) 

In the Matter of ) 

) 

GRACOINC. ) 

a corporation, ) 

) Docket No. 9350 

ILLINOIS TOOL WORKS INC., ) 

a corporation ) PUBLIC 

) 

and ) 

) 

ILLINOIS TOOL WORKS FINISHING ) 

LLC, ) 

a limited liability company. ) 

,RAOE co... ~,,\l>.\.. .r/M/s.

x-<V RECEIVED DOCUMENTS $/0. 

~ ci/)?f</~ ~ JAN 3 ~OlZ 

UNITED STATES OF AMERICA ORIGINAL

BEFORE THE FEDERAL TRADE COMMISSION 


ANSWER OF RESPONDENTS ILLINOIS TOOL WORKS INC. AND 

ILLINOIS TOOL WORKS FINISHING LLC 

Pursuant to 16 C.F.R. § 3.12, Respondents Illinois Tool Works Inc. and Illinois Tool 

Works Finishing LLC (collectively referred to as "ITW") hereby answer the Federal Trade 

Commission's ("FTC's") December 15,2011 Complaint as follows. 

PRELIMINARY STATEMENT 

Graco's acquisition ofITW's finishing businesses does not violate the Clayton Act. The 

FTC's Complaint ignores the realities of competition for the sale ofliquid industrial finishing 

products and provides no reasoned economic analysis of any actual data regarding competitive 

effects. Instead, the FTC relies wholly on a handful of documents, cherry-picked from among 

hundreds ofthousands of others that run contrary to the FTC's unfounded conclusion that this 

transaction will have anticompetitive effects, and a set of untested third-party declarations, all of 

which were submitted to avoid the substantially more burdensome requirements of compulsory 

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process. In short, the FTC has overreached. Competition for the sale of liquid industrial 

finishing worldwide is robust. 

The FTC has alleged both relevant product and geographic markets that make no 

practical sense. Even without any economic analysis or extensive investigation into the nature of 

the finishing industry, it is plain that the products that the FTC has lumped together do not 

comprise relevant product markets. The FTC alleges five relevant product markets: (1) liquid 

finishing pumps for industrial use; (2) liquid finishing applicators (spray guns) for industrial use; 

(3) liquid finishing plural component equipment (proportioners) for industrial use; (4) circulation 

pumps for paint systems used in automotive assembly plants; and (5) industrial liquid finishing 

equipment for resale. In the Matter o/Graco Inc., et at., Complaint ("Compl."), ~ 26. Not one 

ofthese groupings constitutes a relevant market for antitrust purposes. 

The FTC even admits that its alleged markets may not accurately reflect actual 

interchangeability of use, see, e.g., Compl. ~ 28, which alone is sufficient to doom the 

Complaint. Moreover, the FTC has based its case largely on the bald assertion that the structural 

features ofits ill-defined product markets create a presumption ofillegality. Overconfident in its 

mistaken presumption, the FTC suggests absolutely no actual evidence of anti competitive 

effects. The FTC has provided no economic analysis or data to support its position. Tellingly, 

the FTC did not even provide an expert report from an economist in support ofits motion for a 

preliminary injunction, which is a standard practice in Clayton Act Section 7 cases. Instead, in 

the absence of statistical evidence, the FTC relies on several untested declarations from a handful 

of distributors and competitors and unsubstantiated statements and share data in the parties' 

documents. The FTC's case cannot stand on such a flimsy footing. It must provide substantive 

economic evidence and data to support its allegations of anti competitive effects. 

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RESPONSES TO THE FTC'S ALLEGATIONS 


The FTC's unnumbered introductory paragraph contains only legal conclusions to which 

no response is necessary. To the extent a response is required, ITW denies the allegations of the 

introductory paragraph. 

