This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Deal: Trial Starts in DOJ Bid to Break up Online Raters

NEW YORK (The Deal) -- As argument opens Monday in the trial over the federal government's attempt to break up the June 2012 acquisition of online rating service PowerReviews by rival Bazaarvoice (BV - Get Report), the key for Department of Justice lawyers will be demonstrating that retailers who rely on the services to collect customer reviews of their products have been hurt by the consummated deal.

On Jan. 10, the DOJ sued to break up the $168 million transaction, arguing that it "substantially lessened competition in the market for product ratings and reviews platforms in the United States, resulting in higher prices and diminished innovation." The DOJ alleges that Bazaarvoice is the dominant commercial supplier of product ratings and review platforms in the U.S., and PowerReviews was its closest rival. Before the transaction, PowerReviews was an aggressive price competitor. The government said this prompted the companies to offer many retailers and manufacturers substantial price discounts. 

The DOJ has said the transaction stripped retailers that are not capable of setting up their own review system in-house of negotiating leverage with the ratings providers, leaving them vulnerable to anticompetitive price increases. 

The trial before Judge William H. Orrick of the U.S. District Court in San Francisco will pit DOJ lawyers Claude Scott, Peter Huston and Michael Bonanno against a Wilson Sonsini Goodrich & Rosati PC team featuring Scot Sher, Jonathan Jacobson, Chul Pak and Boris Feldman. 

Must Read: The Deal: CommonWealth Swallows Poison Pill

Joshua Soven, partner in the Washington office of Gibson, Dunn & Crutcher LLP and a former DOJ litigator, said a key factor in the case will be how Judge Orrick weighs internal company documents the DOJ obtained showing Bazaarvoice officials complaining prior to the merger that competition from PowerRatings was keeping prices down, versus evidence the companies may submit showing that since consummation prices for ratings services have not increased substantially and that in the fast-moving technology market whatever harmful competitive effects DOJ alleges will be erased by new entrants and new products. 

"The companies' documents clearly had a significant impact on the DOJ's decision to bring an enforcement action," he said. "But the merged parties will emphasize a lot of other facts - post-merger price trends, whether customers can convincingly show that the merger has hurt competition, that the tech market moves quickly and whether it's reasonable to assume what might seem like concentrated market today will remain that way over the medium or long term." 

The case also raises an interesting doctrinal question, he said, because the DOJ's suit gave very little attention to defining a relevant market that has been harmed by the deal. Typically, antitrust enforcers are obligated to define a market in order to win their case. "The government's complaint devotes only two paragraphs to market definition and did not provide formal market shares or market concentration calculations," Soven said. "Instead they emphasized what they call direct evidence of anticompetitive effects," such as the parties' documents, and might rely on bid data showing the parties were the only two companies bidding on certain customers' business and economic modeling predicting the merger's effect on price. 

Soven also said it will be interesting to see if Judge Orrick chooses to hold to the high bar for crediting customer testimony set by U.S. District Court Judge Vaughn Walker of the Northern District of California in 2004 when he allowed Oracle Corp.'s (ORCL) acquisition of PeopleSoft to proceed. If the DOJ relies heavily on customers, Soven said they will have to show with persuasive market facts how they will be harmed by the merger if the judge uses the Oracle approach. 

The case is also affected by the fact that the merger has been consummated, Soven said. On one hand, the parties are likely to argue that pre-merger company documents indicating executives believed a merger would help them shore up prices are irrelevant given that the actual effect of the merger in the year-plus since it closed can be measured. On the other hand, the government can argue that Bazaarvoice has been on good behavior while under investigation by the DOJ and can impose price increases if the court allows the merged firms to remain together.

 Written by Bill McConnell. 

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BV $5.16 0.00%
AAPL $113.29 0.00%
FB $91.01 0.00%
GOOG $630.38 0.00%
TSLA $248.48 0.00%

Markets

Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs