Two recent enforcement actions by the US Federal Trade Commission (FTC) and the US Department of Justice’s Antitrust Division (DOJ) reinforce the willingness of the federal antitrust authorities to challenge consummated mergers. These cases also highlight differences between the enforcement mechanisms used by the two federal enforcers.
FTC Initial Decision in Polypore International, Inc.
On March 1, 2010, an FTC Administrative Law Judge issued an initial decision in Polypore International, Inc., Dkt. No. 9327 (Compl. filed Sept. 9, 2008) ordering total divestiture in a consummated merger case involving battery separator manufacturers.
The FTC’s Complaint alleged that Daramic Acquisition Corporation’s February 2008 acquisition of Microporous Holding Corporation for $76 million dollars created a monopoly for certain types of battery separators: (i) deep-cycle, (ii) motive, (iii) automotive, and (iv) uninterruptible power supply stationary (UPS).
According to the ALJ, in three of these four markets, Microporous and Daramic were each others’ closest competitors: prior to the acquisition, the two companies collectively comprised 100% of sales in the deep-cycle and motive markets, and Microporous’ projected entry into the UPS market would have constrained Daramic, the only market participant. Finally, the ALJ found that Microporous was a competitive threat in the automotive market because Microporous had the ability to manufacture separators and had expressed its intention to supply them.
The Complaint, which alleged a substantial lessening of competition and monopolization, also attacked a joint marketing agreement prohibiting Daramic and a potential competitor from marketing competing battery separators. According to the Complaint, the agreement blocked a potential entrant from the market in violation of Section 5 of the FTC Act.
While the ALJ did not find evidence of monopolistic conduct, he held that the acquisition substantially lessened competition in violation of Section 7 of the Clayton Act and that the non-compete provisions of the joint marketing agreement were unfair methods of competition under Section 5 of the FTC Act. The ALJ’s Initial Decision requires complete divestiture of Microporous and invalidation of the agreement.
DOJ Consent in United States v. Election Sys. & Software, Inc.
On March 8, 2010, the Antitrust Division, along with the attorneys general of nine states, filed a Complaint alleging that the $5 million acquisition of Premier Election Solutions, Inc. (Premier) by Election Systems and Software, Inc. (ES&S) would lead to higher prices, lower quality and less innovation in the market for voting equipment systems. Case No. 1:10-cv-380 (D.D.C. filed Mar. 8, 2010). The parties executed the acquisition agreement on September 2, 2009, and closed the transaction that same day.
The DOJ’s Complaint alleged that ES&S and Premier were the two largest providers of voting equipment systems in the United States, with a combined market share of about 70 percent. According to the DOJ, the acquisition eliminated Premier as ES&S’s chief rival in the marketplace. Both companies possessed preferred certifications as well as a significant base of installed equipment. Moreover, each company offered a complete suite of products, which allowed them to provide superior service to customers and made it difficult for potential entrants and existing competitors to compete.
The parties agreed to settle the Complaint and entered into a proposed judgment requiring ES&S to divest intellectual property rights and other intangible assets relating to Premier’s, and certain of ES&S’s, voting equipment systems, as well as assets relating to the production, assembly and maintenance of those products, and inventory and spare parts.
Lessons Learned From the Two Cases
These cases highlight several important issues:
- The antitrust authorities can investigate and challenge a transaction even if the transaction does not require notification under the Hart-Scott-Rodino Act. This means that counsel should always consider the antitrust implications of a transaction, regardless of its size.
- Several state attorneys general have active antitrust departments that will investigate transactions that they perceive to be anticompetitive.
- The antitrust authorities will consider the impact of acquiring potential entrants to a market when evaluating the anticompetitive effects of a merger.
- At the federal level, there are differences in how the FTC and the Antitrust Division can challenge a transaction. The Antitrust Division must pursue a case in federal court, while the FTC can bring a case in administrative court and create a record of proceedings, even if the transaction has already been consummated.