[Federal Register Volume 62, Number 45 (Friday, March 7, 1997)]
[Notices]
[Pages 10564-10566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5707]


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FEDERAL TRADE COMMISSION

[File No. 971-0013]


Cooperative Computing, Inc.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair or deceptive acts or practices and unfair methods of 
competition, this consent agreement, accepted subject to final 
Commission approval, would require, among other things, the Austin, 
Texas-based company, upon completing its merger with Triad Systems 
Corporation, to divest, through an exclusive, royalty-free, and 
perpetual license, its electronic parts catalog to MacDonald Computer 
Systems or another Commission-approved buyer. The complaint 
accompanying the consent agreement alleges that Cooperative Computing's 
proposed acquisition of Triad would have substantially lessened 
competition in the development and sale of management information 
systems and electronic parts catalogs for the automotive parts 
aftermarket and would likely have resulted in increased prices and 
reduced services, in violation of antitrust laws.

DATES: Comments must be received on or before May 6, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

William J. Baer, Federal Trade Commission, H-374, 6th St. and Pa. Ave., 
N.W., Washington, D.C. 20580. (202) 326-2932.
George S. Cary, Federal Trade Commission, H-374, 6th St. and Pa. Ave., 
N.W., Washington, D.C. 20580. (202) 326-3741.
M. Howard Morse, Federal Trade Commission, S-3627, 6th St. and Pa.

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Ave., N.W., Washington, D.C. 20580. (202) 326-2949.
Joseph G. Krauss, Federal Trade Commission, S-3627, 6th St. and Pa. 
Ave., N.W., Washington, D.C. 20580. (202) 326-2713.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement and the 
allegations in the accompanying complaint. An electronic copy of the 
full text of the consent agreement package can be obtained from the 
Commission Actions section of the FTC Home Page (for February 26, 
1997), on the World Wide Web, at
``http://www.ftc.gov/os/actions/htm.'' A paper copy can be obtained 
from the FTC Public Reference Room, Room H-130, Sixth Street and 
Pennsylvania Avenue, N.W., Washington, D.C. 20580, either in person or 
by calling (202) 326-3627. Public comment is invited. Such comments or 
views will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis To Aid Public Comment on the Provisionally Accepted Consent 
Order

    The Federal Trade Commission (``the Commission'') has accepted, 
subject to final approval, an Agreement Containing Consent Order 
(``Agreement'') from Cooperative Computing, Inc. (``CCI'').
    The proposed Order has been placed on the public record for sixty 
(60) days for reception of comments from interested persons. Comments 
received during this period will become part of the public record. 
After sixty (60) days, the Commission will again review the Agreement 
and the comments received and will decide whether it should withdraw 
from the Agreement or make final the Agreement's proposed Order. The 
purpose of this analysis is to facilitate public comment on all aspects 
of the proposed Order, including public comment with respect to the 
suitability of MacDonald Computer Systems (``MacDonald'') as a proposed 
licensee.
    The Commission's investigation of this matter concerns a proposed 
acquisition by CCI of Triad Systems Corporation (``Triad''). In October 
1996, CCI entered into a merger agreement with Triad and commenced a 
tender offer for all of the outstanding voting securities of Triad. 
Under the terms of the tender offer, Triad shareholders will receive 
$9.25 per share, or a total of approximately $181 million. Immediately 
prior to the CCI acquisition of Triad, Hicks, Muse, Tate & Furst 
(``Hicks Muse''), a private investment firm based in Dallas, Texas, 
will acquire over 50 percent of CCI stock and gain control of CCI.
    The Agreement Containing Consent Order would, if finally accepted 
by the Commission, settle charges that the CCI acquisition of Triad may 
substantially lessen competition in the development and sale of (1) 
electronic catalogs and (2) management information systems or ``MIS'' 
systems integrated with an electronic catalog, in the United States or 
in North America. The Commission has reason to believe that CCI's 
agreement to acquire Triad violates Section 5 of the Federal Trade 
Commission Act and that the acquisition, if consummated, would violate 
Section 7 of the Clayton Act and Section 5 of the Federal Trade 
Commission Act, unless an effective remedy eliminates likely 
anticompetitive effects.

The Proposed Complaint

    According to the Commission's proposed complaint, CCI is a 
privately-held company that develops and markets management information 
system software for the automotive aftermarket, with annual sales of 
approximately $43 million. CCI offers a portfolio of software products 
that assist auto parts distributors and retailers to track their parts 
inventory. CCI has developed and markets with its software a 
proprietary database of auto parts for domestic and foreign 
automobiles.
    Triad, a publicly-held Livermore, California-based company, 
similarly develops and markets management information system software 
for the automotive aftermarket and for other industries. Triad also 
develops and sells a proprietary database of auto parts for domestic 
and foreign automobiles. Triad has had annual sales of approximately 
$175 million, including approximately $90 million attributable to sales 
to the automotive parts aftermarket.
    According to the Commission's proposed complaint, one relevant line 
of commerce within which to analyze the effects of CCI's acquisition of 
Triad is the market for electronic catalogs. The complaint alleges that 
there are no economic substitutes for electronic catalogs. Paper 
catalogs, the only theoretical alternative, are inadequate substitutes 
because paper catalogs are cumberstone and time consuming to use. The 
ability of warehouse distributors and jobbers to access information 
about parts availability and supply the required product is critical to 
their success, since the industry standard for same day repair service 
causes service dealers to require delivery of needed parts within 30 
minutes. Electronic catalogs are sold as stand-alone products and as 
parts of integrated MIS systems.
    The proposed complaint alleges that a second relevant line of 
commerce within which to analyze the effects of CCI's acquisition of 
Triad is the market for MIS systems integrated with an electronic 
catalog. According to the complaint, an MIS integrated with an 
electronic catalog enables users to access the vast inventory of 
automotive part numbers of hundreds of automotive part manufacturers on 
the same computer terminal as the MIS. Customers often demand an MIS 
integrated with an electronic catalog to be able to electronically 
transfer automotive parts data from the electronic catalog to a 
purchase order in the MIS. This transfer of data is important because 
it saves times and eliminates any risk of human error during the 
process of rekeying automotive part numbers into purchase orders.
    The Commission's proposed complaint further alleges that CCI and 
Triad are the dominant providers of electronic catalogs and of 
management information systems integrated with an electronic catalog 
and alleges that the relevant U.S. or North American markets for 
electronic catalogs and for MIS systems integrated with an electronic 
catalog are highly concentrated.
    According to the complaint, in addition to CCI and Triad, there is 
only one firm, Profit-Pro, Inc. (``Profit-Pro''), which develops and 
sells an electronic catalog for the independent automotive aftermarket. 
Triad sells both a stand-alone catalog and a catalog integrated with an 
MIS system, while CCI only sells its catalog integrated with an MIS 
system. The proposed complaint alleges that CCI and Triad have, 
nonetheless, been substantial, direct competitors. According to the 
complaint, the electronic catalog offered by Profit Pro is considered 
inferior compared to the CCI and Triad catalogs, in the size of its 
database, the accuracy of the part numbers in the database, and the 
speed with which it is updated.