NATURE OF THE CASE 

1. ITW denies the allegations in Paragraph 1. 

2. ITW denies the allegations in Paragraph 2. 

3. ITW denies the allegations in Paragraph 3. 

4. ITW denies the allegations in Paragraph 4. 

5. ITW denies the allegations in Paragraph 5. 

6. 	 ITW denies the allegations in Paragraph 6. 

RESPONDENTS 

7. ITW admits the allegations in Paragraph 7. 

8. ITW admits the allegations in Paragraph 8. 

9. 	 ITW admits the allegations in Paragraph 9. 

JURISDICTION 

10. Paragraph 10 contains only legal conclusions to which no response is necessary. To the 

extent a response is required, ITW denies the allegations in Paragraph 10. 

11. ITW admits this transaction is an acquisition within the meaning of Section 7 ofthe Clayton 

Act. Any other allegation in Paragraph 11 is a legal conclusion to which no response is . 

required. To the extent that a response is required to the allegation that the transaction 

violates Section 7 of the Clayton Act, ITW denies this allegation. 

THE ACQUISITION 

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12. ITW admits that it entered into an Asset Purchase Agreement dated April 14, 2011, with 

Graco Inc., Graco Holdings Inc., and Graco Minnesota Inc. in which ITW agreed to sell 

certain assets and equity interests for $650 million. ITW denies the remaining allegations in 

Paragraph 12. 

INDUSTRY STRUCTURE AND ANTICOMPETITIVE EFFECTS 

13. ITW admits the allegations in the first sentence of Paragraph 13. ITW denies the remaining 

allegations in Paragraph 13. 

14. ITW admits the allegations in the first sentence of Paragraph 14. ITW admits the allegations 

in the second sentence in Paragraph 14 to the extent that pumps, applicators (spray guns), 

plural component equipment (proportioners), and related equipment are types offinishing 

equipment but denies the allegations to the extent that this is not an exhaustive list of 

equipment that is used for industrial finishing. ITW denies the allegations in the second 

sentence ofParagraph 14 to the extent that the FTC has implied that these categories 

constitute relevant markets for the purpose of evaluating potential anticompetitive effects. 

ITW admits the allegations in the last sentence in Paragraph 14 to the extent that ITW sells 

finishing equipment throughout North America. ITW denies the remaining allegations in 

Paragraph 14. 

15. ITW denies the allegations in Paragraph 15. 

16. ITW admits that it sells a significant amount of its standard, non-engineered, non-system 

industrial liquid finishing equipment through distributors. ITW denies the remaining 

allegations in Paragraph 16. 

17. ITW denies the allegations in Paragraph 17. 

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18. ITW denies the allegations in Paragraph 18, except to the extent that the FTC has quoted 

from the transcript of the investigational hearing of one of Graco' s executives. The transcript 

speaks for itself. 

19. ITW denies the allegations in Paragraph 19, except to the extent that the FTC has quoted 

from the transcript of the investigational hearing of one of Graco' s executives. The transcript 

speaks for itself. 

20. ITW denies the allegations in Paragraph 20. 

21. ITW denies the allegations in Paragraph 21. 

22. ITW admits that the statements quoted in Paragraph 22 were made in documents submitted to 

the FTC. The documents speak for themselves. To the extent the FTC alleges the quoted 

statements are admissions by ITW, they are denied. ITW denies the remaining allegations in 

Paragraph 22. 

23. ITW denies the allegations in Paragraph 23. 

24. ITW denies the allegations in Paragraph 24. 

RELEVANT PRODUCT MARKETS 

25. ITW denies the allegations in Paragraph 25. 

26. ITW denies the allegations in Paragraph 26 and each of its subparts. 

Liquid Finishing Pumps/or Industrial Use 

27. ITW denies the allegations in Paragraph 27. ITW denies that liquid finishing pumps for 

industrial use constitute a relevant product market. 

Liquid Finishing Spray Guns/or Industrial Use 

28. ITW admits the allegation in the third sentence of Paragraph 28 that "a gun appropriate for 

one use will not always substitute for a spray gun used in a different process." ITW denies 

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the remaining allegations in Paragraph 28. ITW denies that liquid finishing spray guns for 

industrial use constitute a relevant product market. 

Liquid Finishing Pro portioners for Industrial Use 

29. ITW admits to the first sentence in Paragraph 29. ITW denies the remaining allegations in 

Paragraph 29. ITW denies that liquid finishing proportioners for industrial use constitute a 

relevant product market. 

