UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

_____________________________________________________

DOCKET NO. 9300

PUBLIC VERSION

_____________________________________________________

IN THE MATTER OF

CHICAGO BRIDGE & IRON COMPANY N.V., 

CHICAGO BRIDGE & IRON COMPANY,

and

PITT-DES MOINES, INC.

____________________________________________________

REPLY BRIEF OF 

COUNSEL SUPPORTING THE COMPLAINT

____________________________________________________

Susan A. Creighton Steven L. Wilensky 

Director Chul Pak

Cecelia M. Waldeck

J. Robert Robertson Hector Ruiz

Senior Litigation Counsel Eric M. Sprague

Michele Cerullo

Rhett R. Krulla Sebastian Lorigo

Elizabeth A. Piotrowski Counsel Supporting 

Deputy Assistant Directors the Complaint

Bureau of Competition 

Yasmine Carson 

Honors Paralegal

Jacqueline Tapp

October 24, 2003 Investigative Assistant
i

TABLE OF CONTENTS

INTRODUCTION ............................................................. 1

I. COMPLETE AND EFFECTIVE DIVESTITURE IS REQUIRED TO RESTORE 

THE COMPETITION ELIMINATED BY CB&I’S ACQUISITION OF PDM’S 

EC AND WATER DIVISIONS. ............................................ 2

A. Complete and effective divestiture is the presumptive remedy for the

 illegal 2-to-1 Acquisition. ........................................... 5

B. Respondents have not presented credible or substantial evidence that 

a remedy other than divestiture would be appropriate. ..................... 7

C. Ample record evidence establishes the standards for restoring 

pre-Acquisition competition, the goal of effective divestiture relief ........... 8

D. Effective relief is not limited to divestiture of the acquired assets. ............ 9

E. Respondents’ claims that the costs of divestiture relief imposed on CB&I 

will harm competition or customers are without merit. .................... 11

F. Respondents’ claims of unfairness and surprise are without merit. ........... 14

G. Complaint Counsel’s Proposed Final Order is tailored to the facts of this 

case, supported by the record, and designed to ensure effective relief. ........ 18

1. Requirements that CB&I take affirmative steps to assure transfer of

employees to the acquirer are tailored to the facts of this case, 

supported by the record, and necessary for effective relief ........... 18

2. The requirements relating to assignment of contracts are tailored 

to the facts of this case, supported by the record, and necessary for

effective relief ............................................. 20

3. Cloning the merged firm’s confidential information is necessary 

because unscrambling is not practicable ......................... 24

4. Transitional assistance and a monitor are necessary for effective 

relief ..................................................... 25
ii

II. CREDIBLE AND PROBATIVE EVIDENCE DEMONSTRATES ACTUAL

ANTICOMPETITIVE EFFECTS OF THE ACQUISITION. ..................... 26

A. Following the Acquisition, CB&I asked Howard Fabrication to 

coordinate on a bid to TRW for a TVC. ............................... 27

B. During negotiation of the Acquisition executives of CB&I and PDM 

discussed Spectrum Astro’s request for final bids; CB&I management 

then outlined coordination strategies for CB&I and PDM to avoid price

competition prior to the Acquisition; keen competition between CB&I 

and PDM ceased; CB&I increased price and margin further following the

Acquisition. ..................................................... 28

C. CB&I increased price to [ ] following the Acquisition. .............. 29

D. Respondents repeatedly increased the price and margin of the Cove Point 

LNG tank after signing the Acquisition agreement. ...................... 30

E. Following the Acquisition, Respondents used the inflated Cove Point

price to increase the margin and price quoted to MLGW. .................. 31

F. The BP projects provide credible evidence of anticompetitive effects. ........ 32

G. The Acquisition enabled CB&I to increase price to CMS. ................. 32

H. CB&I increased price to Linde and Praxair following the Acquisition. ....... 33

I. The ALJ improperly disregarded or excluded evidence regarding 

anticompetitive effects. ............................................ 34

III. CONCLUSION ........................................................ 36
iii

TABLE OF AUTHORITIES

CASES

Automatic Data Processing, Inc., 124 F.T.C. 456 (1997) .......................... 19, 25

B.F. Goodrich, 110 F.T.C. 207 (1988) .......................................... 8, 22

California v. American Stores Co, 495 U.S. 271 (1990) ................................ 5

Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 386 U.S. 129 (1967) ............. 21

Cleveland Bd. of Education v. Loudermill, 470 U.S. 532 (1985) ........................ 14

Crown Zellerbach Corp., 54 F.T.C. 769 (1957) ..................................... 10

Diamond Alkali Co., 72 F.T.C. 700 (1967) ..................................... 7, 8, 24

Ekco Products Co., 65 F.T.C. 1163 (1964) ...................................... 10, 23

Ford Motor Co. v. U. S., 405 U.S. 562 (1972) ....................................... 5

Fruehauf Corp., 90 F.T.C. 891 (1977) ........................................... 6, 8

Hospital Corp. of America, 106 F.T.C. 361 (1985) ................................... 22

Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939) ........................... 27

MSC Software Corp., Docket 9299, Decision and Order, November 1, 2002 ........... 19, 25

Occidental Petroleum Corp., 115 F.T.C. 1010 (1992) ................................ 22

Olin Corp., 113 F.T.C. 400 (1991) ................................................ 6

Retail Credit Co., 92 F.T.C. 1 (1978) ........................................... 5, 10

United States v. E.I. du Pont de Nemours Co., 366 U.S. 316 (1961) ......... 5, 7, 8, 12, 19, 20

United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964) ........................ 21

United States v. Greater Buffalo Press, 402 U.S. 549 (1971) ............................ 5
iv

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ........................ 3, 4

Utah Pub. Serv. Comm’n v. El Paso Natural Gas Co., 395 U.S.464 (1969) ................ 21

STATUTES

Clayton Act, Section 11(b), 15 U.S.C. § 21(b) .............................. 2, 3, 5, 7, 14

Clayton Act, Section 7, 15 U.S.C. § 18 .................................... 2, 5, 8, 9, 24

Federal Trade Commission Act, Section 5, 15 U.S.C.§ 45 ........................... 8, 9

OTHER AUTHORITIES

Dennis Carlton and Jeffrey Perloff, Modern Industrial Organization (3rd ed. 2000). ......... 13

Richard A. Posner, ANTITRUST LAW (2001) ........................................ 26

Statement of the Federal Trade Commission’s Bureau of Competition on Negotiating Merger

Remedies (2003), http://www.ftc.gov/bc/bestpractices/bestpractices030401.htm. ........ 9, 13

Federal Trade Commission Rules of Practice, 16 C.F.R. § 3.11(b)(3) .................... 14

Federal Trade Commission Rules of Practice, 16 C.F.R. § 3.46(a) ....................... 16

Federal Trade Commission Rules of Practice, 16 C.F.R. § 3.52(b)(1)(v) .................. 17

Federal Trade Commission Rules of Practice, 16 C.F.R. § 3.52(d) ........................ 1
v

TABLE OF ABBREVIATIONS

The following abbreviations and citation forms are used:

ID- Initial Decision

IDF- Initial Decision Finding of Fact

CCPFO Complaint Counsel’s Proposed Final Order

CCACB- Answering and Cross-Appeal Brief of Counsel Supporting the Complaint, filed

September 10, 2003

CCPTB- Complaint Counsel’s Pre-Trial Brief, filed October 21, 2002

CX Complaint Counsel exhibit

RX Respondents exhibit

CPF- Complaint Counsel’s Proposed Findings of Fact, filed February 14, 2003

CRF- Complaint Counsel’s Corrected Proposed Reply Findings of Fact, filed March 14,

2003

RPF- Respondents’ Corrected Proposed Findings of Fact, filed March 27, 2003

RAB- Respondents’ Appeal Brief, filed August 4, 2003

RRCRB- Respondents’ Reply and Cross-Appeal Response Brief, filed October 10, 2003

Citations to the trial transcript include the witness name and page number: Neary, Tr.1420.

