Monday, January 27, 2014

Comments of Franco Castelli on Bazaarvoice

Posted by Franco Castelli

In a significant victory for the Department of Justice, the U.S. District Court for the Northern District of California recently held that Bazaarvoice’s completed acquisition of rival PowerReviews violated the antitrust laws.  Bazaarvoice acquired PowerReviews in June 2012, in a $160 million transaction that was exempt from the HSR Act’s reporting and waiting period requirements because the target did not satisfy the HSR Act’s size-of-person test.  Days after the acquisition closed, the DOJ opened an investigation that led to the filing of a complaint in January 2013.  After a three-week trial, and relying heavily on the parties’ internal documents, the court found that PowerReviews was Bazaarvoice’s closest and only serious competitor in the market for “rating and review” platform services sold to e-commerce businesses.  The court’s opinion cites dozens of internal documents showing that, prior to the merger, “Bazaarvoice considered PowerReviews its strongest and only credible competitor, that the two companies operated in a duopoly, and that Bazaarvoice’s management believed that the purchase of PowerReviews would eliminate its only real competitor.”  More than 100 Bazaarvoice customers testified at trial or through deposition that the acquisition had not harmed them, but the court found their testimony “speculative at best,” and therefore “entitled to virtually no weight.”  Similarly, the court gave little weight to post-acquisition evidence regarding the transaction’s effect on pricing, holding that, since Bazaarvoice was aware of the DOJ’s pending investigation, such evidence was subject to manipulation.  The court found that the government would be entitled to an injunction requiring the divestiture of PowerReviews, but acknowledged that “that is not a simple proposition 18 months after the merger” and scheduled a hearing to discuss potential remedies.

With its focus on the parties’ internal documents, the opinion is an important reminder of the critical role that such documents play in antitrust merger review.  Bazaarvoice may be an extreme case of bad documents, but the merging parties’ internal documents always help shape the agencies’ and courts’ views significantly, and unhelpful, hyperbolic or overly aggressive language can dramatically undermine the parties’ defense.  In another recently litigated merger, the DOJ’s 2011 challenge to H&R Block’s proposed acquisition of TaxAct, the court similarly relied on the defendants’ ordinary course of business documents in determining the relevant market, and concluded that they supported the market definition alleged by the DOJ, a finding that represented a critical blow to the defendants’ case.  The key lesson from Bazaarvoice is that businesses and their advisors must always be mindful of what their documents say about industry competition and their rationale for the transaction. 

If the court’s reliance on internal documents is nothing new, the weight the opinion appears to give to the parties’ intent is somewhat more surprising.  The court acknowledges that “intent is not an element of a Section 7 violation,” but it places considerable emphasis on the fact that “anticompetitive rationales infused virtually every pre-acquisition document describing the benefits of purchasing PowerReviews.”  The implication seems to be that, if Bazaarvoice intended to enter into the transaction to eliminate a close competitor, then the merger must be anticompetitive.  In other words, the court appears to rely on evidence of the parties’ motives for entering into the merger as a basis to predict the merger’s likely effects on competition and establish a Section 7 violation.

In contrast with the emphasis on hot documents, the Bazaarvoice opinion dismisses the probative value of customer testimony.  Finding that customers “generally do not engage in a specific analysis of the effects of a merger,” the court expresses skepticism as to their ability to testify on this issue.  And while customer testimony may have been particularly unpersuasive in Bazaarvoice given that many customers “had given no thought to the effect of the merger or had no opinion,” the District Court for the Northern District of California was similarly dismissive of customer witnesses in the DOJ’s failed challenge to Oracle’s acquisition of PeopleSoft in 2004.  In Oracle, the DOJ relied heavily on customer complaints, presenting ten customer witnesses at trial, but the court questioned the grounds upon which they offered their opinions on market definition and competitive effects.  The court found that the customers had speculated on the issue of what they could do if faced with a price increase post-merger, and concluded that “unsubstantiated customer apprehensions do not substitute for hard evidence.”  The outcome for the DOJ in Oracle and Bazaarvoice was different, but the court’s disregard for customer testimony was strikingly similar.  Here, the lesson seems to be that customer support, while generally helpful before the antitrust agencies, is unlikely to be sufficient to win the day in court.    

Economic analysis does not play a prominent role in the Bazaarvoice opinion, although the court did rely on the government’s economic expert on the issue of product market definition.  It is unclear whether this represents a setback for the role of economic analysis in merger review.  The simple explanation may be that the documentary evidence was so compelling and hard to rebut that the court did not feel the need to engage in complex economic analysis to validate its findings. 

Bazaarvoice is the second major court victory for the DOJ during the Obama administration.  In 2011, the DOJ prevailed at trial in its challenge to H&R Block’s proposed acquisition of TaxAct, the first major win in a fully litigated merger case since its 2004 defeat in Oracle.  Coming after a long drought, the H&R Block victory had a significant impact on the agency’s willingness to challenge anticompetitive mergers in court.  Since then, the DOJ has shown a more aggressive stance towards merger litigation, challenging a number of high-profile transactions, including AT&T’s proposed acquisition of T-Mobile, Anheuser-Busch InBev’s proposed acquisition of Grupo Modelo, and, most recently, the proposed merger of US Airways and American Airlines.  If anything, the latest win in Bazaarvoice may further embolden the DOJ’s litigation strategy.

Bazaarvoice does not represent a departure from the past, nor should it be expected to have a major impact on future merger enforcement.  The case, however, highlights the increased scrutiny of non-reportable transactions.  Just a few days before the court issued its opinion in Bazaarvoice, the DOJ challenged another consummated acquisition by Heraeus Electro-Nite, requiring a clean sweep divestiture of the acquired assets.  And just last Friday, the FTC prevailed in its challenge to St. Luke’s completed acquisition of Saltzer Medical Group, with the U.S. District Court for the District of Idaho holding that the transaction violated the antitrust laws and must be unwound.  These actions underscore the antitrust risks buyers assume in these deals.  As discussed in a recent client memo, while parties to HSR-exempt mergers sometimes operate under the misimpression that antitrust concerns are moot, ignoring the issue effectively transfers all antitrust risk to the buyer at closing.  Before entering into such transactions, buyers should consider the substantive antitrust issues raised by the acquisition just as they would in a reportable deal, including the feasibility of remedies short of clean sweep divestitures, the practicality of unscrambling assets post-integration, and the impact on their business in the event of a future mandated divestiture.

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

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.  

