Litton Industries, Inc

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IN THE MATTER OF LITTON INDUSTRIES, INC.

SUBSTITUTE ORDER, OPINION ETC., IN REGARD TO ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT Docket 8778. Decision, Mar. 1.' , 1.97.1 Modified Order, Mar. 4, 1975* Order modifying an earlier order issued Mar. 13, 1973, R2 F. C. 793, 38 F.R. 8150 against a Beverly Hils, Calif., conglomer.lte corpmtion hy rescinding the provision requiring respondent to divest itself of Triumph-Werke Nurnberg, A.G. and Adlerwerke, A.G. However, the to-year mor.ltorium 3.g-d.nst acquisitions in the office communications equipment field continues in effect. Appearances For the Commission: Jo..eph J. O'Malley, Harold G. Munter Lawrence O. Masson and Lois E. Berge. For the respondent: Theodore F. Grover Beverly Hils, Calif., and Froncis A. O'Brien, J. Wallace Adair, Ralph Gordon, Howey, Simnn Baker Murchison Wash., D.

TI,e Order Modifying: C.... and ne t Omlor is report'-'" as corrected by Order of Apr- H. 197;' which strik,'s th.. sentenc" requiring compliance reports eoncemingdjvestiture negotiations a:J4 j"F;DERAL TRADE COMMISSION DECISIONS Findings 8S F.

FINDINGS ON ISSUE OF RELIEF AND RECOMMENDATIONS ON REMAND BY: ALVIN L. BERMAN, ADMINISTI ATIVE LAW .JUDGE. JULY 12, 1974 PRELIMINARY STATEMENT On Mar. 13, 1973, the Commission issued its opinion holding that Litton Industries, Inc. ("Litton ) had violated Section 7 of the Clayton Act, as amended (15 U. C. 18), by its Jan. 1969 acquisition of controlling stock interests in Triumph-Werke Nurberg, A. Trumph") and Adler-Werke, A.G. ("Adler ). The product markets with respect to which this holding was made were the typewriter industry as a whole, the office and portable typewrter submarkets thereof and the office electric and office manual segments of the offce typewriter market. The geographic market was found to be the nation as a whole.

The Commission s order accompanying its opinion directed Litton within one year, to divest itself of all stock, assets, properties, rights and privileges secured as a result of Litton s acquisition of Triumph- Adler. After requiring Litton to maintain the status quo of Triumphtangible andAdler pending divestiture and enumerating various intangible items to he included in the divestiture and placing certain limitations thereon, Litton was further ordered, for a period of ten years, not to acquire the whole or any part of the stock, share capital or assets of any concern engaged in the business of manufacturng typewrters or typewrter parts or accessories for sale within the United States without the prior approval of the Federal Trade Commission.

In so deciding the matter, the Commission reversed the hearing examiner s initial decision dismissing the complaint and rejected such findings of the examiner that were inconsistent with its opinion- At the same time, the Commission made additional findings of fact and conclusions of law in support of its opinion. On Apr. 9, 1973, Litton fied with the Commission a petition for reconsideration of the Commission s order of divestiture. In the alternative, in the event the Commission would not modify its order of divestiture without reconsidering the entire case, Litton moved that the Commission reconsider the full merits of the case and enter an order dismissing the complaint.

In support of its petition for reconsideration of the order divestiture, Litton asserted that the divestiture of Trumph-Adler , ( Findings would be anticompetitive and contrary to the public interest that the impropriety of ordering divestiture was demonstrated by the evidence of record and the findings of the initial decision. Litton argued that divestiture was not always required upon a finding of violation of Section 7 of the Clayton Act and, particularly, that divestiture was not required in the instant case. In addition to relying upon the evidence of record, Litton submitted affdavits with its petition which purported to present new facts together with a resolution of the executive committee of Litton s board of directors to the effect that, if the order of divestiture were to stand, Litton should withdraw from the typewrter industry. Litton alleged the competitive deterioration of all of the smaller companies in the United States office and portable typewriter markets in the face of the entrenched and growing positions of International Business Machines, Inc. IBM" and SCM Corporation ("SCM"). In addition, it asserted that the devaluation of the dollar and the ensuing monetary crisis have had a harmful effect on the ability of foreign typewriter manufacturers to compete in the United States against IBM and SCM. According to Litton, it was almost impossible to compete with IBM in the offce typewrter market. It was further alleged that events occurng since the close of the record and current conditions have reenforced the hearng examiner s conclusion that Royal could not survive in the United States typewriter business without Trumph-Alder and that allowing Royal and Triumph-Adler to remain together was necessary to promote competition in the office typewriter market. The importance of Royal hecoming a viable competitor in the automatic typewrter submarket was alleged to he of particular significance because of the asserted acquisition by Xerox of the automatic typewrter division of !tel Corporation, including !tel's Diablo printer, and Xerox' development of a new automatic typewrter using the Diahlo printer. Litton forecast that Xerox would be able to utilize its established, direct sales organization in the office copier business in conjunction with what was described as a signifcant advancement in automated typewrters to create a duopoly in the automatic segment of the offce typewriter market. This, according to Litton, would make competition even more diffcult for others and would make it all the more important for Litton to retain Triumph- Adler in order to offer effective alternative competition in the industry. In addition to the direct result of lessening of competition in the typewrter industry that was alleged in the event the order of divestiture should remain, Litton alleged that, without Royal, the 900 or so independent offce machine dealers who distribute Royal products would probahly be forced to leave the typewrter business as they , 336 FEDERAL TRAm; COMMISSION DECISIONS Findings 85 F.

would be unable to secure an aceeptahle alternative office electric typewrter.

Litton s petition, covering both the request for reconsideration of the order of divestiture and for reopening of proceedings, represented that if the Commission did not consider the affidavits and resolution attached thereto to he acceptable as probative and competent evidence as to the issues involved in the petition, Litton was requesting that the Commission reopen the proceedings to receive evidence as to these issues.

On May 16, 1973, (82 F. C. 1424J the Commission reopened this proceeding "solely for the purpose of reexamining the question of relief in its entirety." The proceeding was "remanded to an administrative law judge to conduct hearings on the question of relief." The administrative law judge was directed "Ii In conducting this inquiry * * * (to J examine the question of appropriate relief in its entirety, and upon completion of the hearngs, * * * Ito) furish the Commission with his findings on the issue of relief and his recommendations. The administrative law judge has construed this directive as requiring that, in making such findings and recommendations, he consider the entire record-both the portion made prior to the Commission s opinion and order of Mar. 13, 197a, (82 F. C. 979, 1016), and the part developed following the Commission s remand order of May 16 1973, 182 F. C. 1426J.

The Commission reopened the proceeding solely for the purpose of reexamining the question of relief. Litton s alternative motion to reconsider the merits of the case and enter an order of dismissal was not granted. The holding that Litton violated Section 7 of the Clayton Act by its acquisition of Triumph-Adler, which includes the finding that the acquisition s "effect may be to lessen competition substantially (C. 36),' therefore, remains unchanged. Nevertheless, reexamination of the question of relief on the basis of the entire record, which includes the new evidence developed on remand bearng upon the question of whether divestiture should be required, necessarily overlaps the extent findings as to the anticipated effects of the acquisition. Consideration must be given to the probable antieompetitive effects of allowing the acquisition to remain in effect vis-a-vis those of requing divestiture. As stated in the Commission s order of Mar. 13, 1973 IT)he findings of the hearing examiner should he adopted only to the extent consistent with the opinion accompanying Ithel order; and as phrased in the , Th" following abbreviations are u....t herein a. reference"s: e.O. the Commis:io,, s opinion dated Mar. 13. 1!!73 f8'l C- 979); LD- the e"aminer s initi",1 decision d"-t ., Feb. 3, 1972 (82 F C. 7991; CPF- pmP'se finding- of complaint cmmse!; Rff prop()sed findings of r"sP'ndcnt; CHH- rcl.ly brief of complaint counsel; RRH reply brid spondent;'If Tr. trdnscript page uforiginal h.."rin!!; Tr. R -tr.m:;ript paw' of hearing On rcmanu; C.X Commission I'xhibit; anu RXrcsP'nde"t..xhibit.

, LITTON INDUSTRIES, INC. :137 833 Findings opinion TTJhe examiner s findings inconsistent with our opinion should be rejected." The extant findings, and of course those additional findiags stated in the Commission s opinion, therefore, must be given full weight in reconsidering the question of appropriate relief. N everthelcss, the proceeding has been reopened to receive new evidence on the question of relief and such evidence must be considered even if it tends to show the propriety of different findings at this time. The burden of proof to support an order remains with complaint counsel. After ascertaining that complaint counsel had no further evidence to present on direct, the administrative law judge ruled that it was respondent's burden to proceed. Hearings commenced on Dec. 8 1973, and the last evidence was received on Feh. 5, 1974, at which time the record was closed.

The matter thus is before the undersigned for the purpose of making findings on the issue of relief and recommendations. In so doing, the entire record has been carefully considered, including proposed findings of fact, conclusions and briefs fied by counsel as well as their responses. Those findings not adopted, either in the form proposed or in substance, are rejected either as not supported by the evidence or as involving immaterial matters.

In making findings, the administrative law judge has concerned himself with matters pertinent to the scope of the remand. The Commission s opinion rendered when the case was originally decided contains numerous findings of fact. Hearng Examiner Johnson s initial decision also contains a large number of findings that are not inconsist.ent with the Commission s opinion and so have been adopted by the Commission. While it would serve no purpose to recite all existing findings in this matter, a reference to certain of such findings and bases of decision would he appropriate at this point to place the case in perspective.

PEHTINENT COMMISSION FINDINGS AND HOLDINGS Litton is a large, conglomerate corpration with numerous diversified products and a worldwide operation. Organized in 1953, its sales increased from $3 millon in 1954 to $1.9 bilion in 196 when it had assets of over $1.2 hilion. In 1968, it had a cash flow and profits before taxes of over $100 milion. Ranked as the 39th largest industrial , By unler of Apt- 10, 1974, the Commi,, ion eXlend,.f the' time for the unrl..rnigT'.. tu file finding. and reeommemlatinns from May Ii. 1914, until.July 15, !!J74 , In makinJi findings a",1 recommendations, th., und", ignff has also had the opportunity to ob""H' e the witnesses who testified during' the proceedingsconductNt pur:uant to remand Th.. National Orfice Machine Oeale," Association ("NOMDA" ) W""", hy owner or It,.. Commission, issued M"y Hi 197:1, j:rmittcd to participate in the reopener! pnlCeedinJ? to the extent of submitting a brief before the administrative law judge- Hnwp"er T\O such bricfhOi been filer ,,,! Findings 85 FTC.

corporation in the United States in 1969, nearly half of its growth is attributahle to over 100 acquisitions since 1953 (C.O. 3). Its largest acquisition up to that time was that of Monroe Calculating Machine Company in 1958, a manufacturer of computers, calculators and adding machines (C.O. 3; J.D. 22).

Litton was interested in entering the typewrter industry as early as 1958, but negotiations with Underwood Typewrter Company in that year failed. It did enter that industry in 1965 when it acquired Royal- McBee Corporation. Subsequently, in 1966, it acquired Willy eiler Gmbh, a German manufacturer which had a prototype of an electric portable typewrter. In November 1966, Litton acquired Imperial Typewriter Company, Ltd. of England. In September 1968, just prior to the Trumph-Adler acquisition, Litton s Royal Division manufactured and sold offce and portable typewrters, both manual and electric.' It had typewriter plants in Hartford, Conn., Springfeld, Mo., Leiden Holland, Leicester, England and Hull, England. Since 1967, Royal has also distributed "Mercury" portable typewrters manufactured by the Silver Seiko Company of ,Iapan (C.O. 4, 5). The Springfield, Mo. plant was closed in Apr. 1969 and the production of portable typewrters was moved to the Hartford, Connecticut plant. The Hartford, Connecticut plant stopped producing high-priced offce electric typewriters in the summer of 1969. In July 1972, Royal announced the cessation of typewrter production at the Hartford Conn. plant (C.O. 18).

Litton is organized into four operating groups with some 120 divisions. One of the four groups is the Business Systems and Equipment group which includes business machines and systems, retail and revenue systems, typewrters, office copiers, specialty paper and printing and forms (e.O. 3; J.D. 18-19). This is the group with which we are primarily concerned. In 1970, this group accounted for 29 percent of Litton s total sales (C.O. 4).

Litton is considered a leader in developing and applying advanced managemcnt techniques and in combining managerial resources technical capability, marketing skil and research and development capability to build new businesses and to improve old husinesses (C. 4). At the same time, each of its 120 divisions is operated as a separate business with its own responsibility for research and development manufacturing" marketing and investments. Corporate level management, however, does assist and does intercede when a division is operdting poorly (J.D. 19-21).

. The WiHy Feiler ..level,." portbl" had rl.,sign proh!('rns and, as of 1970. its production was plann.. to I. ph"out (CO. :,). Similarly. Imp"ri,II' office electric typev..rit('r proved ul1suc"""Hfol 'lnd it wa. unable to rl '\"elop a p()rtahl.. electric typewrit"r. Shortly after its acquio;ition. Irnpcri"I'sproduction or officf' ek..tric ami porLble Tna111,,1 typcwritprswa.rli c()ntirlUed(l.D. 24-2:,) LITTON INDUSTRIES. INC. 839 3:J:J Findings Trumph and Adler were German companies, hath of which manufactured typewrters, among other things. After Trumph acquired the controllng interest of Adler in 19GR, both Trumph and Adler typewrters were sold in the United States. In 196.3, American marketing was limited to the Adler machine. Adler had introduced an office electric typewrter in 1962. By 1963, Triumph-Adler had captured the major portion of the typewrter market in Germany and was supplying about 45 percent of Europe s requirements. By 1968, Adler typewrters were sold in more than 100 markets around the world. Triumph-Adler produces both office electric and portable electric typewrters. As of late 1968, it produced all it sold and was operating at full capacity. By 1964, there were 400-500 Adler dealers in the United States. The number doubled hy 1968 and reached 1000 by 1969 (C.O. 6- 10).

Triumph-Adler maintained a suhstantial research and development (R&D) staff with proven capabilities. Its R&D staff was increased hy 25 to 50 percent between 1968 and 1970. In 1968 its R&D outlay, expressed as a percentage of sales, was almost twice as much as that of Royal. Early in 1956, Trumph-Adler undertook to design an electric typewrter "from the ground up." This was the basic machine that provided the foundation for Triumph-Adler s technological superiority in the office electric typewriter market with the result that Adler office electric typewriters are considered to be on a par with the best since they require fewer service calls. After four years of development work, Triumph-Adler announced a portable electric typewriter in 1967 which it introduced into the United States in 1969 (C.O. 7-8). The Commission found that the product markets within which the legality of the challenged acquisition might be tested were the overall typewrter market, the offce and portable typewrter markets which together constitute the overall market, and the submarkets of the offce typewrter market which are (1) offce electric typewrters, (2) offce manual typewrters and (3) self-contained code media automatic typewrters (C.O. 22-24).

The Office E lee/ric Typewrler Su.bmarkel Office electrics and office manuals, while perfonning similar functions, have distinct physical characteristics which are economically signcant and, most important, there is a substantial price difference between them.' In recent years, office electric typewriters have become popular and have made remarkahle inroads in the offce typwrter , In order to ","oid h,-'ing toa dependent on tll.. f1uf'tuati"n of anyone forcig1J mark..t and to rpalize the highc r""enucS from its products. Triumph-Adler .' ,,,,!iey is that "fnot exporting-over r.o- ') pen.'omt of typewriter production outside ofG..rmany (LD. fi)- . Triumph-Adjpr 5('115 iL t)' pewrite," in the United States-only through independent offi("1' machim' ,jealeN- it does not s..11 to mass m"..hanrli5'r: (I_ ol)- Findings 80 F.

market. During the 1960' , the office electric typewrter suhmarket was the most important segment of the entire typewriter industry, both in dollar sales and in market growth. Office electric typewrter dollar sales increased from 45.8 percent of all typewriter sales to 53.3 percent in 1968 and accounted for over 65 percent of the total industry growth during that period. In 1963, $162.9 million worth of offce electric typewriters were sold in the United States. This figure went up to $307.2 million in 1968, an increase of some 88.5 percent (e.O. 25- , 37). There is no basis for grouping high-priced office electrics, factory reconditioned IBM office electricsofficeand automaticelectrictypewriterstypewriterinto a 80-called "heavy dutyU submarket, as distinguished from low-priced office elcc ('s (c:-fice compacts) and office manuals which would he termed a "light duty" offce typewrter suhmarket. Such a hreakdown of the offce typewrter market by the examiner, for the purpose of measuring market shares, was rejected by the Commission (C.O. 26-30).

In rejecting the examiner s inclusion of reconditioncd IBM electric typewrters in the product market, the Commission stated that it found no convincing evidence to the effect that IBM reconditioned typewrters exercise any significant and direct infuence upon the purchasing decisioils of prospective buyers of new office electric typewriters (C. 30).

The Offce Manual Type-writer Submarket While the number of office manual typewrters sold in the United States declined from 466 000 in 1966 to 354 000 in 1968, the 1968 sales amount to $90.4 million. The Commission found that, although offce manuals no longer occupy the dominant position they held prior to the advent of electric typewrters and have been losing ground, they are not obsolcscent and are preferred by certain classes of users; that the market is an important and profitable one and the demand is expected to level off (C. O. 25- , 30-31; J.D. 74). The Automatic Typewriter Submarket While recognizing that automatic typewriters arc far more expensive than conventional typewrters, the Commission took cognizance of the fact that they are offered at attractive rentals with the result that they have enjoyed growing acceptance. In finding this to he a suhmarket of the overall office typewrter market to be taken into account, the Commission stated:

We are persuaded that automatic typewrters have established a secure foothold in tht: offce typewriter market, and that their irnportance ,,\ril probably increase in the years to LOme (C.O. '3).

The Commission, however, limited this submarket to automatic typewriters which are self contained units and can be used as a standard electric typewrter when the code media device is not LITTON INDUSTRIES, INC. :141 333 Findings switched on. The Commission described the automatic typewriter which was to be included as a self-contained unit consisting of a keyboard and a printer (in essence an electric typewrter) and an electronic code media control device which codes or records what is typed and is capahle of being used to play back corrected, revised or repetitive products. Excluded from this submarket were various typing systems which use terminal typewrters, remote computers and others with various specialized applications (C.O. 32-33). Consistent with the Commission s finding as to the importance and anticipated growth of the automatic typewrter submarket are the examiner s more detailed findings with respect to this category of typewriter (J.D. 82-88).

The Portable Typewrter Market While recognizing that electric portahles and ,nanual portahles may constitute separate submarkets of the portable typewrter market, the Commission found no need for purposes of its opinion to bifurcate this particular market (C.O. 85).

