The opinion of the court was delivered by: BRODERICK
Plaintiff United States of America has applied for a preliminary injunction pursuant to 15 U.S.C. § 25 and Rule 65(a) of the Federal Rules of Civil Procedure, pending a determination of the merits of this action. Plaintiff seeks to enjoin the implementation of an asset purchase agreement between defendants Siemens Corporation and G.D. Searle & Co., by the terms of which Siemens would, inter alia, purchase the assets of Searle Diagnostics Inc. ("SDI"), a Delaware corporation owned by Searle. Searle is a Delaware corporation with principal offices in Skokie, Illinois. Siemens is a Delaware corporation with offices in New York which is wholly owned by Siemens A.G., a West German corporation.
Plaintiff claims that the acquisition which it seeks to enjoin would violate Section 7 of the Clayton Act (15 U.S.C. § 18) because it may tend substantially to lessen competition in the sale of nuclear medical imaging equipment in the United States.
The hearing on the application for a preliminary injunction was held on March 13 and 14, 1980. On the bases set forth in this memorandum, the application is denied.
It seems to be conceded, at least for purposes of the hearing on the preliminary injunction, that the relevant line of commerce is the sale and servicing of nuclear medical imaging equipment, and that the relevant market is the entire United States. Nuclear medical imaging equipment is equipment used by doctors, generally in hospitals but occasionally in clinics or in private offices, to receive and interpret radiation emissions from medical patients, and form images of the patient's internal organs. Its principal component is a so-called gamma camera. It is one of four major categories of medical diagnostic imaging equipment. The other categories are X-ray, X-ray computer tomography, and ultrasound. Each type of equipment provides images of internal body organs, tissue, or structures that are generally useful in medical diagnosis. Nuclear medical imaging equipment is highly sophisticated and quite expensive in the neighborhood of $ 100,000 per unit when sold with a computer.
Because of the sophistication of the equipment and because it is employed on a fairly constant basis in life-and-death diagnostic medical situations, it is essential that there be available with respect to it a quickly responding service resource, and this service resource is apparently a part of the total package that is marketed.
Searle (through SDI) was one of the pioneers in the nuclear medical imaging field and it is the largest marketer of nuclear medical imaging equipment in the United States. It manufactures and distributes this equipment. Its market share has been falling steadily in recent years, however, and it has sustained operating losses in the nuclear medical imaging field. Two or three years ago it discontinued activities in fields related to that of nuclear medical imaging, and it substantially reduced its staff. Although at that time it decided to continue in the nuclear medical imaging field, a decision was apparently made by management in the early part of 1979 to dispose of the business of its diagnostic division (which included the nuclear medical imaging business).
Siemens is preeminent in the distribution of sophisticated X-ray equipment, in this country and throughout the world. It manufactures the X-ray equipment it distributes. It also presently distributes nuclear medical imaging equipment in various parts of the world outside of the United States, and has until recently obtained that equipment from an American manufacturer, Ohio Nuclear. Because of its X-ray equipment, which is of superior quality, Siemens has an established reputation among medical consumers in the United States and among its competitors who distribute X-ray equipment.
Plaintiff premises its claim that the proposed acquisition is in violation of law upon two antitrust doctrines the actual potential entrant doctrine and the perceived potential entrant doctrine.
Under the actual potential entrant doctrine as urged by plaintiff, a company outside of a relevant geographic market in a relevant line of commerce would be prohibited from entering that market through acquisition of a large competitor (or through acquisition of the assets of a large competitor) in that market if the acquiring company is expected, at some future date, to enter that market with its own resources, or through the acquisition of a firm which does not have a significant market share (a so-called "toe-hold" acquisition).
Under the perceived potential entrant doctrine, a substantial company outside of a relevant geographic market in a relevant line of commerce would be prohibited from entering that market if, whatever its own intentions, it is perceived by participants in the market as a likely entrant into that market. The theory underlying this doctrine is that while this "perceived potential entrant" is still "in the wings," it has a beneficial effect upon prices and upon competition. With such an outsider "in the wings," the insiders "keep prices and profit margins lower than they would if there were no threat of the outsider entering the market either de novo or via a toehold acquisition of a small firm, a threat that might be realized if prices and profits were higher." Boc Intern. LTD. v. F. T. C., 557 F.2d 24, 26 (2d Cir. 1977). This impact would be lost once the outsider enters the market by acquisition of a large participant in the market (or by acquisition of the assets of such a participant).
I am unable, even tentatively, to determine, on the predicate of the evidence submitted at the preliminary injunction hearing, whether the effect of implementation of the challenged asset purchase agreement "may be substantially to lessen competition," on application of either the actual potential entrant doctrine or the perceived potential entrant doctrine. There are too many questions left unanswered on the record before me such as questions with respect to the nature of the market, the parameters of the market, the nature, scope and mechanics of competition in that market, the scope and significance of previous activities of the defendants in the market (Searle) or on the periphery of the market (Siemens), and the effect on the market of government regulation addressed to the consumer.
What is the nature of the market? The commodity being distributed and serviced has certain very unique features which must be explored before answers can be had to the questions raised by the complaint in this action. The gamma camera and its components, with computer, cost in the neighborhood of $ 100,000. That is a major expenditure. Has the possible market already been fully sold, or will reductions in price have an impact upon demand? There is a finite number of hospitals in this country, and a finite number of clinics and individual doctors who will require, or can sustain the cost of, medical equipment. Certainly these matters would have some impact in determining whether Siemens was a perceived or actual potential entrant into the market.
Would the acquisition by Siemens be pro rather than anti competitive? Certainly inferences to this effect might be drawn on the evidence before me. Whether or not Searle had actually decided to discontinue activity in the nuclear medical imaging market prior to the inception of negotiations with Siemens, it had certainly, as noted, lost market share, and it had certainly, as noted, reduced its financial and personnel commitment to this market. In the hands of a new management, installed by a company willing to make a substantial financial commitment, the transferred assets might be more competitive with others in the market than heretofore. Here, again, the evidence before me is too sparse to make definitive findings.
Is the relevant market that in which sale is made by manufacturers to distributors; that in which distribution is made to ultimate consumers; or is it one market which encompasses both? The answer to these questions, again, may have significance with respect to the perception of Siemens ...