[Federal Register: February 12, 2001 (Volume 66, Number 29)]
[Notices]               
[Page 9851-9855]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12fe01-67]                         

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FEDERAL TRADE COMMISSION

[File No. 991 0301]

 
The Dow Chemical Company, et al.; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the complaint that 
accompanies the consent agreement and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before March 7, 2001.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Rhett Krulla, FTC/S-3105, 600 
Pennsylvania Ave., NW., Washington, DC 20580. (202) 326-2608.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's Rules of Practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted by the 
Commission, has been placed on the public record for a period of thirty 
(30) days. The following Analysis to Aid Public Comment describes the 
terms of the consent agreement, and the allegations in the complaint. 
An electronic copy of the full text of the consent agreement package 
can be obtained from the FTC Home Page (for February 5, 2001), on the 
World Wide Web, at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.ftc.gov/os/2001/02/index.htm. A paper 
copy can be obtained from the FTC Public Reference Room, H-130, 600 
Pennsylvania Avenue, NW., Washington, DC 20580, either in person or by 
calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW., 
Washington, DC 20580. Two paper copies of each comment should be filed, 
and should be accompanied, if possible, by a 3\1/2\ inch diskette 
containing an electronic copy of the comment. Such comments or views 
will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of the Complaint and Proposed Consent Order To Aid Public 
Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment a Decision and Order (``Order''), pursuant to an 
Agreement Containing Consent Orders (``Consent Agreement''), against 
The Dow Chemical Company (``Dow'') and Union Carbide Corporation 
(``Carbide'') (collectively ``Respondents''). The Order is intended to 
resolve anticompetitive effects stemming from the proposed merger of 
Dow and Carbide (the ``Merger''). As described below, the Order seeks 
to remedy anticompetitive effects of the merger in polyethylene, 
ethyleneamines, ethanolamines and methyldiethanolamine (``MDEA''). The 
Order remedies those anticompetitive effects by requiring Respondents 
to divest and license certain intellectual property and other assets 
relating to polyethylene to BP Amoco plc (``BP''); to divest Dow's 
worldwide businesses in ethyleneamines to Huntsman International LLC 
(``Huntsman''); and to divest Dow's worldwide ethanolamines

[[Page 9852]]

business and its MDEA business in the United States and Canada to Ineos 
Group plc (``Ineos''). The Commission has also issued an Order to 
Maintain Assets that requires Respondents to preserve the businesses 
they are required to divest as a viable, competitive, and ongoing 
operation until the divestiture is achieved.
    The Order, if finally issued by the Commission, would settle 
charges that the Merger may have substantially lessened competitive in 
the markets for polyethylene and Polyethylene technology, 
ethyleneamines, ethanolamines and MDEA. The Commission has reason to 
believe that the Merger would violate Section 7 of the Clayton Act and 
Section 5 of the Federal Trade Commission Act. The proposed complaint, 
described below, relates the basis for this belief.

II. Description of the Parties and the Proposed Merger

    Dow, headquartered in Midland, Michigan, is a large, worldwide 
chemical company, with particular strength in polyethylene, the world's 
most widely used plastic, and in key technologies relating to the 
manufacture of polyethylene. Carbide, headquartered in Danbury, 
Connecticut, is also a large, worldwide chemical company, and a leading 
developer and licensor of polyethylene process technology.
    Pursuant to a merger agreement dated August 8, 1999, Dow and 
Carbide propose to merge in a transaction pursuant to which Carbide 
shareholders would exchange their shares for shares of Dow.

III. The Proposed Complaint

    According to the Commission's proposed complaint, the merger would 
substantially reduce competition in four lines of commerce: linear low 
density polyethylene (``LLDPE'') in the United States and Canada, and 
related technology (both metallocene catalysts and reactor processes) 
worldwide; the worldwide market for metallocene catalysts for use in 
producing LLDPE; the worldwide market for LLDPE reactor process 
technology; the worldwide market for ethyleneamines; the worldwide 
market for ethanolamines; and the market for branded MDEA in the United 
States and Canada.