Pages of exhibits are referenced by bates number: CX212 at CB&I-PL031718.

References to investigational hearing or deposition transcripts that have been included in the trial

record as exhibits include the exhibit number, the transcript page(s), the witness name,

and the designation “IH” or “dep”: JX 23a at 89 (Cutts, Dep.).

In camera material is bracketed and appears in bold.
INTRODUCTION

Complaint Counsel submits this brief, in accordance with Rule 3.52(d), in rebuttal of matters

in Respondents’ Reply Brief filed October 10, 2003, relating to the two questions presented by

Complaint Counsel in our Answering and Cross-Appeal Brief (“CCACB”): First, what relief is

necessary and appropriate to restore competition lost as a result of the Acquisition? Second, should

the ALJ’s Initial Decision also be affirmed for the independent reason that the Acquisition has

caused actual anticompetitive effects in the relevant markets?

From the beginning of this case, Respondents clearly understood the relief that Complaint

Counsel would seek in this matter. Indeed, “the mat[t]er of remedy was an important part of the

trial on liability [and] Respondents elicited testimony touching on the issue of remedy from a dozen

witnesses.” Respondents’ Motion for Directed Verdict at 9 (January 13, 2003). At the beginning

of trial, CB&I expressly told its shareholders that Complaint Counsel was seeking to split the

company back into two competitors. CX1588 at 14. Thus, Respondents’ claim of surprise is not

true. Morever, the Proposed Order is even narrower than the one Complaint Counsel initially

proposed – it responds to concerns raised by Respondents and by the ALJ regarding rights of

employees and customers’ right of consent regarding assignment of contracts. The Proposed Order

is necessary and appropriate to restore competition “to the state in which it existed prior to, and

would have continued to exist but for,” the unlawful Acquisition. ID-120 (citation omitted).

Although Complaint Counsel believes that the Commission could simply order CB&I to transfer the

PDM employees back to the reinstated company (as they were transferred to CB&I in the first place),

the Proposed Order seeks a less-restrictive manner of accomplishing this goal.

On the issue of liability, the ALJ found “that the effect of the Acquisition of PDM’s EC and

Water Divisions by CB&I may be to substantially lessen competition” in the field-erected, LNG,

LPG, and LIN/LOX tank and thermal vacuum chamber (“TVC”) markets in the United States. ID-3.
2

Additionally, evidence of actual or attempted collusion and dramatically higher prices and margins,

independently establishes that this Acquisition clearly violates Clayton Act § 7. Prior to the

Acquisition senior executives of CB&I and PDM discussed Spectrum Astro’s request for final bids;

thereafter CB&I’s TVC management proposed that, in light of the proposed Acquisition, CB&I and

PDM either delay responding to the bid request, both bid high, or that only one of the competitors

submit a bid. In the end CB&I and PDM bid high reflecting an end to the tough competition that had

characterized their prior dealings. In another case the other bidder admitted that CB&I asked to

“coordinate on making a bid or a price quote to TRW,” and the customer testified that as a result it

was now “basically hosed.” Gill, Tr.247, 274; Neary, Tr.1451. Detailed evidence of higher postmerger margins and prices, none of which are attributable to pro-competitive efficiencies or cost

savings, and unrefuted incidents of collusion, demonstrate the illegality of this Acquisition. 

I. COMPLETE AND EFFECTIVE DIVESTITURE IS REQUIRED TO

RESTORETHECOMPETITIONELIMINATEDBYCB&I’SACQUISITION

OF PDM’S EC AND WATER DIVISIONS.

Ignoring the plain language of Section 11(b) of the Clayton Act and well-established

precedent, Respondents argue that divestiture is an inappropriate remedy in this case. If divestiture

is not appropriate in this 2-to-1 merger case, under Respondents’ theory, it would appear never to

be appropriate. Compliance with the proposed remedy will likely impose some costs on CB&I.

Respondents’ protests, however, that these costs would “cripple CB&I’s ability to offer low tank

prices” are contrary to the evidence proffered by Respondents. CB&I enjoys robust financial health

in the wake of its unfettered post-Acquisition dominance of the relevant markets. Respondents’

assumption, of course, is that CB&I has some right to keep what it illegally acquired in the first

place. This is wrong. 
3

Respondents also speculate that divestiture would not benefit competition and customers if

the result is that the acquirer would be a high-cost competitor or lack the financial strength necessary

to undertake large projects. Such conjecture overlooks the Commission’s divestiture approval

process, which is designed to assure that any acquirer will be in a position to operate the divested

assets and maintain competitive viability in the relevant markets. Respondents’ assertion also is

contradicted by their own argument that even tiny companies, such as ATV, can compete in these

markets. 

ContrarytoRespondents’ contentions,fundamental antitrust and economic principles instruct

that competition, restored through divestiture to a viable acquirer, is the surest way to ensure that

customers receive the benefits of the lowest prices and best quality products and services from lowcost competitors in the relevant markets. The law is clear: divestiture is the presumptive remedy for

illegal mergers, and the burden is on Respondents to demonstrate that relief other than divestiture

is justified on the facts of this case. Respondents have not presented credible and substantial

evidence suggesting this case presents special circumstances to justify deviating from the divestiture

relief mandated by the Clayton Act, Section 11(b). In short, Respondents’ argument is nothing more

than the usual refrain that customers are better off if CB&I keeps its monopoly. That is not what the

law assumes, nor is it what the evidence demonstrated in this case. 

Misciting the Microsoft case, Respondents revive their attempt, rejected by the ALJ, to

impose on Complaint Counsel the burden of proving that the proposed divestiture relief is better than

some other remedy – like Respondents’ proposed remedy to teach others to work in the industry if

they want. Unlike in Microsoft, Respondents here had a full opportunity to present evidence on

relief, and they did just that, as they acknowledge in their motion for directed verdict: “[i]n this

proceeding, the mat[t]er of remedy was an important part of the trial on liability. Respondents
1

 Notice of Contemplated Relief, Docket No. 9300 (emphasis added).

