The U.S. Department of Justice has filed an antitrust lawsuit challenging a June 2012
transaction combining two providers of product rating and review
platforms (PRR platforms) used to collect and display
consumer-generated online product feedback. This lawsuit
highlights how merging parties' "hot" documents can
attract significant interest from the antitrust agencies and, if
damaging enough, even lead to merger challenges. This lawsuit
also serves as a reminder that U.S. antitrust enforcers can
challenge mergers even after closing, and even for deals not
subject to premerger notification under the HSR Act.
The complaint alleges that the acquisition of PowerReviews, Inc.
by Bazaarvoice Inc. is likely to substantially lessen competition
for PRR platforms used by U.S. retailers and manufacturers.
The DOJ charged that Bazaarvoice was the leading commercial
supplier of PRR platforms with PowerReviews being its closest
competitor by a wide margin. According to an annual ranking
of the largest Internet retailers in the U.S., approximately 70% of
these retailers used a PRR platform provided by one of the
parties. According to the DOJ, most of the remaining websites
used in-house PRR solutions. For many retailers, in-house
solutions did not provide a meaningful constraint on the
parties' pricing given the significant cost of building such an
internal platform.
The DOJ also alleged that PowerReviews had positioned itself as
the low-price alternative to Bazaarvoice and the parties'
fierce competition led to innovation and new PRR platform
features. Thus, according to the DOJ, the combination
eliminated price competition as well as Bazaarvoice's
incentives to innovate.
To support its allegations, the DOJ filled its complaint with
numerous quotes from internal company documents emphasizing how the
deal would reduce competition. For example, a memorandum to
the Bazaarvoice board of directors, asserted that the acquisition
would "eliminate[e] feature driven one-upmanship and tactical
competition," "[c]reate[] significant competitive
barriers to entry;" "eliminate the cost in time and money
to take [PowerReviews'] accounts;" and "reduce
[Bazaarvoice's] risk of account losses as [PowerReviews]
compete[d] for survival."
Other quotes in the DOJ complaint indicated that the acquisition
would:
- "tak[e] out [Bazaarvoice's] only competitor, who . . . suppress[ed] [Bazaarvoice] price points []by as much as 15% . . . . ";
- "[e]liminate [Bazaarvoice's] primary competitor" and "reduc[e] comparative pricing pressure" and
- "block[] entry by competitors" and "ensure [Bazaarvoice's] retail business [was] protected from direct competition and premature price erosion."
The DOJ's reliance on internal company documents should
remind parties of the need for caution and restraint in what they
say about a target or potential transaction. "Hot"
documents can be crucial to the outcome of any antitrust matter and
company executives should avoid exaggerations or overstatements,
particularly on competitively sensitive issues such as market
definition and market share.
In addition, this DOJ challenge demonstrates that neither a
consummated nor a non-reportable transaction is immune from
antitrust scrutiny. The parties to this transaction were not
required to submit HSR premerger notification forms because they
did not meet the size of person test. Nevertheless, the DOJ
began investigating the transaction shortly after it closed,
presumably after receiving complaints from customers. A
successful government challenge to a consummated merger can be
particularly onerous because it may require an entity that has
already started integrating the acquired business to
"unscramble the eggs" as part of a court ordered
divestiture. Nevertheless, this lawsuit is a reminder that
the U.S. antitrust agencies will not hesitate to challenge
consummated transactions and tackle all of the complexity involved
in "unscrambling the eggs" where they believe there has
been harm to competition and consumers.
For further information about challenges to consummated mergers,
see our previous antitrust alerts: "
FTC Seeks Divestiture and Disgorgement in Challenge to Consummated
Acquisition"; "
U.S. DOJ Files Antitrust Challenge to Consummated
Transaction"; and "
ALJ Orders Divestiture of Highland Park
Hospital."
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.