January 27, 2014 | Permalink | Comments (1) | TrackBack (0)

Thomas Dillickrath on Bazaarvoice

Posted by Thomas Dillickrath

It is clear that the presence of some very bad, contemporaneously-created documents created an uphill battle for the merging parties in BazaarVoice.  With those documents in mind, BazaarVoice faced a nearly insuperable hurdle when conjoined with the court’s decision to give little if any weight to statements in support of the transaction by customers.

More interesting to me is the way the court handled the post-merger economic evidence.  Given that the over 15-month post-transaction history of conduct by the parties provided at least some empirical data for the court to consider, there would be at least some warrant for the court to consider such evidence as part of its weighing of the evidence in support of its decision.  However, the court relied on “economic theory [that] predicts that the merger will result in significant unilateral effects….” (¶ 267).  In addition to theory, the court relied heavily on evidence derived from pre-merger sales databases, and credited the government’s expert economist’s testimony using these data to predict future price increases in the wake of the merger.

The  decision whether to afford weight to post-merger evidence is, of course, up to the court.   Here, Judge Orrick was clearly disposed to a gimlet-eyed view of the post-merger evidence, citing Chicago Bridge for the proposition that such evidence should be heavily discounted when it “could arguably be subject to manipulation.” (¶ 282).  The court elected to take this (non-binding) precedent quite literally, viewing the evidence as “reasonably viewed as manipulatable and…entitled to little weight.” (Id.).

The court appeared to take the mere possibility of manipulation as dispositive.  For example, the court saw BazaarVoice’s awareness of the DOJ investigation as creating the potential for mischief, and relied on a seemingly innocuous quote from a Huffington Post article (stating that future behavior by the merged entity would be monitored for antitrust compliance) as evidence of the potential for manipulation.  (It is not everyday that Huffington Post is cited in a significant antitrust opinion; perhaps this will be a new trend.)  And, the court was concerned about the possibility of getting it wrong, noting that if it incorrectly blessed a transaction based on post-merger testimony, there would be nothing to then stop the merged entity from raising prices (arguably, an incorrect assumption). 

While the court’s reticence is understandable, and may even have been appropriate in the given case, one hopes that courts will pragmatically look at each case on the merits in weighing post-merger evidence, rather than relying on hypothetical concerns of potential manipulation.  A pragmatic judge (in the Posnerian sense) will want to make an informed decision with full empirical knowledge in hand, and while precedent may play a role in such considerations, dismissing post-transaction evidence based on broad assumptions may rest on a very slender reed.

Just reading the opinion, it appears that the evidence was somewhat equivocal in any event, and that the court may well have given more consideration to BazaarVoice’s post-transaction data than one might glean from the broad dicta regarding the general weight afforded such evidence.  Nonetheless,  the court’s treatment of the post-merger pricing evidence viewed in conjunction with its disregard of positive customer statements (dismissed as “lay testimony”) suggests that economic modeling and theoretical work may be given greater weight than actual empirical information.  It might seem a dichotomy—dismissing customer testimony on the grounds that they weren’t privy to the testimony of economic experts or other information available to the court, and dismissing the significance of post-transaction data as subject to being affected by possible antitrust concerns—but the reality is that merging parties attempting to introduce such data need to be prepared for a court to disregard, or at least heavily discount, its significance.

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Kolasky on Bazaarvoice

Posted by William Kolasky

Anyone who has been through a merger investigation at either the Justice Department or the Federal Trade Commission knows that both agencies rely heavily on the testimony of customers both in their initial decision as to whether to issue a Second Request and in their final decision on whether or not to challenge a merger.  The FTC’s most recent compilation of Horizontal Merger Investigation Data, covering the fiscal years 1996 to 2011, for example, reports that the FTC challenged almost all of the mergers it reviewed where it had received strong customer complaints (111 out of 114), but fewer than half the mergers as to which there were no strong customer complaints (53 out of 122).[1]

It is always interesting, therefore, to see how little weight judges generally give the testimony of customers when a merger challenge gets to court.  Three examples come to mind.  In the Justice Department’s challenge to the Sungard/Comdisco merger involving shared disaster recovery systems for mainframe computers in 2001, Judge Ellen Segal Huvelle gave little credence to the 50 declarations of customers the government proffered to show that customers would not switch to internal recovery systems in response to a SSNIP.  She noted that defendants had proffered an even larger number of customers declarations (90) saying just the opposite and that the 140 declarations the two sides had presented represented fewer than 5% of all customers, with no assurance that these 5% were representative.[2]  Similarly, in the Justice Department’s 2004 challenge to Oracle’s proposed acquisition of its competitor, PeopleSoft, Judge Vaughn Walker wrote that he found the testimony of the ten customers proffered to support its narrow market definition “largely unhelpful.” [3]  While acknowledging that the ten witnesses were plainly very sophisticated buyers of enterprise software, he observed that none of them had done a careful cost-benefit analysis of the kind he would have expected a sophisticated buyer to do in order to support their “unsubstantiated apprehensions” that the proposed merger would enable Oracle to raise prices on the software products as to which it competed with PeopleSoft.  Finally, in the Justice Department’s more recent 2011 challenge to H & R Block’s attempted acquisition of one of its two leading competitors for tax preparation software, TaxACT, Judge Beryl Howell rejected the defendants’ effort to rely on a survey of over 1,000 customers to show that they would switch to other tax preparation methods in the event of a SSNIP, finding serious methodological problems with the proffered survey.

Judge William Orrick’s opinion in Bazaarvoice is the latest example of a judge finding unpersuasive customer testimony as to the likely effect of a merger on competition.[4]  In challenging the merger, the government made out its prima facie case by defining a very narrow product market—Ratings and Review platforms for online commerce—in which the evidence showed that the two merging parties, Bazaarvoice and PowerReview, had a combined share of more than 60%, or nearly 100% if you exclude in-house platforms, which the government argued were not a viable alternative for many customers.  T[5]he government buttressed its prima facie case with internal documents showing that each company viewed the other as its closest competitor and that they both anticipated that the merger would provide “relief from . . . price erosion” and permit “margin expansion.”[6]

In its effort to rebut the government’s prima facie case, Bazaarvoice relied heavily on customer testimony, arguing that “none of the more than 100 current, former and potential customers who testified in the case believed that the acquisition had or would harm them.”[7]  Judge Orrick was unmoved.  While acknowledging that “the customers were the most credible sources of information on their need for, use of and substitutability of social commerce products”—and, indeed, relying on that testimony in accepting the government’s narrow market definition--he found that their testimony on the impact and likely effect of the merger “was speculative at best” and was therefore “entitled to virtually no weight.”[8]  As he explained, because “products such as R&R platforms are relatively inexpensive in comparison to a company’s operating budget and have relatively long contracts . . . [c]onsidering competitive alternatives for R&R is not part of customer’s day-to-day activities.”[9]  Most of the customers testified, therefore, that “they had never given any thought to the merger” and did “not have much current information about” its likely effects.[10]  The judge dismissed the opinions of those who had thought about the merger on the ground that they had “not been privy to most of the evidence presented to the court, including that of the economic experts, and therefore had only a “narrow perspective of the economic and legal questions before the court,” and “an idiosyncratic understanding” of the R&R market.[11]

In considering the implications of Judge Orrick’s rejection of Bazaarvoice’s effort to rely on customer testimony to rebut the government’s case, it is easy to identify reasons why his ruling may have limited impact.  First, the government’s prima facie case was very strong—based not just on market shares, but also on detailed win-loss data and highly damaging statements in the merging parties’ internal documents.  As the D.C. Circuit held in Baker Hughes, in language Judge Orrick quoted:  “The more compelling the prima facie case, the more evidence the defendant must present to rebut it successfully.”[12]  Second, in cases where the products or services at issue are more central to their customers’ business and are purchased more regularly, a court would have a much harder time finding that the customers had not given any thought to a merger potentially affecting them or had insufficient information to inform their views as to its likely effect on their business.  Third, as in the earlier cases cited above, the customers who testified apparently did not back up their opinion testimony with the type of detailed analysis that would have been required for Judge Orrick to find their testimony persuasive.

That said, Judge Orrick’s opinion should teach all of us who practice antitrust law—whether at the agencies or for parties appearing before them—the importance assuring that a customer’s opinion testimony is supported by both facts and analysis.  His opinion also shows the importance—both at the agency level and in court--of testing the customers’ opinions against the objective evidence.  For example, a statement by a customer that it views the merging parties as “next best substitutes” should be greeted skeptically if the data show that it buys from most of its requirements from one of the two merging parties and the rest from another competing supplier, rather than from the other merging party.

[1][1] Federal Trade Commission, Horizontal Merger Investigation Data:  Fiscal Years 1996 – 2011, Tables 7.1 & 7.2 (January 2013).

[2] United States v. Sungard Data Systems, Inc., 172 F. Supp.2d 172 (D.D.C.2001)

[3] United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004).

[4] United States v. Bazaarvoice, Inc., Case No. 13-cv-00133-WHO (N.D. Cal. Jan. 8, 2014).

[5] United States. v. H & R Block, Inc., 833 F. Supp. 2d 36 (D.D.C. 2011)

[6] Slip Op. at 29.

[7] Id. at 116.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at 138.

[12] Id. at 131, quoting United States v. Baker Hughes Inc., 908 F.2d 981, 991 (D.C. Cir. 1989).

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Muris and Wilson on Bazaarvoice

Posted by Tim Muris and Christine Wilson

When the Department of Justice challenged as unlawful the proposed merger of Oracle Corp. and Peoplesoft Inc., it relied heavily on customer testimony in presenting its case.  The U.S. District Court for the Northern District of California in 2004 discounted the reliability of the customer testimony and, in a stinging defeat for DOJ, allowed the deal to proceed.[1]  Ten years later, the DOJ challenged the legality of the consummated merger of Bazaarvoice and PowerReviews in the same federal district court.  Making lemonade out of lemons, DOJ invoked Oracle in urging the court to discount the testimony of more than 100 customers favorable to the deal.  Extending the lineage of Oracle, Arch Coal,[2] and the Baby Foods case,[3] the Bazaarvoice court earlier this month stated that “it would be a mistake to rely on customer testimony about effects of the merger,” and ruled for the DOJ.[4]

            Prior to their merger in June 2012, BazaarVoice and PowerReviews had been the two leading providers of Rating and Review Platforms (“RR Platforms”), packages of software and services that manufacturers and retailers purchase to allow their customers to write and post product reviews.  The DOJ alleged, and the court agreed, that Bazaarvoice’s purchase of PowerReviews eliminated its “only meaningful commercial competitor” in the U.S. market for RR Platforms.  Finding that the merger granted Bazaarvoice market power by raising its market share from approximately 40 percent to 60 percent, that entry and expansion were unlikely to dilute Bazaarvoice’s newfound market power, and that the efficiencies would be insufficient to offset likely consumer harm, the court concluded that the merger violated Section 7 of the Clayton Act. 

            Bazaarvoice is remarkable more for its reasoning rather than its result.  Typically, the antitrust agencies find customer reactions probative of the likely competitive effects of a merger.  In the wake of the Oracle decision, the heads of both federal antitrust agencies expressed strong support for the use of customer statements when evaluating a merger, and the Horizontal Merger Guidelines issued jointly by the DOJ and FTC in 2010 explicitly endorse the usefulness of “[t]he conclusions of well-informed and sophisticated customers.”[5]  Moreover, merger challenge data released by the FTC reveal that strong complaints from customers almost always lead to a government challenge.  Although the data do not permit us to test the point, most antitrust lawyers would agree that strong support from sophisticated customers generally leads to a merger's approval.        

            Nevertheless, some judges have been quite hostile to customer testimony.  Their extreme skepticism differs notably from that of the typical antitrust lawyer.  Antitrust enforcers – who routinely assess the competitive effects of mergers, and consequently should be viewed as experts – invariably seek the reactions of customers when evaluating mergers.  Judges, in contrast, have very limited experience in evaluating mergers.  We believe the experts are more correct than the judges, especially about the general role of customers.  This is not to say that the experts cannot, and should not, be second-guessed.  Indeed, Judge Walker's dismissal of the customer testimony in Oracle had a solid foundation, a point to which we return below.  But the Oracle, Arch Coal, and Baby Foods judges were doing more than questioning whether the particular customers before them had a point.  Instead, they attacked fundamentally government reliance on customer complaints. 

            Take, for instance, the judge in Baby Foods.  While ruling against the government, he precluded as speculative the best evidence that he had to approve what was, on the surface at least, a three-to-two merger.  The customers, in this case large grocery store chains, overwhelmingly supported the merger of the second and third largest baby foods manufacturers, in large part because they thought that the merger would, at last, create substantial competition for Gerber.  Gerber held over 60 percent of the market, and, in the views of these customers, was "milking" the business and making the category stagnant.  When the government objected to customer testimony on what they expected competitive effects to be, the judge agreed and excluded the testimony.  In line with the thinking of the Oracle and Arch judges four years later, he did not understand why these customers should be allowed to speculate. 

