Civil Program Update 2015
Civil Program Update 2015
The Antitrust Division’s civil enforcement program won important victories in its efforts to protect consumers and promote competition. Highlights over the past year include:
Increasing credit card competition: The Division and plaintiff States’ long-running challenge to American Express’s “antisteering” rules culminated in the district court’s ruling on February 19, 2015, that the challenged rules violated Section 1 of the Sherman Act.
Blocking anticompetitive mergers: The Division blocked or modified anticompetitive mergers in a wide range of industries, including a contested challenge to the merger of National CineMedia and Screenvision, the only two significant cinema advertising networks in the United States, which the parties abandoned just weeks before trial.
Securing procompetitive settlements: The Division reached favorable settlements after litigating to unwind the Bazaarvoice-PowerReviews merger, remedy the anticompetitive effects of the Twin America sightseeing bus joint venture, and put an end to eBay’s “no poach” agreements with Intuit. The Bazaarvoice settlement followed the Division’s January 2014 trial victory; the Twin America and eBay settlements came after the defendants agreed to settlements that redressed their anticompetitive behavior.
Disgorging ill-gotten gains: The Division has continued to secure disgorgement where appropriate to prevent antitrust violators from profiting from their illegal activities. In the Twin America settlement, the Division forced the defendants to disgorge $7.5 million in ill-gotten profits the defendants obtained as a result of their anticompetitive price increases. And in Flakeboard-SierraPine, the Division required Flakeboard to disgorge $1.15 million in profits secured as a result of improper premerger coordination with SierraPine that led to the closure of a SierraPine mill and the diversion of the mill’s customers to Flakeboard during the Hart-Scott-Rodino Act (HSR) waiting period.
Enforcing the HSR Act: The Division successfully pursued multiple violations of the HSR Act of 1976, obtaining the second-largest civil penalty for “gun jumping” in Division history in Flakeboard-SierraPine and, at the request of the Federal Trade Commission, enforcing a $896,000 civil penalty against Berkshire Hathaway for failure to comply with the HSR Act’s notification requirements.
Blocking Anticompetitive Mergers
The Division responded to increased merger activity with vigorous enforcement efforts to protect competition in a wide range of markets. Overall, HSR Act premerger notifications rose from 1,326 in FY 2013 to 1,663 in FY 2014 and, over the last year, the Division challenged, restructured, or saw the abandonment of 20 proposed transactions.
On November 3, 2014, the Division filed a civil suit to block National CineMedia, Inc.’s (NCM) $375 million acquisition of Screenvision, LLC. On March 16, 2015, shortly before trial, the Division announced that the parties were abandoning the transaction. The Division’s complaint alleged that the acquisition would combine the only two significant cinema advertising networks in the United States, creating an unlawful monopoly that would eliminate competition that had benefited movie theaters, advertisers, and moviegoers.
Cinema advertising networks are intermediaries between movie theaters and advertisers. The networks create “preshows”—20 to 30 minute programs combining advertisements with special content—which movie theaters play prior to the start of each movie. The cinema advertising networks and movie theaters share the advertising revenue based on the specific financial terms of each theater’s contract. According to the Division’s complaint, NCM and Screenvision collectively serve 88 percent of all movie theater screens in the United States through long-term, exclusive contracts. In recent years, Screenvision had become a particularly aggressive competitor, increasing its efforts to steal business from NCM by reducing prices to advertisers and offering incentives to theaters.
The parties’ decision to abandon the merger in the face of the Division’s lawsuit will ensure that movie theaters and advertisers are not deprived of options for cinema advertising network services and that moviegoers do not face higher prices caused by a merger to monopoly.
On December 31, 2014, the Division filed a civil suit to block Verso Paper Corp.’s acquisition of NewPage Holdings Inc. The Division simultaneously filed a proposed settlement requiring Verso to divest NewPage mills in Maine and Wisconsin before proceeding with the acquisition. Without the divestitures, the transaction would have significantly increased concentration and likely resulted in higher prices in several coated paper markets in the United States and Canada. The proposed settlement provides Catalyst Paper Corp. or an alternative buyer acceptable to the United States with two NewPage mills that have approximately the same amount of production as Verso was operating at the time of the lawsuit.
