On January 8, 2014, the Department of Justice (“DOJ”) won its court challenge to Bazaarvoice’s consummated $168 million acquisition of PowerReviews.
Bazaarvoice creates and markets online product reviews and ratings platforms, which allow Internet retailers to embed such reviews on their websites. PowerReviews, which was a privately held corporation, engaged in the same business until the time of acquisition. The parties did not file an HSR Form with the government prior to the merger because the deal’s value was below the statutory reporting thresholds. After the merger closed, the DOJ began an investigation. The DOJ’s case relied on numerous hot documents that described the transaction in a way that indicated that the real reason for the deal was for Bazaarvoice to eliminate its closest competitor. On January 10, 2013, the DOJ filed suit to undo the consummated transaction.
The trial proceedings included depositions of 104 Bazaarvoice customers, testimony from numerous executives of both companies, and economic analysis from both the DOJ and the two parties. The DOJ relied on the companies’ own business documents otherewise referred to as “hot documents” to tell the anticompetitive story. Baazarvoice was put in position of defending itself against its own internally generated business documents including emails.
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 violation based on Bazaarvoice’s high post-merger market share and market concentration. DOJ estimated that Bazaarvoice’s post-merger online product review and ratings platform share of the top 500 internet retailers was 68 percent, and post-merger online product review and ratings platform revenue was 83 percent.
Bazaarvoice put on customer and expert testimony. The Judge rejected the expert testimony because of the hot documents. The Judge also rejected Bazaarvoice’s contention that all 104 customers deposed had not complained about the merger. The Judge noted that Bazaarvoice may have mitigated any anticompetitive post-merger behavior in light of DOJ’s investigation and that each customer negotiates price individually and is therefore unlikely to have the appropriate view of the market needed to assess whether the merger harmed it. Interestingly, the Judge accepted the DOJ expert’s testimony over the customer testimony and Bazaarvoice’s reliance on post merger evidence that demonstrated the merger had not resulted in anticompetitive effects.
Bazaarvoice argued that actual or prospective entrants such as Amazon, Facebook or Google would mitigate anticompetitive effects, but the Judge didn’t buy that argument either because the Judge didn’t believe that Bazaarvoice gave any reason why those firms were likely to enter the market.
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.