This Document Filed September 25, 1998
RONALD S. KATZ, ESQ.
General Counsel, ISNI
Coudert Brothers
4 Embarcadero Center, Ste. 3300
San Francisco CA 94111
Telephone: 415-986-1300
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION
United States of America,
Plaintiff,
v.
General Electric Company,
Defendant.
PUBLIC COMMENT OF
INDEPENDENT SERVICE NETWORK INTERNATIONAL
PURSUANT TO 15 U.S.C. §16(b),(d)
Pursuant to 15 U.S.C. §16(b),(d), of the Antitrust Procedures and Penalty
Acts ("APPA") Independent Service Network International ("ISNI"),
a trade association of 157 maintainers of high technology equipment,
including medical equipment of the type at issue in this matter
(Endnote1), submits this public comment to the Competitive
Impact Statement ("CIS") published in the Federal Register
at 63 FR 40737.
1. INTRODUCTION
This proposed consent decree grants GEMS the right to commit a per
se violation of the antitrust laws, i.e., to prohibit hospital service
organizations from licensing GEMS' advanced service materials unless
the hospital agrees that such service materials may not be used by part-time
employees. As will be detailed below, there is no justification for
such a limitation, which could well distort the market, particularly
in sparsely populated areas like Montana. Because per se violations
of the antitrust laws are by definition contrary to public policy, it
is not possible for the Court to make a determination that this consent
decree is in the public interest pursuant to §(e) of the APPA.
A public interest determination is particularly important in this case
because it involves the cost of healthcare, a subject important to all
Americans, and because GEMS has a high market share in the relevant
markets, which it has extended through recent aggressive transactions
unopposed by the Government. Therefore, pursuant to APPA §(f) and based
on the showing detailed below, ISNI respectfully requests that the Court
not make a determination that this consent decree is in the public interest.
ISNI also respectfully requests that the Court authorize ISNI to appear
at any hearing that the Court may convene in order to determine whether
this consent decree is in the public interest.
II. ISNI AND ITS INTEREST IN THIS PROCEEDING
ISNI, an association of 157 independent service organizations ("ISOs"),
i.e., organizations servicing equipment manufactured by others (see
Betzner Decl., Exhibit B for a list of members), is a non-profit corporation
incorporated in the District of Columbia. In competition with the service
organizations of manufacturers, the members of ISNI service various
types of high-technology equipment, including medical equipment of the
type that is the subject of the CIS. ISNI's members account for over
$1.5 billion in commerce.
The purpose of ISNI for the past fourteen years has been to promote
and maintain a closer union and organization of ISOs. Specifically,
ISNI develops educational methods to increase awareness about ISOs and
studies economic and legal problems confronting them. ISNI also serves
as a clearing house for information and data relating to its members'
businesses and ISNI promotes better relations among providers, distributors
and manufacturers of supplies and services.
ISNI appears in Appendix C of the Pre-discovery Disclosure Statement
of the United States filed in this matter on May 16, 1997. Page C-1
of that document is headed "List of individuals who may have relevant
information" and number four under that heading reads:
Individuals associated with industry associations ... that likely
possess information pertaining to: a) the prices of medical equipment;
b) the functions of different types of medical equipment; c) regulations
for imaging equipment; and/or d) market data, including trends
in the medical equipment or service industries. (See Appendix C-58
to C-60.)
The seventh name listed on page C-58 of that document is that of Claudia
Betzner, ISNI's Executive Director. Therefore, the Government acknowledges
that ISNI has relevant information related to the proceeding.
ISNI has participated in various legal proceedings on behalf of its
members. For example, ISNI, then known as Computer Service Network International,
filed a friend-of-the-court brief which was cited by the United States
Supreme Court in its landmark antitrust decision concerning service
aftermarkets, Eastman Kodak Co. v. Image Technical Services, Inc.,
et al., 504 U.S. 451, 462 n.6 (1992). Also, pursuant to the order
of Chief Judge Thomas P. Griesa of the Southern District of New York
(Betzner Decl., Exhibit C), ISNI has been granted the right to intervene
for purposes of appeal in the proceeding concerning the termination
of the IBM consent decree, United States of America v. International
Business Machines Corporation, 52 CIV. 72-344 (TPG), currently pending
the U.S. Court of Appeals for the Second Circuit. ISNI has filed a brief
in that proceeding.
