Consent order requiring a Stamford, Conn., manufacturer and developer of office copier equipment, among other things to cease engaging in anticompetitive licensing, patent and marketing arrangements.

Appearances

For the Commission: Charles W. Corddry III, Jonathan E. Gaines, Robert D. Jacobs, Robert T. Joseph, Richard L. Williams, David I. Wilson, Lyoyd E. Oliver (Economist).

For the respondent: John R. Murphy, G. Emmett Smith and Kaye Scholer, Stamford, Conn. Milton Handler, Fierman, Hays & Handler, New York City.

COMPLAINT

The Federal Trade Commission, having reason to believe that Xerox Corporation, hereinafter referred to as Xerox or respondent, has violated and is violating Section 5 of the Federal Trade Commission Act, and that a proceeding in respect thereof would be in the public interest, issues this complaint, stating its charges as follows:

I Definitions

PARAGRAPH 1. For purposes of this complaint, the following definitions shall apply:

(a) ‘Office copier’ (hereinafter sometimes referred to as ‘copier’) means a machine for the convenient reproduction of an original document. The term ‘office copier’ includes electrostatic and thermographic process copiers and accessories physically attached to such copiers. Said term does not include either specialized use copiers, such as engineering drawing and microfilm copiers, or offset, mimeograph, or spirit duplicator machines.

(b) ‘Plain paper copier’ means a copier which makes copies on plain, untreated paper.

(c) ‘Coated paper copier’ means a copier which requires the use of chemically treated or coated paper.

II Respondent

PAR. 2. Xerox is a corporation organized and existing under and by virtue of the laws of the State of New York, with its executive office located at Stamford, Conn. Respondent was incorporated in 1906 as the Haloid Company, and its name was changed to Haloid Xerox Inc. in 1958 and to Xerox Corporation in 1961.

PAR. 3. In 1971, Xerox's total revenues were approximately $2 billion, net income after taxes was approximately $213 million, and total assets were approximately $2.2 billion. Xerox's after tax return on stockholder's equity averaged 21.2 percent for the period 1967 through 1971. In 1971, approximately 50 percent of Xerox's total revenues were derived from its domestic business in office copiers and supplies and approximately 25 percent of Xerox's total revenues were derived from Rank Xerox. In 1971, Xerox was approximately the 52nd largest domestic industrial firm in terms of total revenues and approximately the 17th most profitable such firm based on return on stockholder's equity.

III Other Persons

PAR. 4. The Rank Organisation, Ltd. [Rank] is a corporation organized and existing under the laws of the United Kingdom, with principal offices in London, England.

PAR. 5. Fuji Photo Film Co., Ltd. [Fuji] is a corporation organized and existing under the laws of Japan, with principal offices in Tokyo, Japan.

PAR. 6. Rank Xerox, Ltd. [Rank Xerox] is a corporation organized and existing under the laws of the United Kingdom with principal offices in London, England. It was organized by Rank and Xerox for the purpose of manufacturing and distributing office copiers throughout the world except the United States (including United States territories and possessions) and Canada. In 1964, Xerox purchased from Rank certain property rights and assets, including the right to manufacture and distribute Xerox copiers in Central and South America, for $3.3 million plus 5 percent royalties on rentals and sales in said territory. From 1956, when it was organized, until December 1969, Rank Xerox's voting stock was owned equally by Rank and Xerox. In December 1969, Xerox acquired for $12.5 million a 51 percent ownership of said voting stock. In 1971, Rank Xerox had revenues of approximately $500 million, assets of approximately $690 million, and net profits of approximately $196 million.

PAR. 7. Fuji Xerox Co., Ltd. [Fuji Xerox] is a corporation organized and existing under the laws of Japan. It was organized by Rank Xerox and Fuji for the purpose of manufacturing and distributing office copiers in Japan, Thailand, Cambodia, Laos, Philippines, Vietnam, Indonesia, Korea and Taiwan (Formosa). Fuji Xerox's voting stock is owned equally by Rank Xerox and Fuji.

IV Nature of Trade and Commerce

PAR. 8. The relevant market is the sale and lease of office copiers in the United States, hereinafter referred to as the office copier market. This market includes as a relevant submarket the sale and lease of plain paper office copiers in the United States, hereinafter referred to as the plain paper submarket. The office copier market is dominated by the plain paper submarket and Xerox dominates the plain paper submarket.

PAR. 9. (a) In 1971, revenues from the sale and lease of office copiers were approximately $1.1 billion and total revenues from the sale and lease of office copiers and supplies were approximately $1.7 billion; Xerox accounted for approximately 86 percent of the former and 60 percent of the latter. In 1971, revenues from the sale and lease of plain paper copiers and supplies were approximately $1.0 billion; Xerox accounted for approximately 95 percent of said revenues.

(b) Approximately 25 firms are presently engaged in the office copier market. Of these 23 sell or otherwise distribute coated paper copiers and three sell or otherwise distribute plain paper copiers. After Xerox, the next largest firm in the office copier market accounted for approximately 10 percent of 1971 revenues from the sale or lease of office copiers and the sale of supplies therefor.

PAR. 10. The office copier market has had and continues to have high barriers to entry and barriers to effective competition among existing competitors.

V Jurisdiction

PAR. 11. In the course and conduct of its business, Xerox has shipped or caused to be shipped office copiers to customers located throughout the United States and has also entered into licensing and distribution arrangements with foreign corporations. There is now and has been for many years a constant substantial and increasing flow of Xerox office copiers and Xerox technical information and marketing rights in ‘commerce’ as that term is defined in the Federal Trade Commission Act. Except to the extent that competition has been hindered, frustrated, lessened and eliminated by the acts and practices hereinbelow alleged in this complaint, Xerox has been and is in competition with other corporations, partnerships, individuals or firms engaged in the sale and distribution of office copiers and supplies.

