CARL ZEISS/BIO-RAD

Statement of issues

The Competition Commission (CC) has today published an issues statement as part of its inquiry into the proposed acquisition by Carl Zeiss Jena GmbH of the microscopy business of Bio-Rad Laboratories Inc.

Both companies have supplied advanced 3D microscopes (a category which includes single-photon and multi-photon microscopes) in the UK. These are typically used for research, for example, using specialist lasers and fluorescence microscopy to produce magnified 3D images. The inquiry will seek to establish whether there will be a substantial lessening of competition as a result of the proposed acquisition.

The proposed acquisition was referred to the CC by the Office of Fair Trading (OFT) on 30 December 2003. The CC published a first request for evidence on the same day.
The issues statement follows from the initial process of gathering information, views and evidence and identifies clearly, for all interested parties, the specific questions and areas the inquiry will be examining. This will form the basis for the private hearings with both the main parties and the CC’s further consideration. (The full issues statement is attached at the end of this release.)

The process for merger references requires the inquiry group to define the relevant market or markets, carry out an assessment of the competitive effects of the proposed merger, compared with what would be likely to occur in the absence of the merger (the counterfactual) and consider any customer benefits that might arise from the merger.

If the CC considers that the proposed merger may be expected to result in a substantial lessening of competition, it will consider whether, and if so what, remedies might be appropriate, issuing a statement at a later date.

The CC is required to publish its report by 14 June 2004.

This issues statement should not be seen as implying that the CC has identified any competition concerns—the CC has yet to reach any conclusions on this inquiry. The purpose of making the statement of issues public is to inform all interested parties and give them an opportunity to raise any further points with the CC.

Anyone wishing to comment on any of the issues set out below is requested to do so at the latest by Wednesday 25 February 2004 (or sooner if possible). Comments made previously will be taken into account, and there is no need to repeat points that have already been made to the inquiry.

Comments should be made in writing to:

Mary Peretz, Inquiry Secretary, Zeiss/Bio-Rad
Competition Commission
New Court, 48 Carey Street, London WC2A 2 JT

or by email to: .

The CC will continue to gather evidence and will publish its provisional findings according to the administrative timetable available on the CC’s web site (www.competition-commission.org.uk).

Notes for editors

1. The Enterprise Act 2002 empowers the OFT to refer to the CC completed or proposed mergers for investigation and report which create or enhance a 25 per cent share of supply in the UK (or a substantial part thereof) or where the UK turnover associated with the enterprise being acquired is over £70 million.

2. The CC has a 24-week period in which it is required to publish its report, which may be extended by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.

3. The Carl Zeiss/Bio-Rad Inquiry Group consists of four members—Peter Freeman (Deputy Chairman of the CC), Nigel Macdonald, Professor David Parker and Richard Rawlinson—supported by the CC’s staff.

4. Further information can be obtained from the CC’s web site at: http://www.competition-commission.org.uk.

5. Enquiries should be directed to Francis Royle, Press Officer, 020 7271 0242, or Rory Taylor on 020 7271 0488 / .

The issues that we intend to consider are set out in the attached statement.

ZEISS/BIO-RAD—STATEMENT OF ISSUES

Market definition

The Competition Commission (CC) would like to explore the appropriate definition of the economic markets affected by the proposed merger, in particular:

(a) whether there are distinct market segments relating to different technical systems for advanced 3D light microscopy, including, in particular, whether there are distinct markets for optical and non-optical sectioning systems, and for confocal and multi-photon systems;¹

(b) whether the relevant market or markets should be defined as national, regional or worldwide; particularly in view of whether local servicing requirements are important; and

(c) whether there is any other market segmentation that should be taken into account, such as the use of advanced microscopy equipment for materials applications or for various biological applications.

