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Public Comments and Response on Proposed Final Judgment in United States v. Computer Associates International, Inc., et al. Exhibit

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Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), the United States hereby publishes below the comment received on the proposed Final Judgment in United States of America v. Computer Associates International Inc. and Platinum technology International, inc., Civil Action No. 1:01CV02062 (GK), filed in the United States District Court for the District of Columbia, together with the United States' response to the comment.

Copies of the comment and response are available for inspection at Room 200 of the Department of Justice, Antitrust Division, 325 Seventh Street, NW., Washington, DC 20530, telephone (202) 514-2481, and at the Office of the Clerk of the United States District Court for the District of Columbia, E. Barrett Prettyman United States Courthouse, 333 Constitution Avenue, NW., Washington, DC 20001. Copies of any of these materials may be obtained upon request and payment of a copying fee.

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Constance K. Robinson,

Director of Operations.

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United States' Response to Public Comments

Pursuant to Section 5(d) of the Clayton Act, as amended by Section 2 of the Antitrust Procedures and Penalties Act (codified at 15 U.S.C. 16(b)-(h)(the “Tunney Act”)), the United States responds to public comments received regarding the proposed Final Judgment submitted for entry in this civil antitrust proceeding.

I. Background

On September 28, 2001, the United States filed a civil antitrust Complaint alleging that the Merger Agreement between Defendants Computer Associates International, Inc. (“CA”) and Platinum technology International, inc. (“Platinum”) had the effect of lessening or eliminating competition between them in the sale of certain software products in violation of Section 1 of the Sherman Act, 15 U.S.C. 1. The Complaint alleged that, prior to March 1999, Platinum aggressively competed with CA in the development and sale of numerous software products, including mainframe systems management software products. On March 29, 1999, CA and Platinum entered into a Merger Agreement pursuant to which CA would purchase all issued and outstanding shares of Platinum through a $3.5 billion cash tender offer.[1]

The Merger Agreement set forth numerous covenants made by Platinum, as part of the agreement to be acquired, regarding how it would conduct its business during the period between the signing of the Merger Agreement and the closing of the acquisition transaction (the pre-consummation period). Under the Merger Agreement, CA and Platinum agreed that Platinum would not offer discounts greater than 20% off list prices for its software products and consulting services unless CA approved the discount. Before the merger announcement, Platinum commonly gave discounts over 20% for its software products and consulting services. In furtherance of this Agreement, CA installed one of its vice presidents at Platinum's headquarters to review Platinum's proposed customer contracts and exercise authority to approve or reject proposed contracts offering discounts greater than 20%. CA also obtained prospective, customer-specific information regarding Platinum's bids, including the name of the customer, products and services offered, list price, discount, and the justification for any discount. Platinum placed no limits with respect to CA's use of this information. CA used this information to monitor Platinum's adherence to the Merger Agreement's limitation on discounts and to exercise its authority to approve or reject any proposed contract that offered discounts over 20%.

The United States filed a Complaint on September 28, 2001, alleging that the provisions of the Merger Agreement relating to CA's approval of Platinum discounts prior to consummation of the merger violated section 1 of the Start Printed Page 66420Sherman Act. On April 23, 2002, the United States filed a Stipulation and proposed Final Judgment designed to prevent the recurrence of the alleged Sherman Act section 1 violation.[2] The proposed Final Judgment prohibits CA and future merger partners from agreeing to establish the price of any product or services offered in the United States to any customer during the pre-consummation period. The proposed Final Judgment also would prevent the repetition of the conduct CA employed to facilitate its agreement with Platinum to establish prices. Specifically, the proposed Final Judgment prohibits CA from entering into an agreement to review, approve or reject customer contracts during the pre-consummation period, and prohibits CA from entering into an agreement that requires a party to provide “non-material” bid information to another party.

The proposed Final Judgment identifies certain price-related agreements that will not violate the Final Judgment. The proposed Final Judgment does not prohibit agreements that the to-be-acquired party, during the pre-consummation period, act in the ordinary course of business and not engage in conduct that would cause a material adverse change in the to-be-acquired party's business. CA and a merger partner may also conduct reasonable due diligence and may exchange “material” bit information, subject to appropriate use and confidentiality restrictions. Finally, the proposed Final Judgment permits certain joint pricing and bidding activities, provided that such conduct would be lawful independent of the proposed merger.