VI Violations

PAR. 12. (a) Xerox has monopoly power in the relevant market and submarket.

(b) Xerox has the power to inhibit, frustrate, and hinder effective competition among firms participating in the relevant market and submarket.

PAR. 13. Xerox has engaged in marketing acts, practices and methods of competition including, but not limited to,

(a) following a lease only policy pursuant to which Xerox refuses to sell and discourages the sale of its office copiers,

(b) using package leasing plans and quantity discount rental price plans,

(c) discriminating in price among customers,

(d) maintaining a stock of depreciated copiers and planning to use or using such copiers to inhibit, frustrate, or hinder price competition,

(e) announcing new copier models and taking orders thereon before availability of such copiers in response to introduction of competing copiers by actual or potential competitors,

(f) requiring that it be the exclusive source of maintenance and repair service for leased Xerox office copiers,

(g) falsely disparaging competitive supplies,

(h) tying supplies to the lease of office copiers.

PAR. 14. Xerox has engaged in acts, practices and methods of competition relating to patents including, but not limited to,

(a) monopolizing and attempting to monopolize patents applicable to office copiers,

(b) maintaining a patent barrier to competition by attempting to recreate a patent structure which would be equivalent in scope to expired patents,

(c) developing and maintaining a patent structure of great size, complexity, and obscurity of boundaries,

(d) using its patent position to obtain access to technology owned by actual or potential competitors,

(e) entering into cross-license arrangements with actual or potential competitors,

(f) including in licenses under United States Patent Number 3,121,006 provisions having the effect of limiting licensees to the manufacture and sale of only coated paper copiers,

(g) offering patent licenses applicable to plain paper copiers with provisions which, in effect, limit the licensee to the manufacture or sale of low speed copiers,

(h) including in patent licenses provisions having the effect of precluding the licensee from utilizing Xerox patents in the office copier market,

(i) entering into and maintaining agreements with Battelle Memorial Institute, Inc. and Battelle Development Corporation, Delaware corporations with principal offices at Columbus, Ohio, hereinafter referred to collectively as Battelle, pursuant to which Battelle is required to convey to Xerox all patents, patent applications, and know-how coming into its possession relative to xerography.

(j) preventing actual and potential competitors from developing plain paper copiers while permitting them to develop coated paper copiers.

PAR. 15. (a) For many years, and at least as of 1969, Rank Xerox was a substantial, viable, separate corporation capable of competing in the office copier market and plain paper submarket.

(b) Xerox has entered into and maintained agreements with Rank and Rank Xerox which have effectively divided up the world market for plain paper copiers among Xerox, Rank Xerox and Fuji Xerox.

(c) In December 1969, Xerox acquired a 51 percent interest in Rank Xerox voting stock and continues to maintain such interest.

PAR. 16. Xerox has engaged and is engaging in acts, practices and methods of competition as hereinabove alleged, for the purpose and with effect of

(a) monopolizing the office copier market and the plain paper submarket,

(b) preserving, maintaining, and furthering a highly concentrated market structure with high barriers to entry,

(c) hindering, restraining, foreclosing and frustrating competition in the office copier market and plain paper submarket and the entry of new competitors into said markets,

(d) materially reducing the independence of Rank Xerox, the influence of Rank Xerox as a potential competitor and the probability that Rank Xerox would enter competition in the office copier market or plain paper submarket,

(e) foreclosing Rank, Fuji, Rank Xerox, and Fuji Xerox from competing with Xerox in the Western Hemisphere, including the United States, and foreclosing Xerox from competing in export trade from the United States,

(f) depriving consumers of the benefits of competition.

PAR. 17. The aforesaid acts, practices, and methods of competition in commerce are unfair and constitute violations of Section 5(a) of the Federal Trade Commission Act.

DECISION AND ORDER

The Federal Trade Commission having issued a complaint charging that the Respondent named in the caption hereof has violated the provisions of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45; and

Respondent and complaint counsel, by joint application filed Oct. 6, 1974, having moved to have the matter removed from adjudication for the purpose of submitting an executed agreement containing consent order, and the administrative law judge having certified such application to the Commission; and

The Commission, by order issued Oct. 10, 1974, having withdrawn this matter from adjudication pursuant to Section 2.34(d) of its rules; and

The Commission having considered and accepted said agreement and placed it in the public record for a period of sixty (60) days, having duly considered the comments filed thereafter pursuant to Section 2.34(b) of its rules and the recommendations of its staff, and having withdrawn its acceptance of said agreement; and

Respondent and complaint counsel having thereafter submitted a revised agreement containing consent order dated Mar. 27, 1975, and modifications thereof dated Apr. 21, 1975 and July 14, 1975; and

The Commission having considered and accepted the agreement dated Mar. 27, 1975 and placed it on the public record for a period of sixty (60) days, having held a public hearing respecting said agreement on June 4, 1975, and having duly considered the comments filed pursuant to Sections 2.34(b) and 3.25(d) of its rules during the 60 day period and the matters presented at the public hearing; and

The executed agreement dated Mar. 27, 1975, as modified, containing the following consent order, an admission by respondent of all the jurisdictional facts set forth in the complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated, and waivers and other provisions as required by the Commission's rules,

Now in conformity with the procedure prescribed in Section 3.25(d) of its rules, the Commission hereby makes the following jurisdictional findings and enters the following order:

1. Respondent Xerox Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal place of business located at High Ridge Park, Stamford, Conn.

2. The Federal Trade Commission has jurisdiction of this proceeding and of the respondent and this proceeding is in the public interest.

