Monday, January 27, 2014

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.

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