A. Count One: Polyethylene

    The proposed complaint alleges that the merger would substantially 
reduce competition in polyethylene. Three interrelated polyethylene 
markets are affected by the merger: (1) LLDPE in the United States and 
Canada; (2) metallocene catalysts for LLDPE production worldwide; and 
(3) LLDPE reactor process technology worldwide. As alleged in the 
proposed complaint and described below, the reduction or elimination of 
competition in metallocene catalyst technology, resulting from the 
merger, in turn reduces competition in LLDPE itself and in LLDPE 
reactor process technology. The reduction in competition in LLDPE 
process technology in turn further reduces competition in LLDPE.
    Polyethylene is the world's most widely used plastic, and LLDPE is 
the fastest growing type of polyethylene. LLDPE is particularly well 
suited for applications that require both flexibility and strength. One 
of the most significant uses of LLDPE is in making trash bags, and 
LLDPE is used to make bags out of plastic films that are strong, thin 
and puncture resistant. Dow and Carbide are leading producers of LLDPE 
in the United States and Canada, and throughout the world.
    The proposed complaint alleges that LLDPE is a differentiated 
product, and that Dow and Carbide are among the LLDPE producers that 
have succeeded in developing specialty, high performance polymers 
demanded by significant users of LLDPE (notably makers of branded trash 
bags and cast stretch film).\1\ Dow has historically led the industry 
in production and sale of premium LLDPE polymers tailored to deliver 
performance characteristics demanded by many LLDPE users, and has been 
able to sell premium LLDPE at premium prices.
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    \1\ In a differentiated product market, the merger of firms 
whose products are closer substitutes is more likely to result in a 
significant lessening of competition, because sales that (pre-
merger) one of the merging parties would have lost to the other, in 
the event of a price increase, would now be retained by the merged 
firm. U.S. Dep't of Justice & Federal Trade Comm'n, Horizontal 
Merger Guidelines Sec. 2.21; FTC v. Swedish Match, slip op. 33-34 
(D.D.C. Dec. 14, 2000) (Civ. No. 00-1501 TFH)
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    Polyethylene is made in polymerization reactions in the presence of 
a catalyst. Both the reactor technology and the catalyst technology are 
patented, and both Dow and Carbide are leading developers of reactor 
technology. Carbide's reactor technology, called ``Unipol,'' is the 
world's most widely licensed polyethylene process technology. The other 
significant licensed LLDPE technology is ``Innovene,'' owned by BP. 
Both Unipol and Innovene make polyethylene in a process in which 
ethylene is in a gaseous form during polymerization (``gas phase''). 
Dow's reactor technology, which Dow does not license, polymerizes 
ethylene in solution. The large majority of LLDPE reactor capacity is 
gas phase rather than solution.
    Dow and Exxon Mobil Corp. (``Exxon'') have succeeded in developing 
and commercializing ``metallocene'' catalysts, which represent a 
significant advance over conventional LLDPE catalysts. The proposed 
complaint alleges that, if metallocene catalysts were generally 
available to LLDPE producers, those producers likely would be able to 
erode Dow's position as the world's leading producer of premium LLDPE 
polymers.
    Both Dow and Exxon entered into joint ventures with the leading gas 
technology firms (BP and Carbide, respectively) to develop and 
commercialize metallocene catalysts for use in gas reactors. Both the 
Dow/BP joint development program and the Exxon/Carbide joint venture, 
Univation Technologies LLC (``Univation''), succeeded in adapting 
metallocene catalysts for use in gas reactors; both sought to license 
that technology to other gas-process LLDPE producers; and both indeed 
sold licenses to metallocene catalysts for gas reactors.
    In 1999, however, Dow entered into an agreement to merge with 
Carbide, which would result in Dow becoming a partner with Exxon in 
Univation. As alleged in the proposed complaint, at or about the time 
Dow entered into the merger agreement with Carbide, Dow determined that 
it would not continue its joint development program with BP, and that 
it would not license its metallocene catalyst to BP (with rights to 
sublicense), thereby effectively terminating any ability by BP to 
license metallocene catalysts in competition with Univation (in which 
Dow would, as a result of the merger, succeed to Carbide's interest).
    The proposed complaint alleges that each of the polyethylene 
markets would be highly concentrated as a result of the merger. The 
proposed complaint further alleges that Dow and Carbide are direct and 
significant actual competitors in the market for LLDPE in the United 
States and Canada; that Dow and Carbide (through Univation) are direct 
and significant actual competitors in the market for metallocene 
catalyst technology worldwide; and that Dow and Carbide are actual and 
potential competitors in the market for LLDPE process technology 
worldwide. The proposed complaint further alleges that, as part of its 
course of dealing in connection with the merger, Dow's actions 
terminating the Dow/BP joint development program and refusing to 
license metallocene catalysts to BP significantly reduced competition 
in LLDPE process technology by impairing

