Comments of Michael Cohen on Bazaarvoice

Posted by Michael Cohen

Congratulations to the Antitrust Division.  The agency used its resources, judgment and discretion to proscecute an acquisition below HSR thresholds by one unprofitable technology company of another unprofitable technology company in the "R&R" (Ratings and Reviews) platform space, "novel" when first introduced in 2005 and now "commoditized" in the broader "new, dynamic", "constantly evolving" Social Commerce business, an industry in its "early stage of development".  (Quotes from the court's opinion.)  Wow thank goodness, and thank you Justice, for ankle shackling yet two more American technology companies in their infancy of a "market" that even as defined, could disappear overnight.

Why?  Because the agency could, given documentary evidence that the two companies viewed each other as their primary competitors.  Nevermind that the combined company accounted for only 56% of the market even as narrowly defined by the court and government, restricted to one form of social commerce limited only to retailers and manufactures.  Of the remaining market participants, Amazon held 28%, with other company in-house platforms making up the remainder, together with emerging technologies.  Let's ignore foreign technologies that could begin selling in the U.S. -- the court and agency did, solely because they were not now.  Let's ignore the fact that the e-Commerce platform companies like Oracle -- on which R&R depends -- could at anytime add the functionality.  The court and agency did, because they had not, and did not have current plans to do it, regardless of whether they would or could in a postmerger predictive world.  And let's ignore the fact that the purported victims -- like Best Buys, Walmarts and Walgreens -- could develop their own R&R at anytime, as apparently 46% had done (counting Amazon's 28%).  None of these victims, incidentally -- more than 100 according to the case -- had any problem with the merger.  But that's okay, the court was fine to conclude they just did not know what they were talking about, except where the court did think they knew what they were talking about, a judicial selective credibility exercise bound to put a question to redefining the bounds of discretion standards if appealed.

Putting aside the many legal questions the case will no doubt raise in debate, both with respect to some strange holdings as well as application to the facts, the Bazaarvoice case may mean as much for its statement about prosecutorial discretion and the new agency merger enforcement dynamic than anything else.  It may show the agency will bring a case if it can, regardless of whether it should, and those two questions are very different.  Aggressive business documents often have two characteristics: they can be wrong or too narrowly focused, and strong evidence.  That result is dangerous, and consequently enforcers with economic oversight like both antitrust agencies should be at least cautious to assess this type of evidence in context of more broad market evidence.  Caution at the agencies, however, has yielded to zeal.

One lesson of Bazaarvoice may be the simple conclusion that bad documents -- of any sort -- will land a merger in court, regardless of whether the case should be there.  In today's merger clearance world, it seems if the government can bring a case it will, without asking whether it should.  The agencies appear to be making early decisions about prosecution based on whether any evidence will support a complaint, without examing the fulsome evidence, positioning merger parties -- consummated or not -- into an early defense mode.  Bazaarvoice will only embolden that trend as viewed from outside the agency.  How this trend may impact merger review remains to be seen, but merger parties with any type of strategic transaction may begin losing confidence in the process.  For the Division, Bazaarvoice is a win.  To many in the business world -- including the merged parties' customers it would appear -- it's just bazaar.  And to consultants advising merging parties, the case may stand as another cascade in a waterfall plummeting toward a pool where the parties take early and immediate adversarial stances, versus even attempting constructive dialogue.