CELEX: 32019M9234
Language: en
Date: 2019-06-21 00:00:00
Title: Commission Decision of 21/06/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9234 - HARRIS CORPORATION / L3 TECHNOLOGIES) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 21.6.2019
                                                                 C(2019) 4892 final
                                                                            PUBLIC VERSION
                                                                 To the notifying party
Subject:             Case M.9234 — Harris Corporation/L3 Technologies
                     Commission decision pursuant to Article 6(1)(b) in conjunction with
                     Article 6(2) of Council Regulation No 139/20041 and Article 57 of the
                     Agreement on the European Economic Area2
Dear Sir or Madam,
(1)         On 26 April 2019, the European Commission received notification of a
            proposed concentration pursuant to Article 4 of the Merger Regulation by which
            Harris Corporation (‘Harris’, United States) acquires sole control of the whole
            of L3 Technologies, Inc. (‘L3’, United States) within the meaning of Article
            3(1)(b) of the Merger Regulation (the ‘Transaction’).3 Harris is designated
            hereinafter as the 'Notifying Party', while Harris and L3 are together referred to
            as the ‘Parties’.
1       OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty
        on the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
        replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology
        of the TFEU will be used throughout this decision.
2       OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
3       See publication of the Official Journal of the European Union No C 154/6, 06.05.2019.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.     THE PARTIES
(2)      Harris is an international aerospace and defence technology company that
         supplies products, systems and services for defence, civil government and
         commercial applications. Harris is headquartered in Florida, United States and it
         is listed on the New York Stock Exchange.
(3)      Harris’ business is structured into three main areas of activity as follows:4
             i.   The communication systems segment includes Harris’ night vision
                  products, tactical radio communications equipment, including hand held
                  video data links, for military and commercial customers as well as
                  portable radios and other products for police forces.
            ii.   The electronic systems segment includes the supply of electronic warfare
                  equipment (radars, radar deception devices and electronic attack systems
                  that disrupt adversary signals), avionics (equipment and software used in
                  military aircraft), mission networks and other systems.
           iii.   The space and intelligence systems segment includes products such as
                  remote sensing antennas, position and navigation solutions (new
                  generation GPS), systems supporting missile warning systems, tracking
                  software, earth observation solutions, optic solutions for the aerospace
                  industry and environmental solutions (thermometers, barometers etc.).
(4)      L3 is an international aerospace and defence systems company that supplies
         intelligence, surveillance and reconnaissance, communications and electronic
         systems for military, homeland security and commercial aviation customers. L3
         is based in New York, United States and is listed on the New York Stock
         Exchange.
(5)      L3 is structured into three business segments as follows:5
             i.   The communication and networked systems segment includes network
                  and communication systems, secure communications products, radio
                  frequency components, satellite communication (“SATCOM”) terminals
                  and space, microwave and telemetry products.
            ii.   The intelligence, surveillance and reconnaissance segment includes
                  aircraft missionization and sustainment, as well as a broad range of
                  sensor systems for airborne, war fighter, space and ground platforms.
           iii.   The electronic systems segment includes products and services that serve
                  niche markets such as aircraft simulation and training, cockpit avionics,
                  airport security and precision engagement weapons and systems.
4   Form CO paragraphs 21-24
5   Form CO paragraphs 27-30
                                                  2
 ---pagebreak--- 2.     THE CONCENTRATION
(6)      The Transaction will take place pursuant to the Agreement and Plan of Merger
         dated 12 October 2018, which provides that a wholly-owned subsidiary of
         Harris, Leopard Merger Sub Inc., merges with L3 as a result of which L3
         becomes a wholly owned subsidiary of Harris.6
(7)      Upon completion of the Transaction, L3 will be a wholly-owned subsidiary of
         Harris.
(8)      While this suggests that Harris will have sole control of L3, the question of sole
         or joint control usually depends on the veto rights afforded to the minority
         shareholder or, potentially, to the target of the acquisition. According to the
         Commission’s Consolidated Jurisdictional Notice under Council Regulation
         (EC) No 139/2004 on the control of concentrations between undertakings
         (‘Consolidated Jurisdictional Notice’) veto rights that confer joint control to the
         minority shareholders typically involve veto over the budget, business plan and
         the appointment of the senior management.7
(9)      In the case at hand, prior to becoming a wholly owned subsidiary of Harris, L3
         will get to appoint six members of the combined entity’s board, the other six
         being appointed by Harris.8 Given that the merged entity’s business plan and
         budget will be decided on by its board, with this possibility to appoint board
         members, the pre-Transaction L3 will have influence over the merged entity9 for
         the period of the mandate of the merged entity’s first board. .
(10)     As all members of the combined entity’s board are elected at each annual
         meeting for terms expiring at the following annual meeting,10 this influence will
         not last for more than a year. After the first year, sharholders will control the
         combined entity and L3 will be under the control of the combined entity as the
         latter’s subsidiary. Thus the current L3 will not influence the merged entity on a
         lasting basis as required by Article 3 (1) of the Merger Regulation.
(11)     Furthermore, as from the first annual meeting following the completion of the
         Transaction the shareholders that will control the combined entity will be the
         current Harris shareholders. This is because the pre-completion Harris’s
         shareholders will own approximately 54% of the combined entity11 and will thus
         be able to decide on all matters falling within the responsibilities of the
         shareholders’ meeting. This includes electing the board members of the
         combined entity, as the latter are elected with a simple majority of shareholder
         votes.12 Given that, as discussed above, control of the board implies the ability
         to decide on the business plan, budget and the business policy of the combined
6   Form CO paragraph 2
7   Consolidated Jurisdictional Notice, paragraph 67.
8   Amended and restated future Certificate of Incorporation of the combined entity. Form CO,
    Confidential Annex RFI1-3, pages 2 and 4
9   Amended and restated future Certificate of Incorporation of the combined entity. Form CO,
    Confidential Annex RFI1-3, page 2.
10  Amended and restated future Certificate of Incorporation of the combined entity. Form CO,
    Confidential Annex RFI1-3, pages 2 and 4.
11  Form CO, paragraph 90
12  Form CO, paragraph 90
                                                      3
 ---pagebreak---         entity, the current Harris shareholders will control the combined entity as from
        the first annual meeting following the completion of the Transaction.
(12)    In addition, the current Harris CEO will serve as the chief executive officer of
        the combined entity as well as the executive chairman of the board for period of
        two and three years after closing respectively.13 He can only be removed with a
        supermajority vote of the board members (75% majority).14 This also implies
        that, in the first year following completion (when half of the board members are
        appointed by the current L3) the current CEO of Harris cannot be removed from
        the position of CEO of the merged entity without the consent of the board
        members appointed by Harris.
(13)    Thus, it appears that beyond the first year after the completion of the
        Transaction, Harris will have sole control over L3 and the current Harris
        shareholders will have control over the combined entity.
(14)    The Commission notes that the current L3 CEO will serve as the vice chairman
        of the combined entity’s board for a period of three years, subject to a veto by
        the board taken by a supermajority (75%) vote.15 However, this rule does not
        affect the control of L3 by Harris as the situation remains that, as discussed
        above, beyond the first year following the completion of the Transaction, L3
        will be a subsidiary of Harris with no control over the board (it will appoint only
        one member, the vice chairman, out of the twelve) and thus the combined entity.
        It also does not affect the fact that, as discussed above, the current Harris
        shareholders will control the combined entity’s board and thus the combined
        entity as from the first shareholder meeting after completion, which will take
        place one year after completion.
(15)    Finally, a supermajority (75%) of board member votes is necessary for the
        appointment of the president and the COO of the combined entity in the first
        three years following the closing of the merger.16 These rules also do not change
        the fact that, following the first year after completion, Harris will control L3 and
        the current Harris shareholders will control the combined entity.
(16)    It follows from the above that the Transaction will lead to a lasting change of
        control through the acquisition by Harris of sole control over L3 within the
        meaning of Article 3(1)(b) of the Merger Regulation.
3.     EU DIMENSION
(17)    The undertakings concerned have a combined aggregate world-wide turnover of
        more than EUR 5 000 million.17 (Harris: EUR 5 185 million; L3: EUR 8 491
        million.)18 Each of them has an EU-wide turnover in excess of EUR 250 million
13 Form CO, paragraph 93
14 Form CO, paragraph 93
15 Form CO, paragraph 93
16 Form CO, paragraph 97
17 Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission
   Consolidated Jurisdictional Notice (OJ C95, 16.4.2008, p. 1).
18 Form CO, paragraph 113, table 11
                                                      4
 ---pagebreak---          (Harris: EUR […] million; L3: EUR […] million),19 but neither of them achieve
         more than two-thirds of its aggregate EU-wide turnover within one and the same
         Member State.20 The notified operation therefore has an EU dimension.
(18)     In the turnover calculation, Harris’ sales to EU customers through the Foreign
         Military Sales (‘FMS’) program of the US government have been allocated to
         Harris’ EEA turnover.
(19)     By way of background, the FMS program is the US government’s program for
         exporting defence articles and services to foreign countries and international
         organizations.21 Eligible partners, which are designated by the US President and
         currently include approximately 179 foreign countries and international
         organizations, either purchase in-stock surplus defence articles directly from the
         US government or mandate the US Defense Security Cooperation Agency
         (‘DSCA’) to procure supplies on a non-profit basis on their behalf.
(20)     The purchases by the US Government through the FMS program (on behalf of
         the eligible partners) are generally subject to competitive tender procedures.
         Specifically the purchases are governed by the governed by the Federal
         Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation
         Supplement (DFARS).22 These regulations bind the bind the US government to
         “promote and provide for full and open competition in soliciting offers and
         awarding Government contracts”23 Competitive procedures include sealed bids,
         competitive proposals, combinations of competitive procedures like two-step
         bidding, and others.
(21)     There are two exceptions to this general rule. The first exception allows the US
         government to exclude one or more suppliers from the competitive process in
         the interest of increasing or maintaining competition, national defence, or
         security of supply. The second exception allows the US government to negotiate
         (i.e. without a tender) with a single supplier specified at the outset by the foreign
         country or international organization. The latter is known as the sole source
         exception.
(22)     [Proportion] of Harris’s FMS sales to the EEA take place under the sole-source
         exception.24 In such cases the non-US, i.e. in this case EU, customer selects
         Harris (mostly, though not always, through a tender) and then mandates the US
         government, more precisely the DCSA, to procure the goods on its behalf.
(23)     According to the Consolidated Jurisdictional Notice, the main rule of geographic
         revenue allocation is that revenue should be allocated to the country where the
         customer is located, the underlying principle being that turnover should be
         allocated to the country where competition with alternative suppliers takes
         place. This location is normally also the place where the characteristic action
19 Form CO, paragraph 113, table 11
20 Form CO, paragraph 113, table 11
21 An overview of the FMS program is available at https://www.dsca mil/foreign-customer-
   guide/security-cooperation-overview
22 See https://www.dsca mil/foreign-customer-guide/security-cooperation-overview
23 FAR, paragraph 6.101(a), available at https://www.acquisition.gov/far/html/Subpart%206 1 html.
24 Form CO, paragraph 111
                                                      5
 ---pagebreak---          under the contract in question is to be performed, i.e. where the service is
         actually provided and the product is actually delivered.25
(24)     It is clear from the above description that especially in the case of sales to EU
         customers under the sole source exemption the customer is located in the EU,
         the goods are delivered to the EU and the competition with other suppliers takes
         place in the context of a tender run by an EU customer, typically a government
         or a defence contractor. Thus Harris’s sales under the sole source exemption
         should properly be allocated to the EU, even if the ultimate direct purchaser is
         the US government that acts on behalf on the EU customer. Allocating turnover
         this way results in a turnover in excess of EUR 250 million for Harris.
(25)     The Commission notes that L3’s sales in the EU exceed EUR 250 million even
         outside the context of the FMS program.
4.     OTHER MERGER REVIEW PROCEDURES AND THE SALE OF HARRIS’ NIGHT VISION
       BUSINESS
(26)     The Transaction is subject to mandatory merger control notifications in Canada,
         Turkey and the US.26 In the context of the US procedure, Harris has offered the
         sale of its night vision devices business as a remedy to address competition
         concerns identified by the US Department of Justice (‘DoJ’).
(27)     At the time of the notification to the Commission, the Notifying Party had
         already noted in the Form CO that Harris’ night vision devices business will be
         divested.27 Moreover, on 4 April 2019, that is several weeks before the formal
         notification to the Commission, Harris signed an asset purchase agreement with
         Elbit Systems of America, LLC, the US subsidiary of Elbit Systems Ltd.
         (“Elbit”)28 pursuant to which Elbit will acquire the divested business. The
         acquisition of Harris’ night vision devices business by Elbit has not been
         implemented. Headquartered in Haifa, Israel, Elbit Systems is a global
         technology and defence company that also has operations in the EU. In 2018,
         Elbit generated EUR 2.9 billion in revenues, and employed approximately
         12,800 people worldwide.29
(28)     The DoJ’s assessment is without prejudice to the Commission’s assessment. As
         the divestment of Harris’s night vision business has not yet been implemented,
         the Commission has to carry out its assessment on the basis that it is part of
         Harris. Further, even if the same concerns are identified by the Commission and
         the same commitments (i.e. the divestment of Harris’s night vision business)
         fully address these concerns, the Commission has to assess independently
         whether or not Elbit will be a suitable purchaser. That is to say, should the
         Commission deem the divestment both necessary and sufficient to address a
         competition concern pursuant to its own assessment of the Transaction, the sale
         to Elbit would be conditional on the acceptance of Elbit by the Commission.
25 Consolidated Jurisdictional Notice, paragraph 196
26 Form CO, paragraph 88
27 See for example, Form CO, paragraph 9
28 Form RM, footnote 3
29 Form CO, paragraph 253
                                                     6
 ---pagebreak--- 5.      RELEVANT MARKETS AND COMPETITIVE ASSESSMENT
(29)     The Parties’ activities in the EEA overlap in the following business segments: i)
         night vision devices (‘NVDs’), ii) image intensification tubes (‘I2Ts’) and iii)
         hand held video data links (‘HH-VDLs’).
(30)     As regards NVDs sales, all but two of Harris’s night vision device product series
         are solely based on Generation III image intensification technology. The
         remaining two are fusion NVDs which Harris previously offered in partnership
         with [partner company] and today offers in partnership with [partner company].
         Harris is not active in the supply of thermal NVDs.30 L3 designs, produces, and
         supplies a range of NVDs based on Generation III image intensification
         technology, thermal imaging technology, and fusion technology.31
(31)     Both Harris and L3 produce and sell Generation III I2Ts. In addition, Harris is
         currently working on [description of R&D efforts].32
(32)     Finally, as regards sales of HH-VDLs, Harris’s EEA portfolio consists of one
         device (RF-7800T).33 L3 supplies a number of HH-VDLs devices under its
         Rover brand.34
(33)     The Commission will assess whether the Transaction could potentially give rise
         to horizontal non-coordinated effects in these segments. The Commission will
         also analyse whether the Transaction could lead to horizontal coordinated
         effects in any of the overlap areas.
(34)     Given that I2Ts and certain NVDs are in an upstream-downstream relationship,
         and due to the complementarity of the product portfolios in the broader military
         communications space, the Commission will also assess whether the
         Transaction would raise vertical or conglomerate concerns.
5.1.     Night vision devices (NVDs)
5.1.1.   Market definition
5.1.1.1. Product market definition
          A) Introduction
(35)     NVDs are opto-electric devices that provide users with improved vision in low-
         light environments and total darkness. The most common application is night
         vision goggles used by military personne in night missions, but a rifle’s
         telescopic sight can also be augmented with a night vision device (weapon
         mounted NVDs).
(36)    NVDs can be categorised in several ways:35
30 Form CO, paragraph 136.
31 Form CO, paragraph 139.
32 Form CO, paragraph 120.
33 Form CO, paragraph 275.
34 Form CO, paragraph 279.
                                                 7
 ---pagebreak---       i.         Underlying technology. NVDs can use image intensification technology
                 (image intensification NVDs), thermal technology (thermal NVDs), or a
                 mixture of both technologies (fusion NVDs). In addition, an emerging
                 technology in night vision is digital low light sensor technology.
                 i. Within image intensification NVDs, a further potential distinction can
                    be based on technology generations, which correspond to technological
                    improvements. Devices currently produced and sold fall into
                    Generations I-III, with Generation IV being in advanced stages of
                    development.
                ii. Within fusion NVDs a further potential distinction is whether the
                    device uses optical or digital image integration.
     ii.         Device type. Regardless of the underlying technology, NVDs can be
                 weapon sight (used on weapons) or goggles (used by troops as eyewear).
                 In addition, there are other types of devices, which include thermal NVDs
                 in the form of portable cameras that work as target detectors and locators;
                 NVDs for tank and armoured vehicle periscopes and vehicle mounted
                 cameras. Goggles can be further classified as follows:
                 i. Mount type: goggles can be hand held, helmet mounted, head-strap
                    mounted and even weapon mounted
                ii. Device shape: goggles can be monoculars, bi-ocular monoculars,
                    binoculars and panoramic.
(37)     A brief description of the main NVD technologies (i.e. image intensification,
         thermal and fusion as well as the different technology generations within image
         intensification NVDs) is provided in the following paragraphs.
(38)     Image intensification technology works by amplifying visible ambient light like
         starlight and near-infrared light with the help of I2Ts. I2Ts convert ambient
         photons that hit a light-sensitive photocathode into electrons, then multiply these
         electrons as they travel through a microchannel plate. The latter is a thin glass
         disc with millions of small channels each of which releases several electrons for
         every electron that strikes its inner wall. The multiplied electrons are converted
         back into photons to render an intensified image on a phosphor screen. Image
         intensification NVDs thus work with visible and near-infrared light.36
(39)     By contrast, thermal NVDs work with invisible mid-infrared and far-infrared
         waves. Thermal NVDs use the temperature of objects to render visible the
         infrared waves they emit. Infrared detectors capture infrared waves and pass them
         on to processors that produce and digitally display detailed temperature patterns
         known as thermograms.37
35 The classification here is slightly modified compared to the version presented by the Notifying Party in
   Form CO, Section 6-8, Chapter A, section III. The changes take into account the results of the market
   investigation
36 Form CO, paragraph 157
37 Form CO, paragraphs 166 and 168
                                                       8
 ---pagebreak--- (40)  Both technologies have their advantages and disadvantages.38 The advantages of
      Thermal NVDs compared to image intensification NVDs are as follows: they
      work in complete absence of light solely based on the heat signature of persons
      and animals; they are able to highlight persons through camouflage and light
      foliage, fog, or smoke; and they are more suited to certain covert operations
      because they need not send any signal towards their target. On the other hand
      thermal NVDs have several drawbacks compared to image intensification NVDs:
      as they pick up only heat, they are less suited to identify details in the image; they
      cannot look through glass; they do not work with illumination tools like beacons,
      strobes and lasers; they are larger and heavier; they consume more power; they
      are more difficult to maintain; and their use requires more training.
(41)  Fusion devices combine image intensification technology and thermal imaging
      technology.39 By merging the outputs from I2Ts and the thermal images they
      provide the user with a single integrated image. The integration can happen
      through optical and digital means, as discussed above. Fusion NVDs take
      advantage of the strengths of each type of technology: the I2Ts provide an image
      of the surrounding environment under low-light conditions, while the thermal
      imaging sensors allow for the detection of objects and targets of interest by
      superimposing thermal signatures of the objects in the environment. Although
      fusion devices unite the advantages of both technologies, this comes at the cost of
      being larger and heavier than non-fusion devices. Naturally, combining two
      different technologies increases the cost of the device.
(42)  As discussed above within image intensification NVDs, a further potential
      segmentation based on technology generations is based on the technology
      generation of the most critical component, i.e. the I2T. The US military classifies
      commercially available I2Ts into three different generations, i.e. Generations I-
      III40 Generation IV is not yet available on the market and there are ongoing R&D
      efforts to create it. Broadly speaking, each generation marks a significant
      development step in tube technology and each generation corresponds to
      minimum performance criteria relating to range of vision, resolution, signal-to-
      noise ratio, useful life, or the amount of light it the device requires to function
      (the lower the better as a new generation device is expected to provide vision in
      circumstances approaching total darkness). For example, a generation III device
      has a range of 270 meters, provides clean and bright images, works in near-
      absolute darkness and has a useful life of at least 10 000 hours.
      B) Notifying Party’s view
(43)  The Notifying Party considers that the relevant product market should comprise
      NVDs as a whole and should not be further segmented according to the any of the
      above criteria.
(44)  The Notifying Party submits that customers view all NVDs as interchangeable
      since they all have the same basic function, i.e., providing improved vision.41
38 Form CO, paragraphs 169 and 170
39 Form CO, paragraphs 171 and 173
40 Form CO, paragraph 159 and table 15
41 Form CO, paragraphs 187 and 195
                                                9
 ---pagebreak---         Thus the Notifying Party considers that all NVDs are substitutable from a demand
        perspective regardless of technology, technology generation, device type, mount
        type or device shape. Further, when it comes to mounting options, the Notifying
        Party notes that most NVDs allow for different mounting options.42
(45)    The Notifying Party further submits that the technologies to manufacture different
        NVDs are similar, which results in supply-side substitutability.43 More
        specifically, the Notifying Party submits that switching production from one
        device type to another (e.g. from weapon sight to goggles or vice-versa) or from
        one technology to another (e.g. from image intensification to thermal technology
        or vice versa) is possible in the ordinary course of business.44 Moreover, if a
        supplier does not have a specific technology type (e.g. has image intensification
        technology but does not have thermal technology) it can still compete for fusion
        opportunities by sourcing the missing technology from thurd party providers. For
        example, Harris sources thermal technology from [supply sources] when it
        competes for fusion opportunities.45 With regard to NVDs of different shapes, the
        Notifying Party argues that supply-side substitutability is supported by the fact
        that most device manufacturers can and do supply all different NVD shapes and
        that the chassis and optical setup of NVDs account for a fraction of device cost,
        which is rather driven by the technology (image intensification, thermal or
        both).46 In relation to different mounting options, the Notifying Party points out
        that most suppliers offer multiple mounting options for their NVDs, which makes
        a supply-side distinction unnecessary.47
        C) Commission’s decisional practice
(46)    In past cases involving NVDs, the Commission has so far left open the precise
        product market definition.
(47)    In Safran/Zodiac and Daimler Benz/Carl Zeiss, the Commission considered that
        NVDs fall within the category of defence optronics.48 Defense optronics includes
        (i) thermal imaging units, (ii) residual light amplification units, (iii) visors
        mounted on land vehicles, ships, aircraft, or submarines, (iv) laser range finders,
        (v) units for missile guidance systems, (vi) optronic sensors for reconnaissance,
        (vii) navigation and weapon guidance, and (viii) optronic warning sensors.49 In
        this classification “thermal imaging units” correspond to thermal NVDs, and
        “residual light amplification units” correspond to image intensification NVDs.
(48)    With regard to further possible segmentation of the category of defence optronics,
        the Commission noted that technologies used to manufacture various types of
        optronics equipment are similar but that the supply and demand landscapes are
42 Form CO, paragraph 197
43 Form CO, paragraph 187
44 Form CO, paragraph 189
45 Form CO, paragraph 190
46 Form CO, paragraph 196
47 Form CO, paragraph 197
48 Case COMP/M.8425 Safran/Zodiac, recitals 255 and 257; Case IV/M.598 Daimler Benz/Carl Zeiss,
   recitals 8-9
49 Safran/Zodiac, recital 253
                                                 10
 ---pagebreak---         not necessarily the same for all products.50 Ultimately, the Commission left the
        question of finding separate markets within defence optronics open.
        D) Commission’s assessment
(49)    The Commission will assess demand-side substitution first, followed by supply-
        side substitution.
        (a) Demand substitution
(50)    As a preliminary remark, the responses received in reply to the Commission’s
        market investigation show a consistent view regarding possible market
        segmantations. Namely, it appears that there is no demand-side substitution across
        the distinctions mentioned in Section 7.1.1.1, except for mounting type within
        goggles (as many goggles are sold with helmet or head-strap mounting options
        and can also be used in hand) and possibly for digital and optical integration
        within fusion devices. This is because different NVDs have different
        characteristics or performance parameters, which result in different intended uses
        and different prices. Further, customers always appear to specify in detail the
        NVDs they require (e.g. NVD of a certain technology, of a certain technology
        generation or equivalent performance metrics, of a certain type, shape), which
        implies that only NVDs complying with those specifications are compliant offers
        and thus NVDs with different specifications are not substitutable from a demand
        perspective. In other words, as is typical in bidding markets for specialized goods,
        the tenders (i.e. the demand side) are highly specific, i.e. often different from one
        tender to another and not broad enough to include different versions of the same
        basic product. As a result, from a demand perspective tenders often result in
        separate markets and the market definition tends to turn on supply-side
        substitution: if suppliers can easily adjust their production to meet the tender
        specifications, the types of devices corresponding to such specifications will
        belong to the same market; if they cannot, the devices will belong to separate
        markets.
(51)    The detailed evidence relating to demand-substitution across different distinctions
        is presented below in respect of each distinction.
        a.i) Distinction based on technology – main technologies
(52)    The Commission will discuss first the demand substitutability of the main night
        vision technologies (image intensification, thermal and fusion).
(53)    With regard to the question whether NVDs of different technology types (thermal,
        image intensification, fusion) can be used interchangeably, a majority of
        customers51 considered that this is not the case.52. For example, Promoteq AB
50 Safran/Zodiac, recitals 255-257
51 When discussing the results of the Commission’s market investigation, unless otherwise specified in
   this decision the term “majority” or “minority” is based on a count that excludes respondents who
   replied “I do not know”. E.g. in the case of a yes/no question, if 10 respondents answered “yes”, 6
   respondents answered “no” and 6 respondents replied “I do not know”, there is a majority of “yes”
   answers.
52 Q1 Questionnaire to customers, question 4
                                                     11
 ---pagebreak---        submitted that “the Technologies provide different capabilities and
       functionality."53 A large majority of customers confirmed that they or, as the case
       may be, the final customer (i.e. defence departments) specify in the tender the
       type of technology requested.54
(54)   Customers unanimously agreed that there are significant advantages or
       disadvantages associated with each technology such that the different
       technologies are used for different missions or by different users (e.g. special
       forces, standard infantry, helicopter pilots, non-military users etc.).55 Respondents
       pointed out that pilots can use only image intensification NVDs as thermal
       devices do not look through cockpits or windshields; that thermal technology has
       low battery life (2-3 hours) compared to image intensification NVDs; that fusion
       devices bring the most advantages but they are bigger, heavier and need more
       power than non-fusion devices; that thermal NVDs are not limited by the amount
       of light available whereas image intensification NVDs are; and that, contrary to
       thermal NVDs, image intensification NVDs allow for the identification of people,
       the reading of maps due to the better quality image they provide.56 The
       explanations also highlight that the different technologies are used for different
       purposes. For example, Australia’s Department of Defence considered that “Some
       NVD technologies are reliant on large power and ancillary systems which are not
       suitable for dismounted (non-vehicular) operations. Similarly, equipment in some
       vehicles (notably aircraft) requires higher levels of technical performance.
       Hence, different technologies may be used depending on the role or nature of
       use.”57 Tecnex OY submitted that “Use cases and costs differ currently.”58
(55)   Competitors’ responses were fully in line with those of customers. All
       competitors confirmed that the customers do not consider image intensification,
       thermal and fusion NVDs interchangeable.59 Thales observed in this regard that
       “Those devices integrate different types of technologies, and each technology
       corresponds to different mission-system scenarios. Each of these technologies
       therefore implies different performances, and different prices”.”60 and that
       “Customers are knowledgeable to select the technology matching best their key
       criteria for the operational mission and express explicitly their technology
       requirements in their RFI/RFQ”61. Elbit submitted that “No, the technologies are
       very different and therefore also the uses. Each technology has it own pros and
       cons. The customer will choose the product according to the mission he needs to
       complete”62, while United Technologies Corporation stated that “products have
       different tasks and purposes and are not interchangeable....For example, you
       would use different products depending on the environment, mission, time of day,
53 Promoteq AB’s response to Q1 Questionnaire to customers, question 4
54 Q1 Questionnaire to customers, question 5
55 Q1 Questionnaire to customers, question 5
56 Q1 Questionnaire to customers, question 5
57 Response of the Commonwealth of Australia Department of Defence to Q1 Questionnaire to
   customers, question 6
58 Tecnex OY’s response to Q1 Questionnaire to customers, question 6
59 Q2 Questionnaire to competitors, question 4
60 Thales’s response to Q1 Questionnaire to customers, question 4
61 Thales’s response to Q1 Questionnaire to customers, question 7
62 Elbit’s response to Q2 Questionnaire to competitors, question 4
                                                      12
 ---pagebreak---        etc.”63 The large majority of competitors confirmed that customers specify in their
       tenders the technology requested.64 Competitors also unanimously agreed with the
       statement that there are significant advantages or disadvantages associated with
       each technology such that the different technologies are used for different
       missions or by different users.65 For example, PCO submitted that “there are
       significant advantages and disadvantages associated with each technology,
       depending on the situation and mission to be accomplished”66
(56)   In summary, the market investigation confirmed that the different technologies
       cannot be used interchangeably; that customers specify in their tender the
       technology they request, and that each technology presents advantages and
       disadvantages and that, as a result, NVDs of different technologies are used for
       different missions and tasks.
(57)   These results exclude the possibility of demand side substitution across different
       technologies. Already the fact that customers specify in their tenders the
       technology requested rules out the possibility that NVDs of different technologies
       are demand-substitutable. If the tenders specify the type of technology (e.g. image
       intensification NVD), then there is distinct customer demand for a specific
       technology and suppliers cannot successfully offer an NVD based on a different
       technology as such a bid would be non-compliant. Likewise, the confirmed
       advantages and disadvantages of the different technologies are also incompatible
       with demand-side substitution. If the customer seeks NVDs for missions where
       there could be no external light or where it is important to see targets behind
       objects, image intensification NVDs are not an option. Likewise, thermal NVDs
       are not an option for drivers and pilots or for missions where a long battery time
       is needed or where the small size of the device is essential. While fusion devices
       can, in principle, be used instead of both thermal and image intensification NVDs,
       they are heavier, consume more power and more expensive than image
       intensification NVDs and thus will not be used in missions where long usage time
       and small size is essential or requested in tenders with budget constraints.