4

elicited testimony touching on the issue of remedy from a dozen witnesses.” Motion for Directed

Verdict at 9. Neither Complaint Counsel nor the ALJ did anything to hinder Respondents’ ability

to submit record evidence relating to remedy. More importantly, Respondents ignore what the court

actually said in Microsoft – that it was not a merger case, where “the Supreme Court has clarified

that . . . ‘complete divestiture is particularly appropriate where asset or stock acquisitions violate

the antitrust laws.’" United States v. Microsoft Corp., 253 F.3d 34, 105 (D.C. Cir. 2001) (citations

omitted).

Nonetheless, in a new argument not presented before, Respondents now contend they were

denied due process because they were not provided an opportunity to present evidence against

specific provisions of Complaint Counsel’s Proposed Final Order (“CCPFO”). Respondents’ due

process argument is without merit. Contrary to their claim of unfairness and surprise, Respondents

have been afforded precisely the process due them on this issue under the Commission’s Rules.

Respondents knew that Complaint Counsel would seek relief to reestablish “two distinct and

separate, viable and competing businesses, one of which shall be divested by CB&I,” including,

inter alia, . . . the “replacement and reconstitution by CB&I, of all assets, . . . customer

contracts, . . . personnel, . . . and such other arrangements as necessary or useful in restoring viable

competition in the lines of commerce alleged in the complaint.”1 Indeed, specific provisions of

CCPFO, now objected to by Respondents, address many of the very concerns Respondents raised

at trial. 

Finally, Respondents argue that CCPFO is overbroad and unsupported by the evidence. As

explained in CCACB and below, each provision in CCPFO is supported by the record, tailored to
2

 The Supreme Court has held that under Section 11(b), the Commission has the “duty” to

order divestiture in a Section 7 case. California v. American Stores Co, 495 U.S. 271, 284-85, n.11

(1990).

5

and required by the factual circumstances of this case to ensure effective relief, and supported by

Commission precedent or its institutional experience with merger remedies.

A. Complete and effective divestiture is the presumptive remedy for the

illegal 2-to-1 Acquisition.

Respondents assert that divestiture is not appropriate in this case. RRCRB-45. However,

as the ALJ recognized in rejecting this argument (ID-118-21), the plain language of Section 11(b)

of the Clayton Act mandates that the “Commission . . . shall . . . issue and cause to be served on such

person an order requiring such person to . . . divest itself of the . . . assets, held.”2 15 U.S.C. § 21(b)

(emphasis added). It is well-established that divestiture is the presumptive remedy for an acquisition

found to be illegal under Section 7 of the Clayton Act. United States v. E.I. du Pont de Nemours

Co., 366 U.S. 316, 326-27 (1961); United States v. Greater Buffalo Press, 402 U.S. 549, 556 (1971);

Ford Motor Co. v. United States, 405 U.S. 562, 573 (1972). The Supreme Court in du Pont

describes divestiture as “the most important of antitrust remedies. It is simple, relatively easy to

administer, and sure.” 366 U.S. at 330-31. Following Supreme Court precedent, the Commission

has held that “it is our obligation to order divestiture of assets” to remedy illegal mergers. Retail

Credit Co., 92 F.T.C. 1, 164 (1978).

The Supreme Court has also stated that “[c]omplete divestiture is particularly appropriate

where . . . acquisitions violate the antitrust laws.” Ford Motor Co., 405 U.S. at 573 (emphasis

added). Consistent with this precedent, the Commission has specifically held that “a presumption

should favor total divestiture” versus partial divestiture “in merger cases,” and that “the burden rests

with respondent to demonstrate that a remedy other than full divestiture would adequately redress
6

any violation which is found.” Fruehauf Corp., 90 F.T.C. 891, 892 (1977) (emphasis added).

Accordingly, based on the record evidence in this case and consistent with the Commission’s holding

in Olin Corp., 113 F.T.C. 400, 619-20 (1991), the ALJ ordered divestiture of the former PDM Water

Division along with the EC Division to “ensure that the package of assets divested is sufficient to

give its acquirer a real chance at competitive success.” ID-121. 

Respondents repeat their argument, rejected by the ALJ, that divestiture of the PDM Water

Division is inappropriate because there is no evidence that its inclusion would assist any acquirer in

being “competitively viable.” RRCRB-29 & n.33. Contrary to this assertion, the ALJ found that

record evidence supports inclusion of the Water Division given the close pre-Acquisition

interrelationship between the PDM EC and PDM Water Divisions, and the necessity of divesting

enough assets to re-create the combined divisions for the resulting entity to be competitively viable.

IDF-503, 566-72; ID-121. Indeed, Respondents’ counsel even conceded this very point during

closing argument:

Here, the companies have been fully integrated at the management level, at the

engineering level, at the fabrication level, at the field erection level, every level,

purchasing, estimating, and CBI and PDM[,] before [the Acquisition,] makes [sic]a

lot more than just the tanks made by these relevant products, and if you were only to

spin off some personnel and assets to make products in these markets, that company

would wilt like a rose left out too long. There is not enough business.

* * * *

So, you would have to give it all this other stuff to make flat bottom tanks, to make

gravel tanks, to make all kinds of other stuff. You would have to give it enough

personnel so that everybody would have the expertise to do every kind of tank.

Leon Tr.8311;see Simpson, Tr.5706-07 (“Q. [The] company created would have to have the ability

to make not just the relevant products in this case but a lot of other products; correct? A. Yes.”)

Finally, divestiture relief must be effective to fully restore pre-Acquisition competition, for

anything less would be a “Pyrrhic victory.” CCACB-65-67. As the Supreme Court observed, “if
7

the Government proves a violation but fails to secure a remedy adequate to redress it,” it has “won

a lawsuit and lost a cause.” du Pont, 366 U.S. at 323-24 (citations omitted). Respondents,

nevertheless, argue that the purpose of divestiture is “to increase the level of competition from

current levels” and assert that “[i]n order for any relief to be effective, it must create two low-cost

competitors.” RRCRB-45, 57. The objective of CCPFO, however, is to increase the level of

competition from current levels by restoring the relevant markets to their previously vigorous preAcquisition state through effective divestiture relief. 

B. Respondents have not presented credible or substantial evidence

that a remedy other than divestiture would be appropriate.

The Supreme Court in du Pont supports the conclusion that the government’s choice of a

divestiture remedy should prevail: “We think the public is entitled to the surer, cleaner remedy of

divestiture. The same result would follow even if we were in doubt. For it is well settled that once

the Government has successfully borne the considerable burden of establishing a violation of law,

all doubts as to the remedy are to be resolved in its favor.” 366 U.S. at 334 (emphasis added). The

Commission has held that respondents’ proof to rebut the presumption that total divestiture is

appropriate must be “clear and convincing.” Diamond Alkali Co., 72 F.T.C. 700, 742 (1967). 

Indeed, Respondents can point to no case in the history of Section 11(b) (since 1914), where the

Commission failed to order divestiture when a likelihood of harm to competition has been found.