Tyson Foods/Hillshire Brands
On August 27, 2014, the Division and the States of Illinois, Iowa, and Missouri filed a civil suit to block Tyson Foods, Inc.’s $8.5 billion acquisition of the Hillshire Brands Company. The Division simultaneously filed a proposed settlement, which has been approved by the court, requiring Tyson to divest Heinhold Hog Markets, its sow purchasing business, to an independent buyer approved by the United States. Without the divestiture, the transaction would have combined companies that account for more than a third of sow purchases from U.S. farmers, resulting in a likely reduction of competition for purchases of sows from farmers.
On November 26, 2014, the Division filed a civil suit to block Nexstar Broadcast Group Inc.’s $270 million acquisition of Communications Corporation of America. The Division simultaneously filed a proposed settlement, which has been approved by the court, requiring the parties to divest their interests in WEVV-TV, a CBS and FOX affiliate in Evansville, Indiana, to Bayou City Broadcasting Evansville, Inc. Without the divestiture, Nexstar would have owned or controlled three TV stations, including three of the four major broadcast network affiliations, in Evansville, giving it a dominant position in Evansville’s broadcast spot advertising market.
Continental AG/Veyance Technologies
On December 11, 2014, the Division filed a civil suit to block Continental AG’s $1.8 billion acquisition of Veyance Technologies, Inc., along with a proposed settlement requiring Continental to divest Veyance’s North American commercial vehicle air springs business to an independent buyer acceptable to the United States. The Division’s lawsuit alleged that the proposed acquisition would have reduced the number of suppliers of air springs to North American commercial vehicle manufacturers from three to two, facilitating anticompetitive coordination between the two remaining suppliers and risking price increases and service quality reductions to original equipment manufacturers. The acquisition would also have reduced the number of significant suppliers of replacement air springs to commercial vehicle owners, which likely would have lessened competition in the North American aftermarket for commercial vehicle air springs.
Under the settlement, which has been approved by the court, Continental must divest Veyance’s air spring manufacturing and assembly facilities in San Luis Potosi, Mexico; research, development, engineering, and administrative assets in Fairlawn, Ohio; and certain other tangible and intangible assets. The Division worked closely with competition authorities from Canada, Brazil, and Mexico throughout its investigation, as discussed in more detail in the International Program Update.
Ardent Mills JV
On May 20, 2014, the Division filed a civil suit to block the formation of Ardent Mills, a flour milling joint venture between ConAgra Foods, Inc., Cargill Inc., CHS Inc., and Horizon Milling LLC. The Division simultaneously filed a proposed settlement, which has been approved by the court, requiring the parties to divest mills in four states to Miller Milling Company LLC and prohibiting the companies from engaging in certain information exchanges relating to wheat purchases and customer use. The settlement will preserve flour milling competition in the four regions surrounding the divested mills, ensuring more competitive prices for wheat flour purchasers and for consumers who purchase wheat flour-based products, such as bread, cookies, and crackers.
On March 13, 2015, the Division filed a civil suit to block Waste Management Inc.’s acquisition of Deffenbaugh Disposal Inc. The Division simultaneously filed a proposed settlement requiring the parties to divest small container commercial waste service routes in three local markets in Kansas and Arkansas. Without the divestitures, the acquisition would have likely resulted in higher prices for small container waste collection service in these markets.
On July 15, 2014, the Division and the Commonwealth of Pennsylvania filed a civil suit to block Sinclair Broadcast Group’s $963 million acquisition of Perpetual Corp., along with a proposed settlement, which has been approved by the court, requiring the parties to divest their interests in WHTM-TV, an ABC affiliate in Harrisburg, Pennsylvania, to Media General. Without the divestiture, Sinclair would have owned or controlled three of the six broadcast television stations in the Harrisburg-Lancaster-Lebanon-York designated market area, likely resulting in increased prices for broadcast television spot advertising in parts of central Pennsylvania.