       A.ii) Distinction based on technology – digital low light sensor technology
(58)   A significant number of customers and competitors indicated that currently NVDs
       using digital technology do not match the performance of image intensification
       NVDs and thus cannot be considered as substitutes.67 For example, L.F.E. SAS
       stated that “The digital hasn't reached the level of resolution”68 while Safran
       considered that “We do not believe it is likely that I2T technology will be replaced
       in the near term.”69 Thales submitted that “Low light sensor technology is not
       able to meet today I2T performance in low dark, therefore it cannot be a
       substitute to I2T technology.”70 Similarly, Italy’s Land Armament Directorate
63 Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 4
64 Q2 Questionnaire to competitors, question 5
65 Q2 Questionnaire to competitors, question 6
66 PCO’s response to Q2 Questionnaire to competitors, question 6
67 Q1 Questionnaire to customers, questions 10 and 11, Q2 Questionnaire to competitors, questions 15
   and 16
68 L.F.E. SAS’s response to Q1 Questionnaire to customers, question 10
69 Safran’s response to Q1 Questionnaire to customers, question 10
70 Thales’s response to Q1 Questionnaire to customers, question 10
                                                     13
 ---pagebreak---        considered that “NVDs based on digital low-light sensor technology are suitable
       just for moonlight condition”71 i.e. they are not suitable for lower light
       environments, such as starlight, in which image intensification NVDs have been
       known to operate. Elbit noted that “The low light technology at the present can't
       compete with the I2T.”72
(59)   It follows that digital low light sensor technology is not demand-substitutable
       with image intensification (and thus fusion) technology. As the main shortcoming
       of digital low light technology relative to image intensification technology is that
       it does not perform well in lower light environments, the same problem would be
       even more present relative thermal technology, as one important characteristic of
       the latter is that it operates in conditions of total darkness. Thus digital low light
       technology is not substitutable with thermal technology either.
       a.iii) Distinction based on technology generations (only image intensification
       NVDs)
(60)   The majority of customers and competitors confirmed that within image
       intensification NVDs, NVDs of different technology generations are not
       perceived by customers as interchangeable.73 For example, Safran noted that
       “The varying generations of I2Ts offer increasing levels of performance.
       Moreover, customers usually have specific requirements in terms of technology
       regarding I2Ts. Therefore they are not « interchangeable » amongst different
       generations.”74 The technology generations are based on specific technical
       criteria, like range, battery lifetime, figure of merit (FOM, i.e. Resolution x
       signal-to-noise ratio) etc. Indeed, NVDs of substantially different performance
       levels cannot be used interchangeably: if the mission requires high or the highest
       available performance level, the newest generation device will be sought.
       Conversely, if for a given mission lower performance level is acceptable or there
       are budget constraints (older generation products are priced lower than newer
       generation products) an earlier generation NVD will be requested. An NVD not
       meeting the performance criteria, or a costlier NVD with much higher
       performance metrics than requested will not be accepted.
(61)   In line with this, both customers and competitors confirm that customers specify
       the relevant technology generation in their tenders or, failing that, the required
       performance levels that the device has to comply with, which leads to the same
       result.75 As discussed before this in itself rules out demand-substitution across
       generations: if a certain generation or the equivalent performance level is defined
       in a tender, only devices of the relevant generation will be accepted as older
       generation devices will not meet the criteria, while newer generation (more
       performant) devices will be disqualified on price or at least will not be price
       competitive.
(62)   Thus the Commission considers that there is no demand substitutability between
       image intensification NVDs of different generations
71 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 11
72 Elbit’s response to Q2 Questionnaire to competitors, question 16
73 Q1 Questionnaire to customers, question 8, Q2 Questionnaire to competitors, question 11
74 Safran’s response to Q1 Questionnaire to customers, question 8.
75 Q1 Questionnaire to customers, question 9, Q2 Questionnaire to competitors, question 12
                                                      14
 ---pagebreak---         a.iv) Distinction based on integration technology within fusion devices
(63)    A fusion NVD integrates the image from an I2T (as in an image intensification
        NVD) and thermal sensors (as in thermal devices) into one composite, or fused,
        image. The method to integrate the images can be digital or optical, which raises
        the question of two distinct product markets within fusion devices based on
        integration technology.
(64)    Market feedback in this respect was mixed. While a slight majority of customers
        considered that fusion devices with different integration technologies cannot be
        used interchangeably, competitors had the opposite view. 76
(65)    Certain respondents pointed out that fusion NVDs with digital integration perform
        better but are more expensive, consume more power and heavier (as it needs
        larger batteries) than fusion NVDs using optical integration. By contrast fusion
        NVDs using optical integration are less performant but are lighter, more easily
        portable and less expensive.77 The Night Vision Technologies Handbook of the
        US Department of Homeland Security mentions the same trade-off between the
        two devices.78 However, it is unclear whether such differences result in the lack
        of substitutability from a demand perspective.
(66)    A majority of respondents (majority of customers and half of competitors)
        considered that customers do not specify the integration technology when
        procuring fusion NVDs suggesting that there is no separate demand for fusion
        devices with a particular integration technology.79 Instead, separate demand can
        potentially manifest itself indirectly, through the performance parameters that
        customers specify in their tenders. However, there is no clear indication in the
        market investigation whether the required parameters for fusion devices are such
        that only devices with one type of integration technology can comply with them.
(67)    Consequently, the Commission leaves the question of demand substitutability
        open as it does not influence the competitive assessment.
        a.v) Distinction based on device type
(68)    As a preliminary remark, the Commission notes that the terminology with regard
        to device type and mounting options is not entirely consistent between the Form
        CO and the respondents of the market investigation. The Form CO uses the term
        “device type” to distinguish between weapon sights and goggles, and the term
        “mounting type” to distinguish between hand-held, helmet and head-strap
        mounted NVDs. However, when respondents discuss mounting options they often
        include weapon mounted NVDs, which can correspond to weapon sights. Further,
        respondents also mention (thermal) cameras that work as target detectors and
        locators, which are distinct from hand held goggle NVDs used by military
76 Q1 Questionnaire to customers, question 13, Q2 Questionnaire to competitors, questions 19 and 20.
77 See the responses of L.F.E to Q1 Questionnaire to customers, questions 13 and question 14, Theon’s
   response to Q1 Questionnaire to customers, question 14, Thales’s and United Technologies
   Corporation’s response to Q2 Questionnaire to competitors, question 20.
78 https://www.dhs.gov/sites/default/files/publications/NV-Tech-HB 1013-508.pdf page 11
79 Q1 Questionnaire to customers, question 15, Q2 Questionnaire to competitors, question 21
                                                       15
 ---pagebreak---         personnel. In addition, some NVD goggles can be mounted on helmet, head-
        straps and even weapons.80
(69)    The responses of the market investigation thus need to be interpreted carefully.
        For the purposes of this decision, the Commission will use these concepts the
        following way. By “device type”, the Commission refers to the following
        categories of devices:
              i.  “weapon sight NVDs” – these are NVDs specifically designed for
                  weapons. For example the L3’s AN/PVS-24 CNVD is “part of the
                  USSOCOM SOPMOD system for M4 Carbine.81 Likewise L3’s CNVD-
                  LR is also designed specifically as a weapon sight.82 Weapon sight
                  NVDs in this sense excludes googles that have several mounting options
                  one of which may include weapon mounting.
             ii.  “Goggles” are eyewear NVDs worn by military personnel. Most often
                  they are helmet mounted or head-strap mounted. Some models can even
                  be weapon mounted, without having been specifically designed as a
                  weapon sight. For example, Harris’s F6015 model can be hand held,
                  helmet mounted, head-strap mounted but can also be weapon mounted as
                  a night scope.83
            iii.  There are other types of devices, which include thermal NVDs in the
                  form of portable cameras that work as target detectors and locators;
                  NVDs for tank and armoured vehicle periscopes; vehicle mounted
                  cameras; NVDs mounted on aircraft and stationiary NVDs. These types
                  are less relevant to the assessment as either one of the Parties or both
                  Parties are inactive in these segments.
(70)    By contrast, when the Commission uses the term “mounting option” it only refers
        to the different mounting option of NVD goggles. This excludes weapon sights, as
        indicated above, but includes goggles that come with multiple mounting options,
        one of which can be weapon mounting.
(71)    The Commission follows this terminology because it is useful to distinguish the
        different mounting options within goggles from weapon sights, portable cameras
        and vehicle mounted cameras even if the terms “portable” and “vehicle mounted”
        could be also be viewed as mounting options in the broader sense. This is because
        in the case of mounting options within goggles demand substitution does not even
        arise as the device itself can be used in different ways, while, as discussed below,
        the difference appears to be substantial across goggles, weapon sights specifically
        designed as such, portable cameras, vehicle mounted cameras, NVDs used as
        periscopes etc.
80 https://www harris.com/sites/default/files/downloads/solutions/f6015-gen3-monocular-night-vision-
   anpvs-14.pdf
81 https://tnvc.com/shop/l3-anpvs-24-cnvd/
82 https://tnvc.com/shop/cnvd-lr/
83 https://www harris.com/sites/default/files/downloads/solutions/f6015-gen3-monocular-night-vision-
   anpvs-14.pdf
                                                      16
 ---pagebreak--- (72)    A majority of both customers and competitors confirmed that weapon sight NVDs
        and goggles cannot be used interchangeably.84 Indeed, as both types were
        developed so as to be optimally used on weapons or to be carried by troops, they
        cannot be used interchangeably, save for in an emergency situation as a makeshift
        solution. Elbit noted that the uses are very different, that weapon sights are more
        rigid and heavier than goggles that they require more energy and that the
        customer requests different features for weapon sights.85 United Technologies
        Corporation submitted that “The devices are not interchangeable and have
        different functions.”86 The Ministry of Defence of Lithuania considered that
        weapon sight and google NVDs “[serve] different purposes and different tactical
        capabilities”87
(73)    In this case too, a majority of customers and all competitors confirmed that
        tenders specify the device type (weapon sight or goggle) sought,88 which, as
        discussed before, rules out demand-side substitution in itself.
(74)    Portable cameras that work as target detectors and locators also appear to be
        different from weapon sights and goggles. As Thales noted “In Thales’ opinion,
        there are different types of NVDs according to:1. Soldier Night Vision Goggles:
        portable, linked to the helmet on the soldier’s head for the soldier’s mobility. 2.
        Hand-Held Camera: portable, more weight, for target locator. 3. Weapon sights
        using Night Vision for aiming. Each of these devices are different end products,
        with different capacities and performances according to their contribution to the
        mission. Inside Soldier NVG [Night Vision Goggles], we can consider the
        different mountings as interchangeable according to the customer’s
        requirements.”89 Theon also considered that portable cameras are used for long
        range observation purposes and they are different from night vision goggles.90
        Indeed, Thales’s product “Sophie hand held thermal imagers”91 is a thermal NVD
        used for day/night observation and accurate target location, which is different
        from goggles worn by combat troops. The same applies to Theon’s DIKTIS-TL92
        These devices are predominantly thermal NVDs. Unlike goggles worn by combat
        troops, these devices are used in more static situations (i.e. for observation).
        Thales’s response also confirms that the different mounting options within goggle
        NVDs should not be distinguished.
(75)    The Commission also considers that NVDs for tank periscopes, vehicle mounted
        NVDs, such as Theon’s Urania,93 NVDs mounted on aircraft and stationiary
        NVDs are different from the NVD types discussed before as well as from each
        other. An NVD designed to be used on a tank periscope or to be carried by an
        armoured vehicle or an aircraft clearly cannot be used the same way as weapon
84 Q1 Questionnaire to customers, question 16, Q2 Questionnaire to competitors, question 23
85 Elbit’s response to Q2 Questionnaire to competitors, question 23
86 Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 23
87 Response of The Ministry of Defence of Lithuania to Q
88 Q1 Questionnaire to customers, question 17, Q2 Questionnaire to competitors, question 23
89 Thales’s response to Q1 Questionnaire to customers, question 19
90 Theon’s response to Q1 Questionnaire to customers, question 18
91 https://www.thalesgroup.com/en/global/activities/defence/land-forces/soldier-
   optronics#handheldthermalimagers
92 https://www.theon.com/diktis
93 https://www.theon.com/urania
                                                      17
 ---pagebreak---         sight or a goggle mounted on the helmet or the head-strap of a military personnel
        or held by the latter in his hand.
(76)    Consequently, the Commission considers that there is no demand substitutability
        across different device types
        a.vi) Distinction based on mounting options
(77)    As discussed before in Section 5.1.1.1.D.av.), mounting option only refers to the
        different mounting possibilities within the goggle type NVDs. As such goggles
        usually come with multiple mounting options, demand substitutability does not
        even arise as the device itself can be used differently.
(78)    The Commission therefore considers that within goggles it is not appropriate to
        distinguish mounting options from a demand perspective.
        a.vii) Distinction based on device shape
(79)    As indicated before in Section 5.1.1.1.D.av.), the different device shapes
        (monoculars, bi-ocular monoculars, binoculars and panoramic) are assessed only
        within the goggle device type. Other device types usually have a characteristic
        shape (e.g. weapon sights are typically monoculars, tank periscopes have a
        particular design) or not produced in different shapes (portable cameras for
        observation or vehicle mounted NVDs).
(80)    The different shapes have different advantages and disadvantages. Monoculars
        and bi-ocular monoculars are generally smaller and lighter than binoculars of
        similar optical properties and panoramic NVDs, which makes monoculars easier
        to carry. Binoculars and panoramic NVDs have the advantage of improved depth
        perception at the expense of larger size, weight, and higher power consumption
        from multiple I2Ts.94
(81)    These trade-offs imply that the different shapes are used by different users and for
        different missions. As Griffity Defense Gmbh noted “For safe driving of vehicles
        and for flying a double-eyed night vision goggles is necessary. For safe movement
        in the field and possibly for shooting, a night vision goggles in which one side can
        be folded up.”95 Accordingly, depth perception is important for driving and flying
        and thus monoculars and bi-ocular monoculars will not be used for such purpose.
        At the same, as the quote indicated, it is not possible to fold one side of a
        binocular NVD up, whereas such functionality is sometimes required for safe
        movement and shooting. Panoramic NVDs have been developed to solve the
        limited field of view offered by monoculars, bi-ocular monoculars and binoculars,
        which creates a tunnel vision effect. While the latter have a field of view of 45
        degrees, panoramic NVDs offer a 97 degree field of view, which is similar to
        daylight field of vision. At the same time a panoramic device uses 4 I2Ts,
        increasing very significantly the cost of the device and its power consumption.
        Having such a wide field of view is important in Closed Quarter Combat
        missions,96 i.e. in missions involving engagement with the enemy at very short
94 Form CO, paragraph 195
95 Griffity Defense Gmbh’s response to Q1 Questionnaire to customers, question 18
96 http://www.americanspecialops.com/equipment/GPNVG/
                                                   18
 ---pagebreak---         range (up to 100 meters) in hand-to-hand combat or using short-range firearms.
        Thus, for such type of missions panoramic devices will be considered despite the
        price and battery consumption. The opposite will be the case for missions where a
        wide field of view is less important than reduced weight and power consumption
        of the device.
(82)    Thus the Commission considers that there is no demand side substitution between
        NVD googles of different shapes.
        a.viii) Conclusion on demand substitutability
(83)    Based on the preceding analysis, with the exception of mounting options within
        the goggle type NVDs and possibly integration technology (digital or optical) in
        the case of fusion devices, none of the distinctions mentioned are demand
        substitutable.
        (b) Supply side substitution
        b.i) Distinction based on technology – main technologies
(84)    Competitors were unanimous in their view that switching from the production of
        NVDs relying on one type of underlying technology to NVDs relying on another
        underlying technology (e.g. from thermal to image intensification or vice versa)
        would imply significant technical difficulties and/or costs.
(85)    For example, Elbit submitted that “NVD and thermal are very different
        technologies; in order to develop thermal devices you need to develop advanced
        software and develop electronic PCB. [printed circuit board] The developing time
        can reach to several years depending on the credibility of the systems; for
        military use the required credibility is much higher.”97 PCO SA considered that
        “according to our best knowledge establishing any entity manufacturing each of
        the mentioned technologies requires investments ca EUR 100M.”98 United
        Technologies Corporation also confirmed that the manufacturing processes are
        different and estimated that switching production would require 24-36 months
        and millions of dollars for the base technology.99 In Safran’s view the
        development of any of the technologies requires significant R&D costs and
        “huge” investments.100
(86)    It is clear from these responses that switching production between image
        intensification and thermal technologies cannot be done in the short term without
        incurring significant additional costs or risks, in line with the Commission’s
        Notice on the definition of the relevant market.101 The Commission therefore
        considers that there is no supply-side substitution across NVDs with different
        underlying technologies.
97  Elbit’s response to Q2 Questionnaire to competitors, question 9
98  PCO S.A.’s response to Q2 Questionnaire to competitors, question 9
99  Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 9
100 Safran’s response to Questionnaire to competitors, question 9
101 Commission Notice on the definition of relevant market for the purposes of Community competition
    law, OJ
                                                        19
 ---pagebreak--- (87)    A specific question is whether any image intensification NVD supplier or any
        thermal NVD supplier can swiftly create a fusion NVD by sourcing the other
        technology from an alternative provider. The responses in this regard were close
        to equally split.102 However, the explanations given do not support supply-side
        substitutability.
(88)    Pointing to the example of Harris, Elbit submitted that it is possible to be
        competitive in fusion devices by sourcing thermal technology.103 While this is
        true, the response did not reveal whether this is possible at short notice and with
        relative ease, so this response does not support clearly supply-side substitution.
        The question essentially is whether fusion devices have their own technological
        challenges or they are very easily put together by combining thermal and image
        intensification technologies. In this regard Thales considered that “Teaming
        between partners of each technology will not provide the fusion capabilities. This
        capacity needs to be developed on top of each existing technology.”104 United
        Technologies Corporation noted that sourcing the missing technology could be
        easy but this could involve costs.105 These responses suggest that even through
        sourcing the missing technology, switching production to fusion technology based
        devices cannot be done swiftly and without overcoming significant difficulties
        because fusion devices have their own challenges.
(89)    Indeed, as the discussion in Section 5.2.1.4.(B.iv) shows, the market test clearly
        shows that even changing the integration technology within fusion devices (i.e.
        switching to optical integration from digital or vice-versa) is not possible at short
        notice and without great difficulties. This strongly suggests that fusion devices
        have their own technological challenges as suggested by Thales. These include,
        but are not necessarily limited to, the integration technology and the need to
        create a new architecture for the device that houses two types of technology.
(90)    The Commission adds that the mere fact of sourcing a technology or partnering
        with another technology provider can, in itself, be an obstacle to exercising
        competitive pressure at short notice as the partner may not be available, may not
        have the capacity or may not provide the requested quality at the requested price
        etc. Not having the technology in-house always creates such risks. This does not
        mean that a thermal or an image intensification NVD supplier cannot be a
        competitive constraint in fusion devices at all (clearly Harris can) but it does
        make it more difficult to become a credible competitive constraint at short notice
        and at little cost.
(91)    Based on the above the Commission considers that it would not be correct to
        regard image intensification NVD suppliers and thermal suppliers as competitors
        in fusion NVDs (which would be the case if supply-side substitution is admitted).
        The competitive reality rather appears to be that these suppliers are well
        positioned to enter the fusion NVD market if they so decide, i.e. they would be
        potential rather than actual competitors if they have the intention to compete.
102 Q2 Questionnaire to competitors, question 10
103 Elbit’s response to Q2 Questionnaire to competitors, question 10
104 Thales’s response to Q2 Questionnaire to competitors, question 10
105 Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 10
                                                       20
 ---pagebreak--- (92)     Given the lack of both demand and supply-side substitutability, the Commission
         considers that NVDs using image intensification, thermal, and fusion
         technologies belong to separate markets.
         b.ii) Distinction based on technology – digital low light sensor technology
(93)     Similar to the distinction between the main technologies, a large majority of
         competitors considered that switching production between digital low light sensor
         technology and the main technologies implies significant difficulties and costs
         due to different manufacturing processes and know-how.106 Thus, the
         Commission considers that supply side substitution does not apply across NVDs
         of any technology. Given the lack of demand-side and supply-side
         substitutability, NVDs using digital low light sensor technology belong to
         markets separate from thermal, image intensification and fusion NVDs.
         b.iii) Distinction based on technology generations – image intensification
         technology
(94)     A majority of competitors considered that switching production between NVDs
         using different image intensification technology generations would not imply
         significant technical difficulties or costs.107
(95)     Each generation represents a significant improvement in I2T technology, which
         could suggest that supply-side substitution is asymmetric in that producers of the
         more advanced version of the same technology can constrain producers of earlier
         versions but this would not be true vice-versa. However, the majority of image
         intensification suppliers source their I2T from I2T providers and therefore
         upgrading their devices to a new generation involves only integrating the new I2T
         in their products, which can be done with relative ease. As Thales noted “Given
         each I2T generation implies some R&D and therefore some capacity
         enhancement, the integrator of the tubes will need to make sure that the rest of the
         NVDs components are adapted to the new generation. This is only an upgrade of
         the NVDs and shall not imply significant difficulties.”108
(96)     In any event, all significant players in image intensification NVD providers (the
         Parties, Theon, Thales, PCO, Elbit) have generation III device capability and thus
         could, in any case, easily supply previous generation devices.109
(97)     Generation IV is not yet on the market and based on the market feedback it is not
         possible to determine with any certainty when it will be available as a product.
         “Generation IV is largely a marketing description.” according to Australia’s
         Department of Defence110 Similarly, Griffity Defense Gmbh noted that “There is
         no Generation IV on the World Market. The aggressive advertisement of company
106 Q2 Questionnaire to competitors, question 18
107 Q2 Questionnaire to competitors, question 14
108 Thales’s response to Q2 Questionnaire to competitors, question 14
109 For the Parties : Form CO paragraphs 177 and 191; for PCO https://www.defence24.com/police-
    acquires-night-vision-devices-from-pco; for Theon http://www.tacticalstoreusa.com/military-night-
    vision-gear ; for Thales see for example
    https://www.thalesgroup.com/sites/default/files/database/d7/asset/document/lucie a4 en 052016.pdf
110 Response of Australia’s Department of Defence to Q1 Questionnaire to customers, question 8
                                                        21
 ---pagebreak---         Photonis with tube designation "4G" is nevertheless only an image intensifier of
        the II generation.”111 Thales considered that “Harris announced it was supported
        by the US army to develop a generation 4 of tubes for night goggles. Those new
        tubes may sustain a lower level of light, which is better. However, the
        development of this new generation of tubes may be only potential.”112 Given the
        uncertainty about the timing and the development of Generation IV technology,
        there is no reason to distinguish markets based on generation on a forward
        looking basis either.
(98)    Overall therefore, despite the lack of demand-side substitutability, the
        Commission considers that there are no separate markets within image
        intensification technology based on technology generations.
        b.iv) Distinction based on integration technology within fusion devices
(99)    A large majority of competitors considered that the manufacturing process and
        know-how required for the manufacturing of fusion NVDs relying on different
        integration technology (optical or digital) are different such that switching from
        one to another would imply significant technical difficulties and/or costs.113 Elbit
        considered that switching from one technology to the other would require
        significant technical R&D, while Safran noted that the different technologies
        require different architectures for the NVD.114
(100) While there appears to be no supply-side substitution, demand-side substitution
        was ambiguous. As this distinction has no influence on the competitive
        assessment, within fusion devices the Commission leaves the market definition
        based on integration technology open.
        b.v) Distinction by device type
(101) The market feedback was mixed on the question whether a supplier that produces
        a certain type of device can switch production to produce another type of device
        without incurring significant difficulties and costs.115 While Thales and Safran
        considered that the time and cost implications would be significant, PCO S.A. and
        WB Electronic were of the opposite view.116 Although United Technologies and
        Elbit agreed with the proposition that the manufacturing processes are different
        such that switching implies significant time and cost, their explanations gave a
        more nuanced view. Elbit mentioned both months and years in terms of the time
        necessary to switch, while United Technologies mentioned that from a sensor
        perspective the adjustment would be easy.117
(102) The Commission also notes that most major players have in their product
        portfolio weapon sights and googles, the two most common types of devices
111 The response of Griffity Defense Gmbh to Q1 Questionnaire to customers, question 8
112 Thales’s response to Q2 Questionnaire to competitors, question 11
113 Q2 Questionnaire to competitors, question 22
114 Elbit’s and Safran’s response to Q2 Questionnaire to competitors, question 22
115 Q2 Questionnaire to competitors, question 27
116 Responses of Thales, Safran, PCO SA and WB Electronic to Q2 Questionnaire to competitors,
    question 27
117 Responses of Elbit and United Technologies
                                                       22
 ---pagebreak---         within image intensification NVDs. Likewise, most thermal suppliers produce
        hand held cameras for observation purposes. The distinction therefore may not
        make a difference with regard to such device types as all major producers would
        constrain one another even in the case of narrower markets.
(103) However, the question whether separate markets should be distinguished based on
        device type could be left open as this would not change the competitive
        assessment.
        b.vi) Distinction by device shape
(104) Switching production from one device shape to another appears to be easier than
        switching production between device types and thus supply side substitution is
        likely to apply across device shapes. Indeed, doubling or halving the number of
        eyepieces or objective lenses requires less effort than switching production to
        create a different device type. [Description] an internal Harris presentation that
        discusses the competitive landscape. In this document, Harris notes that
        [description of fused binocular opportunities in the coming years].118 The
        presentation also reveals that Harris notices the express demand for this particular
        shaped fusion device around April 2018 and that up to that point it only had
        monocular fusion NVDs but not a binocular product.119 In respect of this new
        opportunity, Harris mentions that [internal Assessment]120 The fact that for the
        next tender a supplier can be competitive in a different device shape strongly
        suggests supply-side substitution: already in the next opportunity (i.e. in the
        context of a bidding market, swiftly) a device maker lacking a particular shape
        can be credible competitive constraint.
(105) The Parties internal documents also indicate that they do not assess competition
        by device shape. For example an internal Harris SWOT analysis relating to night
        vision makes no mention of specific competition dynamics related to device
        shape.121 Likewise, an April 2018 Harris presentation that discusses, inter alia, the
        different segments within the night vision business makes no mention of a
        segment based on device shape.122
(106) Moreover, all major NVD suppliers produce the main device shapes (monocular,
        binocular, or bi-ocular monocular), i.e. they have capabilities to produce all these
        device shapes. This is true even if, as was the case with Harris in fusion devices, a
        given supplier’s product portfolio does not include all device shapes in every
        segment discussed so far (i.e. image intensification, thermal, fusion NVDs and all
        device types within each of these technologies). As a result the supplier base
        would be the same even in the case of narrower markets, i.e. it would not be the
        case that in certain device shapes a given supplier would not be a constraint.
        Further, there is no indication in the market investigation that any supplier would
        be particularly strong in one shape versus another or that competition would be
        driven by very different dynamics and parameters depending on different device
118 Form CO Annex RFI1 17, page 29
119 Form CO Annex RFI1 17, page 33
120 Form CO Annex RFI1 17, page 33
121 Annex Form CO 5.4.83
122 Form CO Annex RFI1 17, page 30
                                                 23
 ---pagebreak---       shap. Thus the competitive landscape would not necessarily be different if
      separate markets were defined based on device shapes instead of a unified market.
(107) A potential exception is panoramic devices as not all suppliers produce such
      devices. However, even in that case it remains true that suppliers can adjust
      production relatively swiftly and without great difficulties and that suppliers do
      not seem to assess competition in terms of device shapes.
(108) The Commission therefore considers that supply-side substitution applies across
      different device shapes and that, as a result, there is no need to distinguish
      between different markets based on device shape.
      E) Conclusion on product market definition
(109) On the basis of the above, the Commission considers that:
            i. NVDs based on different technologies (image intensification, thermal,
               fusion and digital low light sensor technology) belong to separate
               product markets.
                     Within image intensification NVDs, there are no separate markets
                      based on technology generations.
                     Within fusion NVDs, the possibility whether fusion devices with
                      optical and digital integration technology belong to separate
                      markets can be left open.
           ii. The question whether different device types (goggles, weapon sights,
               hand held cameras for observation, target location and surveillance,
               vehicle mounted NVDs, tank periscope devices etc.) belong to separate
               markets can be left open.
                     Within goggles there are no separate markets based on mounting
                      options (helmet mounted, head-strap mounted, hand held etc.).
                     Within goggles there are no separate markets based on device
                      shapes (monoculars, bi-ocular monoculars, binoculars and
                      panoramic.)
(110) This results in the following relevant product markets:
            i. Market for image intensification NVDs, possibly further segmented by
               device type;
           ii. Market for thermal NVDs, possibly further segmented by device type;
          iii. Market for fusion NVDs, possibly further segmented by integration
               technology (digital or optical). Within each integration technology, the
               market may be further segmented by device type;
          iv.  Market for digital low light sensor NVDs, possibly further segmented by
               device type.
                                               24
 ---pagebreak--- 5.1.1.2. Geographic market definition
        A) Notifying Party’s view
(111) The Notifying Party considers that the geographic market is EEA-wide.123 First,
        the Notifying Party submits that NVDs have a very low transport-cost-to-price
        ratio and Harris, L3, and their competitors sell NVDs across the EEA irrespective
        of the location of their respective production facilities. Second, the Notifying
        Party argues that EEA customers rarely, if ever, source their NVDs on a national
        basis. Third, the Notifying Party is not aware of any EEA regulatory or national
        security restrictions preventing suppliers present in one EEA country from being
        active throughout the EEA. Certain tenders de facto eliminate US suppliers such
        as the Parties, as they require suppliers not to be subject to the US International
        Traffic in Arms Regulations (“ITAR”). However, to the extent any tender within
        the EEA would be limited to national or European producers only, then neither L3
        nor Harris would be able to participate, entailing that the Transaction is neutral
        with respect to any such tenders.
        B) Commission’s decisional practice
(112) In the past, the Commission has left open the possibility to define markets for
        specific military and defence applications on an EEA-wide or national basis due
        to, e.g., the existence of specific government regulations (such export restrictions)
        or national security-related preferences for local suppliers.124
(113) The most recent case involving defence products was Safran-Zodiac case, which
        also concerned defence optronics (i.e. products that include NVDs). In this case
        the Commission followed the same approach and left the geographic market
        definition open (EEA or national) with respect to defence optronics.125 In general
        (i.e. not necessarily with regard to defence optronics) the Commission noted that
        the geographic market can vary for different defence products based on how
        critical the technology is from a strategic and national security point of view. In
        the case of more sensitive systems and products customers can prefer national
        capabilities if they are available.126
        C) Commission’s assessment
(114) The market investigation broadly confirmed the views put forward by the
        Notifying Party.
(115) A large majority of customers and competitors agreed that NVDs used in different
        Member States are not significantly different in terms of customer preference,
        technical specifications, and regulatory requirements such that NVDs intended for
        one Member State can be used in another Member State.127 TECNEX OY
        explained that “Typically the end user needs and use cases are quite similar in
123 Form CO, paragraph 202
124 Case COMP/M.4653 - MBDA/Bayern- Chemie, paras. 21 and 23; Case COMP/M.5032 –
    Roxel/Protac, recital 33; Case COMP/M.1309 – Matra/Aerospatiale, recital 45; Case COMP/M.1745,
    EADS, recital 163
125 Case COMP/M.8425 Safran/Zodiac, recital 300
126 Case COMP/M.8425 Safran/Zodiac, footnote 203
127 Q1 Questionnaire to customers, question 20, Q2 Questionnaire to competitors, question 31
                                                     25
 ---pagebreak---          different countries.”128 Likewise Theon explained that “overall the requirements
         are the same.”129 The Land Armament Directorate of Italy held similar views: “In
         the EEA, the regulatory differences among countries are slight”.130 Elbit
         mentioned that some adjustments may be required (e.g. thermal devices need to
         be adjusted in countries with colder climates) but this was a minority view.131
         Over all the responses suggest demand-substitutability across the EEA.