Competition in the Industry Prior to World War II, four so-called historical typewriter companies controlled over 95 percent of the typewrter industry of the United States. These were Remington, Underwood, L.G. Smith & Bros. Typewriter Company and Royal. Woodstock and several European typewriter companies also sold here, as did IBM which had entered in 1933 when it acquired the rights to an electric typewrter (C.O. lO-II). During the war, the four historical typewrter companies were required by the United States Government to discontinue the manufacture of typewriters and engage in production of war materials. IBM and Woodstock were the only two domestic typewriter companies not so bound. Woodstock continued to manufacture an office manual typewrter. IBM continued to develop and produce its electric typewriter. After the war, the four historical companies resumed production of their manual typewrters. In the early 1950' , the historical companies attempted to meet the demand for electric typewrters hy adding a motor to their offce manuals. While the sale of office electric typewrters surpassed sales of office manual typwrters by 1962, the historical companies failed to produce a fully-electric typewriter until the mid-1960' s. Royal introduced a fully-electric typewriter in 1966 (C.O. II; J.D. 29-32). As a result of the introduction of electric typewriters and the new competition (that of IBM and of foreign-based companies). the four historical companies no longer control the domestic typwrter , f:pecific,!!ly included were the IBM Magnetic 'fap" &-If'('tri.. Typwriter (MT/ST) and the IBM Mag Can! SeIPttrie Typewriter (MCIST)." \9(;9 innovation which u"" magnetk earn,; instead of magnetic tape Findings R5 F.T.C.

industry. IBM emerged as the new industry leader in the offce electric typewriter suhmarket, although in 1968 Royal ranked first in the offce manual typewrter suhmarket with over 40 percent, second in the office electric typewriter submarket with 11.4 percent and second with 21 percent of the portable typewrter market to SCM which had 50 percent (C.O. 12).

From 1908 through 1968, twelve typewrter manufacturers competed in the sale of typewrters in the United States. These were the four historical companies: Remington Rand Division of Sperr-Rand Corporation (successor to Remington), SCM (ultimate successor to L. Smith & Bros. Typewrter Company). Royal, and Olivetti (acquirer of Underwood), IBM, R.C. Allen and six foreign-based companies-Trumph-Adler, Olympia, Hermes, Facit, Brother, and Nippo. Four additional companies, Friden-Singer, I tel Corporation, American Automatic Typewrter Company and Editype Corporation, sold only automatic typewriters. Woodstock was acquired by R.C. Allen in 1950 but R.C. Allen discontinued its typewrter business in 1970 (C.O. 12, 14 , 18, 43).

IBM manufactures and sells throughout the world varous office machines, including office electric typewrters and automatic typewrters. It does not manufacture office manual or portable typewriters. IBM' s total sales of products and services in 196 approximated $7. bilion, which placed it fifth among the nation s largest industrial corporations. Its electric typewrters and automatic typewrters sold in the United States are manufactured in its own plants in the United States.

After World War II, when electric typewrters heeamc generally accepted, IBM became a modest factor in the typewrter industry. During the 1960' , it established itself as the leader in the office electric typewriter market. In 1961, IBM introduced its "Selectric" typewrter which is a single element electric typewrter. This has been called the single most important development in the typewrter industry to date. Since its introduction, it has become the dominant machine in the office electric typewriter market. It is also the standard printer generally used by the industry in code media automatic typwrters. IBM introduced its magnetic tape selectric code media automatic typwrter (MT/ST) in 1964 and, in 1969, introduced its mag card selectric code media automatic typewriter (MC/ST).

In 1969, IBM manufactured 144 0 model D standard typewriters 297 model D executive typewriters and 273 280 selectric typewriters. IBM sells and services its typewriters in the United States on a direct basis through its own sales organization. In 1969, it had over 200 branch :J33 f-'indings offices and employed 2 928 salesmen and 6,178 servicemen (e.O. 16-17; J.D. 48-52).

In 1968, Royal's office typewriter operation was profitable. Its portable typewriter operation was not (C.O. 6). Itoyal discontinued the sale of automatic typewrters in 1968. Adler did not seu automatic typewriters (C.O. 41).

From 1948 through 1965, aU of Royal's electric typewrters were based upon various means of electrifying the Royal manual typewriter. From 1961-1966, Hoyal had spent almost $4 milion in an attempt to design a single element printer from scratch. The project was unsuccessful and was dropped. In 1966, after being acquired by Litton Royal introduced the 660 standard offce electric typewriter. It was initiaUy successful but soon proved to have many basic quality problems (J.D. 146-151).

The Commission, as a matter of law, rejected Litton s contention that it needed the typewrters produced by Triumph-Adler in order to prevent further decline in its position and remain competitive (C.O. 48- 49). The Commission also found that Royal did not face the imminent prospect of sliding into a bankrupt position without the benefit of the challenged acquisition; that, to the contrary, contemporaneous documents from Litton-Royal files reflected confidence and optimism about Royal's future market opportunities in the United States and took for granted Royal's continuance as a substantial factor in the typewrtcr industry. The Commission found that the acquisition was chosen as a more economical, less risky and more expedient course of action to other alternatives for continuing to remain a viable competitor in the typewrter industry. The Commssion specifically "reject(ed) the examiner s finding that, had Litton not acquired Adler, the only alternatives confronting Litton would have been either to let Royal degenerate into a bankrpt situation or to close it" (C.O. 49-51). Barrers to Entry Barrers to entry in tenns of technological and marketing requirements were found to he formidahle, especially in the offce electric typewrter market. It took Royal and SCM four to five years and more of developmental work before they could successfully develop and market a fuUy electric office typewrter in the United States. Triumph- Adler required over five year to develop and market an electric typewrter. The task of establishing an effective marketing orgarition and achieving a degree of market penetration needed to attain competitive costs. is time-consuming and difficult. In addition, the field is already occupied by powerful, diversifed firms including IBM Litton, Sperr-Rand, Olivetti-Underwood and SCM. These factors account for the situation that no domestic manufacturer has entered , 341 FEDERAL TRADE COMMISSION U(.CISIONS Findings 85 FTC.

the United States typewrter market since 1934 except through acquisitions (C.O. 43 44).

Tlw Finding of Viola lion In evaluating the probable effect of the challenged merger for purposes of ascertaining whether there had been a Section 7 violation the Commission relied upon an analysis of market shares and market structure which showed that the horizontal merger signficantly increased already existing high concentrations in the markets considered. It took heed of United Slales v. Philadelphia. National Bank, 374 S. 321, 362- , 365 n. 42 (1963), where it was held that any merger which effects an undue increase in concentration presumptively violates Section 7 and that where an industry is already highly concentrated the importance of preventing even slight increases in concentration and so preserving the possibility of eventual deconcentration is correspondingly great" (C.O. 36). In assessing market shares, the Commission held that dollar revenues realized by the varous sellers was not the only accurate measure. Suggested retail prices were also considered reliable criteria in measuring market positions where, as here, some sales are directly at retail while others are at wholesale. Unit sales were also decmed important (C.O. 38 n. 24).

The Commission held that an "examination of the market structure of the individual product markets showed that the markets were highly concentrated; that the horiontal merger significantly increased the existing high concentration " so that the merger violated Section 7 (C. 37). Thus, violation was found with respect to (1) the offce electric typewriter market where the second ranng llt with 11.4 percent of the market had absorbed the sixth ranking fir with 3.2 percent (C. 37-39), (2) the offce manual typewrter market where the top ranking firm with 41.8 percent of the market had acquired the fifth ranking firm with :1.9 percent (C.O. 40-41), (3) the overall offce typewrter market where the situation was stated to parallel roughly those of the offce electric and the office manual typewrter suhmarkets (C.O. 41), (4) the portable typewrter market where the merger resulted in the ahsorption of the seventh ranking firm with 1 percent of the market by the second ranking fir with 20.5 percent (C.O. 42), and (5) the typewrter industry overall wherein the second ranking 1Irm had acquired the eighth ranking firm and had thereby increased the combined share of the top four firms from 79.7 percent to 80.8 percent (C. 43-44).

, A Triumph- Adler s sha ;n 19f;. found to be 2. percent (CO. 1:1). the cornel fij.'UTe for the combined sha..' of the tol' four firrs after the mergerwa.. !j2. :J P'TN'nt ".LUULHA""", U''J.

;,33 Findings EVALUATION OF BASIS FOH ORDERING DIVESTITURE It is clear from the above that, in so finding a violation of Section 7 and ordering Litton to divest itself of Triumph-Adler, the Commission anticipated the continued existence of both Royal and Triumph-Adler as viable competitors in the varous markets and submarkets of the United States typewriter industry." Indeed, the Commission, in assessing the situation as of the time of the January 1969 acquisition by Litton of TriumphcAdler, rejected the examiner s finding that Litton only alternative to the merger would have been to allow Royal to slide into bankruptcy or to discontinue the typewriter business (C.O. 51 n. 38).

This basis for ordering divestiture, however, would disappear, or at least would have to be reexamined, if, contrary to what was anticipated in the Commission s decision, it should be found that Litton, by reason of the order of divestiture, would find it necessary to withdraw from all or a major portion of the typewrter industry. For then, instead of preserving the competition of Trumph-Adler in addition to that of Royal, Triumph-Adler s competition would he preserved at the expense of losing the larger competitive force of Royal The competition aligned against the dominant factor in the industry, IBM, would he decreased by the order of divestiture rather than maintained, as intended. This, essentially, is respondent' s position. It contends that Royal is dependent upon Trumph-Adler for its hasie, competitive offce electric typewrter, and that it is also dependent upon the printer of that typewrter as an essential par of its automatic typewrtcr which it is about to market. Litton also contends that it does not have the research and development (R&D) capabilities to develop an electric offce typewriter to replace that curently supplied by Triumph-Adler or to replace the printer it needs for its automatic typewrtcr. According to Litton, if it is required to give up Trumph-Adler, it will have to withdraw from the offce electric typewrter market and abandon its efforts to enter the automatic typewrter market. It is necessary, therefore, under the terms of the Commission remand order, to evaluate Litton s contentions summared above. This must be done in the light of its alleged dependence upon Triumph- Adler and its capacity to compete without Trumph-Adler. The latter consideration, in turn, requires an asscssment of the prcscnt and potential importance of varous areas of the market. Such an assessment, together with a consideration of the competitive situation , This was also anticipated hy r;ommiss;uneT Dennison as indicate.d in his concurrng opinion. at PI'- 9- !82 F.T.C !176 979 j where he agre "J that actiun should be t.ken to prev",nt th,' loss of a significant competitur 0.' uf ",ven a small eompetituri""ni"dustrydnmin,,tedhygiauts.

5B9- 7B!J 0 - ' 16 - 23 :146 FEDERAL TRADE COMMISSION DECISIONS Findings Rfi F. in such areas, is also necessary to detenrne whether it would be in the public interest to order the divestiturc.

OVERVIEW OF INDUSTRY Complaint counsel and respondent have conficting views as to how the typewriter industry should be analyzed for puroses of this remand. Complaint counsel take the position that the analysis should be in terms of the particular markets and submarkets considered hy the Commission in finding violations of Section 7; that the only figures be considered are those reflecting sales of typewriters at suggested retail list price or in terms of units- Thus, complaint counsel have submitted, as proposed findings 10, 17 and 22, compilations of United States sales and shares by company of (1) all office typewrters at suggested retail list price and in units, (2) offce electric typewriters at suggested retail list price and in units and (8) office manual typewrters at suggested retail list price and in units. II Respondent, on the other hand, contends that, for purposes of this remand, particular attention should be paid to the total office typewrter business, with emphasis on those areas or segments which are and which promise to be most active-the area..; alleged by respondent as those from which it will he forced to withdraw if it is required to divest itself of Trumph-Adler. Respondent also contends that, for purposes of this remand, actual revenues are more meaningful than suggested list prices or unit sales and that lease and rental income should be included in computing revenues-that revenues should not be limited to those resulting from sales. Accordingly, respondent urges primary consideration of compilations of (1) total United States office typewriter sales, (2) total United States office electric and automatic typewrter sales and (3) total United States heavy duty office electric " This approach rid"" not cunflict with the Cummi "ion " huhlin!! that a ffprg"r may not be justified in order that th" market pm;ition of "n" of the leading- firms in the market nut decline or by Tea.son of other economic bcnefib to the ;I('quiting C(mpany (C.O- 49). Nor is it inconsi,;tent "..ith the Commission " rejectio", under pr..vailing e;l. e law, of the eoncept of "cuuntervailing power" (C.O- ,52-5:3) It is, ",ther, a consider.ltion of whether divestiture would, for 01\1 practical puqJOses. tri!;I;'" the withdr.lwal of the aeql\iring comwmy from an industry- a eom;ider..tiun that is, for an practical purposes t.he counterpart of taking into account whether an ae'luired company would otherwise have Rone out ofbu;;ines"

COlnplaint eouo,, rj)ear to que:;tion the propriety of cunsidering on remand the 'Iuestion of whet.her Hoyal would withdr..w from any IK,n;on;; of the market, arJ.'ling that the Commi",sio!! h"" already hdd that Royal had alt.emat.ives to going uut of husin"ss if it h"d not acquired Triumph-Adler. That finding as to the pussibilitie" open to Hoya! in 1!1f!I however, may well diffl'r from what may be anticipated as goo business judgment un the part of Litton if it. is requirl' tu di1lest itself of Triumph Adler in 1974 urther, Litton s petition to the Com",is. iun for reconsider..t.ion of t.hl' O",IN uf divl'stit.ure was . in large part, grounded upon the a"""rtio" that, without Triumph-Adler, it would he n..ees.o;ry for Littun to disl"'s,' of the ;lSSCt.:; of Royal. By gr..nt.ing the motion for remnsider..tion, the Commission is und"rstoo to have direct.ed the uodersi!,'Teu to consider this co"tention as well as the competit.ive implicat.iom;and the public interest. i" th"ev..nt the:lssertion sh"uld be found to hall"sub;;tance. " Supplement.ary sales figures pertaining to the entinc typewriter industry and the r",rthle typwritl'r suhm"rk..t. were not i"trodueedun remand.

, 333 Findings and automatic typewriter sales-all three being compilations of actual revenues including rental incomes.

Limitation of Anatyses to tlw Particular Markets and Snbmarlcels Con,.;idered by the Com/mission in Fiji-ding Violations of Sect' ion While the Commission found inter' alia that the offce typewrter market and the offce manual and offce electric submarkets thereof were appropriate markets within which to ascertain whether Section 7 had been violated, we are not now concerned with whether respondent should he deemed to have violated Section 7 on the basis of updated statistics relative to those markets. The question of violation has not been reopened by the Commission.

The primary question now is whether it would he in the public interest to require the divestiture of Trumph-Adler. This question, in turn, depends upon whether Litton, without Trumph-Adler, would find it necessary to get out of all or part of the typewriter industry, the relative importance of the segments of the industry that would he affected by Litton s departure and the competitive situations in the various segments, so that an appraisal may be made of the loss of Litton s competition in any particular areas vis- 1Jis the effect of the merger in areas in which Litton might be expected to remain. The segments that must now be considered mayor may not conform to the markets and submarkets assessed by the Commission in finding violations. Even if they do not conform, they must be considered if to do so may serve to shed light upon the issues now before us. For example, while the Commission recogned that automatic typewriters constitute a submarket of office typewrters, one which showed promise of increasing in importance (C.O. 32-33), the Commission did not find a violation in that submarket since neither Royal nor Triumph- Adler made automatic typewrters (C. O. 42). Notwithstanding the lack of finding- of violation in the automatic typewrter submarket, an analysis thereof is highly important on this remand. Complaint counsel make particular objection to consideration of what respondent has termed "heavy duty" office electric typewriter sales. This term includes automatic and standard office electric typewriters to the exclusion of compact office electric and office manual typewriters. Complaint counsel rely upon the fact that the Commssion rejected the examiner s delineation of such a market (C.O. 26-29). '" The typewrters encompassed by the tent "heavy duty," however, are the very products for which Litton claims it depends upon Trumph-Adler " Respondent also relies upon compilations of total Unit..1 Sl"teh office typewriter =I..s :md tot.al United Stal"s offc" elect.ric and automatic typewrit"r sales, both in t"nts of suggl'HtL..1 retail list price, but I"fl ting .-enb.1 im' ome aswel1 aH sales rtvenUeS.

" As t.hen defined by tbe examiner bea,"y dut.y" uffice ..1..,t.ric t.y!"wrilers wuuld also ba,",' inclmh..! IBM fadory reeondition"deleptrictypewrit.",..

Findings 85 F.

the very products which it claims it must discontinue if divestiture is ordered. The situation with respect to "heavy duty" office electric typewriters, therefore, is one appropriately to be examined within the terms of the remand.

In appraising the viahility of Royal as well as that of other competitors in the market, it is necessary to view the market as a whole. But it is also necessar to ascertain the success and potential of competitors in the relatively important and growing segments of the market regardless of whether these segments coincide with the suhmarket delineations that were utilized in finding Section 7 violations. A study of sales with respect to those areas where the action is-where the dollars are to be garnered-is significant both to judge whether respondent would stay in business under particular circumstances and to evaluate the public interest in the event respondent's competition and potential competition should be lost to particular segments ofthe industry.

Inclusion of Rental and Lease Income Complaint counsel's contention that lease and rental income should be ignored is rejected. Such income accounts for a large share of IBM' total revcnue and its omission would distort any consideration of what is occurrng in the offce typewrter market. For example, as of the end of 1972, IBM had out on lease or rental 66 836 offce electric typewrters and 55,431 automatic typewrters (RX 2164 in camera). During 1972, IBM received $17.9 million in lease or rental income for offce electric typewrters and $127.3 million for leased or rented automatic typewriters, or total earnings of $145_2 milion (RX 2(XJH 14ca'Yra). This figue represents more than 25 percent of all revenues realized hy all companies combined (including IBM) from offce typewrters in 1972 and is substantially the same as what all companies other than IBM received from offce typwrters in that year (I X 2105 in camera).

There is no bar to jointly considering sales and rental income. Both sources constitute revenue to the company from which profits on the typewrters are derived. Indeed, a lease of a typewrter for a period may be considered as a "sale" of the use of the typwriter for that period. The rental income reflects the competitive weight to be given to " In 1972, H:J.5 percent of IBM' revenues from automatic typewrit",. (,T" from l..as..s and rcntaklBM n",,,;ved $127 1 million from leases and rentals and $2,,_1 million from gall,,, (RX 2007 R, ill 1:/1"",,,). The tertT kascs and rentals are u d 1.0 dist;nf-'Uish hetwecn the length of time of the arrangement " The exhibit shows that. an other typewriter com""nic received $128 million for their office t.Yp"write,- in 1912. This is some $17 million less than the $14,,_2 milion IBM receiv"..! in lease and rental income during that y..ar. Thc exhibit, ho,,'ever, dot,,, not n,nect. income from automatic typewriter,. n-eeived by those companies nuton5hownthe exhibil. The parties di"agre as to t.he amount.;n que5tiun. I pot\det\t ,,,"'c,,..le5 that ome $l million is involve,l (RPF 163-64), while complaint. C0\1n""1 a. sert the fif-'U'" is $19.4 million (CKB ; O). See Table 5, ;"fm, for discussion of this dispute.