The Court may enter the proposed Final Judgment following compliance with the Tunney Act.[3] Pursuant to the Tunney Act, the proposed Final Judgment and CIS were filed with the Court on April 23, 2002. A summary of the terms of the proposed Final Judgment and CIS were published for seven consecutive days in The Washington Post from June 6, 2002 through June 12, 2002. The proposed Final Judgment and CIS were published in the Federal Register on June 18, 2002 at 67 14472 (2002). the 60-day period for public comments on the proposed Final Judgment began on June 18, 2002 and expired on August 19, 2002. During that period, one comment was received.

II. Response to Public Comment

The only comment was filed by The Center for the Advancement of Capitalism (“CAC”), a non-profit organization with the mission of providing analysis based on Ayn Rand's philosophy of objectivism.[4] A true and correct copy of CAC's comment is attached as Exhibit 1. CAC states that the antitrust laws represent a “system where the federal government has assumed the unconstitutional role of dictating which business practices are permitted, without having to actually show that a business's actions violate the rights of another party.” CAC Comment at 2. CAC further argues that the enforcement of the antitrust laws “completely ignores the principle of individual rights which animate our Constitution and republican form of government.” Id. at 6. In a similar vein, CAC argues that the antitrust laws, to the extent they protect consumers, violate the rights of property owners and producers. Id. at 3, 6-8. According to CAC, the antitrust laws should permit businesses to take any action, “[s]o long as the actions are voluntary, and do not constitute an act of force against another individual or corporation” Id. at 7.

CAC, in essence, challenges the constitutionality of the Sherman Act and advocates for a form of laissez-faire capitalism unregulated by the Government. The United States disagrees with CAC's position. The Supreme Court has, on numerous occasions upheld the constitutionality of the Sherman Act and the prohibition of section 1 of the Act against any contract, combination or conspiracy that “unreasonably” deprives consumers of the benefits of competition or that would otherwise result in higher prices or inferior products and services. See Standard Oil Co. v. United States, 221 U.S. 1, 50, 58 & 68-70 (1911); see also United States v. Joint Traffic Ass'n, 171 U.S. 505, 570-73 (1898). In any event, challenging the constitutionality of the Sherman Act is far beyond the scope of this Tunney Act proceeding. See United States v. Microsoft Corp., 56 F.3d 1448, 1459 (D.C. Cir. 1995) (Court's role under the Tunney Act is limited to reviewing the remedy in relationship to the violations that the United States alleges in its Complaint).

CAC also argues that the proposed Final Judgment constitutes a “fraud” because it is based on the premise that “merging companies should continue to act independently of one another even when that is not the case in actual reality.” CAC Comment at 5. CAC further argues that the proposed Final Judgment will prevent CA from entering into merger agreements for the 10-year term of the Final Judgment because any joint pre-consummation conduct would be “per se” illegal conduct in the eyes of the DOJ.” Id. at 6. CAC misconstrues the allegations in the Complaint and the proposed remedy.

The United States, of course, recognizes that the relationship between two formerly independent firms changes when they announce plans to merge. The fact that two firms have signed a merger agreement, however, does not excuse them from their obligation to comply with the antitrust laws during the pre-consummation period. Section 1 of the Sherman Act prohibits pre-merger agreements among competitors that restrain competition. Thus, the Complaint alleges that CA and Platinum entered into an agreement to limit Platinum's discounts during the pre-consummation period and that this agreement lessened competition in certain software markets. Moreover, neither the Complaint nor the proposed Final Judgment stand for the proposition that all pre-consummation agreement are “per se” illegal. The Final Judgment only prohibits agreements on price that are likely to restrict competition.

III. Conclusion

CAC urges the Court to find that the proposed Final Judgment is not in the public interest and requests that the Court deny entry of the proposed Final Judgment. The United States has concluded that the proposed Final Judgment reasonably and appropriately addresses the harm alleged in the Complaint. Therefore, following publication of this Response To Comments and submission of the United States' Certification of Compliance with the Tunney Act, the United States intends to request entry of the proposed Final Judgment upon the Court's determination that entry is in the public interest.

Dated: September 19, 2002.

Respectfully submitted.Start Printed Page 66421

Renata B. Hesse, N. Scott Sacks, James J. Tierney, Jessica N. Butler-Arkow, David E. Blake-Thomas,

Attorneys, U.S. Department of Justice, Antitrust Division, Networks and Technology Section, 600 E Street, NW., Suite 9500, Washington, DC 20530. 202/307-0797.

Certificate of Service

I hereby certify that a copy of the foregoing United States; Response To Public Comments was hand delivered this 19th day of September, 2002 to: Counsel for Computer Associates International, Inc. and Platinum technology International, inc. Richard L. Rosen, Esquire, Arnold & Porter, 555 Twelfth Street, NW, Washington, DC 2004-1206. Fax: 202/547-5999.

James J. Tierney.