(116) Moreover, to the extent that there are some demand differences, there was little
         indication that suppliers could not make the necessary adjustments without
         incurring significant time or costs. For example, Elbit did not indicate that the
         adaptations it referred to (e.g. adaptation of thermal devices in countries with
         colder climates) would require significant time or costs. 132
(117) A large majority of customers and competitors confirmed that apart from the
         ITAR restriction, there are no regulatory or national security restrictions that
         would prevent suppliers of NVDs active in one EEA Member State from being
         active in another EEA Member State.133 With respect to ITAR, the Commission
         agrees with the Notifying Party that such restriction results in a de facto exclusion
         of US suppliers in EEA tenders. This would normally justify separating an ITAR
         market (firms active in the EEA without US suppliers) and a non-ITAR market
         (all suppliers active in the EEA) but in the current case this is not important as
         both Parties are subject to ITAR. A majority of competitors also considered that
         the set of competitors is similar in different EEA countries.134
(118) Thus, both from a demand and supply perspective the market appears to be at
         least EEA-wide.
(119) As regards a larger than EEA-market, a large majority of customers and
         competitors considered that there are regulatory restrictions that would prevent
         suppliers of NVDs from specific countries outside the EEA from being active in
         tenders in the EEA.135 The explanations, however, were quite vague as they
         referred to “suppliers that belong to black list”, “countries subjected to
         embargos” and “political agreements”. A clearer explanation was the already
         discussed ITAR. The Commission considers these responses refer to the
         geopolitical reality that NATO countries have some common standards and
         although these do not bind NATO members formally, these countries do not
         generally source defence systems from countries that are outside the alliance such
         as, for example Russia, China and India. This practice is shared not only by
         NATO members but also by non-NATO members that are NATO allies or closely
         cooperate with NATO (together: ‘NATO allies’) such as, for example, Australia,
         Israel, Finland, Sweden etc. For example Sweden’s armed forces actively
128 TECNEX OY’s response to Q1 Questionnaire to customers, question 20
129 Theon’s response to Q1 Questionnaire to customers, question 20
130 Responses of Italy’s Land Armament Directorate and Bristol Trust LLC to Q1 Questionnaire to
    customers, question 20
131 Elbit’s response to Q2 Questionnaire to competitors, questions 31 and 32
132 Elbit’s response to Q2 Questionnaire to competitors, questions 31 and 32
133 Q1 Questionnaire to customers, question 21, Q2 Questionnaire to competitors, question 34
134 Q2 Questionnaire to competitors, question 33
135 Q1 Questionnaire to customers, question 22
                                                       26
 ---pagebreak---          cooperate with NATO forces and aim to develop interoperable capabilities.136
         Within this block of NATO or NATO allied countries the suppliers that supply
         other armed forces (e.g. Chinese, Russian, Indian armed forces) cannot be
         considered as competitive constraints. There are some exceptions to this rule, as
         can be seen from the fact that a Russian supplier sold missile systems in Turkey, a
         NATO member. However, these exceptions are limited in number and are met
         with the alliance’s disapproval.137 Thus, NATO and NATO ally countries are
         also part of the relevant market or suppliers active in these countries need to be
         taken into account as competitive constraints. Of these two approaches, i.e. EEA-
         wide market with acknowledging constraints from suppliers in NATO and NATO
         ally countries or geographic market corresponding to NATO and NATO ally
         countries, the first approach appears more appropriate as competitive conditions
         could be more divergent in a large market encompassing not only the EEA but
         also the US, Japan, Turkey and Brazil.
(120) Although asked specifically on this point, the respondents of the market
         investigation did not indicate that their responses would differ depending on the
         product market segment. Thus the above mentioned responses apply to all the
         various product market segmentations retained by the Commission for the
         purpose of assessing the Transaction.
         D) Conclusion on geographic market definition
(121) On the basis of the above, the Commission considers that the relevant geographic
         market for all the relevant NVD product markets listed in Section 5.1.1.1.E)
         comprises the EEA including competitive constraints by firms from NATO or
         NATO ally countries such as Elbit and the Parties. In the rest of Section 5, when
         the Commission uses EEA in the context of geographic market, EEA is to be
         understood in this way.
5.1.2.     Competitive assessment – horizontal non-coordianted effects
5.1.2.1. Notifying Party’s view
(122) Although in the Notofying Party’s view there is a unified NVD market, the
         Notifying Party also puts forward its view on the basis of a segmentation based on
         technology type, i.e. image intensification NVDs, thermal NVDs and fusion
         NVDs.
(123) At both of these levels the Notifying Party submits that the Transaction will not
         lead to a significant impediment of effective competition for the following
         reasons:
              i.  The combined entity will not have EEA shares indicative of market
                  power.138 The combined entity will have a 2018 EEA value share for all
                  NVDs of below [10-20]%. Moreover, the combined entity will have
                  2018 EEA value shares not exceeding [10-20]%.
136 https://www nato.int/cps/en/natohq/topics 52535 htm
137 https://www.cnbc.com/2019/06/04/us-nato-ambassador-turkey-must-cancel-russia-s-400-missile-
    purchase html
138 Form CO, paragraphs 241-251
                                                      27
 ---pagebreak---              ii.  The combined entity will face multiple viable competitors for any future
                  night vision device opportunities.139 These include Elbit, Thales, Theon,
                  PCO, Qioptiq and others.
           iii.   The NVDs space is highly competitive, characterized by tender
                  processes.140 NVDs are typically purchased through tender processes.
                  Consequently, as with any bidding market, a small number of
                  competitors is sufficient to maintain a competitive outcome. Moreover,
                  barriers to switching suppliers of NVDs are typically low in the EEA. In
                  addition, the night vision space has been experiencing significant
                  overcapacity since 2012 and significant pricing pressures as a result.
            iv.   The merged entity will face significant buyer power, characteristic of the
                  defence sector in general.141
             v.   Harris and L3 are not particularly close competitors in the EEA.142 This
                  is because they meet in less than 20 % of the EEA tenders.
5.1.2.2. The Commission’s assessment
(124) The Parties’ activities overlap in the following relevant markets:
              i.  Market for image intensification NVDs in the EEA;
             ii.  Market for fusion NVDs in the EEA;
           iii.   If the market for image intensification NVDs is further segmented by
                  device type, the markets for various image intensification NVD types,
                  principally image intensification goggles and weapon sights in the EEA;
            iv.   If the market for fusion NVDs is further segmented based on integration
                  technology, the market for optical integration fusion NVDs in the EEA;
             v.   If the market for optical integration fusion NVDs is further segmented by
                  device types, the markets for various optical integration fusion NVD
                  device types, principally optical integration fusion goggles in the EEA.
(125) The Commission will first analyse the horizontal overlaps at the level of image
        intensification and fusion NVDs (levels i. and ii. above). This will be followed by
        a discussion of levels iii.-v.
        A) Image intensification NVDs
        (a) Relevant characteristics of bidding markets
(126) The market for image intensification NVDs is a bidding market, which implies
        lumpy demand, i.e. large and infrequent tenders.
139 Form CO, paragraphs 252-253
140 Form CO, paragraphs 254-258
141 Form CO, paragraph 258
142 Form CO, paragraph 259
                                                  28
 ---pagebreak--- (127) As the Commission explained in Case M.7278 – GE/Alstom,143 in markets
       characterised by tendering, the general mechanism through which a merger can
       influence competitive outcomes is similar to what occurs in mergers in ordinary
       differentiated product industries, where firms also compete on price. That is, a
       merger internalises the competitive pressure that two firms exercised on each
       other prior to the merger and can lead each of the remaining firms to bid less
       aggressively post-merger. The precise mechanism through which a merger can
       influence bids and the indicia of potential unilateral effects, depend on how the
       tendering process is set up and on the information available to bidders.
(128) There is no presumption in bidding markets that very few bidders (even as low as
       two bidders) are sufficient to generate a competitive outcome. This extreme result
       would theoretically only hold if suppliers sell identical products, have identical
       costs, have sufficient capacity to serve the entire market and have reliable
       information on the cost of the rival bidders. However, this result no longer holds
       if firms offer differentiated products, and therefore earn a margin over cost. As in
       the present case, bidding markets where firms offer differentiated products144 are
       not characterised by the stylised perfectly competitive outcome and can generate
       non-coordinated effects if two competing firms merge.
(129) In bidding markets, prices are individually negotiated with each customer and,
       therefore, suppliers can typically engage in extensive price discrimination across
       customers. This means that a bid submitted to a customer in a specific tender does
       not have to be offered on similar terms to other customers in other tenders. The
       existence of individualised pricing means that the price effects of a merger may
       be targeted at a particular subset of customers, for example those that are more
       likely to substitute between the merging parties absent the merger. This follows
       from the fact that even though a price increase across all customers may not be
       profitable (given that too many customers would be able to substitute away from
       the merging parties), a price increase for a specific subset of customers may be so.
(130) In image intensification NVD tenders, prospective suppliers form and submit bids
       in a context where there is uncertainty over competing bids. In such settings, the
       pricing incentives of competing firms resemble those at work in ordinary markets
       with differentiated products. If there is uncertainty on the required price level of
       the winning bid, each firm faces a trade-off between the probability of winning
       the tender and the margin earned in case of winning the tender. A higher bid
       would reduce the probability of winning the tender but would also increase the
       margin if the bid is successful. This trade-off is equivalent to the standard trade-
       off between quantity sold and price in an ordinary differentiated goods market,
       the difference being that in the case of a tender it is the probability of winning
       rather than actual quantities sold which enters the trade-off. Each bidder therefore
       chooses its optimal bid in order to optimise the trade-off between expected sales
       and price and thereby maximises its expected profits. Pricing incentives and the
       related incentives to exploit market power in bidding markets are therefore
       analogous to those at work in standard pricing of differentiated products.
143 Commission decision in Case M.7278 – GE/Alstom (2015), Annex I - The Commission's Economic
    Analysis of Bidding Data, recitals 7 et seq.
144 NVDs are obviously differentiated goods as firms NVDs are never exactly alike.
                                                      29
 ---pagebreak--- (131) The incentives to increase the bids145 in bidding markets characterised by
         uncertainty over competing bids following a horizontal merger are very similar to
         those at work in ordinary markets with differentiated products. The primary
         difference is that the diversion of sales between competing firms should be
         understood in terms of expected sales (the probability of winning the tender)
         rather than actual sales. The size of the internalisation effect following a
         horizontal merger is thus determined by the closeness of competition between the
         merging firms, understood as the level of diversion between the merging firms
         before the Transaction (evaluated in terms of winning probabilities), and by the
         level of pre-merger margins.
(132) Finally, in situations characterised by uncertainty on the quality of rival offerings
         and on the customer evaluation for each of the products offered, the competitive
         constraint faced by each bidder is determined by the ex-ante probability that rival
         bidders may make more attractive offers and thus win the tender. When multiple
         bidders participate by paying a non-negligible cost, this means that, at the time of
         bid submissions, those bidders believed that they had a positive probability of
         winning. Therefore, facing more than one rival bidder typically increases the ex-
         ante probability that the buyer will prefer a rival offer, and therefore increases the
         competitive constraint on any given bidder. Therefore, it is not only the runner-up
         that represented a competitive constraint on the winning bidder, and a decrease in
         the number of remaining bidders due to the merger may result in a reduction of
         the competitive constraint faced by the Merged Entity.
(133) In summary, contrary to the arguments of the Notifying Party, just because the
         market for image intensification NVDs is organized as a bidding market, it does
         not follow that a low number of suppliers is sufficient to maintain a competitive
         outcome. In fact the effects of a merger in the market for image intensification
         NVDs are quite similar to the effects of mergers on ordinary (non-bidding)
         markets with differentiated products.
(134) This also implies that contrary to the Notifying Party’s argument, market shares
         are valuable in assessing the market power of a supplier, which is also recognized
         by the European Court's case-law. Namely, the Court held that the mere fact that a
         merger takes place on a bidding market, "does not mean that market shares are of
         virtually no value in assessing the strength of the various manufacturers […],"146
(135) However, because demand is indeed lumpy, market shares over a longer period
         (multiple years) are more indicative of market power than market shares for a
         given year because large swings of market shares caused by the win or loss of a
         significant tender in a certain year are smoothed out. Consequently, the
         Commission will use market shares over a five year period i.e. 2014-2018.
145 In this decision, the terms “increased bids”, “increased prices”, “price increases” in the context of the
    effect of a merger are a shorthand to refer to increased prices, lower quality, less innovation, worse
    customer service or the deterioration of any relevant competitive parameter.
146 Judgement of 14 December 2005 in case T-210/01 General Electric v Commission, EU:T:2005:456,
    paragraphs 149 and 150.
                                                         30
 ---pagebreak---         (b) Market shares
(136) As discussed in Section 5.1.2.2.A(a)), due to the characteristics of bidding
        markets, the most useful data to assess the market power of suppliers are the
        2014-2018 market shares. It follows that the Notifying Party’s argument that the
        combined market share of the Parties is as low as [10-20]% in 2018 is not
        relevant. Market share figures for all NVDs (i.e. also including thermal and fusion
        NVDs), including the [10-20]% figure for 2018, are also irrelevant because they
        do not correspond to the relevant product market retained by the Commission.
(137) The appropriate 2014-2018 market shares for image intensification NVDs are
        presented in Table 1 below.
        Table 1 Market Shares for Image Intensification NVDs
                           Company                             Market share (EEA) 2014-2018
         Harris                                                          [20-30]%
         L3                                                              [10-20]%
         Combined                                                        [30-40]%
         Theon                                                           [20-30]%
         Thales                                                          [20-30]%
         PCO S.A.                                                         [5-10]%
         Elbit                                                            [5-10]%
         Qioptiq                                                           [0-5]%
         Others                                                            [0-5]%
(138) The Transaction thus gives rise to a horizontally affected market. Furthermore,
        the market shares suggest that the merged entity will have significant market
        power, which approaches the level (40%) that, under certain circumstances, may
        be indicative of a dominant position.147 By removing a significant constraint the
        Transaction is likely to lead to a serious loss of competition and a likely price
        increase. By eliminating an important competitive constraint, following the
        Transaction firms will be able to bid at a higher price at the same level of
        probability of winning as pre-Transaction.
        (c) The Parties are strong competitive constraints
(139) Both Parties appear to be important and strong competitors. Precision Technic
        Defence submitted that “L3 would be considered the leading in this technology,
        but basically the two main US OEM's of high tech NVD's”148 Safran was of the
        same view: “To the best of Safran ED's knowledge, L3 is the worldwide
        leader.”149 And “To the best of Safran ED's knowledge, Harris is number 2
        worldwide.”150
(140) Indeed, among the image intensification NVD competitors L3 and Harris were
        most often considered as “credible today” and “credible in 3-5 years”, followed
147 Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the
    European Communities.
148 Response of Precision Technic Defence to Q1 Questionnaire to customers, question 23
149 Safran’s response to Q1 Questionnaire to customers, question 24
150 Safran’s response to Q1 Questionnaire to customers, question 25
                                                      31
 ---pagebreak---         by Thales. Theon and Elbit were considered equally often at tied fourth and fifth
        place.
(141) These results show that customers and competitors consider the Parties the two
        strongest competitors on the market for imagine intensification NVDs. The results
        appear to be reliable as the five suppliers that were considered most often as
        credible are the five firms with the highest market shares in the EEA.
(142) Moreover, respondents pointed out several strengths of both Harris and L3.151
        With regard to Harris, B.M.A.S.R.L considered that “Harris offers higher quality
        for Aviation goggles, better prices for monocular goggles and image intensifiers,
        past references and servicing capabilities for everything”152 Bristol Trust
        explained that “Harris has competitive prices and the products are reliable”153
        Competitive prices, along with good quality and performance was also
        highlighted by Theon “Very price competitive with good quality and performance
        products”154 Italy’s Land Armament Directorate valued Harris’s products because
        they are battle tested: “Harris’ devices are combat proven and largely used by the
        US Armed Forces, hence they collect and implement the requirements coming
        from the field in terms of quality, robustness and performances”155 Likewise
        TNVC pointed to Harris’s proven track record “Harris and fomerly ITT have an
        excellent track record and I have sold their image tubes for the last 15 years”.156
(143) All of these comments show that Harris scores well on a number of important
        competitive parameters such as price, quality and proven track record. While
        price and quality are important in all differentiated product markets, the battle
        tested nature of the products is a special asset in the defence sector. Further, a
        positive track record is an important competitive asset in bidding markets, where
        tenders require references and value such track record highly. This is especially
        true in the case of security related products and risk-averse public sector buyers.
(144) With regard to L3, Italy’s Land Armament Directorate also highlighted the battle
        tested nature of the products, their quality and robustness.157 Both L.F.E. SAS and
        Precision Technic Defence pointed to L3’s track record with Special Forces,
        Navy and ground army.158 Theon submitted that L3 has a “Very price competitive
        with a very large and complimentary range of good quality and performance
        products”159 TNVC made a more specific comment on the quality of L3’s
        products “Consistent high spec tubes with very few blemishes”160
(145) Thus, just like Harris, L3 also scores high on price, quality and the battle-tested
        nature of its products. Likewise, it also has the competitive asset of proven track
151 Q1 Questionnaire to customers, question 26
152 Response of B.M.A.S.R.L to Q1 Questionnaire to customers, question 26
153 Bristol Trust’s response to Q1 Questionnaire to customers, question 26
154 Theon’s response to Q1 Questionnaire to customers, question 26
155 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 26
156 TNVC’s response to Q1 Questionnaire to customers, question 26
157 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 27
158 Responses of L.F.E. SAS and Precision Technic Defence to Q1 Questionnaire to customers, question
    27
159 Theon’s response to Q1 Questionnaire to customers, question 27
160 TNVC’s response to Q1 Questionnaire to customers, question 27
                                                        32
 ---pagebreak---         record and references and can boast in this regard of such references as the
        Special Forces of the US Army and Navy.
(146) Finally, having an own, in-house I2T production (vertical integration) was also
        pointed out as competitive strength.161 Indeed Harris and L3 are the only image
        intensification NVD suppliers that directly control the key technology of their
        devices. The rest of the image intensification NVD suppliers source I2Ts from
        Photonis.
(147) Thus the Commission considers that both Harris and L3 are important
        competitive constraints and possibly the strongest competitors. This reinforces the
        finding that the Transaction is likely to lead to a significant impediment of
        effective competition.
        (d) Closeness of competition
(148) The Notifying Party submitted that the Parties are not close competitors as they
        meet in less than 20 % of the EEA tenders. However, this meet rate was counted
        on the basis of all NVDs and not only on the basis of image intensification NVDs.
        When considering only the latter Harris and L3 bid against each other in [20-
        40]% of the tenders.162 Considering that there are 4 large competitors and 2-3
        smaller ones, this meet rate indicates significant competitive interaction between
        the Parties.
(149) Further, the ultimate question with regard to closeness is the degree of
        substitution between the Parties’ products.
(150) In this regard, the market investigation produced consistent evidence that the
        products of Harris and L3 are close substitutes. Namely a large majority of
        customers and competitors considered that the Parties’ products are close
        substitutes.163 Specifically, respondents considered that Harris and L3 produce
        similar devices with similar performance levels164 and that their devices have very
        similar technical parameters.165 Safran submitted that their products are generally
        equivalent.166 In addition, it was pointed out that their products are close
        substitutes because both bid in the tenders of the US Armed Forces and thus both
        have to comply with the US Armed Forces’ standards and specifications. 167
        United Technologies Corporation highlighted that the sensors in Harris’s and L3’s
        image intensification NVDs are similar.168 Respondents also provided specific
        examples of close or equivalent product pairs from the Parties’ respective
161 Safran’s responses to Q1 Questionnaire to customers, questions 26 and 27
162 Form CO, Annex RFI2 10
163 Q1 Questionnaire to customers, question 23, Q2 Questionnaire to competitors, question 33
164 Response of B.M.A.S.R.L to Q1 Questionnaire to customers, question 23
165 Response of Lithuania’s Ministry of Defence to Q1 Questionnaire to customers, question 23
166 Safran’s response to Q2 Questionnaire to competitors, question 23
167 Response of L.F.E. SAS to Q1 Questionnaire to customers, question 23
168 Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 33
                                                      33
 ---pagebreak---          portfolios, such as AN/PVS-31(L3) – F5032 BNVD (Harris)169 and M949 (L3) –
         f4949 (Harris).170
(151) On the basis of the above, the Commission considers that the Parties’ are close
         competitors and that, consequently, the price increase that may result from the
         Transaction would be significant.
         (e) Buyer power
(152) The majority of respondents to the market investigation considered that buyer
         power on the market for all NVDs is strong.171 Purchases in large quantities were
         mentioned as a factor that affords buyers a favourable negotiating position.172
         However, certain smaller customers, such as the Ministry of Defence of Lithuania
         rated its buyer power as weak.173
(153) The number of customers is not large (as in the case of consumer goods) but not
         very low either, i.e. the customer base is much larger than a few large buyers. In
         the relevant market there are more than 30 governments and each government has
         several bodies (e.g. army, police etc.) that purchase NVDs. There are also
         corporate customers. The size of the customers also varies from very large (US
         Department of Defence) to small (smaller armed forces or police forces, small
         corporate customers). Thus, the structure of the demand side does not imply that
         buyer power is strong and the buyer power of certain customers can even be
         weak. The Commission adds that, as explained in Section 5.1.2.2.A.(a), in
         markets such as the market for image intensification NVDs suppliers can price
         discriminate and thus can exploit the lack of buyer power of smaller customers.
(154) In addition, certain respondents pointed out that the reason for buyer power is
         sufficient competition among suppliers174 In other words, buyer power depends
         on a competitive market where the customer can play suppliers off against one
         another. Indeed, if competition weakens as a result of the Transaction, the
         customer has more limited and worse choices (higher prices, worse quality) than
         pre-Transaction and it is unlikely that it can counterbalance this by being more
         assertive. This is all the more likely given the fact that defence equipment is by
         definition critical to national security and safety and thus customers are unlikely
         to drive a hard bargain if they think that the lower purchase price could
         compromise performance and quality.
(155) For the reasons above, the Commission considers that buyer power is unlikely to
         mitigate the negative effects of the Transaction.
169 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 25
170 Response of L.F.E. SAS to Q1 Questionnaire to customers, question 25
171 Q1 Questionnaire to customers, question 36, Q2 Questionnaire to competitors, question 51
172 Response of Australia’s Department of Defence
173 Responses of the Lithania’s Ministry of Defence and Precision Technic Defence to Q1 Questionnaire
    to customers, question 36
174 See the responses of Safran, Thales and PCO S.A. to Q2 Questionnaire to competitors, question 52
                                                      34
 ---pagebreak---         (f) Entry and expansion
(156) Respondents of the market investigation pointed to several barriers to entry.175
(157) First, any entrant needs to develop an advanced technology, which involves
        significant R&D spending.176 In addition any entrant would face considerable
        uncertainty since developing the underlying I2T technology is very challenging,
        which is shown by the fact that there are only three suppliers in the relevant
        market for I2Ts. Even if the I2T could be sourced froma third party, developing a
        device that fulfils all user needs at the level required for modern military
        applications is a complex task in itself. Further, a new entrant has no order
        backlog to support R&D costs while it competes with incumbents that already
        have the technology and can support their R&D from revenues from their order
        backlog.
(158) Second, even if an entrant develops the relevant technology, it has to be credible.
        As Elbit put it “you'll need to show product credibility if you want to sell to the
        governmental market.”177 Indeed the product needs to work reliably in practice in
        the various, often extreme, situations and circumstances that armed forces have to
        be prepared for. This also involves significant development work, practical testing
        and requires familiarity with mission situations from the perspective of a device
        used, which is hard to acquire as a new entrant.
(159) Third, tenders require references,178 which a new entrant lacks by definition. This
        makes it challenging to win the first contract, which in turn makes it challenging
        to acquire the relevant references. Breaking this negative feedback loop is a
        significant barrier. In addition, the breadth and quality of the portfolio of
        references is also valued, which further reinforces the negative feedback loop for
        the entrant and positive feedback loop for the incumbent.
(160) Fourth, tender procedures are costly and complex,179 which increases the
        transaction costs an entrant has to support with little or no order backlog.
(161) Fifth, a new entrant has to build a sales and repair network,180 which increases
        substantially the initial investments necessary to enter. In this respect also,
        incumbents support such fixed costs much easier than new entrants.
(162) Sixth, a majority of respondents considered that suppliers that have already
        supplied a customer have an advantage with that customer relative to other
        suppliers.181 This is due to familiarity resulting from existing relationships,
        proven track record with the specific customer, or preference for a certain
        supplier for other reasons. Contrary to a new entrant, all incumbents enjoy this
        advantage to a certain extent due to their existing track record of deliveries.
175 Q1 Questionnaire to customers, question 33, Q2 Questionnaire to competitors, question 46
176 Responses of Safran and Italy’s Land Armament Directorate to Q1 Questionnaire to customers,
    question 33, Elbit’s response to Questionnaire to competitors, question 46
177 Elbit’s response to Q2 Questionnaire to competitors, question 46
178 Theon’s response to Q2Questionnaire to competitors, question 46
179 Thales’s response to Q2 Questionnaire to competitors, question 46
180 PCO S.A.’s response Q2 Questionnaire to competitors, question 46
181 Q1 Questionnaire to customers, question 29, Q2 Questionnaire to competitors, question 42
                                                        35
 ---pagebreak--- (163) The very same factors also make significant expansion difficult.
(164) In addition, there has not been large scale entry or expansion in the last ten
        years.182 Current suppliers entered the market a decade or more than a decade
        ago.183 Thus the market has been stable for a long time and has been characterised
        by the presence of the same firms as today. Moreover, a majority of respondents
        do not expect large scale entry or expansion in the next 3-5 years.184
(165) The Commission notes that certain barriers would be lower in the case of existing
        thermal NVD providers as these providers have experience in designing NVDs,
        have some order backlog to support development and tender costs and already
        have a sales and repair network and some customer relationships. In other words,
        the first barrier (technological barrier) the fourth barrier (tender costs), the fifth
        barrier (sales and repair network) and sixth barrier (customer relationships) would
        be lower for a thermal NVD provider. The first, fourth and fifth barriers barriers
        would be lower but not be non-existent because a new technology requires a new
        architecture for the device (first barrier), the tender costs would still have to be
        supported (fourth barrier) and the sales and repair network needs to be retrained
        (fifth barrier). In addition, even a thermal provider would face the second and
        third barriers (credibility of the device and references). Thus, even in such a case
        the barriers would be considerable, which is shown by the fact that the set of
        firms supplying image intensification NVDs has been stable for a long time.
(166) Based on the above, the Commission considers that entry or expansion is unlikely
        to mitigate the likely anticompetitive effects of the Transaction.
        (g) Conclusion on image intensification NVDs
(167) On the basis of the above the Commission considers that in relation to the market
        for image intensification NVDs, the Transaction raises serious doubts as to its
        compatibility with the common market.
        A) Fusion NVDs in the EEA
        (a) Market shares
(168) For the reasons discussed in relation to image intensification NVDs, market
        shares on the basis of a five year period are also the best indicators of market
        power in the case of fusion NVDs. The relevant market shares are presented
        below.
182 Responses of Promoteq and Italy’s Land Armament Directorate to Q1 Questionnaire to customers,
    question 33, Q2 Questionnaire to competitors, question 47
183 Q2 Questionnaire to competitors, question 50
184 Q1 Questionnaire to customers, question 35, Q2 Questionnaire to competitors, question 48
                                                       36
 ---pagebreak---       Table 2 Market Shares in fusion NVDs
                       Company                        Market Share (EEA) 2014-2018
       Harris                                                     [0-5]%
       L3                                                        [20-30]%
       Combined                                                  [20-30]%
       Thales                                                    [40-50]%
       Qioptiq                                                   [30-40]%
      Source: Form CO paragraph 223, table 20
(169) The Transaction thus gives rise to an affected market in fusion NVDs. As the
      market shares show, the Transaction reduces the number of competitors from four
      to three, which generally implies a serious loss of competition and a likely price
      increase. However, in this case the increment is minor, only [0-5]%, as Harris has
      a minimal market share. Based on market shares it does not appear to have market
      power in the EEA. Given the small market share, if L3 raised its price pre-
      Transaction few customers would switch to Harris due to its small presence in the
      market. Thus, in the case of a significant post-merger price increase, few
      customers would remain in-house and the merged entity would likely lose
      customers to the remaining competitors such that its overall profit would
      decrease. This limits the incentives of the the merged entity to increase its price
      post-Transactuon.
      (b) Other aspects
(170) The assessment as regards the market for fusion NVDs is similar to the
      assessment with respect to image intensification NVDs. This is because certain
      factors in the assessment are the same (for example, the nature of bidding markets
      or buyer power). Also, the responses in the market investigation did not differ on
      the basis of the underlying technology used in the device even though respondents
      were asked to highlight differences between different potential NVD markets, if
      any. Thus the Commission briefly reviews the main points of the assessment by
      reference to the results discussed in relation to image intensification NVDs,
      indicating the differences where necessary.
(171) However, there are important differences affect the Commission’s assessment of
      the likely effects of the Transaction on the market for fusion NVDs.
(172) Market characteristics. As discussed in Section 5.1.2.2.A(a) the fact that the
      NVD markets are bidding markets does not imply that a low number of suppliers
      is sufficient to guarantee a competitive outcome. Thus it does not imply that a
      merger cannot have negative effects on such markets.
(173) Parties’ competitive strength. For the reasons discussed in Section 5.1.2.2.A(c)
      the Parties are important and strong competitors in image intensification NVDs.
      The responses of the market investigation reviewed in that section also apply to
      the market of fusion NVDs as respondents did not differentiate in their replies
      between NVDs of different technologies. However, there are two important
      differences. First, in image intensification NVDs the competitive advantage of
      having the technology in-house (vertical integration) applies to both Parties but in
      fusion NVDs it only applies to L3 as Harris sources it from third party providers.
      Thus Harris is a less strong competitor in fusion NVDs as it does not control one
                                               37
 ---pagebreak---       of the core technologies in these devices, including its costs. Second, although
      Section 5.1.2.2.A(c) showed that the Parties are strong competitors, this is only
      true in the sense that Harris is a capable competitor in all NVDs globally but not
      necessarily in the EEA. Harris’s small market share in the relevant market
      indicates that it is not focused on the EEA. Further, the Commission’s
      investigation did not find indications that Harris wants to significantly expand its
      activities in the EEA. It follows from the above that due to these differences
      Harris is not a strong competitor in fusion NVDs in the EEA.
(174) Closeness. The respondents in the market investigation did not differentiate their
      responses on the basis of NVDs of different technologies also in the case of
      closeness. Thus, as discussed in in Section 5.1.2.2.A(d), the Parties are close
      competitors because their devices have similar performance levels and technical
      parameters, use similar sensor technology and both complies with the
      specifications of the US military. However, closeness only applies in the sense of
      their products but not in terms of geography. Because Harris is not focused on the
      EEA, the Parties are not close competitors in the geographic sense.
(175) Buyer power. Buyer power does not depend on the technology employed in the
      device. The structure of demand for fusion NVDs is the same as for image
      intensification NVDs and thus the results of the analysis in relation to image
      intensification NVDs (5.1.2.2.A(e)) apply also to fusion NVDs. Thus, for the
      reasons explained, some customers have a degree of market power but some do
      not and in any case customers are unlikely to be able to counteract a price
      increase resulting from the loss of competitive pressure via the Transaction.