LITTON INDUSTRIES, INC. 349 :J3:J Findings the machine for the period rented and the impact upon IBM' competitors of typewrters leased or rented hy IBM is just as real as if the machines had been sold.

It is clear, therefore, that no meaningful analysis of the offce typewriter market may be made without considering income from leased and rented items. IIi Consideration of Actual Revenues, Suggested Retail List Prices and Unit Sales In its opinion, the Commission stressed the relative importance of measuring market shares in terms of suggested retail list prices and unit sales over simply comparng' actual revenues of the various competitors. This was because some of the firs sold primarly at retail while others sold primarily at wholesale or some comhination of the two methods. Utilization of realized revenues was deemed to commingle dollar sales at the two different wholesale and retail levels (C.O. 88 n 24).

Under the present remand, however, we are not as much interested in ascertaining market shares as we are in appraising the competitive strengths and potentials of the various firms in the industry and in the various segments thereof. An assessment of the viabilty of any company requires an examination of its income, for profits are realized out of income and profit goals are usually set in relationship to dollar volume of business of the company, not of its customers. IBM makes all sales directly at retail. It offers no discounts except on sales to schools and governments (RPF 27)- IBM's suggested list prices and its rcalized income, therefore, are substantially the same. Its competitors, however, sell largely through dealers who normally purchase at 40 percent off of suggested retail prices, somctimcs more depending upon quantities purchased. In addition, quantity discounts are given to direct purchasing national accounts as well as to schools and governmental agencies (LD. 90; RPF 31-33). IBM' s competitors did not receive the $197 million suggested retail sales prices of their office typewrters sold in 1972, but only 65. percent of that amount, or $128 milion (CX 698, RX 2105, both 'in camera). Nor did Royal receive the $57.1 million suggested retail sales prices of its offce typewrters sold in 1972, hut only n percent of that amount, or $41.8 million (CX 698, RX 2105, both in wmera)- The use of suggested retail list prices, therefore, drastically .. This conclusion is in ac"Cord with the Cormnissiun s finding- that automatic typewriter; should be ;"dude,J as a submarket of th.. "ffie,' typewriter mark"t inasmuch as they do !:om""l" with other office typcwrilc", on thl' b,.is "f att....ctiv('rent"lofferiogs(C. a2-:n) 11 Indeed. in attempting to compute suggestff ret.ail prices, IBM reported $411.9 minion as "ppi""",j to $42 millon in aetu:d income (eompare ex ,oSl R with RX 210" . both ;IP ,."",em). Hence, in cOTTI",ring ",!es ofcnmpetiton; on th.. basis ofsuggest..d ret..ilEst prices, there is fopproximat..!y a; :, p.,.ent understatement of IBM's reve"ue. Findings 85 F.

overstates the competitive viability of IBM' s competitors including that of Royal, hath in ahsolute terms and in relationship to that of IBM. I" A comparison of actual revenues is much more meaningful for purposes of this remand.

For purposes of this remand, actual revenues are also more meaningful than unit sales data. Again, we are not so much interested in market share as we are in viability of competition, with particular emphasis on appraising whether Hoyal would remain in business if it should he required to divest itself of Triumph-Adler. For this purpose numbers of typewrters sold are not nearly as important as dollars received and profits realized.

Unit sales are particularly inappropriate in assessing the viability of competitors in the overall offce typewrter market. In 1972, 216 324 manual typewrters were sold at a total retail list price value of $52,475 000, or at about $242 per unit (CXs 70a A, 704, both in canwra). At about the same time, retail prices of representative standard office electric typewriters ranged from $500 to $600 (RPF 226). Automatic typewrters have a retail value of up to $17 950 with IBM's MC/ST valued at about $10 000 (CPF 123 n 4). It would be relatively meaningless, in assessing viability, to know the numbers of typewriters sold by the various companies in the offce typewrter market unless the units were differentiated hy category. Even then, because of the variances among typewriters within a category, revenue received is a more meaningful measure of viability.

There is stil an additional reason for preferrng an analysis of revenue over unit sales. This is the practical difficulty of constructing unit sales. As noted above, as of the end of 1972, IBM had out on lease or rental 66 &% standard offce electric typewriters and 55,431 automatic typewrters, a total of 122 267 units. This is approximately the same number of offce typewrter units that Olivetti, the third largest competitor, sold that year (CXs 703, 705, both in cr11/Rm). In computing units, however, the same weight may not be given to machines sold and those rented. A sold machine is counted as one unit in the year of sale. A rented machine, however, may be rented for a number of years and would produce income for each of those year. It could be counted as a unit in years subsequent to the first no more than a typewriter sold in a prior year, hut stil in use in subsequent years could be counted as a unit in those subsequent years. On this record there is no pradical way of giving appropriate comparative weights to '" Since IBM sells din.ctly to "on um"rs, the retail price is ,.Venue to IBM. In order to compare the viabilily of Hoyaj and the competition aff"rrf' hy "thers in the market. their n,,' erHJes should also be consi,ten'd. DoUar revenue" from which profits are rterivec, arf' what. Rnyal wih I()k at in decidinr; whcthn to stay' in husine"s. .. IBM had lir :1') unit,; on lea."' or rental at the end of 1971 and 1!7;l7'unib"" je,,"Correnta!atlhe end of 1970 (RX 21f.4 ill ramcrn) LITTON INDUSTRIES, INC. 351 333 Findings machines sold and leased in a given year other than considering revenues.

Market Strrtistics In evaluating the statistics reflecting the competitive situation therefore, primary weight wil be given to revenues received, with additional consideration given to computations reflecting suggested retail list prices and unit sales, as appropriate. The following tables are relevant to the matter under consideration. l EDITORS NOTE: Tables 1-11 are not reproduced here for the reason that they have been placed in in camera files. Another pertinent market statistic relates to the relative importance of IBM's Selectric typewriter, the only single-element typ writer on the market today.'o In 1972, IBM's revenue from Selectrics was 36 percent of all revenue of all companies from office typewrter sales. It exceeded hy $71 millon all non-IBM offce typewriter sales that year. Sales of Selectrics accounted for 41 percent of all heavy-duty office electric typewriter revenues, 49.6 percent of all nonautomatic office typewriter revenues and 59.2 percent of all office electric typewrter sales revenues realized in the United States by all companies in 1972 (RXs 2105, 2007 B, 2008 B , all in camera). As indicated previously, the Commission refused to include reconditioned IBM electric typewriters in the product market (C.O. 80). For purposes of remand, it is here noted that in 1972, IBM received $17. milion on sales and rentals of reconditioned demonstrator electric typewrters to schools and reconditioned used electric typewrters wholesale distributors (RXs 2007 B, 2008 B , both in camera). IBM' $17.9 milion in revenues from reconditioned dcmonstrator and used office electric typewrters was exceeded on:y hy Royal's $29.5 million and Olivetti's $24 milion in revenues from office electric typewriters. (See Tahle :1 supra.

The record on remand contains no additional sales data covcring the United States portable typewriter market. Thus, the latest data in the record is to the effect that, in 196R, SCM accounted for 50 percent of a $178 milion market computed at suggested retail prices, Royal was second largest with 21.5 percent and Adler was the seventh ranking firm with 1 percent (C. O. 42). In terms of actual revenues received, the total market was' $114.3 million, with SCM's share 52 percent, Royal's share 22 percent and Adler s share 1 percent. In 1969, in terms of actual revenues received, the total market wacs $117.6 million, with SCM' '" Thi h,, h('('n noted by tho' Commi si()n a. th.. most irnJlortnt rl,.vf'opment in th" !Yl-'write indu y to oat!' the dominant machine in the office,' "i('tric tYf"writ..r ",arket and the standard printl.r ;n c"d ' TIedia automatic typewriters(C. 17).

, . , $:

Findings 8;) F.T.C. share 57 percent, Royal's share 16.3 percent and Adler s share 1.3 percent (J.D. 121).

With the foregoing statistical analyses in mind, we now turn to respondent' s contention that, without Triumph-Adler it would be forced to withdraw from the typewriter market. REMOVAL OF LI'v lon FROM TYPEWRITER MARKET Events Leading to Litton s Acquisition of a1'ul Dependence upon Triumph-Adler Prior to its acquisit.ion of Triumph-Adler in January 1969, respondent' s overall office typewrter sales were decreasing whether measured in absolute revenues, suggested retail prices or market shares. " Its office ele tric typewriter sales increased slightly in 1967 hut dropped in 196R." As for a heavy duty standard electric, its sales were only $3.9 milion in 1965. It introduced the Royal 660 standard office electric in 1966 with initial success, but that machine had many hasic quality problems and, by Novemher 1967, sales began to decline substantially (J.D. 147- , 156).'" Royal's sales of both manual typewriters and compact office electric typewrters were declining. Its share of sales of compact electric typewrters was also declining. Faced with declining sales and an unacceptable standard electric typewriter (Royal 660), it was concluded that there was no way to keep Royal viahle with its curent product lines (I.D. 156-57). The alternatives were (1) internal development of an office electric machine, (2) distribution of an office electric machine and (3) acquisition of a foreign manufacturer with a good electric machine and a strong market position abroad (C. O. 51). Respondent opted for alternative number 3 and, in January 1969, acquired Triumph-Adler. Respondent phased out production of the Royal 660 standard electric typewrter in 1969 (Tr. 7762-63; Tr. R. 856-57) and, effective ,January " Actual r"v"nu,, d"cre" ,,J from $f;0.5 .millo" Ofl; percent harc) in 19ii(; lo $:"s.8 million (11.1 percent. h"rd in 191;7 to $;;;\ million (1.1 perc"nt. han.) in 191)!. HaoL'd on ur;!-L' tld r"tailli t price, thl' decrL'ase ,,a from $;'0.7 million (19. 1 p..u..nl hare) in I9IK) lo $77. 1 milion (17.8 percL'nt hare) in 191i7 to $72 millinn (If; pert,,"t hare) in 19iil. (S.." Table I & , ""I'IY " Ba ed nn Rugr;este.1 rL'tailli t !,rice, I nyal' figure,, "",,rc $.10.6 million (ILl percent Rharc) in 1!1Ii(; 7 milli"n (12.4 percent har,,) in 191i" and $:W.9 million (11.4 percent share) in 19(.8 (CX 7() , 'PI Ct1"",ro). Share percent.ar;es ".-. Iightly overstatcd as they do not take into account 113M's rental re\"""u,, to1 I-(a\'y duly office elcct.ric typewriter sales increased (io actual revenues) from $:t!J million in III;' t.o $(U million in 1!If'/i ami $15.8 millun in 19/;7. Rut hy 19i;B, revenues had fallen to $12.7 milion (Table 8 ",pro). Th"se fi res do re!1"ct" smal! .amount of autowat.i., Iypewrit"r ""l('s in 19(': , 1!IIKi and !!lii7. (Compare Tahl.. 7 '''1''' and ex 702 , 'PI ",,,,ero which reflecl, in uggested r('t.ail1i t price(s, automMic typ'''' rit,, alc by Royal of $.77 million in 1 , $1.:1 million in 19ij. and $.9 million in I!Jt;7. Tho" tahle sho"' thL'r" Were no re, enu,, frum automatic typewrit.er, by l il. S"e "lsoC. 41) " In 1!If, !tnya! nld 187 487 manoal typ('writ"r, ,, 'hic h had a ur;g-ested retail1isl price valo.. nf $48-7 million. This w('nl down to 15;"421 unit and $40.4 million in 1!1Ii7 and 146 676 units and$;HR million in 1!1f"x (Tablcs 9 and IO ,"p'-1) Hoya s s.lc (in rev..nu('s rO"cei\"ed) of eIO"ctric compacls was $17.1 million (70. 7 p" eO"nt.sh"rd in 191\.'). $1\1.6 millon (;;!J.8 percent hare) in 1961;, $15 millinn (46-" fWrcent e) in 1!lii7 and $1. 8 million (; 9.!1 pe,-(nl h"re) in 1 il. (See Tabl.. 1I '''IH'(o.

, ; , \! ;() ,, LITroN INDUSTRIES, INC :J8:J Findings 1970, distributed as its standard electric typewrter the model 970 which was made for it in Germany by Triumph-Adler ('r. R. 854-55). Respondent has been attempting to develop an automatic typewriter (a computer typing system - "CTS") since 1968 (Tr. R. 862-63)." This typewriter is presently undergoing test marketing (Tr. R. 753, 1106-07). The printer used in respondent's automatic typewriter is made by Triumph-Adler. It is the same basket type that is used in the model 970 (Tr. R. 733- , 753, 758- 862-62A).

IBM' s Selectric is the standard printer in most code media automatic typewriters (C.O. 17). Triumph-Adler started working on a single element printer in 1968 or 1969. It will soon he ready for limited production and testing. Trumph-Adler is already working on an advanced version single element printer (Tr. R. 1392- in canwro; Tr.56-57).

Thus, Litton depends upon Triumph-Adler both for its standard electric typewriter and for the printer of its proposed automatic typewriter."; It is also dependent upon T: umph-Adler for the single clement printer for use in its standard electric and automatic typewriters when that printer is ready for marketing. Direct Effects of Order Requiring J itton to Divest Itself of Triumph- Adler (1) Standard electric and automatic typewriters. The direct effects of an order requiring Litton to divest itself of Triumph-Adler, therefore, would be to stop Litton from selling standard electric typewriters and remove its capability to enter the automatic typewrter market. Thus, Litton would be foreclosed from competing for a share of those revenues which, in 1972, constituted 88.62 percent of all revenues realized from the sale and lease of office typewrters in the United States (application of Tahles 1 and 8 supra). In the offce electric typewrter submarket, it would foreclosed from competing for sales of standard electries which, in 1972 accounted for 89.27 percent of all revenues in that submarket (application of Tahles: and 11 surrea.

If forced to divest Trumph-Adler, respondent would not only lose its ; The project orig-inaJly start.,!! with I/o)""l in 1 j. and was thp" known as th.. Overlanrl prnj"ct (CPF :JOO) ,. Hoyal's lightv..eight typewriter, rorm..rly model :, . has twen dr..tic.;l\y redesigned hy Trillmph- Arllf'r res"'l.ch and development pf'r';()T1m,l in C..rmany and is being marketed ,,,, mode! ,,90. It ,,,mid require ('ompl"le reenKine",;ng to perform a a \" y duty machin". Thp extenl of rede;;i n n"""s ary to mak.. the ma,'hio.'uitab!e as a .xtandani e\p"tric typ..writer or to be u d as the prinkr in an automatic typ"writ"r would hi' almo t a ..xten .xtartinJ' rrom scratch tn mak" a new hea\'y duty offj"e typ"writer. Hoy,,1 doe "ut ha," d..sign and m,'Chanin,) f'ngin"pT" "capable "r d"itg this (Tr R. H79- . AA\- , 1104-0(; " Automati" typewriters ac""unt fur :H.H:jIlCrCf'nt ami standanl el""tri"s acc"UIlI for Ih.. "ther ,)/,,77 percent (applicalion "f Tables I and ;j ""I""; "L,o Tabk :j and II ""I'm)- Complaint ""un",1 to"..., objecte,j to (.,msiderit'fi automatic typcwrit"r part of ,,"er.. tati tic h,'"aus.. of their re htive!y high ("costs- Ex"lu,hng "utomalic tYllCwriters tat'r1arrl el....tric typewriters "ccounl for H;L29 p'' rc,'nt or re\'em"' from all offi".. typewriler: ("pp\;"ation ofTabh. :jand 1I ""pm) 3&4 FEImRAL TRADE COMMISSION DECISIONS Findings 85 F.

standard electric typewriter and the printer for use in its projected automatic typewrter, but it would also lose the R&D capability necessary to develop such a typewriter and printer. As already found hy the Commission, Triumph-Adler had a substantial R&D staff with proven capabilities. This staff was increased hy 25 to 50 percent between 1960 and 1970. In 1968, Triumph-Adler s R&D expenditures expressed as a percentage of sales, were almost twice as large as Royal's (C. O. 8). R&D outlays at Triumph-Adler have increased at a faster rate since the acquisition than before. Triumph-Adler now has an R&D staff of between 600 to 700 with half working on electromechanical devices (including typewriters). It has successfully developed a single element printer for use in an automatic typewrter and is already developing an improved printer for that purpose. The Triumph- Adler single element typewriter is soon to be test marketed (CPF 321- 23).

Royal, on the other hand, has no R&D personnel capable of conceiving and developing a typewriter. When the model 970 was introduced, Royal had 130 employees engaged in R&D work. Today Royal has five sustaining engineers, only one of whom has a degree. The rest of its R&D staff are draftsmen or model shop employees. The function of Royal's R&D staff of some 30 to 40 persons is to handle service complaints (CPF 306-07; RPF 231).

There can be no question that, at lea. t with respect to standard electric and automatic typewriters, Royal has no product, production or R&D and that it is totally dependent upon Triumph-Adler. This is conceded by complaint counsel (CPF : , 442). (2) Compact electric and manual typewriters. Litton would not be directly foreclosed hy the loss of Trumph-Adler from competing for revenues realized from the sale of compact electric and manual typewrters. The sale of compacts, however, accounts for only 6.82 percent of total offce typewrter sales revenues (application " Royal does ha,'p a sepamte R&D staff or IIhout nine people enp;aged in rll'veloping ev..rything for its automatic typewriter except Uw print..r which was developed hy Triumph. Adler. These R& D personn..1 have been working continuously on devclopm"nt ofthe CTS sillce 1969 (CPF :m!--iij) " Complaint c"unsd's position appears t" be that Litton has allowed this situation to rl..veiop despite the complaint's chan..ng" to tlw merger and the prot.."ti"e ,..,'Teement with Commission ..ounsel ""hereby Litton aj,'Teeit to operate Triumph-Adler separ..t..!). and to maintain it imtepenrlenl of any other Litton division (se" C.O. II II. 7); that unrler such circumstan..es. Litton, dependen"" upon Triumph-Adler should be rlisregardPr in re"" hing a decis;"" on remand.