[[Page 9853]]

BP's ability to compete in that market.\2\ The proposed complaint also 
alleges that entry into the relevant markets would not be timely, 
likely, or sufficient to deter or offset adverse effects of the 
acquisition on competition.
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    \2\ The Commission can, under Section 5 of the FTC Act, 15 
U.S.C. 45, infer that facially independent actions or agreements 
nonetheless constitute intertwined events that should be considered 
together for the purpose of evaluating whether their effect 
constitutes a violation of the Act. SKF Industries, Inc., 94 F.T.C. 
6, 95 (1979). The proposed complaint alleges that Dow's decision to 
enter into the merger agreement with Carbide, and its decisions (1) 
to allow the Dow/BP joint development agreement to expire by its 
terms and (2) not to license its metallocene technology to BP, are 
sufficiently related to consider together in examining the effects 
of the merger.
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    The proposed complaint alleges that Respondents' merger would 
eliminate actual or potential, direct, and substantial competition 
between Respondents in the relevant markets. Elimination of this 
competition would likely result in increased prices for LLDPE polymers, 
metallocene technology licenses and LLDPE process technology licenses; 
and lessened innovation in each of these markets. Specifically, by 
eliminating BP as an alternative source of metallocene catalysts for 
Dow's competitors (the majority of which use gas phase LLDPE reactor 
technology), and by acquiring Carbide's interest in Univation, Dow 
would be in a position to impede the development, licensing and use of 
metallocene catalysts and thereby benefit Dow's own polyethylene 
business. The merger (and the related termination of the BP/Dow joint 
development agreement) would also lessen BP's ability to compete with 
Univation in polyethylene process technology, and thereby further 
impair competition in polyethylene.

B. Count Two: Ethyleneamines

    Ethyleneamines are a family of chemicals containing at least one 
ethylene and one amine molecule and are used in a broad variety of 
applications, including lubricating oil additives, chelating agents, 
wet-strength resins, epoxy curing agents, surfactants, personal care 
products, pulp and paper products, and fungicides. Dow and Carbide are 
the only producers of ethyleneamines in the United States and Canada, 
and together sold approximately $170 million worth of ethyleneamines in 
1999. There are no cost-effective substitutes for ehtyleneamines in the 
end-uses for which they are used.
    Dow and Carbide compete in the United States and Canada in the 
production and sale of ethyleneamines, and also compete outside the 
United States and Canada. The proposed complaint alleges that the 
United States and Canada constitute a properly defined geographic 
market, and that the world also constitutes a properly defined 
geographic market. Whether the market is defined as the United States 
and Canada (in which Dow and Carbide are the only producers) or the 
world (in which the market is highly concentrated, and Dow and Carbide 
combined would have more than 50% of worldwide capacity), the merger 
would result in a highly concentrated market, and concentration would 
increase substantially. The proposed complaint alleges that entry would 
not be timely, likely or sufficient to constrain an anticompetitive 
price increase or reduction in output.

C. Count Three: Ethanolamines

    Ethanolamines are a family of chemicals, comprising 
monoethanolamine (``MEA''), deithanolamine (``DEA''), and 
triethanolamine (``TEA''), made by reacting ethylene oxide and ammonia. 
Ethanolamines are used in a broad variety of applications, including 
the production of ethyleneamines, and in surfactants, personal care 
products, herbicides, oil and gas refining applications, 
pharmaceuticals and fabric softeners. The proposed complaint alleges 
that there are no cost-effective substitutes for ethanolamines in the 
end-uses for which they are used, and that the proper geographic market 
to analyze the effect of the merger on the sale of ethanolamines is the 
United States and Canada.
    Carbide and Dow are the largest and third largest producers, 
respectively, of ethanolamines in the United States and Canada. As a 
result of the merger, proposed Respondents would have more than 60% of 
sales in the relevant market, and two firms would have more than 90%. 
The proposed complaint alleges that entry would be unlikely to remedy 
the likely anticompetitive effects of the merger.