(176) Entry and expansion. In Section 5.1.2.2.A(f), the Commission explained that the
      barriers to entry to and expansion in image intensification NVDs are high. The
      results of the market investigation apply also to fusion NVDs as the respondents
      did not differentiate their responses on the basis of technology. Thus the barriers
      are high, especially for new entrants. Just like in the case of image intensification
      NVDs, the barriers are somewhat lower for suppliers that already have
      capabilities in NVDs. As discussed in relation to market definition, it is easier to
      enter the fusion NVD market for standalone thermal NVD and standalone image
      intensification by sourcing the missing technology, the same way as Harris did.
      While the analysis on image intensification NVDs indicates that the barriers
      remain considerable even for existing NVD providers, the example of Harris
      suggests that the barriers in this case are easier to overcome.
      (c) Conclusion on fusion NVDs
(177) The Transaction involves the reduction of the number of suppliers of fusion
      NVDs from four to three, which can potentially imply a significant loss of
      competition Further, just like in the case of image intensification NVDs buyer
      power cannot be relied on to mitigate the effects of the Transaction and entry
      barriers are considerable.
(178) However, the combined market shares for fusion NVDs are much lower than in
      image intensification NVDs and just above the threshold where generally
      competition concerns can be expected to arise. Further, the market share
      increment is very small, suggesting that the market power of the merged entity
      will only be marginally higher as a result of the Transaction and is unlileky to
                                                38
 ---pagebreak---         increase incentives to increase prices. In addition, the Parties are not close
        competitors in the geographic sense and there is no indication that Harris will
        become a more important competitor in the EEA in the future. Moreover, the
        example of Harris’s entry by sourcing thermal technology suggests that entry
        barriers may be somewhat lower than in image intensification NVDs.
(179) Based on the above considerations, on balance the Commission is of the view that
        the Transaction does not give rise to serious doubts as to its compatibility with the
        internal market in relation to fusion NVDs.
         B) Assessment under other relevant market definitions
(180) As explained in Section 5.3.2, the Transaction gives rise to additional overlaps if
        alternative plausible market definitions were retained. These additional overlaps
        would arise in the following markets:
              i.  If the market for image intensification NVDs is further segmented by
                  device type, the markets for various image intensification NVD types,
                  namely image intensification goggles and weapon sights in the EEA185;
             ii.  If the market fusion NVDs is further segmented based on integration
                  technology, the market for optical integration fusion NVDs in the EEA;
            iii.  If the market for optical integration fusion NVDs is further segmented by
                  device types, the markets for various optical integration fusion NVD
                  device types, namely optical integration fusion goggles and optical
                  integration fusion weapon sights in the EEA.
(181) In this respect the Commission notes that pursuant to the serious doubts raised in
        this decision, including in the relevant market for image intensification NVDs, the
        Notifying Party offered commitments to address any competition concerns related
        to this market. These commitments consist of the divestment of Harris’s entire
        night vision business including both NVDs and I2Ts. As discussed in detail in
        Section 6, these commitments remove the entire overlap in all possible night
        vision market segments and they are well designed to address the competition
        concerns in the area of night vision, regardless of any other alternative
        segmentations. It is thus not necessary to carry out a competitive assessment
        under the alternative market definitions relating to NVDs.
5.1.3.    Competitive assessment – horizontal coordinated effects
5.1.3.1. The Notifying Party’s view
(182) The Notifying Party submits that the Transaction will not give rise to coordinated
        effects.186 First, it considers that the lack of product homogeneity renders
        implausible any implicit coordination, especially in a tender market. Second, the
        market is not transparent as it is to a large extent a bidding market, rendering any
        implicit collusion inherently unstable. Third, the market is driven by innovation
185 As discussed in Section 5.1.1.1.D(a.v), there is no overlap between the Parties in device types other
    than goggles and weapon sights.
186 Form CO, paragraphs 260-261
                                                       39
 ---pagebreak---         given the technological features of the products. This feature too prevents the
        possibility of implicit and sustainable coordination for any significant period of
        time.
5.1.3.2. Commission’s assessment
(183) The Commission agrees with arguments put forward by the Notifying Party. It is
        indeed the case that NVDs are a heterogeneous product group with various
        functionalities and multiple parameters (i.e. not only price but also quality,
        performance levels, energy consumption, shape, weight etc), which makes it
        difficult for competitors to implicitly reach a common understanding on the terms
        of coordination.
(184) Maintaining the coordination also appears difficult for several reasons. First the
        market is indeed not transparent, which makes montoring the deviations from the
        agreed terms of coordination difficult. Second, the lumpy nature of demand
        incentives firms to cheat on the agreed terms. Third, it is indeed the case that
        NVD markets are characterised by innovation, which renders any tactic
        coordination unstable.
(185) The assessment applies to image intensification NVDs, fusion NVDs and the
        other alternative relevant product markets discussed in Section 5.1.2.2.B)
(186) In any event, the commitments offered by the Notifying Party remove the entire
        overlap in the night vision space and thus the Transaction will not give rise to any
        horizontal coordinated effects in any NVD market.
5.2.      I2Ts
5.2.1.    Market definition
(187) I2Ts are devices that intensify an image by converting photons to electrons,
        multiplying the electrons and reconverting them to photons. I2Ts are the core
        component of an image intensification NVD as they constitute the core
        technology on which an image intensification NVD is based.
5.2.1.1. Product market definition
        A) Notifying Party’s view
(188) The Notifying Party considers that I2Ts are components and the key input for
        image intensification night vision. The Notifying Party does not consider any
        further segmentation within I2Ts.187
        B) Commission’s decisional practice
(189) The Commission has never considered I2Ts separately from the broader category
        of defence optronics and thus the precedents are the same as those discussed in
        relation to NVDs in Section 5.1.1.1.C) above. Namely, in Safran/Zodiac and
        Daimler Benz/Carl Zeiss the Commission has distinguished defence optronics, a
187 Form CO, paragraph 192
                                                  40
 ---pagebreak---          category that includes thermal NVDs, image intensification NVDs, visors
         mounted on land vehicles, ships, aircraft or submarines and a range of other
         products unrelated to image intensification NVDs or I2Ts. 188 With regard to
         further possible segmentation of the category of defence optronics, the
         Commission noted that technologies used to manufacture various types of
         optronics equipment are similar but that the supply and demand landscapes are
         not necessarily the same for all products.189 Ultimately, the Commission left the
         question of finding separate markets within defence optronics open.
         C) Commission’s assessment
(190) As a preliminary remark, in Sections 5.1.1.1.D)-E) the Commission concluded
         that NVDs of different underlying technologies (image intensification, thermal,
         fusion and digital low light sensor technology) belong to separate markets. It
         follows that I2Ts, which are a key component of NVDs using image
         intensification technology, are also not substitutable with the key components of
         thermal technology or digital low light technology.
(191) Thus the only question with regard to product market definition is whether
         different generations of I2Ts (generation I-III) belong to the same market. This is
         in line with the market investigation, which did not indicate that any other
         segmentation would need to be considered. To the extent that there are size and
         weight differences these are already captured by the distinction between I2Ts of
         different generations, as discussed in the following recital.
(192) In Sections 5.1.1.1.D(a.iii) the Commission concluded that there is no demand
         substitution across image intensification NVDs using different generations of
         I2Ts due to different performance levels. This is equivalent to saying that image
         intensification I2Ts of different generations are also not demand substitutable.
         Other than different performance levels, respondents added that I2Ts of different
         generations are used for different purposes and have different sizes and weights,
         the latter of which also implies that they cannot be used for the same device.190 It
         was also confirmed by a large majority of respondents that customers either
         specify the technology generation in their tenders or specify the performance
         criteria corresponding to a particular generation of I2Ts.191 It follows that in I2T
         tenders I2Ts of a previous generation compared to the I2T that is required would
         not be accepted as they do not meet the performance specifications and later
         generation I2Ts would not be competitive on price. Indeed, respondents
         confirmed that I2Ts of later generations are significantly more expensive than
         those of earlier generations.192 The fact that only an I2T of a particular generation
         is acceptable in response to an I2T tender rules out demand substitution.
(193) As regards supply side substitution, respondents were equally split on the
         question whether a supplier of a certain generation of I2T can produce another
188 Case COMP/M.8425 Safran/Zodiac, recitals 255 and 257; Case IV/M.598 Daimler Benz/Carl Zeiss,
    recitals 8-9
189 Safran/Zodiac, recitals 255-257
190 Q1 Questionnaire to customers, question 38, Q2 Questionnaire to competitors, question 54
191 Q1 Questionnaire to customers, question 39, Q2 Questionnaire to competitors, question 55
192 Q2 Questionnaire to competitors, question 56
                                                     41
 ---pagebreak---         generation within a short time and without substantial difficulties.193 The
        respondents supporting easy switching are actually NVD suppliers that procure
        I2Ts and it appears that they replied to the question from their own perspective.
        Indeed, as discussed in Section 5.1.1.1.D(b.iii), for an NVD maker it is easy to
        switch between NVDs of different devices as they procure the I2Ts and just
        adjust the other aspect of the device. This, however, may not apply to I2T
        manufacturers. Indeed, the technological advances represented by each new
        generation suggest that supply substitution is likely to be asymmetrical in that
        producers of later generation I2Ts can easily produce earlier generations but not
        vice-versa because it requires substantial R&D efforts to develop a new
        generation. For example, as discussed in Section 5.1.1.1.D(b.iii) there is no
        certainty whether ongoing efforts to develop a generation IV I2T will bear fruit
        and when.
(194) However, for the purpose of the assessment of the Transaction, the question is
        moot as there are only three suppliers of I2Ts in the EEA and all three suppliers
        are able to produce the latest generation (generation III) tubes and thus are able to
        switch easily to producing earlier generation I2Ts. Further, as mentioned in the
        previous recital, there is no supplier that will be able to produce generation IV
        I2Ts within the next 2-3 years with a reasonable degree of certainty and thus
        generation IV technology also does not serve a distinguishing factor among
        suppliers.
        D) Conclusion on product market definition
(195) Based on the above, the Commission considers that it is not necessary to
        distinguish separate markets for I2Ts of different generations. The relevant
        product market is therefore the market for I2Ts without any further segmentation.
5.2.1.2. Geographic market definition
        A) Notifying Party’s view
(196) With regard to geographic market definition, the Notifying Party treats NVDs and
        I2Ts the same way and considers that the market is EEA-wide for the same
        reasons as the ones it put forward in the case of NVDs.194 As explained in Section
        5.1.1.2.A, these reasons include the low transport-cost-to-price ratio, the absence
        of national sourcing by customers and the lack of regulatory or national security
        restrictions.
(197) Certain tenders de facto eliminate US suppliers such as the Parties, as they require
        suppliers not to be subject to the US International Traffic in Arms Regulations
        (“ITAR”). However, to the extent any tender within the EEA would be limited to
        national or European producers only, then neither L3 nor Harris would be able to
        participate, entailing that the Transaction is neutral with respect to any such
        tenders.
193 Q2 Questionnaire to competitors, question 57
194 Form CO, paragraph 202
                                                 42
 ---pagebreak---         B) Commission’s decisional practice
(198) The Commission precedents are the same as in the case of image intensification
        NVDs (Section 5.1.1.2.C)) as so far the Commission has only considered broader
        categories.
(199) To recall, in the case of military and defence applications and products in general
        the Commission has left open the possibility to define markets for specific
        military and defence applications on an EEA-wide or national basis due to, e.g.,
        the existence of specific government regulations (such export restrictions) or
        national security-related preferences for local suppliers.195
(200) The most recent case involving defence products was the Safran-Zodiac case,
        which also concerned defence optronics (i.e. products that include NVDs and
        I2Ts). In that case the Commission followed the same approach and left the
        geographic market definition open (EEA or national) with respect to defence
        optronics.196 In general (i.e. not necessarily with regard to defence optronics) the
        Commission noted that the geographic market can vary for different defence
        products based on the how critical the technology is from a strategic and national
        security point of view. In the case of more sensitive systems and products
        customers can prefer national capabilities if they are available.197
        C) Commission’s assessment
(201) A large majority of respondents agreed that, within the EEA, regulatory
        requirements, customer preferences and specifications are similar and as a result
        the same I2Ts can be used throughout the EEA.198 This means that there is
        demand-substitutability in the EEA and there are no country-specific I2Ts. In
        addition, United Technologies Corporation considered that even if this were not
        the case, suppliers could easily adapt their products to the national specificities.199
        Thus it appears that demand and supply substitution applies across the EEA.
        These responses also confirm that that there are no regulatory barriers that would
        prevent suppliers from being active across the EEA with the same product. Thus
        the market is at least EEA-wide.
(202) In addition, the example of the Parties – two US firms supplying I2Ts from the
        US to the EEA without having production capacities in the EEA – indicates that
        the market may even be larger than the EEA. However, in line with the
        Commission’s assessment in Section 5.1.1.2.C, the market cannot be larger than
        the circle of NATO and NATO ally countries because these countries de facto do
        not source defence products from outside the alliance, i.e. from China, Russia,
        India etc. In other words, I2T suppliers from non-NATO or non-NATO ally
        countries are not constraints within the alliance and in the EEA. As discussed in
        Section 5.1.1.2.C, there are exceptions to this practice, such as Turkey’s purchase
195 Case COMP/M.4653 - MBDA/Bayern- Chemie, paras. 21 and 23; Case COMP/M.5032 –
    Roxel/Protac, recital 33; Case COMP/M.1309 – Matra/Aerospatiale, recital 45; Case COMP/M.1745,
    EADS, recital 163
196 Case COMP/M.8425 Safran/Zodiac, recital 300
197 Case COMP/M.8425 Safran/Zodiac, footnote 203
198 Q1 Questionnaire to customers, question 40, Q2 Questionnaire to competitors, question 58
199 Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 58
                                                     43
 ---pagebreak---         of Russian weapons but these are limited in number and are met with the
        alliance’s disapproval. Thus NATO and NATO ally countries are also part of the
        relevant market or firms suppling from these countries need to be taken into
        account as competitive constraints.
(203) Just like in the case of NVDs, the Commission notes that, in line with the view of
        the Notifying Party, certain tenders de facto exclude US firms by requiring that
        the bidders not be subject to ITAR. Given, however, that both Parties are subject
        to ITAR, neither of the Parties could participate in such tenders and thus the
        Transaction has no impact on these tenders.
        D) Conclusion on geograhpic market definition
(204) On the basis of the above the Commission considers that the relevant geographic
        market for I2Ts comprises the EEA including competitive constraints by firms
        that supply the EEA from NATO or NATO ally countries such as Elbit and the
        Parties. In the rest of this section, when the Commission uses EEA in the context
        of geographic market, EEA is to be understood this way.
5.2.2.    Competitive assessment – horizontal non-coordinated effects
5.2.2.1. Notifying Party’s view
(205) The Notifying Party considers that the Transaction will not lead to competition
        concerns in I2Ts for the following reasons.
(206) First, the combined entity will not have EEA shares indicative of market
        power.200 The combined entity will have a 2018 EEA value share below [20-30]%
        in I2Ts.
(207) Second, L3 is not a significant competitor in the EEA201 as it has participated in
        only a few tenders and was especially absent in large tenders in the last four
        years. Furthermore, [L3’s market position]. The Notifying Party considers that by
        2030 Generation IV tubes will almost entirely replace Generation III tubes.
(208) Third, the combined entity will face Photonis, the market leader in the EEA.202
        The Notifying Party expects Photonis to compete strongly in the future as it
        claims to have Generation IV technology.203 In addition, other providers, like
        Katod, a Russian I2T supplier, could start supplying I2Ts into the EEA. 204 The
        Notifying Party also expects that digital low light sensor technology will replace
        I2Ts in the long term.205
(209) Fourth, the Notifying Party argues that the I2T space is highly competitive,
        characterized by tender processes.206 Consequently, as with any bidding market, a
200 Form CO, paragraphs 241
201 Form CO, paragraphs 235-236
202 Form CO, paragraphs 234
203 Form CO, paragraph 237
204 Form CO, paragraphs 234
205 Form CO, paragraph 238
206 Form CO, paragraphs 254-258
                                                  44
 ---pagebreak---         small number of competitors is sufficient to maintain a competitive outcome.
        Moreover, barriers to switching suppliers of I2Ts are typically low in the EEA. In
        addition the night vision space has been experiencing significant overcapacity
        since 2012 and significant pricing pressures as a result.
(210) Fifth, the merged entity will face significant buyer power, characteristic of the
        defence sector in general.207
(211) Sixth, Harris and L3 are not particularly close competitors in the EEA as they
        meet in only a few tenders.208
5.2.2.2. The Commission’s assessment
        A) Relevant characteristics of bidding markets
(212) As discussed in Section 5.1.2.2.A(a) in relation to NVDs the fact that the market
        for I2Ts is a bidding market does not imply that a low number of suppliers is
        sufficient to guarantee a competitive outcome. Thus it does not imply that a
        merger cannot have negative effects on such markets.
        B) Market shares
(213) For the reasons discussed in relation to image intensification NVDs, market
        shares on the basis of a five year period are also the best indicators of market
        power in the case of I2Ts. The Parties’ combined market shares for I2Ts are
        presented below.
        Table 3 Market shares in I2Ts
                         Company                        Market Share (EEA) 2014-2018
         Harris                                                   [20-30]%
         L3                                                        [0-5]%
         Combined                                                 [20-30]%
         Photonis                                                 [70-80]%
        Source: FORM CO, paragraph 231, Table 21
(214) Thus, the Transaction gives rise to a horizontally affected market in I2Ts. As
        shown by the market shares, the market is extremely concentrated and comprises
        only three players. The Transaction results in a 3-to2 merger. The reduction of the
        number of market players from three to only two implies a serious loss of
        competition even if L3’s market share is relatively low. If L3 is a credible
        competitor, its disappearance as an independent competitive force on such a
        concentrated market is likely to lead to significant price increases. Furthermore,
        Photonis is likely to be to be a dominant player, which implies that competition is
        already weak in this market. Consequently, any further reduction of competitive
        constraints implies significant harm to competition.
207 Form CO, paragraph 258
208 Form CO, paragraphs 235-236
                                                 45
 ---pagebreak---         C) The Parties’ competitive strength
(215) Not surprisingly, Harris, which has a significant market share in the EEA, was
        considered a strong competitor by respondents to the market investigation.209
        B.M.A.S.R.L considered that “Harris' competitive strengths are high quality,
        price, past references, customisation and servicing capabilities for all devices”210
        Bristol Trust and Theon submitted that Harris is strong on both price and
        quality/performance.211 Other than quality, Italy’s Land Armament directorate
        also highlighted Harris’s track record “Harris’ competitive strengths are the
        quality and the past reference”212, a point echoed by TNVC.213
(216) Despite its relatively low market share, L3 was also considered a strong
        competitor.214 For example, Elbit’s considered that L3 is a major player in
        I2Ts.215 More specifically, Griffity Defense was of the view that L3’s products
        have the same quality as Harris’s: “L3 and Harris Generation 3 Image Intensifier
        have the same quality. The L3 Image Intensifier show a more amber display
        whereas Harris is more green.”216 Theon told the Commission that, just like
        Harris, L3 is strong on both quality/performance and price.217 TNVC submitted
        that L3 has “Consistently high spec clean tubes.”218 The fact that L3’s tubes are
        “unfilmed” was referred to as a particular strength in quality by L.F.E. SAS.219
        PCO highlighted that thanks to its US based operations L3 benefits from scale
        economies. 220
(217) Furthermore is discussed in Section 5.2.2.2.D) below respondents considered that
        L3 offers products that are very similar in price and quality to Harris’s products.
(218) The Commission also notes that, as discussed in Section Section 5.1.1.1.D(b.iii)
        respondents to the market investigation were sceptical of Photonis’s claims to
        have generation IV technology and generally considered that it is uncertain when
        and Generation IV I2Ts will be brought to market and by which supplier.
        Accordingly, L3 cannot be considered to be weaker and Photonis cannot be
        considered to be a stronger competitor on this basis. Likewise, the relative
        immaturity of digital low light sensor technology discussed in Section
        5.1.1.1.D(a.ii) implies that the loss of L3 as a competitive force will not be
        compensated by suppliers of this technology.
(219) On the basis of the above, despite its relatively low market share in the EEA, L3
        is a credible competitor in I2Ts. Thus, the Commission considers that its
        disappearance in a very concentrated market where one player is likely to be
        dominant is likely to lead to a serious loss of competition.
209 Q1 Questionnaire to customers, question 44, Q2 Questionnaire to competitors, question 63
210 B.M.A.S.R.L response to Q1 Questionnaire to customers, question 44
211 Responses of Bristol Trust and Theon to Q1 Questionnaire to customers, question 44
212 Response to Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 44
213 TNVC’s response to Q1 Questionnaire to customers, question 44
214 Q1 Questionnaire to customers, question 45, Q2 Questionnaire to competitors, question 64
215 Elbit’s response to Q2 Questionnaire to competitors, question 64
216 Response of Griffity Defense Gmbh to Q1 Questionnaire to customers, question 45
217 Theon’s response to Q1 Questionnaire to customers, question 45
218 TNVC’s response to Q1 Questionnaire to customers, question 45
219 Response of L.F.E. SAS to Q1 Questionnaire to customers, question 45
220 PCO SA’s response to Q2 Questionnaire to competitors, question 64
                                                       46
 ---pagebreak---         D) Closeness of competition
(220) With regard to closeness, the market investigation produced consistent evidence
        that the products of Harris and L3 are close substitutes. A large majority of
        customers and competitors considered that the Parties’ products are close
        substitutes.221 Specifically, respondents considered that the technology and
        quality levels of their products are similar222 and that they have comparable
        performance levels.223 A respondent considered that Harris’s and L3’s products
        are generally equivalent.224 In addition, it was pointed out that their products are
        close substitutes because both supply NVDs to the US Armed Forces and thus
        both firms have to comply with the US Armed Forces’ standards and
        specifications. For example, L.F.E SAS submitted that “They have the same
        products due to the US tenders which request them to be interchangeable (size,
        electronics, mechanics)”225 TNVC was of the same view: “They produce image
        tubes for the same military contract. If that isn't interchangeable I don't know
        what is.”226 United Technologies Corporation highlighted that the sensors in
        Harris’s and L3’s image intensification NVDs are similar.227
(221) Thus, with regard to the substitutability of their products Harris and L3 are close
        competitors, which exacerbates the harm that is likely to follow from the
        Transactions.
(222) Given that L3’s products are close substitutes of Harris’s products, L3’s relatively
        small market share can be explained by its more modest presence in the EEA. In
        other words, the Parties are less close competitors in the geographic sense.
        However, in the context of a very concentrated market where there is a dominant
        player, the disappearance of every credible competitive constraint (like the
        constraint exercised by L3) is likely to lead to a significant impediment of
        effective competition.
        E) Buyer Power
(223) The majority of respondents to the market investigation considered that buyer
        power on the market for I2Ts is strong.228 However a significant minority
        considered that such buyer power is weak or medium.
(224) The number of customers is smaller than in the case of NVDs as the customer
        base mainly consists of NVD producers. Thus the demand side consists of a few
        large buyers, which in general implies some buying power.
(225) However, buyer power is bound to be limited if theer are only three alternatives
        and this is even more the case if the number of alternatives is reduced from 3 to 2.
221 Q1 Questionnaire to customers, question 41, Q2 Questionnaire to competitors, question 60
222 Response of B.M.A.S.R.L to Q1 Questionnaire to customers, question 41
223 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 41
224 Safran’s response to Q2 Questionnaire to competitors, question 33
225 Response of L.F.E. SAS to Q1 Questionnaire to customers, question 41
226 TNVC’s response to Q1 Questionnaire to customers, question 41
227 Response of United Technologies Corporation to Q2 Questionnaire to competitors, question 60
228 Q1 Questionnaire to customers, question 50, Q2 Questionnaire to competitors, question 69
                                                      47
 ---pagebreak---         Further, I2T is the single most critical input to image intensification NVDs, which
        reduces buyer power.
(226) In addition, as discussed in Section 5.3.2.1. buyer power depends on a
        competitive market where the customer can play suppliers off against one
        another. Indeed, if competition weakens as a result of the Transaction and all
        suppliers submit worse bids, the customer is left with worse choices than pre-
        Transaction and higher prices than pre-Transaction. Thus it is unlikely that its
        limited buyer power will counteract these effects. This is all the more likely given
        that I2Ts are a critical input to NVDs.
(227) Therefore, the Commission considers that while some customers have some buyer
        power customers, generally customers are unable to contain the price increases
        resulting from the Transaction. Consequently, buyer power is unlikely to mitigate
        the negative effects of the Transaction.
        F) Entry and expansion
(228) Respondents to the market investigation pointed to significant barriers to entry.229
        These barriers are very similar to the barriers in the case of image intensification
        NVDs with the difference that they appear to be even higher for I2Ts.
(229) First, any entrant needs to develop an advanced technology, which involves
        significant R&D spending.230 This also involves significant amount of uncertainty
        since developing I2T technology is very challenging, which is shown by the fact
        that there are only three suppliers in the relevant market. Further, a new entrant
        has no order backlog to support R&D costs while it competes with incumbents
        that already have the technology and can support their R&D from revenues from
        their order backlog. This barrier appears to be higher than the same barrier in
        NVDs as the core technology cannot be sourced from third parties.
(230) Second, even if an entrant develops the relevant technology, the supplier has to
        demonstrate that the I2T works reliably in practice.231 Indeed, this aspect is
        important as the tube is critical to mission performance and missions involve
        various, often extreme, situations and circumstances. This also involves
        significant development work, practical testing and requires familiarity with
        mission situations from the perspective of a device used, which is hard to acquire
        for a new entrant.
(231) Third, respondents pointed out that entry requires very substantial investments in
        manufacturing equipment,232 which further increases the fixed costs that a new
        entrant would have to support without existing order backlog and scale.
(232) Fourth, tenders require references, which a new entrant lacks by definition. This
        makes it challenging to win the first contract, which in turn makes it challenging
229 Q1 Questionnaire to customers, question 47, Q2 Questionnaire to competitors, question 66
230 Theon’s response to Q1 Questionnaire to customers, question 47, Responses of Elbit and Safran to to
    Questionnaire to competitors, question 66
231 Thales’s response to Q2 Questionnaire to competitors, question 66
232 Response of Theon to Q1 Questionnaire to customers, question 47, Elbit’s response to to
    Questionnaire to competitors, question 66
                                                      48
 ---pagebreak---         to acquire the relevant references. Breaking this negative feedback loop is a
        significant barrier. In addition, the breadth and quality of the portfolio of
        references is also valued, which further reinforces the negative feedback loop for
        the entrant and positive feedback loop for the incumbent.
(233) Fifth, tender procedures are costly and complex,233 which increases the
        transaction costs an entrant has to support with little or no order backlog.
(234) Sixth, a new entrant has to build out a sales and repair network,234 which
        increases substantially the initial investments necessary to enter. In this case too,
        incumbents support such fixed costs much easier than new entrants.
(235) Seventh, a majority of respondents considered that suppliers that have already
        supplied a customer have an advantage with that customer relative to other
        suppliers.235 This is due to familiarity resulting from existing relationships,
        proven track record with the specific customer, or preference for a certain
        supplier for other reasons. Contrary to a new entrant, all incumbents enjoy this
        advantage to a certain extent due to their track record of deliveries.
(236) With the exception of the initial investment in manufacturing capabilities, all of
        these factors also make significant expansion difficult.
(237) The Commission notes that unlike in the case of image intensification NVDs
        (where some of these barriers would be somewhat lower for thermal NVD
        suppliers), in the case of I2Ts there is not a group of firms for which some of the
        above mentioned barriers would be lower.
(238) In addition there has not been large scale entry or expansion in the last ten
        years236 and a majority of respondents do not expect large scale entry or
        expansion in the next 3-5 years.237
(239) Based on the above, the Commission considers that entry or expansion is unlikely
        to mitigate the effects of the Transaction.
        G) Conclusion on on horizontal non-coordinatd effects as regards I2Ts
(240) For the reasons explained above, the Commission considers that the Transaction
        raises serious doubts as to its compatibility with the internal market in the market
        for I2Ts.
5.2.3.    Competitive assessment – horizontal coordinated effects
5.2.3.1. Notifying Party’s view
(241) The Notifying Party considers that the Transaction will not lead to coordinated
        effects in I2Ts exectly for the same reasons as in the case of NVDs. Namely as
233 Thales’s response to Q2 Questionnaire to competitors, question 66
234 PCO S.A.’s response Q2 Questionnaire to competitors, question 66
235 Q1 Questionnaire to customers, question 46, Q2 Questionnaire to competitors, question 65
236 Q1 Questionnaire to customers, question 48, Q2 Questionnaire to competitors, question 67
237 Q1 Questionnaire to customers, question 49, Q2 Questionnaire to competitors, question 68
                                                      49
 ---pagebreak---         discussed in Section 5.1.3.1 it considers, first that the lack of product
        homogeneity renders implausible any implicit coordination, especially in a tender
        market. Second, the market is not transparent as it is to a large extent a bidding
        market, rendering any implicit collusion inherently unstable. Third, the market is
        driven by innovation given the technological features of the products. This feature
        too prevents the possibility of implicit and sustainable coordination for any
        significant period of time.
5.2.3.2. Commission’s assessment
(242) The Commission agrees with the Notifying Party largely for the same reasons as
        in the case of NVDs (Section 5.1.3.2)
(243) I2Ts are a heterogeneous product group with vmultiple parameters (i.e. not only
        price but also durability, resolution, noise-to-signal ratio, range, energy
        consumption), which makes it difficult for competitors to implicitly reach a
        common understanding on the terms of coordination.
(244) Maintaining the coordination also appears difficult for several reasons. First, the
        market is indeed not transparent, which makes montoring the deviations from the
        agreed terms of coordination difficult. Second, the lumpy nature of demand
        incentives firms to cheat on the agreed terms. Third, it is indeed the case that the
        market for I2T is characterised by innovation, which renders any tactic
        coordination unstable.
(245) In any event, the commitments offered by the Notifying Party remove the entire
        overlap in the night vision space and thus the Transaction will not give rise to any
        horizontal coordinated effects in any NVD market.
5.3.      I2Ts and NVDs – Non-horizontal effects
(246) Both Parties are active on the upstream market of I2Ts and the downstream
        market of image intensification NVDs, which raises the possibility of both input
        foreclosure and customer foreclosure.
5.3.1.    Input foreclosure
5.3.1.1. Notifying Party’s view
(247) The Notifying Party submits that the Transaction does not raise any vertical
        concerns because the combined entity, the shares of which are not exceeding [20-
        30]% on the relevant market, will not have either the ability or the incentive to
        engage in input foreclosure. More specifically, the Notifying Party considers that
        the combined entity will not be able to engage in input foreclosure (i.e., restricting
        competitors’ access to I2Ts) because it lacks the market power to do so. The
        Parties’ combined 2018 EEA market share for I2Ts amounts to no more than [20-
        30]%. Any supplier of NVDs will be able to easily source I2Ts from Photonis. In
        addition, the Transaction does not bring about any incentive to engage in input
        foreclosure. Photonis, which is not present on the downstream market for NVDs,
        would use any attempt at input foreclosure by the Parties to expand its market
        position upstream.