            One answer, of course, is that the whole merger review enterprise is speculative.  Indeed, it is — and despite the advances in economic analysis, lawyers are rightly uncomfortable with the ad hoc nature of current competitive effects analysis.  Perhaps for this reason they reach for the security blanket of customer testimony.  The issue for us is whether they are like Linus in the Peanuts cartoon, clutching his blanket against a large and difficult world.  Or, instead, does relying on customer testimony provide an important source of evidence and a sound input in assessing a merger's ultimate effects?

            Obviously, the views of the customers must be tested.  Thus, in Oracle, if there was a market, it was one involving large enterprise customers.  Because there are hundreds of such enterprises, customer views must be handled with care.  With even 20 such customers, how do we know they are a representative sample?  While we are sympathetic to this part of Judge Walker's opinion, he went even further.  He implied, in striking language, that some of the largest businesses in the world did not know of what they spoke. 

            We agree with those who argue that it is important to ensure that customer testimony is informed and not based on anticompetitive incentives.  The court in Bazaarvoice arguably sought to screen the views of testifying customers in this way.  In declining to rely on customer testimony, the court cited the opaque pricing structure of the industry (which limits a customer’s ability to “discern what is actually happening in the market”), the fact that Bazaarvoice’s post-merger conduct was “likely tempered by the government’s immediate [post-merger] investigation,” the customers’ lack of access to economic evidence, the fact that few customers followed the merger, and the existence of “different levels of knowledge, sophistication, and experience.”[6]  Furthermore, although not explicitly mentioned, the presence of many inflammatory internal documents also may have weakened the credibility of contrary customer evidence.

            Nevertheless, we also have great respect for the invisible hand of the market, and for the ability of businesses to create wealth, if not always to be able to explain themselves in a court room.  For these reasons, we believe that once customers have passed sufficient screens, their views regarding the ultimate competitive effects of a merger should be given great weight. 

            One basis for our conclusion concerns the policy judgment that underlies the so-called business judgment rule.  This rule essentially requires judicial abstention from second-guessing corporate decisions based in part on the relative expertise of corporate boards vis à vis judges and courts.  The business judgment rule creates the presumption that corporate directors and officers act on an informed basis, in good faith, and in the best interests of the corporation.  States have adopted the business judgment rule based on varying standards — the Delaware common law standard, the American Law Institute principle, and the Model Business Corporation Act.  These standards provide significant deference to boards of directors and officers based on their greater knowledge and experience in directing the affairs of a corporation.   

            As early as 1919, in the famous Dodge v. Ford Motor Company case, the Michigan Supreme Court recognized its lack of business expertise and refused to enjoin Henry Ford’s plans to expand production.  The business judgment rule’s presumption disappears, and liability inures, only if a court finds a corporation’s directors or officers acted with gross negligence, in bad faith, or based on fraud or self-dealing.  The business judgment rule explicitly recognizes the difficulties that judges face in determining whether judgments are in the corporation’s or shareholders’ best interests, and in evaluating the many factors weighed in making business decisions that may be unknown or unclear to the court. 

            This rationale for the business judgment rule applies to customer testimony on mergers.  It is certainly appropriate to assess whether customer views are representative, informed, and unbiased.  If they meet these qualifiers, it is hard to see how judges can reasonably choose to rely on their own or economists’ intuitions at the expense of customers’ relative experience and expertise, absent strong evidence to the contrary.  It is the customers who will most directly experience the effects of a merger; their self-interest, combined with their experience in the industry, ensures that their views will provide informative evidence. 

            We return to Baby Foods as an illustration.  In that case, the customers – whose stores sell hundreds of products – were well-positioned to perceive that the dominant firm did not face sufficient competition and to conclude that the proposed merger likely would have the beneficial effect of shaking up the stagnant category.  In fact, a retrospective conducted several years later provides support for the customers’ views.[7]  In the absence of the merger, the product category has remained “stale” and the share of the dominant firm has grown. 

            In Baby Foods and Bazaarvoice, the customers supported the merging parties, while in Arch Coal and Oracle they opposed them.  Because customers will bear the brunt of any anticompetitive effects, there may be even more reason to trust them when they support a merger.  But customers who voice opposition to a merger, again assuming they pass proper screens (including screening for the possibility that they may be trying to “hold up” the merging parties) deserve our consideration as well.  It is not easy to oppose a transaction that, if approved, will force the customer to deal with the new reality of an even larger supplier.

            We are not saying that economists cannot develop reliable evidence sufficient to persuade us that those closest to the market are wrong.  We are saying that the intuition of antitrust enforcement lawyers to rely on the views of those customers is correct.  Customer reactions provide crucial evidence of likely competitive effects, and should be given great weight by both the agencies and the courts.


[1]               United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004).

[2]               FTC v. Arch Coal, 329 F. Supp. 2d 109 (D.D.C. 2004).

[3]               FTC v. H.J. Heinz Co., 116 F. Supp. 2d 190 (D.D.C. 2000).

[4]               U.S. v. Bazaarvoice Inc., 13-cv-00133-WHO, slip op. at 8 (N.D. Cal., Jan. 8, 2014).

[5]               DOJ/FTC Horizontal Merger Guidelines §2.2.2 (Aug. 19, 2010).

[6]               Bazaarvoice, supra n. 4, at *8, *116-18.

[7]               Viola Chen, The Evolution of the Baby Food Industry 2000-2008, FTC Working Paper 297 (April 2009).

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Pozen, Sunshine, Rancour and Bhat on Bazaarvoice

Posted by Sharis Pozen, Steve Sunshine, Joe Rancour, and Kiran Bhat

The parties closed the transaction in June 2012 without an HSR filing, as the deal’s value fell below statutory reporting thresholds. Days after the merger closed, the DOJ began a Section 7 investigation. On January 10, 2013, the DOJ filed suit seeking an injunction that would require Bazaarvoice to divest sufficient assets to create a new U.S. online product reviews and ratings platforms (R&R) competitor comparable to PowerReviews. The court found Bazaarvoice liable for violating Section 7, but left open consideration of the appropriate remedy for a later date.

In the opinion, the court used the 2010 Guidelines to define the relevant market and find a prima facie Section 7 violation. The court also relied primarily on the DOJ’s expert economist, whose testimony squared with the defendants’ premerger documents more than the testimony offered by the defendants’ own economist.

At trial, the parties attempted to argue that the deal had not been anti-competitive, offering depositions from 104 customers, testimony from numerous executives of both companies, and expert economic analysis in support.

The court found that in the R&R market, customers negotiate prices individually with an “idiosyncratic” understanding of the market and are therefore unlikely to have the appropriate view of the market needed to assess whether the merger is likely to have an anticompetitive effect on the overall market. The court credited the DOJ expert’s testimony that the deal likely would result in anticompetitive effects, suggesting that the customer testimony was not necessarily a valid proxy for the likelihood of competitive effects. The court also rejected Bazaarvoice’s citation to post-merger evidence as a means of showing that the merger had not been anticompetitive, noting that Bazaarvoice might have mitigated anticompetitive behavior in light of the DOJ’s investigation.

