Competition? It's a Big Deal

NEW YORK, Jan. 30, 2013 /PRNewswire/ -- There is a common – and dangerous – misconception in the marketplace that antitrust laws apply only to large public companies.  Part of the confusion may arise from the fact that under the Hart-Scott-Rodino Act, large transactions must be reported to the federal government and those deals may not close until a waiting period has ended. 

But by no means does this mean that only large deals are subject to government scrutiny. The US antitrust laws expressly prohibit mergers and acquisitions that may substantially lessen competition, or tend to create a monopoly, regardless of a company's size. Antitrust agencies may learn of problematic unreported transactions through their own monitoring of news reports as well as complaints from customers and competitors.

This broad reach of the antitrust laws was recently exemplified in the federal government's January 2013 lawsuit against Bazaarvoice, Inc. challenging its purchase of PowerReviews, Inc.  According to the complaint filed in federal court in San Francisco, the companies were archrivals, providing product ratings and review platforms for consumer posting on manufacturers' and retailers' websites.  Prior to the 2012 acquisition, manufacturers and retailers would pit Bazaarvoice and PowerReviews against each other to get favorable terms, and Bazaarvoice and PowerReviews would compete to offer better terms and more features to gain customers.  In fact, Bazaarvoice sometimes offered its product free to PowerReviews customers. 

The real problem, however, is how insiders at Bazaarvoice characterized the company's intentions with respect to the acquisition.  In effect, the company built a case against itself.  The complaint is replete with quotes from the company's own documents.  The CEO wanted to "destroy" PowerReviews and to "aim a big bazooka in their direction."  Its Chief Strategy Officer wanted to "eradicate" PowerReviews.  Employees at the highest level of Bazaarvoice seemed to articulate anticompetitive objectives in numerous emails.  Relying substantially on the company's statements to build its case, the DOJ complaint cited Bazaarvoice's CEO sharing with the Board of Directors that it would have "[n]o meaningful direct competitor" and would face less "pricing dilution" after buying PowerReviews.  The CFO wrote that the deal would "eliminat[e] feature driven one-upmanship and tactical competition,"  and "[c]reate significant competitive barriers to entry."  The final due diligence memo recommending the deal to the board concluded that it would "block entry by competitors" and "ensure [Bazaarvoice's] retail business [was] protected from direct competition and premature price erosion."  PowerReviews confirmed this view of the transaction by concluding that it would create a "[m]onopoly in the market."

What are the takeaways? First, prior to engaging in transactions with competitors, companies –regardless of size – should test the antitrust waters. A deal that may be too small to report is not too small to be investigated.  In addition, recognizing that laws governing competition apply to everyone, all employees, especially officers, should take care in business conversations, particularly of the written variety.  Follow the 'New York Times Rule;' if you wouldn't put it on the front page of the paper, don't put it in an email.  Finally, involve legal advisors at every juncture.  Leverage their knowledge about what is permissible under the law, and do so under the protection of the attorney-client privilege.   In the end, Bazaarvoice may ultimately win against the DOJ, but it has already spent a substantial sum defending  against the investigation and likely will spend even more defending against the lawsuit.  These are costs no business, and no commercial marketplace, should bear.

Ingram Yuzek, based in New York City, provides a broad range of transactional and dispute resolution services to sophisticated clients across the globe.  Its antitrust practice is led by Yee Wah Chin, who provides antitrust counsel on regulatory compliance, marketing, and relations with competitors, suppliers and customers, as well as on licenses and distribution relationships.  For more information, see www.ingramllp.com  or contact Yee Wah at [email protected].

SOURCE Ingram Yuzek