                                                50
 ---pagebreak--- 5.3.1.2. Commission’s assessment
(248) The Commission notes that, as discussed in Section 8.2.2. B), using the correct
        methodology, the combined entity’s market share is [20-30]%. According to the
        Non-Horizontal Merger Guidelines, non-horizontal concersn are unlikely, where
        the market share post-merger of the new entity in each of the market concerned is
        below 30 % and the post-merger HHI is below 2 000.238 Thus although [20-30]%
        is below one of the usual indicative thresholds, the post-merger HHI of [6000-
        7000] is significantly above 2000. Thus it is not the case that input foreclosure
        concerns cannot arise on account of the lack of market power. Indeed, the very
        concentrated nature of the upstream market does in fact result in a situation where
        an input foreclosure strategy could be both feasible and profitable. That is to say
        the merged entity is likely to have both the ability and the incentive to engage in
        such a strategy.
(249) This is because the merged entity is certainly able to raise input prices or decide
        not to deal with downstream NVD competitors. If it did so, the only other option
        for the NVD suppliers would be Photonis, which would give significant pricing
        power to Photonis as the latter would be the sole remaining supplier. This in turn
        could lead to significant price increases downstream, such that the overall impact
        of the strategy on the merged entity could be positive. This in turn implies that the
        merged entity would also have the incentive to engage in this strategy.
(250) Thus, the Commission considers that the Transaction raises serious doubts as to
        its compatibility with the internal market on the basis of non-horizontal effects,
        more precisely input foreclosure, in relation to I2Ts and image intensification
        NVDs.
5.3.2.    Customer foreclosure
5.3.2.1. Notifying Party’s view
(251) The Notifying Party submits that the Transaction does not give rise to any
        customer foreclosure risks. Both Parties are already vertically integrated and,
        therefore, the Transaction does not in practice remove any customer base for tube
        suppliers. Neither Party purchases any I2Ts from third parties. In any event, the
        Parties’ 2018 combined EEA shares for all NVDs is [10-20]%, meaning that a
        significant portion of the downstream customer base remains accessible for
        suppliers of I2Ts.
5.3.2.2. Commission’s assessment
(252) The Commission agrees with the Notifying Party. Although, as discussed in
        Section 7.2.2.2 B), based on the correct methodology the combined market share
        of the Parties is [30-40]% on the downstream market of image intensification
        NVDs both Parties self-supply I2Ts and thus the Transaction would not remove
        any customer from the sole remaining supplier, Photonis.
238 Non-Horizontal Merger Guidelines paragraph 25
                                                  51
 ---pagebreak--- (253) Consequently, the Commission considers that the Transaction does not lead to
        serious doubts as to its compatibility with the common market on account of
        customer foreclosure.
5.3.3.    Conglomarate concerns within NVDs and I2Ts
5.3.3.1. Notifying Party’s view
(254) The Notifying Party considers that the combined entity would not have the ability
        or incentive to foreclose its rivals by tying or bundling.239 Tenders do not tend to
        cover a broad range of products, but are narrow in scope and product-specific.
        Thus a bundling strategy would not be profitable. In addition, the range of
        products in the combined entity’s portfolio is matched by a number of
        competitors.
5.3.3.2. Commission’s assessment
(255) The Commission agrees with the Notifying Party. I2Ts and image intensification
        NVDs are unlikely to be bundled as they are in an upstream downstream
        relationship. Within NVDs, the discussion on demand substitution (Section
        5.1.1.1.D(a)) showed that tenders are indeed narrow in scope and product-
        specific, which was the reason why generally there was no demand substitution
        across the different segmentations. It follows that a bundling strategy is unlikely
        to be feasible or profitable. Further, in each segment where the merged entity
        would have some market power (image intensification NVDs, fusion NVDs)
        there are competitors such as Thales and Elbit that also have a wide product range
        and can produce similar bundles.
(256) In any event, the commitments offered by the Notifying Party remove the entire
        overlap in the night vision space and thus the Transaction will not give rise to any
        conglomerate effects in relation to I2Ts or any NVD market.
5.4.      Hand held video data links
5.4.1.    Market definition
5.4.1.1. Product market definition
        A) Introduction
(257) Hand Held Video Data Links (‘HH-VDLs’) fall into wider category of tactical
        communication devices, which are essentially products that provide secure
        telecommunications to soldiers in the battlefield or in areas in proximity to
        combat (so called forward areas).240 Tactical communication must have a low
        probability of detection and interception by a third party. Tactical communication
        devices transmit communications between users of the device using
        waveforms.241 Waveforms are a type of transmission mode that operate over a
        specific range of radio frequencies and use various encryption and decryption
239 Form CO, paragraph 263
240 Form CO, paragraph 310
241 Form CO, paragraph 311
                                                  52
 ---pagebreak---         solutions. There are many different types of waveforms and each type has its
        advantages and disadvantages. For example, a specific waveform can transmit
        data at high rates but may be limited in its geographical range. Thus the choice of
        waveform in a particular device will depend on factors such as such as, for
        example, distance to the intended recipient (e.g., ground-to-ground, air-to-ground,
        and beyond-line-of-sight) or bandwidth requirements (e.g., narrowband
        communications suitable for voice communication or high bandwidth
        communication suitable for transmission of data intensive video images).
(258) HH-VDLs were developed for air-to-ground high-bandwidth communications
        such as streaming video and are typically used in Intelligence, Surveillance, and
        Reconnaissance (‘ISR’) missions.242 HH-VDLs enable the transmission of high-
        bandwidth, real-time full motion video from aircraft, including drones, to soldiers
        on the ground.243 Full motion video in this sense is digital video data that is
        transmitted for real time reproduction on a multimedia system at a rate of no less
        than 25 frames per second. HH-VDLs allow for a faster and more widely
        disseminated ISR information than previous technologies, i.e. more soldiers can
        get ISR data directly whereas previously a satellite had to receive the information
        and then disseminate it to a soldier with a device capable of receiving and
        displaying satellite-transmitted video.244
(259) HH-VDLs are just one among the many tactical communication products, which
        include air-to ground hand held devices using narrow bandwidth suitable for
        voice transmission; ground-to-ground and satellite-to-ground hand held devices;
        manpack radios; radios fixed to vehicles such as naval, air and ground forces
        platforms (tanks, airplanes, helicopters, ships, jeeps etc); fixed systems; tactical
        communication networks and embedded high-grade encryption solutions. The
        Parties overlap only in HH-VDLs.245
        B) Notifying Party’s view
(260) The Notifying Party considers that the relevant product market for the purpose of
        assessing the Transaction is the market for HH-VDLs.246 However, the Notifying
        Party submits that the precise product market definition can be left open as the
        Transaction raises no competition concerns even under the most narrow market
        definition, being that of HH-VDLs.247
(261) The Notifying Party refers to the Commission’s precedent EADS,248 in which the
        Commission assessed secure radio communications systems used by armed forces
        and distinguished three separate markets for (i) mobile systems (carried by
        troops), (ii) transportable systems (carried by military vehicles), and (iii) fixed
        systems.249 However, the Notifying Party submits that the EADS precedent is too
        old and keeping the markets defined there without further distinctions would lead
242 Form CO, paragraph 313
243 Form CO, paragraph 313
244 Form CO, paragraph 315
245 Form CO, paragraph 308
246 Form CO, paragraph 336
247 Form CO, paragraph 340
248 Case M.1745 EADS, Commission decision of May 11, 2000.
249 Case M.1745 EADS, Commission decision of May 11, 2000, paragraph 202
                                                 53
 ---pagebreak---         to markets that are too wide.250 For example, systems carried by troops would
        include hand held as well as much larger devices that cannot be hand held (e.g.
        transceivers), although these are clearly not interchangeable from the point of
        view of troops. 251
(262) The Notifying Party submits that even within hand held devices, Harris’ ground
        radios never competed with L3’s HH-VDLs (i.e. they are not demand-
        susbtitutable) and while some ground radio suppliers entered the HH-VDL space
        such entry requires time and efforts that are not compatible with supply-side side
        substitution with the meaning of the Commission’s Notice on the definition of the
        relevant market.252
(263) Indeed, even this market (i.e. hand held communication devices) would
        encompass very different devices which are not substitutable for end-users
        (troops). This is because such devices operate on different waveforms which
        notably limit (i) the type of communications (e.g., ground-to-ground, air-to-
        ground, and beyond-line-of-sight satellite) and (ii) the type of information
        transmitted and/or bandwidth requirements (for instance, narrowband voice or
        data communications versus high-bandwidth data such as full motion video).253
        C) Commission’s decisional practice
(264) The Commission has not previously addressed HH-VDLs as such in its decisional
        practice. However, as the Notifying Party mentioned, in EADS,254 the
        Commission assessed secure telecommunications and secure radio
        communications systems used by armed forces and distingushed three separate
        markets for (i) mobile systems (carried by military personnel), (ii) transportable
        systems (carried by military vehicles), and (iii) fixed systems (i.e. non-
        transportable communication systems).255
(265) The Commission also considered previously military communication systems
        based on functionality, the platform type (ground, air, sea), and the force for
        which they are intended (i.e. air forces, ground forces and naval forces).256
        Namely, in the 2005 Finmeccania decisions, referring to the Alcatel257 precedent
        the Commission distinguished between communication systems used by ground
        forces and communications systems used by naval forces. 258 In these decisions
        the Commission noted that the market investigation confirmed the distinction
        based on the platform type (ground, sea, air) or based on the force for which they
        are intended (i.e. naval, ground and air forces) and that respondents also argued
250 Form CO, paragraphs 327-335
251 Form CO, paragraph 334
252 Form CO, paragraphs 328 and 331
253 Form CO, paragraph 329
254 Case M.1745 EADS, Commission decision of May 11, 2000.
255 Case M.1745 EADS, Commission decision of May 11, 2000, paragraph 202.
256 Case M.3649 Finmeccanica / Baes Avionics & Communications, Commission decision of March 14,
    2005, paragraphs 12-15; and Case M.3735 Finmeccanica / AMS, Commission decision of March 14,
    2005, paragraphs 12-15.
257 Case M.1121 Alcatel / Thomson SA Thomson CSF
258 Case M.3649 Finmeccania / Baes Avionics & Communications, Commission decision of March 14,
    2005.
                                                   54
 ---pagebreak---       for narrower segmentations with regard to some equipment. However, the
      Commission ultimately left the market definition open.
      D) Commission’s assessment
(266) The Commission will consider a number of distinctions mentioned by the
      Notifying Party in the Form CO and the precedents. Below the Commission will
      discuss the possible distinctions as follows:
         i. Distinction between tactical and non-tactical communication equipment;
        ii. Within tactical communication equipment, distncton between land, sea and
            air communication equipment, i.e. equipment used by ground, naval and air
            forces;
      iii. within tactical communication equipment used by ground forces, distinction
            between devices carried by military personnel, platforms and fixed
            equipment;
       iv. within devices carried by military personnel (tactical communication, ground
            forces) distinction between hand held devices and other devices;
        v. within hand held devices (tactical communication, ground forces, devices
            carried by military personnel), distinction between devices for ground-to-air,
            air-to-ground and satellite-to-ground communication; and
       vi. within air-to-ground devices (tactical communication, ground forces, devices
            carried by troops, handheld devices) between low and high bandwidth
            capabilities.
(267) Additional distinctions, e.g. those within tactical equipment used by naval forces,
      or within tactical equipment used by ground forces and carried by platforms etc.
      are not of interest as in those segments there is no overlap between the Parties in
      the EEA.
(268) Following the same approach as in the case of NVDs Section 5.1.1., the
      Commission will first consider demand substitutability, to be followed by supply-
      side assessment.
(269) As a preliminary remark the Commission notes that the responses on demand side
      substitution show a similar pattern across all distinctions. Namely, similar to
      NVDs (Section 5.1.1.1(D)), it appears that there is no demand-side substitution
      across the distinctions mentioned, in particular because the devices in the
      different categories have different intended uses or very different performance
      metrics on different parameters, which in turn leads to different uses. Further,
      customers always appear to specify in detail in their tenders the devices sought,
      which implies that only devices complying with those specifications are
      compliant offers and devices with different specifications are not substitutable
      from a demand perspective. This again reflecs the fact that in bidding markets for
      specialized goods, as is the case for HH-VDLs, the tenders (i.e. the demand side)
      are often highly specific such that the different but related products are not
      eligible. As a result, the market definition tends to turn on supply-side side
      considerations, such as, for example, the ability of suppliers to adjust their
                                                55
 ---pagebreak---          production to meet the various tender specifications or to produce the related
         product.
         (a) Demand side substitution
         a.i) Distinction between tactical communication and non-tactical communication
         devices and systems
(270) Tactical communication devices systems are used by the military to provide
         secure communications to soldiers in the battlefield or in areas in proximity to
         combat (so called forward areas).259 Tactical communications is usually
         contrasted with strategic communications, which are backhaul communications
         that form the backbone communications infrastructure and consist of
         predominantly stationary assets.
(271) None of the competitors considered that tactical communication devices/systems
         and non-tactical (strategic) communication devices/systems would be
         interchangeable.260 Safran indicated that tactical and non-tactical communication
         devices must comply with different operational patterns and requirements such as
         COMSEC (communication security) performance levels, while Leonardo noted
         that they have different functional and operational requirements and costs.261
         Thales considered that there is no interchangeability due to at least five different
         factors, including i) frequency band, bandwidth and related waveform; ii) security
         and encryption (NATO and other national security restrictions); iii) Dedicated
         standards; iv) System integration on a platform (soldier, vehicle, shelter); and v)
         operational mission requirements such as range, autonomy etc.262
(272) A large majority of customers also considered that tactical and non-tactical
         communication systems are not interchangeable as the two types of device have
         different uses and different performance levels.263
(273) The Comission therefore considers that there is no demand substitution across
         tactical and non-tactical communication systems and devices. From a demand
         side perspective, a further sub-segmentation of communication devices depending
         on their tactical/non-tactical characteristics is therefore possible. However, for the
         purpose of this decision, it can be left open as the Transaction would not raise
         serious doubts as to its compatibility with the internal market under any plausible
         market definition.
         a.ii) Distinction between land, sea and air communication systems and devices
         (within tactical communications)
(274) As noted above in Section 5.4.1.C, in the Finmeccania cases the Commission
         drew a distinction between military communication systems based on the
         platform (ground, air, sea) and the force for which they are intended (e.g., ground
         forces, navy, air forces), but without concluding that separate markets existed.
259  Form CO, paragraph 310
260 Response to Q2 questionnaire to competitors (II), question 3.
261 Responses of Safran and Leonardo to Q2 questionnaire to competitors (II), question 3
262 Thales’s response to Q2 questionnaire to competitors (II), question 3.
263 Responses to Q1 questionnaire to customers, question 53
                                                        56
 ---pagebreak--- (275) A large majority of customers and competitors confirmed that communication
        equipment used by different military forces (i.e., land, sea and air) is not
        interchangeable.264 United Technologies Corporation considered that the
        communication needs and equipment specifications are different in each domain
        (land, air, sea),265 while WB Electronics pointed out that communication
        equipment used by naval forces require extended ranges and thus transmission
        power.266 Safran emphasized that land, sea and air communication systems must
        comply, with different operational patterns and requirements.267 Thales referred to
        the same factors as in the case of the distinction between tactical and non-tactical
        communication equipment, i.e. differences in frequency band, encryption,
        standards, platform integration and operational mission requirements (range,
        autonomy).268 Thus, in Thales’s opinion there is significant variance in these
        factors not only between tactical and non-tactical communication equipment but
        also between equipment used by ground, naval and air forces. B.M.A.S.R.L
        submitted that the different forces use different applications and the devices need
        to meet different performance levels.269
(276) The Commission therefore considers that there is no demand-side substitutability
        across tactical communication devices and systems used by different forces
        (ground, naval and air forces). From a demand side perspective, a further sub-
        segmentation of tactical communication devices depending on the use by different
        forces is therefore possible. However, for the purpose of this decision, it can be
        left open as the Transaction would not raise serious doubts as to its compatibility
        with the internal market under any plausible market definition.
        a.iii) Distinction between devices carried by military personnel, platforms and
        fixed equipment
(277) As noted above in Section 5.4.1.C, in the EADS case the Commission assessed
        telecommunications and secure radio communications systems used by armed
        forces and considered three separate segments, namely (i) mobile systems (carried
        by troops); (ii) transportable systems (carried by military vehicles); and (iii) fixed
        systems.
(278) A majority of respondents considered that this distinction remains relevant
        today270 and a very large majority considerd that the distinction is relevant
        specifically witing tactical communication used by ground forces.271 For example,
        Italy’s Land Armament Directorate considered that mobile, transportable and
        fixed equipment are very different applications with different costs and
264 Responses to Q1 questionnaire to customers, question 52, Q2 questionnaire to competitors (II),
    question 1
265 Response of United Technology Corporation to Q2 questionnaire to competitors (II), question 1
266 Response of WB Electronics to Q2 questionnaire to competitors (II), question 1
267 Safran’s response to Q2 questionnaire to competitors (II), question 1
268 Thales’s response to Q2 questionnaire to competitors (II), question 1
269 Response of B.M.A.S.R.L to Q1 questionnaire to customers, question 52
270 Responses to Q1 questionnaire to customers, question 54.1 and Q2 questionnaire to competitors (II),
    question 5.1
271 Responses to Q1 questionnaire to customers, question 54.2 and Q2 questionnaire to competitors (II),
    question 5.2 Q2 questionnaire to competitors (II), question 5.2
                                                        57
 ---pagebreak---         constraints.272 Safran considered that the segmentation applies, even if
        interoperability needs to be ensured between mobile and transportable systems.273
(279) Furthermore, the market feedback shows that the weight and size of tactical
        communication equipment is important to its demand-side substitutability – as
        discussed in Section 5.4.1.1.D.a.iv) below, even within the category of equipment
        carried by troops, hand held devices are not considered substitutable from a
        demand perspective with larger devices such as manpack radios.274 This is
        consistent with the market feedback on the distinction between mobile,
        transportable and fixed systems and thus confirms that there is no reason to depart
        from the precedent although the categories of mobile, transportable and fixed
        systems can be subject to further distinctions.
(280) Thus the Commission considers that within tactical communication systems used
        by ground forces, there is no demand-side substitutability between mobile
        (carried by troops), transportable (carried by vehicle) and fixed systems. From a
        demand side perspective, a further sub-segmentation of tactical communication
        devices by ground forces into mobile, transportable and fixed systems is therefore
        possible. However, for the purpose of this decision, it can be left open as the
        Transaction would not raise serious doubts as to its compatibility with the internal
        market under any plausible market definition.
        a.iv) Distinction between hand held and other devices
(281) As already mentioned in 5.4.1.1.D.a.v) above, the market feedback clearly
        indicated that within the category of equipment carried by troops hand held
        devices are not considered substitutable from a demand perspective with larger
        devices such as manpack radios.275 Indeed it appers that a combat troop’s
        mobility and fighting capacity would be significantly reduced if he had to carry a
        large manpack radio. As both Thales and Safran noted, there is a trade-off
        between hand held and manpack radios: hand held radios are small, light and use
        little energy but their range and performance is limited, whereas the opposite
        applies to manpack radios in that they are more powerful and longer range at the
        expense of being heavy and requiring more energy.276 Leonardo made essentially
        the same point “Handheld and manportable are not considered interchangeable
        in the usual operational scenarios, because of their different SWaP (size weight
        and power) and communication functionalities.”277 as did United Corporation
        Technologies: “The capability requirements for a handheld versus a larger device
        such as manpack is different due to the support of multiple communication
        channels and the distance of communication needed which increases the
        complexity, power and the size of the radio.”278 This trade-off results in different
        intended uses as combat troops cannot use manpack radios whereas
272 Response of Italy’s Land Aramament Directorate to Q1 questionnaire to customers, question 54.1
273 Safran’s response to
274 Responses to Q1 questionnaire to customers, question 55 and Q2 questionnaire to competitors (II)
    question 6
275 Responses to Q1 questionnaire to customers, question 55 and Q2 questionnaire to competitors (II)
    question 6
276 Safran’s and Thales’s responses to Q1 questionnaire to customers, question 55
277 Leonardo’s response to Q2 questionnaire to competitors (II) question 6
278 Response of United Corporation Technologies to Q2 questionnaire to competitors (II) question 6
                                                       58
 ---pagebreak---         communication personnel cannot use hand held radios for long range
        communication.
(282) Based on the above, the Commission considers that within the category of
        communication systems carried by troops (tactical communication, ground
        forces) there is no demand substitution between hand held devices and larger
        devices such as manpack radios. From a demand side perspective, a further sub-
        segmentation of communication systems carried by troops into hand held devices
        and larger devices such as manpack radios is therefore possible. However, for the
        purpose of this decision, it can be left open as the Transaction would not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
        a.v) Distinction based on sender/receiver type - ground-to-air, air-to-ground and
        satellite-to-ground devices
(283) Virtually all respondents to the market investigation considered that within hand
        hand held devices (tactical communication, ground forces, devices carried by
        troops) devices that communicate air-to-ground, ground-to-ground and beyond
        line-of-sight satellite to ground are not interchangeable.279 Italy’s Land Armament
        Directorate considered that these devices are used in different tactical scenarios
        and hence they are not interchangeable.280 Safran submitted that “Such
        communication devices must comply with different operational use cases,
        performance levels relating to the range, waveform, modulation, etc.”281
        Leonardo explained that “Air-ground (ground based) and beyond line of site hand
        held radios are dedicated equipment with high complexity and high-grade
        security requirements and consequent at high cost. Ground to ground radios are
        more massively distributed to the soldiers/riflemen, thus have a significantly
        lower price.”282 Thales highlighted that these devices incorporate different
        functions.283
(284) Moreover, the market feedback shows that customers typically include in their
        tender specifications the type of sender / receiver for the tactical handheld
        communication device requested (i.e., whether it should be air-to-ground, ground-
        to-ground etc.).284 As discussed in Section 5.1.1.1, this ipso facto excludes
        demand-side substitution as a ground-to-ground device will not be accepted in a
        tender seeking air-to-ground devices.
(285) Thus the Commission considers that within hand hand held devices (tactical
        communication, ground forces, devices carried by troops), air-to-ground, ground-
        to-ground and beyond line-of-sight satellite-to-ground devices are not demand-
279 Responses to Q1 questionnaire to customers, question 56 and Q2 questionnaire to competitors (II),
    question 8
280 Response of Italy’s Land Armament Directoarte to Q1 questionnaire to customers, question 56
281 Safran’s response to Q2 questionnaire to competitors (II), question 8
282 Leonardo’s response to Q2 questionnaire to competitors (II), question 8. Leonardo also noted that the
    waveform could be changed by changing the software but that this does not result substitutability from
    an operational point of view
283 Thales’s response to response to Q2 questionnaire to competitors (II), question 8
284 Reponses to Q1 questionnaire to customers, question 57 and Q2 questionnaire to competitors (II),
    question 9.
                                                       59
 ---pagebreak---         substitutable. From a demand side perspective, a further sub-segmentation of
        hand held devices into air-to-ground, ground-to-ground and beyond line-of-sight
        satellite to ground devices is therefore possible. However, for the purpose of this
        decision, it can be left open as the Transaction would not raise serious doubts as
        to its compatibility with the internal market under any plausible market definition.
        a.vi) Distinction between low and high bandwidth capabilities
(286) The market feedback was unanimous that within hand held air-to-ground devices
        (tactical communication, ground forces, devices carried by troops), there is no
        interchageablity between devices based on data bandwidth, i.e. between devices
        designed for narrowband communications (permitting the exchange of voice, text
        and low quality images) and those designed for high bandwidth data
        communications (permitting the exchange of full motion video and high quality
        images).285
(287) Respondents pointed out that the two types of devices use different waveforms
        and modulation solutions and thus occupy different frequencies.286 Further, the
        narrowband and wideband features are required for different operational
        scenarios,287 which excludes interchangeability. In addition, respondents
        submitted that narrowband and highbandwith devices require different software
        and hardware capabilities.288
(288) Respondents also confirmed with near uninamity that high and low bandwidth
        devices are rarely in competition with each other having regard to the difference
        of users (e.g. special forces or ordinary troops) and the difference in costs and
        functionalities.289
(289) Thus the Commission considers that within the category of hand held air-to-
        ground devices ((tactical communication, ground forces, devices carried by
        troops) there is no demand substation across high and low bandwidth devices i.e.
        across devices capable of transmitting only voice, text and low quality image and
        devices capable of transmitting full motion video and high quality images. In
        other words, HH-VDLs (high bandwidth, air-to-ground devices) are not
        substitutable from a demand perspective neither with low bandwidth hand held
        devices, nor with ground-to-ground or satellite-to-ground hand held devices.
        From a demand side perspective, a further sub-segmentation of hand held air-to-
        ground devices depending on the bandwidth is therefore possible. However, for
        the purpose of this decision, it can be left open as the Transaction would not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
285 Reponses to Q1 questionnaire to customers, question 58 and Q2 questionnaire to competitors (II),
    question 11
286 Thales’s and Safran’s responses to Q1 questionnaire to customers, question 58
287 Leonardo’s response to Q2 questionnaire to competitors (II), question 11
288 Response of United Technologies Coroporation to Q2 questionnaire to competitors (II), question 11
289 Reponses to Q1 questionnaire to customers, question 59 and Q2 questionnaire to competitors (II),
    question 12
                                                       60
 ---pagebreak---         (b) Supply side substitution
        b.i) Distinction between tactical communication and non-tactical communication
        devices and systems
(290) From a supply side perspective, a majority of competitors was of the view that
        that switching production between tactical and non-tactical communications
        systems would imply significant technical difficulties.290
(291) As United Technologies Corporation explained “due to the constraints and
        security requirement differences between these communication devices/systems,
        switching production from tactical to non-tactical would require a different
        manufacturing process and know-know especially from a security and
        exportability aspect and military versus commercial use.”291 It was also
        mentioned that manufacturing assets are very different even if the technologies
        are similar.292
(292) These views appear to be in line with the fact that tactical and non-tactical
        communication devices have different costs, use different frequency bands,
        waveforms, encryption and standards.293 Especially the different costs and the
        different technologies (standards, encryption) suggest different production
        processes and know-how.
(293) Based on the above feedback it is highly unlikely that a supplier without any
        experience in manufacturing tactical communication equipment could swiftly
        start to produce tactical equipment in response to a tender without significant
        investments. Thus the Commission considers that there is no supply-side
        substitution between tactical and non-tactical communication devices and
        systems. However, for the purpose of this decision, it can be left open as the
        Transaction would not raise serious doubts as to its compatibility with the internal
        market under any plausible market definition.
        b.ii) Distinction between land, sea and air communication systems and devices
(294) The market feedback shows that switching production between the manufacture
        of communication devices for ground, for naval and for air force communications
        would imply significant technical difficulties and/or costs. No respondents
        considered that the switch could be made without incurring significant technical
        difficulties and/or costs.294
(295) Safran submitted that “Waveforms can differ from one environment to another
        (for example ground to ground communications are not the same as ground to
        air). Therefore, this would need specific production capacities and additional
        cost, as well as different system integration needs to take into account.”295 Thales
        considered that “Requirements for each domain in terms of performance,
290 Response to Q2 questionnaire to competitors (II), question 4
291 Response to United Technologies Corporation Response to Q2 questionnaire to competitors (II),
    question 4
292 Leonardo’s response to Response to Q2 questionnaire to competitors (II), question 4
293 See Section Section 7.1.1.4 a)
294 Responses to Q2 questionnaire to competitors (II), question 2
295 Safran’s response to Q2 questionnaire to competitors (II), question 2
                                                       61
 ---pagebreak---         compactness, components, certification, can impact significantly the
        manufacturing process and tools depending on the domain, in particular for aero
        products”296        United Technologies Corporation submitted that “The
        manufacturing process and know-how required to manufacture communication
        devices is dependent on which domain (ground, sea or air) they operate from as
        they differ based on the type of platforms (e.g. ship, aircraft, land vehicle) to be
        integrated on and communication requirements (e.g. distance, power, latency)
        vary due to domain differences.”297
(296) These responses indicate significate differences in the relevant production
        processes, which are unlikely to be overcome within a short period of time and at
        little or no cost.
(297) Consequently the Commission considers that there is no supply-side substitution
        across tactical communication devices and used by ground, naval and air forces.
        However, for the purpose of this decision, it can be left open as the Transaction
        would not raise serious doubts as to its compatibility with the internal market
        under any plausible market definition.
        b.iii) Distinction between devices carried by military personnel, platforms and
        fixed equipment
(298) As exlplained in Section 5.4.1.1.D(a), respondents to the market investigation
        considered that the Commission precedent establishing the distinction between
        mobile systems (carried by troops), transportable systems (carried by military
        vehicles) and fixed systems (EADS,298 ) is still valid. This also implies that within
        the category of tactical communication devices used by ground forces there is no
        supply-side substitution across mobile, transportable and fixed systems.
(299) Further, competitors also confirmed that even within mobile systems (carried by
        troops), switching production between hand held devices and larger and heavier
        devices such as manpack radios would imply siginifcant difficulties and costs.299
        It follows that switching production between products that are much more
        divergent in size, weight, performance and specifications also cannot be done
        swiftly and with minimal costs and especially no sunk costs.
(300) Thus the Commission considers that within the category of tactical
        communication devices used by ground forces there is no supply-side substitution
        across mobile, transportable and fixed systems. However, for the purpose of this
        decision, it can be left open as the Transaction would not raise serious doubts as
        to its compatibility with the internal market under any plausible market definition.
        b.iv) Distinction between hand held devices and other devices
(301) As already discussed in Section 5.4.1.1(b.iii), competitors considered that
        switching production between hand held devices and larger and heavier devices
        such as manpack radios would imply siginifcant difficulties and costs.
296 Thales’s response to Q2 questionnaire to competitors (II), question 2
297 Response of United Technologies Corporation to Q2 questionnaire to competitors (II), question 2
298 Case M.1745 EADS, Commission decision of May 11, 2000.
299 Responses to Q2 questionnaire to competitors (II), question 7
                                                        62
 ---pagebreak--- (302) Leonardo explained that “Manufacturing processes of the two types of equipment
        are usually different.”300 Safran considered that “This would indeed imply
        significant technical difficulties and additional costs.”301 This was echoed by
        United Technologies Corporation.302
(303) Consequently, the Commission considers that within within the category of
        commincation systems carried by military personnel (tactical communication,
        ground forces) there is no supply substitution between hand held devices and
        larger devices such as manpack radios.
        b.v) Distinction based on sender/receiver type (ground-to-air, air-to-ground and
        satellite-to-ground devices)
(304) The majority of competitors considered that switching production would imply
        significant technical difficulties and/or costs.303 Safran considered that switching
        would imply significant difficulties and costs while United Technologies
        Corporation submitted that the know-how and the manufacturing processes are
        different.304
(305) These views appear to be in line with the fact that these devices have different
        performance levels and different complexity (air-to-ground and satellite to ground
        being signficiantly more complex than ground-to-ground)305
(306) Further, there are differences in the supplier landscape as well. For example, as
        discussed in Section 5.4.2.2. Harris is the market leader in ground-to-ground
        radios and L3 is not present in this segment. By contrast in HH-VDLs, which is
        an air-to-ground device L3 is the market leader and Harris has minimal presence.
        Different market strength in different segments also indicates that suppliers
        cannot switch effortlessly between these segments.