In his order, Judge Griesa found that "ISNI has a legitimate interest
in appealing from the May ruling, and it is in the public interest to
allow ISNI to appeal" (Id. at 2). Similarly, it is in the
public interest for ISNI to intervene in this proceeding because, as
a result of GEMS' anticompetitive practices, a dwindling number of its
members compete with GEMS to service the equipment involved in this
case. The reasons that the number is dwindling are that GEMS has a large
market share; it has aggressively extended that market share through
the transactions described below, unopposed by the U.S. government;
and its advanced diagnostics are an essential facility necessary to
compete in the relevant markets. Now GEMS may further its stranglehold
on the service market by precluding, pursuant to the Proposed Final
Judgment, ISOs and hospital service organizations from cooperating in
certain ways, such as ISOs providing part-time employees for hospital
service organizations, serving as agents for hospital service organizations,
or joint-venturing with hospital service organizations.
Such cooperation is particularly important in sparsely populated areas
like Montana, which may not have enough medical equipment of various
types to justify full-time employees. Like businesses throughout history,
hospital service organizations may find it most efficient from time
to time to employ part-time personnel, and, depending on market conditions,
it may be economic for an ISO to provide such part-time personnel. The
Proposed Final Judgment, however, prevents this perfectly normal working
of a free and open market.
The reasons that it is in the public interest for ISNI to intervene
in this matter are cogently set forth in the Government's complaint
in this matter. The complaint clearly targets GEMS' practice of constraining
competition from the hospital or its employees. For example,
paragraph 32 of the Complaint describes how under the offending GEMS
licensing agreements, "... the hospitals also agreed to prohibit
their service employees from competing with G.E. during the employees'
business and off hours" (emphasis added).
Paragraph 33 of the Complaint quotes a "continuing representation"
from the hospitals in GE's standard licensing agreement: "You [the
hospital] have no full or part-time employee who services any
type of medical equipment of any person or entity other than you"
(emphasis added). Paragraph 37 of the Complaint states that to effectuate
"...its agreements not to compete, G.E. ... provided valuable advanced
diagnostics and training in exchange for the licensees' commitment that
neither the licenseesnor their employees would compete with G.E.
in servicing medical equipment or provide service for medical equipment
sold to other health care facilities by GE's competitors; and ... sought
to enforce the agreements not to compete when it discovered that licensees
or their employees were servicing other health care providers'
medical equipment" (emphasis added).
These agreements against hospitals and their employees resulted
in the following "Harm to Competition" described in the Complaint:
38. GE's agreements with its licensees have eliminated significant
actual or potential high-quality, low-cost competitors throughout
the United States from numerous markets for servicing medical equipment.
* * *
40. Throughout the United States, health care providers that use
imaging equipment have been forced to pay supra-competitive prices
to have their equipment serviced.
41. Medical equipment owners and operators, and their patients, have
been denied the benefits of free and open competition in the servicing
of medical equipment in Montana and throughout the United States.
42. Medical equipment owners and operators, and their patients, have
been denied the benefits of free and open competition in the sale
of medical equipment in Montana and throughout the United States.
43. Less service has been purchased by medical equipment owners and
operators than would have been purchased in the absence of GE's restraints.
44. By preventing hospitals with in-house service organizations from
servicing other manufacturers' equipment, GE's agreements have made
it more costly and difficult for those manufacturers to sell their
imaging equipment in areas where they lack a significant installed
base.
45. GE's agreements with its licensees in Montana have disadvantaged
many of GE's competitors in selling imaging equipment in Montana and
have reduced customer choice.
Despite these pernicious effects, the government has agreed in §V(g)
of the Proposed Final Judgment in this matter that GE is not prohibited
"...from agreeing with a licensee of Defendant's Operating and
Service Materials that such materials may be used only by the Licensee's
full-time employees." As will be detailed below, there is no justification
whatsoever for this agreement, which distorts the workings of free and
open competition. It is a per se violation of the antitrust laws,
which by definition is not in the public interest and should not be
countenanced by this Court.
III. GEMS' MONOPOLY AND ITS SUCCESSFUL EFFORTS TO MAINTAIN AND EXTEND
IT
According to its own press release, "G.E. Medical Systems, based
in Milwaukee, WIS., is a $4.5 billion global provider of medical diagnostic
imaging systems, services and solutions with 16,000 employees worldwide."
