Autodesk, Inc.

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IN THE MATIER OF AUTODESK, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEC. 7 OF THECLA YTON ACT AND SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT . Docket C-3756. Complaint, June 18, 1997--Decision, June 18, 1997 This consent order permitted Autodesk's acquisition of Softdesk, requires Softdesk to divest its own computer-aided design ("CAD") software engines, "lntelliCADD," to Boomerang Technology, Inc., and prohibits, among other things, the combined firm from reacquiring the IntelliCADD product or any entity that owns or controls it, without prior notice to the Commission, for a 10-year period.· In addition, the consent order prohibits Autodesk from interfering with Boomerang's ability to recruit or hire Softdesk employees who worked on the development of IntelliCADD Appearances For the Commission: Daniel Ducore.

For the respondents: Charles T Compton and Neil Nathanson, Wilson, Sonsini, Rosati & Goodrich, Palo Alto, CA. and John Christie and Scott E. Pueschel, Hale & Dorr, Washington, D.C. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and ofthe Clayton Act, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission, having reason to believe that Autodesk, Inc. ("Autodesk") entered into an Agreement and Plan of Merger with Softdesk, Inc. ("Softdesk"), whereby Autodesk agreed to acquire all of the outstanding shares of Softdesk, in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, and that such acquisition, if consummated, would have violated Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint stating its charges as follows:

A. THE RESPONDENTS 1. Respondent Autodesk, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the AUTODESK, INC., ET AL. 1695 1694 Complaint State of Delaware, with its office and principal place of business located at 111 Mcinnis Parkway, San Rafael, California. 2. Respondent Softdesk, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 7 Liberty Hill Road, Henniker, New Hampshire. 3. At all times relevant herein, respondents Autodesk and Softdesk have been and are now engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, 15 U.S.C. 12, and are corporations whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

B. THE PROPOSED ACQUISITION 4. In December 1996, Autodesk and Softdesk entered into an Agreement and Plan of Reorganization whereby Autodesk would acquire 100% of the voting securities of Softdesk in exchange for shares of Autodesk common stock with a value of $90 million (the "Acquisition").

5. Autodesk is a public company that develops and markets computer-aided design ("CAD") software for the architecture, engineering and construction (the "AEC") industries. Autodesk offers a portfolio of software products including a CAD engine marketed and sold under the name "AutoCAD," for use with Windows operating systems on personal computers. Autodesk has had annual sales in excess of $530 million.

6. Softdesk is a public company that also develops and markets CAD software for the ABC market. Softdesk has had annual sales in excess of $40 million. Softdesk offers a portfolio of applications software that are used in conjunction with and to supplement CAD engines, primarily Autodesk's AutoCAD. Softdesk was also developing a CAD engine, known as "IntelliCADD." C. RELEVANT MARKET 7. One relevant line of commerce within which to analyze the effects of Autodesk's acquisition of Softdesk is the market for CAD engines for Windows-based personal computers. 8. CAD engines are used by professional engineers to design and draw structures or other building projects for a variety of industries. CAD engines are the software platform which allows draftsmen to Complaint 123 F.T.C. draw lines, shapes, and objects with their computer. CAD engines can be a stand-alone product or used in conjunction with application software that enhances and increases the capabilities of the CAD system.

9. Customers using Windows-based CAD engines would not be likely to switch to UNIX-based CAD systems even if the price of Windows-based CAD engines increased substantially. Professional engineers at one time used CAD engines designed for use on UNIXbased mainframe computers. With the increase in the power of personal computers and their decline in price, engineers now principally use Windows-based CAD engines. Unix-based CAD software is still in use today, but is primarily limited to use in highly technical and ·sophisticated projects involving three-dimensional rendering of drawings. UNIX-based CAD software, and the hardware necessary to operate it is substantially more costly than Windowsbased CAD software and hardware.

10. The relevant geographic market within which to analyze the effects of Autodesk's acquisition of Softdesk is either the United States or the world. While software is easily transported, there are no significant imports into the United States of Windows-based CAD engmes.

