On May 2, 2005, The Boeing Company and the Lockheed Martin Corporation announced the incipient creation of a joint venture called United Launch Alliance (ULA). ((Company History, ULALaunch.com, http://www.ulalaunch.com/history.aspx (last visited Oct. 2, 2015).)) The joint venture was intended to provide more reliable launch services (the use of a rocket to place spacecraft into or beyond Earth orbit) to the US government, to “support assured access to space,” and to “enhance operating efficiencies and reduce costs.” ((Lockheed Martin Corp. & The Boeing Co., Joint Venture Master Agreement, 1 (May 2, 2005).)) However, the creation of ULA drew close antitrust scrutiny from the FTC, which was concerned that the joint venture may violate Section 7 of the Clayton Act. ((Brian Berger & Warren Ferster, Boeing-Lockheed Rocket Merger Sparks Concern, Legal Challenge, Space.com, http://www.space.com/1709-boeing-lockheed-rocket-merger-sparks-concern-legal-challenge.html (Oct 24, 2005).)) This blog post seeks to explain why the formation of ULA was an antitrust issue, and why the FTC chose not to challenge the joint venture.
As noted by the FTC, the relevant markets in which ULA would do business are Medium to Heavy (MTH) Launch Services (“medium to heavy” referring to payload weight) and the development and sale of space vehicles. ((The Boeing Company, 2007 WL 1406411 (F.T.C. May 1, 2007).)) There exist no reasonable, or technologically possible, substitutes for either MTH rockets or spacecraft, meaning that a hypothetical monopolist in either market could “impose a small but significant and non-transitory increase in price.” ((See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines §4.1.1 (2010) (explaining how the FTC defines relevant markets.).)) Both markets are extremely concentrated, in large part due to high barriers to entry. Boeing and Lockheed were, at the time of ULA’s formation, the only competitors in the MTH launch services market, and the two, along with Northrop Grumman, “account[ed] for the large majority of sales” in the market for space vehicles. ((The Boeing Company, 2007 WL 1406411.)) Due to the extreme concentration of the relevant markets, and Boeing’s and Lockheed’s status as either the only competitors or two of three competitors, the formation of ULA would seem to be a classic “merger to monopoly” leading to a substantial lessening in competition. ((Horizontal Merger Guidelines at §6.))
Thus, as noted by FTC Commissioner Harbour, “[i]f the proposed ULA joint venture could be scrutinized solely through a competition lens,” the FTC would have “no choice” but to challenge it. ((supra note 4 (Comm’r Harbour, concurring).)) The proposed joint venture between the only two US providers of MTH launch services and two of three US providers of space vehicles presented a fairly straightforward violation of Section 7 of the Clayton Act.
However, on May 1, 2007, almost two years to the day that Boeing and Lockheed announced their intention to form ULA, the Federal Trade Commission issued its decision allowing the formation of the joint venture, subject to a consent agreement. The consent agreement, signed by the joint venturers in exchange for the FTC’s blessing, established a complex regulatory framework governing much of its operation, though “[o]rdinarily, such a system would not be considered an effective remedy for the anticompetitive effects” allegedly flowing from ULA’s formation. ((Id.))
The FTC decided not to challenge the joint venture, instead implementing the consent agreement, due to the intervention and testimony of the Department of Defense. ((Fed. Trade Comm’n, FTC Intervenes in Formation of ULA Joint Venture by Boeing and Lockheed Martin, (2006), https://www.ftc.gov/news-events/press-releases/2006/10/ftc-intervenes-formation-ula-joint-venture-boeing-and-lockheed.)) According to Commissioner Kovacic, the “decisive factor” in deciding to allow the joint venture was the cost of competition over a small number of launches under a national policy requiring two different families of launch vehicles. ((supra note 4 (Comm’r Kovacic, concurring).)) By allowing the joint venture, the DOD asserted, Boeing and Lockheed could combine workforces and expertise to jointly maintain their respective launch systems (Delta and Atlas) at lower cost while improving performance. ((Id.)) Noting the weight accorded to DOD testimony regarding the national security benefits that would allegedly flow from the joint venture, the FTC, somewhat reluctantly, approved the formation of ULA. ((Id.))
Since ULA’s formation, the US launch services market has undergone dramatic change. The surprisingly successful emergence of legitimate competitors to ULA, notably Elon Musk’s SpaceX, as well as a relative scaling down of government launches, have reoriented the launch services industry toward the private sector. ((See Andy Pasztor, Rocket Venture Aims to Boost Nonmilitary Business, The Wall Street Journal (Sept. 7, 2015, 8:15 PM), http://www.wsj.com/articles/rocket-venture-aims-to-boost-nonmilitary-business-1441659646.)) In light of this industry sea-change, it may be time to reassess ULA’s present position in the launch services market through an antitrust framework, analyzing whether ULA’s continued existence is justified and/or legal under the Sherman Act.
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