[Federal Register: September 1, 1998 (Volume 63, Number 169)]
[Page 46452-46454]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



[Docket 9286]

Summit Technology, Inc.; and VISX, Inc.; Analysis To Aid Public 

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.


SUMMARY: The two consent agreements in these matters settle 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 
the Commission issued on March 24, 1998, and the terms of the consent 
orders--embodied in the consent agreements--that would settle most of 
these allegations.

DATES: Comments must be received on or before November 2, 1998.

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

William Baer or Willard Tom, FTC/H-374, Washington, DC 20580. (202) 
326-2932 or 326-2786.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 

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Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 3.25(f) of the 
Commission's Rules of Practice (16 CFR 3.25(f)), notice is hereby given 
that the above-captioned consent agreements containing consent orders 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, have been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreements, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement packages can be obtained from the FTC Home Page 
(for August 21, 1998), on the World Wide WEb, at ``http://www.ftc.gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, NW., 
Washington, DC 20580, either in person or by calling (202) 326-3627. 
Public comment is invited. Such comments or views will be considered by 
the Commission and will be available for inspection and copying at its 
principal office in accordance with Section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted agreements to proposed 
consent orders from Summit Technology, Inc. (``Summit''), located at 21 
Hickory Drive, Waltham, Massachusetts 02154 and VISX, Inc. (``VISX''), 
located at 3400 Central Expressway, Santa Clara, California 95051.
    The proposed consent orders (``Orders'') have been placed on the 
public record for sixty (60) days for reception of comments by 
interested persons. Comments received during this period will become 
part of the public record. After sixty (60) days, the Commission will 
again review the agreements and the comments received and will decide 
whether it should withdraw from the agreements or make final the 
agreements' proposed orders.
    On March 24, 1998, the Commission issued a complaint alleging that 
Summit and VISX violated Section 5 of the FTC Act, as amended, 15 
U.S.C. Sec. 45 (the ``Complaint''). The Orders, if issued by the 
Commission, would settle all of the allegations of the Complaint 
against Summit and settle part of the allegations of the Complaint 
against VISX (the ``Complaint'').
    The Complaint alleges that Summit and VISX are competitors in the 
market for photorefractive keratectomy (``PRK''), a form of eye surgery 
that corrects refractive vision disorders through the use of 
specialized, computer-guided laser equipment that reshapes the cornea. 
Summit and VISX each own patents related to PRK, and are also the only 
firms whose PRK laser systems have received marketing approval from the 
U.S. Food and Drug Administration.
    As set forth in the Complaint, on or about June 3, 1992, VISX and 
Summit pooled most of their existing patents related to PRK (as well as 
certain future ones) in a newly created partnership called Pillar Point 
Partners (``PPP''). According to the Complaint, this pooling 
arrangement eliminated horizontal competition between VISX and Summit.
    The U.S. Department of Justice and the Federal Trade Commission's 
Antitrust Guidelines for the Licensing of Intellectual Property (April 
6, 1995) (the ``Guidelines'') address the analysis of intellectual 
property licensing in general, and patent pool arrangements such as 
that between Summit and VISX in particular. The Guidelines recognize 
that intellectual property licensing arrangements are ``typically 
welfare-enhancing and procompetitive.'' Guidelines Sec. 3.1. However, 
``antitrust concerns may arise when a licensing arrangement harms 
competition among entities that would have been actual or likely 
potential competitors in a relevant market in the absence of the 
license''--what the Guidelines call a ``horizontal relationship'' Id. 
With respect to pooling arrangements, the Guidelines repeat the same 
analytical principles. The Guidelines note that pooling arrangements 
``may provide procompetitive benefits by integrating complementary 
technologies, reducing transaction costs, clearing blocking positions, 
and avoiding costly infringement litigation.'' Guidelines Sec. 5.5. 
However, where pooling arrangements ``are mechanisms to accomplish 
naked price fixing or market division,'' or where they ``diminish 
competition among entities that would have actual or likely potential 
competitors in a relevant market in the absence of the cross-license'' 
they are subject to challenge. Id.
    In this case, the Complaint alleges that Summit and VISX were 
horizontal competitors at the time they formed PPP, because they could 
and would have competed with one another in the sale or lease of PRK 
equipment by using their own technology embodied in their respective 
patents. In addition, Summit and VISX could have engaged in competition 
with each other in connection with the licensing of technology related 
to PRK. The pooling arrangement restricted both forms of competition. 
Price competition in the sale or lease of PRK equipment was restricted 
because, under the PPP agreement, VISX and Summit were required to pay 
a fixed ``per procedure fee'' to PPP for each PRK procedure performed 
with its machinery That ``per procedure fee''--set at the higher of the 
two proposals submitted by VISX and Summit to PPP ($250)--functioned as 
a price floor. Because each firm was obligated to pay $250 per use into 
the pool, neither had any incentive to lower the usage charge below 
that level. In the absence of the pool, Summit and VISX would have 
competed with each other, resulting in lower prices to doctors and 
consumers for the use of each company's PRK equipment.
    PPP has also had an anticompetitive effect in the market for PRK 
technology licensing. Under the PPP agreement, only PPP can license to 
third parties the PRK patents contributed by VISX and Summit, but VISX 
and Summit each retain a veto power over licensing of any of the 
patents in the pool. In effect, this provision of the pool gave each 
firm a veto over the licensing of the other's patents. Whereas prior to 
the pool, each firm could have licensed its own patents unilaterally, 
after the pool no patent could be licensed without the consent of both 
companies. Since its formation, the Complaint alleges that PPP has not 
licensed its patents to any third-party manufacturers and any offers 
have been economically prohibitive.
    The Guidelines add that if a pooling arrangement has an 
anticompetitive effect in the relevant markets, the Commission should 
consider whether the pool is ``reasonably necessary to achieve 
procompetitive efficiencies.'' Guidelines, Sec. 4.2. In analyzing 
whether the pool is ``reasonably necessary,'' the Guidelines further 
instruct that

    The existence of practical and significantly less restrict 
alternatives is relevant to a determination of whether a restraint 
is reasonably necessary. If it is clear that the parties could have 
achieved similar efficiencies by means that are significantly less 
restrictive, then the [FTC] will not give weight to the parties' 
efficiency claim. In making this assessment, however, the [FTC] will 
not engage in a search for a theoretically least restrictive 
alternative that is not realistic in the practical prospective 
business situation faced by the parties.

    Summit and VISX contended that PPP reduced the uncertainty and 
expense associated with the patent litigation that would have 
inevitably ensued without PPP, and PPP allows both parties to be in the 
market, when patent infringement

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might have precluded one or both from coming to market. As to the first 
part of that argument, Summit and VISX could have achieved these 
efficiencies by any number of significantly less restrictive means, 
including simple licenses or cross-licenses that did not dictate prices 
to users or restrict entry. As to the second part of that argument, the 
Complaint alleges that patent infringement would not have precluded 
either firm from coming to market.
    After concluding that there was reason to believe that the pooling 
of patents by VISX and Summit was anticompetitive and that PPP was not 
reasonably necessary to achieve any procompetitive efficientcies, the 
FTC issued the Complaint. Thereafter, Summit and VISX decided to enter 
into agreements with the FTC to end the dispute. The Order achieve all 
of the goals of Counts I and II of the Complaint. As discussed below, 
PPP has been dissolved and the Orders require Summit and VISX to make 
pricing and licensing decisions independently. In essence, the Orders 
return VISX and Summit to the status of competitors in the PRK 
    The Orders prohibit Summit and VISX (a) from agreeing in any way to 
fix the prices they charge for the use of their PRK lasers and patents, 
including the ``per-procedure fee'' charged to doctors each time he or 
she uses one of the firms' PRK lasers, and (b) from agreeing in any way 
to restrict each other's licensing rights and decisions for their PRK 
lasers and patents.
    The Orders require Summit and VISX to cross-license, on a royalty-
free and non-exclusive basis the patents each firm contributed to PPP. 
Although the Complaint contends that VISX and Summit could have 
competed absent the pool, subsequent sunk-cost investments in reliance 
on the pool make a cross-license desirable to approximate the 
competitive conditions that would have been achieved by this point in 
time had the pool not been formed.
    The Orders also require Summit and VISX (a) to take no action 
inconsistent with the dissolution of PPP, except to the extent 
necessary for PPP to wind up its affairs and to defend or settle 
litigation in which it is a defendant, and (b) to return the PPP 
patents to the firm that contributed them to PPP.
    The Orders further require Summit and VISX to give notice of the 
Orders to any person that previously requested a license to use any of 
the PPP patents in the manufacture, assembly or sale of PRK equipment 
since June 3, 1992 (the date PPP was created). Summit and VISX must 
also give notice to their customers that they have the opportunity to 
stop using the lasers without any penalty or continuing obligation 
(with certain exceptions as set forth in the Orders). Customers that 
entered into any agreement with Summit or VISX between June 3, 1992 
(the date PPP was formed) and June 5, 1998 (the date of PPP's 
dissolution) that included an obligation to pay a per-procedure fee to 
license any of the PPP patents will have the opportunity to stop using 
the laser covered by the patents and negotiate a new licensing 
agreement with their current licensor or, alternatively, seek a 
licensing agreement with a competitor. This provision is necessary to 
restore competitive conditions to those which would have existed had 
there been no pool at the time these contracts were entered into.
    The Orders also compel Summit and VISX to fulfill certain standard 
notification, reporting and inspection requirements.
    The Orders will terminate upon the expiration of the last PPP 
patent to expire.
    The purpose of this analysis is to facilitate public comment on the 
Orders, and it is not intended to constitute an official interpretation 
of the agreements and the Orders or to modify them in any way. 
Additionally, the proposed consent orders have been entered into for 
settlement purposes only, and do not constitute admissions by Summit 
and VISX that the law has been violated as alleged in the Complaint.

    By direction of the Commission.
Donald S. Clark,
[FR Doc. 98-23448 Filed 8-31-98; 8:45 am]