To the contnlf)'. Litton is lIut de..nwrl to have violated the pwtedive agre..m..nL Triumph Adler ha. h.,.,n m"intained iod,,,.ndenl. to th.. extent agTed 1.0- Litton has not been shuw," to ha\'e taken any adion with re,pect to Triumph-Adler that would impede the ca!Tying out of an on:er "f di' e;;titure- Further, Ih(,re is .HI que tion but that Littun acquirerl Triumph-Adler in order to secure antt make u,;, nf its prou,.(s a",i It&D capahilitil's.The discontinuance of a Royal pnKtuct that was un,;at.isfact.ory and the tcp taken to rl'ly upon Triumph-Adler s prorluds an.! H& D I",,"onne!. together with the dismantling of afl unncces ar:.. anr! un""t; f,,,: tory R()ya! R&D conting,'nl, ha., "ot b.'en showfl to he other than the .."ereise of goud busine judgm"'"t und..r the eireumstance - Th.. ohligation "f thc Commi sion r to rictermin" what reli(.f would best Sen.' e the puhlic intl'rl'sl, "ot tu puni h Litton for not ha"in!, t"ken t"p,; IO';""elop Royal a,; an inrlept'ndently, ialJ!e conr!K'titor , .

3:33 Findings of Tables 1 and 11 supra). 10 PERCENT of total offce typewrter sales revenues excluding the sale of automatic typewriters (application of Tables 3 and 11 supra) and 10.73 percent of all revenues in the offce electric typewriter submarket (application of Tables 3 and 11 sUJYra). While revenues from the sale of compact offce electric typewriters increased from $24.2 million in 1965 to $45milion in 1969, revenues decreased to $39.2 million in 1972. Royal's revenues from this type typewrter went down from $17.1 millon in 1965 to $13.8 milion in 1972 and its share of revenues received has decreased each year from 70. percent in 1965 to 35. 1 percent in 1972 (Tahle 11 su.pra). Accepting the Commission s holding that compact office electric typewrters should be included in the offce electric typewriter submarket (C.O. 26-29), the statistical projection for compact office electric typewriters still does not afford much promise for Litton ability to compete in the typewriter market overall or in U", offce electric typewriter suhmarket.

The office manual typewrter market, measured in units sold decreased from 465 949 in 1966 to 216 324 in 1972. Royal's unit sales decreased from 187 487 (a 40.2 percent share) in 1966 to 74 360 (a 84. percent share) in 1972 (Table 10 supra). Measured on the basis of suggested retail list price, the market decreased from $119.3 mikkiorhm 1966 to $53. 7 milion in 1972. Royal's sales, also measured on the basis of suggested retail list price, decreased from $48.7 milion (a 40.9 percent share) to $17.6 millon (a 32.9 percent share). In 1972, manuals accounted for only 8.8 percent of the total offce typewrter market computed on the basis of suggested retail list price. (Table 9 su.pra. Even excluding automatic typewrters, the share is only 11.6 percent (application of Tahles 4 and 9 su.pra).

In its opinion (C. O. 30), the Commssion held that manuals constituted an economically important suhmarket and that, while it had lost ground since 1968, the demand was expected to level off. At the time of that opinion, 1968 was the la-,t year for which actual sales fig;res were available to the Commission. The record on remand .now provides sales figures for 1972 which negate the expectancy of a leveling off of demand for manual typewrters. In units sold, the market from 1968 to 1972 has decreased from 354 351 to 216 824. Based on suggested retail list price, the market over that period has decreased from $90.4 million to $53.7 milion. On that same basis, market share has decreased from 19.9 percent to 8. "" The aoo"e analysis is ven in tenns of suggest"'! n.tail li,,1 price. since" this war th.. m""sur,' u&f1 by H". Commission in ('ompuli,,!! market shar.., In tenns of reven"e" N'ali7. . a basis more approprite wh.." app,.,;sing- th.. comp'.tit;v" viability of a cumpany, office manu:!) tY!'writer sal.." in 1972 ",e.. ""ly $:U. I million 7 I-reent of th.. total offie.. type"..riter "ale$ of .4_7 minion (RX 2107 in callers).Excluding automatic typewriters, the "har.. was stiUonly K! percent (applieat;onofT"h!.. ;, 'lIpm and HX l!I07, ill ,"'''''mL Findings g5 F.

percent (Tahles 9 and 10 supra). In the face of a uniform and material decline in the sale of manual typewrters since 1966 in units sold, dollar sales and share of the market, there is now no basis for anticipating that sales in this market wil level off at an economically important level, at least not one of relative competitive importance in the office typewrter market.:31 Despite Litton s relatively large share of the manual submarket, that suhmarket does not afford much promise for Litton s ability to compete in the office typewrter market.

Royal's total revenues in 1972 from offce typewrter sales was $41.8 million (Table 1 Sllrra). Its revenues from offce electric typewriters was $29-5 millon (Table suprn) of which $13.8 milion was from compacts (Table 11 supm), leaving $15.7 milion realized from standard electric office typewrters. Thus, the direct effect of an order requiring the divestiture of Trumph-Adler would be to reduce Royal's income from the sale of typewrters by $15.7 millon annually, 37.6 percent of its office typewrter sales revenues and 53.3 percent of its office electric typewriter sales revenues. Based on 1972 figures, it would be left with annual revenues of $13.8 millon from the sale of compact offce electrics and $12.3 millon from the sale of manual offce typewrters. As described above, however, Royal's sales of both compact electric typewrters and manual typewrters have been decreasing, the manual typewrter submarket is itself decreasing at a substantial rate, Royal's share of revenues from the sale of compact electrics has been going down and compact sale of compact clectrics ha. been going down and compact and manual sales account for relatively small shares of the offce typewrter market. The facts recited ahove reflect what would be the direct and immediate effects if respondent were to divest itself of Triumph-Adler. There is also a question of whether, as an indirect result, Litton would find it expedient, as a matter of good business judg-cnt, also to withdraw from the sale of manual and compact electric typewriters. This question is addressed infra at p. 61 (p.368, hereina. " Complaint couns"l aT,,"''' th..t the "")",; figures rJe\'dopN on N'mand are consistent with what th . Commissiun anticipated in its opinion, pointi!1g uut (CP - 19) that the Cummission relied upon testimmlY to the ..ff..d that the Jedioe in unicsales of manuab wuuld bottom out at 00 less than()O() j)r y..ar. The witness" relied upon, the Manager of Marketing Servin,,, of Olympia. USA , testifying 00 Mar. II , 1971 , forecast a gt'lIlle d,'d;",' rile I/('.It fi.- In 1"11 ymrs bottoming out bet",,,o 2 tlo) to 2,,,O ()()(J units '''ouall ' (Tr. 4902). lIis forecast can Ue given little "cig-ht io light ofthesteepdeciineto2IG J21uoitshythc,' cryncxty..ar ;J: Findings ALTERNATIVES OPEN TO LITION TO REINSTITUTE COMPETITIVE EFf' ORTS Any appraisal of whether Litton would take steps to reinstitute competitive efforts with respect to standard electric and automatic typewrters can only be made in the light of the competitive climate. Therefore, before analyzing the various steps open to Litton, we first examine the competitive situation within which it would have to exercise its options.

Competitive Climate within Which Litton Must Choose The situation is one of domination by IBM to the extent of making it very difficult for others to compete. In the overall office typewrter market, based on actual revenues, IBM's share has steadily increased from 50.4 percent in 1965 to 77 percent in 1972. Based on suggested retail list prices, IBM's share over this period has increased from 43 percent to 67 percent (T8hles 1 and 2 supra). Even excluding automatic typewrters, IBM's 1972 share, based on revenues, was 67.5 percent (Tahle: supra); and excluding automatics, based on suggested retail list prices, its share increased from 51.7 percent in 1969 to 57.4 percent in 1972 (Table 4).

IBM' s 1972 share of the offce electric typewrter submarket, based on revenues, was 72.4 percent (Table 3 supra). And ex 702 iil- camera which understates IBM's sales by not including $17.9 million in rentals shows that, based on suggested retail list price, IBM had 64 percent of the market.

Based on actual revenues, IBM's share of office electric and automatic typewrter sales combined increased from 67.8 percent in 1965 to 81 percent in 1972. Based on suggested retail list price, IBM' share over that period increased from 62.9 percent to 73.9 percent (Tables 6 and 7 supra).

The most important consideration is with regard to the type of typewrters with respect to which Litton s competitive efforts would he directly and immediately cut off if it were forced to divest itself of Triumph-Adler. These are standard electric and automatic offce electrics. Here, IBM's share of revenues increased from 77 percent in 1965 to 87 percent in 1972 (Tahle 8 supra). Considering automatic typewrters alone, IBM's 1972 share, based on actual revenues, was 89 percent (Table 5 supra). Considering standard electric typewriters alone, IBM's 1972 share, based on actual revenues, was 81 percent (application of Tahles 3 and 4 supra).

While the Commission refused to include reconditioned IBM electric ," If Royal Were to be rliw sted hf its standard deetrie tYJ*,,'riter . it is ass..med that a. major porti"" of ib lost ""I"s ,"ol..me would go to IBM , th..s making IBM';; shar \"en jarger- Findings 85 FTC.

typewriters in the typewrter market for purposes of measurng market shares (C. O. :39), Litton could not, when considering whether to resume competitive efforts, ignore the fact that, in 1972, IBM received $17.9 milion on sales and rentals of reconditioned demonstrator electric typewriters to schools and reconditioned used electric typewriters through wholesale distributors (RXs 2007B, 2008B , both in camera). How could it ignore the fact that IBM's $17.9 milion revenue in 1972 from reconditioned standard electric typewriters alone wa..; greater than Royal's entire revenue ($15.7 milion) in that year from standard electric typewriters? Used IBM typewriters suitable for reconditioning'" are completely overhauled on a regular assembly line in IBM's Kentucky factory where new typewrters are manufactured. This includes replacement of parts, adjustments and repainting. The recons are boxed and sold through three wholesalers who, in turn, sell to key dealer accounts :1, and other dealers who blanket the country (Tr. R. 296-99). More NOMDA dealers sell IBM recons than any other brand of offce typewrter (Tr. 6550).

Suitable demonstrators are similarly overhauled on an assembly line in IBM's Kentucky factory- These are sold directly to schools as available. This is about two or three times a year- They sell out in a relatively short period of time (Tr. R. 299- 04). The prices on recons are substantially below those for new IBM typewriters (Tr. R. 302-305, 312). Factory warranties are available (Tr. R. 305, 355-56). IBM is the only company that reconditions and sells its own typewrters (Tr. R. :J51-52). These machines are a class apart from used typewrters and compete directly and successfully against other companies' new typewriters. :J6 The competitive dominance and power of IBM which is reflected hy the sales figures referred to ahove is substantiated hy other evidence in the record. Indeed, IBM's sales appear to have been somewhat curtailed by an inahility to produce up to the level of demand (RX 2026 B).

The Commission recoguized that IBM was the industry leader in the offce electric typewriter suhmarket and that, from 190:3 to 196, there 01, IBM ,;old over 1;' 000 recondit.ioned Sdedr;(" rlcrnonstr..to.- to "choo\; in 1972. It reed.' ",d so,n" $7_" rnHlio" (Tr. :L'19 3:J4-4:) in ""mern).

" TYp"writers th.at ca,mol meet the standards of IBM recons are sold as is (Tr. R. 29 97). r. Then arc over :\00 key, eale"" ..1,0 ar., el"cted uti the hasi of eum'mmity reputat.ion, capabililY of sa!"s Force willingness to t'xpand uper-d.tions as O(.cess"r)' and wiljn ness t.o agre to reach sfIifi,,ues quotas itr. R. 29i-99). '" The president uf NOMOA , who "Iso owns an office machine busiIlcss of his uwn and eaTTib both Royal arld A.Her typewriters, c"p!airled ho,, the lam reeOnS eomp"te directly ",'ith oe"" Adler and Royal typewritern (Tr. R. 4SX, ;:7-0) and how he has lost schoo! business to IBM' reeOIlS (Tr. R. . Another dealer, who "am..s both Adler tYl*wTIlern ami IBM !"ons, testified that t.he". machines eompote ap;d.inst pach other on a direct basis (Tr. R ,,90-91); that people like the IBM ""CO". it is ,,en r('e;",'d 3"dal,'ableis and p,.ofttah!e(Tr. R. 9\-92).

..

333 Findings were eleven other competitors in the typewriter market: Remington SCM, Royal, Olivetti, RC. Allen, Trumph-Adler, Olympia, Hermes Facit, Brother and Nippo (C.O. 12). Allen went out of business in 1970 (C.O. 18). SCM discontinued the manufacture of office manual typewrters in 1970 (Tr. 6f,,). In the same year, it discontinued the manufacture of standard electric office typewriters and concentrated solely on compacts (I X 1193, p. 6). SCM's self-limitation in the offce typewriter market is reflected by its reduction in sales, at suggested retail list price, from $20.6 milion in 1968 to $13.4 million in 1972 (Tahle , supra). Nippo sold only portable typewrters (C.O. 21-22). Hence, in the office electric typewriter submarket, IBM now has only nine competitors. Based on actual revenues, IBM had a 72.4 percent share in 1972 and its largest competitor was Royal with only 8. percent. If Royal were to withdraw, the next largest competitor would he Olivetti with only 6.6 percent (Tahle 3 supra). And if Royal were to withdraw, it is to be anticipated that IBM would get the lion s share of that business. There have been no new entrants into the electric office typewrter market since 1934 (e.O. 48, 44) and none can he foreseen (CPF 437).

As previously recounted, IBM is the fifth largest industrial corporation in the United States and it manufactures in the United States the typewriters it sells here. Its "Selectric" typewrter introduced in 1961 , the single most important development in the typewriter industry to date, is still the only single element typewriter on the market and is the standard printer generally used even by its competitors in their automatic typewriters. The large share of the market controlled hy IBM hy virtue of its Selectric typewriter is detailed supra at p. 85 (p.351 herein).

The Selectric is just one example of improvements and innovations offered hy IBM which keep it ahead of its competitors, See C.O. 17 and I.D. 49- , 185 for descriptions of various features offered by IBM. Subsequent advancements include the Correcting Selectric, the Mag Card Executive and the Mag Card II with electronic memory features (TR. R 245; RXs 2042, 2046 A-C).

At the end of 1972, IBM had almost 200 hranch offces for the sale and servicing of its typewriters. It had some 3 000 salesmen and almost 500 typewriter repair engineers (RX 2010 B in ca17wra). The acceptance of IBM products allows IBM to charge more for its products than its competitors do. Correspondingly, the price of IBM' " In 1969, IBM manufactured 27:,2 Sd"ctrk-5, 144 2:JO model f) tanrlard and :01,27 mod,,) D Executi, cs (I fi: 2).

'" Surh inno",,tions have meant i"crea ed busin..,, E;e$ to compditors (1'K R. 519- 21). Findings 85 F.

new typewriters sets the upper limits of competitors' prices (J.D. 178- IRO).

As the general sales manager for the Sperry Remington Division Sperr-Rand explained (Tr. R 211 in camera): In the typewriter ind-.stry IBM is the typewriter everyone wants unless you can provide justification for them to buy something else. We have attempted to provide price as ajustification. Similarly, Olympia historically has priced its standard electric typewriter at a price below IBM's in order to market the machine. However, because of the devaluation of the dollar in comparison to the German mark 'from February 1969 to September 1973, the Olympia typewrter, which is made in Germany, has cost 68 percent more landed in the United States. In order to remain competitive ,with IBM Olympia was able to increase its prices only by 34 percent, thus substantially reducing its marbrin of profit (Tr. R. 845-4(; in camera; RX 2098 in camera).

Wang, an automatic typewriter competitor, in a report to the Securities and Exchange Commission in October 1973, stated (RX 2143 13):

It is generally accepted that IBM dominates the word processing equipment market. Any price reductions or substantial changes in rental terms and discounts offered by IBM in this area will generally have a significant effed on others competing in the word processing market, and may require corresponding reductions in prices and modifications of tends of rental or sales of the Company s word processing products. Litton, although it claims to have a hetter automatic typewrter than IBM, anticipates that it wil have to price lower than IBM hecause of IBM' s established position in the market (Tr. R. 7(;1). Redactron, which describes itself as the second largest manufacturer of editing typewrters in the world (CXs 592C 593E),''' stated in a Novemher 1972 share-offering prospectus (CX (;OOQ): IBM is the largest manufacturer and distributor of automatic typewrter equipment in the world and has an international sales and marketing force, service facilities and reputation. In view of IBM's position in this market, management. believes that the Company wil remain a minor factor in the market. Xerox, which has acquired a printer and is developing an automatic typewriter for entry into that market (Tr. R 899-412 in camera), has never considered entering the office electric typewriter market because it is a replacement market, relatively stable with little present growth (Tr. R. 444-45 in carrwm). This appraisal is consistent with the situation, previously, noted, that there have been no new entrants into '" Be"au e or im;re",,,d pri,;es that Remioj,'ioll has had to pay Olympia for German made tY1",Title''- fuUo",io d'''' aluation of the dollar, Remington has had to inc ase its prices in r..lati')f tu rRM',;. Conseqacntly, R"'oinj..-on al"sha,""gon..do",n(Tr. R 211 213 i"cr/l,....m) '" Baoe.1 on act",,1 !97: five'nljeS, IBM had &\.8 !Jrel' !I! of th.e "'arkd and Redact",,, am! !." percent (Table , ,,'pm).

..,, LITTON INDUSTRIES, INC. 861 :J:1. indings the offce typewriter market (except for the automatic submarket) since 1934.

The devaluation of the dollar in relationship to the Germ mark and the Japanese yen has helped add to IBM's dominant position. While IBM typwrters are made in America, many of the competing typewrters come from Germany and ,Iapan." Thus, IBM' s competitors that sell German and Japanese made machines have had to pay more for their machines which places them at an increased competitive disadvantage with IBM.

The devaluation of the dollar in relationship to the German mak beg-dn in 1969. In 1968, one dollar bought four marks. As of the end of 1972, the dollar was worth 3.2 marks. By Aug. 197:, it had droppL't in value to 2.4 marks. In ,Jan. 1974, the value had gone up Eo 2.88 maks and as of Mar. 15, 1974, it was down to 2.64 maks. The dollar was worth about 860 yen until 1970, when it stated to lose value, decreasing to 302 yen hy the end of 1972. For most of 1973 it was worth about 265 yen, went up to 297 yen in .Ian. 1974 and decreased to 28 yen as of Mar. 1974 (RRB 56- , Appendix, Charts I and II; CPF 268, 2(i4; RX 2104 C; Tr. R. 1199).

U sing as an example a change of value from four marks for a dollar to two and one half marks per dollar (an exemplification of what occured het ween 196 and August 197:), an importr who, at four to one, had to pay $IOO for a German machine would now be required to pay $160. This can he termed a 60 percent increas in dollar cost or a percent decrease in the number of marks to huy a dollar crr. R. 119'J- 1202). The record provides examples of what this has meant to competitors of IBM.

