Monday, January 27, 2014
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.