D. Count Four: MDEA-Based Gas Treating Products

    Methyldiethanolamine (``MDEA'') is a powerful solvent used in gas 
treating to remove unwanted compounds from gas streams. MDEA is used in 
oil refineries, natural gas plants, ammonia plants and other facilities 
that handle hydrocarbon gases. While some MDEA is sold alone, a 
substantial portion of the MDEA sold in the United States and Canada is 
sold blended with additives and other chemicals, including 
ethanolamines, and is sold on a branded basis. Branded MDEA is often 
sold bundled with engineering services relating to gas treating.
    The proposed complaint alleges that MDEA-based gas treating 
products constitute a relevant product market and that the United 
States and Canada constitute a relevant geographic market. As alleged 
in the proposed complaint, because of the high cost associated with 
failure of gas treating products, customers that purchase MDEA-based 
gas treating products would be unlikely to substitute commodity MDEA in 
the event of a small but significant, nontransitory price increase of 
MDEA-based gas treating products. Dow and Carbide are the two largest 
sellers of MDEA-based gas treating products. As a result of the merger, 
Respondents would have approximately 60% of the relevant market, and 
three firms would have approximately 90% of that market. The proposed 
complaint alleges that entry is unlikely to counteract the competition 
lost by the merger.

IV. Terms of the Agreement Containing Consent Order

    The proposed Order is designed to remedy the anticompetitive 
effects of the merger in the markets alleged in the proposed complaint, 
as described below.

A. Polyethylene

    The proposed Order would remedy the anticompetitive effects of the 
merger by (1) allowing BP to develop and license metallocene catalysts 
to the majority of LLDPE producers worldwide, i.e., those that make 
LLDPE in gas phase reactors, without being subject to patent claims by 
Dow, Univation or Exxon; and (2) enabling Exxon to develop and license 
metallocene catalysts and Unipol reactor process technology 
independently of Dow, should Dow's participation in Univation frustrate 
Exxon's interest in developing and licensing that technology.
    Section VI of the proposed Order would enable BP to develop and 
license metallocene catalysts by (1) divesting to BP Dow's interest in 
the intellectual property developed jointly by Dow and BP, to which 
BP's rights were uncertain as a result of Dow's decision to terminate 
the joint development effort without resolving the ownership of those 
rights; (2) divesting Dow's remaining intellectual property (and 
related assets) specific to the gas phase process; (3) licensing Dow's 
metallocene catalyst technology to BP, with the right to sublicense 
that technology; and (4) licensing to BP, with rights to sublicense, 
Exxon patents controlled by

[[Page 9854]]

Univation that otherwise would expose BP's efforts to develop, 
commercialize and license metallocene catalysts to infringement suit 
brought by Exxon or Univation. The divestiture and license would be 
made pursuant to a Divestiture and License Agreement executed by Dow 
and BP, which agreement is incorporated in and made part of the 
proposed Order.\3\
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    \3\ That Divestiture and License Agreement is confidential and 
is not being placed on the public record. However, that Agreement 
may not contradict the terms of the proposed Order.
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    The purpose of the divestiture and license of intellectual property 
and related assets to BP is to enable BP to compete with Univation in 
developing, commercializing and licensing metallocene technology, 
remedying the anticompetitive effect in the market for metallocene 
catalyst technology. Moreover, by allowing BP to offer metallocene 
catalysts in connection with licenses of its Innovene gas phase reactor 
technology, the proposed Order is intended to preserve the viability of 
that technology as an alternative to Carbide's Unipol technology 
(which, through Univation, can offer metallocene technology). By 
preserving competition in both metallocene catalyst technology and 
LLDPE reactor process technology, the proposed order would allow BP 
licenses (or future licensees) in the United States and Canada to 
obtain metallocene catalysts from a source not controlled by Dow, 
thereby preserving metallocenes as a threat to Dow's premium polymer 
business, and providing a reactor process technology solution 
(including metallocenes) independent of Respondents.
    Section VII of the proposed Order enables Exxon to retain rights, 
including the right to sublicense, in all Univation technology and in 
Carbide's Unipol process should the Univation venture be dissolved or 
should Dow come to control the Univation venture. The grant of this 
right to Exxon provides additional remedy to the anticompetitive 
effects alleged in the proposed complaint by allowing Exxon to develop 
and license the Unipol process independently of Dow, should Dow seek to 
impede Univation's licensing business for the benefit of Dow's 
polyethylene business.

