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ANALYSIS OF AGREEMENT CONTAINING CONSENT

 ORDERS TO AID PUBLIC COMMENT

In the Matter of Robert Bosch GmbH

File No. 121-0081, Docket No. C-4377

I. INTRODUCTION

The Federal Trade Commission (“Commission”) has accepted from Robert Bosch GmbH

(“Bosch”), subject to final approval, an Agreement Containing Consent Orders (“Consent

Agreement”), which is designed to remedy the anticompetitive effects resulting from Bosch’s

acquisition of SPX Service Solutions U.S. LLC (“SPX Service Solutions”) from SPX

Corporation (“SPX”) and to remedy anticompetitive conduct by SPX in violation of Section 5 of

the FTC Act.

Under the terms of the Consent Agreement, Bosch is required to (1) divest its air

conditioning recycling, recovery, and recharge (“ACRRR”) business, including RTI

Technologies, Inc. (“RTI”), to Mahle Clevite, Inc. (“Mahle”) by December 31, 2012; (2)

terminate agreements with any persons that limit the ability of SPX’s competitors, including

Bosch, from advertising, servicing, distributing, or selling any ACRRR product in the U.S.

market; and (3) make available for licensing certain patents which may be used in the

implementation of two industry standards established by SAE International, an industry

association responsible for setting standards for products so that they comply with regulations of

the U.S. Environmental Agency (“EPA”). The Consent Agreement has been placed on the

public record for 30 days to solicit comments from interested persons. Comments received

during this period will become part of the public record. After 30 days, the Commission will

again review the Consent Agreement and the comments received, and will decide whether it

should withdraw from the Consent Agreement, modify it, or make it final.

On January 23, 2012, Bosch entered into an agreement to acquire the SPX Service

Solutions business from SPX. The Commission’s complaint alleges the facts described below

and that the proposed acquisition, if consummated, would violate Section 7 of the Clayton Act,

as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, by

lessening competition in the market for ACRRR devices.

II. THE PARTIES

Bosch, headquartered in Stuttgart, Germany and with U.S. operations based in

Broadview, Illinois, is a global supplier of automotive and industrial technology, consumer

goods, and building technology. North American sales represent 18% of Bosch’s revenues, and

Automotive Technology is Bosch’s largest business sector in North America. Bosch is the

second leading U.S. supplier of ACRRR equipment. It acquired RTI in 2010, and sells ACRRR

equipment under both the Bosch and RTI brand, which account for approximately 10% of the

U.S. ACRRR market.
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Headquartered in Warren, Michigan, SPX is a diversified global supplier of highly

engineered products for the following industries: power and energy, food and beverage, vehicle

and transit, infrastructure and industrial processes. SPX’s Service Solutions business is a global

supplier of automotive tools, equipment and services, for both original equipment manufacturers

(“OEMs”) and aftermarket repair shops and technicians. SPX’s Robinair brand is the leading

supplier of ACRRR equipment in the United States, accounting for over 80% of sales in that

market.

III. THE PRODUCT AND STRUCTURE OF THE MARKET

Bosch’s proposed acquisition of SPX Service Solutions would create a virtual monopoly

in the ACRRR market. ACRRR devices are stand-alone pieces of equipment used by

automotive technicians to remove refrigerant from a vehicle’s on-board air conditioning system,

store the refrigerant while the air conditioning system is being serviced, and recycle the

refrigerant back into the system, adding more as necessary. These tools are required to repair or

service motor vehicle air conditioning systems because no other equipment performs the

removal, recycling, and recharging functions while staying compliant with EPA regulations

prohibiting refrigerant from escaping into the atmosphere. Devices that only extract refrigerant

from air conditioning systems but do not recycle or recharge them are not cost-effective

alternatives because they do not store or dispose of extracted refrigerant as required. As a result,

if the price of ACRRR equipment were to increase 5-10%, customers would not switch to

extraction-only equipment or to equipment that flushes other fluids from vehicles, which cannot

be used in its place.

The relevant geographic area in which to evaluate the market for ACRRR equipment is

the United States. Environmental regulations vary by country, so ACRRR machines designed to

adhere to the regulations of one country are not necessarily compatible with those of other

countries. In addition, differing electrical power specifications across the world necessitate that

the internal pumps and motors vary to meet differing specification. As a result, purchasers in the

United States could not turn to suppliers in other countries for ACRRR equipment.