ORDER

I

It is ordered, That the following definitions shall apply in this order:

A. ‘Xerox’ means respondent Xerox Corporation, its subsidiaries (except Rank Xerox and Fuji Xerox), successors and assigns and its directors, officers, employees, agents and representatives. ‘Rank Xerox’ means Rank Xerox Limited, a corporation organized and existing under the laws of the United Kingdom. ‘Fuji Xerox’ means Fuji Xerox Company Limited, a corporation organized and existing under the laws of Japan. ‘Rank Xerox’ and ‘Fuji Xerox’ each includes the subsidiaries, successors and assigns of said corporations and their directors, officers, employees, agents and representatives.

B. ‘Person’ means any individual, partnership, firm, association, corporation or other legal or business entity [other than the Commission, Xerox, Rank Xerox, Fuji Xerox, The Rank Organisation Limited (so long as it is a party to a joint venture with Xerox relating to office copier products), Fuji Photo Film Co., Ltd. (so long as it is a party to a joint venture with Xerox or Rank Xerox relating to office copier products), and any foreign government (or any entity whose ownership is controlled thereby)], their subsidiaries, successors and assigns, and directors, officers, agents and representatives.

C. ‘Subsidiary’ means a person more than fifty percent (50%) or, at the option of the licensee with respect to its subsidiaries, at least twenty percent (20%) of whose outstanding shares or stock, representing the right (other than as affected by events of default) to vote for the election of directors or other managing authority, are now or hereafter owned or controlled, directly or indirectly, by Xerox, Rank Xerox, Fuji Xerox or Person, as the case may be, but such person shall be deemed to be a subsidiary only so long as such ownership or control exists.

D. ‘Licensee’ means any person licensed by Xerox, Rank Xerox and/or Fuji Xerox pursuant to the terms of Paragraph II of this order, including all affiliates of such person. Affiliate means (1) any person and subsidiaries thereof, engaged in the development, manufacture, use, lease or sale of office copier products at least fifty percent (50%) or, at the option of the licensee, at least twenty percent (20%) of whose outstanding shares or stock, representing the right (other than as affected by events of default) to vote for the election of directors or other managing authority, are now or hereafter owned or controlled, directly or indirectly, by the licensed person; and (2) any person and subsidiaries thereof, which now or hereafter own or control, directly or indirectly, more than fifty percent (50%) or, at the option of the licensee, at least twenty percent (20%) of the outstanding shares or stock, representing the right (other than as affected by events of default) to vote for the election of directors or other managing authority of the licensed person, but only so long as such ownership or control exists.

E. ‘Patent’ means some, all or any portion of all patents (including utility models, design patents, certificates of addition and the like), and all patents resulting from continuations-in-part, divisions, renewals, reissues and extensions based on said patents or the applications therefor, but only insofar as it relates to an office copier product.

F. ‘Issued’ means published and either issued, granted, sealed or registered.

G. ‘Corresponding Patents' means two or more patents, each of which has issued in a different country, is entitled to the same priority date (or could have been if timely filed) and is based upon the same conception and reduction to practice.

H. ‘Present Patent’ means a United States or foreign patent issued on or before the date of issuance of this order all all corresponding patents regardless of the date they are issued.

I. ‘Future Patent’ means a United States or foreign patent other than a present patent issued on a patent application having an effective filing date prior to three years after the date of issuance of this order or issued during the six years following the date of issuance of this order, and all corresponding patents, regardless of the date they are issued.

J. ‘Foreign Patent’ means a patent issued by a country other than the United States.

K. ‘Xerox Patent’ means a patent which is owned or controlled by Xerox, Rank Xerox or Fuji Xerox or under which one or more of them has the power to grant licenses or sublicenses to persons. Xerox' power to comply with this orderwith respect to patents owned or controlled by Rank Xerox or Fuji Xerox, or under which they have the power to grant licenses or sublicenses, is confirmed in the undertakings of Rank Xerox and Fuji Xerox which have been submitted to the Commission.

L. ‘Order Patent’ means a present or Future Xerox patent except one licensed pursuant to paragraph X(b) of this order.

M. A ‘Patent of the Licensee’ means a patent which is owned or controlled by a licensee, or a patent under which such licensee has the power to grant licenses or sublicenses.

N. ‘Improvement Patent’ means a patent on an invention which, if practiced, would infringe a licensed patent and which improvement patent is owned or controlled by the licensee of such patent or is one under which such licensee has the power to grant licenses or sublicenses. Determination of what is an improvement patent shall be made by reference to a licensed United States patent, if any, or if there is no such United States patent, by reference to the licensed foreign patent.

O. ‘Office Copier’ means a machine for the convenient reproduction of an original document and accessories physically attached to such machine. The term ‘Office Copier’ refers to all xerographic and nonxerographic office copiers, including but not limited to polychromatic color office copiers, high speed office copiers (such as the Xerox Model 9200), hybrid offset office copiers (such as the AMCD) and office copiers adapted to receive micro input as well as hard copy input, but does not include specialized use copiers (such as engineering drawing and microfilm copiers), or offset, stencil, or spirit duplicator machines.

P. ‘Office Copier Product’ means an office copier and parts, components, raw materials and consumable supplies for use therein, including but not limited to photosensitive elements, refined selenium, metal alloys for machine parts, toner, developer, paper, and containers (such as toner cartridges) for consumable supplies.

Q. ‘Royalty-Bearing Product’ means (1) an office copier, (2) toner, developer, paper, and similar consumable supplies, (3) containers (such as toner cartridges) for consumable supplies and (4) photosensitive elements, any of which are covered by a licensed patent other than one which is royalty-free.