(Betzner Decl., Exhibit A.) According to the Complaint in this matter,
"health care providers spend over three billion dollars each year
to service and repair all types of medical equipment" (para. 1),
"GE is the world's largest manufacturer of imaging equipment"
(para. 4), and GE's licensing agreements with hospitals "...reduced
competition in servicing medical equipment" (para. 5).
Furthermore, GEMS has extended and maintained its market power by a
number of recent aggressive transactions unopposed by the U.S. government:
- August, 1994: strategic alliance with Advanced NMR Systems, Inc.
regarding very high field magnetic resonance systems. (Betzner Decl.,
Exhibit D.)
- June, 1995: five-year agreement with Columbia/HCA Healthcare Corp.
covering the service of all diagnostic imaging equipment in the hospital
chain, which at that time consisted of 320 hospitals. (Id.,
Exhibit E.)
- February, 1996: acquisition of National Medical Diagnostics, Inc.,
which at the time of acquisition provided medical equipment maintenance
services to 220 hospitals in 23 states. (Id., Exhibit F.)
- August, 1996: acquisition of Specialty Underwriters, a seller of
maintenance insurance to the healthcare industry, and Maintenance
Management, which provides service for medical equipment. (Id.,
Exhibit G.)
- August, 1997: investment of $5.1 million in Advanced NMR Systems,
Inc., an extension of the August 1994 alliance described above. (Id.,
Exhibit H.)
- December, 1997: five-year marketing pact with INPHACT, a provider
of on-line radiology services for radiologists. (Id., Exhibit
I.)
- August, 1998: acquired Serviscope, a medical equipment maintenance
and asset management company that was one of the few potential candidates
to compete with GEMS to acquire Innoserv. (Id. at para 6.)
- September, 1998: pending acquisition of imaging business of Elscint
(Id., Exhibit J).
With each of these transactions, GEMS got stronger both absolutely
and also relative to its much smaller hospital and ISO competitors.
For GEMS to dictate when these hospital competitors can use part-time
employees distorts free and open competition and has no justification
whatsoever.
IV. NON-COMPLIANCE WITH THE APPA
A. The CIS Does Not Provide the Required Information on the Restrictions
on Part-time Employees
§(b)(3) of the APPA requires the CIS to recite "an explanation
of the proposal for a consent judgment, including an explanation of
... relief to be obtained thereby, and the anticipated effects on competition
of such relief." The information required by §(b) has not been
provided with respect to the part-time employee issue. Indeed, no
information has been provided explaining or justifying GE's ability
to restrict hospital competitors from using part-time employees. The
reason for this lack of information is that there is no justification
for this distortion of free and open competition, a fact which prevents
this Court from determining that this Proposed Final Judgment is in
the public interest.
Speaking about this case, the InnoServ CIS, 63 FR 39894, 39899,
states that "GE ... agreed to all of the relief that the Government
was seeking...." That is simply not true. Paragraph 3 of the Prayer
for Relief in the Complaint reads as follows:
That GE, its officers, directors, agents, employees, subsidiaries,
and successors, and all other persons acting or claiming to act on
its behalf, be permanently enjoined, restrained and prohibited from,
in any manner, directly or indirectly, continuing, enforcing, or renewing
these agreements, or from engaging in any other confirmation, conspiracy,
agreement, understanding, plan, program, or other arrangement limiting
competition in the service of medical equipment, except for reasonable
limitations on the use of copyrighted software and manuals themselves.
Clearly the unjustified limitation on the use of part-time employees
by hospital service organizations is contrary to this prayer for relief
because 1) that limitation is part of the enjoined agreement and
2) that limitation is an arrangement"limiting competition
in the service of medical equipment." Id.
B. The Proposed Final Judgment Is Not In the Public Interest
APPA §(e) requires this court to determine that the entry of judgment
is in the public interest by considering among other things, "the
competitive impact of such judgment." Because of the part-time
employee prohibition, the competitive impact of this judgment would
be negative.
This Court can take judicial notice that since time immemorial employers
have been using part-time employees to adjust to market conditions.
The flexibility to use part-time employees is critical to being competitive:
if one hires a full-time employee when only a part-time employee is
needed, then one's costs are too high; if one does not hire a part-time
employee when there is sufficient work for such an employee, then one's
production is insufficient.