B. Ethyleneamines

    The provisions of Section II of the proposed Order would remedy the 
anticompetitive effects in the markets for ethyleneamines, as alleged 
in Count Two of the proposed complaint, by requiring proposed 
Respondents to divest Dow's global ethyleneamines business to Huntsman, 
a worldwide producer of chemicals and plastics, including ethylene 
derivatives. Huntsman does not today produce ethyleneamines.
    If the Commission, at the time that it makes the proposed Order 
final, notifies Respondents that it does not approve of the proposed 
divestiture to Huntsman, or the manner of the divestiture, the proposed 
Order provides that Respondents would rescind the sale to Huntsman and 
divest Dow's global ethyleneamines business within six months to an 
acquirer approved by the Commission and in a manner approved by the 
Commission. If Respondents did not complete the divestiture in that 
period, a trustee would be appointed who, upon Commission approval, 
would have the authority to divest Dow's global ethyleneamines business 
to a Commission-approved acquirer.

C. Ethanolamines

    The provisions of Section III of the proposed Order would remedy 
the anticompetitive effects in the markets for ethanolamines, as 
alleged in Count Three of the proposed complaint, by requiring proposed 
Respondents to divest Dow's global ethanolamines business to Ineos, a 
producer of ethylene derivatives and other chemicals which does not 
today produce ethanolamines.
    If the Commission, at the time that it makes the proposed Order 
final, notifes Respondents that it does not approve of the proposed 
divestiture to Ineos, or the manner of the divestiture, the proposed 
Order provides that Respondents would rescind the sale to Ineos and 
divest Dow's global ethanolamines business within six months to an 
acquirer approved by the Commission and in a manner approved by the 
Commission. If Respondents did not complete the divestiture in that 
period, a trustee would be appointed who, upon Commission approval, 
would have the authority to divest Dow's global ethanolamines business 
to a Commission-approved acquirer.

D. MDEA-Based Gas Treating Products

    The provisions of Section IV of the proposed Order would remedy the 
anticompetitive effects in the markets for MDEA-based gas treating 
products, as alleged in Count Four of the proposed complaint, by 
requiring proposed Respondents to divest Dow's ``Gas Spec'' MDEA 
business to Ineos.
    If the Commission, at the time that it makes the proposed Order 
final, notifies Respondents that it does not approve of the proposed 
divestiture to Ineos, or the manner of the divestiture, the proposed 
Order provides that Respondents would rescind the sale to Ineos and 
divest Dow's Gas Spec MDEA business within six months to an acquirer 
approved by the Commission and in a manner approved by the Commission. 
If Respondents did not complete the divestiture in that period, a 
trustee would be appointed who, upon Commission approval, would have 
the authority to divest Dow's Gas Spec MDEA business to a Commission-
approved acquirer.

E. Other Provisions of the Proposed Order

    The proposed Order requires Respondents to provide the Commission 
with an initial report setting forth in detail the manner in which 
Respondents will comply with the provisions relating to the divestiture 
of assets. The proposed Order further requires Respondents to provide 
the Commission with a report of compliance with the Order within thirty 
(30) days following the date the Order becomes final and every thirty 
(30) days thereafter until they have complied with the terms of the 
Order.

F. The Order To Maintain Assets

    Respondents have also agreed to the entry of an Order to Maintain 
Assets, which has been entered by the Commission and is effective 
immediately. The Order to Maintain Assets requires Respondents to 
preserve the ethyleneamine, ethanolamine and MDEA businesses that they 
are required to divest as viable and competitive businesses and conduct 
the businesses in the ordinary course of business until those 
businesses are divested to the Commission-approved acquirer. The Order 
to Maintain Assets also requires Respondents to preserve and maintain 
the polyethylene assets to be divested and licensed to BP.

V. Opportunity for Public Comment

    The proposed Order has been placed on the public record for thirty 
(30) days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the proposed Order 
and the comments received and will decide whether it should withdraw 
from the proposed Order or make it final. By accepting the proposed 
Order subject to final approval, the Commission anticipates that the 
competitive problems alleged in the proposed complaint will be 
resolved. The purpose of this analysis is to invite public comment on 
the

[[Page 9855]]

proposed Order, including the proposed divestiture, to aid the 
Commission in its determination of whether to make the proposed Order 
final. This analysis is not intended to constitute an official 
interpretation of the proposed Order, nor is it intended to modify the 
terms of the proposed Order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-3494 Filed 2-9-01; 8:45 am]
BILLING CODE 6750-01-M