R. ‘Net Revenues' shall mean the total revenues received by the licensee from the lease or sale, as the case may be, of a Royalty-bearing product, or in the case of a lease of a royalty-bearing product, at the option of the licensee, the published selling price for such royalty-bearing product. Any of the following items, or any comparable items, may be deducted from the aforesaid total revenues or published selling price when they are separately stated on the invoice:

(a) Packing costs;

(b) Actual transportation and insurance costs from place of shipment to point of installation;

(c) Excise, sales, use and property taxes;

(d) Import and export duties and taxes;

(e) The fair market value of replacement parts and components; which are not covered by a licensed patent;

(f) The fair market value of consumable supplies which are not covered by a licensed patent whether or not they are in a licensed container;

(g) Actual credit to customers on account of any royalty-bearing product which is not accepted by the customer;

(h) Costs of servicing or repairing the royalty-bearing product excluding the costs of parts or components covered by a licensed patent.

To the extent that the amounts charged for the above items can be verified by referring to separate bona fide offers of such services or products, or to separate documents as in the case of taxes or duties, such amounts need not appear on the invoice.

S. ‘Polychromatic Color Office Copier Product‘ means an office copier product specially adapted to produce multicolor copy.

T. ‘Know-how’ means all written materials used by Xerox Corporation in manufacturing, refurbishing, reconditioning, retrofitting and servicing its office copier products which Xerox Corporation is not specifically prohibited by a legally enforceable obligation from disclosing, including but not limited to blueprints, drawings, formulae, manuals, process descriptions, production methods, specifications, quality control and test standards and computer programs.

U. ‘Commercially available’ means generally available for immediate sale or lease to consumers in an area at least as large as an area served by at least one sales branch of the seller or lessor and on publicly announced terms.

V. ‘IBM’ means International Business Machines Corporation, a corporation organized and existing under the laws of the State of New York, and its subsidiaries, successors and assigns, and directors, officers, employees, agents and representatives.

W. ‘United States' means the United States of America, its territories or possessions, the District of Columbia, and the Commonwealth of Puerto Rico.

II

It is further ordered, That XEROX shall forthwith grant or cause to be granted to any PERSON making written application to Xerox at any time under this order a nonexclusive license for the full unexpired term under any, some or all order patents to make, have made, use or vend any, some or all of the following:

(1) Office copiers (including the right to have made parts, components and raw materials for use therein), (2) toner, developer, paper and similar consumable supplies, (3) toner, developer, paper and similar consumable supplies which may be used in future OFFICE COPIERS, (4) containers (such as toner cartridges) for consumable supplies, and (5) photosensitive elements. However, at Xerox' option exercised on a nondiscriminatory basis, the effective date of licenses pertaining to polychromatic color office copier products may be up to three years from the date of issuance of this order for present patents and three years from the date the patent is issued for future patents. Nothing in any license granted pursuant to the terms of this order shall be deemed to prohibit a licensee from using a licensed office copier in conjunction with any other device for use in addition to the convenient reproduction of an original document.

III

Xerox, Rank Xerox and Fuji Xerox shall agree not to sue any licensee, or customers or suppliers of the licensee, for patent infringement or royalties with respect to any office copier, photosensitive element, toner, developer, paper or container (such as toner cartridges) for consumable supplies manufactured by or for the licensee prior to the date of issuance of this order, or to maintain any such suit.

IV

It is further ordered, That no license of an order patent granted pursuant to the terms of this order shall contain or be conditioned upon any restriction, except as hereinafter provided:

A. The licensee may, at his option, designate up to a total of three order patents which shall be licensed or sublicensed royalty-free; Provided, however, That, in each country, the licensee may substitute another order patent as royalty-free for any order patent previously designated as royalty-free which the licensee has discontinued using in that country. On order patents other than the three designated as royalty-free by the licensee, Xerox may, in its sole discretion, charge a royalty not to exceed 1/2 percent per PATENT up to a maximum accumulated royalty of 1 1/2 percent of the licensee's net revenues for each royalty-bearing product which is manufactured, leased or sold by or for the licensee. With respect to any royalty-bearing product of the licensee which the licensee uses or consumes himself, the royalty shall be computed on the basis of the net revenues that would have been received by the licensee in an ordinary commercial transaction. The royalty shall be computed separately for each royalty-bearing product on the basis of order patents subject to royalty which are used in such royalty-bearing product. In no event shall more than three royalty-free patents apply to any one royalty-bearing product at any one time irrespective of the number of licenses granted by Xerox with respect to such royalty-bearing product. For the purpose of this Paragraph IV A, a patent and all Corresponding Patents in all countries shall count as one patent. The licensee need not take a license under any corresponding patent.

B. Xerox may require that a licensee agree not to sue Xerox, Rank Xerox or fuji Xerox, or their customers or suppliers, for PATENT infringement or royalties with respect to any office copier, photosensitive element, toner, developer, paper or container (such as toner cartridges) for consumable supplies manufactured by or for them prior to the date of issuance of this order, or to maintain any such suit.

C. To the extent the licensee has the power to grant licenses or sublicenses, Xerox may require the grant to Xerox, Rank Xerox and Fuji Xerox of a nonexclusive license for the full unexpired term under any, some or all patents of the licensee to make, have made, use or vend any, some or all of the following: (a) office copiers (including the right to have made parts, components, and raw materials for use therein), (b) toner, developer, paper and similar consumable supplies, (c) toner, developer, paper, and similar consumable supplies which may be used in future office copiers, (d) containers (such as toner cartridges) for consumable supplies, and (e) photosensitive elements, as hereinafter provided in this Paragraph IV C.

(1) Xerox may (at any time) require the license of one patent of the licensee to Xerox, Rank Xerox and Fuji Xerox for each Xerox patent licensed to the licensee in excess of the first three order patents licensed to the licensee but in so doing Xerox may not require the license of (a) a greater number of present patents of the licensee than the number of Xerox present patents licensed to the licensee, or (b) a greater number of future patents of the licensee than the number of Xerox future patents licensed to the licensee. Notwithstanding the foregoing, for purposes of determining how many present patents or future patents of the licensee which Xerox, Rank Xerox and Fuji Xerox are entitled to license, the licensee shall have the right, if exercised at the time of first receipt of a license from Xerox under Paragraph II of this order, to have the first three order patents licensed from Xerox count, at the licensee's option, as Xerox present patents, or as Xerox future patents or as any combination of Xerox present patents and Xerox future patents, irrespective of the actual character of such order patents. For the purpose of determining the number of patents under this Paragraph IV C(1), (a) a patent and all corresponding patents in all countries shall count as one patent, and (b) the substitution of a previously unlicensed order patent shall count as an additional patent unless the patent for which substitution is made was dedicated, revoked, disclaimed, or has expired or lapsed, or was held invalid or unenforceable. Xerox, Rank Xerox and Fuji Xerox need not take a license under any corresponding patent. A licensee shall have no obligation to grant a license to Xerox, Rank Xerox or Fuji Xerox in any country in which, by reason of governmental action, Xerox has been prevented from granting or causing to be granted a patent license requested pursuant to this order. Xerox shall have no obligation to grant licenses in any country in which, by reason of governmental action, the licensee is prevented from granting licenses to Xerox, Rank Xerox or Fuji Xerox pursuant to the terms of this Paragraph IV C(1).

(2) The license of present patents of the licensee shall not become effective until four years after the date of issuance of this order or four years after an office copier product (of the licensee or its licensee) using an invention covered by the patent first becomes commercially available, whichever is later. The license of future patents of the licensee shall not become effective until four years after the date the future patent of the licensee is issued or four years after an office copier product (of the licensee or its licensee) using an invention covered by the patent first becomes commercially available, whichever is later. This Paragraph IV C(2) shall not apply to IBM, except that IBM may require that the effective date of licenses pertaining to polychromatic color office copier products not become effective for up to three years from the date of issuance of this order for present patents and three years from the date IBM's future patents are issued. With respect to corresponding future patents the date such patents are issued shall be the date that the first such corresponding future patent is issued.

(3) Xerox may (at any time) require the immediate license to Xerox, Rank Xerox and Fuji Xerox of any of the present or future patents of the licensee (a) which would be infringed by a Xerox, Rank Xerox or Fuji Xerox office copier manufactured by any of them following the date of issuance of this order if the invention covered by the patent is the same as that embodied in an office copier manufactured by any of them prior to the date of issuance of this order, or (b) which would be infringed by a Xerox, Rank Xerox or Fuji Xerox office copier product which any of them makes commercially available during the six years following the date of issuance of this order if the invention of the patent was embodied in a device which, as of the first publication or public use anywhere in the world of the invention covered by the patent of the licensee or application therefor (i) actually had been built and incorporated in an engineering model or prototype model of the office copier by Xerox, Rank Xerox or Fuji Xerox and (ii) was part of a Xerox, Rank Xerox or Fuji Xerox funded product program. As used in this Paragraph IV C(3), ‘engineering model’ means the first complete assembly of all the sub-assemblies of the office copier; and ‘prototype model’ means the product development stage which follows the engineering model, if any. Licenses granted pursuant to this Paragraph IV C(3) shall not be subject to the provisions of Paragraph IV C(1) (except that they shall count for the licensee as patents licensed to Xerox, Rank Xerox and Fuji Xerox if and when they become entitled to a license pursuant to that paragraph) or Paragraph IV C(2), but shall be subject to all other provisions of this order. The burden of establishing the right to a license under this Paragraph IV C(3) shall be on Xerox.

(4) Xerox may require a licensee to grant to Xerox, Rank Xerox, and Fuji Xerox a nonexclusive license under all improvement patents on Xerox patents licensed to the licensee. Such licenses shall not be subject to the provisions of Paragraph IV C(1) (except that improvement patents of the licensee shall count for the licensee as patents licensed to Xerox, Rank Xerox, and Fuji Xerox if and when they become entitled to a license pursuant to that paragraph) but shall be subject to all other provisions of this order.

(5) Xerox shall grant to the licensee a nonexclusive license under all Xerox improvement patents on patents licensed to Xerox. Such licenses shall be subject to all the provisions of this order except that they shall not count for Xerox as patents licensed by Xerox, Rank Xerox, and Fuji Xerox for purposes of Paragraph IV C(1).

(6) The licensee may charge Xerox, Rank Xerox and Fuji Xerox a reasonable royalty for patents licensed to any or all of them pursuant to this order, computed on the basis of the net revenues of Xerox, Rank Xerox, and Fuji Xerox for each royalty-bearing product which they manufactured, leased or sold. With respect to any royalty-bearing product of Xerox, Rank Xerox and Fuji Xerox, which they use or consume themselves, the royalty shall be computed on the basis of the net revenues that would have been received in an ordinary commercial transaction. The royalty shall be computed separately for each royalty-bearing product on the basis of the patents which are used in such royalty-bearing product.

(7) Xerox, Rank Xerox and Fuji Xerox may require that they be permitted to sublicense any PERSON in which they own, directly or indirectly, 50 percent or less, but not less than 20 percent of the voting stock if such person makes its present and future patents available for licensing pursuant to Paragraph II of this order. All such persons shall be identified to anyone making written request, and a list of all such persons current as of the date of issuance of this order shall be filed on the public record of the Commission. Any changes in said list shall be filed with the Commission within 30 days after they occur.

(8) A license to Xerox pursuant to this Paragraph IV C shall contain the provisions specified in Paragraphs IV H and IV I of this order and may contain the provisions specified in Paragraphs IV D, IV E, IV F, IV G, and IV J of this order.

