On July 11, 2012, the Eleventh Circuit Court of Appeals affirmed the Federal Trade Commission’s (“FTC”) decision ordering Polypore International (“Polypore”) to divest all assets it acquired from Microporous Products in 2008.
Polypore, through its Daramic unit, manufactured pure polyethylene separators for starting, lighting and ignition (“SLI”) and deep-cycle batteries. Microporous manufactured pure rubber battery separators for deep-cycle batteries and also produced rubberized pure polyethylene separators for motive batteries in its plants in Tennessee and Austria. On September 9, 2008, the FTC issued an administrative complaint, charging that Polypore’s acquisition of Microporous would violate § 7 of the Clayton Act. After an initial order and appeal, the FTC issued a modified divestiture order of all acquired assets, including a manufacturing plant in Austria.
The twenty-two page unanimous decision written by Circuit Judge R. Lanier Anderson’s addresses Polypore’s four main arguments on appeal, including actual competition, potential competition, product market definition, and divestiture.
(1) SLI Separators – Polypore took issue with the FTC’s finding that Microporous was an actual competitor in the SLI Separator market because Polypore believed it was a potential competitor. The Eleventh Circuit affirmed this finding by reiterating the FTC’s correct use of the Philadelphia National presumption of liability (United States v. Phila. Nat’l Bank, 374 U.S. 321 (1963)), but by also using the findings of the Supreme Court in United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964). Although Microporous was not in the SLI Separator market yet, it was already producing similar products and would only need to “retool a production line” to enter the SLI market. The Eleventh Circuit relied on El Paso’s finding that § 7 of the Clayton Act was “concerned with probabilities, not certainties.” The Eleventh Circuit found that although Microporous was not yet in the SLI market, internal memos showing Polypore’s concern regarding potential Microporous product line expansion and the resulting price freezes indicated that Polypore planned to acquire Microporous to remove the threat of competition in the SLI market. Polypore’s case was further weakened by the testimony of a representative from Exide that stated since the acquisition of Microporous, SLI Separator price increases will cause Exide to pay “in the millions of dollars more.”
(2) Deep-Cycle Separators – The Eleventh Circuit also affirmed the FTC’s finding that Microporous’s Deep-Cycle Separators were part of the same relevant product market as those of Polypore. The Eleventh Circuit, relying on the factors from Brown Shoe Co. v. United States, 370 U.S. 294 (1962), ruled that the interchangeability between Polypore’s Daramic HD and Microporous’s Flex-Sil products was exemplified through the threat of three companies to switch from Flex-Sil to Daramic when Microporous considered increasing Daramic’s price. The Eleventh Circuit stated that had the products not been of the same product market, the threat of switching brands would not have existed.
(3) Motive Separators – Polypore’s challenge of the FTC’s ruling that Entek was not, and did not plan to be, a participant in the motive battery market was again quashed when the Eleventh Circuit affirmed that Polypore had not supplied any evidence to support its argument. Entek is the only other company, beyond Polypore and Microporous, which manufactures battery separators in the United States. Entek ceased operations in the Motive Separators market, but continued producing SLI Separators. The Eleventh Circuit affirmed the FTC’s finding that Entek did not follow through with proposals from Exide and EnerSys, nor had Entek “run any material for Exide,” to restart manufacturing Motive Separators.
(4) Divestiture – Polypore also challenged the FTC’s ruling that it divest Microporous’ Austrian plant. After arguing that the FTC’s ruling was limited to the North American market, the FTC ruled, and the Eleventh Circuit affirmed, that the Austrian plant provided Microporous the ability to “commit to additional North American sales,” making the company a “more effective competitor.” By requiring divestiture, competition that was eliminated by the acquisition of Microporous was restored.