On Friday, November 7, 2014, two companies agreed to pay $4.95 million to settle U.S. Department of Justice (DOJ) allegations that the companies failed to observe the antitrust waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”) and entered into an illegal agreement to allocate customers in violation of Section 1 of the Sherman Act.
The companies, Flakeboard America Limited and SierraPine Limited, are sellers of particleboard, an unfinished wood product widely used in countertops, shelving and other finished products. They entered into an agreement on January 13, 2014, for Flakeboard to acquire three mills from SierraPine for $107 million, with the intention that Flakeboard would close down one of the plants after obtaining antitrust clearance. The companies made HSR filings with the antitrust agencies. The DOJ issued a Second Request to further investigate the competitive impact of the transaction, which eventually led to the companies abandoning the proposed transaction on September 30, 2014.
During the waiting period, however, a labor dispute arose that required public disclosure of the planned mill closing. This, in turn, allegedly led to the company coordinating its closure of the mill on March 13, 2014, and migration of the mill’s customers to Flakeboard. According to the DOJ Competitive Impact Statement, SierraPine provided Flakeboard with competitively sensitive information, including customer lists, contact information and purchase order history, which was shared with Flakeboard’s sales employees. The companies coordinated the public announcement of the mill’s closure and instructed SierraPine’s sales employees to notify customers that Flakeboard sought their business and would match the existing price terms. Flakeboard also offered assurances of future employment to key SierraPine sales employees for directing the mill’s customers to Flakeboard.
The DOJ viewed the conduct as a per se illegal agreement between competitors to reduce output and allocate customers in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and a premature transfer of ownership before expiration of the waiting period in violation of Section 7A of the Clayton Act, 15 U.S.C. § 18a. The consent decree requires the companies to each pay $1.9 million in civil penalties and Flakeboard to disgorge profits earned as a result of the closing of SierraPine’s mill during the antitrust waiting period (approximately $1.15 million). The civil penalty amounts were reduced from the maximum of $3.568 million for cooperation with the investigation and voluntary production of evidence. This included entering into a timing agreement to complete production and allocating time for the DOJ to complete their investigation despite the accrual of civil penalties of up to an additional $16,000 per day for being in continuous violation of the HSR Act (pursuant to 7A(g)(1) of the Clayton Act, 15 U.S.C. § 18a(g)(1)).