FTC takes on alleged process control software monopoly

Related tags Chemical engineering Computer program

The US FTC has taken issue with the merger between Aspen Technology
and Hyprotech in 2002, alleging that it gave the combined firm a
too-dominant position in process control software.

The US Federal Trade Commission has alleged that the $106 million (€94m) acquisition of Canada's Hyprotech by Aspen Technology in 2002 led to a dominant position in the market for process control software that caused the elimination as a competitor of Invensys Systems' SimSci-Esscor division (SimSci).

Although the merger has already been completed, the director of the FTC's Bureau of Competition, Susan Creighton, said that the nature of the case was such that the agency had no hesitation in filing a complaint.

"AspenTech's purchase of Hyprotech directly led to the combination of two of the three largest firms in the development and sale of certain process engineering simulation software,"​ she said.

AspenTech​'s activities spanned the chemical, pharmaceutical and petrochemical industries, and it numbers 18 of the 20 largest drugmakers among its clients. In 2002, the company reported a loss of $83.5 million on revenues of over $320 million.

Until its acquisition, HyproTech was a subsidiary of AEA Technology of the UK. The FTC notes that it is active in pharmaceuticals, petrochemicals, chemicals and air processing industries, including eight of the top 10 pharmaceutical companies. AspenTech has reported that in the year ending 31 March 2002, Hyprotech had income of $4 million on $49 million in revenues.

"Before the acquisition, AspenTech and Hyprotech were both involved in the development, licensing, and support of continuous and batch process engineering simulation software for use by industry,"​ said the FTC.

AspenTech's BatchPlus software suite included the leading batch simulator, with the BaSYS suite from Hyprotech second in the market, according to the agency. The companies also developed integrated engineering software that gathers information generated from process engineering software and allows users to store, update, and retrieve data depending on their needs. Prior to the acquisition, AspenTech's Zyqad was the leading application for these uses, and Hyprotech's AXSYS was in development and ready for release to committed buyers.

According to the FTC's complaint, AspenTech's acquisition of Hyprotech dramatically increased its concentration in the relevant product markets.

"The transaction led to the combination of the two closest competitors in the product markets, leaving a combined AspenTech/Hyprotech as a strong number one and SimSci​ as a weak number two,"​ it alleges. Based on company estimates, the combined AspenTech/Hyprotech holds as much as 82 per cent of the process simulation software market, with SimSci holding virtually all the remaining share of sales, according to the FTC.

The agency claims that the acquisition has eliminated substantial competition between AspenTech and Hyprotech , has led to reduced innovation competition in the relevant product markets and may lead to AspenTech securing an outright monopoly.

The FTC is asking AspenTech to undertake a range of activities, including the divestment of all Hyprotech software, intellectual property, contract rights and other necessary assets and the destruction of any copies of Hyprotech intellectual property, including source code and executable code.

"We do not agree with the FTC's assertions but, on the contrary, are confident that the acquisition has brought significant benefits to our customers and is not anticompetitive,"​ commented David McQuillin, president and chief executive of AspenTech.

More information is available on the FTC's website​.

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