There is insufficicnt evidence in the record to predict with any degree of assurance whether the devaluation experienced is a longterm or short-term matter or just where the dollar-mark, dollar-yen relationship wil sette or in which direction it will go." Suffice it to say that the devaluation as of now is a very real thing, there is nothing to " Genna" o.-.Iapan"".' """t" typ'' wril""" aN' ""Id h)' PaiHanl- Hcm''' (TL Hf..!?; RX 1941; Z-"J, Olympia (fr. 710), Remington (RX l!m) C- , ill .."",..m), Brother (C-O- 21) and. of C1Uri' , by Royal and Triumph- Arll..r- .. The foUo",ing ar.. ""me of the .."amp!"

R..mingtof) wa. requil'..I to rem..gotiate the prift. ,'hargei it by Oly' mpia of Gennan)' Ix...,.u-. in March 1973, tht' .."chang.. r..t.. ror th.. doHar in mark. hact gone bflow 2.9 pet"nL The pli,' i"""",,,,..I "" that Remington. in tUnl had to io".-"-", it pric.. in relation tu IBM to th.. puinl that ill""l ""J.. Crr. H. 178 211- ;H co",,,m; Tr- 194-9.'1; ex &U) Du.. to cI.., alu"l.ion the Olympia typ"..ril...r, a. of Sept..mb.n 197:!. cost 6H percent more to Olympia in th ' Unit 'fl Stat..s than in 1969- In unleT to au.'mpt to remain competith' ,' ",ith IBM, Olympia increa."''f! il. pri=s unly by :'\ peTNnL It ,, fOTr1 to abwrb the .-maining in('...."" aOfI ,"'f\u"" iL m"rgn of profit (Tr- R. R-1.')f" ill co ",,,r,,.- 209 i" e'''/I''"') H..nne, in July 197:J, Jax..ly oco.a""", of th.. cI.."..I""tion of thl' cloll..r, ..liminat.,.! t..o model, of offi= manuab. a. w..U a. two portbl., t P'' writ..r:. from ""Ie in th.. l:nit.. Stat (iC'"s 19;,1 H , 20; Tr- R- , 9-5.'i1 , 5J--) .. Dr. W..ston. an "-onomist c..II...1 by rtspond..nl, stated his opinion that th.. ,'alu.. of the dollar woul fluelu.te. but th"t it woulel ",ule at a point not much abu,.. a th.. mark "ah...; that the situation ..ith respt"'l to enth..wa. just about the ""m.. (Tr R. 12O-o'i i"eo'',,' ro). :J62 FEDERAL TRADE COMMISSION DECISIONS Findings 85 1".'l'. indicate that the monetary relationships wil return to their former levels, and the situation is still another factor favoring IBM's continued dominance.

Keeping in mind IBM's dominance of the office typewrter market to the extent recounted ahove as well as the limitations of opportunity in the office electric typewrter market as recognized by Xerox, we now consider the alternatives open to Litton in the event it should he required to divest itself of Trumph-Adler.

Alterntive 1: Internal Development of Standard Electric Typewrter and Printer for Automatic Typewriter The Commission has already found that there are formidable technological and marketing barrers to entering the office electric typewriter market, noting the 4-5 years it took Royal and SCM to market their electric typewriters and the more than five years it took Triumph-Adler (C.O. 44).41 Royal, without trumph-Adler, would be facing an even greater struggle since it has no research and development capabilities and would have to acquire R&D personnel and facilities before it could even begin to develop its own machines. Estimates of Litton executives that it would take two years to gather an R&D team capahle of designing a typewriter and printer and another five to seven years to go through the various stages of design, testing, tooling and factory preparation leading up to production (Tr. R. 945-46, 1098-1100) do not appear to be out of line. It should also be recalled that, in order to become competitive, Royal would have to devclop not merely a printer, but a single element printer; that IBM introduced its "Selectric" single element printer in 1961, and it remains the only single element printer on the market. The Litton executives' estimates are more than substantiated by the following. It took IBM ten years to develop its Selectric typewrter (HX 652 A). Triumph-Adler, with a qualifed R&D staff started on the single element printer in Jan. 1969 and is scheduled to test market the product this year (Tr. R. llOO). Remington, which has been working on a single element typewrter under a licensing abrreement with IBM since 1967, stil had not marketed such a product (RRB 100). The Diahlo printer, which has been acquired by Xerox, was designed in 1969 (RX 2066 A- in camera). Xerox' automatic typewrter using the Diablo printer is still not on the market (Tr. R. 455 in cmnera). although Xerox acquired the printer in Mar. 1972 (RX 2055 in CfmRra). The record demonstrates numerous problems that have developed with regard to the printer which, so far, have kept Xerox from marketing its automatic typewriter (see RX 2077 Z- , Z- in can-wm; Tr. R. .. It took Triumph- Adler" rour years of ,j,,' e)opmentlLl work befof'- it was abl,. to annooo"" an el"etrie portablp typt", riter;n191;7(C.

LITTON INDUSTRIES, INC. 36:J 333 Findings 468- , in canwm). Xerox personnel have had various target dates for introduction of the Xerox automatic ranging from the fall of 1972 to July 1975. Some Xerox personnel feel the correct date is "Never" (Tr. R. 4G8-B9 in cam.em).

IBM spent over $5 million to develop its single element typwrter (RX G52 in canwm). In 1971, the national typwrter manager of Remington estimated that the cost of producing a workahle single element typewrter, even with the advantage of being able to use IBM' s patents, would be between $5 to $10 million (Tr. 4591cam.ra). From 19tH to 19G, Royal spent $3.9 million in an effort to design a single element printer. Hardly any progress was made and the effort was scrapped after it was estimated that it would cost Royal as much to manufacture the typewrter as the price for wmch IBM was selling its Selectric (CX 418 in camera; Tr. 4974- , 5G09- , 7505-0G). In 19G, after Litton acquired Royal, Royal developed the GGO standard electric typewrter. This machine, however, was qualitatively unacceptable and was scrapped in favor of the 970 produced by Trumph-Adler (see, pp. 3&-37 rp. 352, herein), supra). Testifying in Dec. 1973, the general sales manager of Remington in charge of typwrters gave his opinion that, in view of the investment required, it would be very diffcult to get production started in the United States with an offce electric typwrter of any typ that would he competitive in the Urrted States (Tr. R. 21G in cam.m). Nevertheless, complaint counsel contend that Litton should be able to develop a new typwrter and printer quickly and inexpensively, and point to OCI and Ancilex as examples of companies that have been able to do so. The president of OCI did testify to the development hy his company, in a relatively short period of time and for a relatively small amount of money, of a text editing typewrter (Tr. R. 1G42-1G50, 168 IG93; Tr. R. 1G531G&, 171&-17::J in camera). Simlarly, the president of Ancilex testified to the development, in a relatively short period of time and at a relatively small cost, of a printer suitahle for use in automatic typwrters. The printer would be made available as OEM equipment to companies that want to compete in the automatic typwrter market (Tr. R. 1779-81; Tr. R. 1782-1821 in canwra). The testimony with regard to the OCI and Ancilex products however, falls short of describing the marketing of successful products acceptahle and competitive with products already on the market. Nor can the absence of such evidence be tempered hy the glowing descriptions of the products and predictions of success hy the presidents of the two companies. The experiences of IBM, Trumph- Adler, Remington, Xerox and Royal itself are deemed more indicative of the problems, time and moneta expenditures that Royal may , &!.

Findings 85 F.TC.

anticipate should it endeavor to develop its own typewriter and printer.

As stated by Litton s vice president and group executive in charge cf typewriters Royal's record of H&D in the past was deplorable. They don t have the capability now. It would be foolish to go hack and reinvest milions and millons of dollars and take the time to try to do it with no assurance of success." (Tr. R. 825-26) Considering IBM's cntrenched position of dominance and, in view of the time required, the large expenditures involved and the risk that the products developed may be unacceptahle or unprofitable, it is deemed unlikely that Litton, if required to divest itself of Triumph-Adler would take the steps necessary to develop, produce and market its mvn standard electric and automatic office typewrters. This is particularly true with respect to electric typewriters where, except for mergers, no new entrants have appeared on the market since 1934. Alternti1Je 2: Procurement of Typeurnter or Printer for Use in Autornatic TypeWYterfrom an Outside Source Litton executives with responsibility for the typewriter area have unequivocally testified that Litton must have control of its own printer; that if Litton lost control of its printer by virtue of the divestihcre of Triumph-Adler, good business judgment would dictate against procurement of the printer from a third party supplier and Litton would get out of the typewriter business. Having heard these witnesses, and upon an evaluation of the reasons given as well as other evidence in the record, it is deemed unlikely, as a matter of good business judgment that Litton, in the event it should he required to divest itself of Triumph-Adler, would remain in the typewriter business by means of securing typewrters and the printer from third party sources. A prerequisite to a company becoming an effective competitor in the automatic typewriter market is that it have control of its own printer. Otherwse it is at the mercy, for a key part of the machine, of its supplier which, in all likelihood, is or may develop :into a competitor (Tr. R. 758- 1433-35).

If Litton had to secure a typewrter or printer elsewhere, its price 4:, Note too that SCM di5Continu..d the production of full- ized office electric typewriter," "since the return on furthl'r investmenls required woukl not meet our st,andanis " (RX I 19;J, p- :!O). "X 21.4 P notes sever..l eomp"-nies that withdrew from thl' automatic typewriler market due to lack "fuce"SK Friden-Sing-er, th(' s -eond lar"est soHer of automatic typewriter,. in 1972, i" ,,- ithdr..wing- completely from the market by the end of 1!!74 (Tabl" , ~"lm'). E,dityperh"" witbd,...wn,fr"'n that market (HX 2072 , 1'_4;;, '" r"lIIlm). .. This ,-stimatc is c"nfirmed by Xl'rox' decision not to ent(Or any portion oftb.. offke tYl'.-,writ,.r market other than the automatic portion in ,.jew of the bek of opportunil ' in the "that submark,-t" " Vic" presid(.nt of Litton a",! group executive, Office Communicalion Equipment Group n' SI)(", ibl", ,,,Ir,- """ for typtwriters- Tr- R- 7;;7-761 , 771" 818- , 142.';-21;, 14:14-:.1';; executiv" vic.. pr.. idel\t of Litton. headin" the hu in" system and "'1uipm..nt aclivitie, including typewriters - Tr. R- 9: 9(;Ii, 11: 114U, 1149-IIS2; chairman of th.. executive committee of Litton - Tr- R- 1072, 1078- , 1 1.';1-52. " One of th" uncerlainti"s c'midered by Xerox when it d,-eid"d again 1 a"'luiring Reda"tron a. a mf'ans of ,-nterin" thf' "automatic typewriter market wa t.h" elemel1l of risk in that IlIM was thc sol.. source of R..dact.ron (('""til/llcd) LITTON INDUSTRIES, INC. 365 333 Findings for its typewriter would have to include the supplier s profits or else it would have to reduce its margin of profit. This would place it at a competitive disadvantage, particularly if the supplier were a competitor. In the event of shortages, the supplier-competitor would take care of itself first. There would also be problems of quality control, since Litton could not insure that the product was being manufactured in accordance with specifications (Tr. R. 758-761, 818-823). There is also the possibilty that certain suppliers might go out of business, be struck hy their employees or have some other crisis whereby they could not make necessary deliveries (Tr. R. 950-52).

There would be insurmountable difficulties in negotiating an acceptahle long-term contract for a typewrter or printer. It is impossible to predict what quantities may he required over a long period of time. There is the danger of contracting for too many units or not enough. Then there is the problem of obsolescence. The item contracted for may hecome obsolete while Litton is still contractually obligated to continue to accept deliveries of an unwanted product. Litton would have to renegotiate with suppliers for advanced products if it could, to keep competitive. Because of infation, or fluctuations in monetary exchange rates if the supplier is a foreign company, prices cannot he set absolutely for long periods, hut must be subject to renegotiation. Such renegotiation, while Litton is dependent upon continued supply, would place the supplier in the driver s seat capable of imposing burdensome conditions upon Litton. )o Retooling must take place periodically and the costs involved would again place the contractual relationship in limbo (Tr. R. 818-824). In case of breach of contract, while Litton could sue on the contract this would not serve to supply Litton with the necessar product while the suit was underway (Tr. R. 821-23).

These problems have all been experienced by Litton and others. Sperr-Rand (Remington) had a supply contract for typewrters with Olympia which provided that the parties would renegotiate price if devaluation went beyond a particular point. The point was reached price was renegotiated at a higher level and Sperr- Rand's profits typewriter(RX201i4G illcQ",,' ra) CPT Cor.poration, while it believed it ..oult!cdy on rRM to ""apply the require typewriter, rccogni,Pd that rliRcontinuancp of "Hl'p!y ror any reason could have a materia! adverse effee((itson 1Aoper..tion"". (RX 211H K ;/I "u,,,cm) Wang also recognized its d pcml upln its supplier, and the adver". effed a failure of adequate "eliv,-rics might cre"te. (t then noted that it wa. wholly dcpend..nt upln IRM for it electric typewriter, whkh it de eriht'f as " essential element of the Company s word processin!, equipme"t lautomatie typewriters" (RX 214J, p. 12). s.e also ex liOO.J(Red"ctron se5timateofrelianeeupon IBM) ,. It goes v..without saying that competitors are not ahaut to cancel or amend contract voluntarily in order to supply Litton with their latest innovations. LiUon would always be a step or two behind. Litton could never be a tearter ., Litton ",'ould be if\ the same di"advantageous plsition whef\ it wa." f\,,!'otiating with a supplier for a needed irnl'rovementOr inm,,' ation.

3(jfj FEImRAL TRADE COMMISSION DECISIONS Findings 85 F, were reduced (Tr. R. 19a-96; RX 1980 B in camera). Olympia refused to ship as many typewrters as Sperr-Rand required. The contract didn t provide for enough. This resulted in loss of customers (Tr. R. 208- 210, in camera). Sperry-Rand recognizes that it could well use the profit Olympia is making on it ('Ir. R. 209 in mnwra). Sperry-Rand is also purchasing a typewriter from IBM for use in an automatic typewriter. IBM is charging top dollar and Sperr-Rand is trying to develop its own printer in order to be more competitive and flexible pricewise (Tr. R. 206- in camem).

Litton has been marketing calculators made for it by a ,Japanese finn. However, it has not been able to secure the quantities it requires ('rr. R. 926- 28). It is also having quality and price problems with respect to a Japanese supplier of calculators. The product is being phased out because of these problems. (Tr. R. la71- in camera). Another Japanese supplier of plain paper copiers has refused to comply with contract specifications regarding price and a new product and has insisted upon renegotiation. Because of uncertainties in this matter Litton may be forced to drop this product (Tr. R. 1026- , 1044-45, 1401- 1410- , all in camera).

In the field of typewriters itself, Litton had a contract with a Japanese manufacturer of flat portable typewrters calling for 50 000 per year. Four months after operations under the contract, the supplier stated it would not deliver unless it got more money. When Litton tried to enforce the arbitration clause in the contract, the supplier stated that, if sued, it would go out of business. Under such compulsion, Litton agreed to a price increase. The supplier then cut down its deliveries to 000 per year claiming it could get more money elsewhere (Tr. R. 823). Subsequently, the supplier insisted on stil more money despite the contract (Tr. R. 1409- 1411 in canwra; RX 2146 A- in camera). Litton s other Japanese supplier of portable typewrters has also insisted on a large price increase despite contract provisions. Consequently, the contract for certain typewrters is being termnated nr. 1413- 1422, in canwra).

Printers that could be used are limited to those of IBM, Olympia Triumph-Adler and Xerox' Diahlo (Tr. R. 824- , 958-59);" These companies, however, are all competitors or potential competitors and they could not he relied upon to supply Litton with their most up-todate and competitive products. Also, because of the limited numher of suppliers, Litton could not negotiate a favorahle contract nr. R. 825). IBM gets top dollar even when selling on an OEM basis (Tr. R. 207; CX 600 J), and does not bind itself by contract (CX600 C; RX 2118K). " The poss;bility of planning to Secure I're"*ntly needed 'mppl;es from untested companies such as An('iex and OCI has already beendiseouflted \ .

LllllJl LJUQII\II',Q , l.l DU' 333 Findings As noted ahove, Olympia is under contract to supply Sperry-Rand, so there is some question whether it could take on another account particularly since it has been unable to supply Sperr-Rand with all of its requirements. Further, as already recounted, Olympia has had to raise its prices to Sperry-Rand because of the devaluation of the dollar in relationship to German currency and this has cut into Sperr-Rand' profits. Olympia s expenses in sellng its own product in the United States went up by 68 percent because of the change in the German- American exchange rate and it had to absorb half of this price increase out of its own profits in order to remain competitive with IBM (Tr. R. 845- , in camera).

The same problem of negotiating a workable price would exist with regard to Triumph-Adler, which also manufactures in Germany and is confronted with the unfavorable German-American monetary exchange rate. Indeed, for fiscal year ending July 31 1973, Litton suffered a loss based on factory cost, of $23.29 for each model 970 secured from Triumph-Adler that it sold in the United States (Tr. R. 681 , 6&q camera 1445; RX 2150 in camera). From Aug. I, 1973 to Dec. 1 1973 the loss was $55.93 per unit (RX 2148 in camera; Tr. R. 1452- 1458).52 Even excluding nonoperating expenses, the allocation of which complaint counsel question, Litton lost $6. 12 on every model 970 typewrter it sold from Aug. I , 1973, to Dec. 31, 1973 (RX 2148 camera). In view of such losses on the resale of typewriters supplied by Triumph-Adler computed at factory cost, it is not likely that Litton could negotiate a price with Triumph-Adler where Trumph-Adler could make a fair profit and Litton could still compete on the resale of the typewrter in the United States.

As for Xerox' Diahlo printer, Xerox itself is holding up indefinitely the marketing of its automatic typcwrter because the printer is not acceptable (Tr. R. 468-470 in camera; RX 2077 Z- , Z- in cam.:m). Under such circumstances, Litton could not be expected to try for the Diahlo. Further, it is douhtful whether Xerox, if it should become a competitor, would furnish Litton with its improved versions. This is a problem appropriately perceived by Litton s executive vice president with respect to any competitor supplying products. Competitors would he prone to supply something that is ready to become ' Complaint counsel have questioned respondent s mt'thod of aITvinJ' at the loss. Thploss, ho",evI'r, was computed from official books and records of Litton as kept in the regular cours of busine"- , book." us "I for auditing purpses reporting to the S. LC. and Inlernal Revenue. The auditing manager uf Litton who computed and tl'stified to the lo,;'-s expi..ined his accounting methods in detail and stated that he had foHowedaccepteraccountingprocedurcs(Tr. R.f.:J- , 14&J--. 1:,.,2, 1,)1;7--9,.. 1"n-7-1). Complaint coun""1 introducecl no witness to controvert th.. testim,my of respondent'sexI..rt Complaint coun""! contend that the cost of moving manufacturin!! facilities from H"rtfom. Conn_. to Ena",1 was an 'JHusualt'xl"'nse"",! ht'lpcdreflt'cta loss ",h..nin fact . apart from the cost ofthellovc, th.'rcwou!d ha"chi"na profit. Th., cost of the move, h",,",ver, is reflected in fisc..) year..nding.luly 19i2(CX 711 , ," m",,,m) and WI' arc here "on"I'medwithlossesinc"rreciaftt'rthattirne. Findings 85 FTC.

ohsolete when they are ready to introduce the next generation of printers. This is a field where development is rapid. A company that purchases from a competitor would always be at least a generation hehind (Tr. R. 959-960, 966).

