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0810079

UNITED STATES OF AMERICA

BEFORE THE FEDERAL TRADE COMMISSION

COMMISSIONERS: William E. Kovacic, Chairman

Pamela Jones Harbour

Jon Leibowitz

J. Thomas Rosch

___________________________________

 )

 In the Matter of )

 ) 

Flow International Corp., ) Docket No. C-4231

)

a corporation )

)

____________________________________)

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act and of the Clayton Act,

and by virtue of the authority vested by said Acts, the Federal Trade Commission (the

“Commission”), having reason to believe that respondent Flow International Corporation

(“Flow”), a corporation, and OMAX Corporation (“OMAX”), a corporation, both subject to the

jurisdiction of the Commission, have agreed to an acquisition by Flow of OMAX in violation of

Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the Federal Trade

Commission Act, as amended, 15 U.S.C. § 45, and it appearing to the Commission that a

proceeding in respect thereof would be in the public interest, hereby issues its Complaint, stating

its charges as follows:

I. RESPONDENT

1. Respondent Flow is a corporation organized and existing under the laws of the

State of Washington, with its principal place of business at 23500 - 64 Avenue South, Kent, th

Washington 98032. Flow is a global company engaged in the development, manufacture,

marketing, and sale of waterjet cutting systems.
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II. JURISDICTION

2. Flow is, and at all times relevant herein has been, engaged in

commerce as “commerce” is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C.

§ 12, and is a corporation whose business is in or affects commerce as “commerce” is defined in

Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 44.

III. THE PROPOSED TRANSACTION

3. OMAX is a Washington company with its head office in Kent, Washington. 

OMAX is a global company engaged in the development, manufacture, marketing, and sale of

waterjet cutting systems.

4. In December 2007, the parties signed an exclusive option agreement for the

acquisition of OMAX. Under the agreement, Flow and OMAX will work to negotiate a

definitive agreement for Flow to acquire OMAX. Upon closing, Flow will pay approximately

$109 million in cash and stock with the potential for a contingent earn-out in two years of up to

$26 million.

IV. WATERJET CUTTING SYSTEMS

5. The demand for waterjet cutting systems is growing very rapidly due to the

versatility and ease of operation of these systems. Waterjet cutting systems can be used to cut

and machine a much wider range of materials than other cutting systems. For most users of

waterjet cutting systems, alternative cutting systems would not provide comparable features and

therefore would not serve as adequate substitutes. Customers now using or seriously considering

adopting waterjet cutting systems would be unlikely to switch to an alternative cutting

technology if the prices of all waterjet cutting systems were to be raised by a small but significant

non-transitory amount. 

6. A waterjet cutting system contains four main parts: (1) pump, (2) cutting head,

(3) cutting table, and (4) controller. 

• The "pump" rated in pressure at or above 50,000 pounds per square inch creates

ultra-high pressure water;

• The cutting head is a two-stage nozzle where the ultra-high pressure water passes

through a small-diameter jewel orifice to form a narrow waterjet. In abrasive

waterjet cutting systems, the resulting waterjet then passes through a small

chamber where a slight vacuum pulls abrasive material into this area through a

feed tube. The abrasive particles are accelerated by the narrow waterjet and

together they pass into a long, hollow cylindrical ceramic mixing tube. The

resulting mix of abrasive and narrow waterjet exits the mixing tube as a coherent
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stream and cuts the material; 

• The cutting table holds the material to be cut and can utilize either a gantry or

cantilever system to move the cutting head; and 

• The controller is hardware and software that directs the cutting head. Controllers

can be adapted from other cutting tools, such as lasers, that also use cutting tables,

or they may be specifically designed to compensate for the unique characteristics

of how the waterjet cuts, including taper (the waterjet expands after leaving the

nozzle, forming a cone shape) and lag (the faster the cutting head moves, the more

the waterjet will trail behind the cut). 