On July 30, 2014, the Division filed a civil suit to block Landmark Aviation’s $330 million acquisition of Ross Aviation. At the same time, the Division filed a proposed settlement, which has been approved by the court, requiring Landmark to divest fixed base operator assets (FBOs) used to provide flight support services to general aviation customers at Scottsdale Municipal Airport to Signature Flight Support Corp. Without the divestiture, Landmark would have obtained a monopoly over the provision of FBO services at the airport, likely resulting in higher prices and lower quality services to general aviation customers.
Martin Marietta/Texas Industries
On June 26, 2014, the Division and the State of Texas filed a civil suit to block Martin Marietta Materials Inc.’s $2.7 billion acquisition of Texas Industries Inc. The Division simultaneously filed a proposed settlement, which has been approved by the court, requiring Martin Marietta to divest an Oklahoma quarry and two Texas rail yards to an independent buyer acceptable to the United States. Without the divestiture, the acquisition would have combined two of the only three suppliers of aggregate (crushed stone) that has been approved for use by the Texas Department of Transportation (DOT), resulting in harm to customers handling DOT projects in the Dallas metropolitan area.
Media General/LIN Media
On October 30, 2014, the Division filed suit to block Media General Inc.’s $1.5 billion acquisition of LIN Media LLC. At the same time, the Division filed a proposed settlement, which has been approved by the court, requiring the parties to divest interests in television stations in Birmingham, Alabama; Savannah, Georgia; the Mobile, Alabama/Pensacola, Florida designated market area (DMA); and the Providence, Rhode Island/New Bedford, Massachusetts DMA, to Sinclair Broadcast Group Inc., Hearst Television, Inc., and Meredith Corporation. Without the divestitures, prices for broadcast spot advertising would likely have increased in each of these markets.
Several anticompetitive mergers were abandoned after the Division indicated that it would challenge them in court, including:
Louisiana-Pacific/Ainsworth: On May 14, 2014, the Division announced that Louisiana-Pacific Corp. (LP) had abandoned its planned acquisition of Ainsworth Lumber Co. Ltd. after the Division had expressed concerns about the transaction’s likely anticompetitive effects in the market for the production of oriented strand board (OSB) sold to customers in the Pacific Northwest and Upper Midwest. The proposed merger would have given the combined firm a 63 percent market share in the Pacific Northwest and a 55 percent market share in the Upper Midwest, enabling LP to better target its customers in these areas for price increases. The proposed transaction also raised the concern that by gaining control over Ainsworth, LP would be better positioned to restrict OSB supply in these regions, and to coordinate output and price decisions with its few remaining principal competitors. The Division closely coordinated its investigation with the merger review conducted by Canada’s Competition Bureau.
Flakeboard/SierraPine: On October 1, 2014, the Division announced that Flakeboard America Ltd. had abandoned its planned acquisition of one medium-density fiberboard (MDF) and two particleboard mills from SierraPine after the Department of Justice expressed concerns about the transaction’s likely anticompetitive effects in the market for the production of MDF sold to customers in California, Oregon, and Washington. The proposed merger would have given the combined firm a 58 percent market share for the thicker and denser grades of MDF that Flakeboard and SierraPine sell on the West Coast, positioning Flakeboard to raise prices to West Coast customers by restricting the amount of MDF available. The transaction also raised concerns of possible postmerger coordination on output and prices between Flakeboard and its few remaining rivals. The Division also obtained disgorgement and civil penalties under Section 1 of the Sherman Act and Section 7A of the HSR Act, respectively, to redress the parties’ illegal premerger coordination.
- Embarcadero/CA Inc.: On November 5, 2014, the Division announced that Embarcadero Technologies Inc. had abandoned its proposed acquisition of CA Inc.’s ERwin data modeling product suite after the Division expressed concerns about the transaction’s potential for anticompetitive effects in the market for data modeling software. Embarcadero’s ER Studio products and CA’s ERwin Data Modeler had been particularly close competitors prior to the proposed acquisition.