The court also rejected an alternative deal rationale that Bazaarvoice presented for the first time at trial, as well arguments that actual or prospective entrants would mitigate anticompetitive effects and that the deal’s consummation necessitated a different analytical framework than the traditional antitrust burden-shifting analysis. All the while, premerger documents contradicting the parties’ various trial defenses lurked in the background.


Following the DOJ’s 2011 trial success in United States v. H&R Block, Bazaarvoice represents the second litigated case resulting in a court decision that applied an analytical framework closely following the 2010 Guidelines. Both trial victories will serve as precedent against future Section 7 defendants.

The cases are somewhat different in terms of market dynamics and theories of harm — H&R Block involved a 3-to-2 merger and both coordinated and unilateral effects, while Bazaarvoice was litigated as a 2-to-1 merger and a unilateral effects theory of harm. However, the courts in both cases thoroughly applied the 2010 Guidelines throughout their analyses. In both decisions, the courts found a presumption of anticompetitive effects in accordance with the 2010 Guidelines and case law and used the 2010 Guidelines’ recommended framework for analyzing the competitive effects of mergers. Both courts also endorsed and credited the use of expert economic analysis to support findings of likely anticompetitive effects.

Bazaarvoice reflects the critical role business documents can play in Section 7 litigation.  During trial, the DOJ focused heavily on “hot documents,” and the court cited these documents throughout its opinion. Bazaarvoice’s expert testimony, purported rationale for the acquisition, and customer testimony could not overcome the implications of the premerger documents suggesting that PowerReviews was the only meaningful competitor to Bazaarvoice and that the deal would result in less competition.

The court’s focus on documentary evidence over the defendant’s economic testimony reflects a potential dichotomy between defending mergers in court and defending mergers before the antitrust agencies. The relative importance of economic analysis and observable market dynamics, compared to documentary evidence, may be greater at the DOJ than before federal courts. On the other hand, courts may tend to view documentary evidence as critical, particularly when the Government’s economic analysis validates documentary evidence and refutes the defendant’s economic testimony to the contrary. This potential difference between merger review at the agencies and merger review in court takes on increasing importance given the DOJ’s recent series of aggressive enforcement actions that derailed, delayed, or altered transactions without proceeding to trial: United States v. AT&T, Inc., United States v. Anheuser-Busch InBev SA/NV and United States v. U.S. Airways Group.

Bazaarvoice also reflects the willingness of the antitrust agencies to challenge consummated mergers that are not reportable under Hart-Scott-Rodino. Thus, notwithstanding the fact that a contemplated transaction does not meet the Hart-Scott-Rodino reporting thresholds, parties must be aware of the statements contained in their internal documents, particularly those that present the commercial rationale for the transaction.

Finally, the case presents a significant win for the DOJ in a dynamic, technology-based market. This is especially true given the DOJ’s loss at trial in its 2004 challenge to the Oracle/PeopleSoft transaction. The court acknowledged the debate surrounding the role of antitrust law in rapidly changing technology markets, but concluded that Bazaarvoice did not present evidence to show why the dynamic aspects of the market would prevent the merger’s anticompetitive effects.

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Pete Levitas on Bazaarvoice

Posted by Pete Levitas

1.       What does this mean about DOJ merger litigation strategy going forward

I think this decision should give DOJ some additional confidence about its merger strategy, especially in conjunction with the recent win in TaxAct.  It will reinforce the strategic value to be found in the general approach of highlighting bad company documents in the complaint and then building a story around those documents at trial. Of course, hot docs alone are not going to be enough to make out a case -- in American/US Air the complaint told the story very effectively through documents, but there are a lot of people who believe the settlement didn’t address the core of the complaint and that the (perceived) relative weakness of the settlement was a sign that the rest of the case couldn’t keep up with the documents.  

2.       What does this do to the development of an economics based merger law – is this a setback for economic analysis in favor of hot docs?

The court did spend what might be considered to be an unusual amount of time and energy on the documents and the economic analysis got a lot less ink, but it certainly wasn’t ignored.  Instead, the court seemed mostly to be of the mindset that in this instance, with very difficult-to-define markets and very limited data, economic analysis could only be called on to play a supporting role.  Whether or not that is true in this instance I wouldn’t interpret the decision to ring a death knell for economic analysis, even in high-tech markets.  I’d read it as more of a reminder that documents -- and these were particularly bad, and particularly voluminous -- can overwhelm a lot of the rest of the case, economics included.

3.       How do you counsel clients about merger risk post decision? 

Essentially the same way as before, but with a more colorful and more recent example to back it up. 

Most obviously, a 2 to 1 deal is likely to cause you problems, just like always.  Even if you are below the HSR threshold, a merger to monopoly is probably going to get some attention and when it does you need to have a very good explanation about why it isn’t anticompetitive.  Has the government incorrectly defined the market? Are there a lot of potential entrants ready to come in? Is there some very significant merger-specific efficiency that will get passed on to consumers and can only be obtained via this deal?

Another major takeaway, and also a point that has been made before, is to pay attention to how documents are prepared -- both during the merger negotiation process and before.  Make sure that people are careful that their emails and documents accurately reflect what they really mean to say, don’t use casual language that may be misinterpreted, don’t overhype the significance of a deal just because you are trying to get buy-in from decision-makers or the public.  And from a litigation risk point of view, once the documents exist don’t just assume that “bad” documents can be explained away at trial.  If your pre-merger documents say over and over again that the target was your primary competitor, you should plan on living with that description if and when you get to trial.

A final point is that being in a high-tech market doesn’t necessarily mean that you are going to be able to convince the fact-finder to define the product market broadly, or find that entry is easy.  Every future brief in a merger case filed by the agencies (or any other plaintiff) is going to cite this opinion for the proposition that the mere existence of Google and Facebook and other hi-tech giants does not mean that one should presume they are potential entrants into your specific corner of the market.   

4.       What are some of the high and low points of the decision?

Rather than critique the opinion as having high and low points, I thought I’d focus on highs and lows for each side. 

For the government there are not many lows and a lot of high points, including Judge Orrick’s steady use of the documents to support its decision.  The DOJ made a conscious decision to build the case around the documents and it clearly paid off.   In addition, the opinion makes it clear that traditional antitrust analysis can and will be applied in fast-moving high-tech markets -- that’s a point that the agencies make as often as they can, and Judge Orrick’s opinion will be more evidence to support it.  