SPX’s Robinair brand holds a dominant position in the ACRRR market, with a share of

over 80%. Bosch’s RTI and Bosch brands comprise approximately 10% of the market and are

Robinair’s most significant competition. Four other firms selling ACRRR equipment in the U.S.

together account for the balance of ACRRR sales. Thus, the combination of Bosch and SPX

would confer a virtual monopoly position on Bosch. The elimination of the direct competition

between Robinair and Bosch would allow the combined entity to exercise market power by

unilaterally increasing price, slowing innovation, or lowering its levels of service. 

IV. ENTRY

Entry into the ACRRR market sufficient to deter the anticompetitive effects of this

transaction is unlikely to occur in the next two years. While designing and engineering a system

to work effectively and meet industry standards may be possible within a relatively short time

frame, other barriers, including the challenges of obtaining effective distribution and developing
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a service network, make successful entry very difficult. Advertising through leading automotive

wholesale distributors is the most effective means of promoting ACRRR to independent auto

repair shops and rapid-turnaround repair of ACRRR equipment is critical because repair shops

cannot provide air conditioning service without this equipment. Obtaining effective distribution

and service networks has been especially challenging for competitors of SPX because of

limitations SPX puts on distributors and service centers that sell and service Robinair-brand

ACRRR. Another factor affecting the likelihood of significant new entry or expansion is the

costs associated with meeting industry standards, which are established by SAE International,

formerly the Society of Automotive Engineers.

IV. EFFECTS OF THE ACQUISITION

The proposed acquisition would cause significant anticompetitive harm to consumers in

the U.S. ACRRR device market. The transaction would combine SPX’s Robinair brand

ACRRR, that already commands over 80% of the market with its leading competitor, Bosch,

with its Bosch- and RTI ACRRR brands, with approximately 10% of the market, creating a

near-monopolist with a share of over 90%. The impact of eliminating the competition between

Bosch and SPX in the ACRRR market is highly likely to result in consumers, who are

automotive repair shops and technicians, paying higher prices for ACRRR devices.

V. THE CONSENT AGREEMENT

A. The Merger Remedy

The proposed Consent Agreement eliminates the competitive concerns raised by Bosch’s

proposed acquisition of SPX Service Solutions by requiring the divestiture of Bosch’s assets

relating to the manufacture and sale of ACRRR devices in the United States, including the RTI

business. Bosch and SPX have agreed to sell the U.S. ACRRR assets to Mahle Clevite, Inc.

(“Mahle”) before December 31, 2012. 

Mahle possesses the resources, industry experience, and financial viability to

successfully purchase and manage the divestiture assets and continue as an effective competitor

in the ACRRR market. Mahle, headquartered in Stuttgart, Germany with U.S. operations based

in Farmington, Michigan, is a supplier and development partner to the automotive and engine

industry. Mahle’s diverse product lines include aftermarket parts and automotive equipment

sold a similar customer base as RTI. Mahle’s significant size and global presence will allow it to

quickly support additional expansion in the ACRRR market and replace the loss of competition

presented by Bosch’s acquisition of SPX SS.

Pursuant to the Consent Agreement, Mahle would receive all the assets necessary to

operate Bosch’s current U.S. ACRRR business, including RTI’s operations in York,

Pennsylvania which include the RTI manufacturing plant, current inventory, and relevant

intellectual property. In addition to ensuring that current RTI employees will continue their

employment with Mahle, the Consent Agreement requires Bosch to provide access to certain key

employees who may be necessary to help facilitate the transition and fully establish the Bosch
 U.S. Department of Justice and Federal Trade Commission, Antitrust Enforcement and 1

Intellectual Property Rights: Promoting Innovation and Competition 33, available at

http://www.ftc.gov/reports/innovation/P040101PromotinginnovationandCompetitionrpt0704.pdf

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ACRRR business within Mahle. The Consent Agreement also requires Bosch to transfer all

relevant intellectual property and all contracts and confidential business information associated

with the ACRRR business. In addition, the Consent Agreement requires Bosch to license,

royalty-free, certain SPX patents that may be essential to the practice of two industry standards

to Mahle.

