United States: Past As Prologue: Rebirth Of The Merger Trial And The Bazaarvoice Case

For many years after its implementation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 seemed to sound the death knell of post-consummation merger trials.  By establishing a file-and-wait system rather than the old catch-me-if-you-can non-system, the Act enabled the antitrust enforcement agencies to prevent the consummation of potentially anticompetitive mergers until they completed their investigation, and then to block the deal by seeking a preliminary injunction.  Often, the threat of an injunction was enough to cause the parties to abandon the transaction.  If the enforcement agency obtained an injunction, most deals simply disintegrated.  Neither the companies nor their sources of financing were willing to tolerate litigating a case through a trial.

Today, the filing thresholds for the HSR Act have been increased by legislation, which also indexed those thresholds to inflation.  (On January 17, 2014, the FTC announced that the value of transaction threshold has been raised to $75.9 million.)  As the filing thresholds increased, so has the interest of the FTC and the DOJ in transactions that fall below those thresholds and do not require the parties to file and to comply with the HSR Act's waiting period.  Those transactions often close before the enforcement agencies take an interest in them and launch an investigation.  At that point, abandonment is no longer an option—money has changed hands, the companies have been integrated, and the colors have been nailed to the mast.  The companies' only options—more precisely, the company's only options—are to agree to a difficult unscramble-the-egg divestiture or to litigate the case through trial.

Such was the situation that led to the DOJ's victory in challenging Bazaarvoice's acquisition of PowerReviews, Bazaarvoice's principal competitor in providing ratings and review ("R&R") platforms to firms in online commerce.  The Court described R&R platforms as "combin[ing] software and services to enable manufacturers and retailers, among other companies, to collect, organize, and display consumer-generated product reviews and ratings online. These reviews and ratings are displayed on the page of a commercial website on which a consumer can purchase the product discussed."  The acquisition closed in June 2012, but the DOJ's lawsuit was not filed until January 2013.

On January 8, 2014, after a three-week trial, the U.S. District Court in San Francisco ruled that the transaction was unlawful under Section 7 of the Clayton Act.  Notable in the Court's 141-page opinion was the reappearance of Rip van Winkle issues that have largely slumbered since the passage of the HSR Act transformed merger litigation from a retrospective to a prospective process.

In particular, Bazaarvoice involved the significance of post-acquisition evidence.  In an injunction case, the parties have to predict whether an acquisition will lead to increased prices or other anticompetitive effects.  In a post-consummation trial, evidence of those effects is available, but its significance can be hotly disputed, as it was in the Bazaarvoice trial.  The Court—like many of its predecessors in the antediluvian pre-HSR era—gave little weight to such evidence when it could even arguably be subject to manipulation, i.e., if Bazaarvoice could have held prices down, knowing that the transaction came under investigation by DOJ almost as soon as it had closed.  (The Court also found, however, that prices in fact had often increased.)

Post-acquisition evidence potentially favorable to the company, but not subject to manipulation, did not materialize.  For example, in injunction cases, companies often argue that new entry, or expansion by fringe firms already in the market, will prevent price increases.  In Bazaarvoice, however, no significant entry or fringe expansion occurred after the acquisition closed.

Customer testimony also figured prominently in the case; the parties introduced more than 100 depositions into the trial record, many of them of R&R platform customers.  In pre-HSR days, customer testimony also figured prominently in merger investigations and litigation, but those customers were asked to predict what effect the transaction would have on them.  In Bazaarvoice, customers had experienced the effect of the consummated deal.  Most customers responded to the transaction with a collective shrug; few either opposed or supported it.  The Court pointed out that R&R platforms are relatively cheap in the context of most customers' operating budgets, and customers spend little time evaluating them except when their contracts are due for renewal.  The Court, for all intents and purposes, disregarded their testimony:  "Their testimony on the impact and likely effect of the merger was speculative at best and is entitled to virtually no weight."  That conclusion, however, could be quite different in a case involving the merger of suppliers that provide major, continuing inputs to their customers.

Finally, the trial record abounded with internal documents that admitted or even celebrated the anticompetitive effect of the transaction, leaving a trail that not even a resourceful defense could overcome.  The Court said:  "[A]nticompetitive rationales infused virtually every pre-acquisition document describing the benefits of purchasing PowerReviews."  Those documents described PowerReviews as Bazaarvoice's principal competitor, predicted that the acquisition would result in a "monopoly," projected enhanced profits, and anticipated that the deal would end competitive "knife-fighting" between the companies.  Bazaarvoice's chief financial officer suggested that Bazaarvoice could compete against PowerReviews and "crush" them.  His alternative was: "damnit lets (sic) just buy them now."

The Supreme Court has not decided a case involving Section 7 merger standards for many years.  The irony of Bazaarvoice is that it involved the cutting edge of e-commerce tools for online merchants, but the Court cited and relied on Supreme Court precedents from the 1960s and 1970s that were decided before the Internet existed.  Bazaarvoice is far from the first post-consummation case to be tried in the HSR era, and it surely will not be the last.  It should come as no surprise, given the dynamics of the current system of merger review, if the next Section 7 case that reaches the Supreme Court involves a transaction that, like Bazaarvoice, did not qualify for HSR review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions