82 FR 32186 - Broadcom Limited and Brocade Communications Systems, Inc.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

Federal Register Volume 82, Issue 132 (July 12, 2017)

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the complaint and the terms of the consent order-- embodied in the consent agreement--that would settle these allegations.

[Federal Register Volume 82, Number 132 (Wednesday, July 12, 2017)]
[Notices]
[Pages 32186-32188]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-14536]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 171 0027]


Broadcom Limited and Brocade Communications Systems, Inc.; 
Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

-----------------------------------------------------------------------

SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before August 2, 2017.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/broadcombrocadeconsent/ online or on 
paper, by following the instructions in the Request for Comment part of 
the SUPPLEMENTARY INFORMATION section below. Write ``In the Matter of 
Broadcom Limited and Brocade Communications Systems, Inc., File No. 171 
0027'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/broadcombrocadeconsent/ by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``In the Matter of Broadcom Limited and Brocade 
Communications Systems, Inc., File No. 171 0027'' on your comment and 
on the envelope, and mail your comment to the following address: 
Federal Trade Commission, Office of the Secretary, 600 Pennsylvania 
Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, or deliver 
your comment to the following address: Federal Trade Commission, Office 
of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, 
Suite 5610 (Annex D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Stephen Antonio (202-326-2536), Bureau 
of Competition, Mergers II Division, 600 Pennsylvania Avenue NW., 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for July 3, 2017), on the World Wide Web, at 
http://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before August 2, 2017. 
Write ``In the Matter of Broadcom Limited and Brocade Communications 
Systems, Inc., File No. 171 0027'' on your comment. Your comment--
including your name and your state--will be placed on the public record 
of this proceeding, including, to the extent practicable, on the public 
Commission Web site, at https://www.ftc.gov/policy/public-comments.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/broadcombrocadeconsent/ by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you prefer to file your comment on paper, write ``In the Matter 
of Broadcom Limited and Brocade Communications Systems, Inc., File No. 
171 0027'' on your comment and on the envelope, and mail it to the 
following address: Federal Trade Commission, Office of the Secretary, 
600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 
20580, or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC. If 
possible, submit your paper comment to the Commission by courier or 
overnight service.
    Because your comment will be placed on the publicly accessible FTC 
Web site at www.ftc.gov, you are solely responsible for making sure 
that your comment does not include any sensitive or confidential 
information In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and

[[Page 32187]]

FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including in particular 
competitively sensitive information such as costs, sales statistics, 
inventories, formulas, patterns, devices, manufacturing processes, or 
customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC Web site--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC Web site, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before August 2, 2017. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at https://www.ftc.gov/site-information/privacy-policy.

Analysis of Agreement Containing Consent Order To Aid Public Comment

Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order (``Consent 
Agreement'') from Broadcom Limited (``Broadcom'') and Brocade 
Communications Systems, Inc. (``Brocade''), designed to remedy the 
anticompetitive effects resulting from Broadcom's proposed acquisition 
of Brocade.
    Pursuant to an Agreement and Plan of Merger dated November 1, 2016, 
the parties agreed that Broadcom would acquire Brocade for $5.9 
billion, including assuming $400 million in debt (``the Acquisition''). 
The Commission's Complaint alleges that the proposed Acquisition, if 
consummated, would violate 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, by 
substantially lessening competition in the worldwide market for fibre 
channel switches. The Complaint alleges that Broadcom's access to 
Cisco's competitively sensitive confidential information, provided in 
furtherance of its ongoing supply relationship for application specific 
integrated circuits (``ASICs'') with Broadcom, may substantially lessen 
competition by increasing the likelihood that Broadcom may unilaterally 
exercise market power or by increasing the likelihood of coordinated 
interaction between the two competitors in the fibre channel switch 
market.
    Under the terms of the proposed Decision and Order (``Order'') 
contained in the Consent Agreement, Broadcom is required to implement 
firewalls preventing the flow of Cisco's confidential business 
information outside of an identified group of relevant Broadcom 
employees, and requires a monitor to oversee compliance with the 
firewall provisions. The proposed remedy effectively addresses the 
potential for competitive harm resulting from Broadcom misusing Cisco's 
competitively sensitive confidential information.
    The Consent Agreement has been placed on the public record for 30 
days to solicit comments from interested persons. Comments received 
during this period will become part of the public record. After 30 
days, the Commission will again review the Consent Agreement and the 
comments received, and decide whether it should withdraw from the 
Consent Agreement, modify it, or make it final.

The Parties

    Headquartered in both Singapore and San Jose, California, Broadcom 
is a publically traded global developer and supplier of semiconductor 
products. Broadcom's enterprise storage group specializes in designing, 
producing, and selling a broad array of integrated circuits used in 
fibre channel and Ethernet network environments, including ASICs for 
fibre channel switches.
    Headquartered in San Jose, California, Brocade is a data storage 
and networking company. Brocade is the leading manufacturer of fibre 
channel switches, and also sells wireless networking equipment, 
Ethernet switches, and software solutions for networks.

The Relevant Market and Market Structure

    The relevant line of commerce in which to analyze the effects of 
the Acquisition is fibre channel switches. The fibre channel switch is 
part of a fibre channel storage area network, which employs the fibre 
channel interconnect protocol to enable stable, high-throughput data 
transfers between servers and storage arrays in data centers. Fibre 
channel switches provide quick and secure access to large amounts of 
data and are often used for mission-critical applications.
    Fibre channel switch customers would not turn to alternative 
switching technologies in response to a small but significant price 
increase because doing so would involve significant business risk and 
expense.
    Each fibre channel switch contains an ASIC, which is an integrated 
circuit that is custom-tailored to carry out the functions of the fibre 
channel switch. It is the most costly and technically complex component 
of the switch. The ASIC is designed through a collaboration between the 
switch manufacturer and an ASIC provider. Switch manufacturers 
typically develop proprietary intellectual property, and ASIC 
providers, add intellectual property libraries, design oversight 
capabilities, and oversee the production of the ASICs at a third-party 
foundry in order to create a commercial ASIC for a switch manufacturer.
    The relevant geographic market in which to analyze the effects of 
the Acquisition on the fibre channel switch market is worldwide. Fibre 
channel switches are produced in facilities worldwide. The size and 
weight of fibre channel switches generally allow for economical 
shipping to downstream customers located throughout the world.
    The worldwide market for fibre channel switches is highly 
concentrated, consisting of a duopoly between Brocade and Cisco. The 
fibre channel market has been flat to slowly declining over the past 
several years.

Effects of the Acquisition

    The Complaint alleges that as a result of its ongoing ASIC supply 
relationship with Cisco, Broadcom will continue to have extensive 
access to Cisco's competitively sensitive confidential information. 
Without proper safeguards, Broadcom could misuse that information, 
leading to anticompetitive conduct that could make Cisco a less 
effective competitor, or increase the likelihood of coordinated 
interaction between the two remaining fibre channel switch competitors, 
in turn

[[Page 32188]]

increasing the probability that customers would pay higher prices for 
fibre channel switches and that innovation would be lessened.

Entry

    Entry into the worldwide fibre channel switch market is not likely 
to occur in a timely, likely, or sufficient magnitude, character and 
scope to deter or counteract any anticompetitive effects created by the 
proposed Acquisition. Entry is unlikely in light of slowly declining 
demand for fibre channel switches in a mature market, customers that 
tend to stay with one fibre channel switch manufacturer for extended 
periods of time, and the significant capital costs required for entry.

The Consent Agreement

    To remedy the alleged competitive concern stemming from Broadcom's 
access to Cisco's competitively sensitive confidential information, the 
consent decree prevents the Cisco information from being shared among 
Broadcom employees who could use such information to raise prices or 
lessen innovation.
    Pursuant to the proposed Order, only authorized individuals will 
have access to Cisco's competitively sensitive confidential information 
that is given to the firewalled entity, which is defined as Broadcom's 
business group responsible for the development, production, sale, and 
marketing of fibre channel ASICs for Cisco. The firewalled entity will 
have separate facilities and a separate information technology system 
with security protocols assuring access only to the authorized 
individuals. Furthermore, Broadcom shall require all authorized 
individuals to sign a non-disclosure agreement, requiring compliance 
with the terms of the proposed Order. Additionally, the proposed Order 
provides for a cooling off period whereby any authorized individual who 
leaves his or her position at the firewalled entity will not work in 
the development, production, sale, or marketing of fibre channel ASICs 
for Brocade's business unit or in the development, production, sales, 
and marketing of fibre channel switches for twelve months.
    The proposed Order also requires Broadcom to use Cisco's 
competitively sensitive confidential information only in furtherance of 
the design, manufacturing, and sale of fibre channel ASICs for Cisco. 
Moreover, Broadcom will be required to take all actions necessary to 
prevent access to, or the disclosure or use of Cisco's competitively 
sensitive confidential information by or to anyone who is not an 
authorized individual. The proposed Order also incorporates by 
reference non-disclosure provisions contained in four prior private 
Confidentiality Agreements that Broadcom, or its predecessor, signed 
with Cisco.
    To ensure compliance with the proposed Order, the Commission will 
appoint a Monitor to oversee Broadcom's and Brocade's performance of 
their obligations pursuant to the Consent Agreement. The Monitor will 
be appointed to a five-year term, but the Commission may extend or 
modify the term as appropriate up to a ten-year period. Further, the 
Consent Agreement contains appropriate reporting requirements.

Opportunity for Public Comment

    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement to aid the Commission in determining whether 
it should make the proposed Consent Agreement final. This analysis is 
not an official interpretation of the proposed Consent Agreement and 
does not modify its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2017-14536 Filed 7-11-17; 8:45 am]
BILLING CODE 6750-01-P