TSA for checkpoint screening of 
passengers, carry-on bags and hold baggage at airports; and/or (b) the 
Air Cargo Screening Technology List (``ACSTL''), for desktop ETD 
devices purchased by air cargo companies for screening of air cargo. In 
addition, desktop ETD devices purchased by the TSA for passenger air 
travel include customized software that is exclusively available to the 
TSA.
    14. U.S. sales of desktop ETD devices to the TSA for passenger air 
travel depend upon a small number of large, infrequent TSA procurements 
that typically arise when the TSA updates its certification standards 
to meet emerging threats. Annual sales of desktop ETD devices used for 
passenger air travel in the United States averaged about $13 million 
over the last six years. Sales to air cargo companies follow a similar 
pattern, with large procurements occurring infrequently as air cargo 
carriers respond to evolving threats and new technology. Annual sales 
of desktop ETD devices used to screen air cargo averaged approximately 
$5.5 million over the last six years.
    15. QPL qualification is a multi-step process that can take up to 
two years. Labs under the direction of the Department of Homeland 
Security test devices to ensure the necessary threats are detected. The 
TSA then conducts operational testing on-site at airports to confirm 
that its performance standards are met. If a desktop ETD device makes 
it through these steps, it will be qualified and placed on the QPL.
    16. When the TSA opens a solicitation for desktop ETD devices, only 
vendors

[[Page 17283]]

with desktop ETD devices on the QPL can participate. The TSA is 
currently conducting an expedited evaluation of desktop ETD devices to 
be qualified for inclusion on the QPL, in anticipation of an upcoming 
procurement likely in the second half of 2017. The TSA does not publish 
the QPL, but does issue a press release when a contract is awarded, 
which identifies the name of the winning vendor and its desktop ETD 
device.
    17. The ACSTL qualification process generally is the same as the 
qualification process for the QPL, but the mandated threat detection 
standards differ in order to account for a wider range of air cargo 
packaging material.
    18. The current ACSTL threat detection standard expires in the next 
two years. The TSA has begun testing and qualifying new desktop ETD 
devices to meet a new ACSTL threat detection standard. Grandfathered 
devices may still be used by air cargo carriers until the expiration 
date, but any new purchases of such devices require a TSA waiver.

V. RELEVANT MARKETS

    19. The merger is likely to lead to a substantial lessening of 
competition for the sale of desktop ETD devices for two applications in 
the United States: passenger air travel and air cargo transport. Both 
desktop ETD device applications have unique customers with different 
technical and service requirements.

A. Desktop ETD Devices for Passenger Air Travel in the United States

    20. Desktop ETD devices for passenger air travel is a relevant 
product market. These devices are purchased exclusively by the TSA. The 
TSA may purchase only desktop ETD devices that are listed on the QPL, 
and QPL qualification requires that devices meet specific criteria and 
successfully complete rigorous testing. Further, as these devices may 
not be sold outside of the United States, the relevant geographic 
market is the United States. A hypothetical profit-maximizing 
monopolist of desktop ETD devices sold for passenger air travel in the 
United States likely would impose a SSNIP that would not be defeated by 
substitution away from desktop ETD devices with QPL certification or by 
the TSA purchasing desktop ETD devices outside the United States. 
Accordingly, the development, engineering, production, distribution, 
sale, and servicing of desktop ETD devices sold for passenger air 
travel in the United States is a relevant market within the meaning of 
Section 7 of the Clayton Act.

B. Desktop ETD Devices for Air Cargo Transport in the United States

    21. Desktop ETD devices used to screen air cargo is a relevant 
product market. Air cargo transport companies operating in the United 
States require that desktop ETD devices meet certain performance 
standards, which typically include ACSTL qualification by the TSA. 
Desktop ETD devices on the ACSTL must undergo significant, multi-step 
testing to ensure they meet and deliver the required technical 
standards and performance. As these devices are purchased for use at 
airports located in the United States, and because their sale involves 
a significant service component, the relevant geographic market is the 
United States. A hypothetical profit-maximizing monopolist of desktop 
ETD devices sold for air cargo transport in the United States likely 
would impose a SSNIP that would not be defeated by substitution away 
from desktop ETD devices in the relevant market or by air cargo 
companies purchasing the desktop ETD devices outside the United States. 
Accordingly, the development, engineering, production, distribution, 
sale, and servicing of desktop ETD devices for air cargo transport in 
the United States is a relevant product market within the meaning of 
Section 7 of the Clayton Act.

VI. ANTICOMPETIVE EFFECTS OF THE PROPOSED TRANSACTION

    22. Smiths' acquisition of Morpho would eliminate head-to-head 
competition between Smiths and Morpho in the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices 
for passenger air travel and air cargo transport in the United States. 
For their most significant customers, Smiths and Morpho are two of only 
three suppliers which historically have qualified to provide desktop 
ETD devices and related services for these two applications in the 
United States.

A. Desktop ETD Devices for Passenger Air Travel in the United States

    23. The TSA historically has qualified three suppliers to meet its 
QPL standards for desktop ETD devices for passenger air travel. Smiths 
and Morpho are two of those three suppliers and, in the past, the two 
companies have competed on price and other terms of sale. That 
competition has led to lower prices, better service, and more 
innovative products for the TSA.
    24. In particular, Morpho has a history of bidding aggressively for 
contracts to supply and service desktop ETD devices in the passenger 
air travel market. By underbidding its rivals, Morpho delivered to the 
TSA a lower-priced option, while also incentivizing competitors to 
respond with more competitive prices and terms of sale. Absent the 
merger, Morpho is expected to continue to be an aggressive competitor. 
Accordingly, the proposed acquisition would give Smiths the ability and 
the incentive to raise prices and decrease the quality of its service.
    25. The TSA is expected to issue a new solicitation to supply 
desktop ETD devices in the second half of 2017. Smiths and Morpho 
likely will continue to be two of only three competitors qualified to 
bid for this significant supply contract. The acquisition would reduce 
from three to two the number of suppliers for the TSA's upcoming 
procurement, likely leading to higher prices and less advantageous 
terms for that agency.
    26. Smiths and Morpho each have sizable and active research and 
development operations and teams of engineers and technical staff 
working on desktop ETD devices for the passenger air travel market. 
Each firm has provided the other with the incentive to improve current 
products and develop new desktop ETD devices. A merged Smiths and 
Morpho would eliminate that competition depriving customers of more 
innovative future products and services.
    27. The proposed transaction, therefore, likely would substantially 
lessen competition in the development, engineering, production, 
distribution, sale, and servicing of desktop ETD devices in the 
passenger air travel market in the United States, lead to higher 
prices, decreased innovation, and poorer quality of service in 
violation of Section 7 of the Clayton Act.

B. Desktop ETD Devices for Air Cargo Transport in the United States

    28. Smiths' acquisition of Morpho would eliminate head-to-head 
competition between Smiths and Morpho in the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices 
for the air cargo transport market in the United States. Smiths and 
Morpho are two of only three suppliers which are qualified to provide 
desktop ETD devices and a local service network.
    29. As in the passenger air transport market, Morpho has a history 
of bidding aggressively for contracts to supply and service desktop ETD 
devices in the air cargo transport market, which is likely to result in 
lower bids from Morpho and its rivals once new ACSTL solicitations

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are announced in the next two years. The proposed acquisition would, 
therefore, give Smiths the ability and the incentive to raise prices 
and decrease the quality of its service for air cargo transport 
customers.
    30. The sizable research and development operations, engineers, and 
technical staff of Smiths and Morpho, respectively, which work on 
desktop ETD devices for the passenger air travel market, also work to 
improve and develop new desktop ETD devices for the air cargo transport 
market. Each firm has provided the other with the incentive to improve 
current products and develop new desktop ETD devices for the air cargo 
transport market. A merged Smiths and Morpho would eliminate that 
incentive, potentially depriving customers of more innovative future 
products and services.
    31. The proposed transaction, therefore, likely would substantially 
lessen competition in the development, engineering, production, 
distribution, sale, and servicing of desktop ETD devices in the air 
cargo transport market in the United States, lead to higher prices, 
decreased innovation, and poorer quality of service in violation of 
Section 7 of the Clayton Act.