For Bazaarvoice, the opinion doesn’t have a lot of high points, though the Court does seem to accept that Bazaarvoice in fact has a long-term goal of moving from R&R platforms to compete in the broader e-Commerce market.   The low points are numerous, including, of course, the fact that the Court almost uniformly dismissed the efforts of Bazaarvoice to explain the documents.  One other low point that bears mentioning as well is that the Judge was unimpressed by the lack of evidence regarding post-merger price increases. Bazaarvoice clearly hoped to gain some traction with the argument that customers were not harmed by this deal, but the Judge focused on the idea that since Bazaarvoice was aware of the DOJ investigation it could have manipulated its pricing; thus, he found that post-deal pricing evidence should essentially be ignored.  This approach has support in the case law, but one can imagine Bazaarvoice feeling a little bit stuck in a heads-I-win tails-you-lose scenario, because it is clear that if it had raised prices post-acquisition that would have been considered as evidence of anticompetitive effect.  

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Jim Fishkin on Bazaarvoice

Posted by Jim Fishkin

United States v. Bazaarvoice, Inc.[1] is a particularly important and highly complex case that raises issues regarding the application of merger analysis to high-tech industries, the importance of deal rationale documents, and the weight given to customer opinion testimony in merger cases.  Judge Orrick applied traditional merger analysis to determine that Bazaarvoice’s consummated acquisition of rival PowerReviews was anticompetitive and in violation of Section 7 of the Clayton Act.  Although this merger involves an evolving high-tech product – online platforms for product ratings and reviews (“R&R”) – Judge Orrick methodically utilized the same analytical tools that are applied to mergers in more traditional industries to find that Bazaarvoice and PowerReviews were each other’s closest competitor in a narrow, highly-concentrated product market with virtually no remaining competitors and entry barriers.  He also found that competition between the merging firms had resulted in lower prices.  Based on the totality of the evidence, Judge Orrick found that that the transaction would likely result in “significant anticompetitive unilateral effects.”[2]

In making his decision, Judge Orrick heavily focused on the “stark premerger evidence of anticompetitive intent”[3] for the acquisition even though he recognized that “intent is not an element of a Section 7 violation.”[4]  The evidence showed that the rationale for the deal from both parties, based on an extensive number of documents, was to enable the larger Bazaarvoice to eliminate its closest rival and raise prices.  The parties were unable to effectively explain or rebut their own documents using post-acquisition analysis.  Based on these premerger documents and other evidence, Judge Orrick concluded that “Bazaarvoice recognized that the acquisition of PowerReviews would eliminate its primary commercial competitor, allowing it to scoop up customers that it would otherwise have to expend $32 to $50 million to win over from PowerReviews, raise prices, and discourage any new competitive threats in its existing space while pivoting to a bigger opportunity through its control of UGS [user-generated-content] in the broader eCommerce market.”[5] 

In a painstakingly detailed 141-page opinion, Judge Orrick rejected Bazaarvoice’s arguments that there were many other strong firms in the same R&R market and that the relevant product market was broader.  He also rejected Bazaarvoice’s assertion that firms like Amazon, Google, Salesforce, Facebook, and Oracle, with the alleged necessary technology, reputation and relationships with retailers and manufacturers, would become rapid entrants into R&R.  Bazaarvoice provided “no reason why those firms would enter the market” particularly when “[t]here was no evidence that any company had made even preliminary analyses of the viability of joining the market.”[6]  Judge Orrick also rejected Bazaarvoice’s alleged substantial efficiencies claims since they were not cognizable and merger-specific. 

Judge Orrick entirely discounted Bazaarvoice’s post-merger evidence, particularly since the Department of Justice opened its investigation two days after the merger closed.  Judge Orrick gave no weight to claims by Bazaarvoice that the merger had not resulted in price increases because “[t]he post-acquisition evidence regarding pricing and the effect of the merger is reasonably viewed as manipulatable and is entitled to little weight.”[7]  He also cited to Section 2.1.1 the Horizontal Merger Guidelines for the point that “a consummated merger may be anticompetitive even if such effects have not yet been observed, perhaps because the merged firm may be aware of the possibility of post-merger antitrust review and moderating its conduct.”[8]  He further warned that “[i]f a court incorrectly relies on post-merger testimony that a merged entity has not raised prices and the court blesses the transaction, there is little to prevent the merged entity from creating anticompetitive effects at a later time.”[9]

Significantly, Judge Orrick totally discounted opinions from more than 100 current, former, and potential customers that the merger has not and would not harm them.  Judge Orrick credited the testimony of customers “on their need for, use of and substitutability of social commerce products as well as regarding their companies’ past responses to price increases.”[10]  But he rejected customer opinions about the likely effects of the merger because he thought that customers “generally do not engage in a specific analysis of the effects of a merger. . . .  Many of them had given no thought to the effect of the merger or had no opinion.  They lacked the same information about the merger presented in court, including from the economic experts.  Their testimony on the impact and likely effect of the merger was speculative at best and is entitled to virtually no weight.”[11]  Judge Orrick further stated that the “complexity of the economic and legal issues in antitrust actions warrants affording limited value to lay testimony regarding the effects of the merger.”[12]

The rejection of customer opinions (i.e., lay testimony) by Judge Orrick is consistent with Section 2.2.2 of the Horizontal Merger Guidelines.  Section 2.2.2 says that customers “can provide valuable information about the impact of historical events such as entry by a new supplier.”  At the same time, Section 2.2.2 states that “conclusions” about the likely impact of the merger are limited to “well-informed and sophisticated customers,” which apparently did not exist in the view of Judge Orrick.

In applying traditional merger analysis, Judge Orrick frequently cited to the 2010 Horizontal Merger Guidelines, although he largely followed the step-by-step structural market analysis outlined in the 1992 Horizontal Merger Guidelines.  To further support his opinion, he cited landmark merger cases where the government had prevailed, including United States v. Philadelphia National Bank, United States v. Brown Shoe Co., FTC v. Staples, Inc., FTC v. H.J. Heinz Co., and United States v. H&R Block, Inc., and he distinguished cases cited by Bazaarvoice where either the government or the private party lost, including United States v. Baker Hughes, Inc., Rebel Oil Co., Inc. v. Atlantic Richfield Co., Inc., and United States v. Oracle Corp.

