FTC Order Restores Competition in U.S. Market for Equipment Used to Recharge Vehicle Air Conditioning Systems

The Federal Trade Commission will require Robert Bosch GmbH to sell a business that makes equipment used to recharge vehicle air conditioning systems as part of an agreement resolving charges that Bosch’s acquisition of SPX Service Solutions U.S. LLC would have been anticompetitive.  Under the agreement, Bosch also will grant manufacturers licenses to key patents that they need in order to compete in the market for this equipment.  The proposed settlement order also requires Bosch to end agreements that restrict third parties from advertising, servicing, distributing, or selling competitive products in the United States.

Under the proposed settlement with the FTC, Bosch has agreed to sell its automotive air conditioner repair equipment business, including RTI Technologies, Inc., to automotive equipment manufacturer, Mahle Clevite, Inc.

Bosch also has agreed to resolve allegations that, before its acquisition by Bosch, SPX harmed competition in the market for this equipment by reneging on a commitment to license key, standard-essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms.  The FTC alleged that SPX reneged on its obligation to license on FRAND terms by seeking injunctions against willing licensees of those patents.  Bosch has agreed to abandon these claims for injunctive relief.

 “Patent holders that seek injunctive relief against willing licensees of their FRAND-encumbered SEPs should understand that in appropriate cases the Commission can and will challenge this conduct as an unfair method of competition under Section 5 of the FTC Act,” the Commission majority said in a separate statement.

The FTC charged that, as originally proposed, Bosch’s acquisition of SPX Service Solutions would have given it a virtual monopoly in the market for air conditioning recycling, recovery, and recharge (ACRRR) devices.  ACRRR devices are stand-alone pieces of equipment used by automotive technicians to remove refrigerant from a vehicle’s air conditioning system, store the refrigerant while the air conditioning system is being serviced, recycle the refrigerant back into the system, and recharge the air conditioning system.  ACRRRs prevent refrigerant gas from leaking into the atmosphere during the repair process. 

Bosch, headquartered in Stuttgart, Germany, has U.S. operations based in Broadview, Illinois.  It is a global supplier of automotive and industrial technology, consumer goods, and building technology.  It acquired RTI in 2010 and sells ACRRR equipment under both the Bosch and RTI brands, accounting for about 10 percent of the U.S. ACRRR market.

SPX, headquartered in Charlotte, North Carolina, is a diversified global supplier of highly engineered products for industries including power and energy, food and beverage, vehicle and transit, and infrastructure and industrial processes.  Its Service Solutions business, based in Warren, Michigan, supplies automotive tools, equipment, and services for both original equipment manufacturers and aftermarket repair shops and technicians.  SPX’s Robinair brand is the leading supplier of ACRRR equipment in the United States, with over 80 percent of sales in this market.  On January 23, 2012, Bosch entered into an agreement to acquire SPX’s Service Solutions business.

The FTC’s Complaint

According to the FTC’s complaint, Bosch’s acquisition of SPX’s Service Solutions business would give Bosch monopoly power in the U.S. market for ACRRR devices.  Following the transaction as proposed, Bosch would control an overwhelming share of the market.  Four other firms are in the market, each with a very small share.  The acquisition also would eliminate the current direct competition between Bosch’s RTI and Bosch brands and SPX’s Robinair brand, and would allow the combined firm to raise prices by unilaterally exercising its newly gained market power, in violation of the FTC Act, the FTC alleged. 

The FTC complaint also alleges that SPX has been pursuing a strategy of suing to enjoin competitors from using patents that may be necessary to meet the standards for manufacturing ACRRR devices.

According to the complaint, SPX holds patents that other companies may need in order to make ACRRR devices that comply with standards set by an industry standard-setting group called SAE International.  Standard setting is a cornerstone for many high-tech and manufacturing markets, and encourages innovation and investment in new products, according to the FTC.  By agreeing to standards, companies can ensure that the numerous components can work together seamlessly, often called “interoperability.” 

Setting a standard, however, can confer market power to the owner of a patent that is deemed essential to the standard, according to the agency.  The holder of a SEP – even if it is relevant only to a small component of a much larger and more complex device – can use the threat of an injunction to “hold up” a licensee for an excessive royalty or prevent a competitor from complying with the standard, thereby effectively keeping it out of the market entirely.  To avoid this problem, technology companies involved in setting a standard often commit to license SEPs on “fair, reasonable and non-discriminatory” terms – known as FRAND terms.

The FTC alleged that, as a member of SAE International, SPX agreed to abide by SAE rules that require companies to license their SEPs on FRAND terms.  However, SPX allegedly reneged on these commitments and pursued injunctions blocking competitors from using the standardized technologies, even though the competitors were willing to license the technology on FRAND terms.  The FTC charged that this practice had the tendency of harming competition and undermining the standard setting process.

The Proposed Settlement

The proposed consent order resolves the FTC’s competitive concerns by requiring Bosch to sell its ACRRR business to Mahle Clevite, Inc., before December 31, 2012.  The FTC has determined that Mahle, headquartered in Stuttgart, Germany, has the resources, industry experience, and financial viability to become an effective competitor in the U.S. ACRRR market.  It sells other products with a similar customer base as Bosch, and its global presence will allow it to quickly replace the competition lost through the proposed acquisition.

Under the proposed order, Bosch will provide Mahle with all of the assets needed to operate Bosch’s current U.S. ACRRR business, including RTI’s operations in York, Pennsylvania.  To ensure the sale is successful, Bosch also will provide Mahle with relevant intellectual property and access to key employees of RTI’s ACRRR operations.  In addition, Bosch has agreed to discontinue SPX’s restrictive “exclusive dealing” arrangements with wholesale distributors and independent service technicians, and will be barred from entering into such agreements for 10 years.

To address the FTC’s concerns about SPX’s conduct relating to its existing portfolio of SEPs, the proposed order requires Bosch not to pursue any actions for injunctive relief on these patents and to make them available on a royalty free basis to implementers of the relevant SAE standards in the ACRRR market.  Information about the licensing requirements can be found in the Analysis to Aid Public Comment on this matter.

In addition, Bosch will deliver to SAE a letter of assurance that going forward it will license any additional SEPs it may acquire or develop for the two relevant industry standards on FRAND terms to any third party that wants to use the technologies covered by the patents to make ACRRR devices in the United States.  Bosch also has agreed not to seek an injunction against such third parties, unless the third party refuses in writing to license the patent consistent with the letter of assurance, or the third party refuses to abide by FRAND terms as determined by a court or other process agreed to by the parties.

The Commission’s vote approving the complaint and proposed settlement order, and to issue the Commission Statement, was 3-2.  Commissioners Ohlhausen and Rosch voted no, although both supported the Commission's challenge to Bosch’s  acquisition of SPX and certain provisions of the divestiture package.  Commissioner Ohlhausen issued a separate statement, dissenting from those portions of the consent that relate to alleged conduct by the respondent involving standard-essential patents, or SEPs.  “Simply seeking injunctive relief on a patent subject to a fair, reasonable, and non-discriminatory, or FRAND, license, without more, even if seeking such relief could be construed as a breach of a licensing commitment, should not be deemed either an unfair method of competition or an unfair act or practice under Section 5.”

The order will be subject to public comment for 30 days, until December 26, 2012, after which the Commission will decide whether to make it final.  Comments should be sent to:  FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  Comments can be submitted electronically.

NOTE:  The Commission issues 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 respondent has violated the law.  A consent agreement is for settlement purposes only and does not constitute an admission of a law violation.  When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.  Each violation of such an order may result in a civil penalty of $16,000.

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