(9) If Xerox grants a license under order patents either pursuant to the terms of Paragraph II of this order or otherwise, the license agreement shall contain the irrevocable covenant of the licensee to license such of its patents as are licensed to Xerox on reasonable terms and conditions (including the license to itself of its licensees' patents or improvement patents) to any other person who is entitled to a license from Xerox pursuant to Paragraph II of this order, Provided That such license need not be effective prior to the effective date of the licensee's license to Xerox. Within 60 days following execution of a license agreement subject to this Paragraph IV C(9), Xerox shall submit to the Commission a copy thereof in camera.

D. Reasonable provisions may be made for the retention of books and records and for periodic royalty reports by the licensee to the manager of patent licensing of the licensor, and for inspection of such books and records by an independent auditor or any other person reasonably acceptable to both the licensor and the licensee who shall report to said manager only the amount of the royalty due and payable. The manager of patent licensing of the licensor shall not disclose the content of said periodic royalty reports to any director, officer, employee, agent or representative of the licensor other than the members of his staff and employees necessarily involved in recording and depositing checks in a routine manner, who shall be similarly bound, unless the royalty owed is not timely paid. In the event that the licensor does not have a manager of patent licensing, a mutually agreeable employee of the licensor shall be designated in his stead.

E. Notwithstanding any other provision of this order, any party taking a sublicense under the terms of this order may be required to reimburse the sublicensor for any payments it is legally required to make and does make to the original licensor on account of activities of the sublicensee under any sublicense granted pursuant hereto.

F. Reasonable provisions may be made for cancellation of the license granted to the licensee upon failure of the licensee to make the reports, pay the royalties, or permit the inspection of his books and records as hereinbefore provided, and, upon a wrongful act of the licensee respecting the restrictions on use or disclosure of know-how contained in Paragraph VII of this order, for Xerox to apply to the Commission for leave to cancel said license, in which event the decision of the Commission shall be final and non-appealable by either Xerox or the licensee.

G. The license may be nontransferable.

H. The license must provide that the licensee may cancel the license in whole or as to any specified PATENTS at any time by giving 30 days notice in writing to the licensor; however, the licensor shall have the option to continue in effect any right granted to the licensor pursuant to Paragraph IV C of this order.

I. The license must provide for the arbitration specified in Paragraph VIII of this order and for suspension thereof pursuant to Paragraph VIII C of this order.

J. In granting a license pursuant to Paragraph II of this order, there shall be no discrimination by Xerox, Rank Xerox, Fuji Xerox or any person in the royalty charged as among royalty-paying licensees who procure the same rights under the same patents; but nothing herein contained shall prevent Xerox, Rank Xerox, Fuji Xerox or any person from negotiating nonexclusive licenses and cross-licenses outside the terms (except Paragraph IV C(9) of this order) of this order with anyone who so elects.

V

It is further ordered, That nothing herein shall be deemed to prevent any licensee or applicant for a license from attacking in any proceeding or controversy the validity, scope or enforceability of any present or future patent, nor shall this order be construed as imputing any validity, enforceability or value to any such patent.

VI

It is further ordered, That Xerox shall allow each person who is a licensee of a xerox patent on the date of issuance of this order to obtain a license pursuant to the terms of this order; however, Xerox, Rank Xerox and Fuji Xerox shall have the right to continue in effect any industrial property rights under the terms previously granted to Xerox, Rank Xerox or Fuji Xerox by the licensee, and such licensee shall have the right to continue in effect any industrial property rights under the terms previously granted to the licensee by Xerox, Rank Xerox or Fuji Xerox.

VII

It is further ordered, That:

A. During the period ending five years after the date of issuance of this order, Xerox shall make available to licensees of United States order patents under a license pursuant to the terms of this order who make written application therefor all know-how (1) in existence on the date of issuance of this order or (2) made available to any other United States manufacturer (except a supplier to Xerox) or United States marketer of office copier products for use in connection with such PRODUCTS during the five year period. The delivery of the know-how requested shall begin within 30 days and shall be completed within 120 days after the initial application therefor is received by Xerox; the response to subsequent requests shall be completed within a reasonable period of time. Such know-how shall be of such a nature as to enable one skilled in manufacturing electro-mechanical office machinery and in the technologies embodied in office copier products or comparable technologies to manufacture, refurbish, recondition and service Xerox Corporation's office copier products. Upon written application, Xerox shall provide written clarification respecting such know-how where such clarification is reasonably necessary. Xerox may make a reasonable charge for the cost of collecting and duplicating know-how which it discloses and for the time spent in clarification. At the option of such licensee, Xerox shall disclose know-how pertaining to photosensitive elements, supplies, raw materials and particular office copier models and shall limit its charge to such know-how. Xerox may require the licensee to agree that all know-how disclosed to the licensee by Xerox shall be considered a Xerox trade secret and to undertake, in good faith, to use the know-how only in connection with the manufacture in the United States of office copier products by or for the licensee and not to disclose or permit the disclosure of the know-how to anyone other than a supplier who is or will be manufacturing in the United States and who enters into a similar agreement and undertaking respecting disclosure and use, unless the licensee can establish that such know-how (1) was previously known to the licensee prior to the disclosure by Xerox, or (2) is or becomes part of the public domain through no wrongful act of licensee, or (3) is subsequently otherwise legally acquired by licensee, or (4) was or is disclosed by Xerox to third parties on a non-confidential basis.

B. Commencing 120 days after the date of issuance of this order Xerox shall make available to know-how licensees a list of the persons whose know-how Xerox claims to be prohibited from disclosing. Such list shall be subject to the restrictions on use and disclosure of know-how provided in this Paragraph VII. Xerox need not make know-how available to IBM.

