Markets Wired

The Federal Trade Commission has intervened in Lubrizol Corporation’s 2007 acquisition of the oxidate assets of rival firm The Lockhart Company, which the agency contends violated the antitrust laws and lessened competition in the U.S. market for these chemical rust inhibitors. Under a consent order settling the FTC’s charges, Lubrizol has agreed to transfer the oxidate assets it acquired from Lockhart to Additives International LLC (AI) and to eliminate a non-compete provision put in place with Lockhart as part of the original asset purchase agreement.

“Oxidates are used to help prevent rust and corrosion during the manufacture of various metal products in the U.S., such as automobiles, steel, and heavy equipment,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition. “The Commission’s action announced today will restore the competition that was lost with this transaction and ensure that consumers do not pay higher prices for these products.”

Under an asset purchase agreement dated February 7, 2007, Lubrizol bought Lockhart’s product line of chemical additives that are used to make rust preventives. The agreement also included a non-competition provision prohibiting Lockhart from engaging in any business that would compete with the assets it sold to Lubrizol for five years. According to the Commission’s complaint, Lubrizol’s acquisition of the Lockhart assets violated the FTC Act and the Clayton Act by lessening competition in the market for rust preventives that contain oxidates.

The market for oxidates is highly concentrated, with Lubrizol, and previously Lockhart, the only two significant providers in the U.S. While smaller firms exist, the FTC has determined that oxidate customers do not consider them suitable alternatives to Lubrizol and Lockhart. Accordingly, Lubrizol’s acquisition of the Lockhart assets removed Lubrizol’s last substantial competitor in the market. Previously, consumers benefitted from the rivalry between the two firms in the form of lower prices, product innovation, and better service and support, which was eliminated by the transaction. In addition, the FTC contends that the acquisition thwarted new entry into the market by restricting the use of Lockhart’s plant in Flint, Michigan through the non-compete agreement.

Finally, the Commission contends that new entry or fringe expansion into the U.S. market for oxidates is unlikely to be sufficient to counteract the effects of Lubrizol’s acquisition of the Lockhart assets. It is not likely that an entrant, without access to an existing plant like Lockhart’s Flint facility, would be able to achieve enough sales within the small size of the market to justify the significant sunk costs of investment required to enter the market.

The proposed consent agreement is designed to remedy the alleged anticompetitive impact of the consummated transaction. Under its terms, Lubrizol is required to transfer certain assets to AI, including a non-exclusive license to manufacture rust-preventive formulas acquired from Lockhart and the right to use Lockhart trademarks for two years. In addition, Lockhart must lease a portion of its Flint plant to AI and Lubrizol is required to waive its non-compete agreement with Lockhart in order to facilitate AI’s use of the plant.

The Commission vote to accept the complaint and proposed consent order and place copies on the public record was 4-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The complaint, proposed consent order, and an analysis to aid public comment can be found now on the Commission’s Web site at http://www.ftc.gov/os/caselist/0710230/index.shtm.

The agreement will be subject to public comment for 30 days, beginning today and continuing through March 27, 2009, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC is requesting that, when possible, any comment filed in paper form near the end of the public comment period be sent by courier or overnight service because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

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 $16,000.

Copies of the documents related to this matter are available from the FTC’s web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 383, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 071-0230)