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From Antitrust Law Daily, July 5, 2017

$5.9 billion Broadcom-Brocade deal cleared by FTC

By Jody Coultas, J.D.

Broadcom Limited agreed to establish a firewall to remedy the FTC’s concerns that its proposed acquisition of Brocade Communications Systems, Inc. was anticompetitive based on the belief that Broadcom’s current access to the confidential business information of its major competitor could be used to restrain competition or slow innovation in the worldwide market for fibre channel switches, the FTC announced.

On November 1, 2016, the parties agreed that Broadcom would acquire Brocade for $5.9 billion. According to a complaint filed by the FTC, semiconductor manufacturer Broadcom makes fibre channel application specific integrated circuits, or ASICs, that are custom-tailored to carry out the functions of fibre channel switches. Brocade and Cisco are the only two competitors in the worldwide market for fibre channel switches, and Broadcom supplies both companies with ASICs to make fibre channel switches. The complaint alleged that the acquisition of Brocade could harm worldwide competition in the fibre channel switch market because as Cisco’s supplier, Broadcom could use Cisco’s competitively sensitive confidential information to unilaterally exercise market power or to coordinate action among Brocade and Cisco, increasing the likelihood that customers would pay higher prices for fibre channel switches, or that innovation would be lessened, according to the complaint.

The proposed consent order prevents Broadcom from using Cisco’s confidential information for any purpose other than the design, manufacturing, and sale of fibre channel ASICs for Cisco. Broadcom’s business group responsible for developing, producing, selling, and marketing fibre channel ASICs for Cisco must have separate facilities and a separate information technology system with security protocols that allow access only to authorized individuals, and provides for other information firewall protections. The FTC will appoint a monitor for five years, and may extend the appointment for up to an additional five years.

Commission staff cooperated with antitrust agencies in the European Union, China, and Japan to analyze the proposed transaction and potential remedies, and reach outcomes benefiting consumers in the United States.

The agreement will be subject to public comment for 30 days, beginning today and continuing through August 2, 2017.

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