(307) Thus the Commission considers that within hand hand held devices (tactical
        communication, ground forces, devices carried by troops), air-to-ground, ground-
        to-ground and beyond line-of-sight satellite to ground devices are not supply-
        substitutable. However, for the purpose of this decision, it can be left open as the
        Transaction would not raise serious doubts as to its compatibility with the internal
        market under any plausible market definition.
        b.vi) Distinction between low and high bandwidth devices
(308) As regards the distinction between high and low bandwidth devices (within air to
        ground hand held devices - tactical communication, ground forces, devices
        carried by troops) from a supply perspective, responses were mixed. Safran
        considered that switching the production between these device types would
300 Leonardo’s response to Q2 questionnaire to competitors (II), question 7
301 Safran’s response to Q2 questionnaire to competitors (II), question 7
302 Response of United Technologies Coroporation to Q2 questionnaire to competitors (II), question 7
303 Reponses to Q2 questionnaire to competitors (II), question 10
304 Responses of Safran and United Technologies Corporation to Q2 questionnaire to competitors (II),
    question 10
305 See Section 5.4.4.1.(a.v)
                                                       63
 ---pagebreak---         involve significant time and costs,306 while Thales and United Technologies
        Coproration considered that the production process and know-how is similar for
        both types.307 Leonardo was of the view that “Manufacturing is not strictly
        different, but the development and the basic know how at the basis of it is largely
        different. Please also consider that, for instance, also in the case of some radio
        components to be used in the production there are differences (e.g. in terms of
        bandwidth management capability).”308
(309) As the results of the market investigation are inconclusive, the Commission
        leaves the question open. However, this does not affect the competitive
        assessment as the Transaction does not raise serious doubts regardless of this
        distinction.
        (c) Conclusion on product market definition
(310) Based on the above the Commission considers that, while many possible
        distinctions may exist, for the purpose of this decision there is no need to
        conclude on any of those possible distinctions given that the Parties’ activities
        only overlap in the possible market for (i) HH-VDLs; and (ii) hand held tactical
        air-to-ground communication devices used by ground forces (hereinafter these
        will be referred to as “HH A2G” devices) and the Transaction does not give rise
        to serious doubts as to its compatibility with the internal market in these markets.
5.4.1.2. Geographic market definition
        A) Notifying Party’s view
(311) The Notifying Party considers that the relevant geographic market is at least
        EEA-wide, for the similar reasons as in the case of NVDs. First, it points out that
        HH-VDLs have a very low transport-cost-to-price ratio and Harris, L3, and their
        competitors sell HH-VDLs across the EEA irrespective of the location of the
        production facilities. Second, it submits that EEA customers rarely if ever source
        their HH-VDLs on a national basis. Third, the Notifying Party considers that there
        are no regulatory or national security restrictions preventing a suppliers present in
        one EEA country from being active throughout the EEA. Just like in the case of
        NVDs the Notifying Party notes that certain tenders de facto eliminate US
        suppliers such as the Parties, as they require suppliers not to be subject to ITAR.
        To the extent any tender within the EEA would be limited to national or European
        producers only, then neither L3 nor Harris would be able to participate, entailing
        that the Transaction is neutral with respect to any such tenders.
306 Safran’s response to Q2 questionnaire to competitors (II), question 14
307 Responses of Thales and United technologies corporation to Q2 questionnaire to competitors (II),
    question 14
308 Leonardo’s response to Q2 questionnaire to competitors (II), question 14
                                                       64
 ---pagebreak---          B) Commission’s decisional practice
(312) The Commission previously found that the markets for secure communications
         are national in scope, even though it noted a certain development towards an
         EEA-wide market, resulting from common defence programs and alliances.309
         C) The Commission’s assessment
(313) The results of the market investigation were similar to the results for NVDs and
         thus broadly confirmed the views put forward by the Notifying Party.
(314) A large majority of customers and competitors agreed that HH-VDLs used in
         different Member States are not significantly different in terms of customer
         preference, technical specifications, and regulatory requirements such that HH-
         VDLs intended for one Member State can be used in another Member State.310
         Italy’s Land Armament Directorate explained that there are very few producers of
         HH-VDL and the devices are broadly comparable.311 Thales submitted that “HH-
         VDLs from any EEA country can be used in any EEA country.”312 While Safran
         mentioned that certain national specififcities exist, it considered that HH-VDLs
         are not significantly different across the EEA as a common body of requirements
         apply. 313
(315) Moreover, United Technologies Corporation also was of the view that HH-VDLs
         are not significantly different across the EEA and while it raised that there can be
         certain “tailoring requirements that vary country to country”, the same suppliers
         bid in all EEA countries and these suppliers address these specific security related
         requirements.314 This suggests that to the extent there are some demand
         differences, suppliers can adjust their products to meet these specific
         requirements with relative ease.
(316) The respondents confirmed that their responses apply not only to HH-VDLs but
         also to the product market encompassing all air-to-ground hand held devices
         regardless of data bandwidth.315
(317) Competitors also confirmed that the same competitors are active in all EEA
         Member States,316 (with regard to both alternative product markets, i.e. HH-VDLs
         and hand held air-to-ground devices317 regardless of data bandwidth) which
         suggests that the supply landscape is similar across the EEA.
(318) A majority of the respondents considered that, there are no regulatory or national
         security restrictions that would prevent suppliers of HH-VDLs active in one EEA
309 Case M.1745 EADS, Commission decision of May 11, 2000, para. 204.
310 Q1 Questionnaire to customers, question 64, Q2 Questionnaire to competitors (II), question 20
311 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 64
312 Thales’s response to Q2 Questionnaire to competitors (II), question 20
313 Safran’s response to Q2 Questionnaire to competitors (II), question 20
314 Response of United Technologies Corporation to Q2 Questionnaire to competitors (II), question 20
315 Q1 Questionnaire to customers, question 64.2, Q2 Questionnaire to competitors (II), question 20.3
316 Q2 Questionnaire to competitors (II), question 21
317 Outside the product definition section the term “hand held air-to-ground devices” is a shorthand for
    hand held air-to-ground devices within the larger group of tactical communication devices used by
    ground forces, devices carried by troops.
                                                      65
 ---pagebreak---         Member State from being active in another EEA Member State.318 L.F.E. SAS
        mentioned that there are “No restrictions for NATO”319, while Bristol trust
        submitted that the market for HH-VDLs is an “open market”.320 Italy’s Land
        Armament Directorate mentioned that “No, the the HH-VDLs procured by Italian
        MoD are compliant with some of international military and/or civilian
        standards”321. Thales submitted that “Despite normal export control rules, there
        are no regulatory or national security restrictions which prevents a European
        supplier from supplying different EU Member States.”322 Respondents confirmed
        that their responses apply not only to HH-VDLs but also to the product market
        encompassing all air-to-ground hand held devices regardless of data bandwidth.323
(319) Some exceptions mentioned. First, US Type 1 cryptography capable devices can
        only be sold, including within the EEA, only with the approval of the US
        government. Such equipment is used sometimes by certain Member States, for
        example the United Kingdom. This has the effect that in some cases US type 1
        cryptography is required in the United Kingdom, which then excludes some
        European suppliers as they lack access to that technology.324 However, the effect
        of this exception is limited in scope (concerns only the United Kingdom and only
        in certain tenders)
(320) Second, ITAR was mentioned in this respect as a regulatory restriction that
        prevents US companies from being active in certain EEA tenders. In this regard
        the Commission agrees with the Notifying Party that such restriction results in a
        de facto exclusion of US suppliers in EEA tenders. This would normally justify
        separating an ITAR market (firms active in the EEA without US suppliers) and a
        non-ITAR market (all suppliers active in the EEA) but in the current case this is
        not important as both Parties are subject to ITAR.
(321) Therefore, on the basis of the above, the market for HH-VDLs and for HH A2Gs
        appears to be at least EEA-wide.
(322) As regards a larger than EEA-market, several respondents mentioned restrictions
        stemming from NATO membership. Safran considered that competition is
        “Unrestricted among NATO countries”,325 while Thales submitted that “NATO
        security restrictions prevent non NATO country’s supplier to compete in NATO
        countries market “326 Similarly, United Technologies Corporation also submitted
        that NATO security restrictions based on NATO standards for crypto and
        waveform interoperability can preclude suppliers from outside the EEA/NATO
        from being active in tenders in the EEA.327
318 Q1 Questionnaire to customers, question 65, Q2 Questionnaire to competitors (II), question 22
319 Response of L.F.E. SAS to Q1 Questionnaire to customers, question 65
320 Response of Bristol Trust to Q1 Questionnaire to customers, question 65
321 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 65
322 Thales’s response to Q1 Questionnaire to customers, question 65
323 Q1 Questionnaire to customers, question 65.2, Q2 Questionnaire to competitors (II), question 22.2
324 Thales’s response to Q1 Questionnaire to customers, question 65
325 Safran’s response to Q1 Questionnaire to customers, question 66
326 Thales’s response to Q1 Questionnaire to customers, question 66
327 Response to United Technologies Corporation to Q2 Questionnaire to competitors (II), question 23
                                                       66
 ---pagebreak--- (323) Indeed, just like in the case of NVDs the Commission considers that firms that
        supply the militiaries non-NATO or non-NATO ally militaries (Russia, China,
        India) cannot be considered constraints in NATO and NATO-ally countries,
        including the EEA. Thus the geographic market cannot be larger than NATO and
        NATO ally countries. On the other hand the responses indicate that the market
        could also be larger than EEA or, alternatively, the market is EEA-wide but
        constraints outside the EEA but within the bloc of NATO and NATO ally
        countries need to be acknowledged. The presence of the Parties in the EEA as a
        competitive constraint is a clear demonstration of this point.
(324) Restrictions preventing a NATO-wide markets (including NATO-ally countries)
        were also mentioned. These included ITAR; however, as discussed before, this is
        of limited relevance. Further, Thales reiterated its point that US Type 1
        cryptography capable devices can only be sold only with the approval of the US
        government. This restriction is likely to have bigger significance in a NATO wide
        market in comparison with an EEA-market as such a market would include also
        the US.
(325) Overall, the two most appropriate approaches are either an EEA-wide market,
        including the acknowledgement of constraints by firms based in the bloc of
        NATO and NATO-ally countries or a wider market corresponding to the bloc of
        NATO and NATO-ally countries. Due to the restriction resulting from US Type 1
        cryptography, the former approach appears more appropriate.
(326) Thus, the Commission considers that the geographic market is EEA-wide with the
        qualification that firms based outside the EEA but within the bloc of NATO and
        NATO ally countries can, just like the Parties, also be competitive constraints.
        This applies to both relevant product markets i.e. to HH-VDLs and to HH A2Gs.
5.4.2.    Competitive assessment – horizontal non-coordinated effects
5.4.2.1. Notifying Party’s view
(327) The Notifying Party submits that the Transaction does not give rise to any
        competition concerns in the HH-VDL space. Harris is an insignificant player
        whose market shares do not exceed [0-5]% over the last three years. L3’s market
        shares fluctuate from one year to another, which illustrates the characteristics of a
        competitive tender market and evidences that the combined entity will be
        constrained by global established players such as Thales, Elbit, Rohde-Schwartz
        and Leonardo. Other than in 2017, Thales and Elbit had a larger share than L3. In
        any event, Harris and L3 are not close competitors in the EEA. Indeed, the Parties
        have not competed against each other in any HH-VDL tenders in the EEA in the
        last three years.
5.4.2.2. Commission’s assessment
        A) Relevant characteristics of bidding markets
(328) Both the market for HH-VDLs and the market for HH A2Gs are bidding markets.
        Accordingly, contrary to the Notifying Party’s opinion, this fact does not imply
        that a low number of suppliers is sufficient to guarantee a competitive outcome.
                                                 67
 ---pagebreak---         Consequently it is not the case that a merger cannot have negative effects on such
        markets.328
        B) Market shares
(329) For the reasons discussed in relation to image intensification NVDs, notably
        lumpy demand in the context of bidding markets, market shares on the basis of a
        five year period are also the best indicators of market power. The relevant market
        shares for both plausible relevant markets are indicated below.
        Table 4 – Market shares in HH-VDLs
                           Company                        Market Share (EEA) 2014-2018
         Harris                                                       [0-5]%
         L3                                                         [20-30]%
         Combined                                                  [20-30]%
         Thales                                                     [10-20]%
         Elbit                                                      [10-20]%
         Rohde Schwartz                                              [5-10]%
         Leonardo                                                      [5-10]
         Others                                                     [20-30]%
        Source: Form CO, Table 26
        Table 5 - Market shares in HH A2Gs
                           Company                        Market Share (EEA) 2014-2018
         Harris                                                     [30-40]%
         L3                                                           [0-5]%
         Combined                                                  [40-50]%
         Thales                                                      [5-10]%
         Elbit                                                       [5-10]%
         Leonardo                                                    [5-10]%
         Rohde Scwartz                                                [0-5]%
         Others                                                     [30-40]%
        Source: Notifying Party’s response to RFI 6, Table 5
(330) In both relevant markets the Transaction gives rise to a horizontally affected
        market. However, in both cases the Transaction has a small effect. In the case of
        HH-VDLs the increment is a mere [0-5]% as Harris is a small market player. In
        this market L3 is the leader and the largest player but it is constrained by several
        significant competitors such as Thales, Elbit, Rohde Schwartz and Leonardo. The
        market also comprises a large number of other competitors that together add up to
        [20-30]% market share.
(331) The reverse applies in the case of the relevant market for HH A2Gs. Harris is the
        market leader and L3 is small competitor with only [0-5]% market share. This
        market also comprises a number of small firms with small market shares, such as
        Rohde Schwartz ([0-5]%) and “others” ([30-40]%), the latter of which includes
        Mesit ([0-5]%), WB ([0-5]%), Kongsberg ([0-5]%) Bittium ([0-5]%) among
        others. The more significant competitors are Thales, Elbit and Leonardo, all of
        which will continue to constrain the merged entity. In summary, the effect of the
        Transaction is the same as the disappearance of one of the smaller firms.
328 See Section 5.1.2.2.A(a)
                                                  68
 ---pagebreak--- (332) Thus, in both cases the Transaction leads to the disappearance of a small
          competitor with limited market share and in both cases at least three significant
          competitors remain. The reason for the radically different market positions of the
          Parties is that HH-VDLs, which are high data bandwidth devices capable of
          transmitting full motion video, are more niche products than low data bandwidth
          radios in the air-to-ground segment. HH A2Gs (which transmit voice, text and, at
          best, low quality images) are more traditional tactical radios with air-to-ground
          capabilities and more widely distributed among soldiers.
(333) By way of background, typical users of VDL equipment are Joint Terminal
          Attack Controller (“JTAC”) operators, who direct the action of combat aircraft
          engaged in close air support and other offensive air operations. These JTAC
          operators use both an HH-VDL to communicate high quality, real-time
          transmission of full motion video and a low bandwidth (ground-to-ground) radio
          to communicate voice messages.329 This shows that HH-VDLs have very special
          usage and not as widely distributed among soldiers as air-to-ground low
          bandwidth radios. Indeed, the total market size of HH-VDLs in reference period
          (2014-2018) in the EEA was around EUR 98 million whereas the comparable
          figure for HH A2Gs was around EUR 935 million.330
(334) Thus, on the basis of market shares and market structure, the Transaction is
          unlikely to lead to a serious impediment of effective competition in the markets
          for HH-VDLs or in the market for HH A2Gs.331
          C) Competitive strength of the Parties
(335) The feedback from the market investigation on the strength of the Parties and
          competitors was not very informative and contained a lot of poor quality answers
          or “I do not know” replies. The few pieces of clear information were in line with
          the assessment based on market shares and market structure.
(336) For example, L.F.E SAS considered that the Rover product line, L3’s flagship
          HH-VDL products, are L3’s competitive strength.332 Safran considered that “With
          the ROVER product line, L3 has pioneered the HH VDL domain and established
          many of its proprietary waveforms as de facto standards”333
(337) By contrast, in the case of Harris, there was no respondent that highlighted a
          strength specific to HH-VDLs. While L.F.E. SAS highlighted the strength of L3’s
          Rover products, in respect of Harris it replied that it “does not know” the strengths
329 Form CO, paragraph 349
330 Form CO, Table 26, Notifying Party’s response to RFI 6, Table 5
331 The Commission notes that similar conclusions could be drawn even if there was no distinction made
     across all hand held devices used by the ground forces, i.e. if all hand held tactical communication
     devices belonged to one single product market regardless of data bandwidth (high or low data rate
     transmission) and regardless of sender receiver type (air-to-ground, ground-to-ground, or satellite-to-
     ground). In that case the market shares would be Harris [20-30]%, L3 [0-5]%. (Notifying Party’s
     response to RFI 6, Table 4). In addition the same conclusion would hold in the even wider hypothetical
     product market encompassing all tactical mobile systems (i.e. systems carried by troops) used by
     ground forces. In such a hypothetical market the market shares would be Harris [30-40]% and L3 [0-
     5]%. (Form CO, Table 23)
332 Response of L.F.E SAS to Q1 Questionnaire to customers, question 71
333 Safran’s response to Q1 Questionnaire to customers, question 71
                                                         69
 ---pagebreak---         of Harris’s HH-VDLs.334 Safran considered that Harris is generally strong in
        tactical communications, without any reference to HH-VDLs.335
(338) Although L3 and Harris were both named most frequently as credible HH-VDL
        providers,336 this was not consistent with the explanations. There were a lot of “I
        do not know” explanations and the other explanations indicated that the Parties or
        Harris were named not exclusively based on their HH-VDL strengths. For
        example, Safran explained that in general both Parties offer devices with a large
        choice of waveforms in several frequency bands.337 Italy’s Land Armament
        Directorate specifically added that it only purchased HH-VDL only from L3 and
        it estimated Harris’s strength on the basis of other products.338
(339) Thus the responses, although generally not very informative or poor quality,
        indicate, in line with the assessment based on market shares, that L3 is strong in
        HH-VDLs, while Harris is strong in general in tactical communications, including
        hand held devices (with the exception of HH-VDLs).
        D) Closeness of competition
(340) While the rate of poor responses was high, they indicate the lack of closeness.
        B.M.A.S.R.L indicated that, while both Parties’ devices perform well “Harris is
        more tactical”,339 which is a reference to Harris’s strength in tactical hand held
        radios in general (i.e. in HH A2Gs or in all hand held devices) as opposed to
        strength in HH-VDLs in particular. L.F.E. SAS considered that Harris’s and L3’s
        product line are not the same.340 Thales was of the view that Harris’s and L3’s
        HH-VDL products are not even interchangeable “L3 is focussed on ROVER HH-
        VDL products while Harris is working on more versatile HH-VDL solutions. They
        are not interchangeable.”341 By contrast, Safran and United Technologies
        Corporation considered that the Parties’ products are close substitutes.342
(341) Moreover, the Parties have not competed against each other in an HH-VDL
        tender in the last three years,343 which shows that competitive interaction between
        them is minimal. This fact also makes it unlikely that their products are close
        substitutes.
(342) The Commission therefore considers that the Parties are not close competitors in
        HH-VDLs.
(343) If the market were more broadly defined and included all HH A2Gs, the Parties
        would be very distant competitors as in such a market Harris would specialize on
334 Response of L.F.E SAS to Q1 Questionnaire to customers, question 70
335 Safran’s response to Q1 Questionnaire to customers, question 70
336 Q1 Questionnaire to customers, question 72, Q2 Questionnaire to competitors (II), question 29
337 Safran’s response to Q1 Questionnaire to customers, question 72
338 Response of Italy’s Land Armament Directorate to Q1 Questionnaire to customers, question 72
339 Response of B.M.A.S.R.L to Q1 Questionnaire to customers, question 67
340 Response of L.F.E. S.A.S to Q1 Questionnaire to customers, question 72
341 Thales’s response to Q1 Questionnaire to customers, question 72
342 Safran’s response to Q1 Questionnaire to customers, question 72, Response of United Technologies
    Corporation to Q2 Questionnaire to competitors (II), question 26
343 Form CO, paragraph 364
                                                       70
 ---pagebreak---         the low data bandwidth devices while L3 on the high data bandwidth devices. If
        the market were defined even more broadly and included all hand held tactical
        devices used by ground forces, the Parties would be even more distant
        competitors with L3 occupying the niche of air-to-ground high bandwidth
        segment and Harris dominating most other segments.
        E) Entry and expansion
(344) The market investigation highlighted certain barriers to entry such as incumbency
        effects344 (due to interoperability requirements) and the                      high level of
                      345
        technology, which implies significant R&D investment and uncertainty. The
        Commission adds that due to the similarities of the market characteristics, the
        other barriers mentioned in regard to image intensification NVDs (Section
        5.1.2.2.A(f)) also apply. This is because both markets are bidding markets and
        thus in both cases entrants need to have references and face the costs and
        complexity of tenders. Also, both markets involve the purchase of complex
        military equipment and thus in both cases the entrant needs to demonstrate that
        the products work reliably in battle and has to build out a sales and repair
        network.
(345) Of these barriers the building out sales and repair network would be easier for a
        supplier already present in a neighbouring tactical communication equipment
        market. Further, the order backlog of such a player would help in supporting the
        fixed costs of entry. However, even these barriers would not disappear (there
        would still be fixed costs including R&D, tender costs and the repair network
        needs to be retrained) and the rest of the barriers (uncertainty, references, need to
        have a credible, battle tested product) would apply. Thus, even for such a player
        entry is not easy. For example Harris has significant assets, experience in markets
        neigbouring to HH-VDLs but it has not penetrated HH-VDLs to any significant
        degree.
(346) Due to the similar market structure, this applies not only to the HH-VDL market
        but also to the HH A2Gs market.
(347) High entry barriers do not imply in themselves that the Transaction leads to a
        significant competitive harm. They only indicate that the harm from a Transaction
        would not be compensated by entry as a countervailing factor. However, in the
        case of HH-VDLs and HH A2Gs this is not the case as the Transaction does not
        lead to competitive harm in the first place based on Sections 5.4.2.2.B-D.
        F) Buyer power
(348) When rating buyer power, the most frequent rating respondents gave with respect
        to buyer power was medium.346
(349) The market charactristics relevant to buyer power (few suppliers, bidding market,
        mainly public sector purchasers, military equipment, complex products) are
344 Responses of Thales and United Technologies Corporation to Q2 Questionnaire to competitors (II),
    question 31
345 Safran’s response to Q1 Questionnaire to customers, question 74
346 Q1 Questionnaire to customers, question 74, Q2 Questionnaire to competitors (II), question 34
                                                      71
 ---pagebreak---         similar in the case of image intensification NVDs and HH-VDLs and HH A2Gs.
        Thus the discussion in relation to buyer power in image intensification NVDs
        generally apply to HH-VDLs and HH A2Gs as well, which implies that buyer
        power would be insufficient to remedy a competitive harm.347 One difference is
        that that specifically for HH-VDLs the purchases are smaller, which gives less
        bargaining power to buyers. In the case of HH A2Gs this difference would not
        apply as the purchases involve larger volumes.
(350) However, the lack of countervailing buyer power does not imply in itself that the
        Transaction leads to a significant competitive harm. It only indicates that the
        harm from a Transaction would not be compensated by this countervailing factor.
        However, in the case of HH-VDLs and HH A2Gs this is not the case as the
        Transaction does not lead to competitive harm in the first place based on Sections
        5.4.2.2.B-D.
        G) Conclusion
(351) Based on the above considerations, the Commission is of the view that the
        Transaction does not give rise to serious doubts as to its compatibility with the
        internal market as regards the markets for HH-VDLs and HH A2Gs. In particular,
        as explained in detail in Sections 5.4.2.2.B-D the overlap is minimal, the Parties
        do not compete closely and a suffient number of strong and smaller competitors
        remain on the market. In addition Harris is not strong in HH-VDLs while L3 is
        not strong in HH A2Gs.
5.4.3.    Competitive assessment – horizontal coordinated effects and non-horizontal
          effects
5.4.3.1. Horizontal coordinated effects
        A) Notifying Party’s view
(352) The Notifying Party submits that the Transaction will not give rise to any
        coordinated effects in HH-VDLs as the EEA market for HH-VDLs both today
        and post-Transaction does not exhibit the characteristics that facilitate
        coordination.348 First, the lack of product homogeneity renders implausible any
        implicit coordination, especially in a tender market. Second, the market is not
        transparent as it is to a large extent a bidding market, rendering any implicit
        collusion inherently unstable. Third, the market is driven by innovation given the
        technological features of the products. This feature too prevents against the
        possibility of implicit and sustainable coordination.
        B) Commission’s assessment
(353) The Commission agrees with the Notifying Party. It is indeed the case that HH-
        VDLs and HH A2Gs are heterogeneous product group with various
        functionalities and multiple parameters of competition (i.e. not only price but also
        quality, weight, performance levels, energy consumption, range, interceptability,
        reliability, resistance to extreme weather conditions etc), which makes it difficult
347 See Section 5.1.1.2 A(g)
348 Form CO, paragraph 379
                                                 72
 ---pagebreak---         for competitors to implicitly reach a common understanding on the terms of
        coordination.
(354) Maintaining the coordination also appears difficult for several reasons. First, the
        markets for HH-VDLs and HH A2Gs are indeed not transparent, which makes
        montoring the deviations from the agreed terms of coordination difficult. Second,
        the lumpy nature of demand incentivizes firms to cheat on the agreed terms.
        Third, it is indeed the case that markets for HH-VDLs and HH A2Gs are
        characterised by innovation, which renders any tacit coordination unstable.
(355) Therefore the Commission considers that the Transaction does not raise serious
        doubts as to its compatibility with the common market on account of horizontal
        coordinated effects in the markets for HH-VDLs and HH A2Gs.
5.4.3.2. Non-horizontal effects
(356) There are no vertical relationships between the Parties in HH-VDLs, HH A2Gs or
        indeed in any tactical communication equipment and thus the potential non-
        horizontal effects can only be conglomerate effects.
        A) Notifying Party’s view
(357) The Notifying Party considers that given the that the combined entity will have an
        2018 EEA market share of well below 30 % in the HH-VDL’s segment, the
        Transaction will not give rise to foreclosure concerns.349
        B) Commission’s assessment
(358) The Commission notes that in this Section it only assesses bundling possibilities
        within tactical communication equipment used by ground forces. Bundling across
        the sea, air and land domains is analysed in Section 5.5.
(359) The Commission notes that, as discussed before in Section 5.1.2.2.A(a)), market
        share in a single year is not suitable to assess market power in bidding markets.
        Using correct market shares Harris does have some market power in HH A2Gs
        ([30-40]% as indicated in Section 5.4.2.2). In addition given its general strength
        in tactical communications used by ground forces,350 it can have market power in
        other markets too.
(360) However, a bundling and tying strategy by the merged entity is unlikely to be
        successful for two reasons.
(361) First, the customer demand is very specific and focused on narrow product
        segments, which was amply demonstrated by the fact that there was no demand
        suctsitution across the distinctions discussed in Section 5.4.1.1.D(a). Customers
        do not purchase broad categories of equipment but specify the detailed parameters
        of the equipment they buy. For example, they specify that the device should be
        hand held, suitable for air-to-ground communication, have certain data bandwidth
349 Form CO, paragraph 381
350 Q2 Questionnaire to competitors (II), question 36
                                                      73
 ---pagebreak---         capacities (ie it should be capable of video transmission), and the corresponding
        waveforms, frequencies. It is also likely that the tenders contain minimum
        requirments for range, battery life, durability etc. Thus there appears to be no
        demand for bundled solutions, which makes a bundling strategy unlikely to
        succeed. Further, the market investigation contained no indication that this is
        going to change in the medium term with tactical communications used by ground
        forces.
(362) Second, there are a number of competitors that are active in multiple markets in
        the domain of tactical communication equipment used by ground forces and thus
        these firms can replicate the bundles. For example Thales and Elbit are active in
        HH-VDLs,351 HH A2Gs352 as well as in other hand held devices353 and in mobile
        systems carried by military personnel.354 Leonardo is active in HH-VDLs,355 HH
        A2Gs356 as well as in other hand held devices.357. Thus, even if there was demand
        for such bundles these firms could match the bundles offered by the merged
        entity, which would defeat a foreclosure attempt.
(363) The Commission also adds that while respondents to the market investigation did
        raise conglomerate concerns across sea, land and air domains (analysed in Section
        5.5), they did not do so with regard to products within the universe of tactical
        communication devices used by ground forces.
(364) Therefore the Commission considers that the Transaction does not raise serious
        doubts as to its compatibility with the common market on account of non-
        horizontal effects.
5.5.      Potential conglomerate effects involving broad military communication
          portfolios
(365) In view of the complementarity of the Parties’ product portfolios in the broader
        secure military communications space, the Transaction could potentially entail
        conglomerate effects. As discussed in this Section, these potential concerns were
        put forward by certain respondents to the market investigation.
(366) Namely, it was brought to the Commission’s attention that Harris’ product
        offering in tactical communication, and in particular tactical radios used by
        ground forces, and L3’s offering for maritime and airborne platforms and
        including also HH-VDLs, could be considered to be complementary within the
        meaning of paragraph 91 of the Non-Horizontal Merger Guidelines.
(367) Based on the information provided by the Notifying Party, the Parties have a
        common pool of customers, in particular other military technology providers and
        ultimately the ministries of defence in NATO or NATO allied countries. In
        particular, military customers with ground, naval and air capabilities could in
351 Section 5.4.2.2.B
352 Section 5.4.2.2.B
353 Notifying Party’s response to RFI 6, Table 4
354 Form CO, Table 23
355 Section 5.4.2.2.B
356 Section 5.4.2.2.B
357 Notifying Party’s response to RFI 6, Table 4
                                                 74
 ---pagebreak---         theory be interested in purchasing a bundle of military communication products
        that are designed for all three domains (i.e. land, sea and air).
5.5.1.    Notifying Party’s view
(368) The Notifying Party considers that the Transaction will not lead to conglomerate
        concerns as the merged entity would have neither the ability nor the incentive to
        foreclose its rivals by tying or bunding.
(369) The Notifying Party submits that customers are not interested in tied or bundled
        offerings, and a corresponding strategy would therefore not be profitable.358
(370) The Notifying Party explains that given the different technical and mission
        requirements in the different domains of land, sea, and air, there is no demand for
        a bundled solution. In any event, it is argued by the Notifying Party, the merged
        entity would not be “uniquely positioned to offer such bundles”. Other players
        could also offer such bundled solutions either alone or through sub-contracting.