Yet, Respondents want this Commission to create a special burden for Complaint Counsel to prove

every aspect of why divestiture is absolutely necessary in each case. This not only makes no sense,

but it is completely contrary to case law and the plain language of Section 11(b). See, e.g., Diamond

Alkali, 72 F.T.C. at 742 (the Commission “need not justify its order beforehand by showing” that

a divestiture “will unquestionably restore competition”); Section 11(b) (Commission “shall . . . order
8

. . . such person to . . . divest itself of the . . . assets”) (emphasis added). Respondents also cite du

Pont, 366 U.S. at 319, for the proposition that the Commission should fashion an equitable remedy

that will fit the “exigencies of [this] particular case.” RRCRB-45. That, of course, is exactly what

Complaint Counsel proposes here: divestiture, as in du Pont, and specific remedies to implement that

order. 

In sum, the law is clear that complete divestiture is the presumptive remedy for illegal

acquisitions, and it is Respondents’ burden to establish that a remedy other than divestiture should

be ordered. Fruehauf, 90 F.T.C. at 892; Diamond Alkali, 72 F.T.C. at 742. There is no reason to

carve out an exception to the law, especially in a 2-to-1 merger case where the presumption should

be its strongest.

C. Ample record evidence establishes the standards for restoring preAcquisition competition, the goal of effective divestiture relief.

Once the Acquisition has been found to violate Section 7 of the Clayton Act and Section 5

of the FTC Act, the Commission’s duty in ordering divestiture relief is to “restore competition to the

state in which it existed prior to, and would have continued to exist but for, the illegal merger.” See

ID-120, quoting B.F. Goodrich, 110 F.T.C. 207, 345 (1988). To address this remedial standard,

Complaint Counsel presented substantial evidence on the structure, composition, and competitive

viability of PDM and CB&I premerger, the precise PDM assets and personnel acquired by CB&I,

and the disposition of those assets and personnel. See CX385 at 25 (listing PDM EC’s salaried and

hourly employee headcount); CX385 at 21-23 (listing PDM EC’s facilities and equipment); CX134

(organization chart for PDM EC); CX133 (organization chart for PDM Water); and CX328-339

(Asset purchase agreement, listing all assets of the PDM EC and Water Divisions purchased by

CB&I). This evidence serves as an objective baseline for restoring the state of pre-Acquisition
3

 See, e.g., Statement of the Federal Trade Commission’s Bureau of Competition on

Negotiating Merger Remedies (2003) [hereinafter “Merger Remedies Statement”],

http://www.ftc.gov/bc/bestpractices/bestpractices030401.htm.

9

competition in the relevant markets. It also served as a template for provisions of the Proposed Final

Order. See, e.g, CCPFO ¶¶ I.V., IV. 

The record established that the Acquisition combined two thriving and intensely competitive

ongoing businesses. CCACB-69; see, e.g., IDF-74, 79-82, 228-232, 269, 277-291, 363, 376-406,

483-487. In order to recreate the vigorous pre-Acquisition competitive environment in the relevant

markets, therefore, divestiture of the ongoing business, that was acquired including a current

customer base and measures to assure the acquirer will have access to experienced personnel, is

needed to ensure the viability and effectiveness of relief in this case.3 CCACB-70. Complaint

Counsel’s Appeal Brief thus presented the record evidence in support of the provisions of the

Proposed Final Order, which we believe will restore competition to its pre-Acquisition state.

CCACB-70-75. Respondents’ refrain that Complaint Counsel have failed to present evidence to

justify the provisions of the Proposed Final Order is thus without merit. RRCRB-29, 32, 45-46, 49-

58.

D. Effective relief is not limited to divestiture of the acquired assets.

Respondents object to a number of provisions in the Proposed Final Order on the grounds

that “Complaint Counsel has never, in any fully-litigated antitrust case, obtained relief of the type

and scope that it seeks here.” RRCRB-45. This is not correct, and indeed ignores a series of cases

litigated before the Commission in which the Commission held complete divestiture, including the

division of commingled assets and ancillary relief to reconstitute a competitor, is the proper remedy

for acquisitions found illegal under Section 7 of the Clayton Act and Section 5 of the FTC Act.
4

 See alsoCrown Zellerbach Corp., 54 F.T.C. 769, 807 (1957)(“[C]learly, the broad purpose

of the statute cannot be thwarted merely because respondent has commingled its own assets with

those of the acquired firm.”)

10

CCACB-66-68. In Ekco Products Co., 65 F.T.C. 1163 (1964), confronting the issue of whether

commercial meat-handling assets that the acquirer had dismantled and scrapped prevented the

Commission from ordering effective divestiture, the Commission stated:

[T]he Commission is not, as a matter of power, limited to an order divesting the precise

assets acquired in an unlawful merger . . . . It may be necessary and proper to forbid acts

lawful in themselves or to compel affirmative acts of compliance; and, if so, the

Commission has the power and the duty to provide such relief.

Id. at 1215-16. (citations omitted) (emphasis added). Since divestiture of what was acquired was

not a practical option (the assets had “disappeared”), the Commission held that Ekco could be

ordered to “reconstitute” one of the acquired companies as a “going concern” by providing it with

all the assets it would need to “be an effective competitor” in the market – Ekco would then be

ordered to “divest” the reconstituted entity.4 Id. at 1228-1229. In Retail Credit Co., 92 F.T.C. at

163, the Commission ordered respondent to provide a suitable purchaser with copies of its current

files for a period of three years, even though these records obviously were not part of the original

acquisition:

An industry does not remain frozen during the period of unlawful retention of the

acquired company and divestiture of an outmoded firm with no chance of survival

makes neither technological nor competitive sense. The Commission may properly

order that the acquired firm be recreated in such form as would reflect the firm’s

probable growth, including improvements it may have added itself.

Id. at 166 (citations omitted). As in Ekco, the Commission determined not only that it had the

power, but indeed, held that “it is our obligation to order divestiture of assets necessary to assure

the viability and attractiveness to would-be purchasers of the divested entity.” Id. at 164 (emphasis

added).
11

Respondents do not appear to dispute that the Commission has ample authority to order fully

effective and viable divestiture and ancillary relief, including of the type and scope in CCPFO. It

is well-settled that the Commission has wide latitude to remedy the violations of law it has found

in a given case, and reviewing courts will uphold the Commission’s choice of remedial provisions

so long as there is a “reasonable relationship” between the remedy and the unlawful conduct at issue.

CCACB-66.

Complaint Counsel’s duty is to propose divestiture relief appropriate to restore the

competition lost as a result of this illegal Acquisition as established on the record by the facts in this

case. We have met this responsibility by proposing to the Commission relief that is tailored to the

facts of this case, supported by the record, responsive to legitimate concerns expressed by the ALJ

in the Initial Decision, and that incorporates relevant lessons learned from the Commission’s

experience with merger remedies.

E. Respondents’ claims that the costs of divestiture relief imposed

on CB&I will harm competition or customers are without merit.

The Supreme Court in du Pont made clear that in ordering relief from an illegal merger, the

public interest is paramount, and the interest of the violator is not to be weighed against the public

interest even if that means the violator would suffer some loss as a result:

The key to the whole question of an antitrust remedy is of course the discovery of

measures effective to restore competition . . . . [C]ourts are authorized, indeed

required, to decree relief effective to redress the violations, whatever the adverse

effect of such a decree on private interests.
5

 “Those who violate the Act may not reap the benefits of their violations and avoid an

undoing of their unlawful project on the plea of hardship or inconvenience.” du Pont, 366 U.S. at

326-27 (citations omitted).