D. MARKETSTRUCTURE 11. The relevant market for Windows-based CAD engines is highly concentrated. Autodesk commands a dominant market share of the Windows-based CAD engines in North America, controlling nearly 70% of the installed base with approximately 1.4 million seats. 12. Among CAD engines in the marketplace for use on Windowsbased personal computers, Autodesk's AutoCAD product is viewed by many in the industry as the de facto standard for Windows-based CAD systems. There are other CAD engines available in the market for use on personal computers, with varying degrees of file compatibility and transferability with AutoCAD, which is necessary to be an effective competitor in this market. E. CONDITIONS OF ENTRY 13. De novo entry or fringe expansion into the relevant market would require an expenditure of substantial sunk costs and would be time-consuming and, therefore, such entry is not likely. AUTODESK, INC., ET AL. 1697 1694 Complaint 14. Entry sufficient to deter or defeat reductions in competition resulting from Autodesk's acquisition of Softdesk's IntelliCAD product requires developing a CAD engine that offers file compatibility and transferability with AutoCAD. The large installed base of AutoCAD users necessitates that any new CAD engine developed and offered in the market offer file compatibility and transferability to AutoCAD in order to gain sales. Users of AutoCAD have a large number of drawings in the AutoCAD format.. Moreover, many users must share files they create with others who must be able to read and edit those files using their CAD software. Since most engineers use AutoCAD any alternative CAD engine must have the capability to read and be compatible with AutoCAD files without losing substantial at~ounts of data or information. F. SOFTDESK'S ENTRY INTO THE CAD ENGINE MARKET 15. Softdesk, although historically a developer and seller of CAD application software, was developing and had tested a CAD engine, . referred to as "IntelliCADD," for use on Windows-based personal computers. · IntelliCADD provides file transferability and compatibility with Autodesk's AutoCAD generated files and application software. The IntelliCADD product is a direct competitor to and substitute and replacement for AutoCAD. 16. Softdesk had developed the IntelliCADD product for more than two years and was testing its IntelliCADD product with customers until sometime prior to the proposed merger with Autodesk. In approximately June 1996, Softdesk determined that it no longer had the financial ability to support continued development and marketing ofthe IntelliCADD product. The head of the team that had developed the product proposed to purchase the technology and formed Boomerang Technology, Inc. ("Boomerang") for the purpose of acquiring the product, completing its development, and bringing the product to market. Boomerang negotiated with Softdesk for the purchase of the IntelliCADD product and exchanged draft purchase agreements with Softdesk. Softdesk, however, terminated those negotiations at around the time that Autodesk agreed to acquire Softdesk. Softdesk representatives previously told Boomerang that Softdesk would sell the IntelliCADD product to Boomerang if Softdesk were purchased by someone other than Autodesk, but would not selJ it to Boomerang if Softdesk were purchased by Autodesk. Complaint 123 F.T.C. 17. After being advised by Commission staff that Autodesk's acquisition of Softdesk raised competitive concerns in the market for personal computer-based CAD engines, Softdesk resumed negotiations with Boomerang and divested and sold all of its rights in the IntelliCADD product to Boomerang pursuant to a Technology Transfer Agreement dated February 21, 1997. On that same date, Boomerang assigned and sold all of its rights to the IntelliCADD product to Visio Corporation.

18. Softdesk's development of the IntelliCADD product provided the market with a potential CAD engine that offered file compatibility and transferability with AutoCAD, thus providing direct head-to-head competition to AutoCAD.

19. Customers who had tested the IntelliCADD product reacted favorably to it. Some customers delayed or postponed the purchase of AutoCAD in anticipation of IntelliCADD being made available in the market. By the time Autodesk agreed to acquire Softdesk, the IntelliCADD product was within months of being introduced in the market.

G. EFFECTS OF THE PROPOSED ACQUISITION 20. The acquisition by Autodesk of Softdesk's IntelliCADD product would have substantially lessened competition in the market for Windows-based CAD engines by, among other things: a. Eliminating substantial, direct head-to-head competition between Autodesk and Softdesk;

b. Eliminating actual potential competition from Softdesk in the relevant market;

c. Preserving and maintaining Autodesk's market power; d. Substantially increasing the risk of unilateral exercise of market power;

e. Maintaining high prices, or preventing the lowering of prices, for Windows-based CAD engines; and f. Reducing service to customers of Windows-based CAD engmes.

