Analysis of Proposed Consent Order
to Aid Public Comment

The Federal Trade Commission ("Commission") has accepted, subject to final approval, an agreement containing a proposed Consent Order from Medtronic, Inc. ("Medtronic"). The proposed Consent Order contains a number of provisions designed to remedy the anticompetitive effects resulting from Medtronic's acquisition of Physio-Control International Corporation's ("Physio-Control") automated external defibrillator business and its ownership interest in SurVivaLink Corporation ("SurVivaLink), a direct competitor of Physio-Control.

The proposed Consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the agreement and the comments received and will decide whether it should withdraw from the agreement or make final the proposed Order.

On June 27, 1998, Medtronic entered into an Agreement and Plan of Merger with Physio-Control to acquire all of the voting stock of Physio-Control in exchange for Medtronic voting stock valued at $530 million. The proposed complaint alleges that the transaction, if consummated, would constitute a violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. § 45, in the market for the research, development, manufacture and sale of automated external defibrillators.

Automated external defibrillators are portable, automated devices used in emergency situations, by persons with limited medical training, such as policemen, firemen and lifeguards, to treat people suffering from sudden cardiac arrest. The market for automated external defibrillators is highly concentrated with only three significant players in the United States: Physio-Control, SurVivaLink and Hewlett-Packard/Heartstream.

The relevant geographic market is the United States. Only companies that have received U.S. Food and Drug Administration approval to sell their devices in the United States may supply automated external defibrillators to U.S. customers.

In addition, new entry into the market for automated external defibrillators is unlikely and would not occur in a timely manner to deter or counteract the adverse competitive effects of Medtronic's acquisition of Physio-Control. Entry into this market is unlikely and would not be timely because of the time and expense required to design and develop a competitively viable product, obtain approvals from the U.S. Food and Drug Administration, and establish a sales and distribution network.

Medtronic's acquisition of Physio-Control raises serious competitive concerns in the market for automated external defibrillators because of its ownership interest in SurVivaLink, Physio-Control's direct competitor. Pursuant to an investment agreement entered into between Medtronic and SurVivaLink, Medtronic was given the explicit right to name a member to SurVivaLink's Board of Directors and to receive certain non-public competitively sensitive information. Medtronic also has the right to receive certain non-public competitively sensitive information under Minnesota law. In addition, Medtronic has the right as a shareholder in SurVivaLink to vote on all matters requiring a shareholder vote. Medtronic's entanglements with SurVivaLink and its acquisition of Physio-Control would cause anticompetitive harm in the market for automated external defibrillators by potentially eliminating direct competition, increasing the likelihood of coordinated interaction, reducing innovation and ultimately increasing prices for automated external defibrillator customers.

The proposed Consent Order remedies the acquisition's anticompetitive effects in the market for automated external defibrillators by making Medtronic a passive investor in SurVivaLink and by preventing Medtronic from exercising its right to name a member to SurVivaLink's Board of Directors. The proposed Consent Order also prevents Medtronic from exercising its rights, pursuant to its investment agreement with SurVivaLink or under Minnesota law, to receive non-public competitively sensitive information relating to SurVivaLink.

The proposed Consent Order also limits Medtronic's ability to vote on any matter that requires a vote of SurVivaLink's shareholders by requiring Medtronic to delegate its voting rights to be voted in a manner proportional to the votes of all other shareholders. The proposed Consent Order would also prohibit Medtronic from proposing any corporate action or participating in any business decisions of SurVivaLink. Additionally, the proposed Consent Order prevents Medtronic from increasing its ownership interest in SurVivaLink without prior written notice to the Commission. Finally, the proposed Consent Order requires Medtronic to return to SurVivaLink any documents that contain any trade secrets, commercial information or financial information relating to SurVivaLink.

Under the provisions of the proposed Order, Medtronic is also required to provide the Commission with a report of compliance with the provisions of the Order within sixty (60) days following the date this Order becomes final, and annually thereafter until such time as Medtronic sells or transfers all of its ownership interest in SurVivaLink or Physio-Control.

The purpose of this analysis is to facilitate public comment on the proposed Order, and it is not intended to constitute an official interpretation of the agreement and proposed Order or to modify in any way their terms.