6

 Respondents do not assert that divestiture would eliminate synergies from the Acquisition.

At trial, Respondents abandoned any efficiencies defense. 

12

du Pont, 366 U.S. at 326.5 Respondents suggest that the divestiture relief proposed by Complaint

Counsel would impose “massive costs on CB&I . . . reducing its ability to be a low-cost competitor,”

to the detriment of competition and customers.6 RRCRB-57-58. Citing their expert witness, Dr.

Harris, Respondents argue that “[t]here is no evidence in the record to suggest that any divestiture

could create two low-cost companies.” RRCRB-57. This is incorrect. The record shows that, prior

to the acquisition, CB&I and PDM were the two companies that could offer customers the best deal

in terms of price, quality, timeliness of completion, reputation, and safety. ID-96; Simpson, Tr.3608.

The record also shows that CB&I and PDM were the two closest and strongest competitors because

they uniquely possessed certain tangible and intangible assets. Simpson, Tr.3608; see ID-107-08.

Given this, it follows that divestiture effectively recreating two companies with tangible and

intangible assets comparable to those possessed by CB&I and PDM before the Acquisition would

recreate the pre-Acquisition competitive environment and return the benefits of that competition to

the relevant markets. Simpson, Tr.3608-09. Moreover, because Respondents have inextricably

intertwined CB&I’s and PDM’s knowhow and trade secrets, CCPFO preserves the combined

intellectual property garnered by CB&I through the Acquisition and makes it available to both CB&I

and the acquirer so that the two companies will compete drawing on the shared experience of CB&I

and PDM

Respondents err in claiming that the costs CCPFO would impose on CB&I to recreate a

competitor comparable to the pre-Acquisition PDM would lead to higher prices for customers.
7

 See Dennis Carlton and Jeffrey Perloff, MODERN INDUSTRIAL ORGANIZATION 28 (3rd ed.

2000). “A sunk cost is like spilled milk: once it is sunk, there is no use worrying about it, and it

should not affect any subsequent decisions.”

8

 See Merger Remedies Statement, regarding divestiture application process.

13

RRCRB-45, 57-58. These costs would primarily be “sunk” (non-recoverable) costs: CB&I may

need to make lump-sum payments to induce some employees to work for the newly created firm, and

CB&I may need to make lump-sum payments to induce some customers to agree to the transfer of

contracts to the new firm. RRCRB-57. However, since sunk costs do not affect pricing decisions,

these divestiture costs should not affect the price paid by customers of CB&I or the acquirer.7

Respondents’ claim that CBI would need to raise prices in order to fund the costs of the proposed

divestiture relief is also undercut by the fact that the Acquisition has been extremely profitable for

CB&I: CB&I’s income from continuing operations in the first nine months of 2002 increased by

73.7% over the same period in 2001. CX1588 at 3. 

Having decided to fully integrate and rationalize the combined workforce of CB&I and PDM

following the Acquisition, Respondents express concern that the financial incentives to convince the

merged firm’s employees to work for an acquirer would be so successful that this might “drain

CB&I’s workforce to the point that it could no longer compete in the relevant markets.” RRCRB-51.

Both Respondents and the acquirer may need to hire and train some replacement personnel as a result

of the divestiture, but the Commission can assure, through the divestiture process,8 that the

divestiture is accomplished in a manner that assures the viability and competitiveness of both

companies.

Respondents also speculate that divestiture could harm competition if the result is that the

acquirer would be a higher-cost competitor or lack the financial strength necessary to undertake large
9

 See id.

10 Respondents cite Cleveland Bd. of Education v. Loudermill, 470 U.S. 532 (1985), in which

the Supreme Court held that the respondent employees had a right to a pre-termination hearing but

that “[i]n general, ‘something less’ than a full evidentiary hearing is sufficient prior to adverse

administrative action.” Id. at 545 (citations omitted). Respondents do not claim that they did not

receive a full, adversarial proceeding on the issue of their liability for the illegal Acquisition, or that

the issue of what relief is appropriate once liability is found is not a matter within “the exercise of

the Commission’s discretion to create.” RRCRB-45.

14

projects, including the ability to post performance bonds and provide liquidated damages coverages.

RRCRB-45, 57-58; RAB-54. Again, the process pursuant to which the Commission supervises a

divestiture assures that the acquirer has sufficient financing to operate the divested assets and

maintain their competitive viability in the markets at issue, thereby achieving the goal of restoring

competition.9

Respondents’ arguments that divestiture would harm competition or customers are thus

unfounded and speculative.

F. Respondents’ claims of unfairness and surprise are without merit.

For the first time, Respondents contend they were denied due process because they

supposedly were not given an opportunity to present evidence against specific provisions of CCPFO.

RRCRB-47-49, 56. This is simply not true.10

As a basic principle, Respondents cannot ignore the plain language of Section 11(b) of the

Clayton Act, which puts all respondents on notice that the Commission “shall” order complete

divestiture in a merger case once liability is found. Moreover, at the outset of this proceeding, in

accordance with Commission Rule 3.11(b)(3), the administrative complaint, issued on October 25,

2001, one year prior to the start of trial, contained a Notice of Contemplated Relief setting forth the

essential parameters of divestiture and other relief that the Commission might seek if the Acquisition
15

were found to be illegal. From that point on, Respondents were on notice that, if the Acquisition

were found to be illegal, Complaint Counsel might seek as a remedy, and the Commission might

order: 

3. Reestablishment by CB&I of two distinct and separate, viable and competing

businesses, one of which shall be divested by CB&I, engaged in the design, engineering,

construction and sale of the lines of commerce alleged in the complaint, including all

improvements to existing products and new products developed by CB&I or PDM, and in

such other businesses as necessary to ensure each of their viability and competitiveness

in the lines of commerce alleged in the complaint and each possessed, including through

divestiture, replacement and reconstitution by CB&I, of all assets, tangible and

intangible, including but not limited to all intellectual property, knowhow, trademarks,

trade names, research and development, customer contracts, and personnel, including but

not limited to management, sales, design, engineering, estimation, fabrication and

construction personnel . . . .

4. Such other or additional relief as is necessary to ensure the creation of one or more

viable, competitive independent entities to compete against CB&I in the manufacture and

sale of any relevant product.

Notice of Contemplated Relief, Docket No. 9300 (emphasis added).

Complaint Counsel’s Pre-Trial Brief, filed October 21, 2002, contained five pages relating

to the issue of remedy, including cites to the Notice of Contemplated Relief and relevant judicial

precedent. Complaint Counsel therein put Respondents on notice that they would be required to

restore two vigorous and viable competitors: “In order to reestablish two competitors as they would

have existed but for the acquisition, CB&I must purchase or rebuild assets and hire personnel

sufficient to restore two vigorous and viable competitors in the relevant markets.” CCPTB-59.