7. Waterjet cutting systems are used by a wide variety of industrial machine tool

customers. These customers include:

• job shops that produce a wide variety of short-run parts use waterjet cutting

systems to complement their traditional Computer Numerical Control milling

machines and flame cutters;

• wire Electrical Discharge Machining (“EDM”) shops because waterjet cutting

systems are up to ten times faster than wire EDM and can cut both conductive and

non-conductive material without creating a heat-affected zone;

• laser shops, which can capitalize on the ability of waterjet cutting systems to cut

thicker materials than lasers can, and, unlike lasers, can cut reflective materials; 

• aerospace shops because waterjet cutting systems can cut without damaging

materials that are affected by heat, such as titanium and aluminum; 

• tooling shops because waterjet cutting systems can work with hardened tool steel;

• architectural fabricators, which use waterjet cutting systems to create large signs,

decorative tiles, or intricate design work in a wide variety of materials; and 

• metal fabricators, which value the enhanced ability of waterjet cutting systems to

cut clean edges for plate work.

8. Most waterjet customers derive a gain in productivity, which is a function of

cutting speed and set-up time, by using a waterjet cutting system instead of an alternative cutting

technology. Cutting speed is affected by pump strength, the number of cutting heads used on the

system, and the sophistication of the controller. Controllers are often the least expensive means 
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of improving cutting speed and have the further virtue of reducing set-up time if they are easily

programmable. Controllers can also improve the quality of the cut by, among other things,

automatically adjusting the speed of the cut.

V. COMPETITION BETWEEN FLOW AND OMAX

9. Flow is the largest manufacturer of waterjet cutting systems in the United States. 

OMAX is the second largest. 

10. OMAX has received U.S. Patent Nos. 5,508,596 and 5,892,345 relating, among

other things, to controllers that may include a personal computer for determining appropriate

machining commands to control velocity, acceleration and/or jerk for a cutting head. These

commands help compensate for the unique characteristics of how the waterjet cuts, including

taper and lag. 

11. Both Flow and OMAX produce waterjet cutting systems that feature relatively

inexpensive yet sophisticated PC-based controllers. Flow and OMAX are each other’s closest

competitors because they are the only two competitors that manufacture comparably priced

waterjet cutting systems with the most advanced and efficient controllers.

VI. RELEVANT MARKET

12. For the purposes of this Complaint, the relevant line of commerce in which to

analyze the effects of the Acquisition is the development, manufacture, marketing, and sale of

waterjet cutting systems.

13. For the purposes of this Complaint, the relevant geographic market within which

to analyze the effects of the Acquisition is the United States.

VII. CONCENTRATION IN THE RELEVANT MARKET

14. The relevant market would be highly concentrated as a result of the acquisition. 

Post-acquisition, Respondent would account for more than 55 percent of waterjet cutting system

sales in the United States.

VIII. LIKELIHOOD OF ENTRY

15. New entrants and existing competitors are deterred by the risk of violating OMAX

patents from developing and producing competitive waterjet cutting systems. Developing an

efficient controller that clearly works around the potential reach of OMAX’s patents would likely

be an expensive and time-consuming process, with no guarantees of success. Therefore, entry

into the relevant market would not be timely, likely, or sufficient in magnitude, character, and

scope to deter or counteract the anticompetitive effects of the acquisition.
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IX. EFFECTS OF THE ACQUISITION

16. The effects of the acquisition, if consummated, may be substantially to lessen

competition and to tend to create a monopoly in the relevant market in violation of Section 7 of

the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15

U.S.C. § 45. Specifically, the acquisition would:

a. Eliminate actual, direct, and substantial competition between Flow and

OMAX in the relevant market by eliminating competition for the development, manufacture, and

sale of waterjet cutting systems that utilize PC-based controllers; and

b. Increase Respondent’s ability to exercise market power unilaterally in the relevant

market.

X. VIOLATIONS CHARGED

17. The agreement described in Paragraph 4 constitutes a violation of Section 5 of the

FTC Act, as amended, 15 U.S.C. § 45.

18. The transaction described in Paragraph 4, if consummated, would constitute a

violation of Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, and Section 7 of the Clayton

Act, as amended, 15 U.S.C. § 18.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this

fifteenth day of August, 2008, issues its Complaint against said Respondent.

By the Commission.

Donald S. Clark

Secretary

SEAL