FTC Challenges MSC.Software's Acquisitionsof Its Two Nastran Competitors

The Federal Trade Commission today issued an administrative challenge to MSC.Software Corporation's (MSC) 1999 acquisitions of Universal Analytics, Inc. (UAI) and Computerized Structural Analysis & Research Corp. (CSAR). MSC is the dominant supplier of a popular type of advanced computer-aided engineering software known as "Nastran." UAI and CSAR were the only other suppliers of advanced versions of Nastran. According to the Commission, the acquisitions violate federal antitrust laws by eliminating competition and monopolizing the market. If the FTC's charges are upheld at the conclusion of the administrative trial, the agency may impose an order that would reestablish up to two viable competitors offering advanced versions of Nastran. The relief may require MSC to provide to the two new entrants up-to-date versions of the MSC Nastran source code, together with other measures to restore competition.

Joseph J. Simons, Director of the FTC's Bureau of Competition, stated, "In this matter, the Commission reaffirms its practice of pursuing acquisitions that harm consumers, even where the acquisition may not be reportable to the Antitrust Agencies under the Hart-Scott-Rodino Act. This practice is particularly important now because the thresholds for reporting acquisitions recently were raised." With regard to the proposed relief in this matter, Simons noted that the parties to transactions that are not reportable assume the risk that they will be required to "unscramble the eggs" and divest whatever assets necessary to restore competition.

MSC, based in Santa Ana, California, was the dominant Nastran supplier with an estimated 90 percent of worldwide revenue. UAI and CSAR each held an estimated five percent of worldwide revenue. Total annual worldwide Nastran revenue is estimated to be greater than $60 to $70 million, with over half coming from users in the United States.

According to the FTC's complaint detailing the charges, Nastran is a type of computer-aided engineering software used for complex simulation analysis in the aerospace and automotive industries. Nastran is a "finite element analysis" solver also known as a "FEA" solver. The software is used in the product development process to simulate how design concepts respond to real world environments. Nastran analysis improves the product development process, reduces the need for building prototypes, and shortens the time to market for new products. The National Aeronautics and Space Administration ("NASA") first developed Nastran as a common simulation analysis tool for advanced linear structural analysis to be used throughout NASA research centers and projects. MSC, UAI, and CSAR each further enhanced Nastran and supplied their respective advanced versions for commercial use.

The complaint alleges that MSC's acquisitions of UAI and CSAR substantially lessened competition and tended to create a monopoly in the relevant markets by, among other things:

• eliminating actual, direct, and substantial competition between MSC, UAI and CSAR;
• creating or enhancing MSC's power to raise prices above a competitive level or to withhold or delay product development and enhancements, thereby adversely affecting price and product innovation; and
• preventing other suppliers of engineering software from acquiring UAI and CSAR and increasing competition.

The FTC's notice of contemplated relief recognizes that in order to reestablish competition it may be necessary to establish up to two viable, on-going businesses, each engaged in the licensing or sale of an advanced version of Nastran in competition with MSC's Nastran. Under the notice of contemplated relief, MSC may be required to supply the source code to its MSC Nastran solver to up to two acquirers. The divestitures would be subject to FTC approval.

The Commission vote to issue the administrative complaint was 5-0.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the named parties have violated the law. The complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing.

Copies of the administrative complaint and notice of contemplated relief are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.