Securing Procompetitive Settlements
In addition to its trial victory against American Express, the Division achieved settlements to restore competition and benefit consumers in several litigated cases.
Twin America Joint Venture
In December 2012, the Division and the State of New York filed a civil suit against Coach USA, Inc., CitySights LLC, and their “hop-on, hop-off” bus tour joint venture, Twin America, LLC, challenging the March 2009 formation of Twin America, which combined the operations of the only two major “hop-on, hop-off” bus tour companies in New York City. The Division’s lawsuit asserted that the formation of Twin America gave the companies a monopoly over the market and enabled them to raise prices to consumers by approximately 10 percent.
On March 16, 2015, following discovery and the filing of dispositive motions, and with the case nearing trial, the Division reached a settlement with the defendants that requires Twin America to divest City Sights’s full set of approximately 50 Manhattan bus stop authorizations to the New York City Department of Transportation so that rival firms can obtain needed access to bus stops at key tourist attractions and neighborhoods. As alleged in the complaint, the inability of recent hop-on, hop-off entrants to secure bus stop authorizations at top tourist attractions and neighborhoods has impeded their ability to meaningfully compete with Twin America.
In addition to the divestiture, the settlement requires the defendants to disgorge $7.5 million in illegal profits they obtained from their formation of Twin America. In a separate but related filing, Coach USA has further agreed to reimburse the United States for $250,000 in attorney’s fees and costs incurred in connection with the Division’s investigation of whether Coach USA spoliated evidence and failed to meet its document preservation obligations.
In January 2014, the Division prevailed in its challenge to Bazaarvoice Inc.’s acquisition of PowerReviews Inc., when the district court ruled, following a three-week trial, that Bazaarvoice had violated Section 7 of the Clayton Act by purchasing its closest and only serious competitor.
On April 24, 2014, the Division reached a settlement with Bazaarvoice Inc. to address the anticompetitive effects of the June 2012 acquisition. The settlement, which has been approved by the court, required Bazaarvoice to sell PowerReviews to a divestiture buyer and provide syndication services to the buyer for four years so that the buyer could develop its own customer base and syndication network. In addition, the settlement required Bazaarvoice to waive breach of contract claims against its customers so they could switch to the divestiture buyer without penalty and also waive trade-secret restrictions for any employees who were hired by the divestiture buyer, enabling the buyer to leverage Bazaarvoice’s postmerger research and development efforts.
In July 2014, Bazaarvoice completed the sale of PowerReviews to Viewpoints, Inc., and agreed to appoint an internal compliance officer to oversee compliance with the proposed final judgment following concerns expressed by the United States that Bazaarvoice was improperly continuing to use PowerReviews technology that it was required to divest. Bazaarvoice recently noted in public filings that the divestiture has led to increased competition, including increased price-based competition.
eBay “No-Poach” Agreements
In November 2012, the Division filed a civil suit to challenge eBay’s agreement not to recruit or hire employees from Intuit Inc., alleging that the agreement diminished important competition between the firms to attract highly skilled technical and other employees to the detriment of affected employees. The Division’s lawsuit followed similar challenges to “no-poach agreements” involving Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc., Lucasfilm Ltd., and Pixar, all of which resulted in consent decrees. In September 2013, the district court rejected eBay’s motion to dismiss the lawsuit, concluding that the agreement alleged by the Division, if proven, would constitute a per se unlawful market allocation agreement under Section 1 of the Sherman Act.
On May 1, 2014, the Division reached a settlement with eBay, which was approved by the court, that prohibits eBay from entering or maintaining anticompetitive agreements relating to employee hiring and retention for five years, including entering, maintaining, or enforcing any agreement that in any way prevents any person from soliciting, cold calling, recruiting, hiring, or otherwise competing for employees. As part of the settlement, eBay will also implement compliance measures tailored to these practices.
The Division worked closely with the California Attorney General’s Office during the course of its investigation; the State of California filed a settlement in its related case against eBay at the same time the Division filed its settlement.