VII. DIFFICULTY OF ENTRY

    32. Entry into the development, engineering, production, 
distribution, sale, and servicing of desktop ETD devices in the United 
States is difficult, and unlikely to be timely or sufficient to prevent 
the harm to competition caused by the elimination of Morpho as an 
independent supplier.

A. Desktop ETD Devices for Passenger Air Travel in the United States

    33. Firms attempting to enter into the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices in 
the passenger air travel market face substantial entry barriers in 
terms of time and technology. The TSA process for qualification of a 
new desktop ETD device normally takes from 12 to 24 months. Testing 
includes multiple steps, each of which must be passed to proceed: (1) 
Submission and corresponding review of a data package; (2) two rounds 
of functional testing of the unit in a controlled environment; and (3) 
operational testing of the unit on-site at an airport. As a result of 
these barriers, entry would not be timely, likely, or sufficient to 
defeat a price increase arising from the substantial lessening of 
competition that likely would result from Smiths' acquisition of 
Morpho.

B. Desktop ETD Devices for Air Cargo Transport in the United States

    34. Firms attempting to enter into the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices in 
the air cargo transport market likewise face substantial entry barriers 
in terms of time and technology. Air cargo companies typically require 
desktop ETD device providers to meet ACSTL standards, which demand an 
investment of time and money similar to that required under the TSA's 
QPL-testing process. Setting up a local network of service and training 
personnel and equipment is likewise a cost- and time-intensive 
endeavor. As a result of these barriers, entry would not be timely, 
likely, or sufficient to defeat a price increase arising from the 
substantial lessening of competition from Smiths' acquisition of 
Morpho.

VIII. VIOLATION ALLEGED

    35. The acquisition of Morpho by Smiths likely would substantially 
lessen competition in the market for the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices 
sold for passenger air travel or air cargo transport in the United 
States in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
    36. Unless enjoined, the transaction likely would have the 
following anticompetitive effects, among others:
    a. actual and potential competition between Smiths and Morpho in 
the market for the development, engineering, production, distribution, 
sale, and servicing of desktop ETD devices sold for passenger air 
travel or air cargo transport in the United States would be eliminated;
    b. competition generally in the market for the development, 
engineering, production, distribution, sale, and servicing of desktop 
ETD devices sold for passenger air travel or air cargo transport in the 
United States would be substantially lessened;
    c. prices for desktop ETD devices in the United States likely would 
be less favorable, and innovation and quality of service relating to 
desktop ETD devices sold for passenger air travel or air cargo 
transport in the United States likely would decline.

IX. REQUESTED RELIEF

    37. The United States requests that this Court:
    a. adjudge and decree Smiths' proposed acquisition of Morpho to be 
unlawful and in violation of Section 7 of the Clayton Act, 15 U.S.C. 
18;
    b. preliminarily and permanently enjoin and restrain defendants and 
all persons acting on their behalf from consummating the proposed 
acquisition of Morpho by Smiths from entering into or carrying out any 
contract, agreement, plan, or understanding, the effect of which would 
be to combine Morpho with the operations of Smiths;
    c. award the United States its costs of this action; and
    d. award the United States such other and further relief as the 
Court deems just and proper.

Respectfully submitted,

FOR PLAINTIFF UNITED STATES OF AMERICA

    Brent C. Snyder
Acting Assistant Attorney General

Maribeth Petrizzi
Chief, Litigation II Section
DC Bar #435204

Stephanie A. Fleming
Assistant Chief, Litigation II Section

Patricia A. Brink
Director of Civil Enforcement
Leslie D. Peritz
Erin C. Grace
Attorneys
U.S. Department of Justice
Antitrust Division, Litigation II Section
450 Fifth Street NW., Suite 8700
Washington, DC 20530
Tel.: (202) 616-2313
Fax: (202) 514-9033
Email: leslie.peritz@usdoj.gov

Dated: March 30, 2017

United States District Court for the District of Columbia

    United States of America, Plaintiff, v. Smiths Group PLC, Safran 
S.A., Morpho Detection, LLC, and Morpho Detection International, 
LLC, Defendants.

Case No.: 17-cv-00580
Judge: Rosemary M. Collyer
Filed: 03/30/2017

PROPOSED FINAL JUDGMENT

    WHEREAS, Plaintiff, United States of America, filed its Complaint 
on March 30, 2017, the United States and defendants, Smiths Group plc, 
Safran S.A., Morpho Detection, LLC, and Morpho Detection International, 
LLC (collectively, ``defendants''), 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, defendants agree 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 or

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assets by the defendants to assure that competition is not 
substantially lessened;
    AND WHEREAS, the United States requires defendants to make a 
certain divestiture for the purpose of remedying the loss of 
competition alleged in the Complaint;
    AND WHEREAS, defendants have represented to the United States that 
the divestiture required below can and will be made and that defendants 
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 this action 
and over each of the parties to this action. The Complaint states a 
claim upon which relief may be granted against defendants under Section 
7 of the Clayton Act, as amended (15 U.S.C. 18).

II. DEFINITIONS

    As used in this Final Judgment:
    A. ``Acquirer'' means the entity to which defendants divest the 
Divestiture Assets.
    B. ``Smiths'' means defendant Smiths Group plc, a United Kingdom 
public liability company headquartered in London, England, its 
successors and assigns, and its subsidiaries, divisions, groups, 
affiliates, partnerships, and joint ventures, and their directors, 
officers, managers, agents, and employees.
    C. ``Safran'' means defendant Safran S.A., a French corporation 
with its headquarters in Paris, France, its successors and assigns, and 
its subsidiaries, divisions, groups, affiliates, partnerships and joint 
ventures, and their directors, officers, managers, agents, and 
employees.
    D. ``Morpho'' means defendants Morpho Detection, LLC, a Delaware 
limited liability company with its headquarters in Newark, California, 
and Morpho Detection International LLC, a Delaware limited liability 
company with its headquarters in Irving, Texas, their respective 
successors and assigns, and their respective subsidiaries, divisions, 
groups, affiliates, partnerships and joint ventures, and their 
respective directors, officers, managers, agents, and employees. Morpho 
is a wholly owned subsidiary of Safran.
    E. ``ETD devices'' means explosive trace detection equipment, which 
is used to detect trace amounts of explosive residue on hands, 
belongings, or cargo or in the air after an alert is triggered from a 
primary screening device.
    F. ``Desktop ETD devices'' means stationary ETD devices used for 
secondary screening of passengers and cargo traveling by air.
    G. ``Divestiture Assets'' means Morpho's global explosive trace 
detection (``ETD'') business including, but not limited to:
    (1) Morpho's leases or subleases to the following facilities:
    (a) Morpho's R&D, manufacturing, sales, and service facility 
located at 23 Frontage Road, Andover, Massachusetts 01810 (``Andover 
facility'');
    (b) Morpho's ETD device R&D facility located at 1251 East Dyer 
Avenue, Suite 140, Santa Ana, California 92705 (``Santa Ana 
facility'');
    (c) Morpho's sales and service depot located at Granary House, 
Station Road, Great Shelford, Cambridge, England CB22 5LR;
    (d) Morpho's service depot located at 1585 Britannia Road East, 
Unit B3, Mississauga, Ontario L4W 2M4, Canada; and
    (e) Morpho's service depot located at 7-9 Orion Road, Unit 1, Lane 
Cove NSW 2066, Australia.
    (2) All tangible assets used in connection with Morpho's global ETD 
business, including, but not limited to, all research and development 
assets; all manufacturing equipment, tooling and fixed assets, personal 
property, inventory, office furniture, materials, supplies, and other 
tangible property; all licenses, permits and authorizations issued by 
any governmental organization; all contracts, teaming arrangements, 
agreements, leases, commitments, certifications, and understandings, 
including service contracts, service subcontracts, and supply 
agreements or contracts; all customer lists, customer records, 
contracts, accounts, and credit records; all repair and performance 
records and all other records; and
    (3) All intangible assets used in connection with Morpho's global 
ETD business, including, but not limited to, all patents, licenses and 
sublicenses, intellectual property (including the ionization process 
technology, the high-volume particle vapor sampling technology, and the 
mass spectrometry technology), copyrights, trademarks and trade names 
(excluding trademarks and trade names related to the words ``Morpho'' 
or ``Morpho Detection''), service marks, service names, technical 
information, computer software and related documentation, know-how, 
trade secrets, drawings, blueprints, designs, design protocols, 
customization and design of new algorithms, engineering specifications, 
specifications for materials, specifications for parts and components, 
safety procedures for the handling of materials and substances, quality 
assurance and control procedures, design tools and simulation 
capability, all manuals and technical information defendants provide to 
their own employees, customers, suppliers, agents or licensees, and all 
research data relating to Morpho's global ETD business, including, but 
not limited to, designs of experiments, and the results of successful 
and unsuccessful designs and experiments.
    H. ``Transaction'' means Smiths' proposed acquisition of Morpho's 
explosive detection systems and ETD device businesses.

III. APPLICABILITY

    A. This Final Judgment applies to Smiths, Safran, and Morpho, as 
defined above, and all other persons in active concert or participation 
with any of them who receive actual notice of this Final Judgment by 
personal service or otherwise.
    B. If, prior to complying with Sections IV and V of this Final 
Judgment, defendants sell or otherwise dispose of all or substantially 
all of their assets or of lesser business units that include the 
Divestiture Assets, they shall require the purchaser to be bound by the 
provisions of this Final Judgment. Defendants need not obtain such an 
agreement from the Acquirer of the assets divested pursuant to this 
Final Judgment.

IV. DIVESTITURE

    A. Defendants are ordered and directed, within ninety (90) calendar 
days after the filing of the Complaint in this matter, or five (5) 
calendar days after notice of the entry of this Final Judgment by the 
Court, whichever is later, to divest the Divestiture Assets in a manner 
consistent with this Final Judgment to an Acquirer acceptable to the 
United States, in its sole discretion. The United States, in its sole 
discretion, may agree to one or more extensions of this time period not 
to exceed sixty (60) calendar days in total, and shall notify the Court 
in such circumstances. Defendants agree to use their best efforts to 
divest the Divestiture Assets as expeditiously as possible.
    B. In accomplishing the divestiture ordered by this Final Judgment, 
defendants promptly shall make known, by usual and customary means, the 
availability of the Divestiture Assets. Defendants shall inform any 
person making an inquiry regarding a possible

[[Page 17286]]

purchase of the Divestiture Assets that they are being divested 
pursuant to this Final Judgment and provide that person with a copy of 
this Final Judgment. Defendants shall offer to furnish to all 
prospective Acquirers, subject to customary confidentiality assurances, 
all information and documents relating to the Divestiture Assets 
customarily provided in a due diligence process except such information 
or documents subject to the attorney-client privileges or work-product 
doctrine. Defendants shall make available such information to the 
United States at the same time that such information is made available 
to any other person.
    C. Defendants shall provide the Acquirer and the United States 
information relating to the personnel involved in the development, 
engineering, production, distribution, sale, or servicing of Morpho ETD 
devices to enable the Acquirer to make offers of employment. Defendants 
will not interfere with any negotiations by the Acquirer to employ any 
defendant employee whose primary responsibility is the development, 
engineering, production, distribution, sale, or servicing of Morpho ETD 
devices.
    D. Defendants shall permit prospective Acquirers of the Divestiture 
Assets to have reasonable access to personnel and to make inspections 
of the physical facilities of Morpho's global ETD business; access to 
any and all environmental, zoning, and other permit documents and 
information; and access to any and all financial, operational, or other 
documents and information customarily provided as part of a due 
diligence process.
    E. For the defendants' employees who elect employment by the 
Acquirer, defendants shall waive all non-compete agreements and all 
non-disclosure agreements, vest all unvested pension and other equity 
rights, and provide all benefits to which the defendants' employees 
would generally be provided if transferred to a buyer of an ongoing 
business. For a period of twelve (12) months after the Acquirer has 
hired the defendants' employees, the defendants shall not solicit to 
hire, or hire any employee hired by the Acquirer, unless (1) such 
individual is terminated or laid off by the Acquirer, or (2) the 
Acquirer agrees in writing that defendants may solicit or hire that 
individual.
    F. Defendants shall warrant to the Acquirer that each asset will be 
operational on the date of sale.
    G. Defendants shall not take any action that will impede in any way 
the permitting, operation, or divestiture of the Divestiture Assets.
    H. At the option of the Acquirer, defendants shall enter into a 
transition services agreement with the Acquirer sufficient to meet the 
Acquirer's needs for assistance in matters relating to the development, 
engineering, production, distribution, sale, or servicing of Morpho ETD 
devices. The Acquirer may exercise this option for a period no longer 
than twelve (12) months following completion of the divesture required 
by this Final Judgment
    I. Defendants shall warrant to the Acquirer that there are no 
material defects in the environmental, zoning or other permits 
pertaining to the operation of each asset, and that following the sale 
of the Divestiture Assets, defendants will not undertake, directly or 
indirectly, any challenges to the environmental, zoning, or other 
permits relating to the operation of the Divestiture Assets.
    J. By no later than thirty (30) days after the date the Transaction 
is closed, Smiths shall remove all of the PhotoMate-related and 
Quadrupole-related employees and equipment located at the Santa Ana 
facility.
    K. By no later than thirty (30) days after the Transaction is 
closed, Smiths shall remove all of the Source ID-related and Raman 
Spectroscopy-related employees and equipment located at the Andover 
facility.
    L. At the option of Smiths, the Acquirer shall enter into an 
agreement to provide Smiths with a non-exclusive, worldwide, royalty-
free, non-transferable, irrevocable license for the intangible assets 
described in Paragraph II(G)(3), that, prior to the filing of the 
Complaint in this matter, were related to the development, engineering, 
production, distribution, sale and/or service of ETD devices (i.e., the 
ionization process technology, the high-volume particle vapor sampling 
technology, and the mass spectrometry technology); provided, however, 
that any license for ionization process technology and mass 
spectrometry technology may not be used in connection with the 
development, engineering, production, distribution, sale and/or service 
of ETD devices. Such licenses will not be subject to any requirement to 
grant back to the defendants any improvement or modifications made to 
these assets.
    M. Unless the United States otherwise consents in writing, the 
divestiture pursuant to Section IV, or by Divestiture Trustee appointed 
pursuant to Section V, of this Final Judgment, shall include the entire 
Divestiture Assets, and shall be accomplished in such a way as to 
satisfy the United States, in its sole discretion, that the Divestiture 
Assets can and will be used by the Acquirer as part of a viable, 
ongoing business in the development, engineering, production, 
distribution, sale, and servicing of Desktop ETD devices. The 
divestiture, whether pursuant to Section IV or V of this Final 
Judgment:

    (1) shall be made to an Acquirer that, in the United States' 
sole judgment, has the intent and capability (including the 
necessary managerial, operational, technical and financial 
capability) of competing effectively in the development, 
engineering, production, distribution, sale, and servicing of 
Desktop ETD devices; and
    (2) shall be accomplished so as to satisfy the United States, in 
its sole discretion, that none of the terms of any agreement between 
an Acquirer and defendants give defendants 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.

V. APPOINTMENT OF DIVESTITURE TRUSTEE

    A. If defendants have not divested the Divestiture Assets within 
the time period specified in Paragraph IV(A), defendants shall notify 
the United States of that fact in writing. Upon application of the 
United States, the Court shall appoint a Divestiture Trustee selected 
by the United States and approved by the Court to effect the 
divestiture of the Divestiture Assets.
    B. After the appointment of a Divestiture Trustee becomes 
effective, only the Divestiture Trustee shall have the right to sell 
the Divestiture Assets. The Divestiture Trustee shall have the power 
and authority to accomplish the divestiture to an Acquirer acceptable 
to the United States at such price and on such terms as are then 
obtainable upon reasonable effort by the Divestiture Trustee, subject 
to the provisions of Sections IV, and V of this Final Judgment, and 
shall have such other powers as this Court deems appropriate. Subject 
to Paragraph V(D) of this Final Judgment, the Divestiture Trustee may 
hire at the cost and expense of defendants any investment bankers, 
attorneys, or other agents, who shall be solely accountable to the 
Divestiture Trustee, reasonably necessary in the Divestiture Trustee's 
judgment to assist in the divestiture. Any such investment bankers, 
attorneys, or other agents shall serve on such terms and conditions as 
the United States approves including confidentiality requirements and 
conflict of interest certifications.
    C. Defendants shall not object to a sale by the Divestiture Trustee 
on any ground other than the Divestiture Trustee's malfeasance. Any 
such objections by defendants must be conveyed in writing to the United 
States

[[Page 17287]]

and the Divestiture Trustee within ten (10) calendar days after the 
Divestiture Trustee has provided the notice required under Section V.
    D. The Divestiture Trustee shall serve at the cost and expense of 
defendants pursuant to a written agreement, on such terms and 
conditions as the United States approves, including confidentiality 
requirements and conflict of interest certifications. The Divestiture 
Trustee shall account for all monies derived from the sale of the 
assets sold by the Divestiture Trustee and all costs and expenses so 
incurred. After approval by the Court of the Divestiture Trustee's 
accounting, including fees for its services yet unpaid and those of any 
professionals and agents retained by the Divestiture Trustee, all 
remaining money shall be paid to defendants and the trust shall then be 
terminated. The compensation of the Divestiture Trustee and any 
professionals and agents retained by the Divestiture Trustee shall be 
reasonable in light of the value of the Divestiture Assets and based on 
a fee arrangement providing the Divestiture Trustee with an incentive 
based on the price and terms of the divestiture and the speed with 
which it is accomplished, but timeliness is paramount. If the 
Divestiture Trustee and defendants are unable to reach agreement on the 
Divestiture Trustee's or any agent's or consultant's compensation or 
other terms and conditions of engagement within fourteen (14) calendar 
days of appointment of the Divestiture Trustee, the United States may, 
in its sole discretion, take appropriate action, including making a 
recommendation to the Court. The Divestiture Trustee shall, within 
three (3) business days of hiring any other professionals or agents, 
provide written notice of such hiring and the rate of compensation to 
defendants and the United States.
    E. Defendants shall use their best efforts to assist the 
Divestiture Trustee in accomplishing the required divestiture. The 
Divestiture Trustee and any consultants, accountants, attorneys, and 
other agents retained by the Divestiture Trustee shall have full and 
complete access to the personnel, books, records, and facilities of the 
business to be divested, and defendants shall develop financial and 
other information relevant to such business as the Divestiture Trustee 
may reasonably request, subject to reasonable protection for trade 
secret or other confidential research, development, or commercial 
information or any applicable privileges. Defendants shall take no 
action to interfere with or to impede the Divestiture Trustee's 
accomplishment of the divestiture.
    F. After its appointment, the Divestiture Trustee shall file 
monthly reports with the United States and, as appropriate, the Court 
setting forth the Divestiture Trustee's efforts to accomplish the 
divestiture ordered under this Final Judgment. To the extent such 
reports contain information that the Divestiture 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 Divestiture Assets, and shall describe in detail each 
contact with any such person. The Divestiture Trustee shall maintain 
full records of all efforts made to divest the Divestiture Assets.
    G. If the Divestiture Trustee has not accomplished the divestiture 
ordered under this Final Judgment within six months after its 
appointment, the Divestiture Trustee shall promptly file with the Court 
a report setting forth (1) the Divestiture Trustee's efforts to 
accomplish the required divestiture, (2) the reasons, in the 
Divestiture Trustee's judgment, why the required divestiture has not 
been accomplished, and (3) the Divestiture Trustee's recommendations. 
To the extent such reports contains information that the Divestiture 
Trustee deems confidential, such reports shall not be filed in the 
public docket of the Court. The Divestiture Trustee shall at the same 
time furnish such report to the United States which 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 
Divestiture Trustee's appointment by a period requested by the United 
States.
    H. If the United States determines that the Divestiture Trustee has 
ceased to act or failed to act diligently or in a reasonably cost-
effective manner, it may recommend the Court appoint a substitute 
Divestiture Trustee.

VI. NOTICE OF PROPOSED DIVESTITURE

    A. Within two (2) business days following execution of a definitive 
divestiture agreement, defendants or the Divestiture Trustee, whichever 
is then responsible for effecting the divestiture required herein, 
shall notify the United States of any proposed divestiture required by 
Section IV or V of this Final Judgment. If the Divestiture Trustee is 
responsible, it shall similarly notify defendants. The notice shall set 
forth the details of the proposed divestiture 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 Divestiture Assets, 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 defendants, 
the proposed Acquirer, any other third party, or the Divestiture 
Trustee, if applicable, additional information concerning the proposed 
divestiture, the proposed Acquirer, and any other potential Acquirer. 
Defendants and the Divestiture 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 thirty (30) calendar days after receipt of the notice or 
within twenty (20) calendar days after the United States has been 
provided the additional information requested from defendants, the 
proposed Acquirer, any third party, and the Divestiture Trustee, 
whichever is later, the United States shall provide written notice to 
defendants and the Divestiture Trustee, if there is one, 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 defendants' limited right to object 
to the sale under Paragraph V(C) of this Final Judgment. Absent written 
notice that the United States does not object to the proposed Acquirer 
or upon objection by the United States, a divestiture proposed under 
Section IV or V shall not be consummated. Upon objection by defendants 
under Paragraph V(C), a divestiture proposed under Section V shall not 
be consummated unless approved by the Court.

VII. FINANCING

    Defendants shall not finance all or any part of any purchase 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, defendants shall take all steps necessary to comply with 
the Hold Separate Stipulation and Order entered by this

[[Page 17288]]

Court. Defendants 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, defendants 
shall deliver to the United States an affidavit as to the fact and 
manner of their compliance with Section IV or V of this Final Judgment. 
Each such affidavit shall include the name, address, and telephone 
number of each person who, during the preceding thirty (30) calendar 
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 Divestiture Assets, and 
shall describe in detail each contact with any such person during that 
period. Each such affidavit shall also include a description of the 
efforts defendants have taken to solicit buyers for the Divestiture 
Assets, and to provide required information to prospective Acquirers, 
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 defendants, 
including limitation on 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, defendants shall deliver to the United States an 
affidavit that describes in reasonable detail all actions defendants 
have taken and all steps defendants have implemented on an ongoing 
basis to comply with Section VIII of this Final Judgment. Defendants 
shall deliver to the United States an affidavit describing any changes 
to the efforts and actions outlined in defendants' earlier affidavits 
filed pursuant to this section within fifteen (15) calendar days after 
the change is implemented.
    C. Defendants shall keep all records of all efforts made to 
preserve and divest the Divestiture Assets until one year after such 
divestiture has been completed.

X. COMPLIANCE INSPECTION

    A. For the purposes of determining or securing compliance with this 
Final Judgment, or of any related orders such as any Hold Separate 
Order, or of determining whether the Final Judgment should be modified 
or vacated, and subject to any legally recognized privilege, from time 
to time authorized representatives of the United States Department of 
Justice, including consultants and other persons retained by the United 
States, shall, upon written request of an authorized representative of 
the Assistant Attorney General in charge of the Antitrust Division, and 
on reasonable notice to defendants, be permitted:
    (1) Access during defendants' office hours to inspect and copy, or 
at the option of the United States, to require defendants to provide 
hard copy or electronic copies of, all books, ledgers, accounts, 
records, data, and documents in the possession, custody, or control of 
defendants, relating to any matters contained in this Final Judgment; 
and
    (2) to interview, either informally or on the record, defendants' 
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 defendants.
    B. Upon the written request of an authorized representative of the 
Assistant Attorney General in charge of the Antitrust Division, 
defendants shall submit written reports or response to written 
interrogatories, 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 
defendants to the United States, defendants represent and identify in 
writing the material in any such information or documents to which a 
claim of protection may be asserted under Rule 26(c)(1)(G) of the 
Federal Rules of Civil Procedure, and defendants mark each pertinent 
page of such material, ``Subject to claim of protection under Rule 
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United 
States shall give defendants ten (10) calendar days notice prior to 
divulging such material in any legal proceeding (other than a grand 
jury proceeding).

