DOJ Successfully Challenges Baazarvoice Consummated Deal in Court

Background

The Trial

Judge’s Opinion

The United States District Court for the Northern District of California agreed with the DOJ’s characterization of Bazaarvoice’s June 2012 acquisition as one that eliminated its “closest and only serious competitor”.  In reaching its decision, the court applied the 2010 Horizontal Merger Guidelines (“Guidelines”) and relied heavily on pre-merger “hot documents” that demonstrated how the business executives of each company viewed the other in terms of competition. The Judge spent a great deal of its opinion discussing Bazaarvoice’s rationale for acquiring PowerReviews before turning to market definition and market concentration. The Judge determined that Bazaarvoice’s premerger rationale for pursuing the transaction was much different than the rationale Bazaarvoice presented at trial.  The Judge bought the DOJ’s theory which was based on “hot documents”.  The Judge noted that statements from the company’s executives indicated that they thought the acquisition would eliminate its only real competitor.  The problem for Bazaarvoice was that there were a lot of hot documents.  It was more than just a couple of documents that needed to be explained away. So with the Judge already buying into the company’s own documents, he then put forth his analysis of the market.  While the Judge indicated that market definition might not be necessary under Section 7 under the 2010 Guidelines, he defined relevant product and geographic markets as has been done in the past.  The Judge accepted the markets proposed by the DOJ. The court found a prima facie

Lesson Learned

There are five lessons to be learned from this successful challenge.  First, the DOJ will aggressively challenge mergers in court or settle them short of trial.  Second, hot documents may outweigh any customer or expert testimony.  The Bazaarvoice case is another example of how difficult it is for merger defendants to overcome hot documents with expert economic testimony or customer testimony at trial.  Hot documents still play a significant role in merger reviews and litigation.  From the opening of the trial to the closing, the DOJ focused heavily on the companies’ own “hot documents,” and the Judge cited these documents throughout his opinion.  Bazaarvoice’s expert testimony, purported rationale for the acquisition and customer testimony could not overcome its own documents that specifically stated that the purpose of the deal was to eliminate its closest competitor.  While antitrust lawyers and economists generally place economic analysis and actual market dynamics over business documents when determining whether a transaction is anticompetitive, a Judge may still fall on the side of the hot documents.  This decision strengthens the DOJ’s negotiating power especially in those situations where the staff has a lot of hot documents.  Third, the DOJ continues to take actions against consummated mergers that are not HSR reportable.  Bazaarvoice is another example of the DOJ’s willingness to challenge consummated mergers that are not reportable under HSR.  Merging parties must be aware of the statements contained in their internal documents even if they do not believe that they will be making an HSR filing because the government can still investigate and challenge deals that are not HSR reportable.  Fourth, courts are applying the 2010 Merger Guidelines.  The court applied the 2010 Merger Guidelines throughout the analyses.  The Judge found a presumption of anticompetitive effects in accordance with the 2010 Guidelines and case law and used the 2010 Guidelines’ recommended framework for analyzing the competitive effects of the merger.  Fifth, the DOJ can successfully block technology mergers.  The DOJ’s successful challenge of Bazaarvoice’s acquisition is significant because it is a win for the DOJ in a dynamic, technology-based market.  There has been a debate surrounding the role of antitrust law in rapidly changing technology markets, but the Judge did not believe that Bazaarvoice presented any evidence to show why the dynamic aspects of the market would prevent the merger’s anticompetitive effects as outlined by its own documents. Andre Barlow 202-589-1838 abarlow@dbmlawgroup.com Mark Ye 202-589-1834 mye@dbmlawgroup.com