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The Department of Justice dropped an antitrust challenge to 3D Systems Corp.’s $45 million acquisition of DTM Corp. after the companies agreed Thursday to license technologies used to create three-dimensional computer designs. The settlement is the latest example of the government’s intolerance for “three-to-two” mergers. These are deals where two of the three competitors in a given market decide to combine. 3D Systems and DTM control 80 percent of the domestic prototyping market. The other competitor is Eden Prairie, Minn.-based Stratasys Inc. 3D Systems will license patents to a company that already manufactures rapid prototyping equipment, the machines used to transform a design into a multidimensional object. The buyer is expected to be a company that sells rapid prototyping equipment abroad but because of the 3D System patents is barred from competing in the United States. “Companies, universities and government agencies rely upon rapid prototyping to develop and create models of next generation products,” said Charles A. James, assistant attorney general for antitrust. “This resolution preserves competition and promotes innovation by allowing a firm presently competing abroad to enter the U.S. market.” Officials at Valencia, Calif.-based 3D Systems and at Austin, Texas-based DTM did not return calls for comment. Antitrust lawyers said the case shows the antitrust division’s distaste for three-to-two mergers will continue during the Bush administration. “The government is loathe to let there be a three-to-two merger,” said Jim Lowe, a partner in the Washington, D.C., office of law firm Wilmer, Cutler & Pickering. “So if there is going to be a three-to-two, they will often require the creation of a new third competitor.” The most famous instance of government objection to a three-to-two merger is the so-called baby food case. H.J. Heinz Co. tried last year to acquire Beech-Nut Nutrition Corp. But the FTC successfully challenged the deal in court, arguing that the merger of the No. 2 and No. 3 baby food makers would harm consumers. The 3D Systems case is unusual because the government would create a third competitor by requiring the company to license its technology to a rival. “In many industries, simply licensing the patent is not enough,” Lowe said. “You would need hard assets.” That’s just what happened Aug. 3 in a settlement that let Premdor Inc. proceed with its $527 million acquisition of Masonite Corp. from International Paper Co. Premdor agreed to divest a door-skin manufacturing plant to a new competitor to ensure that three firms continued to make interior molded doors. Willard K. Tom, a lawyer at Morgan, Lewis & Bockius in Washington, said the case shows that it is more effective in some high-technology markets to require firms to license the key technology than to divest assets. “The goal is to create another effective competitor,” he said. “It does not always have to be through a divestiture.” Lawyers said the litigation also is a warning that even small deals will receive tough antitrust scrutiny. Congress raised to $50 million, from $15 million, the threshold for companies to file Hart-Scott-Rodino Act notices before closing their deals. The change took effect Feb. 1. Since then, officials at the Federal Trade Commission and the Justice Department have warned that deals with values of less than $50 million would not be immune from antitrust scrutiny. “There is some message-sending in this by the Department of Justice,” Lowe said. “One should not assume that because a deal is below $50 million there is a safe harbor.” 3D Systems agreed Apr. 3 to buy DTM for $5.80 per share. Because the value of the deal was less than $50 million, the companies were not required to make a Hart-Scott-Rodino Act filing. The Justice Department filed suit June 6, arguing that the merger of two of the three multidimensional computer-design firms would harm competition. Copyright (c)2001 TDD, LLC. All rights reserved.

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