Assessment of the competitive effects of the proposed merger

Against this background, the CC would like to explore the possible competitive effects of the merger within each of the markets which may be identified following the analysis above:

(a) whether, or to what extent, existing suppliers of relevant microscope systems face competition from other potential suppliers in the current market(s); and whether there are significant barriers to entry in the current market(s);

(b) whether there are identifiable trends in the development of the relevant market(s) or technology that might affect competition in the foreseeable future, including the possibility of new entry;

(c) the extent to which customers have alternative suppliers available for the relevant goods or services, and the characteristics, in addition to price, that make those alternatives more or less attractive for different customers (for example, access to innovative technology);

(d) the extent to which intellectual property rights or other factors limit the ability of firms (whether or not they normally provide the relevant goods or services) to start providing them or to widen their offer to include them;

(e) whether the merger would be likely to create or increase market power in any market in which the parties are active and lead to the opportunity for the parties to engage in exclusionary practices with respect to their competitors, or to a rise in prices or reduction in service, support or choice for some or all customers (non-coordinated effects);

(f) whether the merger would be likely to create or increase coordination between Zeiss and other suppliers, which would be likely to lead to a rise in prices or reduction in service or choice for some or all customers (coordinated effects);

(g) whether the merger would adversely affect incentives to innovate in the market or markets, for example through decreased collaboration between researchers, manufacturers and customers, and in general whether customers would continue to have the current degree of access to innovative technology should the merger proceed;

(h) whether the merger would adversely affect activity in the UK in research and development (either as a result of relocation of microscopy research and development or otherwise);

(i) whether the merger would affect competition to supply components for microscope systems (for example, microscope stands, lasers, or computer hardware or software); and

(j) whether, taking account of all of the above, the merger may be expected to result overall in a substantial lessening of competition for the provision of relevant microscope systems in the UK.

Counterfactual

The CC would like to explore what would be likely to occur in the absence of the merger (the counterfactual). In particular, the CC is interested in possible alternative developments related to the patent dispute between Zeiss and Bio-Rad or companies in their groups; specifically:

(a) how the confirmation of the validity of European patent specification no EP0500717B2 (owned by Cornell Research Foundation Inc, covering two-photon laser scanning fluorescence microscopy apparatus and methods) by the European Patent Office Appeal Board (EPO) in November 2003, and related issues, would affect future supply of relevant systems in the absence of the merger;

(b) whether any party could successfully contest the validity of the EPO ruling and related patents;

(c) what effect the EPO’s patent ruling and any disputes would have on Zeiss’s operations in any of the potential markets concerned, and what effect would all of these have on other competitors and on the potential markets concerned in the absence of the merger;

(d) whether Zeiss would be likely to innovate in the advanced 3D microscopy market, or elsewhere, so as to limit any effect of the EPO’s ruling or related disputes; or whether Zeiss would be likely to obtain access to equivalent technology from other sources.

The CC would also like to explore:

(e) whether, in the absence of the merger, Bio-Rad would be likely to seek to dispose of its microscopy business to a different purchaser; whether there is a potential purchaser for the business other than Zeiss; and what difficulties would be faced by such a purchaser in establishing itself as a supplier of microscope systems of whatever specifications, or as a supplier of microscope systems in the markets that would be opened through acquisition of the microscopy business; and

(f) if Bio-Rad were not to dispose of the business, whether Bio-Rad would be in a position to seek, and likely to seek, to realize the value of its licence of the Cornell patent through other means, such as a sub-licence to one or more parties, and the consequences of such a sub-licence or sub-licences.

Customer benefits

The CC would like to explore whether or not any significant customer benefits might arise as a result of the merger, and if so what these benefits are likely to be. In particular, the CC is interested in the following issues:

(a) whether the merger would affect the pace and value to customers of future innovation; whether it would lead to increased collaboration between researchers, manufacturers and customers (some of whom undertake development activities) to their mutual benefit;

(b) whether the merger will lead to lower prices than would otherwise be the case;

(c) whether the merger would lead to better-quality microscope systems than would otherwise be the case; in particular, the CC is interested in whether the merger will lead to better or more specialized research and development in the supply of microscope systems;

(d) whether the merger would lead to greater choice of microscope systems than would otherwise be the case; and

(e) whether the merger would lead to better customer services than would otherwise be the case.

¹Advanced 3D microscopy we treat as a subset of light microscopy that excludes widefield or classical light microscopy. Optical sectioning systems typically create images using either the confocal principle or multi-photon effects. Non-optical sectioning systems use techniques such as computer-aided 3D reconstruction or structured illumination methods. (Alternative terms for optical and non-optical sectioning systems are ‘laser scanning’ and ‘computer-processed’ systems.)