Monday, January 27, 2014
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.