The Center for the Advancement of Capitalism

August 9, 2002.

Ms. Renata B. Hesse,

Chief, Networks and Technology Section, United States Department of Justice, Antitrust Division, 600 E Street, NW., Suite 9500, Washington, DC 20530.

Re: Proposed Final Judgment in United States of America v. Computer Associates International, Inc., et al., Civil No. 1:01CV02062 (GK)

Dear Ms. Hesse: On behalf of the Center for the Advancement of Capitalism [1] (“CAC”), I hereby transmit to you the following public comments with respect to the above captioned matter now pending in the United States District Court for the District of Columbia. In accordance with 15 U.S.C. 16(d), CAC requests that its comments in this matter be included in the appropriate public record, and that they be considered by the Department of Justice and the Court in determining whether the proposed Final Judgment is in the public interest.

I

CAC is a non-profit corporation organized under the laws of the District of Columbia and exempt from taxation under 26 U.S.C. 501(c)(4). The mission of CAC is to provide analysis and commentary to policymakers, the judiciary, and the general public on matters relevant to individual rights and economic freedom. CAC presents an integrated approach to contemporary issues by applying Ayn Rand's philosophy of Objectivism.

For the past four years, CAC has provided a consistent and principled opposition to the continued enforcement of the antitrust laws of the United States.[2] We have argue that the antitrust laws violate the individual rights of businessmen, the protection of which is mandated by the United States Constitution. Instead, what now exists in the United State—and in this particular case—is a system where the federal government has assumed the unconstitutional role of dictating which business practices are permitted, without having to actually show that a business's actions violate the rights of another party. Indeed, as the case against Computer Associates and Platinum Technology (“defendants”) demonstrate, most antitrust cases have no actual victim, save for perhaps the ego of the attorneys representing the Department of Justice (“DOJ”).

After a careful review of the public record in this case, CAC believes that the United States has failed to demonstrate why this prosecution was justified in the first instance. Furthermore, we believe the terms of the proposed Final Judgment have been falsely represented to the public as being injunctive and remedial in nature, when in fact they are punitive. Since the public interest cannot possibly be served by punishing a company which has committed no crime and for other reasons outlined below, CAC concludes that entry of the proposed Final Judgment is not in the public interest, and that the DOJ should withdraw from its agreement and dismiss the complaint against the defendants with prejudice. In the alternative, CAC would request the District Court to deny entry of the proposed Final Judgment under 15 U.S.C. 16(e).

II

The central claim of the DOJ's complaint is that the defendants entered into a merger agreement which denied consumers the benefit of full competition during the “pre-consummation period,” that is to say, prior to the closing of the actual merger. The DOJ defines the pre-consummation period as ending either with the closing date, or earlier if termination is granted by the DOJ under the Hart-Scott-Rodino Act.[3] Under the government's antitrust regimen, it seems, companies have an “obligation to compete independently” [4] even after they've agreed to stop competing out of mutual self-interest. What this case deals with then is how companies are to be permitted going about the task of combining their operations without running afoul of the DOJ's pathological (and statutory) need to control every aspect of private commerce.

Under the merger agreement voluntarily entered into by the defendants. Platinum technology officials agreed to not offer their customers a discount of more than 20% off list prices without the prior written consent of Computer Associates.[5] Since this provision applied during the pre-consummation period (but after the agreement itself was signed and made known to the public), the DOJ claims that the defendants denied customers “the benefit of free and open competition” in violation of 15 U.S.C. 1.

CAC disagrees. For one thing, the DOJ is employing a very static definition of “competition” to support its thesis. Under the DOJ's theory of antitrust, competition is a synonym for low prices—any action which might lead to a rise in out-of-pocket cost to the consumer is deemed anticompetitive, and thus illegal under the Sherman Act. This theory violates the property rights of producers. The DOJ is arguing that consumers have an automatic ‘right' to any item which a producer puts on the market, and that this interest should trump any property right claimed by the producer.

Unlike the corner the DOJ has put itself into here, competition in the free market is a far more complex and dynamic entity that does not wholly revolve around retail prices. Competition incorporates all activities by which a business seeks to increase its profitability. These activities include the development of new or improved products, reduction of operating costs, increasing efficiency in the production process, marketing, and hiring of talented personnel. None of these activities were incorporated into the DOJ's analysis relevant to this case, or if they were, the United States has declined to specify how the defendants' alleged actions compromised competition in the integrated sense of the term. The complaint focuses solely on the issue of prices charged to consumers.

Section IV of the proposed Final Judgment would prohibit Computer Associates, in any potential future merger, from establishing price discount policies for a to-be-acquired company during the pre-consummation period. This requirement does nothing to promote competition. It simply creates a temporary, artificial price support for products sold by the hypothetical other company pending the closing of the merger. Section IV does not prevent such potential mergers from taking place, nor does it govern the conduct of the companies following consummation of the merger. If the DOJ were genuinely concerned about minimizing the potential for higher consumer prices in the marketplace, they could have sought to prevent the merger itself from ever taking place through civil litigation before the District Court, or at a minimum attempted to require Computer Associates and Platinum Technology to divest certain portions of their business to third parties as a precondition of government approval. Such efforts would have rendered the need for the present action moot, since competition—or at least the DOJ's bastardized version of competition—would be maintained on a more tangible and permanent basis.

III

The answer to our inquiry, interestingly enough, is that the DOJ did pursue a previous civil action to dictate the conditions of the Computer Associates-Platinum Technology merger.[6] Yet not content to rest on its laurels, the DOJ went on to initiate the current action as a means of further securing the public interest, or so they would have us believe. In fact, based on the government's earlier success, it seems more likely that the United States is seeking to make an example out of Computer Associates to serve as a warning to other companies. Such a punitive motive, CAC believes, is not consistent with serving the public interest.

Because the DOJ's hands were less than clean in reaching the proposed consent order, Start Printed Page 66422Computer Associates is left with a very disturbing prospect. In acceding to the relief terms of the proposed final judgment, Computer Associates is undermining its own ability to successfully compete in the marketplace by acknowledging, then perpetuating for the ten-year term of the agreement, an outright fraud. The fraud we refer to is the premise of the DOJ's prosecution—that merging companies should continue to act independently of one another even when that is not the case in actual reality.

No matter how much it wishes otherwise, the DOJ cannot alter reality, although it can certainly use its compulsory force to evade it, as is the case here. When two companies agree to merge, the very culture of their previously exclusive operations are altered at a fundamental level. The extent to which this is reflected in the pre-consummation or post-consummation period varies from company to company, but the essential principle is the same. In entering into its pre-consummation agreement with Platinum, Computer Associates acted in the honest interest of its shareholders, employees and customers, by openly acknowledging its new relationship with Platinum, and working to bring the two companies together in an efficient and rational manner.

In contrast, the new standards imposed by the DOJ in the consent agreement practically requires Computer Associates to never enter into another merger agreement except by fraud and duplicity. Since to acknowledge a coming together of companies before consummation is now per se illegal conduct in the eyes of the DOJ, there is no incentive for Computer Associates to act with integrity or honesty. Alternatively, of course, Computer Associates could simply choose not to merger with any company for the duration of the consent agreement, in which case they would potentially defraud their own stockholders by refusing to act in a manner which could increase the company's profitability and productive capacity. In either case, CAC sees no benefit to subscribing to the DOJ's delusional view of corporate mergers.

IV

Finally, CAC objects to the DOJ's construction of rights in this case. As with all antitrust litigation shepherded by the United States, the DOJ can only make sense of its argument when it completely ignores the principle of individual rights which animate our Constitution and republican form of government.

The DOJ defines the public interest, for purposes of antitrust litigation, as being one-in-the-same with the “rights” of consumers, the nebulous class of individuals who consume (or attempt to consume) the goods and services provided by economic producers. In this case, CA and Platinum's activities were deemed unlawful because the companies pre-consummation activities had the effect of “denying” the companies' customers “the benefits of free and open competition” (emphasis added). In the eyes of DOJ and the judiciary, “benefits” gets elevated to the status of “rights”, and they are given such weight as to render the actual economic rights of producers to be virtually non-existent.

As has been discussed, infra, trade does involve, and indeed require, a voluntary exchange of goods and services which benefit all parties to the transaction. If nobody received benefits, then there would be no incentive to trade in the first place. But a benefit should never be confused with a “right.” Actual rights are “moral principles which define and protect a man's freedom of action, but impose no obligation on other men.[7] ” A right is something which all individuals inherently possess as part of their humanity. A benefit, in contrast, is something which an individual receives at the behest of another, for whatever reason or motive: A will confers benefits on a beneficiary; a company provides health insurance for its employees; the local sports arena permits children to use the facility a few days a week. None of these things result from the beneficiary's right to enjoy the benefit. The right is that of the owner to dictate the use of his property, not of an outside party to demand use of property which is not his.