        The Notifying Party refers in this context to Thales, Rockwell Collins, and ViaSat
        as players that would be capable to offer combinations of ground, air, and
        maritime communication solutions.359
(371) The Notifying Party further submits that tenders do not tend to cover a broad
        range of products but are rather narrow in scope as well as product-specific. In
        addition, customers are sophisticated with significant buyer power. Consistent
        with this approach, the Notifying Party further explains that customers generally
        seek to ensure that none of the waveforms they specify in tender requirements are
        patent protected and are therefore accessible to all suppliers.360
(372) According to the Notifying Party, while modernisation programmes currently
        undertaken or planned to be undertaken by military forces may cover a wide
        range of products, they are typically divided into individual tenders for specific
        products over a period of years, and customers tend to award the various tenders
        of such modernisation programmes to several suppliers over a period of time.361
5.5.2.    Commission’s assessment
5.5.2.1. Analytical framework
(373) Conglomerate mergers consist of mergers between companies that are active in
        closely related markets, for instance suppliers of complementary products or of
        products which belong to a range of products that is generally purchased by the
        same set of customers for the same end use.362
358 Form CO, paragraph 384.
359 Form CO, paragraph 65.
360 Form CO, paragraphs 66, 384.
361 Form CO, paragraph 67.
362 See Non-Horizontal Merger Guidelines, paragraph 91.
                                                    75
 ---pagebreak--- (374) According to the Non-Horizontal Merger Guidelines, in most circumstances,
        conglomerate mergers do not lead to any competition problems.363
(375) However, foreclosure effects may arise when the combination of products in
        related markets may confer on the merged entity the ability and incentive to
        leverage a strong market position from one market to another closely related
        market by means of tying or bundling or other exclusionary practices.364
(376) The Non-Horizontal Merger Guidelines distinguish between bundling, which
        usually refers to the way products are offered and priced by the merged entity and
        tying, usually referring to situations where customers that purchase one good (the
        tying good) are required to also purchase another good from the producer (the tied
        good).365
(377) While tying and bundling have often no anticompetitive consequences, in certain
        circumstances such practices may lead to a reduction in actual or potential
        competitors' ability or incentive to compete. This may reduce the competitive
        pressure on the merged entity allowing it to increase prices.366
(378) In assessing the likelihood of such a scenario, the Commission examines, first,
        whether the merged firm would have the ability to foreclose its rivals367, second,
        whether it would have the economic incentive to do so368 and, third, whether a
        foreclosure strategy would have a significant detrimental effect on competition,
        thus causing harm to consumers.369 In practice, these factors are often examined
        together as they are closely intertwined.
5.5.2.2. Market power
(379) According to the Non-Horizontal Merger Guidelines, the main concern stemming
        from conglomerate mergers is that the merged entity could leverage its strong
        market position from one market to the other by means of tying, bundling or other
        exclusionary practices. In order to be able to foreclose competitors, the new entity
        must have a significant degree of market power, which does not necessarily
        amount to dominance, in one of the markets concerned.370
(380) Market shares provide useful first indications of the market power and the
        competitive importance of both the merging parties and their competitors.371
(381) Respondents to the market investigation indicated that Harris is a market leader in
        tactical communications devices used by ground forces such as, for example,
        hand held ground-to-ground radios, hand held air-to-ground (low data bandwidth)
363 See Non-Horizontal Merger Guidelines, paragraph 92.
364 See Non-Horizontal Merger Guidelines, paragraph 93.
365 See Non-Horizontal Merger Guidelines, paragraph 97.
366 See Non-Horizontal Merger Guidelines, paragraphs 91 and 93.
367 See Non-Horizontal Merger Guidelines, paragraphs 95 to 104.
368 See Non-Horizontal Merger Guidelines, paragraphs 105 to 110.
369 See Non-Horizontal Merger Guidelines, paragraphs 111 to 118.
370 Non-Horizontal Merger Guidelines, paragraph 99.
371 See Non-Horizontal Merger Guidelines, paragraph 24.
                                                    76
 ---pagebreak---         radios, manpack radios, vehicle mounted radios etc.372 Respondents also
        considered that L3 is leader in naval communications, ISR data links, including
        HH-VDLs and string in airborne communications.373 Respondents considered that
        the merged entity would have an incentive to bundle these products.374
(382) Accordingly, the Commission requested approximate market share data for broad
        product categories that correspond to the highlighted conglomerate concerns. The
        various different cuts are presented below
               i.   On the overall market for tactical communication devices used by
                    ground forces in the EEA Harris has a market share of [40-50] % (and
                    [30-40]% for the ground tactical communications for special forces).375
                    This very broad market would include all tactical communication
                    devices used by ground forces without distinguishing between mobile,
                    transportable and fixed systems. L3 is not a significant player in this
                    segment.376
              ii.   In mobile systems carried by troops (ground forces) Harris’s market
                    share in the EEA is [30-40]%.377 This would include all mobile tactical
                    communication systems i.e. both manpack and hand held devices. L3 is
                    not a significant player in this segment.378
             iii.   In hand held devices (tactical equipment used by ground forces without
                    further distinction according to data bandwidth capability or sender-
                    receiver type) Harris has a market share of [30-40]%. 379 L3 is not a
                    significant player in this segment.380
(383) As regards L3, its postion is very modest in the EEA in the maritime and airborne
        communication space. Harris is also not a significant player in these segments.381
        While it is one of the leading players in its US home market with [30-40]%
        market share in 2018, the company has only [0-5]% EEA market share for
        maritime and airborne communications taken together.382
(384) On the basis of the market shares provided by the Parties, Harris may have some
        market power in the ground tactical communication space, while L3 is a marginal
        player in maritime and airborne communications in the EEA. This implies that the
        merged entity could have market power in the ground tactical communication
        space in the EEA.
372  Q2 Questionnaire to competitors (II), question 36
373  Q2 Questionnaire to competitors (II), question 37
374 Q2 Questionnaire to competitors (II), question 37
375 Form CO, Table 4
376 Form CO, Table 3
377 Source: Form CO, Table 23
378 Form CO, Table 3
379 Notifying Party’s response to RFI 6, Table 4
380 Form CO, Table 3
381 Form CO, Table 3
382 Form CO, paragraph 58-60, Tables 5-6. The Notifying Party indicates that L3 is not able to provide
     market share figures for maritime and airborne communications separately.
                                                       77
 ---pagebreak--- 5.5.2.3. Ability and incentive to foreclose competitors
(385) The Commission considers that the merged entity would have neither the ability
        nor the incentive to engage in anti-competitive tying or bundling or other
        exclusionary practices which would result in conglomerate foreclosure effects.
(386) First, the Commission recalls that, as explained in relation to the market definition
        of relevant to HH-VDLs, in particular in relation to demand side substitution
        (Section 5.4.1.D)(a)), the demand side in military communication equipments is
        very specific. Customers do not purchase broad categories of equipment but
        specify the detailed parameters of the equipment they buy. For example, as
        explained in Section 5.4.1.D)(a) in the context of HH-VDLs, they specify that the
        device should be hand held, suitable for air-to-ground communication, have
        certain databandwidth capacities (ie it should be capable of video transmission),
        and the corresponding waveforms, frequencies. It is also likely that the tenders
        contain minimum requirments for range, battery life, durability etc. In other
        words the Notifying Party is correct in pointing out that submits that tenders do
        not tend to cover a broad range of products but are rather narrow in scope as well
        as product-specific. It follows that there appears to be no demand for bundled
        solutions and thus a bundling strategy would be unfeasible or unprofitable or
        both.
(387) This conclusion is reinforced by the responses of customers to the questions
        whether they would purchase bundles. Customers indicated that they are typically
        not interested in such bundled offerings, with tenders generally not covering a
        broad range of products but instead being narrow in scope and product specific.383
        None of the customer respondents indicated that they would even consider
        purchasing such bundles.384
(388) Thus, even though competitor respondents, on the one hand, generally considered
        that the merged entity would have the ability and incentive to bundle Harris’
        tactical communication products with some of L3’s products and indicated that
        such a bundled proposition would be welcomed by customers,385 the market
        practice evident from the discussion on the market definition of HH-VDLs and
        customer responses suggest otherwise.
(389) Some respondents mentioned a trend, coming from the US, to create multi-
        domain communication solutions,386 ie. coordination between ground forces and
        aviation or helicopters to get multi-domain collaborative combat systems.
        However, it was also noted that the demand is not there yet and will not
        necessarily affect the whole of EEA.387 Further, customers did not confirm such a
        trend.388 Thus even the advance of these multi-domain communication solutions
        appears uncertain at this stage, let alone the possibility that this will change
        current purchasing patterns, which does not follow automatically from the former.
        This is because as the Notifying Party noted, even if customers wish to apply a
383 Questionnaire to customers, question 83.
384 Questionnaire to customers, question 82.
385 Questionnaire to competitors, questions 38-40.
386 Thales’s response to Q2 Questionnaire to competitors (II), question 41
387 Thales’s response to Q2 Questionnaire to competitors (II), question 42
388 Questionnaire to customers, question 82
                                                      78
 ---pagebreak---          multi-domain solution, it is still possible that they purchase the necessary
         equipment over a longer period of time in smaller, specific tenders.
(390) Second, even if there were to be customer demand for such bundles or such
         demand would emerge in the foreseeable future, there would be viable alternative
         suppliers on the market which could offer similar bundled solutions, either alone
         or in consortia with others, and thus meet such demand from customers. For
         example Thales considered that Leonardo and Rohde Shwartz and itself are all
         active in all three domains (i.e. land, sea and air) and would be capable of
         replicating the merged entity’s bundle that would include Harris’s tactical
         communication products and some of L3’s products from the sea and airborne
         domain.389 United Technologies Corporation, indicated similarly that such
         competing bundles could be offered “via partnership” by others.390 On the
         customer side, a number of respondents indicate the existence of competing
         suppliers that could offer such bundles, were there to be demand for such
         offers,391 without, however, naming them.
(391) Thus the Commission considers that even if the merged entity could sell such
         bundles, other competitors could match the offer, implying that the foreclosure
         strategy is unlikely to be successful.
(392) Third, customer reactions should also not be discounted. It may very well be that
         faced with a bundling strategies customers devise counterstrategies such as
         devising an interoperable system and specifying in tenders the interoperability
         requirements.
(393) The market investigation as a whole, therefore, provides insufficient evidence that
         the merged entity would have the ability to foreclose competing suppliers through
         anti-competitive bundling or tying practices, notably through the bundling of
         naval, air and ground communications solutions. The reasons include the lack of
         demand for such bundles, the existence of competitors that can match the bundled
         offers and possibly customer counter-strategies.
5.5.2.4. Conclusion
(394) Based on the above considerations, the Commission is of the view that the
         Transaction does not give rise to serious doubts as to its compatibility with the
         internal market in relation to anti-competitive conglomerate effects involving
         broad military communications portfolios.
6.       COMMITMENTS
(395) In order to remove the serious doubts arising from the Transaction in relation to
         the markets for image intensification NVDs and I2Ts, as well as non-horizontal
         concerns related to NVDs and I2Ts on 28 May 2019 the Notifying Party
         submitted commitments pursuant to Article 6(2) of the Merger Regulation (the
389 Thales’s response to Q2 Questionnaire to competitors (II), question 41
390 Thales’ and United Technologies’ responses to queationnaire to competitors, question 41.1.
391 Questionnaire to customers, question 85.
                                                       79
 ---pagebreak---        "Commitments"). The Commitments are annexed to this decision and form an
       integral part thereof.
6.1.   Description of the Commitments
(396) The Commitments consist of the divestment of Harris’ entire night vision
       business (hereinafter also referred to as the "Divestment Business"). The
       Divestment Business includes all of Harris’s NVDs (i.e., Harris’s image
       intensification NVDs and Harris’s fusion NVDs), all of Harris’s I2Ts, and all
       associated spare parts and service sales.
(397) The Divestment Business is based out of a single production facility located in
       Roanoke, Virginia (USA) and includes all assets and staff that contribute to the
       current operation or are necessary to ensure the viability and competitiveness of
       the Divestment Business, in particular:
             i.   all tangible and intangible assets (including intellectual property rights)
                  necessary for the operation of the Divestment Business in substantially
                  the same manner as immediately prior to the Closing;
            ii.   all licences, permits and authorisations issued by any governmental
                  organisation for the benefit of the Divestment Business;
           iii.   all contracts, leases, commitments and customer orders of the
                  Divestment Business, as well as all customer, sales, supplier, accounting,
                  financial and other business records primarily used in the Divestment
                  Business (other than certain excluded business records); and
           iv.    Personnel
(398) Finally, the Commitments contain related commitments, including those
       regarding the separation of the Divestment Business from the retained businesses,
       the preservation of the viability, marketability and competitiveness of the
       Divestment Business, including the appointment of a monitoring trustee and, if
       necessary, a divestiture trustee.
6.2.   Commission’s assessment of the Commitments
6.2.1. Framework for the Commission’s assessment of the commitments
(399) According to the Commission's notice on remedies acceptable under
       Council Regulation (EC) No 139/2004 and under Commission Regulation (EC)
       No 802/2004 (the "Remedies Notice"), where a concentration raises serious
       doubts as to its compatibility with the internal market, the parties may
       undertake to modify the concentration so as to resolve the competition
       concerns identified by the Commission and thereby gain clearance of their
       merger.
(400) It is for the parties to the concentration to put forward commitments. 392
       The Commission only has the power to accept commitments that are deemed
392 Remedies Notice, paragraph 6.
                                                  80
 ---pagebreak---        capable of rendering the concentration compatible with the internal
       market.393 In Phase I, commitments can only be accepted where the
       competition problem is readily identifiable and can easily be remedied.
       The competition problem therefore needs to be so straightforward and the
       remedies so clear-cut that it is not necessary to enter into an in-depth
       investigation. The commitments must be sufficient to clearly rule out serious
       doubts within the meaning of Article 6(1)(c) of the Merger Regulation.
       Where the assessment indicates that the proposed commitments remove the
       grounds for serious doubts on this basis, the Commission clears the merger in
       phase I.394
(401) In assessing whether or not commitments will restore effective competition, the
       Commission considers their type, scale and scope by reference to the structure
       and characteristics of the market in which the Commission has identified serious
       doubts as to the compatibility of the notified concentration with the internal
       market.395
(402) Divestiture commitments are the best way to eliminate serious doubts resulting
       from horizontal overlaps of the merging parties’ activities.396 The divested
       business must consist of a viable business that if operated by a suitable purchaser,
       can compete effectively with the merged entity on a lasting basis and that is
       divested as a going concern.397
(403) The business to be divested must include all the assets which contribute to its
       current operation or which are necessary to ensure its viability and
       competitiveness and all personnel which are currently employed or which are
       necessary to ensure the business' viability and competitiveness. Personnel and
       assets which are currently shared between the business to be divested and
       other businesses of the parties, but which contribute to the operation of the
       business or which are necessary to ensure its viability and competitiveness,
       must also be included. Otherwise, the viability and competitiveness of the
       business to be divested would be endangered.
(404) Furthermore, the intended effect of the divestiture will only be achieved if and
       once the business is transferred to a suitable purchaser with proven relevant
       expertise and ability to maintain and develop the business to be divested as
       a viable and active competitive undertaking. This may imply that some
       specific purchaser requirements are included in the commitments to ensure that
       the transferred business remains viable. The potential of a business to attract a
       suitable purchaser is an important element of the Commission’s assessment of the
       appropriateness of the proposed commitment.398
393 Remedies Notice, paragraph 9.
394 Remedies Notice, paragraph 81.
395 Remedies Notice, paragraph 12.
396 Remedies Notice, paragraph17.
397 Remedies Notice, paragraph 23.
398 Remedies Notice, paragraph 47.
                                                81
 ---pagebreak--- 6.2.2. Assessment of the Commitments
(405) The competition concerns in this case are readily identifiable in respect of the
          relevant markets for image intensification NVDs and I2Ts,399 as well as non-
          horizontal concerns relationg to NVDs and I2Ts, given the Parties’ high market
          shares, the closeness of their offering, the characteristics of the markets at stake,
          the limited number of competitors, lack of countervailing buyer power and the
          high barriers to entry identified.
(406) The Commission's assessment of the Commitments focuses on (i) whether the
          Commitments are suitable and sufficient to remove the competition concerns
          caused by the Transaction; (ii) whether the Divestment Business constitutes a
          viable business able to compete effectively with the merged entity on a lasting
          basis; (iii) whether there are specific conditions that a potential purchaser
          should fulfil, (iv) whether the Divestment Business is sufficiently attractive to
          find a suitable purchaser. On 4 April 2019 Harris signed an asset purchase
          agreement with Elbit pursuant to which Elbit will acquire the Divestment
          Business. However, the Commitments are not submitted as a fix-it-first solution
          and therefore the Commission will carry out a separate assessment of Elbit’s
          suitability as a purchaser following the closing of the acquisition of L3 by Harris.
          In any event, and without prejudice to this separate assessment that the
          Commission will carry out at the time of the purchaser approval, the
          Commission’s assessment of the Commitments include a preliminary overview of
          Elbit’s suitability as a purchaser of the Divestment Business.
          Suitability and viability of the Divestment Business
(407) In order to carry out this assessment, the Commission launched a market test of
          the Commitments on 29 May 2019. The results of the market test, which was
          addressed to competitors and customers, are generally positive and confirmed that
          the Commitments are suitable to eliminate the competition concerns identified by
          the Commission.
(408) First, the Divestment Business consists of the divestment of Harris’ global night
          vision business which eliminates the entire overlap between the Parties in night
          vision devices more broadly and in the markets for image intensification NVDs
          and I2Ts where the Commission’s investigation has revealed that the Transaction
          would raise competition concerns.
(409) Second, the Divestment Business is a standalone business, which was previously
          acquired as such by Harris from Exelis in 2015 as a self-standing business
          division. Prior to Exelis’ ownership, the Divestment Business had been operated
          by ITT Inc. for several decades.400 It therefore appears to be a complete,
          standalone business with all the necessary assets and resources to be a viable
          force on the market, including engineering, operational, manufacturing, sales,
          HR, finance, contracts, and management personnel. This was confirmed by the
          market test, where all the respondents which expressed a view on the suitability of
          the Commitments, considered that, subject to it being divested to a suitable
399 Including also the other alternative relevant product markets discussed in Section 5.1.2.2.B), e.g. image
     intensification NVDs further segmented by device type.
400 Form RM, paragraphs 2 and 9.
                                                          82
 ---pagebreak---          purchaser, the Divestment Business includes all the necessary assets to operate
         and effectively compete on the markets for image intensification NVDs and
         I2Ts.401 One respondent to the remedies market test highlighted in this sense the
         fact that “this business has sold twice in recent times, and demonstrated an ability
         to not only continue, but lead the industry.402
(410) The Divestment Business includes the transfer of key personnel currently working
         at the Divestment Business and of all personnel currently working at or assigned
         to the Divestment Business who accept an offer of employment with the
         purchaser. In this regard, a significant number of respondents to the remedies
         market test identified the role of Senior International Business Development
         Manager as an important part of Harris’s current night vision business. This
         person is responsible for developing strategy and capturing international business
         opportunities at Harris’s night vision business.The person currently holding this
         position has not been identified as key personnel by Harris but is nevertheless part
         of the Divestment Business and will be transferred subject to acceptance of an
         offer of employment with the purchaser. In any event, the Senior International
         Business Development Manager reports to the Director of Sales, which is in turn
         included as key personnel in the Divestment Business.
         Purchaser criteria
(411) As regards the criteria to identify a suitable purchaser for the Divestment
         Business, the majority of respondents to the market test consider that previous
         knowledge, experience and reputation in the defence industry are required in
         order to run the Divestment Business viably and competitively.403 The
         Commission considers that the purchaser criteria foreseen in the Commitments
         are sufficient.
         Attractiveness of the Divestment Business
(412) The Divestment Business appears to be an attractive and profitable business with
         expected revenue growth. The divestment business had a total turnover of EUR
         […] in 2018, which is expected to grow significantly in the next two years. The
         earnings before interest, tax, depreciation and amortisation ("EBITDA") were
         […] in that period. The projected revenue and EBITDA increases are due in part
         to a number of growth initiatives undertaken by Harris.404 The first such growth
         initiative involves [description of growth initiative]. The second initiative is
         [description of growth initiative]. This intiative implies [description of growth
         initiative].405
(413) The Parties claim that the Divestment Business has generated large interest, as a
         result of which Harris has already been able to swiftly reach an agreement with
         Elbit on April 4, 2019.406 In their view, in the hypothetical scenario where Elbit
         would not acquire the Divestment Business, the remaining bidders would
401 Responses to question 3 of the Commission’s electronic market test of the commitments.
402 Transaero’s response to question 5 of the Commission’s electronic market test of the commitments.
403 Responses to question 6 of the Commission’s electronic market test of the commitments.
404 Form RM, paragraph 32.
405 Form RM, confidential Annex 20
406 Form RM, paragraph 36.
                                                       83
 ---pagebreak---          continue to be interested in acquiring it, and thus the Divestment Business would
         nevertheless within a short time-frame be acquired by a suitable purchaser.407
(414) While a number of respondents to the market test indicated that, due to their
         smaller size or different business focus, they would not be interested to acquire
         the Divestment Business, the majority of respondents that expressed a view do
         consider it an attractive business. Respondents pointed to the fact that the
         Divestment Business includes leading edge technology and that the market trends
         and the positioning of Harris in the NVDs and I2Ts business make the
         Divestment Business attractive.408 Moreover, the Commission has been able to
         confirm that sufficient interest in acquiring the Divestment Business still remains
         in the market. In the context of the market testing of the Commitments, the
         Commission contacted the other interested bidders in order to verify whether such
         appetite for the acquisition of the Divestment Business remained. In addition to
         Elbit’s interest, [description of the action process].409 A financial investor with
         expertise in the defence sector also indicated that the Divestment Business is an
         attractive package and confirmed an interest to purchase it.410
         Preliminary assessment of Elbit’s suitability as purchaser of the Divestment
         Business
(415) Given that Harris has signed an asset purchase agreement with Elbit pursuant to
         which Elbit will acquire the Divestment Business, the Commission’s market test
         of the remedies included a number of questions about Elbit’s suitability as a
         purchaser of the Divestment Business.
(416) Elbit is an Israel-based global technology and defence company which supplies
         NVDs, among other products for the defence industry. Elbit’s EEA sales consist
         of thermal NVDs (which the Divestment Business does not produce), and image
         intensification NVDs (which the Divestment Business does produce). Elbit does
         not produce I2Ts or fusion NVDs (which the Divestment Business produces).411
(417) The market test revealed that market participants perceive Elbit as a solid player
         already active in the defence business, with previous experience in NVDs and
         other related products. The majority of respondents that expressed a view
         perceive Elbit as a suitable purchaser, with the required financial resources and
         capabilities to maintain and develop the Divestment business as a viable
         competitive force on the market.412
(418) Thus, given its financial resources, experience in NVDs and defence business,
         Elbit appears to be suitable from the point of view of maintaining and developing
         the business as a viable competitive force.
407 Form RM, paragraph 38.
408 Responses to question 5 of the Commission’s electronic market test of the commitments.
409 Email of 12 June 2019 in response to question 14 of the Commission’s electronic market test of the
     commitments.
410 Email of 13 June 2019 in response to question 14 of the Commission’s electronic market test of the
     commitments.
411 Harris’ response to RFI 5.
412 Response to question 13 of the Commission’s electronic market test of the commitments.
                                                       84
 ---pagebreak--- (419) This preliminary assessment is without prejudice to the Commission’s final
       assessment of the suitability of Elbit as the purchaser of the Divestment Business
       which shall be conducted separately at a later stage.
6.2.3. Conclusion
(420) For the reasons outlined above, the Commission considers that the Commitments
       entered into by the Notifying Party are sufficient to eliminate the serious doubts
       as to the compatibility of the Transaction with the internal market.
(421) The remedies in section B of the Annex constitute conditions attached to this
       decision, as only through full compliance therewith can the structural changes in
       the relevant markets be achieved. The other remedies set out in the Annex
       constitute obligations, as they concern the implementing steps which are
       necessary to achieve the modifications sought in a manner compatible with the
       internal market.
7.     CONCLUSION
(422) For the above reasons, the Commission has decided not to oppose the notified
       operation as modified by the commitments annexed to this decision and to declare
       it compatible with the internal market and with the functioning of the EEA
       Agreement, subject to full compliance with the conditions in section B of the
       commitments annexed to the present decision and with the obligations contained
       in the other sections of the said commitments. This decision is adopted in
       application of Article 6(1)(b) in conjunction with Article 6(2) of the Merger
       Regulation and Article 57 of the EEA Agreement.
                                                      For the Commission
                                                      (Signed)
                                                      Margrethe VESTAGER
                                                      Member of the Commission
                                                85
 ---pagebreak---                       CASE COMP / M.9234
PROPOSED ACQUISITION OF SOLE CONTROL BY HARRIS CORPORATION OF L3
                  TECHNOLOGIES, INC.
          REVISED NON-CONFIDENTIAL COMMITMENTS
         NOTIFICATION OF A CONCENTRATION PURSUANT TO
         COUNCIL REGULATION (EC) 139/2004
                            May 28, 2019
 ---pagebreak---                                                                                            MAY 28, 2019
                     Case M.9234 – Harris Corporation / L3 Technologies, Inc.
                         REVISED COMMITMENTS TO THE EUROPEAN
                                               COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger Regulation”), Harris
Corporation (the “Notifying Party”) hereby enters into the following Commitments (the
“Commitments”) vis-à-vis the European Commission (the “Commission”) with a view to rendering
its acquisition of L3 Technologies, Inc. (the “Concentration”) compatible with the internal market
and the functioning of the EEA Agreement.
This text shall be interpreted in light of the Commission’s decision pursuant to Article 6(1)(b) of the
Merger Regulation to declare the Concentration compatible with the internal market and the
functioning of the EEA Agreement (the “Decision”), in the general framework of European Union
law, in particular in light of the Merger Regulation, and by reference to the Commission Notice on
remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation
(EC) No 802/2004 (the “Remedies Notice”).
Section A.      Definitions
1. For the purpose of the Commitments, the following terms shall have the following meaning:
     Affiliated Undertakings: undertakings controlled by the Parties and/or by the ultimate parents
     of the Parties, whereby the notion of control shall be interpreted pursuant to Article 3 of the
     Merger Regulation and in light of the Commission Consolidated Jurisdictional Notice under
     Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the
     “Consolidated Jurisdictional Notice”).
     Assets: the assets that contribute to the current operation or are necessary to ensure the viability
     and competitiveness of the Divestment Business as indicated in Section B, paragraph 6 (a), (b),
     (c) and (d) and described in the Schedule.
     Closing: the transfer of the legal title to the Divestment Business to the Purchaser.
     Closing Period: the period of 3 months from the approval of the Purchaser and the terms of sale
     by the Commission.
     Confidential Information: any business secrets, know-how, commercial information, or any
     other information of a proprietary nature that is not in the public domain.
     Concentration: the Notifying Party’s acquisition of sole control over L3 Technologies, Inc.
     Conflict of Interest: any conflict of interest that impairs the Trustee’s objectivity and
     independence in discharging its duties under the Commitments.
     Divestment Business: the Notifying Party’s night vision business as defined in Section B and in
     the Schedule which the Notifying Party commits to divest.
     Divestiture Trustee: one or more natural or legal person(s) who is/are approved by the
     Commission and appointed by the Notifying Party and who has/have received from the Notifying
     Party the exclusive Trustee Mandate to sell the Divestment Business to a Purchaser at no
                                                      1
 ---pagebreak---      minimum price.
     Effective Date: the date of adoption of the Decision.
     First Divestiture Period: the period of [CONFIDENTIAL] from the Effective Date.
     Hold Separate Manager: the person appointed by the Notifying Party for the Divestment
     Business to manage the day-to-day business under the supervision of the Monitoring Trustee.
     Key Personnel: all personnel necessary to maintain the viability and competitiveness of the
     Divestment Business, as listed in the Schedule, including the Hold Separate Manager.
     Monitoring Trustee (or Trustee): one or more natural or legal person(s) who is/are approved by
     the Commission and appointed by the Notifying Party, and who has/have the duty to monitor the
     Notifying Party’s compliance with the conditions and obligations attached to the Decision.
     Notifying Party: Harris Corporation.
     Parties: the Notifying Party and L3 Technologies, Inc.
     Personnel: all staff currently employed by or assigned to the Divestment Business.
     Purchaser: the entity approved by the Commission as acquirer of the Divestment Business in
     accordance with the criteria set out in Section D.
     Purchaser Criteria: the criteria laid down in paragraph 16 of these Commitments that the
     Purchaser must fulfil in order to be approved by the Commission.
     Schedule: the schedule to these Commitments describing more in detail the Divestment Business.
     Trustee(s): the Monitoring Trustee and/or the Divestiture Trustee as the case may be.
     Trustee Divestiture Period: the period of [CONFIDENTIAL] from the end of the First
     Divestiture Period.
Section B.      The commitment to divest and the Divestment Business
          Commitment to divest
  2. In order to maintain effective competition, the Notifying Party commits to divest, or procure the
     divestiture of the Divestment Business by the end of the Trustee Divestiture Period as a going
     concern to a purchaser and on terms of sale approved by the Commission in accordance with the
     procedure described in paragraph 17 of these Commitments. To carry out the divestiture, the
     Notifying Party commits to find a purchaser and to enter into a final binding sale and purchase
     agreement for the sale of the Divestment Business within the First Divestiture Period.1 If the
     Notifying Party has not entered into such an agreement at the end of the First Divestiture Period,
     the Notifying Party shall grant the Divestiture Trustee an exclusive mandate to sell the Divestment
1
        As the Commission is aware, following an auction process, on April 4, 2019, the Notifying Party entered into a sale
        and purchase agreement with Elbit Systems of America, LLC (“Elbit”) for the sale of the Divestment Business.
        For the avoidance of doubt, the following sections on Due diligence and Reporting, and similar provisions, apply
        in the event the Commission rejects Elbit as the Purchaser.
                                                            2
 ---pagebreak---      Business in accordance with the procedure described in paragraph 29 in the Trustee Divestiture
     Period.
  3. The Notifying Party shall be deemed to have complied with this commitment if:
       (a)        by the end of the Trustee Divestiture Period, the Notifying Party or the Divestiture
                  Trustee has entered into a final binding sale and purchase agreement and the Commission
                  approves the proposed purchaser and the terms of sale as being consistent with the
                  Commitments in accordance with the procedure described in paragraph 17; and
       (b)        the Closing of the sale of the Divestment Business to the Purchaser takes place within
                  the Closing Period.
  4. In order to maintain the structural effect of the Commitments, the Notifying Party shall, for a
     period of 10 years after Closing, not acquire, whether directly or indirectly, the possibility of
     exercising influence (as defined in paragraph 43 of the Remedies Notice, footnote 3) over the
     whole or part of the Divestment Business, unless, following the submission of a reasoned request
     from the Notifying Party showing good cause and accompanied by a report from the Monitoring
     Trustee (as provided in paragraph 43 of these Commitments), the Commission finds that the
     structure of the market has changed to such an extent that the absence of influence over the
     Divestment Business is no longer necessary to render the proposed concentration compatible with
     the internal market.
           Structure and definition of the Divestment Business
  5. The Divestment Business encompasses the Notifying Party’s night vision business,2 which is
     based out of a single production facility with a registered place of business and management at
     7635 Plantation Road, Roanoke, Virginia 24019, USA. The Notifying Party designs and
     manufactures all of its night vision products in this facility. The Divestment Business includes
     the rights and benefits in and to all customer and supplier contracts entered into by the Notifying
     Party and primarily related to the Divestment Business, as well as all operating permits, licenses,
     and authorizations, to the extent transferable under applicable law held by the Notifying Party that
     are primarily used in the Divestment Business or for the production facility or the ownership or
     current operation thereof.
  6. The legal and functional structure of the Divestment Business as operated to date is described in
     the Schedule. To the extent transferable under applicable law, the Divestment Business includes
     all assets and staff that contribute to the current operation or are necessary to ensure the viability
     and competitiveness of the Divestment Business, in particular:
               (a) all tangible and intangible assets (including intellectual property rights) necessary for
                    the operation of the Divestment Business in substantially the same manner as
                    immediately prior to the Closing;
               (b) all licences, permits and authorisations issued by any governmental organisation for the
                    benefit of the Divestment Business;
2
         Night vision equipment and components include, in particular, image intensification night vision devices, fusion
         night vision devices, and image intensifier tubes.