VIII

It is further ordered, That:

A. Upon receipt of a written application for a patent license or for a patent license and disclosure of know-how under the terms of this order, Xerox shall advise the applicant in writing of the terms of such license and/or know-how disclosure. If a dispute arises between Xerox and a licensee or applicant regarding their respective rights under this order (except where certain matters are specifically referable to the Commission as provided in Paragraph IV F of this order), and if the parties to the dispute are unable to resolve it within 90 days after the existence of such dispute is communicated in writing to Xerox or to the licensee or applicant, the dispute shall be determined by arbitration pursuant to this Paragraph VIII. Notwithstanding the provisions of Paragraph V of this order, no dispute between Xerox and a licensee or applicant with respect to the validity, enforceability, infringement or scope of any patent shall be subject to arbitration pursuant to this order.

B. Unless otherwise agreed to by the parties, arbitration shall be held at a location in the United States designated by the licensee or applicant and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The award of the arbitrator shall be final and binding on both parties. The arbitrator shall, upon a proper showing, issue protective orders and/or receive evidence in camera in the same manner as an administrative law judge of the Federal Trade Commission.

C. Within 10 days after the initiation of arbitration, Xerox shall notify the Commission of the parties to the arbitration, the name of the arbitrator, and the nature of the dispute. Xerox shall notify the Commission of the dates of arbitration hearings and other arbitration proceedings, if any, as soon as possible. Copies of all papers in the nature of pleadings shall be served upon the Commission, and the Commission or its designee shall have the right to attend any arbitration proceeding. The Commission may, in its sole discretion, at any time before evidence has been submitted, suspend the provisions of this Paragraph VIII respecting arbitration and itself resolve any or all disputes subject thereto. The Commission will not assert any claim that Xerox has violated this order with respect to the subject matter of the arbitration where Xerox has complied with the award of the arbitrator.

D. Pending the completion of any negotiation, arbitration or Commission action respecting a dispute subject to this Paragraph VIII, Xerox and the applicant shall enter into a license, and Xerox shall make disclosure of know-how, pursuant to the terms of this order with respect to the matters not in dispute. Upon conclusion of any negotiation, arbitration or Commission action, the disputed license or know-how disclosure may provide for such adjustments as the parties agree to or as the arbitrator or Commission, as the case may be, deems appropriate.

IX

It is further ordered, That for the period ending six years after the date of issuance of this order, Xerox shall make available (a) English language translations of all order patents issued after the date of issuance of this order to Xerox, Rank Xerox, and Fuji Xerox by France, The Federal Republic of Germany, Japan, and The Netherlands, and (b) copies of all English language corresponding patents at a reasonable charge not to exceed the cost of reproduction and, if the translation is made at the instance of the requesting person, the cost of translation.

X

It is further ordered, That for the period ending 10 years after the date of issuance of this order, Xerox shall not, directly or indirectly, acquire from any person (including The Rank Organisation Limited and Fuji Photo Film Co., Ltd.) any exclusive rights, whether by license or otherwise to any patents or know-how for use in office copier products except those (a) resulting from the work of Xerox, Rank Xerox or Fuji Xerox employees, Xerox, Rank Xerox or Fuji Xerox consultants, or research organizations doing sponsored research for Xerox, Rank Xerox or Fuji Xerox, or (b) under which Xerox grants or causes to be granted to any person making written application a non-exclusive, royalty-free, unrestricted license to make, have made, use or vend office copier products under such patent or know-how. Any exclusive rights acquired by Xerox in accordance with part (a) of this Paragraph X shall be on such terms as will permit Xerox to comply with the licensing provisions of Paragraph II of this order. This Paragraph X shall not apply to any acquisition or exclusive license of a foreign patent or of the right to use the know-how in a foreign country by Rank Xerox or Fuji Xerox.

XI

It is further ordered, That Xerox shall not dispose or permit the disposition of any patents or rights thereunder so as to deprive it of the power to grant or cause to be granted the licenses required by this order.

XII

It is further ordered, That for the period ending 10 years after the date of issuance of this order Xerox shall not, directly or indirectly, acquire any interest in a person (including The Rank Organisation Limited and Fuji Photo Film Co. Ltd.) engaged in the manufacture, sale, lease or development of office copiers, or toner, developer, paper or photosensitive elements used in office copiers or form a joint venture involving any such products with any such person (except The Rank Organisation Limited or Fuji Photo Film Co. Ltd. so long as either is a party to a joint venture with Xerox or Rank Xerox relating to office copier products). This paragraph shall not apply (1) to the acquisition by XEROX of an interest in or joint venture with any person in which at the time of the acquisition or joint venture it has a stock interest, other than a PERSON in which Xerox had such an interest by reason of an investment in employee funds such as pension or retirement plans (Xerox shall promptly file with the Commission a list of the persons in which it has a stock interest as of the date of issuance of this order and to which this exception is to apply. Said list shall be updated as part of the annual compliance reports required by Paragraph XIX of this order), or (2) to any acquisition by Rank Xerox or Fuji Xerox of a person not engaged in the manufacture, sale, lease or development of office copiers but who is engaged in the manufacture, sale, lease or development, solely outside of the United States, of toner, developer, paper or photosensitive elements used in office copiers, or to the formation of a joint venture by Rank Xerox or Fuji Xerox involving any such products with any such PERSON, or (3) to a joint venture involving new capacity for the production of paper with a person other than one engaged in the manufacture, sale, lease or development of office copiers, or toner, developer or photosensitive elements used in office copiers, or (4) to the acquisition by Xerox of an interest in any PERSON the sole purpose of which is an investment in employee funds such as pension or retirement plans. Such acquisitions, however, shall not be deemed immune or exempt from the provisions of the antitrust laws (including the Federal Trade Commission Act) by reason of anything contained in this order.