B. The Conduct Remedy

In addition, the Consent Agreement includes a provision that requires Bosch to make

certain patents available to its competitors in the ACRRR market. During its merger

investigation, the Commission uncovered evidence that SPX holds certain potentially

standard-essential patents necessary for implementing two SAE International ACRRR industry

standards, J-2788 and J-2843, which govern the operation of ACRRR machines that handle the

two most common types of air conditioning refrigerant in vehicles today. SAE International

adopted J-2788 and J-2843 while SPX was a member of the SAE Interior Climate Control

Committee, the committee responsible for developing the standards. SAE International’s rules

include an obligation by working group members to disclose any patents or patent applications

that would be essential to the practice of a standard being developed, and to offer a license to

such patents on either royalty-free or fair, reasonable, and non-discriminatory (“FRAND”)

terms. After the standards were adopted, SPX issued a letter of assurance to SAE International

acknowledging that it held patents that were potentially essential to both standards and

committing to license them under FRAND terms. Following this letter of assurance, however,

SPX continued to seek previously initiated injunction actions against competitors using those

patents to implement the SAE International standards.

SPX’s suit for injunctive relief against implementers of its standard essential patents

constitutes a failure to license its standard-essential patents under the FRAND terms it agreed to

while participating in the standard setting process, and is an unfair method of competition

actionable under Section 5 of the FTC Act. Standard setting is “widely acknowledged to be one

of the engines driving the modern economy.” Participants in the standard setting process rely 1

on the licensing commitments made by patent holders during the standard setting process to

protect them against patent hold-up. Patent hold-up can occur when, after an entire industry has

become “locked in” to practicing a standard, a patent holder reneges on a licensing obligation

and seeks to exercise the market power that accrues to a patent by virtue of being incorporated in

the standard. FRAND commitments and licensing obligations, such as those at issue here, are an

important way to mitigate the risk of patent hold-up, and are common in the standard setting

process. Seeking injunctions against willing licensees of FRAND-encumbered standard

essential patents, as SPX is alleged to have done here, is a form of FRAND evasion and can

reinstate the risk of patent hold-up that FRAND commitments are intended to ameliorate. As

the Commission has previously explained, “negotiation that occurs under threat of an
 Third Party United States Federal Trade Commission’s Statement on the Public Interest 2

filed on June 6, 2012 in In re Certain Wireless Communication Devices, Portable Music & Data

Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745, available at

www.ftc.gov/os/2012/06/1206ftcwirelesscom.pdf and in In re Certain Gaming and

Entertainment\ Consoles, Related Software, and Components Thereof, Inv. No. 337-TA-752,

available at http://www.ftc.gov/os/2012/06/1206ftcgamingconsole.pdf.

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[injunction] may be weighted heavily in favor of the patentee in a way that is in tension with the

[F]RAND commitment. High switching costs combined with the threat of an [injunction] could

allow a patentee to obtain unreasonable licensing terms despite its [F]RAND commitment, not

because its invention is valuable, but because implementers are locked in to practicing the

standard.”2

Bosch has agreed in the Consent Order to resolve the violations committed by SPX. The

Consent Order requires Bosch to offer a royalty-free license to all potential implementers for

certain enumerated patents for the purpose of manufacturing ACRRR devices in the United

States. While a royalty-free license may not be an appropriate remedy in every case involving

evasion of a FRAND commitment, in this matter Bosch has chosen to license these patents to the

buyer of its ACRRR business, Mahle, royalty-free, and a license to other market place

participants on the same terms is necessary to ensure that the merger remedy is not inequitable in

application. The Consent Order further requires Bosch to deliver to the SAE a letter of assurance

that makes a binding, irrevocable commitment to license any additional patents that Bosch may

acquire in the future that are essential to practicing the J-2788 or J-2843 standards on FRAND

terms to any third party that wishes to use such patents to produce an ACRRR device for sale in

the United States. Pursuant to its FRAND obligations, Bosch has agreed not to seek injunctive

relief against such third parties, unless the third party refuses in writing to license the patent

consistent with the letter of assurance, or otherwise refuses to license the patent on terms that

comply with the letter of assurance as determined by a process agreed upon by both parties (e.g.,

arbitration) or a court.

The Consent Agreement also requires that Bosch discontinue its restrictive arrangements

with wholesale distributors and independent service technicians. Bosch will be prevented from

enforcing any agreement that restricts a distributor or repair service provider from advertising,

servicing, distributing, or selling any ACRRR product from any third party in the United States. 

Bosch will be prevented from entering into such agreements for ten years after the date of the

Order. This provision allows entry by other competitors, and will allow the existing competitors

in the ACRRR market, including Mahle, to more easily have access to leading wholesale

distributors and service providers to assemble repair networks to which customers can turn after

they have purchased ACRRRs. 

The purpose of this analysis is to facilitate public comment on the Consent Agreement,

and it is not intended to constitute an official interpretation of the proposed Decision and Order

or to modify its terms in any way.