H. VIOLATIONS CHARGED 21. The agreement described in paragraph four violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45. AUTODESK, INC., ET AL. 1699 1694 Complaint 22. The acquisition of Softdesk's IntelliCADD product by Autodesk, if consummated, would have violated Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Comm~ssion Act, as amended, 15 U.S.C. 45. APPENDIX I INTERIM AGREEMENT This Interim Agreement is by and between Autodesk, Inc., a corporation organized and existing under the laws of the State of Delaware ("Autodesk"), Softdesk, Inc., a corporation organized and existing under the laws of the State of Delaware ("Softdesk"), and the Federal Trade Commission, an independent agency of the United States Government, established under the Federal Trade Commission Actof1914, 15 U.S.C. 41 , etseq. (the "Commission"). PREMISES Whereas, Autodesk has proposed to acquire all of the voting securities of Softdesk pursuant to the Agreement and Plan of Reorganization by and among Autodesk, Inc., Autodesk Acquisition Corporation and Softdesk, Inc., dated December 10, 1996 ("the proposed Acquisition");

Whereas, the Commission is now investigating the proposed Acquisition to determine if it would violate any of the statutes the Commision enforces; and Whereas, if the Commission accepts the Agreement Containing Consent Order ("Consent Agreement"), the Commission will place it on the public record for a period of at least sixty (60) days and subsequently may either withdraw such acceptance or issue and serve its complaint and decision in disposition of the proceeding pursuant to the provisions of Section 2.34 of the Commission's Rules; and , Whereas, the Commission is concerned that if an understanding is not reached during the period prior to the final issuance of the Consent Agreement by the Commission (after the 60-day public notice period), there may be interim competitive harm; and Whereas, the entering into this Interim Agreement by Autodesk and Softdesk shall in no way be construed as an admission by Autodesk and Softdesk that the proposed Acquisition constitutes a violation of any statute; and Complaint 123 F.T.C. Whereas, Autodesk and Softdesk understand that no act or transaction contemplated by this Interim Agreement shall be deemed immune or exempt from the provisions of the antitrust laws or the Federal Trade Commission Act by reason of anything contained in this Interim Agreement.

Now, therefore, Autodesk and Softdesk agree, upon the understanding that the Commission has not yet determined whether the proposed Acquisition will be challenged, and in consideration of the Commission's agreement that, at the time it accepts the Consent Agreement for public comment, it will grant early termination of the Hart-Scott-Rodino waiting period, as follows: 1. Autodesk and Softdesk agree to execute the Consent Agreement and be bound by the terms of the order contained in the Consent Agreement, as if it were final, from the date Autodesk and Softdesk sign the Consent Agreement.

2. Autodesk and Softdesk agree that, from the date Autodesk and Softdesk sign the Consent Agreement until the first of the dates listed in subparagraphs 2.a and 2.b, they will comply with the provisions of this Interim Agreement:

a. Ten (10) business days after the Commission withdraws its acceptance of the Consent Agreement pursuant to the provisions of Section 2.34 of the Commission's Rules; or b. The date the order is final.

3. Autodesk and Softdesk waive all rights to contest the validity of this Interim Agreement.

4. For the purpose of determining or securing compliance with this Interim Agreement, subject to any legally recognized privilege, and upon written request, an on reasonable notice, Autodesk and Softdesk shall permit any duly authorized representative or representatives ofthe Commission:

a. Access, during the office hours of Autodesk and Softdesk and in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda, and other records and documents in the possession or under the control of Autodesk and Softdesk relating to compliance with this Interim Agreement; and b. Upon five (5) days' notice to Autodesk and Softdesk and without restraint or interference from them, to interview officers, AUTODESK, INC., ET AL. 1701 1694 Decision and Order directors, or employees of Autodesk and Softdesk who may have counsel present, regarding any such matters. 5. This Interim Agreement shall not be binding until accepted by the Commission.

DECISION AND ORDER The Federal Trade Commission ("Commission"), having initiated an investigation of the proposed merger of Autodesk, Inc. ("Autodesk"), and Softdesk, Inc. ("Softdesk"), and it now appearing that Autodesk and Softdesk, hereinafter sometimes referred to as the "respondents," are willing to enter into an agreement containing an order to refrain from certain acts and providing for other relief, and respondents having been furnished with a copy of a draft complaint that the Bureau of Competition has presented to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violations of the Clayton Act and Federal Trade Commission Act; and The respondents, their attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission's Rules; and The Commission, having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Acts, and that a complaint should issue stating its charges in that respect; and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, makes the following jurisdictional fmdings and enters the following order: A. Respondent Autodesk, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 111 Mcinnis Parkway, San Rafael, California. Decision and Order 123 F.T.C. B. Respondent Softdesk, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 7 Liberty Hill Road, Henniker, New Hampshire. C. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER I.