The need for part-time employees is particularly acute in sparsely
populated areas like Montana. The CIS itself acknowledges this fact
by acknowledging at page 40739 that 1) "[h]ospitals are reluctant
to purchase a piece of imaging equipment unless someone near their facility
can service it" and 2) "[b]ecause manufacturers cannot
economically place their own service engineers in areas [like Montana]
where they do not have a large installed base, they need someone else
in those areas who is qualified to service their equipment." Because
the installed base is not large, that "someone else" may well
be a part-time employee, especially in the critical early stages of
the creation of an installed base of equipment.
An obvious source of part-time employees for a hospital service organization
is a local ISO. Because the ISO might not have enough for its employees
to do in a sparsely populated area, it could be economic for the ISO
to provide such an employee or to enter into other mutually advantageous
relationships with a hospital service organization. Such relationships
could include becoming the service agent for the hospital service organization
or joint venturing with a hospital service organization. Under §5(g)
of the Proposed Final Judgment, however, GEMS could choose not to license
advanced service materials to such a hospital solely because a part-time
employee may be using GE's advanced service materials.
There is absolutely no justification for this distortion of free and
open competition. The only possible justification — security of
the advanced service materials — is debunked by the CIS itself
at page 40739:
The non-compete agreements are not ancillary to any legitimate business
interest that GE had in licensing advanced service materials particularly
since they were not reasonably necessary to prevent the hospitals
from using the advanced service materials on third-party equipment,
in a manner not authorized by the license agreements. As a result
of software security procedures adopted by GE, the advanced service
materials will only work on the specific GE machine to which the license
agreement relates. Furthermore, the advanced service materials are
model specific, i.e., the advanced service materials for one model
of GE imaging equipment cannot be used on another model, even if the
two models are of the same 'modality' (e.g., if both are GE CT scanners),
and cannot be used on other manufacturers' equipment. ... Given the
machine and model-specific nature of the software, the restrictions
imposed by the license agreements on third-party service are unrelated
to any legitimate interest GE has in preventing the unauthorized use
of its software.
Obviously the same security that prevents hospitals from unauthorized
use of the advanced software materials would also prevent such use by
part-time employees of the hospitals.
This fact makes the agreement allowed by the Proposed Final Judgment
— i.e., a license agreement between GE and a hospital prohibiting
the hospital from allowing part-time employees to use GE's advanced
service materials — a non-ancillary agreement to allocate territories
or customers.
Indeed, it is just a potentially milder version of the agreement on
which the Government brought suit. That agreement was that hospitals
could not compete with G.E. for service customers if the hospitals wanted
GEMS' advanced service materials for their own use. The new agreement
is that hospitals using part-time employees cannot compete with G.E.
for service customers if the hospitals want GEMS' advanced service materials
for the hospitals' own use.. Such agreements are illegal per se,
as the United States demonstrates at Appendix B-1 of its Pre-Discovery
Disclosure Statement filed with this Court on May 16, 1997:
Non-ancillary agreements between actual or potential competitors
to allocate territories or customers are illegal per se because
they are "naked restraints of trade with no purpose except stifling
of competition." Palmer v. BRG of Georgia, 498 U.S. 46,
49-50 (1990). Such agreements are anticompetitive regardless of whether
the parties split a market within which both do business or whether
they merely reserve one market for one and another for the other.
Id. An agreement not to compete in terms of price or output,
without some pro-competitive justification, is simply 'inconsistent
with the Sherman Act's command that price and supply be responsive
to consumer preference.' National Collegiate Athletic Association
v. Board of Regents of the University of Oklahoma, 468 U.S. 85,
109-10 (1984). Moreover, 'the existence of a vertical aspect to the
relationship between [GE and its hospital licensees] does not foreclose
per se treatment of agreements to eliminate competition between
them.' United States v. General Electric Co. (Order of March
18, 1997), 1997-1 CCH Trade Cases, at 71,765, pp. 79,408-409 (citing
Palmer)... (emphasis added).
The underscored references to output and supply mentioned above relate
directly to the employment of part-time employees, a factor which effects
output/supply.
This Court has also recognized the per se nature of the challenged
agreements at page five of its March 18, 1997 slip opinion in this matter:
While it is true that restraints which are ancillary to a legitimate
transaction are exempt from the per se rule, the government
has alleged in the complaint that the agreements not to compete are
not ancillary restraints.... Of course, GE may offer evidence to refute
the allegation later in this litigation, but for now the allegation
is sufficient to withstand the motion to dismiss.