Notwithstanding their protestations, Respondents were well aware of the proposed relief.

On November 13, 2002, one day after trial began, CB&I reported to its shareholders: “The FTC is

seeking various remedies, including an order that would require the Company to divest sufficient

assets and personnel to re-establish two distinct and separate viable competing businesses engaged

in the design, engineering, fabrication, construction and sale of the relevant product lines.” CX1588
11 The fact that the Rules provide for submission of a proposed order only after the record

has closed is a strong indication that due process does not require that each specific detail of

Complaint Counsel’s proposed order be subjected to a full adversarial administrative proceeding.

16

at 14. During trial, Respondents’ examination of witnesses made clear that Respondents had full

notice that Complaint Counsel’s proposed remedy would include divestiture of significant portions

of the combined entity’s assets and ongoing contractual business, and would likely necessitate the

transfer of contracts and personnel to an acquirer. For example, Respondents’ counsel’s questions

to Dr. Simpson illustrate that Respondents understood the proposed remedy. Respondents’ counsel

stated:

! “[I]n order to restore the competition that was lost, you have to split apart

CBI into two separate companies.” CB&I Counsel, Tr.5706. 

! “[C]ustomers would have to waive their rights to prevent assignment in order

for the work to be transferred from CBI to a newly created company?” Id.

at 5710. 

! The FTC needs “enough people in each discipline to split up into two

companies?” Id. at 5713.

! “CBI has several hundred projects going on in any given time[;] . . . how

those projects could be equitably split between the two companies?” Id. at

5714.

! “[There is] evidence in this case that customers would assent to the

assignment of their contracts to the new entity.” Id. at 5718.

Moreover, Respondents concede that they elicited testimony from a dozen witnesses at trial relating

to these same issues of remedy. See Respondents’ Motion for Directed Verdict at 9-13.

At the end of trial, as mandated by Commission procedure, Complaint Counsel provided the

detailed provisions relating to the divestiture in a proposed order attached to its Post-Trial Brief,

timely filed according to the Prehearing Schedule established by the ALJ, and in accordance with

Commission Rule 3.46(a), which provides: “Upon the closing of the hearing record,

11 . . . any party
17

may file . . . for consideration of the Administrative Law Judge proposed findings of fact,

conclusions of law, and . . . order . . . .” (Emphasis added). In their appeal brief, Respondents made

only general arguments that divestiture was inappropriate and that the Water Division should not be

divested, but did not otherwise contest any of the detailed provisions contained in the proposed order

submitted to the ALJ by Complaint Counsel. RAB-52-57.

Finally, in accordance with Commission Rule 3.52(b)(1)(v), Complaint Counsel filed with

its cross-appeal brief “[a] proposed form of order for the Commission’s consideration instead of the

order contained in the initial decision.” Respondents now argue that they are prejudiced because,

according to Respondents, Complaint Counsel incorporated new or modified provisions in CCPFO.

RRCRB-48. There is no prejudice; CCPFO is consistent with the order presented to the ALJ, is

squarely within the Notice of Contemplated Relief, and is appropriate to the record in this case.

On appeal, Complaint Counsel merely narrowed the proposed order presented to the

Commission to address concerns raised by the ALJ in the Initial Decision (e.g., ID-122-23; CCPFO

¶ II.F); to incorporate provisions of the ALJ Order (e.g., CCPFO ¶ IV); to address Complaint

Counsel’s concerns regarding the sufficiency and feasibility of the relief contained in the ALJ Order

(e.g., CCPFO ¶¶ I.S. & II.E.; CCACB-77); to conform the requirements of the order more closely

to the record evidence (e.g., CCPFO ¶II.C.4.(a); CCACB-71, 73); and to make the order’s terms

clearer. CCACB-75-78.

For example, the ALJ rejected a provision in the proposed order submitted by Complaint

Counsel that sought to transfer 45% of CB&I’s full time employees to the acquirer on the grounds

that at-will employees are not assets that may be divested. ID-122-23. In response, Complaint

Counsel modified the provision to require CB&I merely to take actions necessary to encourage the

transfer of sufficient personnel to the acquirer, including, if necessary, the payment of financial
12 Respondents agreed that on the closing day of the Acquisition PDM would terminate the

employment of each employee of the EC and Water Divisions and that the terminated employees

could accept employment with the acquirer. Asset Purchase Agreement ¶7.1.1. CX328 at CBI

001299-CHI. 

13 In their Revised Witness List of June 30, 2002, Respondents listed some thirteen witnesses

that they intended to call on the issue of remedy. But by their own volition, at trial, they called only

one, Gerald Glenn. 

18

incentives. CCPFO ¶II.F. It is indeed strange that Respondents now claim it is unfair that

Complaint Counsel proposes a narrower remedy to address the arguments raised by Respondents

during trial. Of course, Complaint Counsel believes that this Commission has the power to simply

order a transfer of these employees back to a new PDM, and if Respondents think that is more fair,12

we would not oppose such a remedy. 

In sum, Respondents’ due process argument is without merit. All Respondents’ arguments

on the remedy issue were explored thoroughly at trial.13

G. Complaint Counsel’s ProposedFinal Order is tailored to the facts

of this case, supported by the record, and designed to ensure

effective relief.

Respondents object to a number of provisions in CCPFO as “overbroad” and “unsupported

by the evidence.” However, each of these provisions is warranted by the factual circumstances of

this case as established by the record evidence, and are included in CCPFO to ensure effective relief.

1. Requirements that CB&I take affirmative steps to

assure transfer of employees to the acquirer are

tailored to the facts of this case, supported by the

record, and necessary for effective relief.

Respondents contend that certain provisions of CCPFO requiring CB&I to take affirmative

steps to assure the transfer of employees to the acquirer are unsupported by the evidence. RRCRB50-52. On the contrary, there is overwhelming evidence that experienced employees are crucial to
19

viability and competitiveness in the relevant markets. Consequently, these provisions are necessary

for effective relief. 

As discussed in CCACB, CCACB-74-75, the record demonstrates that the know-how and

expertise of the former-PDM personnel contributed to PDM’s competitive track record and

reputation in the industry. See, e.g., IDF-168, 170-71, 252, 323, 328-31, 334, 415-16, 578-79. The

ALJ agreed and found that “educated, experienced, and knowledgeable employees are required to

build the relevant products.” ID-122. The ALJ also found that “[m]any of the contracts presently

held by CB&I contain . . . key employee provisions that require the customer to approve . . . the

replacement of key employees on a project.” IDF-580 (emphasis added). Mr. Glenn, CB&I’s CEO,

explained that customers demand these provisions to protect against “bait and switch” marketing

practices, reinforcing the importance of experienced personnel to competition in the marketsat issue.

Glenn, Tr.4168-69. Respondents emphasized at trial the importance of experienced personnel: 

Q. And sir, you would agree that in order for either company to be an effective

competitor they would need somebody from each discipline in each of the relevant

markets to be competitive?

A. They would need people competent in each of the disciplines.

Simpson, Tr.5713. 