XI. NOTIFICATION

    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''), 
during the term of this Final Judgment, Smiths, without providing 
advance notification to the Antitrust Division, shall not directly or 
indirectly acquire any assets of or any interest, including, but not 
limited to, any financial, security, loan, equity, or management 
interest, in any entity engaged in the development, engineering, 
production, distribution, sales, and servicing of Desktop ETD devices 
in the United States; provided that notification pursuant to this 
Section shall not be required where the purchase price of the assets or 
interest being acquired is less than $30 million.
    B. Such notification shall be provided to the Antitrust Division 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 desktop ETD devices thereof described in Section IV 
of the Complaint filed in this matter. Notification shall be provided 
at least thirty (30) calendar days prior to acquiring any such 
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 thirty-day period after notification, representatives of the 
Antitrust Division make a written request for additional information, 
Smiths shall not consummate the proposed transaction or agreement until 
thirty (30) calendar 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

    Defendants may not reacquire any part of the Divestiture Assets 
during the term of this Final Judgment.

[[Page 17289]]

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 Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16

United States District Judge

United States District Court for the District of Columbia

    United States of America, Plaintiff, v. Smiths Group PLC, Safran 
S.A., Morpho Detection, LLC, Morpho Detection International, LLC, 
Defendants.
Case No.: 17-cv-00580
Judge: Rosemary M. Collyer
Filed: 03/30/2017

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

    On April 20, 2016, defendants Smiths Group plc (``Smiths''), Safran 
S.A. (``Safran''), Morpho Detection, LLC and Morpho Detection 
International, LLC (``Morpho'') entered into an agreement, pursuant to 
which Smiths intends to acquire Morpho's global explosive detection 
business from Safran. The value of the transaction is approximately 
$710 million.
    The United States filed a civil antitrust Complaint on March 30, 
2017, seeking to enjoin the proposed acquisition. The Complaint alleges 
that the likely effect of the acquisition would be to lessen 
competition substantially for the development, engineering, production, 
distribution, sales, and servicing of desktop explosive trace detection 
(``ETD'') devices sold for passenger air travel or air cargo transport 
in the United States in violation of Section 7 of the Clayton Act, 15 
U.S.C. 18. This loss of competition likely would give Smiths the 
ability and incentive to raise prices, decrease the quality of service, 
and lessen innovation for customers in the United States.
    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, which is 
explained more fully below, defendants are required to divest Morpho's 
global ETD business. These assets collectively are referred to as the 
``Divestiture Assets.'' Under the terms of the Hold Separate 
Stipulation and Order, defendants will take certain steps to ensure 
that the Divestiture Assets are operated as a competitive, independent, 
economically viable, and ongoing business concern, that the Divestiture 
Assets will remain independent and uninfluenced by the consummation of 
the acquisition, and that competition is maintained during the pendency 
of the ordered divestiture.
    The United States and defendants 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 Defendants and the Transaction

    Smiths is a London-based corporation with a U.S. subsidiary, Smiths 
Detection U.S., Inc. (``Smiths Detection''), headquartered in Edgewood, 
Maryland. Smiths is a globally diversified technology company that 
provides products for the healthcare, energy and petrochemicals, threat 
and contraband detection, and telecommunications industries. Smiths 
Detection develops, engineers, produces, distributes, sells, and 
services a wide range of threat and contraband detection technologies, 
including x-ray, explosive trace detection (``ETD''), and infra-red 
spectroscopy used at airports, ports and borders, and in critical 
infrastructure worldwide. In 2015, Smiths' worldwide revenues were 
approximately $4.5 billion. Smiths Detection's worldwide revenues were 
approximately $730 million and its U.S. revenues were approximately 
$225.7 million.
    Morpho Detection, LLC, based in Newark, California, and Morpho 
Detection International, LLC, based in Irving, Texas, (collectively 
``Morpho'') are subsidiaries of Safran, a Paris-based $17.3 billion 
aerospace and defense company. Morpho develops, engineers, produces, 
distributes, sells, and services two categories of threat detection 
devices, explosive detection systems and ETD devices, which are used at 
airports, air cargo facilities, and other high-risk critical 
infrastructure sites worldwide. In 2015, Morpho's worldwide revenues 
were approximately $325 million and its U.S. revenues were 
approximately $262 million.
    Pursuant to an agreement dated April 20, 2016, Smiths intends to 
purchase Morpho's explosive detection system and ETD device businesses 
for approximately $710 million.

B. Explosive Detection Industry Overview

    Equipment designed to detect and identify explosives is used across 
a broad spectrum of government agencies and private companies for 
security screening. This equipment includes desktop ETD devices used at 
passenger checkpoints or air cargo facilities throughout the United 
States. ETD devices may be stationary (``desktop'' ETDs) or mobile 
(``handheld'' ETDs). Desktop ETD devices are a secondary screening 
method employed after an alert is made by a primary screening device, 
such as an X-ray scanner or an explosive detection system. Desktop ETD 
devices detect trace amounts of explosive residue or other contraband 
on hands, belongings, and cargo from a tiny sample swabbed from the 
object and placed inside the detector.
    Desktop ETD devices used at airport checkpoints and air cargo 
facilities need an external power source and a controlled environment, 
but are considered more reliable and accurate than handheld ETD 
devices, and are

[[Page 17290]]

capable of greater throughput. Generally, an ETD device's operational 
performance is evaluated on sensitivity, selectivity or identification, 
and speed.
    U.S. customers require desktop ETD vendors to have a local service 
network, with a ready supply of consumables and components. A local 
service presence allows vendors to provide training to new employees 
who operate their devices and provide timely repair and maintenance. 
Likewise, desktop ETDs require regular service, maintenance, and a 
ready supply of consumables, so having a local service presence enables 
vendors to respond expeditiously when a device requires attention, and 
reduces downtime that can slow the pace of passenger and baggage 
screening at airports and other critical facilities.

C. Desktop ETD Device Industry Regulation

    The Transportation Security Administration (``TSA'') mandates 
separate security performance screening standards for passenger air 
travel and for air cargo transport. Desktop ETD devices that meet the 
TSA threat certification standards are listed either on: (a) The 
Qualified Product List (``QPL'') for desktop ETD devices purchased by 
the TSA for checkpoint screening of passengers, carry-on bags and hold 
baggage at airports; and/or (b) the Air Cargo Screening Technology List 
(``ACSTL''), for desktop ETD devices purchased by air cargo companies 
for screening of air cargo. In addition, desktop ETD devices purchased 
by the TSA for passenger air travel include customized software that is 
exclusively available to the TSA.
    U.S. sales of desktop ETD devices to the TSA for passenger air 
travel depend upon a small number of large, infrequent TSA 
procurements, which typically arise when the TSA updates its 
certification standards to meet emerging threats. Annual sales of 
desktop ETD devices used for passenger air travel in the United States 
averaged about $13 million over the last six years. Sales to air cargo 
companies follow a similar pattern, with large procurements occurring 
infrequently as air cargo carriers respond to evolving threats and new 
technology. Annual sales of desktop ETD devices used to screen air 
cargo averaged approximately $5.5 million over the last six years.
    QPL qualification is a multi-step process that can take up to two 
years. Labs under the direction of the Department of Homeland Security 
test devices to ensure the necessary threats are detected. The TSA then 
conducts operational testing on-site at airports to confirm that its 
performance standards are met. If a desktop ETD device makes it through 
these steps, it will be qualified and placed on the QPL. The ACSTL 
qualification process generally is the same as the qualification 
process for the QPL, but the mandated threat detection standards differ 
in order to account for a wider range of air cargo packaging material.
    When the TSA opens a solicitation for desktop ETD devices, only 
vendors with desktop ETD devices on the QPL can participate. The TSA is 
currently conducting an expedited evaluation of desktop ETD devices to 
be qualified for inclusion on the QPL, in anticipation of an upcoming 
procurement likely in the second half of 2017. The TSA does not publish 
the QPL, but does issue a press release when a contract is awarded, 
which includes the name of the vendor and its desktop ETD device.
    The ACSTL qualification process generally is the same as the 
qualification process for the QPL, but the mandated threat detection 
standards differ in order to account for a wider range of air cargo 
packaging material. The current ACSTL threat detection standard expires 
within the next two years. The TSA has begun testing and qualifying new 
desktop ETD devices to meet a new threat detection standard. 
Grandfathered devices may still be used by air cargo carriers until the 
expiration date, but any new purchases of such devices require a TSA 
waiver.