Circulation Pumps for Paint Systems in Automotive Assembly Plants 

30. ITW denies the allegations in Paragraph 30. ITW denies that circulation pumps for paint 

systems in automotive assembly plants constitute a relevant product market. 

Industrial Liquid Finishing Equipment for Resale 

31. ITW denies the allegations in Paragraph 31. ITW denies that industrial liquid finishing 

equipment for resale constitutes a relevant product market. 


GEOGRAPHIC MARKET 


32. ITW denies the allegations in Paragraph 32. 

PRESUMPTIVE ILLEGALITY OF THE ACQUISITION 

33. The allegation in Paragraph 33 that the acquisition would be "illegal" is a legal conclusion, to 

which no response is required. To the extent a response is required, ITW denies this 

allegation. ITW denies the remaining allegations in Paragraph 33. 

34. The first sentence in Paragraph 34 contains only legal conclusions to which no response is 

required. To the extent that a response is required, ITW denies this allegation. ITW denies 

the remaining allegations in Paragraph 34. 

35. ITW denies the allegations in Paragraph 35. 

36. ITW denies the allegations in Paragraph 36. 

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37. Paragraph 37 contains onlylegal conclusions to which no response is required. To the extent 

a response is required, ITW denies the allegations in Paragraph 37. 

ENTRY AND REPOSITIONING BARRIERS AND LACK OF EFFICIENCIES 

38. ITW denies the allegations in Paragraph 38. 

39. ITW denies the allegations in Paragraph 39. 

40. ITW denies the allegations in Paragraph 40. 

41. ITW denies the allegations in Paragraph 41. 

VIOLATIONS 


Count I - Illegal Agreement 


42. Except as where specifically admitted above, ITW denies the allegations in Paragraphs 1-41 

ofthe Complaint. 

43. Paragraph 43 contains only a legal conclusion to which no response is required. To the 

extent a response is required, ITW denies the allegations in Paragraph 43. 


Count II - Illegal Acquisition 


44. Except as where specifically admitted above, ITW denies the allegations in Paragraphs 1-41 

ofthe Complaint. 

45. Paragraph 45 contains only legal conclusions to which no response is required. To the extent 

that a response is required, ITW denies the allegations in Paragraph 45. 

AFFIRMATIVE DEFENSES 

The inclusion of any ground within this section does not constitute an admission that 

ITW bears the burden of proof on each or any ofthe matters, nor does it excuse Complaint 

counsel from establishing each element ofits purported claim for relief. 

1. The Complaint fails to state a claim on which relief can be granted. 

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2. The contemplated relief would not be in the public interest because it would, 

among other things, harm consumers. 

3. Efficiencies and other pro-competitive benefits resulting from the acquisition 

outweigh any and all proffered anticompetitive effects. 

4. Entry and repositioning will be sufficient to maintain robust competition posttransaction and will outweigh any and all proffered anticompetitive effects. 

5. To eradicate the FTC's alleged concern that this transaction will have 

anti competitive effects, Graco has agreed to divest the following product lines, to a buyer 

approved by the FTC within a period of 180 days: 

a. 	 ITW's line of Ransflow manual electronic proportioners (including spare parts) 

b. 	 ITW's line ofBX pumps (including spare parts) 

c. 	 ITW's Solo line of manual electrostatic guns (including spare parts) 

d. 	 ITW's line of Pit bull airless guns (including spare parts) 

e. 	 ITW's line of Protective Coatings BX Packages (including spare parts) 

6. To provide further assurances that there will be no anticompetitive effects from this 

transaction, Graco has agreed to: 

a. 	 Regarding ITW Industrial Finishing Distribution: Graco will continue to 

operate ITW Finishing distribution channels in the same manner as they were premerger for a period of three years. To that end, Graco will: 

1. 	 Offer to extend any current ITW Finishing Distributor or Integrator 

agreement for a period ofthree years (subject to existing minimum sales 

and credit standards). 