At the same time, Judge Orrick clearly recognized that he was applying traditional merger analysis to a high-tech merger where the broader “social commerce industry is at an early stage of development, rapidly evolving, fragmented, and subject to potential disruption by technological innovations” and that “the future composition of the industry as a whole is unpredictable.”[13]  Nevertheless, after evaluating all of the evidence presented at trial, Judge Orrick concluded that:

The fact that social commerce and eCommerce tastes and products are developing and constantly changing does not diminish the applicability of the antitrust laws—they apply in full force in any market.  There is no antitrust exemption that allows the market-leading company in a highly concentrated market to buy its closest competitor, even with the evolving social commerce space, when the effect is likely to be anticompetitive.[14]

Judge Orrick concluded his decision by stating that “while Bazaarvoice indisputably operates in a dynamic and evolving field, it did not present evidence that the evolving nature of the market itself precludes the merger’s likely anticompetitive effects.”[15]

There are four key takeaways from the Bazzarvoice opinion.  First, acquiring parties need to be cognizant of antitrust risk in non-reportable deals.  Second, deal rationale documents carry significant weight and should not be underestimated.  Third, customer opinions, while important to Agencies in merger investigations, may have limited value at trial.  Finally, mergers in evolving, high-tech industries may not receive any extra leeway in merger trials.

Key Points From the Bazaarvoice Decision

1.  Acquiring parties need to evaluate antitrust risk in non-reportable deals. 

Parties to non-reportable mergers must be aware that mergers with competitors may be investigated and they should account for this possibility, as well as a risk of divestiture, in their risk analysis.  With victories like Bazaarvoice, the Agencies will continue to investigate non-reportable consummated mergers, and if necessary, litigate them.

2.   Deal rationale documents should never be underestimated.

Deal rationale documents matter greatly to the government and to judges.  In reportable transactions, the deal rationale documents are included in an HSR filing in response to items 4(c) and 4(d).  For investigations of non-reportable transactions, similar deal rationale documents are almost always the Agencies’ first request.   Parties contemplating mergers, either reportable or non-reportable, should be on notice that the initial impressions of the lawyers working on a matter are frequently formed by the discussions in the deal rationale documents.  Parties need to be able to explain the contents of “bad documents.”

3.  Customer opinions may have limited value in court but the Agencies give them weight in investigations.

A key issue in Judge Orrick’s decision was his decision not to credit opinion testimony from the more than 100 customers who did not believe that the acquisition had harmed or would harm them.  Judge Orrick discredited customer opinions because “it was speculative at best and is entitled to virtually no weight.”[16]  This is not the first time courts have discredited customer testimony.  For example, in a pre-trial motion in FTC v. H.J. Heinz Co., the court granted the FTC’s motion to exclude from the record customers’ lay opinions on the merger.  And, in United States v. Oracle Corp., the court also dismissed customer views regarding likely competitive effects – in this case, views by government witnesses.  Nevertheless, customer views during an investigation have great weight on the Agencies and frequently affect the decision to file a complaint.

4.  Mergers in rapidly changing, high-tech markets are not immune from antitrust enforcement and are analyzed similarly to other mergers.

No one should really be surprised that the government will investigate mergers involving products in a high-tech industry utilizing the same Horizontal Merger Guidelines that apply to all merger investigations regardless of the industry.  Although high-tech industries generally are changing rapidly, the details are still fact specific for each merger and the government is focused on near term changes (e.g., entry within about a two year time frame), not long term changes over many years.  For example, in late 2001, the FTC was prepared to challenge the merger between Monster and HotJobs!, at the time the two largest online job search firms, even though the parties claimed the industry was rapidly evolving.  And using the same investigative tools, the FTC approved Monster’s acquisition of HotJobs! in 2010 due to significantly changed market conditions.


[1] United States v. Bazaarvoice, Inc., No. 13-cv-00133-WHO, slip op. (N.D. Cal. Jan. 8, 2014).

[2]  Id. at 102. 

[3]  Id. at 10.

[4]  Id. at 21.

[5]  Id. at 21.

[6]  Id. at 133.

[7]  Id. at 108.

[8]  Id. at 136.

[9]  Id.

[10]  Id. at 116.

[11]  Id.

[12]  Id. at 137.

[13]  Id. at 19-20.

[14]  Id. at 133.

[15]  Id. at 141.

[16]  Id. at 116.

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Bazaarvoice Symposium today

I have assembled an All-Star cast to discuss the recent 141 page Bazaarvoice merger decision in which DOJ prevailed against the merging parties.

Guest blogging will be:

  • Franco Castelli, Wachtell, Lipton, Rosen & Katz
  • Michael Cohen, Paul Hastings
  • Tom Dillickrath, BakerBotts
  • Jim Fishkin, Dechert
  • Bill Kolasky, Hughes Hubbard
  • Pete Levitas, Arnold & Porter
  • Sharis Pozen, Steve Sunshine, Joe Rancour and Kiran Bhat, Skadden
  • Dave Wales, Jones Day
  • Tim Muris & Christine Wilson, Kirkland & Ellis
  • Paul Yde, Freshfields

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)


Justus Baron, Northwestern University, Searle Center on Law, Regulation, and Economic Growth; Sciences Po Paris, Department of Economics and Tim Pohlmann, Mines ParisTech, Cerna, Centre d'économie industrielle; and Berlin University of Technology ask WHO COOPERATES IN STANDARDS CONSORTIA—RIVALS OR COMPLEMENTORS?

Abstract: Formal standard development is increasingly supplemented by standards consortia: informal and less inclusive alliances, in which firms coordinate standard-related research and development (“R&D”) and streamline standard development. In order to cast light on the economic function of these consortia, this article provides empirical evidence on the standards related to informal consortia, and on the R&D contributions of members and outsiders. We find that standards related to consortia are characterized by a more fragmented ownership of intellectual property rights (“IPR”) and a strong degree of technological rivalry. We also find that among the firms contributing to a standard, technological specialists are less likely to be member of a consortium. Companies are more likely to be members of the same consortium with companies specializing in R&D that is substitutable rather than complementary to their own patent portfolio. One possible interpretation of these findings is that a main benefit of standards consortia is to reduce the cost of standard development by eliminating wasteful R&D duplication and settling conflicts of interest upfront to formal standardization.

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)



ABSTRACT: Defining the circumstances in which the licensing conduct or litigation strategy of a standard-essential patent (SEP) holder amounts to an abuse of a dominant position in breach of Article 102 of the Treaty has been one of the most intractable issues for the European Commission given the significance of the interests at stake and the diversity of opinions among stakeholders. Although the Commission has spent most of the past ten years investigating alleged abuses committed by SEP holders, many issues, such as the meaning of FRAND and the compatibility with Article 102 of injunctions sought by SEP holders to enforce their patents, remain unresolved given the lack of clear precedents. This article provides a critical review of the main investigations carried out by the Commission over the past decade, including pending cases before the Commission and the European Court of Justice.

