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The Federal Trade Commission has given final approval to a consent agreement with Silicon Graphics, Inc., settling charges that the Mountain View, California-based company's acquisition of two of the world's three leading entertainment graphics software firms would violate federal antitrust laws. In its complaint detailing the charges, the FTC alleged that the acquisitions would substantially reduce competition and may result in higher prices and reduce innovation competition for software and workstations involved in producing sophisticated computer-based graphics for movies and other entertainment industry uses. The Commission's action, which involves a slight modification of the consent order as it was announced for public comment, makes the order provisions binding on Silicon Graphics.

In the transactions at issue, Silicon Graphics acquired Alias Research Inc., based in Toronto, Canada, and Wavefront Technologies, Inc., of Santa Barbara, California. The FTC complaint states that Silicon Graphics holds a 90 percent share of the market for the workstations that run entertainment graphics software. It alleges that the acquisitions could, among other things, foreclose access by other workstation producers to the relevant software, give Silicon Graphics nonpublic information about its competitors' workstations, and otherwise reduce competition and lead to higher prices or reduced innovation for entertainment graphics workstations and software.

The final consent order requires Silicon Graphics to take certain steps to ensure that other companies that develop and sell entertainment graphics software and hardware can compete with Silicon Graphics. Specifically, the order:

  • requires Silicon Graphics to maintain an open architecture and to publish its application programming interfaces so that software developers other than Alias and Wavefront can develop entertainment graphics software for use on Silicon Graphics workstations;
  • requires Silicon Graphics to offer independent enter- tainment graphics software companies participation in its software development programs on terms no less favorable than it offers other types of software companies;
  • requires Silicon Graphics to enter into a Commission- approved "porting agreement," by March 31, 1996, with an FTC-approved partner, by which Alias's two major entertainment graphics software programs (Animator and PowerAnimator and their successor programs) can be run on their porting partner's computer systems; and
  • prohibits the release of nonpublic information from the platform partner porting the Alias software to those Silicon Graphics or Alias employees not participating in the porting process.

As announced for public comment, the settlement identified Digital Equipment Corporation, Hewlett-Packard Corporation, IBM Corporation or Sun Microsystems, Inc. as possible porting agreement partners, so long as the agreement itself was approved by the Commission. The final order deletes the names of these companies and requires that both the porting agreement and the porting partner be Commission-approved. In changing the order, the Commission said: "Comments received during the public comment period indicate that this section may have been misinterpreted to indicate the exclusion of particular candidates as possible Platform Partners. Nothing in this modification is intended to imply that the named companies in the original proposed consent may not be approved now, or that any other company was then or is now excluded from consideration as an appropriate Platform Partner."

The order also contains various reporting provisions to assist the FTC in monitoring Silicon Graphics' compliance.

The consent agreement was announced for public comment on June 9, and issued in final form on Nov. 14. The Commission vote on final issuance was 3-2, with Commissioners Mary L. Azcuenaga and Roscoe B. Starek, III, issuing dissenting statements. In her statement, Commissioner Azcuenaga said the evidence persuades her that the Commission should challenge the horizontal combination of Alias and Wavefront. "Instead, the Commission chooses to rely on vertical foreclosure theory to impose requirements that fail to preserve existing competition and that ultimately may create inefficiency and reduce competition," Azcuenaga said. "To the extent that any vertical problems should concern us, they would be resolved by stopping the horizontal transaction," she said.

Commissioner Starek said in his statement that he is not persuaded that these vertical acquisitions are likely "substantially to lessen competition" in violation of the Clayton Act. "Moreover, even if one assumes the validity of the theories of anticompetitive effects, the Commission's order does not appear to prevent the alleged effects and may create inefficiency," Starek said.

NOTE: 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 up to $10,000.

A news release summarizing the complaint and consent agreement was issued at the time the Commission accepted the consent agreement for public comment. Copies of that release, the complaint and final order, and the Commissioners' statements are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases, consumer brochures and other documents also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov

(FTC File No. 951 0064)
(Docket No. C-3626)

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