It may thus he concluded that, if forced to divest itself of Triumph- Adler, Litton, as a matter of good business judgment, would be unlikely to acquire a typewriter or printer from a third party source. There is stil another reason why, if forced to divest itself of Triumph-Adler, it is not reasonahle to expect that Litton would take steps to get back into the mainstream of competition, standard electric and automatic typewrters.

As Litton s executive vice president testified, Litton would not go into the automatic typewrter business on any basis that did not provide for production under economies of scale (Tr. R. 962). In order to compete against IBM, economies of scale are essential for survival (Tr. 972).

Even if Litton were to reopen its Hartford plant, it doesn t sell enough manual or electric typewrters in the United States to he profitable (Tr. R. 974-75). Litton s requirements for a 970 type machine are only about 50 000 per year and it could not achieve enough economies of scale at that level to be competitive (Tr. 1149-1150). On the other hand, with Trumph-Adler it does have certain economies of scale and is planning moves to achieve even more (Tr. R. 762- , 869 870 898- 956- 971- , 1144-46, 1151). Alternt-ve 3: Termination of Manual and Compact Electric Typewrter Product-ion A third alternative open to Litton is that of not only staying out of the standard electric and automatic portions of the market, but of also withdrawing from the production and sale of manual and compact electric offce typewrters.

As of Apr. 1969, Royal's only typewrter manufacturing or assemhly plant was in Hartford, Connecticut. The plant produced primarly offce manuals. In July 1972, all typewrter production and assembly wa., stopped in Hartford and was transferred to Royal's plants in England. Royal's production of manual and compact electric typewriters is now confined to factories in England and Amsterdam (C.O. 5, 13 n 9; J.D. 45; Tr. R. 788- , 911- , 919-920 1112- 14). At the time of moving the Hartford facilities to England, considera- " Tn" above i not.ed, not a a findin/! of countervailing power to ju tify a merger, but "im ly a: a findinr; that, if divested of Triumph Adler, it is unlikely tnat LiUon would um!erLkp the "xJXnsi\"e steps to compdc in the "rpa. which it tippended upon Triumph-Adler . ..... ..

t.t -'L' OJ :13:J Findings tion was given to closing down the entire Royal typewriter operation. Estimates of between $64.5 milion to $90 million were made as to the cost of doing so (Tr. R. 796, 805-813, 99:1- 1056- 1075-77). Litton s vice president and group executive in charge of Royal estimate" that the total cost now would be only $30 milion to $40 milion which would he offset by the sale of properties; that having moved production from Harford to England with lower penalties for discharging employees, lower material costs, lower leasehold obligations and with a saleable international business, European Royal is now a marketable commodity which would offset the cost of dosing (Tr. R 916, 1090-91).

As explained hy the same Litton executive, Litton could phase out its international operations at a profit. Right now the international market is doing well, hut ,, thin five to ten years Litton s products will be obsolete. There will be need for a single element machine and other products to keep competitive. If Royal lost Trumph-Adler s R&D, now would he a good time to sell its foreign business (Tr. R. 826-27). This is what he is recommending (Tr. R. 8:1, 1139-1140; see also, Tr. R 1116- 17).

Royal maintains 59 direct sales branches for office typewrters (Tr. R. 751-52). It also distributes through some 900 office machine dealers (Tr. R. 536, 901). The normal office machine dealer cares only one brand of office typewrter err. R. 487, 536-37). The only Royal typewrter worth caring by an offce machine dealer is the model 970. A dealer could not stay in business with the Royal manual as there is not suffcient call for it (Tr. R. 50:1, 509- , 611). Similarly, without the model 970, Litton could not maintain its direct sales force (Tr. R. 75R; see also, Tr. R. 966- , 970). It thus appears that if Royal were to lose the model 970 typewrter, it would be hard put to distribute its manual and compact electric typewrters in the United States. It is concluded, therefore, that if Litton were required to divest itself of Trumph-Adler, not only is it unlikely, as a matter of good business judgment, that it would take steps to produce or acquire standard electric and automatic typcwriters, but it may also be anticipated that it would withdraw from the sale of manual and compact electric typewrters. 54 Notwithstanding all of the ahove, complaint counsel contend that, in light of Litton s overall diversified corporate strength, its expenditurc " This conclusion is lso r ach"d upln re(loction of tho' relativ" unimportan"" of manual and """'1'''''\ el..ctrk offio' typewriters to the entin' um"e typewritf'r market and Royal's steadily deer",,sing SUI''''''' in selling such typewrit",. ;n the United States.

Findings 85 VT.

of $3.6 milion over the past several years to develop an automatic typewriter and the outlay of over $24 million in 1972 to move its typewriter manufacturinp; facilities from Hartford, Connecticut to England, it is committed to remain in the typewriter business (CPF 282, 312- , 401). This ignores the facts (1) that the expenditures for developing the automatic typewriter were made with the assumption that the Triumph-Adler printer was to he an integral part of that machine, and (2) that the move from Harford to England was one of retrenchment rather than expansion. By the move, Litton avoided labor problems, cut down labor costs, closed down an uneconomical plant and utilized plant capacity in England that was going to waste (Tr. R. 788- 790, 976-79).

As of Dec. 1973, Litton was in the process of liquidating four divisions with combined assets of $52 milion because they were unprofitable. In addition, under a program instituted in 1972 of divesting itself of activities not deemed to be in the mainstream of its business, Litton has sold 13 divisions for some $140 millon (Tr. R. 1059). There is no basis, therefore, for complaint counsel's position that Litton is committed to remaining in the typewrter business. This is particularly so since Litton s typewrter operations have been conducted at a loss.,,5 Documentary evidence introduced by Litton through Anthony Lonardo, auditing manager of its Office Communications Group, shows that the Royal-Imperial Division of Litton, which includes Royaland the typewrter plants in England, incurred losses of $12 475 000 in 1971, $35 560 000 in 1972 and $11 990 000 in 1973 (RX 1920 in canwm). Mr. Lonardo explained in detail how RX 1920 was computed, that it was derived from the hooks and records kept by Litton in its normal course of business 56 and that good accounting practices were followed in all instances (see Tr. R. 643-44, 648-651, 655- , 664- , 1477- 1485; Tr. R. 1498- 1511, 1527- , 1543 1551, 1567- in camera). There is nothing in the record to controvert Mr. Lonardo s testimony. Complaint counsel (CPF :185) object that RX 1920 in carnm does not reflect profits realized by the Royal Imperial Division on copiers. Such profits are properly excluded for our puroses since we are interested in Royal's profits or losses on typewrters. The exhihit however, does include losses on adders and calculators which should be disregarded in arving at the picture with regard to typewriters. Complaint counsel have computed the losses on adders and calculators (CPF 390). While complaint counsel' s calculations appear to be based, in ", It i noteworthy that compl:int couns..1 r""ommetJd that re pond""t get "ut of th.. portlJle typ"writ"r market wh.." th"y advi e that Roy"rs "basic losses "ould be "xei ,-d by clo in/. its C"nsumer Produds Divisiun, a contim...l !oser" (CPF;J92) " Tht'boksandrecords",e!'","ade'""ailabl"t,,eomplaintcoum;eI g LIrI'O), IKDCSTRIES , INC. :17 333 Findings par, upon unsupported assumptions and have some internal inaccuracies and inconsistencies, even applying complaint counsel's results, we have the following:

FY 1971 FY 1972 FY 1973 Loss shown on RX 1920 in comaQ $12,47. 000 $..1 5600 $11 990 Less loss on adders and calculators 814 3B5 776 contended for by complaint counsel 214Loss on typev.ll"'ters $10 661 000 $31 17500 38 The $24 459 000 loss realized in 1972 by virtue of moving facilities from Hartford to England is an unusual one-time expense and should be excluded when appraising Royal's typewrter profit picture, Thus the losses arrived at, applying the exclusions contended for by complaint counsel, are $10 661 000 in 1971 , $6 716 000 in 1972 and 214 000 in 1973, PUBLIC INTEREST IN LITTON S WITHDRAWAL FROM OFFICE TYPEWRITER MARKET Withdmwalfm1l Entire Office Typewriter Market We have seen that IBM is the dominant factor in the offce typewrter market in terms of its overall share and increasing strength (particularly in those portions of the market which are most important), in terms of' its ability to set pricing levels, in terms of its technological superiority as evidenced by its Selectric typev.rrter, and on the basis of its vast sales and service system; that IBM dominates to the extent of making it very diffcult for others to compete, At CPF 430, complaint counsel refer to past opportunities Litton had to develop an offce electric typewriter which would be competitive with the IBM products," Again, at CPF 433, complaint counsel speak in terms of Royal's and Adler s capability "to provide competition to IBM in the various typewrter lines." These statements accurately reflect the record to the effect that competition in the offce typewrter market narrows itself down to an effort by others to compete with IBM, (See pp, 48-49 LP, 360-61 herein), supra, On the basis of a statistical analysis alone, it must be concluded that it would be anticompetitive and against the public interest if Litton were to withdraw from the offce typewrter market. In the total market, IBM's share in 1972, based on suggested retail list price, was - It is recogni .,d th,a th abo'- ., computation mi_ e" rLg1JreS utilized by pondent ,; and complaint counsel' differ nt approacheo to thevaluation of Roya!',; loose" and that compl",;nt pounsel if they were to follow rC pDnd('nt method, might contend for larger loss., for addelO and calculators. The comput"tion i,; ne,' ertheles,; deemed adequate to demonstnHe that Royal's typewriter endeaHJIO ha,- e not been profit"hle for the past three y ars , p;g,, Findings 85 F.

67.4 percent. Royal was second with 9.4 percent and Olivetti was third with 6.8 percent (Tahle 2 supra). If Litton were to withdraw from the entire office typewrter market, it would mean the loss of IBM's largest competitor with the likelihood that IBM would acquire the lion portion of Litton s share and so be even more dominant. The loss of Royal's competitive effort reflected by its 9.4 percent share of the market would he more anticompetitive than the loss of Adler independent anticompetitive effort and the merger of its; percent share with the Litton effort.

Cessation of Ejjiyrts to Compete in Automatic Subrnarket The automatic typewriter suhmarket hae already been found by the Commission to promise increasing growth and importance in future years (C.O. 3a). This is the area perceived by Xerox to promise the greatest growth and profit opportunity (Tr. R. 444-45 in carrwra; 2072, pp. 17 , 8a in camera). In this suhmarket, in 1972, IBM had 88. percent of all revenues received. Its dorninance is further reflected by the fact that the company with the second largest share of revenues Friden-Singer with 6.a percent, is withdrawing from the market leaving Ty-Data and Redactron as the next largest competitors with but 1.6 percent and 1.5 percent of revenues, respectively (Table 5 su.pra). Further, Redactron which, hy November 1972, descrihed itself as the second largest manufacturer in this submarket, predicted that it would remain a minor factor because of IBM's dominant position (CX 600Q).

As the Commission found, IBM's Selectric printer has become the standard printer in the automatic typewrters of its competitors (C. 17; J.D. 49). This situation stil exists (RPF 55, 79, 84, 85, 86, 92, 93, 95 , 100, 102, 104; CPF 170, 177, 182, 185, 189 365). Given a situation where the automatic typewrter submarket is so dominated by one firm and where its competitors are dependent upon it for the use of its printer, it would he procompetitive and in the public interest for the appearance of a new cntrant not dependent upon that dominant company and with an established distribution system. Royal is such a potential entrant provided it can keep Triumph-Adler and utilize the Triumph-Adler printer.';' The effect of an order requiring '" The am" corp)"tiiOt\ !nll8t be reached upon a statistical ana!)'sis of the tot. 1 "fr.,." LYP"""r1Lcr market fur 1972 (,'xc1usi.., of autumati,, ), ba."ed on ted retail pri",, . Her., IRM had 51.1 rc"nt uf the market and Roya! al1) Oliveui "' ere di t"nt second and third largest competito," ",'ith 12.1 l.erx-ent ami 9 peTecnt har,, , n' I.e"ti"ely- (Tao!e '''I'n:, Adler hare W'L" p"recent. (Table 4, ""I'm.) . A" "oted 01\ Table 'J. "'"IKlnd..nt "onten,h that only ao-JUt ,,,,,- half of Friden-Sinp;er s s.ks in 1912 ""er.. uf automatic tYI",writer that term i d"finer! in the Commio;ion s u(Jioion, s" that it shan- ""',," o,,!y Some: per""'lt. .. AU but On" of the fiml in the automatic typewriter ",,,rket ar" u ing a printer m"de by another firm in th,. offi".. e!edric typtwritec m"rke! (CPF 4:17) " There is no horizon!.! m"q er of market hares here to Pt' considered. Neither Roy,,! nor Triumph- A,Her presently are in thl'automatk typewritersubmarket LITTON INDUSTRIES, INC. ;:H. 33;) Findings Litton to divest itself of Triumph-Adler would be to remove Royal as a potential entrant, an entrant that is sorely needed. H2 Withdrawal From Office Electric Submarket The office electric submarket of the office typewriter market was found to he the most important segment of the typewrter industry in the 1960' , both in terms of total dollar sales and market growth. The dollar value of office electric typewriters sold in the United States increased from $I62.9 milion in 1963 to $807. 2 millon in 1968 (C.O. 37). By 1972, the dollar value, computed at retail list price, had increased stil further to $399.8 milion. IBM's share of this market, measured in terms of retail list price, was 64 percent."" Royal ranked second with 9. percent followed by Olivetti with 8.4 percent (CX 702 in camera). Again we have a situation where IBM dominates the submarket and sells 10 times more worth of typewriters than its closest competitor. If Litton were to withdraw from the office electric typewrter submarket it would mean the Joss of IBM's largest competitor with the likelihood that IBM would acquire the lion s share of what Litton previously had so as to be even more dominant. The loss of Royal's competitive effort reflected hy its 9.9 percent share of the market would be more anticompetitive than the loss of Adler s independent competitive effort and the merger of its 3.6 percent share with the Litton effort (CX 702 in camera).

The loss of Litton s competition in this submarket would particularly hard-felt since it would he irreplaceahJe. Barriers to entry in the offce electric typewriter submarket are formidahle. No domestic manufacturer has entered the United States typewrter market other than hy acquisitions (except for automatics) since 1934 (C.O. 4:J, 44). And. except for automatic typewriters, there are no new entrants in the wings (CPF 437). It is clear, therefore, that it would he anticompetitive and against the public interest if Litton were to withdraw from the electric submarket of the offce typewrter market. The same conclusion would be reached if Litton were to withdraw only from the standard electric portion of the electric suhmarket, hut were to continue the manufacture and sale of compact electrics. Litton s 1972 revenues from offce electric typewriters were $29. millon of which $15.7 milion or 53.8 percent was from standard office supra). The loss of electric typewriters (application of Tahles 3 and 11 mu"e than 50 percent of" Litton s competitive effort in the electric ., The Prcsidet'l of OCI, a company that is plan;,ing to m;.rket an auto",,,tic typ"writeT perceived a hcn"f,t to his romp"ny if Litton were al!owe,1 to keep Triumph-Adll' T. It wa., that "any "Qmpetir.ion against IBM i helpful.. . . It i difficult for a mau romp"") to con\'in..e anyone you are for ..,,1 if on!)' IBM '" in the mark(' (Tr. R. 1!;9:\) .., Thi, har" i approximately t.h" same a, in 191 t !t dot,,; "'pr"S€t1l1m inere3.,;e fro", ;; perecnt in 191).. A, obvious r"3. Ot1 why IBM' s shar has not inere""",d in thi:; ub"'arket i it: \arg(' ""Ips of automatjc-s which can be os'inplac"Dfst,mdanlelectricty\"writen;

,) 374 FEDERAL TRADE COMMISSIO). DECISIO).S Findings 85 FTC.

submarket would still be greater than the loss of Adler s independent competitive effort by virtue of the merger. Withdmwalf1'JI Manual Portion ofMm'ket If Royal were to withdraw from the manual sub market of the office typev,/ritcr market, it would reduce the number of competitors in that submarket from seven to six and allow the six remaining smaller competitors to fighl for Royal's leading 32,9 percent share (Table 9 supra). At the same time, whatever competitive impact Litton s sales of manual typewriters might have on the overall office typewrter market would be lost.

If Litton should not withdraw from the manual submarket, its share if allowed to keep Triumph-Adler, based on 1972 figures, would increase from 3:J percent to 40 percent (Table 9 supm), As previously developed, the manual submarket is becoming increasingly unimportant, both relatively and absolutely. Litton s sales too are rapidly decreasing. The public interest would be much better served by allowing such an increase in concentration in this relatively unimportant market than by having Litton withdraw from all or a major portion of the electric submarket and losing Litton s potential competition in the automatic submarket.i.j As previously developed, the direct effect of an order requiring the divestiture of Triumph-Adler would be to stop Litton from selling standard electric typewriters, the type of machine that, in 1972 accounted for 89 percent of all revenues in the office electric typewriter submarket and 57 percent of revenues from all office typewriters in the United States, It would also stop Litton s effort to enter the automatic typev-niter submarket which, in 1972, accounted for 32 percent of all revenues realized from office typewriters. Thus Litton would be precluded from selling those typewrters that accounted for 89 percent of all revenues received from the sale of office typewrters, This competition would be precluded in the face of the fact that IBM's 1972 share of revenues from automatic tY'ewrters was 89 percent while its share of' revenues from the sale of standard electric .. The same reasnnin is applic"ble to th part"bl typewriter market. There, th latest e,'id nce show, that. in H"". SCM accnunted for 50 p nt of a $178 million market. Rnyal Was secomJ largest with 2L pet' cent and Adi..r ranked seventh with 1 percent (C.O- .\2). Again. it "..ould be of far greater public j'Her st to ha"e Litton continue a.i; a competitor in the electric subm"-ket of the office t.ypewriter market and actually enter and pm,' jde competition in the automatic suhmarket than it would be to preclude th" iner",,,!' nf its 21.;; percent share in the part"ble tYPpwl ter submarketby 1 pprcpnt This is particularly true since Royal does not manufactl1re its own pm"!able typewriter and has cut dawn on the nl1mber of portable models imported from .Japan into the l' niterl Sto\teo (Tr. r - 81;;- 11). Tr. lO;,O Jl. iil r-", The record further indica\tes that it is h", ing trouble steel1ring' adequate numbers of port"bles from its two . Japane..;1' suppliers and is "about to cancel its (' ontraet with one of them ITr. R- 1.\10- , 1--\!2, ill ea,,,,' ,.u). Since SCM manufaetl1res in the Cnited States. Roy,,1 cC1rrently is ol1bject tu the prublems related to thp d",'all1ation of the doll"rin relationship to the yen in attempting to comp€te with the market le"der. (See, Pl'. -1!J- llpp. :'161-. h r"illl. '''1",.- Complaint col1n advic to r pnnd nt i to do e "jr.- Consumer Prool1cts Division Iwhich inelude portable t."pewrit"r 1. a continl1alloser" (CPF :j 2)- Port"ble tnlfwr.ters were also" luser in 19(j (CO. (il $. .....

