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Docket No. 9300

FEDERAL TRADE COMMSSION

IN THE MATTER OF

CHICAGO BRIDGE & IRON COMPANY, N.

A FOREIGN CORPORATION

CHICAGO BRIDGE & IRON COMPANY

A CORPORATION

AND

PITT - DES MOINES, INC.

A CORPORATION

RESPONDENTS' REPLY AND CROSS- APPEAL RESPONSE BRIEF

PUBLIC RECORD VERSION

October 2003

WISTON & STRAWN LLP

. 35 West Wacker Drive

Chicago, Ilinois 60601

(312) 558-5600

Attorneys for Respondents
TABLE OF CONTENTS

Pa1!e

OVERVIEW. .......... .... .......... 

... ......... ...... ......... ................ ................... ............................... ......... 

REPLY TO COMPLAIT COUNSEL'S RESPONSE BRIF

INTRODUCTION TO RESPONDENTS' REPLY BRIEF........... .......... ........... ...............

COMPLAIT COUNSEL'S PRIMA FACIE CASE IS WEAK AT BEST. ....................

UNER BAKER HUGHES RESPONDENTS HAVE FORCEFULLY

REBUTTED AN PRIMA FACIE CASE. ........................ ...... 

..... ................... ..... ..........

EVIDENCE OF ACTUAL ENTRY SINCE THE ACQUISITION

REBUTS THE PRIMA FACIE CASE. .... 

.......... ........ ........... ......... ........ ..............

EVIDENCE OF LOW ENTRY BARERS INTO THESE MATS

REBUTS THE PRIMA FACIE CASE. ................................................................ 8

. (a) Bariers To The LNG Market Are Low. .........................................................

(b) Bariers To The LPG Market Are Low......................................................... 12

(c) Bariers To The LIN/LOX Market Are Low................................................. 

EVIDENCE OF CUSTOMER SOPIlSTICATION REBUTS COMPLAIT

COUNSEL' S PRIMA FACIE CASE........................ .............. .... ........................ 

RESPONDENTS' SHOWIG OF SUFFICIENCY REBUTTED ANY

PRIMA FACIE CASE. COMPLAIT COUNSEL'S ATTEMPT TO

SIlFT THE BUREN ONTIlS ISSUE IS IMPROPER. .................................

(a) Respondents Do Not Bear The Burden Of Proving That Entr Wil Be

Suffcient To Constrain CB&I's Pricing At Levels That Would Have

Prevailed Absent The Acquisition. .... 

...... ...

;................................................. 15

(b) Empirical Evidence Demonstrates That Entry Is Suffcient. """""""""""'" 17

( c) Economic Evidence Supports Respondents' Showing Of Suffciency

And Precludes Complaint Counsel From Carng Its Burden Of Proof....... 23

(1) There is no reliable evidence that new entrants have

prohibitively higher overall costs. ...............................................

(2) Critical loss analysis shows that CB&I cannot implement

price increases in the face of new entry. ...................................... 25
Pa1!e

(3) Complaint Counsel's use of Respondents ' statements sheds

no light on the sufficiency of entry. ............................................. 26

COMPLAIT COUNSEL FAILED TO ADDRESS RESPONDENTS'

ARGUMNTS REGARING REMEDY. ...... .... 

................................ ..........................

COMPLAIT COUNSEL IGNORES KEY EVIDENCE REGARING THE

EXITING ASSETS DEFENSE. 

.................................................

ll. RESPONSE TO COMPLAIT COUNSEL'S CROSS- APPEAL

INTRODUCTION TO RESPONDENTS' RESPONSE TO COMPLAIT

COUNSEL' S CROSS-APPEAL.................................................................................... 32

COMPLAIT COUNSEL HAS FAILED TO PRESENT AN CREDIBLE

EVIDENCE OF ANTICOMPETITIV EFFECTS. ....................................................... 33

COMPLAIT COUNSEL HAS NOT PRESENTED CREDIBLE

EVIDENCE OF ANTI-COMPETITIVE CONDUCT......................................... 33

(a) Complaint Counsel Has Not Presented Any Credible Evidence Of

Collusion. ....... ............................................................................................. 33

(b) Complaint Counsel Has Not Presented Any Credible Evidence Of Price

Increases. ..................................................................................................... 34

(1)

(2)

(3)

(4)

(5)

(6)

(7)

The Memphis LNG projects provide no evidence of

anticompetitive effects. ............................................................... 35

Projects for Linde and Praxair provide no evidence of

anticompetitive effects. ............................................................... 36

The Spectru Astro project provides no evidence of price

increases. .................................................................................... 37

The Cove Point project provides no evidence of

anticompetitive effects. ............................................................... 38

The CMS and Southern LNG projects provide no evidence

of anticompetitive effects. .................. .....................

:...................

The (xx) projects provide no evidence of anticompetitive

effects. ........................................................................................ 40

Projects for (xxxxxx) provide no evidence of anticompetitive

effects. ........................................................................................ 41
Pa1!e

CONTRAY TO COMPLAIT COUNSEL'S CLAIMS , THE ALl

PROPERLY EXCLUDED EVIDENCE REGARING ALLEGED

ANTI COMPETITIVE CONDUCT......... ................... -... ....................................

COMPLAIT COUNSEL IMPROPERLY ATTEMPTS TO SIlFT

THE BUREN OF PROOF REGARING ITS ALLEGATIONS OF

ANTICOMPETITIVE EFFECTS. ....."""'''''''''''''''''''''''''''''''''''''''''''''''""",,,,, 43

COMPLAIT COUNSEL'S PROPOSED REMEDY IS OVERBROAD, WHOLLY

UNSUPPORTED BY RECORD EVIDENCE, AN ITS POTENTIA EFFECTS

AR UNKNO WN. ........................................................................................................ 45

THE PROPOSED ORDER IS OVERBROAD. .................................................. 45

THE PROPOSED ORDER IS THE LATEST VERSION OF

A CONSTANTLY-CHAGING COLLECTION OF PROPOSED

REMEDIA MEASURS. ................................................................................ 47

THE EVIDENCE INICATES THAT THE PROPOSED ORDER WILL

NOT ONLY BE INFFECTIVE, BUT THAT IT WILL HA THE

VERY CUSTOMERS IT IS INTENDED TO PROTECT. ................................. 49

(a) The Portion Of The Proposed Order That Mandates Divestiture Of

Employees Is Unsupported By The Evidence. .............................................. 50

(b) The Portion Of The Proposed Order That Mandates The Assignment Of

Contracts Is Unsupported By The Evidence. .........................................._.....

(c) The Portion Of The Proposed Order That Mandates Divestiture Of

Confidential Informtion Is Unsupported By The Evidence. ......................... 56

(d) The Portion Of The Proposed Order That Requires CB&I To Provide

Transitional Assistance Is Unsupported By The Evidence. ........................... 57

THE PROPOSED ORDER PRESENTS SEVERE OBSTACLES TO

CB&I'S ABILITY TO BE A LOW-COST COMPETITOR................................ 57

CONCLUSION......... ............................................................. ..................................................
TABLE OF AUTHORITIES

CASES

Cascade Natural Gas Corp. v. El Paso Natural Gas Co.

386 U.S. 129 (1967).. ........ 

............... ......... 

Cleveland Board of Education v. Loudermil

470 U.S. 532 (1985).............................. .... 

....... ...... ...... ...................

In re Ekeo Products Co.

65 F. T. C. 1163 (1964)................. ..... ....... 

.............. ............. ...... .........

P. T C v. Heinz

246 F.3d 708 (D.C. Cir. 2001) ............................................................................... , 7, 8, 16

FTC. v. Libbey, Inc.

211 F. Supp. 2d 34 (D. C. 2002)...........

......................... ........................:..........................

FTC. v. P PG Indus., Inc.

798 F.2d 1500 (D.C. Cir. 1986) 

........... ............................................. .................................

F.TC. v. Tenet Health Care Corp.

186 F .3d 1045 (8th Cir. 1999)............ 

Ford Motor Co. v. United States

405 U.S. 562 (1972) ... """""""'"'''''' ................. ............... ............ 

...... ..................... ..........

Fruehauf Corp. v. F. T 

603 F.2d 345 (2d Cir. 1979)...............................................................................................

, i

Lenox, Inc.

73 F. T.C. 578 (1968)....

;......................... ..... .. ...............................

, 44

, New York Kraft Gen. Foods, Inc.

926 F. Supp. 321 (S.D .N. Y. 1995) ... ........... ...................................... ...............................

Olin Corp. FTC.

986 F.2d 1295 (9th Cir. 1993) ..........................................................................................

In re Olin Corporation

113 F. T.C. 400 (1990)................................................. ...................... 

............ ......

Reynolds Metals Co. v. FTC.

309 F.2d 223 (D. C. Cir. 1962) 

...............................................................................

.52
United States v. Archer-Daniels-Midland

781 F. Supp. 1400 (S.D. Iowa 1991) ..... .................................................

...........................

United States v. Baker Hughes Inc.

908 F.2d 981 (D. C. Cir. 1990) 

passim

United States v. Baker Hughes 'Inc. 

731 F. Supp. 3 (D. C. 1990) .................................................................................... passim

United States v. l DuPont de Nemours

3 53 U.S. 586 (1957) .... ......... 

........................ .........,................................ ...

United States v. E.l DuPont de Nemours

366 U.S. 316 (1961) ......... ....... ...".......... ......... ............. ............. ............................. , 51 , 54

United States v. Green

399 U.S. 149 (1970) ;......................................... ...............................................

,...... ......... ..

United States v. Mercy Health Servs.

902 F. Supp. 968 (B.D. Iowa 1995) ..................................................................................

United States v. Microsoft Corp.

253 F .3d 34 (D.C. Cir. 2001) .............................................................................................

United States v. Phillpsburg National Bank Trust Co.

3 99 U.S. 350 (1970)..........................

:.......................................... .......................................

United States v. Syufy Enters.

903 F .2d 659 (9th Cir. 1990)....... 

.............

United States v. United Tote, Inc.

768 F. Supp. 1064 (D. Del. 1991) .............................. ........................................................

United States v. Ward Baking Co.

376 U.S. 327 (1964).... ...... ................. 

... ........... ........ ....... 

Utah Public Servo Comm v. El Paso Natura/Gas Co.

3 95 U.S. 464 (1970).... ...... .................. 

STATUTES AND RULES

15 U. S. C. 18 ........................ .................................................... ..

.. ........ ,

F. T. C. Rule 3 .41 (c) ............. ...................................................................................

;............... ..... ..

F. T. C. Rule 3 .52 (d) ........... .............................. ............... ........................... ............................... .

,.....
F. T. C. Rule 3 .54 (c) '''' ........... ................................... .............. ......... ............. 

...... .....

, 52

MISCELLANEOUS

In re Automatic Data Processing, Inc.

No. 9282 (Oct. 29, 1997) ................................................................................

:............

, 56

In re MSC Software Corp.

No. 9299 (Oct. 28, 2002) ... ......... .......... 

............ ............ ....................... .....

, 56

Baker Jonathan B., Respondents to Developments in Economics and the Courts: Entr in

the Merger Guidelines, AItitrut L.J. 189 (Autu 2003) ...............................................

Posner, Richard, Antitrut Law: An Economic Perspective ...........................................................

Scheffan, David T. and Coleman, Mar T Current Economic Issues at the FTC....................

Stigler , The Organzation of Industry (1968) .........................................................................

von Weizsacker, C. , Barers to Entr (1980) ..............................................................................

Merger Guidelines 1 "'"'' ...... ........... 

............ .......... ................ ................................................

3 3
CCOB

CCFOF

CCPO

CCRA

CCRB '

RFOF

RDB

RROF

TABLE OF ABBREVITIONS

The following abbreviations and citation forms are used:

Complaint Counel's Opening Post- Trial Brief

Complait Counsel's Proposed Findings of Fact

Complaint Counsel's Proposed Order

Complaint Counsel's Response and Appeal Brief

Complaint Counsel's Post- Trial Reply Brief

Complaint Counsel's Exhbit

.Initial Decision

Respondents' Appeal Brief

Respondents' Proposed Findings of Fact

Respondents' Openig Brief

Respondents' Reply Brief

Respondents' Reply Findings of Fact

Respondents' Exhibit

Vll
OVERVIEW

Complaint Counel and Respondents substantially disagree on two legal issues

which are dispositive of this case. First if a prima facie case exists, whether Respondents have

presented enough evidence to rebut it. Second which pary bears the burden of proving that

entry will be sufficient to restore any loss of competition. Respondents contend that they have

presented more than enough evidence to rebut Complaint Counel's weak prima facie case. They

fuher contend that Complaint Counel bears the burden of proving that entry will. not be

suffcient to restore competition, and that it has failed to do so.

Pursuant to Rule 3. 52(d), this brief is both a reply in support of Respondents

appeal and a response to Complaint Counsel's cross-appeal. It is divided into two parts. Par I

contains Respondents' reply. It discusses Complaint Counsel's failure to meet the standards of

proof set forth in United States v. Baker Hughes Inc. 908 F.2d 981 (D. C. Cir. 1990), including

the nonexistent or weak prima facie case, as well as Respondents' rebuttal evidence , which

includes an analysis of evidence regarding suffciency of entry. In addition, it discusses

deficiencies in Complaint Counsel's arguments regarding the issues of remedy and the exiting

assets defense. Par II contains Respondents' response to Complaint Counsel's cross-appeal. 

focuses on Complaint Counsel's specious. attempts to prove alleged post-Acquisition collusion

and price increases, as well as deficiencies in its proposed remedy.

Respondents and Complaint Counel disagree on numerous other issues. Indeed, Complaint

Counel has made many misstatements of fact and law. Respondents cannot treat each such instance.

Only the most egregious are dicussed herein.
REPLY TO COMPLAINT COUNSEL'S RESPONSE BRIEF
INTRODUCTION TO RESPONDENTS' REPLY BRIEF

Complaint Counsel's Response (the " Response ) exaggerates its proof of any

prima facie case by relying on market concentration evidence rejected by the ALl and attempts

to aggregate all four product makets in order to meet Section Ts substantiality requirement.

Thus, if a prima facie case exists, it is weak. Under such circumstances Baker Hughes requires

only that Respondents present some evidence tending to show that the prima facie case is not

indicative of future anticompetitive effects. Respondents presented extensive evidence regarding

actual entry, potential entry, customer sophistication and unique circumstances surounding the

sale of PDM. Actual post-Acquisition pricing and careful economic analysis fTom Dr. Bar

Hars also support Respondents' rebuttal of the prima facie case. This evidence shows that new

entry has constrained (and wil continue to constrain) CB&I's pricing.

Complaint Counsel dismissed this extensive record with the unsupported assertion

that "(t)here simply is no evidence of any entry. .. . " (CCRA 15). Similarly, it ignores

Respondents' empirical and economic testimony regarding sufficiency of entry, relying on

unupported and unquantified assertions of cost disadvantages

, . 

flawed economic analysis, and -

documents taken out of context. As argued herein, regardless of the strength of Complaint

Counsel's prima facie case , Respondents successfully rebutted it with evidence more compelling

than that presented by the successful Baker Hughes respondents.