Accordingly, CCPFO ¶II.F.3. requires CB&I to provide limited financial incentives to

employees to encourage the transfer of sufficient personnel to the acquirer, which will also facilitate

the transfer of customer contracts to the acquirer. CCACB-74.

Respondents object that Complaint Counsel’s observation that these requirements are similar

to those in MSC Software and ADP is meritless because those were consent decrees, citing the ALJ

at ID-123 (quoting du Pont, 366 U.S. at 330 n.12), and because, according to Respondents, the

requirements in those decrees are less burdensome than what Complaint Counsel seeks in CCPFO.
20

RRCRB-51. Complaint Counsel have never contended that consent decrees are binding precedent.

Rather, our point is that the Commission’s institutional experience with merger remedies, including

consent settlements, is available to inform the Commission’s judgment as to what works in

divestiture cases. CCACB-70 & n.37. To suggest otherwise would be contrary to the

Commission’s mission as an expert agency. Notably, the cited portion of the du Pont decision does

not support Respondents. Instead, in that case, the Supreme Court rejected the consent decrees relied

on by du Pont because the requirements were less burdensome than full divestiture, the relief the

Court felt was appropriate: “Appellees rely on several Clayton Act consent decrees granting relief

short of divestiture, but the circumstances surrounding such negotiated agreements are so different

that they cannot be persuasively cited in a litigation context.” du Pont, 366 U.S. at 330 n.12. 

Respondents’ argument that providing incentives to assure that the acquirer obtains a portion

of the merged firm’s experienced personnel may increase CB&I’s cost of doing business, RRCRB51, is discussed above. However, it is worth pointing out that the requirement to pay an incentive

equal to up to twelve months of an employee’s base salary contained in CCPFO ¶ II.F.3. is not

automatic. It is operative only at the acquirer’s request, i.e., if the acquirer experiences difficulties

in obtaining transfer of sufficient CB&I employees.

2. The requirements relating to assignment of

contracts are tailored to the facts of this case,

supported by the record, and necessary for

effective relief.

Respondents argue that the provisions of CCPFO ¶ II.C. requiring divestiture of contracts

are unsupported by the evidence. RRCRB-52-56. These arguments are refuted by the overwhelming
14 The Supreme Court decisions in Utah Pub. Serv. Comm’n v. El Paso Natural Gas Co.,

395 U.S. 464, 470 (1969), and Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 386 U.S.

129, 138 (1967), stemmed from an initial decision by the Court in 1964 in the related case of United

States v. El Paso Natural Gas Co., 376 U.S. 651 (1964), where the Court reversed the district court’s

decision and directed divestiture. The two subsequent decisions relate to the district court’s

continued failure to carry out the Court’s instructions and the Court’s further remands “for additional

proceedings” consistent with its original instructions to divest. Thus, contrary to Respondents’

portrayal, these decisions do not support Respondents’ contention that “further proceedings on

remedy” are appropriate in this case. RRCRB-52 n.60.

21

record evidence relating to the importance of having a back-log of pre-existing work for a new entity

to be competitively viable.14 CCACB-69-73. According to Respondents’ counsel:

 In order for this company, new company, to work, it has to have work in the system.

You can't just create it and then say, go out and find work, because it takes

sometimes six months to a year for a job once you find an opportunity for it to come

in. Everybody recognizes that. 

Leon, Tr.8316-17. This assessment is confirmed by the witness examination conducted by

Respondents’ counsel at trial. See Glenn, Tr.4168-70 (CB&I would have to obtain customer

permission to assign contracts that have a non-assignability clause, but CB&I can subcontract work).

Respondents nailed home, in their examination of Dr. Simpson, that incentives may be necessary to

obtain assignment of contracts so as to assure the viability of the acquirer:

Q. And sir, you would agree that this newly created company would have to have a

lot of work backlog in order to even be viable in the first instance?

A. I think they would need a number of jobs to be viable.

Q. You couldn’t just say here’s all the employees, here’s all the equipment, here’s

the fabrication facilities, now go out and find work without any work being already

in the system there, could you? 

A. . . . the company would be much stronger if they had a volume of business.

Simpson, Tr.5707-08.

Q. So it could take zero to two years for this new company to get any work in the

door if they start with no work backlog; correct?
15 The last question is a question of law, not answered by Dr. Simpson, but which is

answered by CCPFO ¶ II.C.

16 In Goodrich and Occidental the Commission ordered respondents to assign to the acquirer

supply agreements and sales agreements relating to relevant product produced in, or supplied from

the divested plants. B.F. Goodrich, 110 F.T.C. at 364; Occidental Petroleum Corp., 115 F.T.C.

1010, 1292 (1992). In HCA, the Commission ordered respondent to divest or terminate management

contracts. Hospital Corp. of America, 106 F.T.C. 361, 521 (1985).

22

A. I think that’s correct, yes.

Q. And that would greatly impact on the viability of this company; correct?

A. I think it would, yes.

Q. Now, sir, in order to get work backlogged to the new company, customers would

need to agree to waive their nonassignability clauses in their contracts and have work

assigned to this new entity; correct?

Simpson, Tr.5708-09.15

Virtually all of the contracts that CB&I acquired as part of the acquisition have now been

performed. CCACB-72. Limiting divestiture to only what remains of the contracts acquired from

PDM would render any remedy a divestiture in name only and would leave the new company with

almost no ongoing business. The Commission has ample authority to order divestiture of afteracquired contracts, CCACB-65-68, and has done so in numerous past litigated cases.16 The

Commission should do so here as these provisions are necessary for effective relief.

Respondents incorrectly assert that CCPFO requires CB&I to “divest a third of its contracts

outside the U.S.” RRCRB-48; see RRCRB-46. CCPFO does no such thing; it simply requires that

the contracts transferred and assigned to the acquirer have a total monetary value of no less than 33%

of the combined dollar value of CB&I’s tank business customer contracts and no less than 48% of

the combined dollar value of CB&I’s United States contracts. CCPFO ¶ II.C.4.(a). Respondents

may satisfy this obligation entirely from CB&I’s United States contracts. Moreover, prior to the
23

acquisition, CB&I and PDM’s EC Division competed both in the United States and in markets

outside the United States. PDM EC’s revenues from sales outside the United States contributed to

the division’s profitability and helped support its design and engineering work. In order to assure

the viability of the divested business it must likewise be in a position to compete outside the United

States as well as in the United States.

Finally, Respondents object to use of Respondents’ pre-acquisition respective revenues as

a benchmark for determining the portion of the merged firm’s current contracts that should be

assigned to the acquirer. RRCRB-54-55. In attempting to reestablish the competition that existed

prior to the merger it is appropriate to look at CB&I’s and PDM’s respective positions in 1999, the

last full year before Respondents entered into their acquisition agreement. In the summer of 2000,

Respondents signed the deal and no longer aggressively competed against one another. Contrary to

Respondents’ arguments, there is no reason to believe that CB&I and PDM would not have captured

similar shares of revenues in subsequent years if the acquisition had not transpired, or if PDM’s EC

and Water Divisions had been acquired by another entity. As the ALJ properly found, PDM was

CB&I’s closest and most significant competitor for many years prior to the acquisition. IDF-74, 79-

82, 228-232, 269, 277-291, 363, 376-406, 483-487. 