                                                            3
 ---pagebreak---               (c) all contracts, leases, commitments and customer orders of the Divestment Business, as
                  well as all customer, sales, supplier, accounting, financial and other business records
                  primarily used in the Divestment Business (other than certain excluded business
                  records); and
              (d) the Personnel.
  7. In addition, the Divestment Business includes the benefit, for a transitional period of 6 to 12
     months (depending on the service concerned) after Closing and on terms and conditions
     equivalent to those at present afforded to the Divestment Business, of arrangements under which
     the Notifying Party or its Affiliated Undertakings supply certain support services to the
     Divestment Business,3 as detailed in the Schedule, unless otherwise agreed with the Purchaser.
     Strict firewall procedures will be adopted so as to ensure that any competitively sensitive
     information related to, or arising from such supply arrangements (for example, product roadmaps)
     will not be shared with, or passed on to, anyone outside the business units concerned.
    Section C.          Related commitments
         Preservation of viability, marketability and competitiveness
  8. From the Effective Date until Closing, the Notifying Party shall preserve or procure the
     preservation of the economic viability, marketability and competitiveness of the Divestment
     Business, in accordance with good business practice, and shall minimise as far as possible any
     risk of loss of competitive potential of the Divestment Business. In particular the Notifying Party
     undertakes:
              (a) not to carry out any action that might have a significant adverse impact on the value,
                  management or competitiveness of the Divestment Business or that might alter the
                  nature and scope of activity, or the industrial or commercial strategy or the investment
                  policy of the Divestment Business;
              (b) to make available, or procure to make available, sufficient resources for the
                  development of the Divestment Business, on the basis and continuation of the existing
                  business plans;
              (c) to take all reasonable steps, or procure that all reasonable steps are being taken,
                  including appropriate incentive schemes (based on industry practice), to encourage all
                  Key Personnel to remain with the Divestment Business, and not to solicit or move
                  any Personnel to the Notifying Party’s remaining business. Where, nevertheless,
                  individual members of the Key Personnel exceptionally leave the Divestment
                  Business, the Notifying Party shall provide a reasoned proposal to replace the person
                  or persons concerned to the Commission and the Monitoring Trustee. The Notifying
                  Party must be able to demonstrate to the Commission that the replacement is well
                  suited to carry out the functions exercised by those individual members of the Key
                  Personnel. The replacement shall take place under the supervision of the Monitoring
3
        [CONFIDENTIAL]
                                                      4
 ---pagebreak---                 Trustee, who shall report to the Commission.
        Hold-separate obligations
9. The Notifying Party commits, from the Effective Date until Closing, to keep the Divestment
    Business separate from the business it is retaining and to ensure that unless explicitly permitted
    under these Commitments: (i) management and staff of the businesses retained by the Notifying
    Party have no involvement in the Divestment Business; (ii) the Key Personnel and Personnel of
    the Divestment Business have no involvement in any business retained by the Notifying Party and
    do not report to any individual outside the Divestment Business.
10. Until Closing, the Notifying Party shall assist the Monitoring Trustee in ensuring that the
    Divestment Business is managed as a distinct and saleable entity separate from the businesses
    which the Notifying Party is retaining. Immediately after the adoption of the Decision, the
    Notifying Party shall appoint a Hold Separate Manager. The Hold Separate Manager shall be
    part of the Key Personnel, shall manage the Divestment Business independently and in the best
    interest of the business with a view to ensuring its continued economic viability, marketability
    and competitiveness and its independence from the businesses retained by the Notifying Party.
    The Hold Separate Manager shall closely cooperate with and report to the Monitoring Trustee
    and, if applicable, the Divestiture Trustee. Any replacement of the Hold Separate Manager shall
    be subject to the procedure laid down in paragraph 8(c) of these Commitments. The Commission
    may, after having heard the Notifying Party, require the Notifying Party to replace the Hold
    Separate Manager.
        Ring-fencing
11. The Notifying Party shall implement, or procure to implement, all necessary measures to ensure
    that it does not, after the Effective Date, obtain any Confidential Information relating to the
    Divestment Business and that any such Confidential Information obtained by the Notifying Party
    before the Effective Date will be eliminated and not be used by the Notifying Party. This includes
    measures vis-à-vis the Notifying Party’s appointees on the supervisory board and/or board of
    directors of the Divestment Business, if any. In particular, the participation of the Divestment
    Business in any central information technology network shall be severed to the extent possible,
    without compromising the viability of the Divestment Business. The Notifying Party may obtain
    or keep information relating to the Divestment Business which is reasonably necessary for the
    divestiture of the Divestment Business or the disclosure of which to the Notifying Party is required
    by law.
        Non-solicitation and no-hire clause
12. The Notifying Party undertakes, subject to customary limitations, not to solicit, and to procure
    that its Affiliated Undertakings do not induce, encourage or solicit for employment or hire, the
    Personnel transferred with the Divestment Business for a period of [CONFIDENTIAL] after
    Closing.
                                                   5
 ---pagebreak---       Due diligence4
  13. In order to enable potential purchasers to carry out a reasonable due diligence of the Divestment
      Business, the Notifying Party shall, subject to customary confidentiality assurances and dependent
      on the stage of the divestiture process:
               (a) provide to potential purchasers sufficient information as regards the Divestment
                   Business;
               (b) provide to potential purchasers sufficient information relating to the Personnel and
                   allow them reasonable access to the Personnel.
          Reporting5
  14. The Notifying Party shall submit written reports in English on potential purchasers of the
      Divestment Business and developments in the negotiations with such potential purchasers to the
      Commission and the Monitoring Trustee no later than 10 days after the end of every month
      following the Effective Date (or otherwise at the Commission’s request). The Notifying Party
      shall submit a list of all potential purchasers having expressed interest in acquiring the Divestment
      Business to the Commission at each and every stage of the divestiture process, as well as a copy
      of all the offers made by potential purchasers within five days of their receipt.
  15. The Notifying Party shall inform the Commission and the Monitoring Trustee on the preparation
      of the data room documentation and the due diligence procedure and shall submit a copy of any
      information memorandum to the Commission and the Monitoring Trustee before sending the
      memorandum out to potential purchasers.
  Section D.       The Purchaser6
  16. In order to be approved by the Commission, the Purchaser must fulfil the following criteria:
               (a) the Purchaser shall be independent of and unconnected to the Notifying Party and its
                   Affiliated Undertakings (this being assessed having regard to the situation following
                   the divestiture).
               (b) the Purchaser shall have the financial resources, proven expertise and incentive to
                   maintain and develop the Divestment Business as a viable and active competitive force
                   in competition with the Parties and other competitors;
               (c) the acquisition of the Divestment Business by the Purchaser must neither be likely to
                   create, in light of the information available to the Commission, prima facie
                   competition concerns nor give rise to a risk that the implementation of the
                   Commitments will be delayed. In particular, the Purchaser must reasonably be
4
         See footnote 1.
5
         See footnote 1.
                                                       6
 ---pagebreak---                 expected to obtain all necessary approvals from the relevant regulatory authorities for
                the acquisition of the Divestment Business.
17. The final binding sale and purchase agreement (as well as ancillary agreements) relating to the
    divestment of the Divestment Business shall be conditional on the Commission’s approval. When
    the Notifying Party has reached an agreement with a purchaser, it shall submit a fully documented
    and reasoned proposal, including a copy of the final agreement(s), within one week to the
    Commission and the Monitoring Trustee. The Notifying Party must be able to demonstrate to the
    Commission that the purchaser fulfils the Purchaser Criteria and that the Divestment Business is
    being sold in a manner consistent with the Commission's Decision and the Commitments. For the
    approval, the Commission shall verify that the purchaser fulfils the Purchaser Criteria and that the
    Divestment Business is being sold in a manner consistent with the Commitments including their
    objective to bring about a lasting structural change in the market. The Commission may approve
    the sale of the Divestment Business without one or more Assets or parts of the Personnel, or by
    substituting one or more Assets or parts of the Personnel with one or more different assets or
    different personnel, if this does not affect the viability and competitiveness of the Divestment
    Business after the sale, taking account of the proposed purchaser.
Section E.       Trustee
    I.      Appointment procedure
18. The Notifying Party shall appoint a Monitoring Trustee to carry out the functions specified in
    these Commitments for a Monitoring Trustee. The Notifying Party commits not to close the
    Concentration before the appointment of a Monitoring Trustee.
19. If The Notifying Party has not entered into a binding sale and purchase agreement regarding the
    Divestment Business one month before the end of the First Divestiture Period or if the
    Commission has rejected a purchaser proposed by The Notifying Party at that time or thereafter,
    The Notifying Party shall appoint a Divestiture Trustee. The appointment of the Divestiture
    Trustee shall take effect upon the commencement of the Trustee Divestiture Period.
20. The Trustee shall:
    (i)     at the time of appointment, be independent of the Notifying Party and its Affiliated
            Undertakings;
    (ii)    possess the necessary qualifications to carry out its mandate, for example have sufficient
            relevant experience as an investment banker or consultant or auditor; and
    (iii)   neither have nor become exposed to a Conflict of Interest.
21. The Trustee shall be remunerated by the Notifying Party in a way that does not impede the
    independent and effective fulfilment of its mandate. In particular, where the remuneration package
    of a Divestiture Trustee includes a success premium linked to the final sale value of the
    Divestment Business, such success premium may only be earned if the divestiture takes place
    within the Trustee Divestiture Period.
                                                    7
 ---pagebreak---                  Proposal by the Notifying Party
22. The Notifying Party shall submit to the Commission the name or names of one or more natural or
    legal persons whom the Notifying Party proposes to appoint as the Monitoring Trustee to the
    Commission for approval. The Notifying Party shall submit the proposal sufficiently in advance
    to enable the Commission to approve the proposed Monitoring Trustee in conjunction with the
    Decision on the Effective Date.. The proposal shall contain sufficient information for the
    Commission to verify that the person or persons proposed as Trustee fulfil the requirements set
    out in paragraph 20 and shall include:
             (a) the full terms of the proposed mandate, which shall include all provisions necessary
                 to enable the Trustee to fulfil its duties under these Commitments; and
             (b) the outline of a work plan which describes how the Trustee intends to carry out its
                 assigned tasks.
             (c) an indication whether the proposed Trustee is to act as both Monitoring Trustee and
                 Divestiture Trustee or whether different trustees are proposed for the two functions.
                 Approval or rejection by the Commission
23. The Commission shall have the discretion to approve or reject the proposed Trustee(s) and to
    approve the proposed mandate subject to any modifications it deems necessary for the Trustee to
    fulfil its obligations. If only one name is approved, the Notifying Party shall appoint or cause to
    be appointed the person or persons concerned as Trustee, in accordance with the mandate
    approved by the Commission. If more than one name is approved, the Notifying Party shall be
    free to choose the Trustee to be appointed from among the names approved. The Trustee shall be
    appointed within one week of the Commission’s approval, in accordance with the mandate
    approved by the Commission.
                 New proposal by the Notifying Party
24. If all the proposed Trustees are rejected, the Notifying Party shall submit the names of at least
    two more natural or legal persons within one week of being informed of the rejection, in
    accordance with paragraphs 18 and 23 of these Commitments.
                 Trustee nominated by the Commission
25. If all further proposed Trustees are rejected by the Commission, the Commission shall nominate
    a Trustee, whom the Notifying Party shall appoint, or cause to be appointed, in accordance with
    a trustee mandate approved by the Commission.
    II.      Functions of the Trustee
26. The Trustee shall assume its specified duties and obligations in order to ensure compliance with
    the Commitments. The Commission may, on its own initiative or at the request of the Trustee or
    the Notifying Party, give any orders or instructions to the Trustee in order to ensure compliance
                                                      8
 ---pagebreak---       with the conditions and obligations attached to the Decision.
                   Duties and obligations of the Monitoring Trustee
27. The Monitoring Trustee shall:
      (i)      propose in its first report to the Commission a detailed work plan describing how it intends
               to monitor compliance with the obligations and conditions attached to the Decision.
      (ii)     oversee, in close co-operation with the Hold Separate Manager, the on-going management
               of the Divestment Business with a view to ensuring its continued economic viability,
               marketability and competitiveness and monitor compliance by the Notifying Party with
               the conditions and obligations attached to the Decision. To that end the Monitoring
               Trustee shall:
           (a) monitor the preservation of the economic viability, marketability and competitiveness of
               the Divestment Business, and the keeping separate of the Divestment Business from the
               business retained by the Parties, in accordance with paragraphs 8 and 9 of these
               Commitments;
           (b) supervise the management of the Divestment Business as a distinct and saleable entity, in
               accordance with paragraph 10 of these Commitments;
           (c) with respect to Confidential Information:
                      determine all necessary measures to ensure that the Notifying Party does not after
                       the Effective Date obtain any Confidential Information relating to the Divestment
                       Business,
                      in particular strive for the severing of the Divestment Business’ participation in a
                       central information technology network to the extent possible, without
                       compromising the viability of the Divestment Business,
                      make sure that any Confidential Information relating to the Divestment Business
                       obtained by the Notifying Party before the Effective Date is eliminated and will
                       not be used by the Notifying Party, and
                      decide whether such information may be disclosed to or kept by the Notifying
                       Party as the disclosure is reasonably necessary to allow the Notifying Party to carry
                       out the divestiture or as the disclosure is required by law;
           (d) monitor the splitting of assets and the allocation of Personnel between the Divestment
               Business and the Notifying Party or Affiliated Undertakings;
(iii)      propose to the Notifying Party such measures as the Monitoring Trustee considers necessary
           to ensure the Notifying Party’s compliance with the conditions and obligations attached to the
           Decision, in particular the maintenance of the full economic viability, marketability or
           competitiveness of the Divestment Business, the holding separate of the Divestment Business
           and the non-disclosure of competitively sensitive information;
                                                        9
 ---pagebreak---   (iv)      review and assess potential purchasers7 as well as the progress of the divestiture process and
            verify that, dependent on the stage of the divestiture process:
            (a) potential purchasers receive sufficient and correct information relating to the Divestment
                 Business and the Personnel in particular by reviewing, if available, the data room
                 documentation, the information memorandum and the due diligence process, and
            (b) potential purchasers are granted reasonable access to the Personnel;
  (v)       act as a contact point for any requests by third parties, in particular potential purchasers, in
            relation to the Commitments;
  (vi)      provide to the Commission, sending the Notifying Party a non-confidential copy at the same
            time, a written report within 15 days after the end of every month that shall cover the operation
            and management of the Divestment Business as well as the splitting of assets and the
            allocation of Personnel so that the Commission can assess whether the business is held in a
            manner consistent with the Commitments and the progress of the divestiture process as well
            as potential purchasers;
  (vii)     promptly report in writing to the Commission, sending the Notifying Party a non- confidential
            copy at the same time, if it concludes on reasonable grounds that the Notifying Party is failing
            to comply with these Commitments;
  (viii)    within one week after receipt of the documented proposal referred to in paragraph 17 of these
            Commitments, submit to the Commission, sending The Notifying Party a non-confidential
            copy at the same time, a reasoned opinion as to the suitability and independence of the
            proposed purchaser and the viability of the Divestment Business after the Sale and as to
            whether the Divestment Business is sold in a manner consistent with the conditions and
            obligations attached to the Decision, in particular, if relevant, whether the Sale of the
            Divestment Business without one or more Assets or not all of the Personnel affects the
            viability of the Divestment Business after the sale, taking account of the proposed purchaser;
  (ix)      assume the other functions assigned to the Monitoring Trustee under the conditions and
            obligations attached to the Decision.
  28. If the Monitoring and Divestiture Trustee are not the same legal or natural persons, the Monitoring
         Trustee and the Divestiture Trustee shall cooperate closely with each other during and for the
         purpose of the preparation of the Trustee Divestiture Period in order to facilitate each other's tasks.
                     Duties and obligations of the Divestiture Trustee
  29. Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no minimum price the
         Divestment Business to a purchaser, provided that the Commission has approved both the
         purchaser and the final binding sale and purchase agreement (and ancillary agreements) as in line
         with the Commission's Decision and the Commitments in accordance with paragraphs 16 and 17
6
           See footnote 1.
                                                         10
 ---pagebreak---     of these Commitments. The Divestiture Trustee shall include in the sale and purchase agreement
    (as well as in any ancillary agreements) such terms and conditions as it considers appropriate for
    an expedient sale in the Trustee Divestiture Period. In particular, the Divestiture Trustee may
    include in the sale and purchase agreement such customary representations and warranties and
    indemnities as are reasonably required to effect the sale. The Divestiture Trustee shall protect the
    legitimate financial interests of the Notifying Party, subject to the Notifying Party’s unconditional
    obligation to divest at no minimum price in the Trustee Divestiture Period.
30. In the Trustee Divestiture Period (or otherwise at the Commission’s request), the Divestiture
    Trustee shall provide the Commission with a comprehensive monthly report written in English
    on the progress of the divestiture process. Such reports shall be submitted within 15 days after the
    end of every month with a simultaneous copy to the Monitoring Trustee and a non-confidential
    copy to the Notifying Party.
      III.      Duties and obligations of the Parties
31. The Notifying Party shall provide and shall cause its advisors to provide the Trustee with all such
    co-operation, assistance and information as the Trustee may reasonably require to perform its
    tasks. To the extent permitted by law, the Trustee shall have full and complete access to any of
    the Notifying Party’s or the Divestment Business’ books, records, documents, management or
    other personnel, facilities, sites and technical information necessary for fulfilling its duties under
    the Commitments and the Notifying Party and the Divestment Business shall provide the Trustee
    upon request with copies of any document. The Notifying Party and the Divestment Business
    shall make available to the Trustee one or more offices on their premises and shall be available
    for meetings in order to provide the Trustee with all information necessary for the performance
    of its tasks.
32. The Notifying Party shall provide the Monitoring Trustee with all managerial and administrative
    support that it may reasonably request on behalf of the management of the Divestment Business.
    This shall include all administrative support functions relating to the Divestment Business which
    are currently carried out at headquarters level. The Notifying Party shall provide and shall cause
    its advisors to provide the Monitoring Trustee, on request, with the information submitted to
    potential purchasers, in particular give the Monitoring Trustee access to the data room
    documentation and all other information granted to potential purchasers in the due diligence
    procedure. The Notifying Party shall inform the Monitoring Trustee on possible purchasers,
    submit lists of potential purchasers at each stage of the selection process, including the offers
    made by potential purchasers at those stages, and keep the Monitoring Trustee informed of all
    developments in the implementation of the divestiture process.
33. The Notifying Party shall grant or procure Affiliated Undertakings to grant comprehensive
    powers of attorney, duly executed, to the Divestiture Trustee to effect the sale (including ancillary
    agreements), the Closing and all actions and declarations which the Divestiture Trustee considers
    necessary or appropriate to achieve the sale and the Closing, including the appointment of
    advisors to assist with the sale process. Upon request of the Divestiture Trustee, the Notifying
    Party shall cause the documents required for effecting the sale and the Closing to be duly
    executed.
                                                     11
 ---pagebreak--- 34. The Notifying Party shall indemnify the Trustee and its employees and agents (each an
    “Indemnified Party”) and hold each Indemnified Party harmless against, and hereby agrees that
    an Indemnified Party shall have no liability to the Notifying Party for, any liabilities arising out
    of the performance of the Trustee’s duties under the Commitments, except to the extent that such
    liabilities result from the willful default, recklessness, gross negligence or bad faith of the Trustee,
    its employees, agents or advisors.
35. At the expense of the Notifying Party, the Trustee may appoint advisors (in particular for
    corporate finance or legal advice), subject to the Notifying Party’s approval (this approval not to
    be unreasonably withheld or delayed) if the Trustee considers the appointment of such advisors
    necessary or appropriate for the performance of its duties and obligations under the mandate,
    provided that any fees and other expenses incurred by the Trustee are reasonable. Should the
    Notifying Party refuse to approve the advisors proposed by the Trustee the Commission may
    approve the appointment of such advisors instead, after having heard the Notifying Party. Only
    the Trustee shall be entitled to issue instructions to the advisors. Paragraph 34 of these
    Commitments shall apply mutatis mutandis. In the Trustee Divestiture Period, the Divestiture
    Trustee may use advisors who served the Notifying Party during the Divestiture Period if the
    Divestiture Trustee considers this in the best interest of an expedient sale.
36. The Notifying Party agrees that the Commission may share Confidential Information proprietary
    to the Notifying Party with the Trustee. The Trustee shall not disclose such information and the
    principles contained in Article 17 (1) and (2) of the Merger Regulation apply mutatis mutandis.
37. The Notifying Party agrees that the contact details of the Monitoring Trustee are published on the
    website of the Commission’s Directorate-General for Competition and they shall inform
    interested third parties, in particular any potential purchasers, of the identity and the tasks of the
    Monitoring Trustee.
38. For a period of 10 years from the Effective Date the Commission may request all information
    from the Parties that is reasonably necessary to monitor the effective implementation of these
    Commitments.
    III.     Replacement, discharge and reappointment of the Trustee
39. If the Trustee ceases to perform its functions under the Commitments or for any other good cause,
    including the exposure of the Trustee to a Conflict of Interest:
             (a) the Commission may, after hearing the Trustee and the Notifying Party, require the
                  Notifying Party to replace the Trustee; or
             (b) the Notifying Party may, with the prior approval of the Commission, replace the
                  Trustee.
40. If the Trustee is removed according to paragraph 39 of these Commitments, the Trustee may be
    required to continue in its function until a new Trustee is in place to whom the Trustee has effected
    a full handover of all relevant information. The new Trustee shall be appointed in accordance
    with the procedure referred to in paragraphs 18-25 of these Commitments.
                                                      12
 ---pagebreak--- 41. Unless removed according to paragraph 39 of these Commitments, the Trustee shall cease to act
    as Trustee only after the Commission has discharged it from its duties after all the Commitments
    with which the Trustee has been entrusted have been implemented. However, the Commission
    may at any time require the reappointment of the Monitoring Trustee if it subsequently appears
    that the relevant remedies might not have been fully and properly implemented.
 Section E.       The review clause
42. The Commission may extend the time periods foreseen in the Commitments in response to a
    request from the Notifying Party or, in appropriate cases, on its own initiative. Where the
    Notifying Party requests an extension of a time period, it shall submit a reasoned request to the
    Commission no later than one month before the expiry of that period, showing good cause. This
    request shall be accompanied by a report from the Monitoring Trustee, who shall, at the same
    time send a non-confidential copy of the report to the Notifying Party. Only in exceptional
    circumstances shall the Notifying Party be entitled to request an extension within the last month
    of any period.
43. The Commission may further, in response to a reasoned request from the Notifying Parties
    showing good cause waive, modify or substitute, in exceptional circumstances, one or more of
    the undertakings in these Commitments. This request shall be accompanied by a report from the
    Monitoring Trustee, who shall, at the same time send a non-confidential copy of the report to the
    Notifying Party. The request shall not have the effect of suspending the application of the
    undertaking and, in particular, of suspending the expiry of any time period in which the
    undertaking has to be complied with.
 Section F.       Entry into force
44. The Commitments shall take effect upon the date of adoption of the Decision.
……………………………………
duly authorised for and on behalf of Harris Corporation
                                                 13
 ---pagebreak---  ---pagebreak---            1. 7625, 7635 and 7645 Plantation Rd., Roanoke, VA (Building 1), and known as
               Roanoke County, VA Tax Parcel ID 027.06-05-15.00-0000.
           2. 7767 Lila Drive (also known as 7667 Plantation Rd.), Roanoke, VA (Building
               2), and known as Roanoke County, VA Tax Parcel ID 027.06-05-14.01-0000.
           3. 7671 Elon Drive, Roanoke, VA (5.198890 acres of land and Former Building 3)
               and known as Roanoke County, VA Tax Parcel ID 027.10-09-03.00-0000.
      Interests in Real Property
           1. The following ingress and egress easements related to access of Lila Drive:
               o Private Road Easement described in Notes 6 and 7 of Instrument No. 2005-
                   17978;
               o Agreement made by and between John William Jamison and Mary C.
                   Jamison, and O.H. Huffman and Lila E. Huffman, dated June 10, 1958, and
                   recorded June 17, 1958, in Deed Book 596, Page 439;
               o Ingress and Egress Easement granted to Raymond B. Huffman and Florence
                   H. Peters disclosed by instrument recorded as Instrument Number 200605141
                   on April 5, 2006; and
               o Terms and conditions of Road Maintenance Agreement recorded August 5,
                   1998 in Book 1588 Page 465.
     Equipment, machinery, operating supplies, furniture, office equipment, data processing
      equipment, parts, computer equipment, computers and computer peripherals owned and
      primarily used in the Divestment Business. This includes PC/laptops; servers on-site;
      networking equipment; firewall; printers/copiers; mobile devices; voice phones and
      equipment.
      These tangible assets are located at 7635 Plantation Road, Roanoke, Virginia 24019, US.
(b)   The following main intangible assets:
     All original business records located in Roanoke, Virginia and primarily used in the
      Divestment Business, other than certain excluded business records;
     Computer software owned by the Notifying Party and used primarily in the Divestment
      Business;
     The rights and benefits in and to contracts entered into by the Notifying Party and
      primarily related to the Divestment Business, including all government contracts
      (contracts entered with a governmental body or subcontracts or other arrangements to
      provide goods or services to a prime contractor, any governmental body or to a higher-
      tier subcontractor) and government bids (offers, quotations, bids or proposals submitted
      to a governmental body or any higher-tier contractor that, if accepted or awarded, would
      reasonably be expected to result in a government contract);
     All rights and benefits of the credits, prepaid expenses, and deposits relating to the
      contractual obligations to be assumed by Purchaser;
     All trade accounts and notes receivable and other miscellaneous receivables of the
      sellers, whether due from customers, vendors, or suppliers, that arise exclusively from
      the Divestment Business prior to the closing to the extent included in final working
      capital, but excluding any right to payment or repayment of VAT and excluding any
                                                 15
 ---pagebreak---           carve-out accounts or intercompany accounts receivable;
         Rights under express or implied warranties from suppliers of all the transferable assets,
          to the extent transferable and subject to third party consents and novations of government
          contracts;
         All rights to causes of action, guarantees, choses in action, rights of recovery, rights of
          set-off of any kind, lawsuits, claims, bankruptcy claims, or proofs of claims and demands
          of any nature in each case exclusively related to the transferred assets and the assumed
          liabilities;
         All copyrights owned by The Notifying Party and used primarily in the Divested
          Business;
         All trademarks associated with the Divestment Business (except the Harris mark), and
          the goodwill associated with such trademarks. These are listed in Confidential Annex
          CM 3.
         Trade secrets owned by The Notifying Party and used primarily in the Divested Business;
         Certain domain names associated with the Divestment Business. These are;
          dominatethedark.com;              harrisnightvision.com;              nightvision.com;          own-the-
          environment.com;                owntheenvironment.com;                    tacticalnvg.com             and
          https://www.harris.com/what-we-do/night-vision; and
         All of the [CONFIDENTIAL NUMBER] active patents that are primarily used in the
          Divestment Business, among which [CONFIDENTIAL NUMBER] active patents
          protect core next-generation tubes technology. These are listed in Confidential Annex
          CM 5.
         In addition, Harris will grant a non-exclusive, irrevocable, perpetual, and worldwide
          license for no additional consideration to use in the Divestment Business any other IP
          assets owned by Harris as of closing of the divestment that are not transferred or
          otherwise provided to the buyer under the Transitional Services Agreement but that are
          used in the Divestment Business in the twelve months prior to closing of the divestment.9
   (c)    The following main licences, permits and authorisations:
          All permits, to the extent transferable under applicable law, primarily used in the
          Divestment Business or for the Roanoke facility or the ownership or current operation
          thereof.
  (d)     The following main contracts, agreements, leases, commitments and understandings.
          All main contracts, agreements, leases, commitments and understandings entered into
          by the Notifying Party and primarily related to the Divestment Business.
  (e)     The following customer, credit and other records:
          All current customer and supplier contracts entered into by the Notifying Party and
          primarily related to the Divestment Business, regardless of their location.                           All
9
  This provision intends to cover IP assets not transferred, if any, that either are shared or otherwise used by the
  Divestment Business.
                                                         16
 ---pagebreak---            accounting, financial and business records of the Divestment Business, other than certain
           excluded business records.
    (f)    The following personnel:
           All personnel currently working at or assigned to the Divestment Business who accept
           an offer of employment with the Purchaser or one of its Affiliated Undertakings.
    (g)    The following Key Personnel:
           All key personnel currently working at the Divestment Business, as described below:
              [CONFIDENTIAL], Vice President, General Manager;
              [CONFIDENTIAL], Director, Sales;
              [CONFIDENTIAL], Senior Manager, Strategy and Development;
              [CONFIDENTIAL], Director, Program Management;
              [CONFIDENTIAL], Senior Director, Operations;
              [CONFIDENTIAL], Senior Manager, IT;
              [CONFIDENTIAL], Director, Engineering.
           The Notifying Party proposes [CONFIDENTIAL] as the Hold Separate Manager of the
           Divestment Business.
    (h)    In addition, the Divestment Business includes the benefit, for a transitional period of 6
           to 12 months (depending on the service concerned) after the divestment and on terms and
           conditions equivalent to those at present afforded to the Divestment Business, of
           arrangements under which the Notifying Party or its affiliated undertakings supply
           certain support services to the Divestment Business, unless otherwise agreed with the
           Purchaser. These services include general back-office business services (payroll, travel
           and expense administration, credit and purchasing card services, and certain ad hoc
           general back-office business services), human resources services (including access to
           data files, relocation services, benefit management consulting services, employee record
           maintenance services, and system access and maintenance services), IT services
           (enterprise applications, internet and employee productivity applications, connectivity,
           collaboration, and infrastructure services, non-recurring applications support, non-
           recurring connectivity, collaboration, and infrastructure support), and specified
           engineering services (R&D services and the delivery of wafer seal intellectual property).
7. Among other things, the Divestment Business shall not include:
        a) Corporate-wide or division-wide systems, properties and assets not exclusively used in
           the Divestment Business and systems, properties and assets managed by the corporate-
           wide information technology group of the Notifying Party and its Affiliated
           Undertakings, including the assets that will be used by the Notifying Party to provide
           transitional support services to the Divestment Business;
        b) any trademarks other than as set forth in Confidential Annex CM 3;
        c) any patents other than as set forth in Confidential Annex CM 5;
                                                     17
 ---pagebreak--- d) any computer software, domain names, trade secrets and other intellectual property rights
   other than as set forth above and in the Form of Trade Secrets and Know-How
   Assignment (Confidential Annex CM 7);
e) any real property owned, operated, leased, subleased or licensed by, or for which a right
   to use or occupy has been granted to, the Notifying Party, other than as mentioned above.
                                              18
 ---pagebreak---                         8.    LIST OF ANNEXES
Confidential Annex CM 1    Asset Purchase Agreement (“APA”)
Confidential Annex CM 2    Form of Copyright Assignment (Exhibit B to the APA)
Confidential Annex CM 3    Assigned Trademarks (Schedule 2.1(j) to the APA)
Confidential Annex CM 4    Roanoke facility tear sheet
Confidential Annex CM 5    Assigned patents (Schedule 2.1(h) to the APA)
Confidential Annex CM 6    Form of Transition Services Agreement (Exhibit G to the APA)
Confidential Annex CM 7    Form of Trade Secrets and Know-How Assignment (Exhibit F to
                           the APA)
                                           19