Lltion INUUi' 11'. 1f'-,u 333 Findings typewriters was 81 percent; that IBM's share of revenues from standard office electric and automatic typewrters combined increased from 77 percent in 1965 to 87 percent in 1972. Even if Litton were to continue to sell manual and compact electric typewriters it would be, in the case of manuals, in a relatively unimportant and steadily declining market and, in the case of compact electrics, it would be sellng a produd where Litton s sales and shares have been steadily decreasing.

Possibility of Diminution ofTrinmph-Adler's Competitive Effort In evaluating the anticompetitjve effect of Litton s withdrawal from the market, comparison has been made between Litton s competitive impact and that of an independent Triumph-Adler. In so doing, it has been assumed that if Triumph-Adler were divested, it would continue its competitive efforts in the United States to at least the degree reflected by its past achieved sales and market shares. Respondent however, contends (RPF 181) that if Trumph-Adler became an independent company, the dedication of new management to remain in the United States market would have to be questioned-this because of IBM' s dominance in the United States and Triumph-Adler s ability to make more money on its typewrters on sales outside of the United States.

Consideration must he given to the incentives for Trumph-Adler to remain in and become a more substantial factor in the United States market. In doing so, however, little weight is given to whether Triumph-Adler is owned by Litton as opposed to being owned hy another company or becoming independent. Litton is not viewed as an altruistic entity dedicated to continue Triumph-Adler s American efforts in the face of better profit opportunities elsewhere. It is assumed that the extent to which Triumph-Adler wil expend its efforts in the United States market will be determined by the exercise of good business judgment, regardless who owns or controls Triumph-Adler. Triumph-Adler lost $151 00 on the sale of its heavy duty offce electric typewriter model 21 D in the United States in fiscal year ending July 31, 1973, a loss of $4.50 per unit.GO During the same period of time, it made a profit of $2 342 000 on sales of the same model typewrter in West Gennany, or $53.21 profit per unit (Tr. R. 700carrwra). For the same fiscal year, Triumph-Adler lost $549 000 on the sale of office manual typewrters in the United States, or a $. l.H6 loss per unit ('rr. R. 713- in camera). During the same period, it lost '" On ".,!"s of this mod., to "chool, the I""s w".. $2!;I OIIO, or nly per unit. On "I,' to rommerc;aJ accounts. the profit ",' a-'i $\ 10 . "r $.1.:j per machj,.w ('fr. K 70!1-71;J, ill c(J",em) .. On ""lei; of this model to schQOI , II", lo,, j9l; (JOO, or $:'I;. 1B per mad,io . On .'a l,..' of this mod..! fur cnmmertial use, the las wa- $I; "O()(), or $24-29 per machinc (Tr. R. 7JR-720 in caJJcra) Findings 85 F.T.

$18 000 on sales of its manual typewriters in West Germany, or $.91 per unit loss (Tr. R. 721 in camera).

By 1963, Triumph-Adler had control of the major portion of the German market and was supplying about 45 percent of Europe typewrter requirements. In 1969, it sold 28 to 30 percent of the offce electric typewriters sold in Germany, 50 percent of manual offce typev.'rters and over 40 percent of the standard manual and flat portables sold there. It sold in over 100 markets around the world. However, to avoid being too dependent on anyone foreign market because of fluctuations and in ordcr to realize the highest revenue from its products, Triumph-Adler has a policy of not exporting more than 60 to 65 percent of its typewriters outside of Germany (C.O. 6; J.D. 60). There is, therefore, a distinct possibility of a diminution of Triumph- Adler s efforts in the manual and electric suhmarkets of the United States office typewriter market, so that Litton s continued presence in these submarkets is of even greater public interest. Effect on Independent Office Machine Deaters Carring Royal Typewrte1' Some 900 independent offce machine dealers carr Royal office typewriters (Tr. R. 536, 901). Normally only one brand of offce typewrter is carried by an offce machine dealer (Tr. R. 487, 5: 37). The cornerstone of the dealer s business is the typewrter. Without it there is no business (1'r. R 495). From 25 to 50 percent of the dealer volume is generated from service revenue err. 486). Carrying a typewriter establishes the dealer s credibility as a knowledgeable person in that segment of the industry. Typewrter maintenance can support the dealer s service department since it accounts for more than half of his service business. The sale of typewriters, coupled with service agreements entered into at time of sale, goes far to support the dealer s service department. Without a typewrter, the dealer is apt to he unable to support his entire service department (Tr. R. 498). If Royal were no longer to furnish offce typewrters, its dealers would he hard-put to find replacement machines. There are a limited number of brands, and competitors already have their dealer networks. It would he unreasonable to expect them to add former Royal dealers who would duplicate and compete with existing outlets. Competitors present dealers would not stand for it (Tr. R. 499, 607 08). It may he anticipated, therefore, that if Litton were to stop distributing typewriters hy reason of being required to divest itself of Triumph- , , LITTON INDUSTRIES, INC. 377 :J33 Findings Adler, many of its present offce machine dealers would be forced out of business G7 or would otherwise suffer severe business losses.fib In light of the foregoing, in the context of the other findings and considerations in this matter, it is not deemed to be in the public interest for the Commission to order Litton to divest itself of Triumph- Adler, where it is prohable that the effect of that order would be to force hundreds of Royal office machine dealers out of business. In summary, it would he anticompetitive and against the puhlie interest for Litton to withdraw from the offce typewrter market and to stop its efforts to enter the automatic submarket of that market. It is to be anticipated that, in the exercise of good business judgment Litton would withdraw from the offce typewrter market and termnate its efforts to enter the automatic suhmarket thereof if it were required to divest itself of Triumph-Adler. An order requiring such a divestiture, therefore, would itself be anticompetitive and not in the public interest. Even if, following a required divestiture of Triumph-Adler, Litton should remain in the manual suhmarket and the compact portion of the electric suhmarket, the anticompetitive effect and adverse impact on public interest with respect to the remainder of the market would far outweigh any procompetitive results with' respect to the narrow and relatively unimportant segments in which Litton might remain.

RECOMMENDATIONS On the basis of the foregoing analysis and findings, it is recommended that the Commission modify its order of Mar. 13, 1973, hy rescinding that portion which requires Litton to divest itself of Trumph-Adler. In making this recommendation, the undersigned has considered and deemed unacceptahle complaint counsel's suggestion (CPF 446) that divestiture he ordered, but that the Commission "permit the divested Triumph-Adler to supply the model 970 to Royal for five years from the date a divestiture order is entered.

Such an order would assume that Litton, as a matter of good business judgment, would undertake to establish an adequate R&D staff and rebuild necessary production facilties. Litton, however, has no assurance that it can develop a competitive typewrter and printer particularly one that would justify the large expenditures that would he involved.

" The pnesident of NOMDA estimated that most Royal deal".- would be put out n( business (Tr. R. 495 )(I-O1). .. On the other hand, if Litton ys in business and merchanrli5es its automatic typ"....riter, it plans tn utili7.. Royal dealer. for both sales and service afthe machine (Tr. R. 7m-6, 8:10, H99-901 , Jill; RX 210:J, in callera). :178 FEDERAL TRADE COMMISSION DECISIONS Findings 85 F.

Litton is now losing some $55 on every model 970 typewriter that sells. This loss does not take into account any manufacturing profit to Triumph-Adler. An independent Triumph-Adler would insist on a reasonahle profi on any product sold to Litton. This, in tur, would add appreciahly to Litton s losses on the model 970 and make complaint counsel's suggestion even less feasihle. All of the problems discussed supm, pp. 54-59 (pp. 364-68 herein) with regard to relying upon a third party competitor for a typewrter and printer would apply equally to Triumph-Adler being the supplier and dictate against complaint counsel' s suggested solution. Litton would have the additional disadvantage that, after five years of continued promotion of the model 970 it would have to convert dealer and consumer acceptaT!ce to whatever Litton might come up with in the way of a typewrter, if anything. Finally, complaint counsel's suggestion poses practical problems with regard to the divestiture of Trumph-Adler in that a prospective purchaser could only be offered a company which had material obligations over a five year period to a competitor. While complaint counsel' s suggestion was that the Commission "permt" the divested Triumph-Adler to supply Litton with the model 970, such a "permt" would be worthless to Litton. It would require a series of contractual ohligations, not only as to the model 970, hut as to new generations of typewrters and printers, including the much needed single element printer.

It is specifically recommended that the portion of the order which proscribes the acquisition by Litton for ten years of any concern engaged in the manufacture of typewrters or typwrter pars or accessories, without prior approval by the Commission, remain in effect.

In 1969, Litton was the 39th largest industrial corporation in the United States. Its sales increased from $3 millon in 1954 to $1.9 bilion in 1969. Nearly half of its growth during that period was attrihutahle to acquisitions. It entered the typewriter industry in 1965 hy acquing Royal-McBee Corporation, then the second largest typwrter company in the United States. Subsequently, it acquired Willy Feiler in Germany, Imperial in England and, most recently, Trumph-Adler. The recommendation to continue in effect the moratorium against acquisitions is made in consideration of Litton s propensity to achieve growth through acquisition, its history of acquing typewrter companies including Trumph-Adler, which acquisition the Commission has found to violate Section 7, the small numher of competitors in the typewrter industry and the high harrers to entry that exist (with the "" In the six months ending.Jan. 31 1972, its sales "'ere $L2 billion and its a.%cts a. of Jan. 31 1972, Were over :U. billion IRX 216.:; 8, C).

. . .

""H u..,-,- 333 Order exception of the numher of relatively insignficant new competitors in the automatic suhmarket).

ORDER MODIFYING CEASE AND DESIST ORDER On Apr. 9, 1973, pursuant to Section 3.55 of the Commission s Rules of Practice, respondent filed with the Commission a petition for reconsideration of the order entered in this matter on Mar. 13 , 1973 which required respondent to divest the assets of Trumph-Adler, and not to acquire, for a period of 10 years without the Commission s prior approval, any concern engaged in the business of manufacturing typewrters. By order dated May 16, 1973, the Commission reopened the proceedings solely for the purpose of reexamining the question of relief in its entirety, and remanded the matter to the administrative law judge to conduct hearings and to furish the Commission with his findings and recommendations on the issue. of relief. After hearings, the administrative law judge filed "Findings on Issue of Relief and Recommendations on Remand/' with the recommendations that the Commission order of Mar. 13, 1973, be modified hy rescinding the provision requiring respondent to divest Trumph-Adler but that the moratorium against acquisitions continue in effect. Complaint counsel filed an appeal from the fonner recommendation and the matter was heard hy the Commission on briefs and oral argument of counsel.

The Commission having duly considered the administrative law judge s recommendations, and the briefs and argument of counsel, has determined for the reasons set forth in the accompanying opinion that the order should be modified in accordance with the recommendations of the administrative law judge. Accordingly, It is ordered That the Commssion order to cease and desist and order of divestiture entered in this matter on Mar. 13, 1973, be, and hereby is, stricken and the following order substituted: ORDER It is ordered That respondent for a period of ten (10) year from the date on which this order becomes final shall cease and desist from acquiring, directly or indirectly, through subsidiares or otherwise, the whole or any par of the stock, share capital or assets (other than products sold in the nonnal course of business) of any concern corporate or non-corporate, engaged at the time of such acquisition in the business of manufacturng typwrters or typewriter parts or accessories for sale within the United States without the prior approval of the Federal Trdde Commission.

Opinion 85 F.

The prohihition shall include, but not be confined to, the entering into of any arrangement hy respondent pursuant to which respondent acquires the market share in whole or in part of such concern in any of the aforesaid product lines, (a) through such concern discontinuing manufacturing, or sellng any of said products under a brand name or lahel it owns and thereafter manufacturng or distributing any of said products under any of respondent's brand names or lahels, or (b) by reason of such concern discontinuing manufacturng any of said products and thereafter transferring to respondent customer lists or in any other way making available to respondent access to customers or customer accounts.

It is further ordered That respondent shall, within sixty (60) days after the date of service of this order, and every sixty (60) days thereafter until respondent has fully complied with the provisions of this order submit in wrting to the Federal Trade Commission a report setting forth in detail the manner and form in which respondent intends to comply, is eomplyjng, or has complied with this order. OPINION OF THE COMMISSION MARCH 4, 1975 By DIXON Commissioner:

On Mar. 13, 1973, the Commission issued an opinion in the abovecaptioned matter, holding that Litton Industries had violated Section 7 of the Clayton Act, as amended, hy its Jan. 1969 acquisition of the controlling stock interest in Trumph-Werke Wurherg A. Triumph") and Adler-Werke A.G. ("Adler ). Litton was ordered inter alia to divest "all the stock, assets, properties, rights and privileges" of Triumph-Adler within one year of the date of the order hecoming final and not to acquie, for a period of ten years, without the Commission prior approval, any concern eng-aged in the business of manufacturing typewriters.

Within a month of the Commission s opinion, on Apr. 9, 1973, Litton petitioned the Commission either to modify its order of divestiture without reconsidering the entire case, or to reconsider the full merits of the case and to enter an order dismissing the complaint. Litton, in its brief and affidavits aecompanyjng the petition, maintained that since the position of smaller companies had deteriorated in the offce and portable typewrter markets "in face of the entrenched and growing positions of IBM and SCM:' divestiture was not the appropriate remedy. While six United States companies manufactured typewriters at the time of the January 1969 acquisition of Trumph-Adler, at the time of the filing of the petition there was only one, IBM, selling LITTON INDUSTRIES, INC. 381 333 Opinion standard offce electric typewrters, and one, SCM, manufacturng and selling portable typewriters. Litton furher contended that IBM and SCM "have been able to increase their monopoly positions in the offce and portable typewrter markets, respectively, because of their substantial profitahility which permits them to increase their marketing effort." In addition, respondent maintained that "the evidence (of record) is overwhelming that Royal could not survive in the United States typewrter business without Trumph-Adler." This was the conclusion of the hearing examiner in the initial decision, and "events occurrng since the close of the records and conditions today enforce the hearing examiner s conclusion and make it even clearer that maintaining Royal and Trumph-Adler together is necessary to promote competition in the offce typwrter market in the United States.

Transmitted with the petition was a resolution of the Board of Directors of respondent's Executive Committee in which the Board resolved that it was its "judgment and conclusion * * * that the Royal Division would not be a viable competitor in the typwrter business without Trumph-Adler" and that if Litton should he required to divest Triumph-Adler "it will he necessary for Litton to dispose of the typewrter business of the Royal Division.

The National Offce Machine Dealers' Association also petitioned the Commission to reconsider the divestiture order. This organization of over 900 independent offce machine dealers in the United States contended that the divestiture of Trumph-Adler would force the dealers distributing Royal and Adler typewrters out of business. Counsel supporting the complaint answered the petitions, argung that the requests should he denied.

On May 16, 1973, tbe Commission ordered the reopening of the proceeding "solely for the purose of re-examining the question of relief in its entirety." The administrative law judge, on remand, was instructed to "examine the question of appropriate relief in its entirety, and, upon completion of the hearng, (to) fursh the Commssion with his findings on the issue of relief and his recommendations." Commissioner Engman did not participate in that decision, and Commssioner Jones dissented. On July 12, 1974, Admistrative Law Judge Alvin L. Berman issued his.. "Findings on Issue of Relief and Recommendations I He recommended that the ten year moratoriumon Remand." agast acquisitions be continued, hut that Litton not he required to divest Triumph-Adler.

This matter is now before the Commssion on the appeal of complaint I Refer- to hereinafter as AUR.

, :182 FEDERAL TRADE COMMISSION DECISIONS Opinion 85 F.

counsel from the administrative law judge s recommendation that divestiture not be required.

Because it is assumed that the restoration of competition in markets adversely affected hy an acquisition requires a return of the acquired and acquirng fir to these markets, divestiture is ordinarily deemed relief when the acquisition is held to have peculiarly appropriate"2 violated Section 7 of the Clayton Act. In cases where the firms are competitors, divestiture will minimally bring about deconcentration in the adversely affected markets and may additionally serve to restore competition in the relevant markets hy lowering or checking the rise of barers to entry, decreasing the possibility of entrenchment, and reestablishing toehold firs. However, when only one of the involved firms will he restored to the relevant market, divestiture may not have these salutary effects, and the Commission will consider other relief. While a proceeding on the question of relief in a Clayton Act Section 7 matter is unusual, it is not one of first impression. In Diarrnd Alkali 72 F. C. 739 (1967), the Commission found that respondent' acquisition of Bessemer Limestone and Cement Company, a competitor of Diamond, eliminated a suhstantial competitive factor in the relevant line of commerce portland cement, and violated Section 7 of the Clayton Act. Respondent closed the cement facilties it was operating at the time of the acquisition, raising the question whether divestiture was the appropriate relief "in view of the fact that divestiture usually envisions a resultant situation wherein two IITS exist where there had been one, and thus diminution of concentration, a circumstance which is not the case here Id. at 743. The matter before us, of course, differs from Diarrwnd Alkali in that there is a dispute in the instant matter as to whether divestiture of Triumph-Adler would result in restoration of two firms, or one, as it did in Diarrnd Alkali. The administrative law judge found that Litton- Royal would not remain in the relevant lines of commerce. Complaint counsel contend that Litton-Royal would not ahandon the relevant lines of commerce. Our Ilrst task, then, is to determine which of these contentions is supported by the record.

To determine whether Litton-Royal would continue to manufacture and sell typewrters if required to divest Trumph-Adler requires preliminarily identifcation of the relevant markets, and then an , United StoteBv. dllP""tde ..molll" I ("0- :36 U- 316 328(l961) LITTON INDUSTRIES, INC.

Opinion analysis of what is required of firms to operate profitably, given the nature of competition, in those relevant markets. A. Relevant Markets The Commission in its original opinion in this matter examined the competitive effect of Triumph-Adler s acquisition in the overall typewrter market and in the offce typewrter and portable typewrter submarkets. The offce typewrter suhmarket was divided furher into the offce electric and office manual suhmarkets. Although the Commission determined that self-contained automatic typewriters which perform ordinary offce typing functions constituted a second major suhmarket, it was not utilized in analyzing the legality of the acquisition, as neither Litton-Royal nor Trumph-Adler had manufactured automatic typewrters from 1963 to 1968. To measure market shares, the Commission considered unit sales (as witnesses testified, it was a "relevant" and "basic" system of measure), and manufacturers' suggested retail prices (hecause some firms sold primarily at retail, others at wholesale, and some in between), and dollar revenues. The emphasis was on the first two. The Commission specifically rejected segmenting the offce electric typewrter submarket into further "heavy duty" and "light duty typewrter submarkets.