XIII

It is further ordered, That during the period ending 10 years after the date of issuance of this order, Xerox shall not, directly or indirectly, make contracts in the United States restricting employees working in its office copier products business from in the future working for any other person, provided that Xerox may make contracts which prohibit the use or disclosure of trade secrets and confidential information as prohibited by Xerox' present form of ‘Proprietary Information and Conflict of Interest Agreement’ which has been submitted to the Commission.

XIV

It is further ordered, That during the period commencing on a date not later than nine months after the date of issuance of this order and ending five years after said commencement date, Xerox shall not, directly or indirectly, utilize in the United States any price plan for the sale or lease of an office copier which depends upon the customer purchasing or leasing one or more additional office copiers of a different model. Any minimum qualifying level for a pricing plan or price schedule respecting any office copier shall be based solely on volume, revenues, number of office copiers, or the like of the same model.

XV

It is further ordered, That:

A. During the period ending 10 years after the date of issuance of this order, Xerox shall, in addition to instructing its employees in the United States not to comment on the quality of competitive toner or developer, place a notice in a location conspicuous to the key operator on each office copier sold or leased by it in the United States stating the following: ‘Xerox Corporation manufactures and distributes toner and developer for use in this machine. Other suppliers may also provide toner and developer for this machine. It may be necessary to adjust the machine to accommodate toner or developer which is provided by either Xerox or any other supplier.’

B. In the event that Xerox shall publish reasonable specifications for the toner and developer used in a particular machine, Xerox (1) may include the following additional statement in the aforementioned notice: ‘The toner and developer used in this machine must comply with specifications published by Xerox Corporation.,’ (2) shall promptly notify all suppliers of toner and developer, who request such notification, of any changes in such specifications, and shall promptly notify a supplier when his toner or developer does not comply with such specifications in a letter signed by an officer of Xerox, and (3) may not require suppliers of toner or developer for Xerox' office copiers to provide to Xerox' customers a certification that the toner or developer supplied by them meets such specifications.

C. Xerox shall promptly notify all suppliers of toner and developer, who request such notification, of changes in Xerox office copiers which may affect the useability of the toner and developer in such office copiers.

D. Nothing herein contained shall prevent Xerox from advising a customer, in a letter signed by an officer of Xerox, that a non-Xerox toner or developer is not useable in a particular Xerox office copier, provided that Xerox simultaneously advises the supplier of such toner or developer in a letter signed by an officer of Xerox, that (1) in the opinion of Xerox, the supplier's toner or developer is not useable in a particular office copier model, and (2) disputes regarding the useability of the toner and developer are subject to arbitration pursuant to this order. Disputes regarding the useability of non-Xerox toner and developer or the reasonableness of Xerox specifications shall be subject to arbitration in accordance with Paragraph VIII (b) and (c) of this order.

E. Xerox may not, directly or indirectly, require in the United States that it be the sole supplier of toner or developer for leased or sold office copiers; however, it may impose such a requirement with respect to a new model during the six months from the date such model first becomes commercially available. For purposes of this Paragraph XV, ‘new model’ includes collectively the basic office copier model and all subsequent models not embodying material variations in the xerographic processor thereof.

XVI

It is further ordered, That during the period ending 10 years after the date of issuance of this order, (1) Xerox shall not in the United States take orders or announce that it will take orders for the sale or lease of an OFFICE COPIER more than three months prior to the time when it is reasonably expected to be commercially available, (2) Xerox shall not promote any new office copier in any area of the United States more than three months prior to the time that Xerox reasonably expects such new office copier to be first commercially available in that area except for national advertising which includes a statement that the model is available only in the areas where Xerox reasonably expects such model to be commercially available, and (3) at the time Xerox announces that it will take orders for the lease of an office copier in the United States, it shall also announce the selling price of such office copier.

XVII

It is further ordered, That within 30 days after the date of issuance of this order and annually thereafter until the expiration of all future patents, Xerox shall submit for publication in the Official Gazette of the United States Patent Office a notice (1) identifying by number, title date of issue and category of subject matter (to an extent acceptable to the Commission) all United States patents which it is empowered to license together with all foreign patents based on the patent application from which each United States patent originates; (2) stating that Xerox shall grant licenses under (a) its order patents to make, have made, use and vend office copier products under the terms of this order, and (b) patents required to be licensed pursuant to the terms of Paragraph X of this order, if any; (3) stating that Xerox shall disclose know-how to a licensee of its United States order patents for use in connection with the manufacture of office copier products in the United States under the terms of this order; and (4) stating that a copy of this order and a list of patents licensed to Xerox which are subject to the provisions of Paragraph II and IV C(9) of this order, if any, are available from Xerox upon written request. Beginning 30 days following the date of issuance of this order, and until the expiration of all Xerox future patents, Xerox shall send a copy of this order and of the current edition of such notice to each person who inquires as to the availability of a license for office copier products, or to whom Xerox has offered such a license at any time after Jan. 1, 1970.

XVIII

It is further ordered, That Xerox notify the Commission at least 30 days prior to any proposed change in the respondent, Rank Xerox or Fuji Xerox which may affect compliance obligations arising out of this order, such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or any other such change.

XIX

It is further ordered, That Xerox shall file with the Commission reports, in writing, setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with this order. Said reports shall be filed 60 days and 180 days after the date of issuance of this order, and yearly thereafter on the anniversary date of the order during the period in which Xerox has obligations under this order, and shall contain such information and documents as are requested by the Bureau of Competition or the Commission relating to compliance with this order.

Commissioner Nye not participating.

FTC

86 F.T.C. 364, 1975 WL 173245 (F.T.C.)

END OF DOCUMENT