It is ordered, That, as used in this order, the following definitions shall apply:

A "Respondent Autodesk" br ''Autodesk" means Autodesk, Inc., its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries (including, after the Acquisition, Softdesk, Inc.), divisions, ,groups and affiliates controlled by Autodesk, Inc., and the respective directors, officers, employees, agents and representatives, successors and assigns of each.

B. "Respondent Softdesk" or "Softdesk" means Softdesk, Inc., its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups and affiliates controlled by Softdesk, Inc., and the respective directors, officers, employees, agents and representatives, successors and assigns of each.

C. "Boomerang" means Boomerang Technology, Inc.,· a corporation organized, existing, and doing business under and by virtue of the laws of the State of California with its office and principal place ofbusiness located at 241 Kalbaugh Street, Ramona, California.

D. The "Acquisition" means the purchase of Softdesk by Autodesk pursuant to the Agreement and Plan of Reorganization by and among Autodesk, Inc., Autodesk Acquisition Corporation and Softdesk, Inc., dated December 10, 1996. E. "Respondents" means Autodesk and Softdesk. F. "Commission" means the Federal Trade Commission. G. "IntelliCADD Products" means the IntelliCADD software product and all teclmical system documentation and user AUTODESK, INC., ET AL. 1703 1694 Decision and Order documentation relating thereto identified as the "Acquired Assets" in the Technology Transfer Agreement entered into between Softdesk and Boomerang dated February 21, 1997.

H. "Documentation" means all supporting documentation associated with the IntelliCADD Products provided by Softdesk identified in the Technology Transfer Agreement entered into between Softdesk and Boomerang dated February 21, 1997. II.

It is further ordered, That respondents shall take no action to interfere with the ability of Boomerang to recruit or employ respondents' employees whose primary responsibility at respondents was the development and/or programming of the IntelliCADD Products.

III.

It is further ordered, That, for a period of ten (1 0) years from the date this order becomes fmal, respondents shall not, without prior notification to the Commission, directly or indirectly, through subsidiaries, partnerships, or otherwise: A. Acquire the IntelliCADD Products;

B. Acquire any stock, share capital, equity or other interest in any concern, corporate or non-corporate, that owns, controls or otherwise has an interest in the lntelliCADD Products. IV.

It is further ordered, That the prior notification required by paragraph III of this order shall be given on the Notification and Report Form set forth in the Appendix to Part 803 of Title 16 of the Code of Federal Regulations as amended (hereinafter referred to as "the Notification"), and shall be prepared and transmitted in accordance with the requirements ofthat part, except that no filing fee will be required for any such notification, notification shall be filed with the Secretary of the Commission, notification need not be made to the United States Department of Justice, and notification is required only of respondents and not of any other party to the transaction. Respondents shall provide the Notification to the Commission at least thirty (30) days prior to consummating any such Decision and Order 123 F.T.C. transaction (hereinafter referred to as the "first waiting period"). If, within the first waiting period, representatives of the Commission make a written request for additional information, respondents shall not consummate the transaction until twenty (20) days after substantially complying with such request for additional information. Early termination of the waiting periods in this paragraph may be requested and, where appropriate, granted by letter from the Bureau of Competition.

Provided, however, that prior notification shall not be required by paragraph ITI of this order for a transaction for which notification is required to be made, and has been made, pursuant to Section 7A of the Clayton Act, 15 U.S.C. 18a.

v.

It is further order.ed, That one (1) year from the date this order becomes final, annually for the next nine (9) years on the anniversary of the date this order .becomes final, and at other times as the Commission may require, respondents shall file a verified written report with the Commission setting forth in detail the manner and form in which they have complied and are complying with paragraphs II and III of this order.

VI.

It is further ordered, That, for the purpose of determining or securing compliance with this order, and subject to any legally recognized privilege, upon written request and reasonable notice, respondents shall permit any duly authorized representative of the Commission:

A. Access, during normal office hours and in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda and other records and documents in the possession or under the control of respondents relating to any matters contained in this order; and B. Upon five (5) days' notice to the respondents, and without restraint or interference, to interview officers, directors, or employees of the respondents, who may have counsel present. AUTODESK, INC., ET AL. 1705 1694 Decision and Order VII.

It is further ordered, That respondents shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents such as dissolution, assignment, sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporations that may affect compliance obligations arising out of this order. VIII.

It is further ordered, That this order shall terminate on June 18, 2007.

Complaint 123 F.T.C.