D. Relevant Markets Affected by the Proposed Acquisition

    Defendants compete in the development, production, engineering, 
distribution, sales, and servicing of desktop ETD devices for passenger 
air travel and air cargo transport in the United States. The Complaint 
alleges that each of these desktop ETD device applications is a 
relevant product market in which competitive effects can be assessed. 
The different applications are recognized in the desktop ETD device 
industry as separate product lines; they have unique customers with 
different technical and service requirements. Competition would be 
reduced from three-to-two for the sale of desktop ETD devices in these 
highly concentrated markets in the United States as a result of the 
proposed acquisition. For purchasers of desktop ETD devices for 
passenger air travel and air cargo transport in the United States, 
Smiths and Morpho are two of only three suppliers.
1. Desktop ETD Devices for Passenger Air Travel in the United States
    The Complaint alleges likely harm in the market for desktop ETD 
devices for passenger air travel in the United States. The TSA may 
purchase only desktop ETD devices that are listed on the QPL, and QPL 
qualification requires that devices meet specific criteria and 
successfully complete rigorous testing. As these devices are purchased 
exclusively by the TSA and may not be sold outside of the United 
States, the relevant geographic market is the United States.
    A hypothetical profit-maximizing monopolist of desktop ETD devices 
sold for passenger air travel in the United States likely would impose 
a small but significant non-transitory increase in price (``SSNIP'') 
that would not be defeated by substitution away from desktop ETD 
devices with QPL certification or by the TSA purchasing desktop ETD 
devices outside the United States. Accordingly, the development, 
engineering, production, distribution, sale, and servicing of desktop 
ETD devices sold for passenger air travel in the United States is a 
relevant market within the meaning of Section 7 of the Clayton Act.
2. Desktop ETD Devices for Air Cargo Transport in the United States
    The Complaint also alleges likely harm in the market for desktop 
ETD devices for air cargo transport in the United States. Air cargo 
transport companies operating in the United States require that desktop 
ETD devices meet certain performance standards, which typically include 
ACSTL qualification by the TSA. Desktop ETD devices on the ACSTL also 
must undergo significant testing to ensure they meet and deliver the 
required technical standards and performance. As these devices are 
purchased for use at airports located in the United States, and because 
their sale involves a significant service component, the relevant 
geographic market is the United States.
    A hypothetical profit-maximizing monopolist of desktop ETD devices 
sold for air cargo transport in the United States likely would impose a 
SSNIP that would not be defeated by substitution away from desktop ETD 
devices in the relevant market or by air cargo companies purchasing the 
desktop ETD devices outside the United States. Accordingly, the 
development, engineering, production, distribution, sale, and servicing 
of desktop ETD devices for air cargo transport in the United States is 
a relevant market within the meaning of Section 7 of the Clayton Act.

[[Page 17291]]

E. Anticompetitive Effects of the Proposed Transaction

    Smiths' acquisition of Morpho would eliminate head-to-head 
competition between these two firms in the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices 
for passenger air travel and air cargo transport in the United States. 
For their most significant customers, Smiths and Morpho are two of only 
three suppliers which historically have qualified to provide desktop 
ETD devices and related services for these two applications in the 
United States.
1. Desktop ETD Devices for Passenger Air Travel in the United States
    The TSA historically has relied on three suppliers qualified to 
meet its QPL standards for desktop ETD devices for passenger air 
travel. Smiths and Morpho are two of those three suppliers that have 
competed on price and other terms of sale. Such competition has led to 
lower prices, better service and more innovative products for the TSA.
    In particular, Morpho has a history of bidding aggressively for 
contracts to supply and service desktop ETD devices in this market. By 
underbidding its rivals, Morpho delivered to the TSA a lower-priced 
option while also incentivizing competitors to respond with more 
competitive prices and terms of sale. Absent the merger, Morpho was 
expected to continue to be an aggressive competitor. As a result, the 
proposed acquisition would give Smiths the ability and the incentive to 
raise prices and decrease the quality of its service.
    The TSA is expected to issue a new solicitation to supply desktop 
ETD devices in the second half of 2017. Smiths and Morpho likely will 
continue to be two of only three competitors qualified to bid for this 
significant supply contract. Again, the acquisition would reduce from 
three-to-two the number of suppliers for the TSA's upcoming 
procurement, likely leading to higher prices and less advantageous 
terms for that agency.
    Additionally, Smiths and Morpho each have sizable and active 
research and development operations and teams of engineers and 
technical staff working on desktop ETD devices for the passenger air 
travel market. Each firm has provided the other with the incentive to 
improve current products and develop new desktop ETD devices. A merged 
Smiths and Morpho would eliminate that competition depriving customers 
of more innovative future products and services.
    Without the required divestiture of assets, Smiths' acquisition of 
Morpho's desktop ETD devices for passenger air travel would have 
eliminated an aggressive competitor in the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices. 
Thus, the elimination of Morpho likely would result in significant harm 
from higher prices, decreased innovation, and poorer quality of service 
in violation of Section 7 of the Clayton Act.
2. Desktop ETD Devices for Air Cargo Transport in the United States
    Smiths' acquisition of Morpho also would eliminate head-to-head 
competition between these two firms in the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices 
for the air cargo transport market in the United States. Smiths and 
Morpho are two of only three suppliers that are listed on the ACSTL and 
thus, can provide desktop ETD devices and a local service network.
    As in the passenger air travel market, Morpho has a history of 
bidding aggressively for contracts to supply and service desktop ETD 
devices in the air cargo transport market, which is likely to result in 
lower bids from Morpho and its rivals once new ACSTL solicitation is 
announced in the next two years. The proposed acquisition would, 
therefore, give Smiths the ability and the incentive to raise prices 
and decrease the quality of its service for air cargo transport 
customers.
    The sizable research and development operations, engineers, and 
technical staff of Smiths and Morpho, respectively, which work on 
desktop ETD devices for the passenger air travel market, also work to 
improve current and develop new desktop ETD devices for the air cargo 
transport market. Each firm has provided the other with the incentive 
to improve current products and develop new desktop ETD devices for the 
air cargo transport market. A merged Smiths and Morpho would eliminate 
that incentive, potentially depriving customers of more innovative 
future products and services.
    The proposed transaction, therefore, likely would substantially 
lessen competition in the development, engineering, production, 
distribution, sale, and servicing of desktop ETD devices in the air 
cargo transport market in the United States, leading to higher prices, 
decreased innovation, and poorer quality of service in violation of 
Section 7 of the Clayton Act.