Faced with that reality, Complaint Counsel argues that any entry is insuffcient to

restore competition. In doing so, it attempts to place the burden on Respondents to demonstrate

suffciency of entry. This tactic squarely contradicts the D.C. Circuit' s decision in Baker

Hughes which held that Complaint Counsel bears the burden of proof "at all times. " Further, the

D.c. Circuit rejected the notion that a respondent must bear the burden of proving that entry
would be quick and effective because doing so would improperly shift the ultimate burden of

proof The Commission should reject Complaint Counsel's attempt to vitiate Baker Hughes.

Because Respondents have forcefully rebutted Complaint Counsel's prima facie

case, Complaint Counsel must present additional evidence demonstrating anticompetitive effects.

As discussed in Par infra it failed to do so. Accordingly, the Complaint as to all product

markets should be dismissed with prejudice.
COMPLAINT COUNSEL'S PRIMA FACIE CASE IS WEAK AT

BEST.

Complaint Counsel must prove that the Acquisition is likely to have a

substantial" effect on competition. United States v. Baker Hughes Inc. 731 F. Supp. 3, 11

(D.D.c. 1990). (See RA 10). Here, Complaint Counsel relied on market concentration

statistics to do so. (CCRAB 20-21). However, the ALl agreed with Respondents that

Complaint Counsel failed to demonstrate that a valid and credible HI had been calculated in

any of the relevant makets" because neither the Merger Guidelines nor any cited case law

supported an attempt to calculate HI statistics based on market data spanning more than a

decade. (ID 91). He also recognized the arbitrar nature of HI evidence in this case, observing

that the HI numbers changed dramatically depending on the star date used. This is true in

large par because there were so few sales in the relevant markets and because CB&I had not had

recent success in winning work in these markets. (see ID 90-92).

Complaint Counsel asserts that it can overcome this deficit simply by showing

that "CB&I acquired its closest competitor" and that Respondents' documents " confirm that

CB&I and PDM were each other s closest competitor. (CCRA 21-22). TheALl erred in

accepting this argument (see ID 95-97) because it relies on the same analytically flawed 

calculations. To argue that CB&I and PDM were close competitors pre-Acquisition does not

cure the flaws in the underlying conclusion that pre-Acquisition market data here is unreliable.

(Hars, Tr. 7219- , 7311- 12).

Even if maket concentration evidence were relevant here, it would not prove a

prima facie case. A "substantial" effect on competition is unlikely because the markets at issue

are miniscule in size. (See RAB 10- 12). In attempting to address this critical flaw, the Response

asserts that "the four markets had combined sales of about $250 million over the eleven years
prior to the Acquisition. " (CCRAB 26). This approach misleadingly aggregates data from four

different markets. Each market must be individually analyzed to evaluate the strength of a prima

facie case. Moreover, Complaint Counsel improperly aggregates market share data spanning

from 1990 to the date of the Acquisition. As the ALl noted, neither the Merger Guidelines nor

any reported case support the use of such aged market share data. (ID 89-90). In short, because

of the lack of activity in these markets, pre-Acquisition data is unreliable and cannot serve as the

basis for makng a prima facie case. See Baker Hughes 731 F. Supp. at 11; see also Baker

Hughes 908 F.2d at 991.

Because market share information here is unreliable, the ALl should have

examined post-Acquisition entry evidence in evaluating the prima face case. (See RA 12- 13).

Complaint Counsel's proffered contrar authority is off-point because it addresses postacquisition evidence subject to manipulation by the party seeking to use it. (Id. As the ALl

correctly noted, there is no evidence to suggest that Respondents have manpulated evidence.

(ID at 80). To the contrar, Respondents could not have manpulated the post-Acquisition entry

evidence, such as the entry of SkanskalWhessoe into the u.s. maket for LNG tans, Dynegy

refusal to allow CB&I to bid on its LNG project, and AT&V's ability to bid on projects at lower

costs relative to CB&I. Complaint Counsel argues that post-Acquisition evidence is irelevant

because it does not like what it shows -- that the relevant markets have continued to behave

competitively. 3

Complaint Counel's citations to Philipsburg National Bank, Food Town Stores and Bethlehem

Steel Corp. are inapposite. (CCRA 25). Those cases addressed makets of substantial size. For

example, in Philipsburg National Bank the lines of commerce were larger and far more consistent. The

two merging ban at issue had combined assets of over $41 millon -- in pre- 1970 dollars. See United

States v. Philipsburg Nat l Bank Trust Co. 399 U.S. 350 (1970).

Syufy and ADM (CCRA 23) featured reliable maket share data. Here, there is no such reliable

evidence. United States v. Syufy Enters. 903 F.2d 659, 665, n. 6 (9th Cir. 1990); United States v. ArcherDaniels-Midland Co. 781 F. Supp. 1400, 1413- 16 (S.D. Iowa 1991).
UNDER BAKER HUGHES, RESPONDENTS HAVE FORCEFULLY

REBUTTED ANY PRIMA FACIE CASE.

Contrar to assertions made in the Initial Decision and the Response (ID 101;

CCRA 28), Baker Hughes provides the governing standard for a Section 7 case. It has not been

, i

overruled by the Courts of Appeal or the Merger Guidelines. Indeed, the D.c. Circuit recently

reaffrmed that Baker Hughes explained the analytical approach by which the government

established a section 7 violation. F.TC. v. Heinz 246 F.3d 708, 715 (D.C. Cir. 2001). This

standard is clear: Assuming arguendo a prima facie case, Respondents must present some

probative evidence indicating that the prima facie case does not accurately predict

anticompetitive conduct.

Citing its own Merger Guidelines, Complaint Counsel incorrectly argues that

Respondents have the burden of proving that entry will be suffcient to constrain CB&l's pricing.

(See CCRA 27). This is not the law. The D. C. Circuit specifcally rejected the notion that a

respondent must show that entry would actually occur or that it would be "quick and effective

because requiring such a showing would improperly shift the ultimate burden of proof Baker

Hughes 908 F.2d at 987, 992. Evidence must be commensurate with the strength of the prima

facie case, but in no event does the burden shift. Nor is, as Complaint Counsel suggests, a "clear

showing " required to successfully rebut such a case. Id. at 989 991.

Respondents rebutted any prim facie case by presenting strong evidence

regarding actual entry, potential entry, customer sophistication, and unique economic

circumstances, as well as evidence regarding actual post-Acquisition competition. They were

required to do nothing more. Complaint Counsel's argument that the Merger Guidelines shift the

burden and alter the strength of a rebuttal showing is inconsistent with established circuit cour

law and, if adopted by the Commission, Respondents respectfully submit will result in reversible
error. See Baker Hughes 908 F.2d at 991- 92; see also F.TC. v. Heinz 246 F.3d 708, 715 (D.

Cir. 2001) (recognizing that Baker Hughes provides the "analytical approach" for examining a

Section 7 case); F.TC. v. Libbey, Inc. 211 F. Supp. 2d 34, 51 (D. D.C. 2002) (citing Baker

Hughes as the governing standad for rebuttal evidence in a Section 7 case).

EVIDENCE OF ACTUAL POST-ACQUISITION ENTRY REBUTS THE

PRIA FACIE CASE.

Neither Complaint Counsel's assertion that " (t)here simply is no evidence of any

entry (e. CCRA 15) nor the ALl's conclusions with respect to entry are consistent with the

evidence. Three foreign consortia -- SkanskalWhessoe, TechnigazZachr, and TKKAT&V --

have entered the US. market for LNG tans, and are continuing to enhance their standing in this

market. (See RA 14- 17). Current LNG customers consider all three new entrants to be

powerful global competitors that can effectively compete in the US. In fact, may US.

customers are already working with these entrants on projects around the world. (See generally

RAB 21 , 39-40) (Izzo Tr. 6483, 6498-6500; Carling Tr. 4455; Sawchuck Tr. 6053). All three

have bid on the $500 million Dynegy Project -- the largest LNG project in North America.

(RA 14- 15). (xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx)

Similarly, Respondents have demonstrated substantial entry in the LPG and

LIN/LOX makets. Three large US. tank manufacturers -- AT&V, Matrix, and Chattanooga

Boiler & Tan ("Chattanooga ) -- have entered the LIN/LOX market near the time of the

Acquisition and have successfully won a majority of post-Acquisition projects. (See RA 18-

For examle, Skankalessoe has allied itself with Black & Veatch, a leading engineer of

process equipment necessar for construction of LNG facilities. (See Puckett, Tr. 4579; Eyerma, Tr.

6992) (RFOF 3. , 3. 273). Despite Complaint Counsel's contrar assertion (CCRA 34), AT&V and

TKK are in the process oflocating similar expertise. (See, e. Kistenmcher, Tr. 902-03; 915).
19). Similarly, in the LPG market, Matrx and AT&V have already entered and won half of the

projects awarded in the past three years. (See RA 17). This evidence is indicative of actual

curent competition and is outcome-determnative.

Moreover, as discussed in Par I- supra these markets are smaller than the

Baker Hughes maket, where in the three years prior to the Acquisition, competitors had built

over 100 units. 731 F. Supp. at 6. In the five years prior to the Acquisition here, only four LNG

tans were built. Especially in light of the small size of these markets, it is simply wrong to say

that there is "simply no evidence of any entry.

EVIENCE OF LOW ENTRY BARRS INTO THESE MARTS

REBUTS THE PRIA FACIE CASE.

If bariers to entr are insignificant, the threat of entry can stimulate competition

in a concentrated maket, regardless of whether entry ever occurs. Baker Hughes 908 F.2d at

988 (emphasis in original); see also Heinz 246 F.3d at 717. Indeed, the fact that Respondents

can rebut a prima facie case without demonstrating actual entry undercuts the argument that they

bear the burden of showing that entry wil be sufficient. (See, e. CCRAB 29). Here entry has

already occurred. This demonstrates that entry barers are low. Consistent with Baker Hughes

thi showing rebuts a prima facie case. (See RA 19-25).

The Response argues that "high entry bariers " exist in the relevant makets

which raises the question of why entry has occurred in the face of such high bariers. The

answer is that Complaint Counsel has made the same fundamental error that the ALj made --

treating any cost or challenge as automatically constituting an "entry barier. (See, e.

CCRA 12 , 16; see also ID 106-08). As Dr. Harris noted, all firms seeking to enter a market

must incur certain costs, yet these do not necessarily constitute entry bariers. (Haris, Tr. 7247-

48). Antitrust commentators agree. For example, ludge Posner has observed that "it is obvious
that a new entrant must incur costs to enter the market, just as his predecessors, the firms now

occupying the market, did previously. See, e. Richard Posner, Antitrust Law: An Economic

Perspective 59 (1976).5 Instead, the proper test of which costs constitute entry bariers is

whether they are costs that the incumbent firm did not previously have to bear. G. l Stigler, The

Organization oflndustry, 67 (1968). Case law is in agreement. For example Baker Hughes did

not consider reputational concerns or the importance customers place on assurances of product

quality and reliable future servce to constitute entry bariers because incumbent fi also

needed to clear these hurdles in order to effectively compete. 908 F.2d at 989, n. 10.

The fact that entr has already occured conclusively demonstrates that entry

barriers are not high. Even if this entry had not occurred, neither Complaint Counsel nor the

ALl has identified costs or requirements borne by new entrants that were not also borne by

CB&I and PDM. Accordingly, low entry bariers rebut the prima facie case.

(a) Barriers To The LNG Market Are Low.

Respondents have argued that entry bariers to the LNG market are low. (RA

20-24). Complaint Counsel primarily disputes Respondents on three purorted entr bariers --

reputation, locational advantage, and access to workforce and specialized equipment:

Reputation and experience -- The Response argues that reputation and experience

pose an entry barier because "customers of the relevant products strongly prefer to contract with

companies that have a long track record in constructing these facilities. (CCRA 31).

Respondents do not dispute that customers prefer companies with deep experience and good

Capital requirements are not entr barrers because the incumbent firm also needed to expend

those resources in order to compete in the maket. See, e. c.c. von Weizsacker, Barrers to Entr 

(1980).

6 Furher, as discussed in detail herein, new entrants have already overcome this alleged entr

baITier. Curent LNG customers have recognized that new entrants are qualified, experienced, and

capable of building LNG tank in the u.s. (See ROB 20-46).
reputations. However, new entrants already have this type of experience and reputation. They

are large, multinational corporations with significant resources, good reputations, and deep

experience in the LNG industry. (See RA 20-21). The assertion that a majority of customers

have a "strong preference for buying from fIrms that have previously built these structures in the

United States" (CCRAB 32) is simply wrong.? The vast majority of current LNG customers

have unambiguously testified that new entrants meet their reputational requirements and are

willng to work with them (See ROB 20-46).

Locational advantages -- The Response argues that CB&I's "local presence" in

the US. constitutes an entry barier. (CCRA 32). Thi argument is flawed because the new

entrants in this case also have a US. presence. T echngaz has parnered with domestic

construction giant H.B. Zachr and TKK has parnered with AT &v. SkanskalWhessoe is the

world's largest construction company with a large US. presence. (See ROB 21-40). CB&I

simply does not have a "local" advantage over new entrants.

The Response asserts that n(c)ompanes that have not built LNG tans in the

United States are at a cost disadvantage relative to those that have. . . . (CCRA 32). The

evidence does not support thi claim Competition is strong in this market because CB&I's

competitors also have cost advantages. For example, whie (xxxxxxxxx) may have minor cost

disadvantages relative to CB&I, it enjoys advantages in other areas. The resulting parity has

moved (xxxxxxxxx) to enter the US. market. (See (xxxxxx) Tr. 4725) (RFOF 3. 152, 3. 173-

178). It is this balance of advantages that has led curent customers to conclude that new

The characterization of Brian Price (of Black & Veatch) and Patrcia Outtm (of PTLA) as

customers (CCRA 32) is inaccurate. Black & Veatch is a competitor to CB&I. Ms. Outtm own an

interest in another of CB&l's competitors in the LNG industr. (Price, Tr. 641; Outt Tr. 684-86)

(RFOF 3. 659, 3. 684).
entrants can generate sufficient competition. (See, e. Izzo, Tr. 6505- 6511- 12; Bryngelson

Tr. 6146 6160; Carling, Tr. 4487- 96; see also RFOF 3. 73- 247-3.255).

Lest there be any doubt as to whether CB&l's "local advantages" permt it to

charge supracompetitive prices, one need only review the post-Acquisition Trinidad bidding

contest. The Response discounts this evidence, claiming that entry bariers to the US. LNG

market are higher than anywhere else. (CCRAB 32). The ALl simply ignored the project

because it is outside the US. (ID 16). Both are wrong. Trinidad provides a natural market

experiment to test whether new entrants face entry bariers in the US. CB&I's position in

Trinidad is similar to its position in the US. It had strong locational advantages of the type

Complaint Counsel classifies as entry bariers, including 20 years of prior experience working in

Trinidad and knowledge of the Trinidadian labor force and local regulations. Furher, CB&I had

a real cost advantage it will not likely have on any future US. project -- it was already on the

Trinidad job site building another LNG tank (See RA 24). In' an effort to capitalize on these

advantages , CB&I submitted a bid that was 5% more than its previous bid to Atlantic LNG. (See

JX 11). Despite these supposed advantages, CB&I lost the Trinidad project to TKKAT&V, who

had never built a tan in Trinidad, by 5%. (RX 838). The post-Acquisition price did not

, !

increase over the pre-Acquisition price. This natural market experiment" persuasively

demonstrates that theoretical advantages of "local presence" do not necessarily translate into an

ability to charge higher prices.