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    According to the proposed complaint, Triad and CCI are the dominant 
providers of MIS systems integrated with an electronic catalog, 
together controlling approximately 70% of the market. The merger of CCI 
and Triad would increase the Herfindahl-Hirschman Index (``HHI'') over 
1200 points to over 3900. Aside from CCI and Triad, all other firms 
selling an MIS integrated with an electronic catalog rely upon Triad or 
Profit-Pro for their electronic catalog. The complaint alleges that 
these fringe firms do not constrain pricing nor in any other way 
substantially impact competition for the development and sale of MIS 
systems integrated with an electronic catalog.
    The complaint further alleges that de novo entry or fringe 
expansion into the relevant markets which would be sufficient to deter 
or defeat reductions in competition resulting from the CCI acquisition 
of Triad would not be timely or likely. According to the proposed 
complaint, developing an electronic catalog would require an 
expenditure of substantial sunk costs and would be time-consuming. 
Electronic catalog data must be entered manually into a database 
because the electronic parts data is received in a different format 
from each of hundreds of automotive parts manufacturers. Entry with a 
catalog covering only a fraction of available automotive parts would 
not be acceptable to most warehouse distributors and jobbers.
    The proposed complaint alleges, finally, that the acquisition by 
CCI of Triad may substantially lessen competition by, among other 
things, eliminating substantial, direct head-to-head competition 
between CCI and Triad, likely resulting in increased prices and reduced 
services for electronic catalogs and MIS systems integrated with an 
electronic catalog.

The Proposed Consent Agreement

    The proposed Order accepted for public comment contains provisions 
that would require CCI to divest CCI's electronic catalog to MacDonald. 
The proposed Order would specifically require CCI to divest, absolutely 
and in good faith, through a perpetual, royalty-free, transferable, 
assignable, and exclusive license with the right to use for any 
purpose, combine with other information, reproduce, modify, market and 
sublicense, CCI's PartFinder<Register> electronic catalog database, 
CCI's J-CON<Register> application program interface, CCI software 
utilized to retrieve vehicle data from the CCI Database, and support 
software and documentation.
    MacDonald is a California-based privately-held company which on 
February 13, entered into a confidential license agreement with CCI 
fulfilling the requirements of the proposed Order. MacDonald currently 
sells MIS systems to the automotive aftermarket and has previously 
offered customers the option of utilizing the Triad catalog with its 
MIS system.
    The purpose of the divestiture of the CCI electronic catalog is to 
ensure the continued use of that catalog in competition with the merged 
CCI/Triad, to ensure MacDonald operates as an independent competitor in 
the development and sale of electronic catalogs and MIS systems 
integrated with an electronic catalog, and to remedy the lessening of 
competition as alleged in the Commission's complaint.
    The proposed order would require CCI to offer updates to MacDonald 
for the electronic catalog for a period of two years. The proposed 
order would also require that CCI provide to MacDonald technical 
assistance for electronic catalog maintenance for a period of one year. 
The purpose of these provisions is to ensure that MacDonald becomes a 
viable competitor to CCI, thereby fostering a competitive environment 
for the sale of MIS systems integrated with an electronic catalog.
    In the event that CCI fails to divest the CCI Products to MacDonald 
because MacDonald, unilaterally and through no fault of CCI, breaches 
the License Agreement, CCI is required under the proposed Order to 
divest to another acquirer that is approved beforehand by the 
Commission, within sixty (60) days after the date on which the Order is 
made final. If CCI fails to divest, the proposed Order provides for the 
appointment of a trustee, to accomplish the required divestiture.
    Pending the required divestiture, CCI is required, under the 
proposed Order, to maintain the viability and marketability of the CCI 
electronic catalog, by among other things, updating the CCI database on 
a regular schedule. In order to assist the acquirer, the proposed Order 
prohibits CCI from preventing employees from working for the acquirer, 
and from entering into long-term contracts with firms in the business 
of distributing hardware and/or software systems to warehouses, jobber/
retail stores and/or service dealers in the automotive aftermarket, 
that might interfere with the acquirer's ability to obtain customers
    This analysis is not intended to constitute an official 
interpretation of the Agreement or the proposed Order or in any way to 
modify the terms of the Agreement or the proposed Order.
Donald S. Clark,
Secretary.
[FR Doc. 97-5707 Filed 3-6-97; 8:45 am]
BILLING CODE 6750-01-M