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11. 	 Confirm in writing to each ITW Finishing Distributor that its agreement is 

non-exclusive and that there are no restrictions on which manufacturers, 

customers, or integrators with which they choose to deal as it relates to 

ITW Finishing products. 

111. 	 Ifthe ITW Finishing Distributor or Integrator is also a Graco distributor, 

integrator or customer, Graco will not use any means to restrict that 

Distributor or Integrator from selling ITW Finishing Products; 

IV. 	 For a period ofthree years, Graco will continue to offer for sale to ITW 

Distributors and Integrators a full package ofITW Finishing branded 

products (no lesser in scope to the previously offered package, with the 

exception of divested lines). 

b. 	 Regarding Graco Industrial Finishing Distribution: Graco will continue to 

operate Graco Finishing distribution channels in the same manner as they were 

pre-merger for a period ofthree years. To that end, Graco will: 

1. 	 Offer to extend any current Graco Industrial Finishing Distributor or 

Integrator agreement for a period ofthree years (subject to existing 

minimum sales and credit standards). 

11. 	 Confirm in writing to each Graco Finishing Distributor that its agreement 

is non-exclusive and that there are no restrictions on which manufacturers, 

customers, or integrators with which they choose to deal. 

111. 	 For a period ofthree years, Graco will continue to offer for sale to Graco 

Distributors and Integrators a full package of Graco Finishing branded 

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•. ,. .. , :: l,,: j . 

products (no lesser in scope to tbe previously offered package, with the , ......, \ : . " ,'­ '~ . 

~ ,." I~' I:; ~ 

exception of divested lines). . " ~ '.' -.' .............. , 

WHEREFORE, respondents Illinois Tool Works Inc. and Illinois Tool Works Finishing 

LLC respectfully request that the Court (i) deny the FTC's contemplated relief, (ii) dismiss the 

Complaint in its entirety with prejudice, (iii) award respondents their costs of suit, including 

attorneys' fees, and (iv) award such other and further relief as the Court may deem proper. 

Dated: January 3, 2012 Respectfully ~l1Q'lIlll1:eaJ. Robert Robertson 

Logan M. Breed 

HOGAN LOVELLS US LLP 

Columbia Square 

555 Thirteenth Street, NW 

Washington, DC 20004-1109 

(202) 637-5600 (telephone) 

(202) 637-5910 (facsimile) 

robby.robertson@hoganlovells.com 

logan.breed@hoganlovells.com 

Attorneysfor Illinois Tool Works Inc. and 

Illinois Tool Works Finishing LLC 

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CERTIFICATE OF SERVICE 

I hereby certify that I caused to be filed via hand delivery an original with signature and 

one paper copy and a .PDF copy on disk that is a true and correct copy of the paper original of 

the foregoing Public Answer ofRespondents Respondents Illinois Tool Works Inc. and Illinois 

Tool Works Finishing LLC with: 

Donald S. Clark 

Secretary 

Federal Trade Commission 

600 Pennsylvania Avenue, NW, Rm. H-159 

Washington, DC 20580 

secretary@ftc.gov 

I also certify I caused to be delivered by hand a paper and electronic copy of the 

foregoing Public Answer ofRespondents Illinois Tool Works Inc. and Illinois Tool Works 

Finishing LLC to: 

D. Michael Chappell 

Chief Administrative Law Judge 

Federal Trade Commission, Office of Administrative Law Judges 

600 Pennsylvania Avenue, NW, Rm. H-I13 

Washington, DC 20580 

oalj@ftc.gov 

I also certify I delivered via electronic mail a copy of the foregoing Public Answer of 

Respondents Illinois Tool Works Inc. and Illinois Tool Works Finishing LLC to: 

Phillip Broyles 

Peter Richman 

Marc Schneider 

Federal Trade Commission 

1800 M Street, NW 

Washington, DC 20580 

Date: January 3,2012 

Logan M. Breed 

Hogan Lovells US LLP 

Counsel/or Respondents Illinois Tool Works 

Inc. and Illinois Tool Works Finishing LLC 

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