Not only did GE not refute this allegation, but also the CIS now acknowledges
at page 40739 that "...[t]he non-compete agreements are not ancillary
to any legitimate business interest that GE had in licensing advanced
service materials..."
Therefore, these agreements, with their totally unjustified prohibition
on part-time employees, are still per se violations of the antitrust
laws. As such, this Court should not determine that a consent decree
that permits them is in the public interest because the Supreme Court
has already determined that such agreements are "naked restraints
of trade with no purpose except stifling of competition." Palmer,
498 U.S. at 49-50.
C. The CIS Asserts, Incredibly, That There Were NO Materials
Which the United States Considered Determinative in Formulating the
Consent Decree
APPA §(b) requires the United States to publish with the CIS "...any
other materials and documents which the United States considered determinative
in formulating such proposal..." The CIS at 40741 states, incredibly,
that "The government considered no materials or documents determinative
in formulating the proposed Final Judgment."
This Court can take judicial notice that antitrust cases are among
the most complex, document-intensive cases in the Federal Courts. This
Court should respond in the same way as another District Court Judge
responded to the same incredible claim: with incredulity and with an
order to produce documents required by law. U.S. v. Central Contracting
Co., Inc., 537 F.Supp. 571, 575, 577 (E.D.Va. 1982):
The Act [APPA] clearly does not require a full airing of Justice
Department files, but the Court cannot countenance plaintiff's claim
that though Congress enacted sunshine legislation the courts may blandly
(and blindly) accept government certification in case after case that
no documents or materials, by themselves or in the aggregate, led
to a determination by the government that it should enter into a consent
decree...
* * *
This does not require full disclosure of Justice Department files
... or defendant's files, but it does require a good faith review
of all pertinent documents and materials and a disclosure of those
which meet the above [APPA] criterium.
Although no entity but the Government can know what these documents
are, they should include at least the documents, if any, which led the
Government to conclude that it was reasonable to permit GE to distort
free and open competition by having the ability to limit its competitors
from having part-time employees. These documents or documents like them
must exist or else there is no reasoned basis for the consent decree.
If they do not exist, then the Antitrust Division is not acting in a
professional, competent manner.
V. THIS COURT SHOULD AUTHORIZE ISNI TO PARTICIPATE IN ANY PUBLIC
INTEREST HEARING THAT THE COURT MAY CONVENE
APPA §(f) authorizes this Court to "authorize full or limited
participation in proceedings before the court by interested persons
or agencies, including ... intervention as a party pursuant to the Federal
Rules of Civil Procedure..." The defects of the CIS described above
amply justify such an authorization.
As mentioned in §II above, the ISNI has the interest, expertise and
the experience to aid the Court. At the very least, the Court should
order a hearing before making its public interest determination and
should permit the ISNI to participate in that hearing.
VI. CONCLUSION
Because the Proposed Final Judgment permits GEMS to engage in a per
se violation of the antitrust laws, it is by definition not in the
public interest. It will raise healthcare costs and reduce choice for
patients. Therefore, ISNI respectfully requests the Court not to approve
the Proposed Final Judgment.
Respectfully submitted,
Dated: September 24, 1998
By___________________________
Ronald S. Katz, Esq.
General Counsel, ISNI
Coudert Brothers
4 Embarcadero Center, Ste. 3300
San Francisco CA 94111
Telephone: 415- 986-1300
Endnotes: 1 InnoServ Technologies, Inc., which
General Electric Medical Systems ("GEMS") is attempting to
acquire, is a member of ISNI, but, because of conflict of interest considerations,
has not been informed of or consulted about this public comment. Similarly,
this comment is not intended to express any views of Serviscope, an
ISNI member acquired by GEMS in August, 1998.
The Innoserv conflict arises from another simultaneous consent decree
between the U.S. and General Electric, described in a CIS at 63 FR 39894.
Although that CIS informs the D.C. District Court about this consent
decree, the CIS in this case, for reasons known only to the parties,
does not inform this Court about that consent decree. That the two decrees
are related is evidenced by GEMS press release on the consent decrees,
which stated that GEMS settled this suit in order "to obtain clearance
to complete the Innoserv acquisition..."(Back)
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