, ,

Natual maket experiments such as Tridad provide valuable informtion on a variety of

economic issues, including the existence of entr barers. (See Harrs, Tr. 7219, 7267- , 7351;

Simpson, Tr. 3760- 61). See also David T. Scheffmn and Mar T. Coleman, Curent Economic Issues at

" the FTC (undated), available at htt://ww.ftc.govlbelhiltes/riotina1.pdf.

The Response incorrectly argues that CB&I raised its price dramatically. A 5% price increase

can hardly be called dramtic. The fact that CB&I could not win with such a price is a testament to the

vibrant natue of competition in the Nort American LNG market as well as the presence of low entry

barrers.
Access to workforce and equipment -- The Response argues without support that

access to a "sizeable workforce and specialized equipment" is an entry barier. (CCRAB 32-33).

This is wrong. New entrants have met these needs by partnering with U.S. tank construction

companies that have the required workforce and equipment. (See, e. Cutts, Tr. 2328; lolly, Tr.

4684-85; Fahel, Tr. 1684) (RFOF 3. 105, 3. 166- 172). Furher, the capital expenditures

involved in acquiring these capabilities are not entry bariers because incumbent firm also

needed and continue to need to incur them. The evidence demonstrates not only that CB&I must

acquire the necessar labor force and equipment to build LNG tans, but also that it has no

competitive advantage in doing so. (See ROB 53-55).

(b) Barriers To The LPG Market Are Low.

Respondents have argued that entry to the LPG market is easy, pointing to the fact

that AT &V and Morse successfully won and executed LPG projects without prior experience in

thi market. (See RA 25). The ALl failed to address this evidence. The Response alleges that

Morse s experience is irelevant because it had a "substantial competitive advantage" due to its

close proxiity to the jobsite. (CCRAB 33). This argument is facile and mileading. While the

Response higWights thi locational advantage, it fails to quantify it. Although Morse enjoyed a

transportation cost advantage of approximately $70 000 on the Femdale project (1 % of the total

cost of the project), this advantage was outweighed by Morse s $180 000 disadvantage stemming

from having to use unon labor. Furher, Morse faced all of the purported entry bariers, such as

reputation and access to equipment, yet stil successfully entered the LPG market with minimum

sunk costs. (See Maw, Tr. 6553- , 6563- , 6680) (RFOF 4. 99- 111). This evidence

demonstrates that entry bariers are low, a conclusion that flows ffom the fact that Morse

10 Contrar to Complaint Counsel's suggestion (CCRA 35), potential entrants need not actually

enter a market in order to exert competitive discipline. Baker Hughes 908 F.2d at 988.
overcame allegedly substantial "entry bariers" with a mere 1 % cost advantage in one small area

of contract performance.

(c) Barriers To The LINILOX Market Are Low.

Respondents have argued that entry bariers to the LIN/LOX maket are low.

(RA 25-26). The best evidence of this fact is that new entrants have already succeeded in

entering the market, winning a majority of new bids. (RA 25-26). The Response claims, and

the ALl agreed, that new entrants face entry bariers due to a lack of equipment and reputation.

(See CCRA 33; ID 108). These positions cannot be squared with the fact that Matrix and

AT &V have already entered the market and now enjoy a 60% post-Acquisition market share

compared to approximately 6% pre-Acquisition. (See, e. Hars, Tr. 7307-08). Furher, as

discussed above, access to equipment is not an entry barier because CB&I also needed to

purchase that ,equipment.

EVIENCE OF CUSTOMER SOPIDSTICATION REBUTS COMPLAIT

COUNSEL'S PRIA FACIE CASE.

Customer sophistication rebuts a prima facie case. See Baker Hughes 908 F.2d at

986-87. The Response concedes sophistication of customers -- some of the largest energy and

chemical companies in the world -- but dismisses it because "pricing is not transparent to

customers. .. . " (CCRA 41). While the ALl accepted this argument (ID 109), it misses the

mak for two reasons. First, such an argument would vitiate Baker Hughes. Pricing was not

transparent in Baker Hughes either. Yet, the court found the fact that customers were large

consumers who "closely examiner d) available options and typically insist on receiving multiple
confidential bids for each order" rebutted a prima facie case. 908 F.2d at 986. Complaint

Counsel does not dispute that customers here precisely fit this description. 

Second, to the extent access to pricing information is relevant customers have

access to and use such information. Customers such as EI Paso, CMS, and BP have access to

sophisticated pricing models and experienced consultants. Using these sources, customers can

and do make judgments regarding LNG tan pricing. (RA 31). 12 Contrar to the ALl's

reasoning (ID 109) and the Response (CCRAB 41-42), consultants have access to accurate and

detailed LNG pricing information. Furher, customers actually use that informtion to evaluate

pricing. (See RA 30-31). Complaint Counsel's own witnesses confirm this fact. (xxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

j

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) ((xxxxxxxx) Tr.

722-23). (xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxy.

(fd.) Similarly, Brian Price of Black & Veatch

(one of CB&I's competitors), testified that he has personal knowledge of CB&l's costs on LNG

tans, and that Black & Veatch has access to pricing curves that it uses to assess pricing. (Price

Tr. 606 637- 661-62).

Recognizing that may customers believe that sufficient competition exists in this

market, the Response claims that they are ignorant of tan pricing. (CCRA 42-43). This

argument is misplaced. These current customers have extensive experience in the LNG industry

11 Customers use well-established procurement procedures, including subterfuge, to achieve better

pnces. (See, e. Patterson, Tr. 350). This is strong evidence of customer sophistication. 12 Complaint Counsel's arguents regarding Whessoe s pricing (CCRA 43) are based on mere

speculation. (pee RROF 883-905). (xxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxJ
and have seen firsthand the competition that existed between CB&I and PDM as well as the

curent competition that exists. The fact that they are entrusted to oversee several billion dollars

worth of LNG projects should be accorded substantial weight. (See RFOF 3. 574- 592).

RESPONDENTS' SHOWING OF SUFFICIENCY REBUTTED 

PRIA FACIE CASE. COMPLAINT COUNSEL'S ATTEMPT TO SHIT

THE BURDEN ON TilS ISSUE IS IMPROPER.

Respondents made a substantial showing of suffciency of entry. Consistent with

the Baker Hughes sliding scale approach, 908 F.2d at 982- , this showing rebutted, the

purorted prima facie case. Contrar to the position of Complaint Counsel and the ALl the

Merger Guidelines do not and cannot alter established circuit court law with respect to the

strength of showing or the burden of proof regarding suffciency of entry. Complaint Counsel's

approach would set a standard from which only the F.T.c. can prevail in merger litigation.

While the Guidelines provide a useful analytical framework to view mergers, they do not

apportion burdens of proof in litigation and they do not trmp existing circuit cour precedent.

Respondents respectfully urge that to hold otherwise would be reversible error.

(a) Respondents Do Not Bear The Burden Of Proving That Entry Wil Be

Suffcient To Constrain CB&l's Pricing At Levels That Would Have

Prevailed Absent The Acquisition.

Throughout this litigation, Complaint Counel has attempted to shift the burden of

proving that entry will be sufficient to "deter or counteract" the possible anticompetitive effects

of the Acquisition to Respondents, claiming that "the law requires Respondents to prove that new

entry wil be profitable at pre-merger prices. . 

. 

(See, e.

g., 

CCRA 27; Robertson, Tr. 8151

13 Some of Complaint Counel's own witnesses agree that the Acquisition has not substantially hared competition. Bechtel testified that it can get a "reasonable price" for an LNG tan postAcquisition. (Rapp, Tr. 1325 , 1333-34) (RFOF 3. 184). MLGW testified that it has seen no evidence that

CB&I can control the LNG maket post-Acquisition and that "it' s possible that there may be more

competition in the United States today for (LNG) tank. . . than there was in 1994 . . . . " (Hall Tr. 1861).
8350-51). 14 The ALl implicitly agreed with Complaint Counsel on this point. 

(See ID 101-02).

Although Respondents have demonstrated that post-Acquisition entry has maintained pricing at

competitive levels, the position taken by Complaint Counsel and the ALl on the burden of proof

is inconsistent with the law. In Baker Hughes the D. C. Circuit specifcally rejected the notion

that a respondent must show that entry would actually occur or that such entry would be "quick

and effective " reasoning that a respondent could not reasonably be expected to prove that new

competitors will "quickly" or "effectively" enter uness it could produce evidence regarding

specific competitors or their plans. Baker Hughes 908 F.2d at 987. The court noted that

imposing such a standard would shift the ultimate burden of proof in a Section 7 case and force

the defendant to "prove the core of the dispute. " The D.C. Circuit found this to be a breach of

fundamental fairness because it would create a situation in which respondents could never

successfully defend a Section 7 case. /d. at 992.

In an effort to skir the dispositive holding of Baker Hughes (a decision authored

by a panel including two sitting Supreme Cour lustices), the Response -- citing the ALl 

implies that Baker Hughes has been overrled by subsequent cases from the D.C. Circuit (such

as Heinz) and the Commssion, as well as the 1992 Merger Guidelines ("Guidelines ). (CCRA

28). That assertion is wrong. Heinz reaffrmed that Baker Hughes sets forth the "analytical

approach by which the government established a section 7 violation. F. T C. v. Heinz 246 F.

708, 715 (D.c. Cir. 2001). It does not purort to impose on a respondent the onerous burden of

14 Furer, Complaint Counel and the ALJ incorrectly assume that in order to assess sufficiency of

entr, one must compare post-merger pricing to pre-merger pricing. The relevant question.is whether

entr wil create competitive circumtances equivalent to pricing that would have prevailed absent the

Acquisition. (Hars, Tr. 7173- , 7186-87; Simpson, Tr. 5677, 5701). This distinction is important here

because the evidence demonstrates thatPDM would have been a substantially less effective competitor in

at least the LNG maket absent the Acquisition. (See RA at 49-51). This fact, disregarded by the ALJ

requires that post-merger competition be measured by the less competitive pricing that would have

occured absent the Acquisition.
proving that entr is suffcient. Similarly, the Guidelines do not modify Baker Hughes. In fact

the Guidelines "disclaim allocation of burdens " of proof in a judicial or administrative

proceeding. See Jonathan B. Baker Respondents to Developments in Economics and the Courts:

Entry in the Merger Guidelines Antitrust L. 1. 189 205-06 (Autum 2003).1

(b) Empirical Evidence Demonstrates That Entry Is Suffcient.

As par of its rebuttal, Respondents presented evidence on suffciency of entry. In

the LNG maket, Respondents showed that suffcient new entry has occured and has kept that

market competjtive. Recent. LNG projects such as Dynegy, CMS Energy, and Southern LNG

demonstrate that CB&I cannot exercise market power, either in the form of increased magins 

dictation of contract term. (See RA 34-37). LNG projects in Trinidad and the Bahamas

which are quite similar to U.S. projects, fuher support this conclusion. (See, e. Hars, Tr.

7218-19). Virually all curent LNG customers confIrm that new entry has generated and will

continue to generate competition suffcient to keep prices low. (See RA 39-41).

Complaint Counsel's analysis of this evidence is flawed. It argues that the

Dynegy project is irelevant because CB&I initially declined to bid on the tan portion of this

project. (CCRA 34; see also CCRAB 15). This conclusion misstates the facts, and is in any

case irrelevant. Prior to seeking a tan supplier, Dynegy accepted bids for the EPC portion of

the project; it selected Skanska as its EPC contractor over may other foreign and domestic

fIrms including CE&!. (Se Puckett, Tr. 4545-47). Thereafter, CB&I initially declined to 15 The Guidelines canot place on Respondents the burden to show that entr would be timely,

likely, and sufficient. They are not law, are not binding on courts or the Commssion, and canot provide

the basis to contradict well-settled principles of law. See, e. , New York v. Kraft Gen. Foods, Inc. 926 F.

Supp. 321, 359 n. 9 (S. Y. 1995); see also, Olin Corp. v. F.T. 986 F.2d 1295, 1300 (9th Cir. 1993);

C. v. PPG Indus., Inc. 798 F.2d 1500, 1503 n.4 (D. C. Cir. 1986); Fruehauf Corp. v. 603 F.

345, 353-54 (2d Cir. 1979). 16 Without explanation, the Response argues that "specific evidence" regarding each new entrant

demonstrates that they cannot be effective competitors in the United States. (CCRA 11). This argument

is meritless because new entr has already been successful. (See RFOF 3.57- 227; RROF 448-570).
submit a bid for the tan portion of the project because it feared that its competitively-sensitive

bid information would be transmitted to Skanskalessoe. (Puckett, Tr. 4574- , 4577-78;

Glenn, Tr. 4411). After Dynegy assuaged CB&l's confidentiality concerns CB&1 attempted to

submit a bid for the LNG tanks. Dynegy rejected this attempt because it was satisfied with bids

received from new entrants. (Puckett, Tr. 4559-60). Even an appeal by CEO Gerald Glenn to

Dynegy s CEO could not change Dynegy s mind. (See, e. Glenn, Tr. 4137). Dynegy s outright

rejection of CB&I for the largest LNG project in North America conclusively demonstrates that

new entry is sufficient to constrain CB&I's pricing and alleged market power. 

With respect to other LNG projects, the Response (citing the ALl) argues that

foreign entrants "rise only to the level of expressing an interest or paricipating in preliminary

meetings. " (CCRA 34). This argument substantially understates the status of entry in the LNG

market. New entrants have done much more than "express an interest" and paricipate in

preliminary meetings. ", As discussed above" SkanskalWhessoe has submitted a final bid on the

Dynegy project and has already allied itself with process engineer Black & Veatch. (See

Puckett, Tr. 4579; Eyermann, Tr. 6992). It has also provided pricing to Yanee Ga for its

peaks having facility and to (xxxxxxxxxx) for its import termnal in (xxxxxxxxxxxxxxxx

xxxxxxxxx) . (See Andrewicz, Tr. 6445-46; (xxxxxxxxxxxxxxxxxx)). Similarly,

TechnigazZachr has bid on the Dynegy project and has submitted pricing to Yanee Gas. (See

Puckett, Tr. 4556; Andrewicz, Tr. 6445). TKK AT &V has also done far more than

17 Complaint COilel argues that a competitor of CB&l's, Black & Veatch's Brian Price, has

expressed "concern" that Dynegy wil pay a higher price "without CB&l's parcipation in the bidding. "

(CCRA 11). Ths "concern" is groundless. Dynegy itself testified that it was satisfied with the bids

received, and that it felt CB&l's parcipatig in the biddig contest wasunnecessaJ; (See Puckett, Tr.

4557-60). Tellingly, although Mr. Price testified to this alleged "concern " he never bothered to share it

with his client -- Dynegy. (Price, Tr. 609- , 625). Mr. Price s testimony relatig to this project is

uninformed, self-servng, and biased (See ROB at 85-86).

The Yanee Gas project has not been awarded yet. (See Andrukiewicz, Tr. 6445-46).
paricipat( e) in preliminary meetings " having already bid on the Dynegy project and having

implemented training program designed to train U.S. workers on LNG projects. (See, e.

Puckett, Tr. 4556; Cutts, Tr. 2326, 2442, 2565-66).

The Response sidesteps evidence of LNG bids in the Bahamas and Trinidad

because of purorted "(b)arers to entering the United States market." (CCRAB 35). 19 Yet

Complaint Counsel neither showed that entr barriers into the Bahamas or Trinidad are lower

than in the U.S. nor that entry bariers in the u.s. are high. See Par I- supra. Indeed

evidence regarding the Trinidad project-- aproject on which CB&I admittedly had some cost

advantages due to its incumbency from a previous project on the same site -- demonstrates that

these advantages do nOUranslate into an ability to charge supracompetitive prices.

Respondents have also shown that entr is sufficient to keep the LPG market

competitive. Matrix and AT&V have constrained CB&l's pricing in this maket. ITC testified

that "AT&V beat the socks off of CB&I" on its Deer Park LPG project and that the Acquisition

has not hindered competition for LPG tan. (See RA 41; see alsoN. Kelley, Tr. 7091-

19 The ALJ disregarded this evidence because the projects were not in the relevant product maket.

(il 16, 87). This approach erroneously assumes that no informtion about new entrants originating

outside the U.S. is relevant. As Dr. Harrs obsered, such evidence is important to assessing the strength

of new entrants here. (See Haris, Tr. 7219, 7267- , 7351). Cour have also recognized that

informtion regarding foreign projects is useful in examning entr issues. See Baker Hughes, 908 F.2d at

989; see also Baker Hughes 731 F .Supp. at 10- 11. 20 In fact, the evidence is to the contrar. For example, with respect to the alleged reputation and

experience entr barer, customers for the Bahamas project (Enron) and the Triidad project (Atlantic

LNG) have testified regarding the good reputation that new entrants enjoy. (See, e. Carling, Tr. 4494;

Rapp, Tr. 1333-34). 21 As discussed supra CB&I attempted to implement a 5% price increase on the most recent phase

of the Trinidad project, believig that its CUlent presence on the job site would give it a competitive

advantage. (ROB 59-60). CB&I was wrong; it lost this project to TKKAT&V. This demonstrates that

CB&I canot raise its prices to the SSNIP level without losing business to new entrants.
7134-37; RFOF 4. 56- 61).22 With respect to the ABB Lummus project, it is uncontroverted

that the presence of Matrix and Wyatt forced CB&I to lower its pricing to a tiny margin in order

to win. (See Scorsone, Tr. 5039-43) (RFOF 4. 66- 70).

By contrast, the Response has not cited any affrmative evidence demonstrating

that entr is insuffcient to constrain pricing. Instead, it attacks the validity of Respondents

sufficiency evidence, arguing that Matrx s competitiveness in the LPG market is "questionable

because it has never constructed an LPG tan. This standard would remove entry from merger

analysis. More fundamentally, Complaint Counsel ignores the fact that the presence of Matrix

has constrained CB&I's pricing, forcing it to " adjust its prices in response" to its bidding -- one

ofthe hallmarks of sufficiency. See United States v. United Tote, Inc. 768 F. Supp. 1064, 1082

(D. Del. 1991).

Similarly, the Response argues that AT&V is " capacity constrained" and has

limited bonding capacity. (CCRB at 37). This argument is off-base because it assumes without

any supporting evidence that AT &V cannot build the types of LPG projects that customers

curently require. There is no evidence that the ITC project is any smaller than the tan future

LPG customers will require. Furher, even if future customers wil require larger LPG tans

Complaint Counsel assumes -- without any evidentiar support -- that any "limits" on AT&V'

bonding capability would prevent it from building these larger LPG tans. Finally, Complaint

Counsel incorrectly assumes that AT &V is somehow unable to expand or adapt to meet the

changing needs of its customers. As discussed below, AT&V has already demonstrated this type

of adaptability, having gone from new entrant to LIN/LOX market leader in just three years.

22 Complaint Counel presented no evidence to suggest that the ITC project is not tyical of LPG

projects in the future. In fact, its only witness regarding the LPG market has not been involved in that

maket for six years. (See Waren, Tr. 2284, 2318).
Finally, with respect to the LIN/LOX market, Respondents presented substantial

evidence showing that new entry has and wil continue to keep this market competitive. Most

compellingly, new entry has constrained CB&I to the point where LIN/LOX customers are

receiving post-Acquisition pricing equal to or better than pricing received post-Acquisition.

(See RA 43-47; RX 208). CB&l's own contemporaneous documents show that it was forced to

lower pricing in response to the competitive threat posed by new entry. (See RX 627; RAB

44-45; RFOF 5. 128- 130).

Although the reality is that new entrants are now the leaders in the LIN/LOX

market, the Response asserts that they have not made "any headway" against CB&I. (See

CCRA 2). In support of that claim, it attacks the competence of new entrants. (CCRA 37-38;

see also ID 47-50). This is most evident in its discussion of AT&V. On a project for BOC in

Midland, North Carolina, the Response asserts that "although the price was low in the beginning,

because of the many change orders (AT&V' s) price ended up higher than CB&l's. (CCRA

37). This misleading claim is based on an unsupported hearsay statement from a witness who

was not even involved in the project. (See, e.

g., 

Kistenmacher, Tr. 922; RROF 467). The trth

regarding the BOC Midland project, straight from BOC's designated representative; is that BOC

was "quite satisfied (with AT&V) in all aspects" and that AT&V had "distinguished themselves

as being capable LIN/LOX tan providers. " (V. Kelley, Tr. 5281-87) (RFOF 5. 108- 113). Lest

there be any doubt as to BOC's view of AT&V , BOC plans to use AT&V again in the future.

Another division of BOC -- based on a positive recommendation from BOC's Midland project

manager -- has already selected AT &V as a LIN/LOX tan contractor. (See ID 45; see also 

Kelley, Tr. 4601 , 5289-92; Cutts, Tr. 2504-06) (RFOF 5. 113- 121).
Similarly, Complaint Counsel attempts to belittle Matrix by arguing that it is a

higher-cost" competitor because it must "subcontract for LIN/LOX fabrication work."

(CCRA 38). This statement is false. There is no evidence to support the claim that Matrix

must subcontract fabrication work. In fact, Matrix s testimony is to the contrar:

Have there ever been any proposals that you received

requests for quotes that you have received ITom potential

customers that have spec d out a LINILOX tan that you

would not have the pressing capability to supply?

I don t think so.

(Newmeister, Tr. 2197) (RFOF 7. 128) (RROF 523) (emphasis added). Furher, Complaint

Counsel's claim that Matrix is a "higher cost

non-competitive" competitor (CCRAB 37-38)

has been squarely undercut by recent bidding contests, which show that Matri can compete

head-to-head with CB&I on price. (See RA 44-45).

Finally, the Response wrongly argues that Chattanooga Boiler & Tank

Chattanooga ) is not a sufficient competitive constraint because it has not yet built a LIN/LOX

tank and because its "price" was "substantially higher than any other competitor. " (CCRA 38),

Complaint Counsel misleadingly confuses bids and budget prices. Chattanooga did not "bid" on

the project to which Complaint Counel refers -- it provided a preliminar budget price.

(Stetzler, Tr. 6351).24 Moreover, Chattanooga can compete in this market effectively because it

has significant advantages over CB&I in terms of overhead costs and experienced field

personnel. (Stetzler, Tr. 6369-73) (RFOF 5. 66- 67).

23 (xxxxxxxxx xxxxxxxxx) 24 As discussed infra budget pricing should not be confused with fi fIXed price bids. A budget

price is a preliminar estimate provided to a customer, incorporatig little in terms of detail and analysis;

such prices are usually higher than finn fixed price bids.
(c) Economic Evidence Supports Respondents' Showing Of Suffciency

And Precludes Complaint Counsel From Carryg Its Burden Of

Proof.

In attempting to car its burden of proof, the Response argues that new entry wil

be insufficient to constrain CB&l's prices. This argument assumes that new entrants will have

higher costs than CB&I. Yet, Complaint Counel presented no reliable evidence showing that

new entrants' cost structures will prevent them ITom competing effectively. In fact, apar ITom

questionable attempts to draw conclusions ITom anecdotal evidence of higher costs, Complaint

Counsel has not even attempted to present or quantify evidence regarding competitors' costs. By

contrast, in the course of rebutting the prima facie case, Respondents presented extensive

economic evidence regarding critical loss analysis and bid theory. This evidence demonstrates

that new entrants can, regardless of whether they may have higher costs on a paricular project

constrain CB&I's pricing. In the face of this evidence, Complaint Counsel cannot car its

burden of proof on suffciency of entry.

(1) There is no reliable evidence that new entrants have

prohibitively higher overall costs.

In finding that new entrants cannot suffciently constrain CB&I's pricing, the ALl

incorrectly assumed that an entrant wil not provide a suffcient constrainng effect uness it is

equally cost-effective " to CB&I. (CCRA 27; ID 95). This approach is incorrect for two

reasons:

First Complaint Counsel's theory regarding insuffciency assumes that new

entrants will have higher costs than CB&I and PDM. Yet, it failed to present probative evidence

such as a cost study, to support this assumption. Its attempt to use anecdotal evidence to car its

burden of proof failed. For example, the ALl (and the Response) highlighted testimony

indicating that (xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxXXXXXXXXXXXX) Furher

the Response and the ALl's factual conclusions rely significantly on evidence recited by Dr.

Simpson, who concluded erroneously and without basis that the costs of foreign competitors wil

put them at a substantial disadvantage to CB&I in the u.s. (Simpson, Tr. at 3919-20). Yet, the

record is clear that Dr. Simpson knows nothing about new entrants ' actual costs. (Simpson, Tr.

3919-22). He had not studied CB&l's costs or the costs of the foreign entrants , and did not know

whether new entrants charged more or less for fabrication, materials, engineering, field . work, or

overhead. (See, e. Simpson, Tr. 3921-27). In short, Complaint Counsel has not shown that

new entrants have higher costs (let alone that such higher costs would allow CB&I to raise its

prices) and thus cannot meet its burden of establishing insufficiency of entry.

Second to the extent new entrants do have some specific cost disadvantages, they

have offsetting advantages that allow them to compete effectively. For example, as discussed

above . (xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) ((xxxxxx) Tr.

4687- , 4715-21). Similarly, TKKAT&V undercut CB&l's price in Trinidad despite two

allegedly significant cost disadvantages -- its complete lack of prior experience in Trinidad and'

the fact that CB&I had huge cost advantages by already being mobilized on the project site. In

the LIN/LOX market, AT&V has overcome alleged cost disadvantages, winning the majority of

post-Acquisition jobs at prices lower than CB&l's or PDM's pre-Acquisition prices. (Harrs, Tr.

7307-09).

25 (xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxx) (See Simpson, Tr. 3926; Jolly, Tr. 4687-89).
(2) Critical loss analysis shows that CB&I cannot implement price

increases in the face of new entry.

Whether or not new entrants have higher costs, critical loss analysis indicates that

CB&I cannot reliably attempt to increase price by a substantial margin. Respondents have

outlined the importance of critical loss theory in this case, and criticized the ALl for refusing to

mention it in his Initial Decision. (See RAB 47). The Response argues that Dr. Hars' critical

loss analysis was "badly flawed" (CCRAB 38), yet fails to acknowledge that Dr. Hars is one of

the two creators of critical loss theory and that his critical loss analyses have been accepted and

cited by several cours. (See Hars, Tr. 7258).26 27

Complaint Counsel argues that critical loss is but "one of several methods" to

analyze whether a fIrm can increase price. (CCRA 38).28 However, the ALl failed to use any

proper alternative methodology; he simply concluded that higher competitor costs prevent new'

entrants from constraining prices. Critical loss analysis, however, provides a method for

measuring the risks and rewards of attempting a price increase and how CB&I would likely

perceive those risks.

26 See, e. , F. T.C. v. Tenet Health Care Corp. 186 F.3d 1045 (8th Cir. 1999); United States 

Mercy Health Servs. 902 F. Supp. 968 (S. D. Iowa 1995), vacated as moot, 107 F.3d 632 (8th Cir. 1997). 27 Complaint Counel's crticism that Dr. Ham "ignored several caveats about using critical10ss

that have been articulated in recent antitrt arcles " (CCRA 40) is miplaced Dr. Har explicitly

addressed one of these two arcles (by Langenfeld and Li) durg his cross-examination. (Har, Tr.

7892-98). As Dr. Hars explained, many of the "caveats" identified by Complaint Counel durng its

cross-examination are irelevant to economic analysis in this case. (pee id. The other arcle (by Katz 

Shapiro) was published six months after Dr. Hars testified in this case. 28 In fact, Respondents presented evidence on another of these methods -- bid model theory. Bid

model theory, which the ALJ ignored in his Initial Decision, predicts that in makets with blind bids, an

acquirer is unlikely to attempt to raise prices above the SSNIP level in the Merger Guidelines. (See

Simpson, Tr. 3767-68). The evidence demonstrates that CB&I does not have good informtion regarding

its competitors ' costs. Given CB&I's critical loss, bid model theory suggests there is too much uncertainty

and risk for an economic actor such as CB&I to attempt a price increase. (See RFOF 7.59- 88; see also

ROB 131-37).
Complaint Counsel accuses Dr. Haris of "major mistakes" in calculating CB&l's

variable profit margin. Dr. Haris made a small adjustment to initial calculations of the actual

critical loss because of differences in the LNG variable profit magin stemming from testimony

given after he made his initial calculations. These differences were small and did not, in any

way, affect the outcome of his critical loss analysis. (Haris. Tr. 7344).29 In any event, Dr.

Hars' analysis was far superior to that of Dr. Simpson (CCRA 39), who principally based his

analysis on a single document and then assumed that virtually all of CB&l's costs were variable

without inquiring as to whether CB&I viewed them to be fixed costs. (E. Simpson, Tr. 3885-

3909; Haris, Tr. 7341-42).

Even using Dr. Simpson s erroneous approach in the calculation of the variable

profit margin, critical loss analysis stil shows that CB&I would be unlikely to attempt a

supracompetitive price increase because the risk of lost profit outweighed the potential gain.

(Haris, Tr. 7265-66). Because the projects in the relevant makets are so infrequent and (in

some cases) expensive, CB&I cannot attempt a 5% price increase because the risk of loss would

be too great. (See id.)3o

(3) Complaint Counsel's use of Respondents ' statements sheds no

light on the sufciency of entry.

In an effort to car its burden on suffciency, Complaint Counsel resorts to a

small collection of documents and statements taken out of ontext. First, the Response cites to a

public investor conference call led by Gerald Glenn, where he discussed CB&I's margin levels

29 Complaint Counsel also accuses Dr. Harrs of basing his critical loss conclusions on an

inaccurate sample" of projects when he, in fact, considered all the LNG projects in existence and

explained why the Trinidad LNG project was highly relevant to a critical loss analysis of CB&l's u.s.

behavior. (Hams, Tr. 7270-73). 30 Dr. Simpson assumed a varable profit margin of 15% -- which means that a 5% price increase

wil not be profitable if it leads to a loss of sales of 25% or more. (Hams, Tr. 7342).
and capabilities. (See, e. CCRA 2, 8 , 10, 11). Reliance on these statements is flawed. As

Mr. Glenn explained, higher "margin levels" have been generated by CB&I's recent acquisition

of its Howe Baker subsidiary, not by the Acquisition ofPDM. (See CX 1527; Glenn, Tr. 4392-

93).31 Indeed, as discussed supra CB&I has been forced to cut its magins (to zero percent in

some cases) to remain competitive in the relevant markets. Furher, Mr. Glenn s comments

regarding CB&I's future prospects related to the overall prospects of the company, not its

competitiveness with respect to any paricular product line. (See CX 1731 at 4, 27, 28). Indeed

revenue from sale of relevant products in the u.s. is a tiny percentage of CB&I's total revenue.

(Glenn, Tr. 4088, 4158). Finally, to the extent Mr. Glenn made predictions dUring the call about

competitors' costs , the economic evidence demonstrated that CB&I does not, in fact, have good

information regarding those costs. As Dr. Hars noted, CB&I could win every project if it

actualy had that informtion. Prices in the relevant makets are established individually. (See

Hars, Tr. 7261). Consequently, if Complaint Counsel's theory were correct , CB&I could set the

price for each job just below the level of its competitors' costs , thus assuring itself of a winning

bid. (Hars, Tr. 7358-59). However, CB&I has lost more than half of the available projects

post-Acquisition. (See Hars, Tr. 7223). Thi result demonstrates either that CB&I does not

have lower costs or that it lacks the ability to take advantage of any lower costs due to its lack of

accurate information regarding competitors' costs.

Furher, the Response argues, falsely, that CB&I failed ' to discuss postAcquisition competition in its post-Acquisition SEC filings. (CCRA 7, 10). CB&I's post31 Howe Baker was acquied a few months prior to the Acquisition. Its business has nothing to do

with the relevant makets. 32 CB&I's inability to know its competitors ' costs is most apparent in connection with the Tridad

proj ect, where CB&I overestimated the costs of the eventual winner of this proj ect -- TKK A T & V. (See

Haris, Tr. 7272-73).
Acquisition fiings clearly state that "(t)here are numerous regional, national and international

competitors that offer products and services similar to ours. " (CX 1021 at 36; see also RROF

757).

Finally, in an effort to , show that CB&I and PDM intended to create

anticompetitive effects with the Acquisition, the Response cites to a collection of pre-Acquisition

documents predicting that, for example CB&I would be a "dominant force. (See, e. CCRAB

, 7). Such predictions are irrelevant. As discussed supra new entr has created a highly

competitive environment that effectively prevents CB&I from raising prices. The existence of

thi entry was not discussed in these documents because it occured after these documents were

created. (Scorsone, Tr. 5225-34).
COMPLAINT COUNSEL FAILED TO ADDRESS RESPONDENTS'

ARGUMENTS REGARDING REMEDY.

The Response fails to squarely address Respondents' arguments regarding

remedy. (See RA 52-57). Respondents argued that orderng divestiture of the Water Division

was inappropriate because there was no evidence to support the conclusion that its inclusion

would assist competition in any relevant market. (RAB 56-57). The Response cites -- out of

context -- the closing argument of Respondents' counsel (Mr. Leon), who argued that any

divestiture order would need to include some assets that are not diectly related to the relevant

products. (See CCRA 78) (citing Court, Tr. 8311- 12). While it is true that a divestiture order

would necessarily include some assets not directly related to the relevant products, there is no

evidence in the record as to what those assets would be. Complaint Counsel failed to present any

evidence regarding what assets would be necessar to assist competition or whether including

those assets in a divestiture order would harm customers unrelated to the relevant product

markets. (Leon, Tr. 8311- 12).

The Response wholly misses the point and misstates Respondents' point at trial

which remains the same now: Because Respondents have presented evidence showing that a

divestiture would har competition in the relevant makets, Complaint Counsel was obliged to

present evidence regarding the efficacy of its proposed remedy. Because Complaint Counsel

presented no evidence that Water Division assets would assist any acquirer in being

competitively viable " its inclusion in the ALl's divestiture order was inappropriate.

33 Complaint Counel' s citation to Olin supports Respondents' position. There, the ALJ took

substantive evidence regarding the proposed remedy and found, based on that evidence that inclusion of

assets unelated to the relevant products was necessar in order to ensure the viability of the new

competitor. In re Olin Corporation 113 F. C. 400 (1990).
COMPLAINT COUNSEL IGNORES KEY EVIDENCE REGARDING

THE EXITING ASSETS DEFENSE.

In attempting to avoid the application of the exiting assets defense, Complaint

Counsel makes two key factual errors. 34 First Complaint Counsel wrongly suggests that there

were potential purchasers other than CB&I for PDM's EC division. (CCRA 61-62). This

argument lacks sufficient evidentiary support. To the contrar, in light of the maket conditions

at the time and the various competing constraints, the preponderance of the evidence

demonstrates that PDM did everyhing possible to sell its EC Division. CB&Iwas the only

potential purchaser with sufficient financial strength to give PDM what it needed: a quick, allcash transaction. (Byers, Tr. 6759-62) (RFOF 8.5, 8. 23- , 8. 30- 39). In the course of

conducting a diligent search for potential buyers PDM and its investment banker conducted an

additional search as late as December 19, 2000 -- less than 2 months before closing. After this

search, the Board concluded that " there is a thin market and no other potential purchaser was

identifed." (RX 28 at 2) (emphasis added). (See also RAB 60-61). 35 36

Second citing the ALl the Response argues that PDM would not have exited the

market absent the Acquisition. (See CCRA 63). This claim is contradicted by the greater

weight of the evidence, which -- despite the Response s contrar claim (CCRA 60) --

demonstrates that PDM's Board voted to sell PDM and close the business. (Byers, Tr. 6732-

34 The Response failed to even address Respondents' argument that the exiting assets evidence also

constitutes rebuttal evidence under Baker Hughes. (See RA 49-51). 35 In finding that other potential purchasers existed, the ALJ relies on Taner s fairess opinion

dated Februar 7, 2001. (ID 118). However, this opinion was prepared in December 2000 as work

product for the liquidation scenarios performed by Taner. (Byers, Tr. 6877-78) (RFOF 8. 123). In fact

no such potential buyers were located durg the subsequent December 19, 2000 Board meeting. (Byers

Tr. 6872-73; RX 28 at 2) (ROF 8. 122). 36 Complaint Counsel's argument that PDM tued away prospective purchasers is inaccurate. PDM

and its investment baner continued to receive inquiries of interest from prospective buyers. (Scheman

Tr. 2941 , 6911) (CCRA 13, 62; ID 73-75). These inquiries were analyzed, assessed and eventually

determined not to be viable alternative purchasers. (Scheman, Tr. 2941).
6741- , 6755- , 6769-78; Scorsone, Tr. 4790-93; Scheman, Tr. 2911- , 6907- , 6952)

(RFOF 8. , 8. , 8. , 8. , 8.21 , 8. , 8. , 8. 115 , 8. 118) (CCRA 12; ID 74). Complaint

Counsel's attempt to claim otherwise is misleading and should be rejected by the Commssion. 

37 For example, in arguing that PDM would not have exited, Complaint Counel argues that "some

company other than CB&I" would be "building the Cove Point project" (CCRA 63). The referenced

testimony says nothing regarding whether an attempt to assign the Cove Point contract to another

company would have been feasible or whether the customer would have penntted such an assignment. '
II. RESPONSE TO

COMPLAINT COUNSEL'S CROSS-APPEAL
INTRODUCTION TO RESPONDENTS' RESPONSE TO COMPLAINT

COUNSEL' S CROSS-APPEAL

Complaint Counsel's cross-appeal attempts to hide the deficiencies in the Initial

Decision and to call attention away from its inability to car its burden of proof under Section 7.

I .

Its allegations regarding collusion are demonstrably false and its allegations of price increases

are based on speculation and conjecture, all of which is unsupported by reliable evidence. The

ALl properly rejected these unfounded allegations.

Complaint Counsel's appeal of the ALl's remedy is similarly overreaching and

unsupported by record evidence. The scope and scale of its request to divest a significant portion

of its contracts and employees would be a remedy that has never been imposed in any prior

adjudicative proceeding. Further, such a remedy in this case is wholly unsupported by record

evidence. Imposing such a remedy would also be grossly unfair. The provisions in the Proposed

Order on appeal are not the same as those presented to the ALl. Further, Respondents wen

never given the chance to present evidence on the specifics of any proposed remedy, as the

proposed order presented to the ALl was not disclosed until four weeks after the trial concluded.

To the extent the Commssion finds that a violation of Section 7 occured, Respondents

respectfully submit that the ALl' s Order implemented a complete divestiture and that no fuher

remedy is waranted under these facts or permtted by law.
COMPLAINT COUNSEL HAS FAILED TO PRESENT

CREDIBLE EVIDENCE OF ANTICOMPETITIVE EFFECTS.

ANY

Because Respondents have successfully rebutted the weak prima facie case

Complaint Counsel -- to prevail -- must present additional evidence of anticompetitive effects.

See Baker Hughes 908 F.2d at 983. To do so, Complaint Counsel argues without credible

evidentiar support that Respondents have engaged in collusion and post-Acquisition price

increases. Complaint Counsel also argues that the ALl improperly applied the rules of evidence.

These claims are wholly without merit. 

COMPLAIT COUNSEL HAS NOT PRESENTED

EVIENCE OF ANTI-COMPETITIV CONDUCT.

CREDffLE

(a) Complaint Counsel Has Not Presented Any Credible Evidence Of

Collusion.3

Complaint Counsel accuses CB&I of colluding with PDM on the Spectrum Astro

TVC opportunity. (CCRAB 48- , 52-53; see also CCRA 16- 17). The ALl rejected this

argument, because "(t)he evidence does not establish that issues of pricing, profit margins, costs

or anything else related to this project were discussed between PDM and CB&I . . . " (ID 114).

Indeed, the evidence affirmtively establishes that such issues were never discussed between

PDM and CB&I and that no plan to coordinate bidding was ever created or executed. (Scorsone

: i

38 Complaint Counsel resorts to violating the Commssion s own rules by citing to evidence outside

the record. (See CCRA 49 n. 18). Furer, in an apparent attempt to prejudice the Commssion,

Complaint Counsel falsely accuses Respondents of obtaining an "extension of time" to "consumate the

Acquisition. " (CCRA 1). Respondents fully complied with all applicable provisions of the HSR Act. 

was Complaint Counel who, having failed to meet the Act's timing requirements, asked Respondents for

additional time to investigate the Acquisition. Respondents made every effort to accommodate this

request, and closed the Acquisition only after it became apparent that: 1) Complaint Counsel had no

intention of concluding its investigation in a timely maner; and 2) the Acquisition would fall apar if it

were not consummted imediately. 39 As an initial matter, Complaint Counel has not shown that the Acquisition resulted in a structual

change making collusion more likely in the industral tan industr. This industr is not suscephole to

collusive behavior because of product heterogeneity, inability to access complete information about rivals

businesses, and differences in vertical integration. (See ROB 144; RR 43 n.42). See also Merger

Guidelines 
Tr. 4796- , 5045-46; Scully, Tr. 1217-22; see also ID 114) (RFOF 6. 138- 153). Furher, all of

the paricipants in the Spectrum Astro project -- including those who testified on behalf of

Complaint Counsel -- testified that CB&I and PDM fought hard for this job. (Scorsone, Tr.

5046; Thompson, Tr. 2114- 15; Scully, Tr. 1218-22; see also ID 114) (RFOF 6. 141- 152). None

of them saw any evidence of collusion. 

Complaint Counsel also accuses Respondents of colluding with Howard

Fabrication ("Howard") on a TVC opportunity for TR W. (CCRAB 9, 16- , 48-49). This claim

is also groundless. (See, e.

g., 

RR 1165- 1180, RFOF 6. 127- 137; RROF 1165-80). As the

ALl correctly noted, the evidence does not demonstrate that any CB&I decision maker was ever

aware of or approved such a proposal or that any collusion occured. (ID 114). Furher

although an entry-level CB&I salesperson approached Howard to discuss the possibility of

working together on the TRW project, he made that ' contact in order to determne if Howard

would be willing to serve as a subcontractor to CB&I -- a perfectly legitimate business

arangement. He made that contact without knowing Howard had already provided pricing to

TRW. (Scorsone, Tr. 5060-61; Gill, Tr. 274; see also ID 66).

(b) Complaint Counsel Has Not Presented Any Credible Evidence Of

Price Increases.

Complaint Counsel misleadingly asserts that CB&I has significantly increased

prices and "dramatically" increased magins since the Acquisition. (See, e. CCRA 2- , 8).

Its claims rest primarily on comparisons of pre-Acquisition firm, fixed bid prices to postAcquisition quotes in a preliminar form known as "budget pricing. " As the ALl correctly

40 Respondents addressed these arguents in futher detail in their post-tral briefing (See RR 43-

44; RFOF 6. 138- 153 , 6. 169- 202; RROF 1108- 1164). 41 Complaint Counel cites a response to a hypothetical question on diect examination by Mr.

Neary ofTRW as evidence. (CCRA 3, 9, 53). The witness did not testify about established facts in this

case and his hypothetical opinion should be given no weight. (pee Near, Tr. 1451).
noted, budget prices are less precise than firm, fixed bid prices. (See ID 69-70). Budget prices

are provided for the purose of helping a customer set its budgets. Unlike firm, fixed bid prices

budget prices are given without full knowledge of actual tank design, desired construction

schedule, or project location. (See ID 69-70; Scorsone, Tr. 4999-5002; Hall, Tr. 1868; RFOF

38). For that reason, they are often higher than fi, fixed bid prices. (See RFOF 7.4-

10). Customers do not purchase products based on budget prices, nor do they expect that

budget prices will accurately depict what they would actually pay for a given project. (See, e.

g.,

Stetzler, Tr. 6379-80; Patterson, Tr. 373-374; Kistenmacher, Tr. 925; Hall, Tr. 1863-65; Price

Tr. 608-09; Simpson, Tr. 5366-68; Carling, Tr. 4472). Because of these differences , it is

inappropriate to compare firm, fixed bid prices to budget pricing in attempting to determne

whether prices have increased. (See, e. ID 69- , 110; Patterson, Tr. 373-74; Hall, Tr. 1869-

70; Scorsone, Tr. 5003, 5250-54).

(1) The Memphis LNG projects provide no evidence of

anticompetitive effects.

Complaint Counsel accuses Respondents of raising prices on LNG projects for

Memphis, Light, Gas, and Water ("MLGW" 42 The ALl correctly held that this allegation was

unupported by the evidence. Indeed, he found it to be misleading because it attempted to

compare a competitively bid and negotiated actual price (given in 1994) to a budget price

provided for a 50-year capital expenditure planning exercise (given in 2002). (ID 110). Such a

comparison is inappropriate because budget prices are, as discussed above, preliminar in nature.

(See ID 29- 110). Testimony from Complaint Counsel's own witness ' confirms this

conclusion. MLGW's representative called the 2002 budget price a "scientific wild assed guess

because he requested it in connection with a planning exercise. (Hall, Tr. 1865-66; see also

(See also RR 49-51; RFOF 3. 608- 613; RROF 929-954).
Scorsone, Tr. 5251) (RFOF 3. 609 , 3. 611). He also testified that there was "no work at stake

and that CB&I provided this estimate out of courtesy in an effort to assist MLGW. (Hall, Tr.

1864-65; see also ID 30) (RFOF 3.608). He also confIrmed that MLGW provided CB&I

minimal information regarding the proposed project and that it would have needed to provide

volumes more" information for CB&I to derive an accurate price. (Hall, Tr. 1866-67) (RFOF

609 610).

Undaunted, Complaint Counsel incorrectly argues that "the customer believes that

it is stuck and cannot get a better deal from any of the alleged foreign competitors" and that it

believes CB&I to be the "only qualified supplier. " (CCRA 9, 55). This argument ignores the

evidence. MLGW has made no effort to search for an LNG tan builder since 1994 and is not'

familiar with the curent capabilities of new entrants. (Hall, Tr. 1843-57) (RFOF 3. 653- 657).

Accordingly, MLGW has no idea whether it could get a better deal from a foreign tank supplier

than it could from CB&I. (See Hall, Tr. 1843.,57) (RFOF 3. 653- 657).

(2) Projects for Linde and Praxair provide no evidence of

anticompetitive effects.

Complaint Counsel accuses Respondents of raising prices on projects for Linde

and Praxair. (CCRAB 7, 9, 56- 57). This claim lacks any merit. (See RR 51'-52; RFOF 5. 165-

166 178- 179 185- 211; RROF 1053-1086). As the ALl correctly noted, ''(n)one of

(these) allegations are supported by sufficient, reliable evidence. (ID 112- 13). Complaint

Counsel's allegations were based primarily on a comparison of a CB&I budget price and a threeyear-old PDM fIrm, fIxed bid price to an outdated pricing model. The creator of that model
acknowledged that it was deficient in many respects. (ID 53, 113; see also Fan, Tr. 1049-50).

The ALl properly rejected the conclusions that Complaint Counsel draws from it.

Further, Complaint Counsel's arguments are based on comparisons of budget

prices provided by CB&I to Praxair and Linde for a New Mexico project to a three-year-old

budget price provided by PDM to Praxair for a Colorado project. (RROF 1071- 1086). As the

ALl correctly noted, such a comparison is baseless because there is no evidence that these

projects are comparable. (ID 113). Indeed, there were substantial differences in the tan

specifications, construction schedule, location, and condition of the project sites. (ID 113). The

ALl properly rejected Complaint Counsel's arguments on this score. (ID 53- , 113).

(3) The Spectrum Astro project provides no evidence of price

increases.

Complaint Counsel accuses Respondents of raising pnces and margins to

Spectrum Astro as a result of the Acquisition. (See CCRAB 9, 52-53). This argument 

meritless. (See RR 46-47; RFOF 6. 169-6.202; RROF 1108-1164). As the ALl correctly held

the evidence does not establish these allegations. (ID 114). Changes in the price of the

Spectrum Astro project came after the project was already awarded and were based on scope

changes in the project that were unrelated to the Acquisition.44 Furher, the customer did not

believe CB&I raised its price because of the Acquisition, instead testifying that the revised

pricing was a "prett common business dispute. " (Thompson, Tr. 2117) (RFOF 6. 193).

43 Mr. Fan s actual observations regarding CB&I's pricing diectly contradict Complaint Counel's

arguent. He acknowledged that CB&I's " price has been consistent and has not changed" since the

Acquisition. (Fan Tr. 1006) (emphasis added) (RFOF 5. 185). 44 CB&I originally won the Spectr Astro contract in December of 2000. (Thompson, Tr. 2061-

62; Scorsone, Tr. 5115- 16) (RFOF 6. 169- 170). The project never went forward Ten month later

Spectrum Astro asked CB&I for a new price to reflect changes in project scope. (pee, e. il 64;

Thompson, Tr. 2069; Scorsone, Tr. 5047) (RFOF 6. 176). CB&I submitted a price that was higher than its

winnng bid price to account for these scope changes and increased risk associated with the project.

(Scorsone, Tr. 5049 5116- 5235; Scully, Tr. 1172- , 1222; Thompson, Tr. 2071 , 2074, 2121-22; il

64-65) (RFOF 6. 180- 184).
(4) The Cove Point project provides no evidence of anticompetitive

effects.

Complaint Counsel accuses Respondents of raising prices on the Cove Point LNG

project. The ALl properly rejected this argument. (See ID 110- 12; see also RR 48-49; RFOF

618- 641; RROF 777-830). Complaint Counsel's claim that "(tJhe margin increases at the

Cove Point LNG project fTom 4- , pre-Acquisition, to over 22%, post-Acquisition, are

undisputed" (CCRA 9, 53) is patently false. This statement compares PDM's initial bid on the

Cove Point project to CB&l's final bid over a year later. Thi is comparing apples to oranges.

The 4.7% figure and the 22% figue refer to different tans of different sizes bid at different

points in time. Furher, the 4.7% margin figure was a projected margin while the 22% figue was

an actual margin -- realized only after project execution began. (RROF 777-830; RR 48-49).

Finally, the 22% figure is a gross margin inclusive of all applicable overhead charges. It is not

as Complaint Counsel implies, the actual net profit margin that CB&I expects to ear on this

project -- the actual profit magin is far less. (See Scorsone, Tr. 5333-36).

It is uncontroverted that CB&I expects to ear a greater than expected margin on

thi project because (xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) (Scorsone, Tr. 5336- , ID 111- 12). Complaint

Counsel complains that the ALl relied on allegedly "self-servig" testimony (CCRAB 53) on

this issue, yet cannot cite any contrar testimony on a point that is entirely its burden to prove.

Such argument without evidence is neither persuasive nor proper.

(5) The CMS and Southern LNG projects provide no evidence of

anticompetitive effects.

Complaint Counsel accuses Respondents of raising prices on LNG projects for

CMS Energy and Southern LNG. (CCRA 53-55). This argument is a recent concoction that

Complaint Counsel failed to raise before the ALl. It is also incorrect. While Complaint Counsel
argues that the (xxxxxxxx) figure provided to CMS is far higher than the price "CB&I quoted

to (xx), prior to the Acquisition, for the same size tan" (CCRAB 9, 54) there is no evidence in

the record that CB&I ever provided a fIrm, fixed bid price to (xx) for an LNG tan. The only

evidence cited by Complaint Counsel -- RX 157 --- is a crytic document that contains no

explanation of the numbers it contains.46 Even if this phantom price existed, it could not be

compared to pricing obtained by CMS for its Lake Charles project because there is no evidence

as to where the tank would be located, when and under what schedule it would be built, the type

of features it would have, when the price was provided, and under what term the price was

quoted. All of this information is essential to determine whether it can be compared to CMS'

project (or any other project.)

Complaint Counsel also argues that the pnce provided to CMS constitutes

evidence of anticompetitive effects because it is close to the allegedly "inflated cost for the Cove

Point LNG tan 

. . .

" (CCRA 54; see alsoCCRA 9). This argument assumes without

evidentiar support that CB&I's Cove Point price was " inflated. " As discussed above, it was not.

Further, it assumes that the Cove Point project can be compared to the CMS project. This is'

patently erroneous because the two projects are located in different areas of the country, on

different properties, and for different customerS with different requirements. As one current

LNG customer noted, it is extraordinarily difficult -- because of these differences -- to compare

45 Complaint Counel falsely argues that CB&I charged a magin on the Lake Charles project "over

and above the price quoted by CB&I for the LNG tan." (CCRA 54). (xxxxxx xxxxxxxxxx.xxxxxxxxxxxxxx

.xxxxxxxxxxxxxxxx.xxxxxxxxxxxxxxxxxxx 

xxxx). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxx) This is a sign of healthy competition in the LNG maket.

Interestingly, Complaint Counsel chose not to ask any (xx) witnesses about this document.
projects in this way. (Eyermann, Tr. 7071-72). The Commission should reject Complaint

Counsel's unprincipled effort to do so here.

Finally, Complaint Counsel attempts to compare CB&l's fIrm, fixed bid price (xx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) As discussed supra it is not appropriate to

compare budget prices to fIrm, fixed bid prices. Although the evidence clearly shows that

(xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) (CCRA 12). The Commssion should reject

this argument;

(6) The (xx) projects provide no evidence of anticompetitive

effects.

Complaint Counsel accuses Respondents of forcing (xx) to enter into a solesource arangement with CB&I, alleging that (xx) found that foreign competitors such as

SkanskalWhessoe were "higher-priced. (See CCRAB 12, 55-56). The ALl properly rejected

this argument because "the evidence presented at trial did not establish conclusively" that that

arangement has resulted in higher prices to (xx). (See ID 110; see also RR 57-58; RFOF

3.408-3.427; RROF 831-928). The testimony of (xxxx) own witness is consistent with the

ALl' s conclusion -- he testified that (xx) believes it has enough options available to it for LNG

tan contractors and that (xx) is not concerned that the Acquisition has affected its ability to

obtain LNG tans , in the U.S. ((xxxxxxxx), Tr. 6075) (RFOF 3.427).

The only evidence Complaint Counsel cites in support of its argument is (xxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) The document contains no indication as to whether this

pricing was provided in the U.S. or overseas , when the pricing was received, what assumptions

were given to the vendors for purposes of making their estimates, or for what purpose the

estimates were submitted. The Commission should reject these unsupported allegations.

(7) Projects for (xxxxxxx) provide no evidence of anticompetitive

effects.

Complaint Counsel accuses CB&I of raising prices to (xxxxxxx) It points out that

PDM provided a (xxxxxxxxxxx) price to (xxxxxx) for a TVC (xxxxxxxxxxxxxxxxxxxxxxxx) in

1999, and that CB&I provided a (xxxxxxxxx) price for this project post-Acquisition. (CCRAB

, 57-58). The ALl properly held that the evidence did not support this allegation. (ID 114; see

also RR 52-53; RFOF 6. 154- 168; RROF 1181- 1220). In fact, the evidence affirmatively

established that Complaint Counsel's attempt to compare a firm, fixed bid price (PDM' s price) to

CB&l's "rough order of magnitude" pricing was inappropriate. As discussed infra there are

many differences between budget prices and firm, fixed bid prices that mae such comparisons

meaningless. Here, PDM's firm, fixed bid price was provided in 1999 and was given after PDM

had complete information regarding the project. (See Scorsone, Tr. 5081-82) (RFOF 6. 154). By

contrast, CB&l's budget price was given three years later (e. ID 68) without (xxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx) CB&I needed this information to produce a

firm, fixed bid price and made this fact clear to (xxxxxx) in writing. (See Scorsone, Tr. 5000-

47 Complaint COlUe1 has presented no evidence that (xx) was planing to purchase an LNG tan in

the u.s. in 1998. 48 After the date of the estimates contained in RX 157, Whessoe beat CB&I and PDM on fInn fixed

bid prices in India and in Triidad Whessoe has also bid on the Dynegy project, providing a price that

satisfied the customer. (Puckett, Tr. 4557) (RFOF 3.288).
5084; CX 1573; ID 68).49 Accordingly, the ALl properly concluded that CB&I did not

implement a price increase on this project. (See ID 114). The Commission should reject

Complaint Counsel's arguments to the contrar.

CONTRAY TO COMPLAJNT COUNSEL'S CLAIS, THE ALJ

PROPERLY EXCLUDED EVIDENCE REGARJNG ALLEGED

ANTICOMPETITIV CONDUCT.

Complaint Counsel complains that the ALl improperly refused to consider certain

evidence that it proffered at trial. These arguments are meritless. For example, Complaint

Counsel argues that the ALl improperly struck certain demonstrative exhibits that were not

received into evidence, arguing that such exhibits were nothing more than "pedagogical aids" to

understanding already-admitted evidence. (CCRAB 50). Yet, Complaint Counsel fails to

disclose that it attempted to introduce these so-called "pedagogical aids" into evidence at trial

and that the ALl rejected them because they were uneliable. For example, in CCFOF 826

Complaint Counsel presented a char relating to the Cove Point project. This char had originally

been marked as CX 1761 , offered as a demonstrative exhibit and rejected by the ALl because

Complaint Counsel could not prove that it was reliable , probative evidence. (See Tr. 8106-09).

These chars and graphs are not mere representations of an undisputed number (as were the

chars found to be probative in Schering.) They are misleading comparisons in graphic form and

were properly stricken.

49 (xx) never paid the ROM price quoted by CB&I, as it subsequently cancelled the project. 

fact, (xxxx) never even asked CB&I for a follow-up firmprice. ((xx), Tr. 1947, 1951; il 69). 50 Other similar fidings include CCFOF 882 and CCFOF 913. CCFOF 882 is a replica of CX

1760, which was admtted into evidence as a demonstrative exhibit only after Dr. Hans made numerous

changes to it. (Tr. 8035-42). Yet, Complaint Counel did not bother to discuss Dr. Hans' changes in

CCFOF 882. Simlarly, CCFOF 913 is a reincaration of CX 1763. Complaint Counel questioned Dr.

Haris regarding the substance of the exhibit; it did not discuss any of that testimony in CCFOF 913.

(Cour, Tr. 7977).
Similarly, Complaint Counsel complains that the ALl refused to admt certain

excerpts ITom the deposition of a potential CB&I expert witness (John Vaughn) -- who never

testified in this case -- regarding the ability to compare budget prices to firm, fixed bid prices.

(See CCRA 58). The ALl properly excluded this testimony for several reasons: First

Complaint Counsel failed to provide proper notice that it intended to use Mr. Vaughn as an

expert witness. (See Cour, Tr. 7671). Second because Respondents chose not to call Mr.

Vaughn as a witness, he was not authoried to testify on Respondents' behalf and his statements

could not be used against Respondents. (See Cour, Tr. at 7672). Third and finally, the scope of

Mr. Vaughn s expert testimony was ' limited to a refutation of one of Complaint Counsel's

witnesses. 51 Because the testimony proffered by Complaint Counsel is unrelated to that topic

the ALl properly excluded it. (See Court, Tr. at 7674).

COMPLAIT COUNSEL IMPROPERLY ATTEMPTS TO SIDFT THE

BURDEN OF PROOF REGARING ITS ALLEGATIONS OF

ANTICOMPETITIV EFFECTS.

Complaint Counsel's story of alleged anticompetitive effect is nothing more than a

collection of misstatements and unsupported interpretations of a few documents. Yet, Complaint

Counsel argues that the ALl erred in requiring it to present reliable, probative evidence in

support of its allegations , citing to Lenox, Inc. 73 F. C. 578 603-04 (1968). (See CCRAB 49-

50). This argument assumes that Complaint Counsel can make any unfounded allegation that it

pleases, and that Respondents have the burden of proving that allegation untrue. Such a rule

This witness was Chl.g Fan of Linde Process Plants. 52 Even if the ALJ had admtted Mr. Vaugh' s testimony, it would not outweigh the extensive

evidence demonstratig that comparing budget pricing to fIrm fIxed bid prices is improper. See infra.

This is especially tre in light of the fact that Mr. Vaughn was an estimating maager (not a sales

manager) who retired from CB&I three years ago. See Respondents' Motion to Withdraw Inadvertently

Stipulated Documents from Evidence, at 4 (fied Dec. 31, 2002) (granted Jan. 10, 2003) (Cour Tr. 7667

7670-71).
would upset the settled principle that Complaint Counsel bears the burden of proof in a Section 7

. I

case at all times. See Baker Hughes 908 F.2d at 983. The ALl properly held Complaint

Counsel to this standard with respect to its allegations of anticompetitive effects.

Complaint Counsel's reliance on Lenox is misguided. Lenox merely limits

Respondents' ability to invoke the hearsay rule to defeat the admission of documents into

evidence. It does not requie Respondents to prove that Complaint Counsel's reckless

assumptions related to those documents are inaccurate. See Lenox 73 F.T.c. at 603..04. Indeed

were Lenox to be read otherwise, it would contravene the settled principle that Complaint

Counsel always bears the burden of proof in a Section 7 case. The Commission should not

endorse such a.reading of Lenox.
COMPLAINT COUNSEL'S PROPOSED REMEDY IS OVERBROAD

WHOLLY UNSUPPORTED BY RECORD EVIDENCE AND ITS

POTENTIAL EFFECTS ARE UNKNOWN.

Respondents have argued that, regardless of whether the Commission finds that

the Acquisition violated Section 7, divestiture is not appropriate in this case. (See RA 52-57).

This conclusion is mandated by the evidence, and it should be a strong factor in the exercise of

the Commission s discretion to create an equitable remedy that wil fit the "exigencies of (this)

paricular case. United States v. E./ DuPont de Nemours 366 U.S. 316 319 (1961). As Dr.

Hars testified, in order to increase the level of competition ftom curent levels, the Commission

must ensure that a remedy results in two low-cost competitors. (See Hars, Tr. 7367-68).

Despite the paucity of evidence supporting the imposition of any divestiture in

this case, Complaint Counsel has appealed the divestiture remedy imposed by the ALl seeking

to significantly augment it. Its Proposed Order is overbroad and advocates unprecedented

remedial measures that were not even par of the proposed order presented to the ALl. Most

critically, the Proposed. Order -- with its aray of financial commitments imposed on CB&I -- is

structured in such a manner as to viually guarantee that CB&I wil not be able to remain a lowcost competitor in all of its product lines, including the relevant products. This wil translate

directly into higher prices for customers -- a result that is 180 degrees ftom the Commission

mandate to promote competition and protect customers.

THE PROPOSED ORDER IS OVERBROAD.

Complaint Counsel has never, in any fully-litigated antitrust case, obtained relief

of the type and scope that it seeks here. 54 The Proposed Order contains numerous provisions that

53 Complaint Counel incorrectly asserts that it is "undisputed that divestitue is the appropriate

remedy. " (CCRA 65).

As discussed infra, Complaint Counel's citations to negotiated consent decrees are inapposite.
have no support in either fact or antitrut law. For example, Complaint Counsel seeks to require

CB&I to pay its employees to go work for a new acquirer and to pay its customers to allow

assignment of their contracts to that acquirer. (CCRA 69-75; CCPO 6-9). To Respondents

knowledge, the Commission has never imposed burdens on this scale in a Par UI proceeding.

Similarly, Complaint Counsel seeks to force CB&I to divest foreign contracts without presenting

evidence that any of them have any connection to US. commerce. (See CCRAB 71). To

Respondents' knowledge, the Commission has never authorized the divestiture of overseas assets

in such a way, nor has Complaint Counsel made any showing that the Commission has the power

to do so. See 15 US. c. g 18. Indeed, such a remedy would be paricularly inappropriate given

that Complaint Counsel limited the geographic definition of the makets at issue to the US.

(See, e.

g., 

ID 5).

In fact, the Proposed Order is so far -reaching and overbroad that it contradicts the

very antitrust laws that the Complaint Counsel is charged with protecting, as it would require

CB&I to exchange confidential information with a potential acquirer. For example, it grants an

acquirer care blanche access to ."all Customer Contracts

.

curently held by CB&I for a period of

60 days. (See CCPO 6). Such a provision potentially violates pre-existing confidentiality

agreements between CB&I and its customers, and would provide the acquirer with detailed

informtion regarding costs, magins, and other proprietary information. Exchange of such

informtion would promote collusion.

In short, the broad scope of this Proposed Order is wholly unsupported by fact or

law. For this reason alone, it should be rejected.
THE PROPOSED ORDER IS THE LATEST VERSION OF A

CONSTANTLY-CHAGING COLLECTION OF PROPOSED

REMEDIA MEASURES.

Throughout this litigation, Complaint Counsel kept its intentions regarding the

specifics of its proposed remedy close to the vest. It provided only the barest sketch of its

contemplated remedy in its Notice of Contemplated Relief. (See generally Complaint).

Complaint Counsel failed to ask a single question regarding the impact of its planned remedy on

CB&l's ability to remain a low-cost competitor or upon the customers it was seeking to protect.

Complaint Counsel's closing argument eschewed any obligation to provide specifics regarding

the implementation or impact of its proposed remedy, shifting the burden tothe Compliance

Division to address specifics long after the trial concluded and without the accountability

afforded by cross-examnation. 56 This directly contradicts the position taken by Complaint

Counsel in this litigation -- that cross-examination is lithe greatest legal engine ever invented for

the disc-overy of truth. II 

(See Complaint Counsel's Opposition to Respondents' Motion to Call

Certain Witnesses By Deposition, at 4, filed November 3 2002) (citing United States v. Green

399 U.S. 149, 158 (1970)).

It was not until Februar 14, 2003 -- eighteen months after the Acquisition and

four weeks after the conclusion of the trial -- that Complaint Counsel revealed a proposed order

as par of its post-tral briefing to the ALl. (See generally CCOB). This proposed order -- for

the first time -- contained detailed provisions regarding, inter alia assignment of contracts and

55 The only questions asked were overly general and not probative -- the:i predicates assumed that

PDM could be magically recreated (See, e. Near, Tr. 1502). 56 (See Robertson, Tr. 8346) ("They re going to have to send the PDM Water Division and 

Division back in a way that is competitive. They ve said, well, we don t know how to do this. Well, they

may not know how to do it, but we do. We have a whole section here, Your Honor, and I don t know how

much dealings you ve had with them, but there is a Coinliance Section here at the FTC. They deal with

these tyes of issues all the time. "
divestment of employees and intellectual property. The ALl rejected many of these provisions

based on application of existing law. (See ID 121-23). Now, on appeal nearly one year after the

trial began, Complaint Counsel has presented a Proposed Order containing new and substantially

modified provisions that are even more draconian than the one submitted to the ALl. For

example, as discussed more fully infra Complaint Counsel's Proposed Order contains -- for the

very first time -- provisions that would require CB&I to use "all available mean " to secure

customer consent to assign contracts to the acquirer, including the payment of incentives or

discounts. (See CCPO 6). Another brand-new provision would require CB&I -- if it 

unsuccessful in securing such consent -- to "enter into such agreements, contracts, or licenses. . .

as are necessary to realize the same effect as such transfer or assignment." (See id. Other new

and substantially modified provisions abound throughout the Proposed Order, including

provisions that requie CB&I to: 1) divest a third of its contracts outside the U.S. (CCPO 6); 2)

provide an Acquirer care blanche access to "all Customer Contracts" curently held by CB&I for

a period of 60 days (see CCPO 6); and 3) incentivize its employees (with large salaries and

pension benefits) to go work for an acquirer. (See CCPO 8-9).

In short, the Proposed Order is a moving target that Respondents were not even

able to see until after the trial concluded and that continues to move during the appellate process.

Complaint Counsel's attempt to raise new arguents now must be rejected on fundaental

grounds of fairess because Respondents have no opportunity to present evidence against such

provisions. See Cleveland Bd. of Educ. v. Loudermil 470 U.S. 532, 452 (1985) (stating "(aJn

essential principle of due process is that a deprivation of life, liberty, or property 'be preceded by

notice and opportunity for hearing appropriate to the nature of the case'" and "the root

requirement of the Due Process Clause (isJ that an individual be given an opportunity for a
hearing before he is deprived of any significant property interest. " (citations omitted).

Complaint Counsel's approach also violates the Commission s own Rules of Practice, which

prescribe that " (e)very pary . shall have the right of due notice, cross examination

presentation of evidence. . . and all other rights essential to a fair hearing. " F.T.C. Rule 3.41(c).

Respondents have neither been given "due notice" nor a "presentation of evidence" in support of

the Proposed Order that Complaint Counsel now pursues.

THE EVIENCE INICATES THAT THE PROPOSED ORDER WILL

NOT ONLY BE INEFFECTIVE, BUT THAT IT WILL HA THE VERY

CUSTOMERS IT IS INTENDED TO PROTECT.

Complait Counsel was obliged to present some evidence as to the efficacy and

feasibility of its proposed remedy. (RAB 55-56). Courts that have addressed the issue of

remedy have held that a "par has the right to judicial resolution of disputed facts not just as

to the liability phase , but also as to appropriate relief." United States v. Microsoft Corp. , 253

F.3d 34 , 101 (D. C. Cir. 2001). 57 Even the authority cited by Complaint Counsel (CCRAB

65) is consistent with this principle. The Supreme Court, in DuPont remanded the

proceedings to' the trial court for the specifc purpose of receiving evidence regarding what

would be a "necessary and appropriate remedy. United States v. E.I DuPont de Nemours, 353

S. 586, 607 (1957). Here, Respondents have been deprived of proper judicial resolution on

the issue of remedy because Complaint Counsel failed to present evidence regarding remedy at

57 Complaint Counel has previously argued that Microsoft is iIelevant because it is not a Section 7

case. (See CCOB at 45; Robertson, Tr. 8137). Thi fonn over substance argument mises the mak.

Both Microsoft and the instant case address the appropriate relief where the respondent has been adjudged

to acquire maket power. Further Microsoft relied on Section 7 cases and other antitrt jursprudence in

support of its ruling that the distrct cour was required to examine "remedy evidence" in order to properly

enter an order to break up the company. See Microsoft 253 F. 3d at 101-02 (requiring the distrct court to

hear remedy-specific evidence and citing cases such as United States v. Ward Baking Co. 376 U.S. 327

330-31 (1964) (requiring remedy evidence in a Section 1 Shennn Act case) and Ford Motor Co. 

United States 405 U.S. 562, 578 (1972) (requiring remedy evidence in a Section 7 case)).
trial and failed to inform Respondents as to the specifics of its proposed remedy. 

discussed in detail below, the lack of evidence as to the Proposed Order makes it nothing more

than an experiment lacking any guarantees of success. Further, this experiment entails a

significant risk of haring competition in the relevant markets. To the extent the Commission

believes that implementing portions of the Proposed Order may be appropriate, it should -- at a

minimum -- remand this case for additional evidence as to the issue of remedy. See F. T. C.

Rule 3. 54( c) (permitting Commission to withold final order to receive additional

information). 59

(a) The Portion Of The Proposed Order That Mandates Divestiture Of

Employees Is Unsupported By The Evidence.

The Proposed Order would require CB&I to pay its employees a one-year

severance, raises, and "bonuses and vesting of all curent and accrued pension benefits" to

incentivize them to work for an acquiring company. (See CCPO 8-9; CCRAB 74-75). While the

ALl properly rejected the notion of employee divesture because there is "no authority supporting

the proposition that at-will employees are assets that may be divested " he ruled that CB&I could

not prevent its employees from seeking employment elsewhere. (See ID 123). Here, in a

provision never seen before, Complaint Counsel requests divestiture of employees through an

incentive plan that would cripple CB&l's ability to offer low tan prices. It asks the Commssion

58 Aware of some of the broad outlines of a potential remedy, Respondents were able to pursue

some general questioning regarding potential provisions. However, the Proposed Order Complaint

Counel now advances in its cross-appeal is far more broad than Respondents could have imagied 59 Complaint Counel argues that Respondents' counel "concede that effective relief must include

much more than what is requied in the ALJ order. " (CCRA 70 n.36) (citing J. Leon). This argument is

off-base, and takes Mr. Leon s comments out of context. Mr. Leon merely made the point that Complaint

Counel failed to present any evidence on remedy and that there is no evidence from which a proper

divestitue order (assuming one were proper) could be created (See Leon, Tr. 8316 ("The witnesses in

this case have raised a number of issues concerning the breakup remedy, and Complaint Counel has no

evidentiary response. . . . "

)).
to require CB&I to provide all employees who have received offers of employment from the

Acquirer" with a "payment of an incentive equal to up to twelve (12) months of such

employee s base salary. . . . " (CCPO 9).

In support of these proviions, Complaint Counsel asserts that these provisions are

similar to those contained in the MSC Software and ADP consent decrees. (CCRA 75). This

argument is meritless because, as the ALl correctly noted, it is inappropriate to use negotiated

consent decrees as precedent in litigation. (See ID 123) (quoting E.I DuPont 366 US. at 330 

12). Even if it were appropriate to do so, these consent decrees are far less burdensome than the

remedy Complaint Counsel seeks here. The MSC Software consent decree did not require

respondents to mae incentive payments to employees to encourage them to leave. See In re

MSC Software Corp. No. 9299, Decision and Order (Oct. 29, 2002) (available at

http://ww.ftc.gov/os/2002/11/mscdo. pdt). In ADP the respondents were permitted to match or

exceed the compensation offered by the acquirer for its employees who did not come over with

the business that it had acquired See In re Automatic Data Processing, Inc. No. 9282, Decision

and Order (Oct. 29, 1997) (available at http://ww.ftc.gov/os/1997/10/autoinfo.htm).

Whether or not prior consent decrees shed light on the appropriateness of such a

remedy, there is no evidence here to support the inclusion of such provisions. There is no

evidence that such an incentive would be necessar to convince employees to work for 

acquirer, no evidence as to whether CB&I could afford to pay such incentives, and no evidence

as to whether such incentives would drain CB&l's workforce to the point that it could no longer

compete in the relevant makets -- or any other market for that matter. In fact, at least one large

LNG customer has expressed concern that a divestiture could rob CB&I of the ability to engineer
LNG tans because it was already light on employees with such experience and capabilities.

(See Sawchuck, Tr. 6077-78) (RFOF 9. 31).

(b) The Portion Of The Proposed Order That Mandates Assignment Of

Contracts Is Unsupported By The Evidence.

Complaint Counsel argues that the Commission should force CB&I to reconvey

to an acquirer PDM's fair share of business that it would have had "but for" the Acquisition.

(CCRA 64).60 While the ALl's remedy provides for divestiture of " all contracts formerly held

by PDM and obtained by CB&I in the Acquisition that have not been fully performed. . . " (ID

122), Complaint Counsel seeks divestiture of contracts not acquired in the Acquisition. (See

generally CCRA 69-73). Specifically, it asks the Commssion to force CB&I to divest "a total

monetar value of no less that 33% of the total combined dollar value of CB&l's Tan Business

Customer Contracts and no less than 48% of the total combined dollar value of CB&l's United

States Tan Business Customer Contracts. (See CCPO 6). The ALl properly refused to order

divestiture of after-acquired assets because they are irelevant, except to the extent that they

represent reinvestment of capital realized from the sale of property included in a forbidden

acquisition and replacement of that property. Reynolds Metals Co. v. F.T.c. 309 F.2d223, 231

(D. C. Cir. 1962) (cited at ID 122). 61 Here, Complaint Counsel failed to present any evidence

that divestiture of after-acquired contracts was necessary. Even Complaint Counsel's own expert

, I

60 Complaint Counel's cites to Cascade Natural Gas Corp. v. El Paso Natural Gas Co. 386 U.S.

129, 136-37 (1967) and Utah Pub. Servo Comm v. El Paso Natural Gas Co. 395 U.S. 464, 470 (1970)

(CCRA 66 n.27) miss the mak. In both caes, the Supreme Court found insufficient evidence on the

issue of remedy and remanded for additional proceedings. See 386 U.S. at 137; 395 U.S. at 469. If the

Commssion believes that Complaint Counel's remedy is appropriate , it should, at a minimwn remand

ths case for fuher proceedings on remedy. See C. Rule 3.54(c). 61 Complaint Counel attempts to distingush Reynolds Metals on the ground that it "found that

there was no record support for divestitue of assets beyond what was acquired in the unlawfl

acquisition. " (CCRA 68 n.34). This is not a distinction -- Complaint Counsel's attempt to obtain afteracquired assets suffers from exactly the same problem As discussed in detail below, it has utterly failed

to present any evidence as to its proposed remedy.
failed to identify the assign:fent of contracts as something that would be required in order to

recreate a competitive force equal to PDM. (See Simpson, Tr. 3606-09).

Whether or not Complaint Counel adequately proved that its proposed contract

divestiture plan was well-grounded and that it would assist in restoring competition, it presented

no evidence showing that CB&I would even be able to divest the number of contracts

contemplated by the Proposed Order. Indeed, the evidence demonstrates that most of CB&l's

contracts contain non-assignability and key employee clauses which prohibit transfer to another

company. (See ID 80-81; RFOF 9. 16- 17; Glenn, Tr. 4168-69; ROB 166). While the Proposed

Order would require CB&I to "obtain all consents and waivers from all third paries" for the

assignment of contracts (CCPO 6), it provides no guidance to CB&I on how to legally break

term of its contracts.

Complaint Counsel weakly argues that because PDM was easily able to obtain

contract assignments to CB&I at the time of the Acquisition, CB&I can do so now. (CCRA 

n.44, 74 n.45). This argument is off-base. Customers were wiling to accept a contract

assignment to CB&I because: 1) PDM was going out of business and would not be able to

perform the contracts; and 2) CB&I was already an established entity with the ability to build the

project. By contrast, were the Proposed Order to be adopted, customers would be asked, in lieu

of maintaining a relationship with CB&I (a company that would not be exiting the market), to

assign their contract to a new company formed without the benefit of natural market forces. (See

RROF 1349).

Perhaps recognizing that customers may be reluctant to assign their contracts to a

company that does not currently exist, Complaint Counsel -- in two provisions never seen before 62 As discussed infra, the constrction of a new competitor does not assure that competition will be

improved or even that it wil be as strong as CUIent competition. Complaint Counel has presented no

evidence in this regard.
-- asks the Commission to reqUITe CB&I to "use all available means" to secure customer

consents

, 

including, but not limited to, offering any incentive or discount necessar to obtain

such consent." (See CCPO at 6) (emphasis added). Furher, if CB&I is unsuccessful in

obtaining such consent, the Proposed Order would require it to "enter into such agreements

contracts, or licenses, only with the prior approval of the Commission, as are necessar to realize

the same effect as such transfer or assignment. (Id. None of these provisions are supported by

evidence. There is no evidence that any customer would agree to such an incentive, what the

value of the incentive would need to be in order to attact customers, or whether CB&I is

financially capable of providing suffcient financial incentives to engineer the divestment of the

prescribed number of contracts. Further, in the event that a customer refused substantial

incentives to assign its contract, there is no evidence as to what types of other "agreements

contracts, or licenses II that CB&I could enter into that would have the same effect.

Finally, even if the Commission believes that a divestiture of contracts in excess

of the amount provided by the ALl's order is necessar, there is no evidence as to how many

contracts must be divested. Complaint Counsel blithely asserts that CB&I should divest

substantial portions of pending contracts, without regard to whether such a divestiture is

necessary to restore any loss of competition. 63 To arve at the specific amount of the proposed

divestiture, Complaint Counel arbitrarily combined the 1999 revenues of CB&I and PDM's tan

businesses, and determined that PDM had 33.5% of the combined worldwide revenue and 48.

of the combined U.S. revenue in these businesses. (See CCRAB 71-72). Based on this one fact

Complaint Counsel argues that CB&I should be forced to divest 33% of its current worldwide

63 See DuPont, 366 U.S. at 326 (liThe key to the whole question of an antitrt remedy is of course

the discovery of measures effective to restore competition. ) (emphasis added).
tan business and 48% of its current U.S. based tan business. (CCRAB 71 , 73). This approach

is completely baseless for several reasons:

First Complaint Counsel's approach is based on the unsupported assumption that

there are contracts "which PDM likely would have won if it has not been acquired by CB&I."

(CCRA 72). Neither Complaint Counsel nor Respondents can even speculate as to which

contracts would have "likely" gone to PDM but for the Acquisition. Indeed, there is substantial

doubt as to whether PDM would have won any contract absent the Acquisition because it was

exiting the market. (See RA 58- 60; see also Par I- supra).

, Second Complaint Counsel has presented no evidence as to whether forcing

CB&I to divest 33% of its worldwide tan business and 48% of its U.S. tan business would

actually accomplish the goal of restoring "the competitive strength" of PDM at the time of the

Acquisition. See In re Ekeo Prods. Co. 65 F. T.C. 1163 , 1217 (1964). Indeed, ifCB&I's curent

revenues exceed the combined CB&IIPDM revenue from 1999, the acquiring company would

receive a company that was stronger than PDM was at the time of the Acquisition. There is no

precedent for imposing such a punitive measure.

Third Complaint Counsel fails to explain why it uses 1999 as its yardstick.

Indeed, such an approach would be unduly prejudicial, as the evidence demonstrates that 1999

was a record year for PDM and that its revenues declined substantially in 2000 -- the last full

year prior to the Acquisition. (See CX 525 at TAN 1000383 (2000 Revenue); CX 522 at TAN

1003382 (1999 Revenue)).

Moreover, there is no indication that such a plan would be workable and desirable

to customers. 64 In fact, may customers testified that a divestiture could be harmful to

64 Complaint Counsel asserts that "(sJeveral witnesses testified as to the desu-ability of Complaint

Counel's proposed remedy. " (CCRA 70). This is false. Mr. Near never testified that TRW would be
competition. (See, e. Brygelson, Tr. 6154-55; 1. Kelly, Tr. 6265; Sawchuck, Tr. 6077; Izzo

Tr. 6511- 12) (RFOF 9. 10). Because Respondents never had a chance to see this proposal

during the trial, it would defY due process to argue that they should have presented evidence on

these topics. The Commission should reject Complaint Counsel's attempt to augment provisions

regarding the assignment of contracts crafted by the AL1.

(c) The Portion Of The Proposed Order That Mandates Divestiture Of

Confidential Inormation Is Unsupported By The Evidence.

The Proposed Order requires CB&I to waive "any contractual impediments, such

as any non-compete or confidentiality provisions of employment" of any employees seeking

employment with the acquirer. (See CCPO 8). This provision essentially encourages the

exchange of confidential business information - between competitors, and denies CB&I

confidentiality regarding issues unrelated to the relevant products. This provision serves no

rational purose, is unsupported by the evidence, and is nothing more that a punitive measure

designed to punish CB&I.

wiling to work with a newly-divested company, whether it would require incentives in order to agree to a

contract assignent, and if so, what the value of those incentives would need to be. (See Near, Tr.

1502). S:ilarly, Dr. Simpson was unable to offer any opinions on these topics. In fact, when asked to

name a single customer who supported a divestitue, Dr. Simson stated "None come to mind" (fee

Simpson, Tr. 5718). 65 Informtion exchange provisions in MSC Software and ADP were far narower. MSC was not

required to tu over all of its customers files (only those of the companies it acquired) and was not

requied to provide the acquier with access to all confidential and proprietar informtion. Although

MSC was required to license its own software program as well as the software it had acquired, MSC was

allowed to retain ful rights to all of the software. See In re MSC Software Corp. No. 9299, Decision

and Order (Oct. 29, 2002) (available at http://ww.ftc.gov/os/2002/11/mscdo. pdf). In ADP the consent

decree did not requie ADP to tu over all of its confidential and proprietar records. See In re

Automatic Data Processing, Inc. No. 9282, Decision and Order (Oct. 29, 1997) (available at

http://www.ftc.gov/os/1997/10/autoinfo. htm). 
(d) The Portion Of The Proposed Order That Requires CB&I To Provide

Transitional Assistance Is Unsupported By The Evidence.

The Proposed Order requires CB&I to provide the acquirer with "transitional

technical assistance and administrative services. . . to the acquirer. " (CCRA 75-76; CCPO 9).

The ALl correctly rejected such a provision because "Complaint Counsel did not demonstrate

that (these transitional services) are not available ITom a source other than CB&I." (ID 123).

Indeed, Complaint Counsel failed to mae any showing that such assistance was necessar, that

CB&I was capable of providing such assistance, or that such assistance was not available via

other means. For these reasons, the Commission should reject this provision. 

THE PROPOSED ORDER PRESENTS SEVERE OBSTACLES TO CB&I'S

ABaITY TO BE A LOW-COST COMPETITOR.

In order for any relief to be effective, it must create two low-cost competitors.

(Hars, Tr. 7367-68). To do otherwise would "hur competition in all four markets. " (Hars

Tr. 7375-76) (RFOF 9,18-9.20). As Dr. Hars explained

, 

(i)t does no good to create two new

competitors with both of them having higher costs and it also does no good for one low cost and

one higher cost. . . ." (Hars, Tr. 7367-68). There is no evidence in the record to suggest that

any divestiture could create two low-cost companes. (Id. Furher, there is good reason to

believe that the Proposed Order would do just the opposite by imposing massive costs on CB&I

and reducing its ability to be a low-cost competitor.67 For example, CB&I would conceivably

need to spend millions of dollars in customer incentive payments to secure permssion for

contract assignments. Similarly, CB&I could easily end up paying tens of milions of extra

dollars in employee incentives over the next two to three years. As discussed above, there is no

66 Complaint Counel's request for a monitor trtee (CCRA 76) should be denied for the same

reasons. 67 Of course, Dr. Hans was wable to examine the proposed order provided to the ALlor the

Proposed Order cUIently before the Commsion, as neither was available for review during the tral.
evidence as to how much CB&I would need to spend on these items or whether that amount is

one that CB&I could afford. CB&I would likely need to raise prices in order to pay for these

costs. In the end, while the Proposed Order may well create two companes, those companies are

likely to be higher-cost. This would be a Pyrhic victory for consumers, who would need to pay

higher prices.

Even if CB&I could remain a low-cost competitor, these added costs would

certainly reduce CB&I's overall financial size. A competitors financial size can affect its ability

to meet customers' bonding requirements. (RAB 52-55; ID 81- 82; see also Izzo, Tr. 6511- 12)

(RFOF 9. 22- 26). In fact, some customers have expressed concern that a CB&I with less

financial clout may not be as effective a competitor, and that such a result would actually lead to

less competition in the LNG market. (See, e.

g., 

Brygelson, Tr. 6127- , 6154-56; Izzo, Tr.

6511- 12; (xxxxxxxxxxxxxxxxxxxxxxxx)) (RFOF 9. , 9. 21- 26). As one curent LNG customer

explained:

I'd be concerned about whether either of the two residual

companes would have the bonding or guarantee ability to mae

our bid list. .. (WJhether a split company -- whether CBI would

make it would depend on what was left of the company. I think

they would be disadvantaged compared to the other companies I'm

talking about from an abilty to guarantee the work to the owner.

(Izzo, Tr. 6511- 12) (RFOF 9. 24) (emphasis added). Absent fuher entry, such a result may

ultimately lead to higher prices.
CONCLUSION

For the reasons set forth above, Respondents respectfully submit that the

Complait as to al product markets should be dismissed with prejudice.

Dated: October 17, 2003 Respectfully submitted

(. T /o

Duane M. Kelley

Jeffrey A. Leon

Greg J. Miarecki

Christopher B. Essig

Michael P. Mayer

Andrew D. Shapiro -

Danielle A. R. Coffman

David E. Dahlquist

James F. Herbison

Lance W. Lange

Winston & Strawn L.L.P:

35 West Wacker Drive

Chicago, IL 60601-9703

(312) 558-5600 (voice)

(312) 558-5700 (fax)

dkelley winston. com

jleon winston. com

gmiareck winston. com

cessig winston. com

mmayer winston. com

ashapiro winston. com

dcoffman winston. com

ddahlqui winston. com

jherbiso winston. com

llange winston. com

Counsel for Respondents

Chicago Bridge & Iron Company N. 

and Pitt Des-Moines, Inc.
CERTIFICATE OF SERVICE

Nada S. Sulaiman, hereby certify that on this 17th day of October, 2003 , I

served a true and correct copy of Respondents' Reply and Cross- Appeal Response Brief, by

hand delivery upon:

Offce of the Secretary

Federal Trade Commission

Room H- 159

600 Pennsylvania Avenue, N.

Washington, D. C. 20580

(original and twelve copies)

I caused one copy of Respondents

,

Reply and Cross-Appeal Response Brief to

be served by hand delivery upon the following persons:

The Honorable D. Michael Chappell

Adminstrative Law Judge

Federal Trade Commission

600 Pennsylvania Avenue, N.

Washington, D. C. 20580

Rhett Krlla

Assistant Director

Bureau of Competition

Federal Trade Commssion

601 New Jersey Avenue, N.

Room NJ-6109

Washigton, D. C. 20580

Steven L. Wilensky

Federal Trade Commission

601 New lersey Avenue, N.

Room Nl-6121

Washington, D. C. 20580

", s Jc4 c. J tJ

CHI:1275895.