F. Difficulty of Entry

    Given the substantial time and particular technology and software 
required to develop and qualify a desktop ETD device to be listed on 
the QPL or the ACSTL, timely and sufficient entry into either the 
passenger air travel market or the air cargo transport market is 
unlikely to mitigate the harmful effects of the proposed transaction 
caused by the elimination of Morpho as an independent supplier.
1. Desktop ETD Devices for Passenger Air Travel in the United States
    Firms attempting to enter into the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices in 
the passenger air travel market face substantial entry barriers in 
terms of time and technology. The TSA process for qualification of a 
new desktop ETD device normally takes from 12 to 24 months. Testing 
includes multiple steps, each of which must be passed to proceed: (1) 
submission and corresponding review of a data package; (2) two rounds 
of functional testing of the unit in a controlled environment; and (3) 
operational testing of the unit on-site at an airport. As a result of 
these barriers, entry would not be timely, likely, or sufficient to 
defeat a price increase arising from the substantial lessening of 
competition that likely would result from Smiths' acquisition of 
Morpho.
2. Desktop ETD Devices for Air Cargo Transport in the United States
    Firms attempting to enter into the development, engineering, 
production, distribution, sale, and servicing of desktop ETD devices in 
the air cargo transport market likewise face substantial entry barriers 
in terms of time and technology. Air cargo companies typically require 
desktop ETD device providers to meet ACSTL standards, which demand an 
investment of time and money similar to that required under the TSA's 
QPL-testing process. Setting up a local network of service and training 
personnel and equipment is likewise a cost- and time-intensive 
endeavor. As a result of these barriers, entry would not be timely, 
likely, or sufficient to defeat a price increase arising from the 
substantial lessening of competition from Smiths' acquisition of 
Morpho.

III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT

    The divestiture requirement of the proposed Final Judgment will 
eliminate the anticompetitive effects of the acquisition by 
establishing a new, independent, and economically viable competitor in 
the development, engineering, production, distribution, sale, and 
servicing of desktop ETD

[[Page 17292]]

devices. Paragraph II(G) of the proposed Final Judgment defines the 
Divestiture Assets to include Morpho's global ETD business, including 
leases or subleases to Morpho's R&D, manufacturing, sales, and service 
facility located at Andover, Massachusetts; its R&D facility at Santa 
Ana, California; its three sales and service depots located at 
Cambridge, England, Mississauga, Canada, and Sydney, Australia. The 
Divestiture Assets include all tangible assets used in connection with 
Morpho's global ETD business, including, but not limited to, all 
research and development assets; all manufacturing equipment, tooling 
and fixed assets, personal property, inventory, office furniture, 
materials, supplies, and other tangible property; all licenses, permits 
and authorizations issued by any governmental organization; all 
contracts, teaming arrangements, agreements, leases, commitments, 
certifications, and understandings, including service contracts, 
service subcontracts, and supply agreements or contracts; all customer 
lists, customer records, contracts, accounts, and credit records; all 
repair and performance records and all other records.
    The Divestiture Assets also include all intangible assets used in 
connection with Morpho's global ETD business, including, but not 
limited to, all patents, licenses and sublicenses, intellectual 
property (including the ionization process technology, the high-volume 
particle vapor sampling technology, and the mass spectrometry 
technology), copyrights, trademarks and trade names (excluding 
trademarks and trade names related to the words ``Morpho'' or ``Morpho 
Detection''),\1\ service marks, service names, technical information, 
computer software and related documentation, know-how, trade secrets, 
drawings, blueprints, designs, design protocols, customization and 
design of new algorithms, engineering specifications, specifications 
for materials, specifications for parts and components, safety 
procedures for the handling of materials and substances, quality 
assurance and control procedures, design tools and simulation 
capability, all manuals and technical information defendants provide to 
their own employees, customers, suppliers, agents or licensees, and all 
research data relating to Morpho's global ETD business, including, but 
not limited to, designs of experiments, and the results of successful 
and unsuccessful designs and experiments.
---------------------------------------------------------------------------

    \1\ Morpho's parent, Safran, carved out from the sale of Morpho 
the ``Morpho'' and ``Morpho Detection'' trademarks and trade names, 
because Safran is the primary user of those trademarks and names. 
Safran also uses them for products and businesses other than ETD 
devices. Customers widely recognize Morpho's ETD devices by product 
and model names rather than by the company name, so excluding the 
Morpho and Morpho Detection trade names and trademarks will not 
adversely impact the viability or competitive significance of the 
Divestiture Assets as an ongoing business.
---------------------------------------------------------------------------

    Paragraph IV(A) requires Smiths, within ninety (90) 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, to divest the 
Divestiture Assets as a viable ongoing business. The Divestiture Assets 
must be divested in such a way as to satisfy the United States, in its 
sole discretion, that the operations can and will be operated by the 
purchaser as a viable, ongoing business that can compete effectively in 
the relevant market. Defendants must take all reasonable steps 
necessary to accomplish the divestiture quickly and shall cooperate 
with prospective purchasers.
    Pursuant to Paragraph IV(H), the Acquirer has the option to enter 
into a transition services agreement with Smiths sufficient to meet the 
Acquirer's need for assistance in matters relating the Divestiture 
Assets. The Acquirer may exercise this option for a period no longer 
than twelve (12) months following completion of the divestiture 
required by the Final Judgment.
    The facilities located in Santa Ana, California and Andover, 
Massachusetts each currently contain assets that are unrelated to 
desktop ETD devices. Accordingly, pursuant to Paragraphs IV(J) and 
IV(K), Smiths is required to remove the non-desktop ETD device assets 
from these facilities no later than thirty (30) days after the date the 
Transaction is closed.
    In accordance with Paragraph IV(L), at Smiths' option, the Acquirer 
shall enter into an agreement to provide Smiths with a non-exclusive, 
worldwide, royalty-free, non-transferable, irrevocable license for the 
intangible assets described in Paragraph II(G)(3) of the Final 
Judgment, that, prior to the filing of the Complaint in this matter, 
were being developed to be used in connection with ETD devices (i.e., 
the ionization process technology, the high-volume particle vapor 
sampling technology, and the mass spectrometry technology); provided, 
however, that any license for ionization and mass spectrometry 
technology may not be used in connection with the development, 
engineering, production, distribution, sale and/or service of ETD 
devices. Such licenses will not be subject to any requirement to grant 
back to the defendants any improvement or modifications made to these 
assets.
    Pursuant to Paragraph IV(M), final approval of the sale of the 
Divestiture Assets, including the identity of the Acquirer, is left to 
the sole discretion of the United States to ensure the continued 
independence and viability of the Divestiture Assets to compete in the 
relevant markets.
    According to Section V, in the event that Smiths does not 
accomplish the divestiture within the periods prescribed in the 
proposed Final Judgment, the proposed Final Judgment provides that the 
Court will appoint a Divestiture Trustee selected by the United States 
to effect the divestiture. If a Divestiture Trustee is appointed, the 
proposed Final Judgment provides that Smiths will pay all costs and 
expenses of the trustee. The Divestiture Trustee's commission will be 
structured so as to provide an incentive for the trustee based on the 
price obtained and the speed with which the divestiture is 
accomplished. After its appointment becomes effective, the Divestiture 
Trustee will file monthly reports with the Court and the United States 
setting forth its efforts to accomplish the divestiture. At the end of 
six months, if the divestiture has not been accomplished, the 
Divestiture 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.
    Section XI of the proposed Final Judgment requires Smiths to 
provide notification to the Antitrust Division of certain proposed 
acquisitions not otherwise subject to filing under the Hart-Scott 
Rodino Act, 15 U.S.C. 18a (the ``HSR Act''), and in the same format as, 
and per the instructions relating to the notification required under 
that statute. The notification requirement applies in the case of any 
direct or indirect acquisitions of any assets of or interest in any 
entity engaged in the development, engineering, production, 
distribution, sales, and servicing of desktop ETD devices in the United 
States; provided that notification pursuant to this Section shall not 
be required where the purchase price of the assets or interests being 
acquired is less than $30 million. Section XI further provides for 
waiting periods and opportunities for the United States to obtain 
additional information similar to the provisions of the HSR Act before 
such acquisitions can be consummated. The United States believes that 
Smiths may have an interest in acquiring other desktop ETD companies 
that have not

[[Page 17293]]

yet qualified for either the QPL or ACSTL but which may attempt to 
qualify for the QPL or ASCTL in the future. Because some of these firms 
may not be large enough to trigger HSR reporting requirements, we are 
requiring this notification provision.
    The Divestiture Assets are not limited only to desktop ETD devices 
but rather include Morpho's global ETD business, which includes 
desktop, handheld, and portal ETD products. These products share many 
commonalities, including intellectual property, research and 
development, patented technology, production processes, components, 
distribution, sales, and service support. Partitioning such closely 
related lines of business would be impractical and endanger the 
viability and competitiveness of an entity that consists solely of the 
desktop ETD business. The divestiture provisions of the proposed Final 
Judgment will eliminate the anticompetitive effects of the acquisition 
in the provision of desktop ETD devices used in the relevant markets by 
preserving the Divestiture Assets as an independent and vigorous 
competitor to Smiths.

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 defendants.

V. PROCEDURES AVAILABLE FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT

    The United States and defendants 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 (60) 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. Any person who wishes to comment should do so 
within sixty (60) 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 United States 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. In 
addition, comments will be posted on the U.S. Department of Justice, 
Antitrust Division's Internet Web site and, under certain 
circumstances, published in the Federal Register.
    Written comments should be submitted to:

Maribeth Petrizzi
Chief, Litigation II Section
Antitrust Division
United States Department of Justice
450 Fifth Street NW.,
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 defendants. The 
United States could have litigated and sought preliminary and permanent 
injunctions against Smiths' acquisition of Morpho. The United States is 
satisfied, however, that the divestiture of Morpho's global ETD 
business described in the proposed Final Judgment will preserve 
competition for the development, production, engineering, distribution, 
sales, and servicing of desktop ETD devices in the United States. Thus, 
the proposed Final Judgment would achieve all or substantially all of 
the relief the United States would have obtained through litigation, 
but avoids the time, expense, and uncertainty of a full trial on the 
merits of the Complaint.

VII. STANDARD OF REVIEW UNDER THE APPA FOR THE PROPOSED FINAL JUDGMENT

    The Clayton Act, as amended by 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, in accordance with the statute as amended in 2004, is 
required to consider:

    (A) the competitive impact of such judgment, including 
termination of alleged violations, provisions for enforcement and 
modification, duration of 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). In considering these statutory factors, 
the court's inquiry is necessarily a limited one as the government is 
entitled to ``broad discretion to settle with the defendant within the 
reaches of the public interest.'' United States v. Microsoft Corp., 56 
F.3d 1448, 1461 (D.C. Cir. 1995); see generally United States v. SBC 
Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing public 
interest standard under the Tunney Act); United States v, U.S. Airways 
Group, Inc., No. 13-cv-1236 (CKK), 2014-1 Trade Cas. (CCH) ] 78, 748, 
2014 U.S. Dist. LEXIS 57801, at *7 (D.D.C. Apr. 25, 2014) (noting the 
court has broad discretion of the adequacy of the relief at issue); 
United States v. InBev N.V./S.A., No. 08-1965 (JR), 2009-2 Trade Cas. 
(CCH) ] 76,736, 2009 U.S. Dist. LEXIS 84787, at *3, (D.D.C. Aug. 11, 
2009) (noting that the court's review of a consent judgment is limited 
and only inquires ``into whether the government's determination that 
the proposed remedies will cure the antitrust violations alleged in the 
complaint was reasonable, and whether the mechanism to enforce the 
final judgment are clear and manageable.''). \2\
---------------------------------------------------------------------------

    \2\ The 2004 amendments substituted ``shall'' for ``may'' in 
directing relevant factors for court to consider and amended the 
list of factors to focus on competitive considerations and to 
address potentially ambiguous judgment terms. Compare 15 U.S.C. 
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns, 
489 F. Supp. 2d at 11 (concluding that the 2004 amendments 
``effected minimal changes'' to Tunney Act review).
---------------------------------------------------------------------------

    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

[[Page 17294]]

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 Microsoft, 56 F.3d at 1458-62. 
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) (quoting United States v. Bechtel Corp., 648 
F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62; 
United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001); 
---------------------------------------------------------------------------
InBev, 2009 U.S. Dist. LEXIS 84787, at *3. 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). \3\ In 
determining whether a proposed settlement is in the public interest, a 
district court ``must accord deference to the government's predictions 
about the efficacy of its remedies, and may not require that the 
remedies perfectly match the alleged violations.'' SBC Commc'ns, 489 F. 
Supp. 2d at 17; see also U.S. Airways, 2014 U.S. Dist. LEXIS 57801, at 
*16 (noting that a court should not reject the proposed remedies 
because it believes others are preferable); Microsoft, 56 F.3d at 1461 
(noting the need for courts to be ``deferential to the government's 
predictions as to the effect of the proposed remedies''); United States 
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) 
(noting that the court should grant due respect to the United States' 
prediction as to the effect of proposed remedies, its perception of the 
market structure, and its views of the nature of the case).
---------------------------------------------------------------------------

    \3\ Cf. BNS, 858 F.2d at 464 (holding that the court's 
``ultimate authority under the [APPA] is limited to approving or 
disapproving the consent decree''); United States v. Gillette Co., 
406 F. Supp. 713, 716 (D. Mass. 1975) (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' '').
---------------------------------------------------------------------------

    Courts have greater flexibility in approving proposed consent 
decrees than in crafting their own decrees following a finding of 
liability in a litigated matter. ``[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 U.S. 
Airways, 2014 U.S. Dist. LEXIS 57801, at *8 (noting that room must be 
made for the government to grant concessions in the negotiation process 
for settlements (citing Microsoft, 56 F.3d at 1461); 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). To meet this standard, the United States ``need only provide a 
factual basis for concluding that the settlements are reasonably 
adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp. 
2d at 17.
    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; see also U.S. Airways, 
2014 U.S. Dist. LEXIS 57801, at *9 (noting that the court must simply 
determine whether there is a factual foundation for the government's 
decisions such that its conclusions regarding the proposed settlements 
are reasonable; InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (``the 
`public interest' is not to be measured by comparing the violations 
alleged in the complaint against those the court believes could have, 
or even should have, been alleged''). 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. Microsoft, 56 
F.3d at 1459-60. As this Court recently confirmed in SBC 
Communications, courts ``cannot look beyond the complaint in making the 
public interest determination unless the complaint is drafted so 
narrowly as to make a mockery of judicial power.'' SBC Commc'ns, 489 F. 
Supp. 2d at 15.
    In its 2004 amendments, Congress made clear its intent to preserve 
the practical benefits of utilizing consent decrees in antitrust 
enforcement, adding the unambiguous instruction that ``[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); see also U.S. Airways, 2014 U.S. Dist. 
LEXIS 57801, at *9 (indicating that a court is not required to hold an 
evidentiary hearing or to permit intervenors as part of its review 
under the Tunney Act). The language wrote into the statute what 
Congress intended when it enacted the Tunney Act in 1974, as Senator 
Tunney explained: ``[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 
Sen. Tunney). Rather, the procedure for the public interest 
determination is left to the discretion of the court, with the 
recognition that the court's ``scope of review remains sharply 
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC 
Commc'ns, 489 F. Supp. 2d at 11.\4\ A court can make its public 
interest determination based on the competitive impact statement and 
response to public comments alone. U.S. Airways, 2014 U.S. Dist. LEXIS 
57801, at *9.
---------------------------------------------------------------------------

    \4\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the 
court to make its public interest determination on the basis of the 
competitive impact statement and response to comments alone''); 
United States v. Mid-Am. Dairymen, Inc., No. 73-CV-681-W-1, 1977-1 
Trade Cas. (CCH) ] 61,508, at 71,980, *22 (W.D. Mo. 1977) (``Absent 
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.''); S. Rep. No. 93-298, at 6 (1973) (``Where the 
public interest can be meaningfully evaluated simply on the basis of 
briefs and oral arguments, that is the approach that should be 
utilized.'').
---------------------------------------------------------------------------

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: March 30, 2017

Respectfully submitted,


[[Page 17295]]


Leslie D. Peritz
United States Department of Justice
Antitrust Division, Litigation II Section
450 Fifth Street, NW
Suite 8700
Washington, DC 20530
    Tel.: (202) 616-2313
    Fax: (202) 514-9033
    Email: leslie.peritz@usdoj.gov
[FR Doc. 2017-07099 Filed 4-7-17; 8:45 am]
 BILLING CODE P