January 27, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, January 24, 2014

Ex-Post Merger Review and Divestitures

Richard Friberg, Stockholm School of Economics - Department of Economics and Andre Romahn, University of Navarra, IESE Business School discuss Ex-Post Merger Review and Divestitures.

Abstract: Divestitures have received little attention in ex-post evaluations of mergers. In partial remedy we simulate the effects of the Carlsberg-Pripps merger in the Swedish beer market and compare the predicted outcomes with those observed ex-post. There are no important price increases following the merger and prices of divested beers fell. Our merger simulations, that are based on a random coefficients logit model, capture these pricing patterns and suggest that the divestitures were important in limiting price increases. Knowledge of the retailer's markup rules allows us to discard retailer behavior as an explanation for the pricing patterns.

January 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Roundtable of Experts to Discuss Bazaarvoice Decision - January 27, 2014 (Monday)

I have assembled an All-Star cast to discuss the recent 141 page Bazaarvoice merger decision in which DOJ prevailed against the merging parties. 

Guest blogging will be:

  • Franco Castelli, Wachtell, Lipton, Rosen & Katz
  • Michael Cohen, Paul Hastings
  • Tom Dillickrath, BakerBotts
  • Jim Fishkin, Dechert
  • Bill Kolasky, Hughes Hubbard
  • Pete Levitas, Arnold & Porter
  • Sharis Pozen, Skadden
  • Dave Wales, Jones Day
  • Christine Wilson, Kirkland & Ellis
  • Paul Yde, Freshfields

Tune in Monday for amazing insights.

January 24, 2014 | Permalink | Comments (0) | TrackBack (0)


Jose Manuel Ordonez-de-Haro (University of Malaga) and Jose Luis Torres (University of Malaga) describe PRICE HYSTERESIS AFTER ANTITRUST ENFORCEMENT: EVIDENCE FROM SPANISH FOOD MARKETS.

ABSTRACT: This article provides additional empirical evidence regarding the effects of antitrust enforcement on consumer prices in prosecuted markets. We focus on the effect of the Spanish Competition Authority investigation and prosecution of several Spanish food associations for alleged collective price recommendations against the Spanish Competition Act by analyzing the subsequent price behavior for their respective products. The results show that antitrust enforcement may lead to a reduction in food price volatility and, in some cases, may even cause long periods of price rigidity in the concerned markets. We consider that observed hysteresis in prices may be due to the disruption of the mechanism played by associations in the transmission of information about how to pass on the cost shocks to their customers or, importantly, to the change in pricing behavior by keeping prices above competitive levels, but stable enough to minimize the risk of another antitrust intervention. This strategic conduct would be in line with the findings in the theoretical literature about collusion in the presence of competition authorities.

January 24, 2014 | Permalink | Comments (0) | TrackBack (0)


J. Gregory Sidak, Criterion Economics, LLC theorizes about THE MEANING OF FRAND, PART I: ROYALTIES.

ABSTRACT: What does it mean for a patent holder to commit to a standard-setting organization (SSO) to license its standard-essential patents (SEPs) on fair, reasonable, and nondiscriminatory (FRAND) terms? When is a royalty FRAND? Drawing from both legal theory and economic theory, I propose an interpretation of FRAND that distinguishes and reconciles the conflicting definitions of FRAND and provides courts a practical approach to identifying FRAND royalties. A proper understanding of a FRAND royalty requires recognizing the combinatorial value of standard-essential patents. That recognition reveals the fallacy in attempting to apply the “ex ante incremental value” rule to the determination of a FRAND royalty. FRAND royalties divide the aggregate royalties generated by the standard among the holders of patents essential to the standard. Such a division should maximize the surplus resulting from the standard's creation. It must also satisfy an individual-rationality constraint for the patent holder and the licensee, thereby encouraging continued participation in the setting and implementation of open standards, as opposed to greater reliance on proprietary standards.

January 24, 2014 | Permalink | Comments (0) | TrackBack (0)

Thursday, January 23, 2014

At the Intersection of Antitrust & High-Tech: Opportunities for Constructive Engagement

Mergers that Increase Bargaining Leverage

Aviv Nevo (DOJ) has a new speech on Mergers that Increase Bargaining Leverage.

January 23, 2014 | Permalink | Comments (0) | TrackBack (0)

OECD Competition Assessment Review: Greece

Mergers in Banking from an Antitrust Perspective

Barbara Chizzolini, Bocconi University - Department of Economics analyzes Mergers in Banking from an Antitrust Perspective.

ABSTRACT: This paper analyses the relation between competition and concentration in a monopolistic competition model where banks compete in branching and interest rates and where M&As as well as the overall market structure are endogenously determined. The model is tested on data on Bank Groups, collected in 2007 when several mergers occurred in Italy. The estimates of the empirical model yield measures of the degree of competition in local markets in Italy, as well as measures of the implicit value of a branch traded in M&A operations both by bank involved in the merger and by local market. The paper finds that competition did decrease following two mergers among the biggest Italian Banks, but that with later mergers competition was more or less returned to the 2006 degree of toughness. In addition it results that the acquisition cost of a traded branch tends to be lower than the profit it can generate. These measures may be relevant in antitrust analyses and for competition policy purposes, and they are extremely parsimonious in terms of data requirements.

January 23, 2014 | Permalink | Comments (0) | TrackBack (0)

Services of General Economic Interest and State Measures Affecting Competition

Erika Szyszczak (University of Sussex) discusses Services of General Economic Interest and State Measures Affecting Competition.

ABSTRACT: •The last year has been a typical year in this survey of Services of General Economic Interest (SGEI) and state measures affecting competition where the report is a series of ad hoc measures relating to SGEI. •Two new soft communications have been published to complement the Almunia Package of measures to regulate compensation for SGEI: a European Commission instrument to determine swap rates and a Commission Staff Working Paper. •There are a few European Commission Decisions, particularly in the postal sector, involving financing SGEI that fall outside of the new Almunia Package, but are assessed according to the new methodological approach. •The General Court (GC) has asked the European Commission to take greater care to analyse the funding of ancillary services to health care schemes; a rebuke that is also seen in applying Article 106 TFEU in the Greek Lignite case. •Of a wider significance for European Union (EU) economic law, the Court of Justice of the EU (CJEU) and the European Commission have provided analysis of the definition of ‘economic activity’ which triggers the application of EU law generally. •Two cases have considered the application of Article 106 TFEU, with the GC providing greater analysis of when, and how, Articles 106 and 102 TFEU may be used together.

January 23, 2014 | Permalink | Comments (0) | TrackBack (0)