The administrative law judge on remand considered product markets and means of measurng these markets that varied in several instances from those utilized hy the Commission in its opinion. He reasoned that markets and measures relevant for determining a violation may var from those utilized in considering the question of the survval of Litton- Royal without Trumph-Adler. The administrative law judge said: In appraising the viability of Royal as well as that of other competitors in the market it is necessar to view the market a." a whole. But it is also necessar to ascertn the success and potential of competitors in the relatively important and growing segments of the market regardless of whether these segments coincide with the submarket delineations that were utiliz in finding Section 7 violations. A study of sales with respet to those areas where the action is-where the dollar are to be garneresigncant both to judge whether respondent would stay in business under particular circumstances and to evaluate the public interest in the event respondent' s competition and potential competition should be lost to paricula segment.. of the industry. ALJR 19. Specifcally, the administrative law judge segregated revenue figures for the sale of "heavy duty" offce electric typwrters. These machines, which, he characteried as a "segment" of the office electric typewrter market, were included since they are "the very products for which Litton claims it depends upon Trumph-Adler, the very products which it claims it must discontinue if divestiture is ordered." ALJR. The administrative law judge also included, as a measure of the firms' position in the relevant markets, income from the lease and rental of the relevant products as "such income accounts for a large Opinion 85 F.'I.

share of IBM's total revenue and its omission would distort any consideration of what is occurring in the office typewrter market." ALJR 19.

In addition, rather than emphasize unit sales and manufacturers suggested prices, the administrative law judge gave primary consideration to actual revenues in determining the viahility of competition and competitors. He reasoned that actual revenues best demonstrate the economic standing of firms in the market.

Finally, although the Commssion did not consider in its original opinion the sale of reconditioned demonstrator typewrters to schools and reconditioned used typewrters, for the reason that there was i' convincing evidence which shows that the IBM recans exercise any significant and direct influence upon the purchasing decision of prospective buyers of new office electrics "3 the administrative law judge thought these sales were an important source of revenue and should not be ignored when gauging the economic viability of the firms in the market.

It is important to note at this junctur that, as a general proposition the Commission when considering the competitive consequences of divestiture will reject as irrelevant evidence relating to the effects of divestiture in markets which were not found to be relevant markets for acquisition. It is the the purpose of determining the legality of the burden of respondents, as the proponent of the proposition that relief other than divestiture is appropriate, to show hy a preponderance of the evidence 4 that divestiture is unnecessar to restore competition affected by the acquisition. Since the markets found to be adversely evidence relating to other, non-relevant markets can have but a tenuous connection to either anticompetitive or de minimis conse quences of divestiture in those markets found to be affected hy the acquisition, such evidence is irrelevant and inadmissible. But since the administrative law judge did not utilize "new" markets or measures for any purose other than determning the chances of Litton- Royal's his survival, we will not reject, at least on grounds of irelevance, findings based on these furher markets and measures. In addition, it is closely signifcant that these "new' markets and measures are connected to . those found relevant hy the Commission. The "heavy market (i.e. offce duty" offce electric typewrter is a segment of a electric typewriters) found relevant for the purposes of determining sustained. The automatic whether the Clayton Act charge was 1 l.illo" ludllslries, l"r 82 970 100(1973). F.T_C. Rules of Pradi.-, 3.43(a).

LITION INUW:iTK1.t;c, llh--.

:13.1 Opinion typewrter market was recognized as relevant in the Commission opinion, but, as noted above, it was not analyzed in determning legality of the acquisition, as neither Trumph-Adler nor Ljtton- royal had sold automatics from 1963 to 1968. Finally, revenues which were emphasized in the remand proceeding were recognzed as relevant by the Commission in its opinion, although considered relatively less important than other standards.

Before turning to an examination of the markets and other indicators that may shed light on Litton- Royal's chances of surviving without Triumph-Adler, it is necessar to consider the use of post-acquisition evidence. In remanding this matter the Commission, of course,. opened the record to the admission of post-acquisition evidence on the issue of relief. Left unanswered, however wa. the question of what limitations if any, should he placed on the weight to be given such evidence. Pertinent in this regard is the Supreme Cour' s recent admonition concernng the utilization of post-acquisition evidence to show the anticompetitive effects of a merger: "Violators could stave off (a Clayton Act Section 7 divestiture suit J by refraining from aggressive or anticompetitive behavior when such a suit was threatened or pending. United States v. General Dynamics Corp. 415 U.S. 486, 504 (1974). The Cour' s warning is particularly apposite here as respondent since the 1969 acquisition, has been in a position to deplete the acquired firm or some portion of its own operation, and then contend that the divestiture would not result in the restoration of two tIrS, and accordingly, divestiture might not be waranted. We recogne, then that the probative value of evidence controlled by respondent is limited, and shall give it less weight than post-acquisition evidence that respondent had no motive or capacity to manipulate. We return to the identification of relevant markets. We agree with the administrative law judge that in testing the prospects of respondent's surval without Trumph-Adler s assets, greater weight should be given to those markets and submarkets that are likely to enjoy the most growth. After all, it is reasonable to assume that bright prospects in a declining market will not induce a reasonable businessman to commit resources to the overdlI market if prospects are dismal in those segments of the market that are likely to experience the most growth. The record shows that the greatest growth is likely to continue in the overall electric typewrter market and the automatic typewrter suhmarket, and heavy duty electric "segment" of that market. Since 3R6 FEDERAL TRADE COMMISSION DECISIONS Opinion 85 F.

1967, IBM's share of these markets has increased from what was even then an impressive share.' Based on market shares and excluding such considerations as potential competition and barers to entry, IBM must be considered to be in a dominant position in these vital growth areas. In addition, none of IBM's competitors, including Litton-Royal could be considered of sufficient market strength, based solely on their individual share of the market, to countervail the apparent competitive strength of IBM.

If past unerrngly foretold future, we would conclude that respondent would not do well in the important growth markets. However, the predictive value of these figures depends upon Litton-Royal's ability to overcome the ohstacles that have kept it, and the other competitors of IBM, from successfully challenging IBM. We consider these ohstacles next.

B. Technological Barrer It is not disputed that the principal harrer to success in the growth typewrter markets has been, and will likely remain, technology. IBM' success in the office electric market and the automatic suhmarket stems in large par from its development of the electric typewrter which is distingushable from the products of its competitors by the single element printer. The capacity of IBM's competitors to ohtain or develop a similar device is a measure of their capacity for future success in the growth markets. The administrative law judge considered Litton-Royal's prospects in this regard hy examining its internal research and development capability and its capacity to obtain technology through purchase or license from IBM or other possible sources of a single element printer.

1. The Prospects of Internt Developmnt of a Competitive Typewrter We have carefully examined the record with this precise question in mind: Would it be reasonable for Litton-Royal's management, should Litton-Royal be required to divest Trumph-Adler, to attempt to create, through research and development, typwrters capahle of competing with the IBM and SCM machines that have dominated the , Market shares are bas in large part on scns it;".. ill ea",.... saes figures. To c011Vey an a"cumte pkture of th.. cnmpetitive positions of the firrs in the relevant markets, it is not nee ssa torevea! this contidential data. . As to th.. principal nongro".th market, office manual typwrite",. Litton-Royal still occupies an important position. but its share has df'lined substantiaUy from 196-, to 1972, a period wh,m industry sales fen off by close to 50 percent. In short, Litlon-Royal's position has ben deterio,..ting in a ,,'ming markel. Even if respondent was to ..vers the trend of dedining AAles of manua, the market s prospet. are SO bleak that we doubt that Litton-Royal' prosperity in th;5 market would, io the eyes of respondent s management, jU!;tify its continued presen"e in the overall typewrit.rmarket LITl"UN UlJ"1I\1E.O, 11'1\,.

333 Opinion varous growth markets? Litton- Royal's past efforts do not suggest an affirmative response.

During the five years prior to the challenged acquisition, Litton- Royal's expenditures in research amounted to $13.6 millon, with 942 000 earmarked for the development of the single element printer. The principal result of this effort was not the single element printer, however, but an offce electric typewrter sold as the Royal 660, a machine that required frequent repair and failed to strengthen Litton- Royal' s position in the electric typewrter market. An effort in the portable typwrter market met with similar failur. Given these failures, it is diffcult to be optimistic about the capacity of Litton to develop, internally, machines eapahle of competing with IBM and SCM in the relevant growth markets.

Even assuming that Litton-Royal could improve on its past poor performance in research and development, the firm would reqwre at least four years to produce a machine that would be competitive with what IBM and SCM are presently marketing. It is signcant, in this connection, that SCM, whose research and development performance generally appears to have been adequate, and surely superior to that of Litton-Royal's, left the office electric typwrter market. The firm did not believe that the expenditures required to produce a machine competitive with IBM would he justified by what SCM foresaw to he the return on sales. There is nothing in the record that argues that Litton-Royal is in a more favorable position. These considerations lead us to the same conclusion as the administrative law judge:

Considering IBM's entrenched position of dominance and, in view of the time required the large expenditures involved and the risk that the product developed may unacceptable or unprofitable, it is deemed unlikely that Litton, if required to divest itself of Trumph-Adler would take the steps necessary to develop, produce and market its own standard electric and automatic office typwrters. This is paricularly true with respect to electric typwrters where, except for mergers, no new entrants have appeared on the market since 1934. AL..JR 54.

2. The Prospects of Acquiring a Printer from an Outside Source Our review of the record to determine whether it would he reasonable to expect Litton-Royal's management, if Trumph-Adler were ordered divested, to procure from an outside soure the printer needed for respondent to be competitive in the growth markets, not surprisingly shows that such a course would be marked with great , Royal conlend that on'; of the principal ,.asrm it cannot be expetO-"" to ,.main in the typwritE'r industry is that it preSfnlly has no ""''arch and development capability. However, respondent, after the acquisition of Triumph-Adler dismantled its o,,'n ",search and development effort and came to rely 50Iely upon Triumph-Adler. lIecause respondent was in a position to rid iL elf of this capabilty, and so manipulate the evidence; and, in addition, had a motive for doing BO ( to make it appear that it was incapable of research and development, and thus gain support for it5 position that divestiture is not warrantl'd), grater ",eight wi1 be given to the pre- acquisition po ition of LiUon.HoyaJ in reSfarch anddcvelopment.

:J88 FEDERAL TRADE COMMISSION DECISIONS Opinion 85 F.

uncertainty. There is no way that Litton-Royal could be assured that a supplier would maintain adequate quality controls; that shortages strikes, or even the caprice of a supplier would not result in the discontinuance or cuthack of shipments; or that changes in the monetary system would not turn a profitable arrangement into an unprofitable one. To he specific, none of the possible sources of a printer would offer to Litton-Royal a reliahle source of supply. IBM for one, will not even enter into a contract, so Litton-Royal would not he assured of a firm price or a definite supply. Olympia, which presently supplies Sperr-Rand with a single element printer, is a German firm. Since the devaluation of the dollar, its printer has become unreasonahly expensive. There is also a question whether Olympia would take on another purchaser of its printer. Trumph-Adler, a potential source of supply upon divestiture, is similarly unattractive hecause of the uncertain foreign exchange rate." The fourth possible source, Xerox, which controls the Diahlo printer, is not likely to make the printer available to a potential major competitor such as Litton- Royal. Finally, and most importantly, these possible sources of the printer would be actual or potential competitors of Litton-Royal and hence unlikely to share fully new developments and to he protective of Litton-Royal in the way that a purchaser expects from a supplier before it enters into the kind of commitment that would he required here.

Of course, these risks can only he compounded hy the presence of IBM. The fir is deeply entrenched in the growth markets. In addition IBM has the advantage of having had the single element printer since 1961 to refine and incorporate into its varous systems. Our reading of the record then leads us to conclude that Litton- Hoyal's management, acting as sound businessmen, could not be expected to acquire the single element printer from an outside sour III. COMPETITIVE EFFECTS Having found that respondent' s divestiture of Trumph-Adler wil likely result in Litton- Royal's departure from the relevant markets (i. the overall typewrter market, the overall offce typwriter market, the offce electric market, the manual typewrter market, and the portable typewrter market), we turn to the question whether divestiture is necessary to restore competition in those markets found to have been adversely affected hy the acquisition. Specifcally, we . As counsel supportiog th.. complaint point out, .."change rates may well chang" so that it would be profitablefOT Litton-Royal to purchase from II foreign firm, such as Olympia or Triumph-Adler. Huwever, what wi1 not change is the possibility of further unf,,\ or-..ble fluctuations in the world money market Foreign Bupp1ie,. wil always, for this reason, be less thanatlractive sou....softhe single..element printer. LITTON INDUSTRIES, ING 389 333 Opinion have examined the record to determine whether the retention of the German firm would result in a lessening of competition and whether its divestiture would be procompetitive. This entails consideration of how concentration, entry harrers, and entrenchment wil he affected by (a) the loss of Litton-Royal, (b) the loss of Trumph-Adler as an independent, and (c) the presence of a combined Litton-Royal and Triumph-Adler. Only those markets found to he adversely affected will be considered in this connection.

A. Concentration Each of the affected markets, except that of office manual typewrters, is dominated either hy IBM or SCM, while each of the other firms in the market retains a small share, whether shares are measured by revenues, units sold, or suggested retail prices. Although Litton, in each market, is second in sales, its share is small, so that it is a very distant second to the dominant fir. In addition, Litton does not possess a significantly larger share than the firms heneath it. Triumph- Adler s share is invariably one of the smallest. We agree with the administrative law judge that the departure of Litton-Royal would not result in procompetitive deconcentration, since the marketing and other capabilties which have led IBM and SCM to gain and retain a dominant position would bring about a shift of Royal's share to them.

Furher, we see no signifcant increase in concentration resulting from Royal's retention of Trumph-Adler, both hecause Triumph- Adler s share in the affected markets is so small, and hecause Litton- Royal's share has steadily trended downwards. These markets, in hrief wil remain overall very much as they were at the time of the acquisition - dominated either by IBM or SCM, with the other firms in the industry sharing fragments of the remainder. Equally as remote is the possihilty that the removal of Triumph- Adler as an independent might result in the loss of the German firm as a possible toehold to a potential entrant, or that Trumph-Adler through internal growth and expansion, might assume a greater share of the affected markets. On the basis of a finding that Trumph-Adler in 1973, lost $4.50 on the sale of each heavy duty electric typewriter in the United States, while it profied by $5.21 on the sale of each such typewrter in West Germany durng that year, the administrative law judge concluded that there was a "distinct possibility of a diminution of Triumph-Adler s efforts in the lelectric typwrter submarket in the) United States" ALJR 72. The lack of success in this country negates the prospect of Triumph-Adler s growth by internal expansion in the relevant markets. There is insufficient record evidence that Triumph- Adler would serve as a toehold to a potential entrant. Opinion 85 F.

The manual typewrter market differs from the other relevant markets in that it is not dominated by anyone firm, and both Royal and Triumph-Adler rank high in terms of sales - Royal first, and Triumphs withdrawal from theAdler fifth. Litton-Royal's or Trumph-Adler market would have unpredictable results. It is not possible to estimate with sufficient certainty whether the top firms might divide up Litton share, thereby increasing concentration, or whether Trumph-Adler share might be ahsorbed hy the smaller firms. Unlike the other relevant markets, no firm is so favorably situated that we can assume it wil take over Litton-Royal's share if Trumph- Adler s divestiture is willrequired. There is no question, however, that concentration increase significantly if the subject acquisition is allowed to stand, and that the resultant increase in concentration is presumptivl; ly a violation of Section 7 of the Clayton Act. The administrative law judge did not analyze the basis of this presumption, but, instead, weighed the presumptively anUcompetitive consequences of the acquisition in the manual typewriter market as against the procompetitive effects of the retention of Triumph-Adler by Litton-Royal in the other relevant markets. This approach is unacceptable. If divestiture is necessary to restore competition in the manual typewriter market, we must require , even though in the other markets divestiture may be contraindicated. The Commission will not he placed in the position of justifying the anti-competitive effects in one market by the pro-competitive consein United States v. Philadelphiaquences in another. The Cour, National Bank 374 U.S. 321, 370 (1963), rejected such an approach as every firm in an industry could, without violating Section 7, embark on a series of mergers that would make it in the end as large as the industry leader." Hence, if the presumption stands when applied to the manual typewriter market, the divestiture will he required. From our examination of the record, we have determined that there is evidence to rehut the "inherently anti-competitive tendency maniest hy the concentration" figures. I d. at 366. In the manual typewrter market high concentration does not coincide with anticompetitive performance. Profits are low and sales declining. The limited number of firms in such circumstances is probably accounted for by the market' lack of promise. In the manual typewriter market, mut sales for 196- 1972 declined hy almost 50 percent. Signcantly, SCM discontinued the production and sale of manual typewrters, even though it at least matched the technological and marketing capabilities of the major firms in the market, and, in 196, was the ruth ranking firm in that market. Its departure was not brought about hy an inabilty to compete, hut apparently hy its lack of enthusiasm for a market where the prospects for growth and profits were dismal. The fact then that Opinion the market is concentrated stems from a lack of interest in the market by competitors and potential entrants. In addition, any entry barriers that may he present would easily be overcome hy SCM and IBM. We find, then, that since the firms remaining in the manual typewriter markets are not in a position to exploit their "oligopolistic" position, the increase in concentration resulting from Litton-Royal' s retention of Triumph-Adler is not competitively signficant. B. Barrers to Entry and Entrenchment Entry by a new firm, or growth by existing firms, in the relevant markets are conditioned by their capacity to overcome technological and marketing harrers. We find nothing in the record to indicate that these harrers to entry wil be affected in any way whether Triumph- Adler is divested or retained by Litton-Royal. As for possible entrenchment, the record shows that Litton-Royal will be advantaged by the retention of Triumph-Adler. This enhancement of re pondent' competitive position does not, however, amount to entrenchment. At most, it means that the firm can continue as a viable competitor in -the affected markets, and expand into the growth suhmarkets. Finally, then, we find it unnecessar to order the divestiture of Triumph-Adler. The German firm s retur to independent status wil not enhance competition, nor will its retention by Litton-Royal adversely affect competition in the relevant markets. We agree however, that the administrative law judge s recommendation that the provision requiring respondent not to acquire, for a period of ten years without the Commission s prior approval, any fir in the business of manufacturing typewrters is necessary and should stand. Litton has a history of growth through acquisition in the typewrter market, as well as in other markets. The need for a moratorium on this means of growth has been amply demonstrated.