Computer Associates and Platinum had no obligation to “provide” competition for consumers. They chose to do so voluntarily for a number of years, and, when the companies decided it was in their self-interest to cease one-on-one competition, they did so. They did not consider their obligations to the consumer, because they had none, outside of pre-existing contracts (which presumably were honored). What was considered, as in any merger, was the benefits that would be generated by the combination of the two companies. The DOJ's fault lies in considering “benefits” to be limited to the price paid by a consumer at a given moment in time. The government's analysis failed to account for the potential benefits generated by the merger, including the actions of CA and Platinum during the pre-consummation period.

But even if no benefits could be demonstrated consequential to the merger, the United States would still be wrong to block the efforts of CA and Platinum, because it is not morally incumbent upon a corporation to positively demonstrate the benefits of their actions to a government agency. So long as the actions are voluntary, and do not constitute an act of force against another individual or corporation, a transaction between private parties is an extension of their right to own and use property.

The alternative theory, presented by DOJ's enforcement of antitrust law, suggests the opposite: That property is not truly privately held, and that the interests of the “consumer” are paramount in any economic relationship with a producer. Under a capitalist system, the producers are the property owners who leverage their holdings to create wealth. Under the consumerist model enforced by DOJ, in contrast, producers hold and create wealth as part of a “public trust”, and the consumer has the ultimate right to dictate how the wealth is distributed. This is why the DOJ spends an inordinate amount of time focusing on prices, and why any increase that takes place is immediately suspect under the Sherman Act.

Consumers, of course, do have certain “rights” in the marketplace. They have a right to buy or not buy the goods and services of their choosing. They have a right to contract free of coercion, and the right to seek redress of grievances before the law if that contract is breached. What consumers do not have the “right” to, however, is to unilaterally dictate the terms by which a producer offers his goods and services for sale. The DOJ advocates the opposite, as a result, it routinely intervenes in the acts of producers in an attempt to secure prices and conditions that are more favorable to the consumer, regardless of how this interference violates the property rights of the producers.

CAC believes that the people of the United States are better off living in a capitalist economy than in a consumerist system. Therefore, we find the terms of the proposed Final Judgment are not in the public interest, because the injunctive relief provided would recognize non-existent consumer rights at the expense of the legitimate rights of Computer Associates, and that in turn compromises the rights of all Americans.

For the foregoing reasons, CAC believes the public interest here would best be served by the DOJ withdrawing from the proposed final judgment and dismissing the compliant against Computer Associates and Platinum Technology with prejudice.

Respectfully Submitted,

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S.M. Oliva,

Director of Federal Affairs, The Center for the Advancement of Capitalism.

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Footnotes

1.  On May 25, 1999, the United States filed a Complaint alleging that CA's proposed acquisition of Platinum would eliminate substantial competition and result in higher prices in certain mainframe systems management software markets. See United States v. Computer Associates International Inc., et al. (D.D.C. 99-01318 (GK)). Simultaneously with the filing of the Complaint, the parties reached an agreement that allowed CA and Platinum to go forward with the merger, provided that CA sell certain Platinum mainframe systems management software products and related assets. Thereafter, CA accepted for payment all validly tendered Platinum shares and the Defendants consummated their merger.

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2.  The proposed Final Judgment also requires CA and Platinum to pay a civil penalty to resolve the allegation in the Complaint that the defendants violated Title II of the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (“HSR Act”), 15 U.S.C. 18a. For the reasons stated in the Competitive Impact Statement (“CIS”), filed on April 23, 2002, the United States does not believe that the payment of civil penalties under the HSR Act is subject to the Tunney Act. CIS at 11 n.1. Consequently, the civil penalties component of the proposed Final Judgment is not open to public comment.

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3.  The CIS sets out the standard to be applied by the Court in determining whether entry of the proposed Final Judgment is in the public interest. CIS at 21-24.

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4.  Ayn Rand, a novelist-philosopher, first expressed her philosophy of objectivism in the best-selling novels. The Fountainhead (1943) and Atlas Shrugged (1957). On the issue of capitalism, she has stated: “When I say ‘capitalism,' I mean a pure, uncontrolled, unregulated laissez-faire capitalism with a separation of economics, in the same way and for the same reasons as a separation of state and church.” “The Objectivist Ethics” in The Virtue of Selfishness (1964).

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1.  Prior to August 1, 2002, CAC was known as the Center for the Moral Defense of Capitalism.

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2.  See, generally, 15 U.S.C. 1-2.

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4.  Competitive Impact Statement, 67 FR 41472 at 41477 (2002).

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5.  Id. at 41475.

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6.  United States v. Computer Associates, et al., No. 99-01318 (D.D.C.).

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7.  Ayn Rand, Man's Rights, in Capitalism: the Unknown Ideal (1966).

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[FR Doc. 02-27222 Filed 10-30-02; 8:45 am]

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