Respondents also argue that to the extent the merged firm’s current revenues exceed

Respondents’ combined 1999 revenues, the acquirer should not share in this growth. RRCRB-55.

But there is no reason to believe that the sales growth enjoyed by the merged firm since the

Acquisition would not have been experienced by the two firms if they had continued to compete.

The law is clear that the Commission’s divestiture order may take into account a firm’s probable

growth that would have occurred, absent the merger. Ekco Products, 65 F.T.C. at 1217. 
24

The gist of Respondents’ arguments is that, because the exact amount of contracts PDM

would have today absent the merger cannot be determined with certainty, the Commission’s recourse

is “simply throwing up our hands and surrendering all chance that this Section 7 violation will be

remedied.” Diamond Alkali, 72 F.T.C. 700 at 751. The Commission should reject this argument

now, as it did in Diamond Alkali. Id.

3. Cloning the merged firm’s confidential

information is necessary because unscrambling is

not practicable.

Respondentsargue that the acquirer should not be given access to the merged firm’s customer

files and that confidentiality and non-compete agreements should be preserved as impediments to

employment by the acquirer of the merged firm’s employees. RRCRB-46, 56, n.65. Since the

Acquisition, CB&I has absorbed and integrated PDM employees and all of PDM’s confidential

customer files. The merged firm has built on the confidential information of CB&I and PDM and

has continued to develop confidential information, including development of estimates and proposals

for future work. Following the divestiture, CB&I will continue to use the merged firm’s

confidential information in competing for new business. The acquirer must be in a position to

compete against CB&I for this work immediately following divestiture. 

It is impracticable to purge CB&I of confidential information it gained through the

Acquisition and the subsequent confidential information that grew therefrom. Therefore, CCPFO

provides, insofar as possible, that both CB&I and the acquirer step into the merged firm’s shoes with

respect to confidential information held by the merged firm at the time of divestiture. Following

divestiture CB&I and the acquirer will build separately on this confidential information and use it

to compete for and conduct new business. As Complaint Counsel explained in CCACB, deterrence

of collusion is one reason why CCPFO ¶ V. provides for the appointment of a Monitor. CCACB-76.
17

 MSC Software Corp., Docket 9299, Decision and Order ¶ V.C.3., November 1, 2002

(“Respondent . . . shall eliminate any confidentiality restrictions that would prevent employees who

accept employment with the Acquirer from using or transferring to the Acquirer any information or

Intellectual Property that is in the employee’s memory or that is part of the Licensed Rights.”);

Automatic Data Processing, Inc., 124 F.T.C. 456, 475-76 (1997) (Order ¶ VI) (“Respondent . . .

shall remove any non-compete or confidentiality restrictions with respect to employment of such

employees by the Acquirer.”).

25

Waiver of non-compete and confidentiality agreements may be necessary to facilitate transfer

of employees to the acquirer, and is very similar to provisions contained in the MSC Software and

ADPconsents.

17 An expert Monitor would be of invaluable assistance in helping Complaint Counsel

and Respondents assure that the scope of such a waiver is appropriate to accomplish its purpose.

4. Transitional assistance and a monitor are

necessary for effective relief.

Respondents argue that provision of transitional technical assistance to the acquirer is

unnecessary and can be obtained elsewhere. RRCRB-57. Respondents’ objections miss the point,

explained in CCACB: PDM’s know-how resides in the PDM personnel that have now been

absorbed into CB&I’s combined workforce. Consequently, CB&I is in a unique position to provide

to the acquirer short-term technical and administrative assistance as may be requested by the

acquirer. CCACB-75-76.

Further, Respondents argue that appointment of a Monitor to oversee the divestiture is

unnecessary. RRCRB-57 n.66. Respondents’ counsel dispelled this assertion during the trial:

You know that if a remedy, the remedy you propose, is implemented, there will have

to be some sort of a trustee appointed to implement it; correct? . . . [A] trustee to

oversee splitting up CBI into two companies . . . [must have] competence to act as

the person who would need to look at all the practical factors and realities in order

to accomplish [the split]?

CB&I Counsel, Tr.5715. As Respondents appear to acknowledge, the need for a Monitor is

particularly great in this case given the commingled assets and operations Respondents must divest
18 Judge Posner “identifies the cost of monopoly with the output that the monopolist does

not produce, and that a competitive industry would.” Richard A. Posner, ANTITRUST LAW 13 (2001);

see id at 12.

26

and the difficulty of assuring that CB&I provides to the acquirer all intellectual property to which

it is entitled. Thus, a Monitor is necessary to assure effective relief.

II. CREDIBLE AND PROBATIVE EVIDENCE DEMONSTRATES ACTUAL

ANTICOMPETITIVE EFFECTS OF THE ACQUISITION.

Substantial evidence of post-acquisition anticompetitive effects presented by Complaint

Counsel reaffirms the ALJ’s conclusion that “CB&I has the ability to exercise market power as a

result of its acquisition of the only other competitor that had constrained CB&I.” ID-114. This

evidence, detailed in Complaint Counsel’s briefs and findings, shows that on separate TVC projects

for Spectrum Astro and TRW, CB&I communicated with PDM or another competitor regarding the

customer’s request for a bid, and in each case CB&I officials proposed coordinating on the bid.

CPF-1165-1180 and CCACB-53 (TRW); CPF-1119-1164 and CCACB-52-53 (Spectrum Astro).

Further, examination of pricing on at least eight different projects shows that customers have

incurred higher prices for the relevant products as a result of the Acquisition. CPF-777-830 and

CCACB-53 (Williams); CPF-1181-1220 ([ ]); CPF-831-928 and CCACB-55-56 (BP); CRF7.106 and CCACB-53-55 (CMS Energy); CPF-929-954 and CCACB-55 (MLGW);CPF-1053-1086

and CCACB-56-58 (Praxair (2 projects) and Linde). The harm to competition is not limited to those

customers who were forced to pay the higher price, but even more significantly is reflected in the

dead weight loss resulting from customers such as [ ] and Linde who were forced to do

without the product because the merged firm’s price, following the Acquisition, was too high,18 and
19

 See id. at 13-14, identifying resources expended by customers to avoid being charged

monopoly prices as an additional dead weight cost of monopoly. 

20 Respondents characterize CB&I’s BDM as “an entry-level CB&I salesperson.” RRCRB34. This mischaracterizes Mr. Miles who was assigned by CB&I with responsibility for the TRW

account as well as other important accounts. CRF-6.127. 

21 Respondents chose not to call Miles as a witness at trial to explain his actions. The

Commission can infer that Mr. Miles’s testimony, if given, would have been unfavorable to

Respondents. Interstate Circuit, Inc. v. United States, 306 U.S. 208, 226 (1939). Respondents argue

that CB&I’s BDM contacted Howard “to determine if Howard would be willing to serve as a

subcontractor to CB&I” on TRW’s TVC project. RRCRB-34. But there is no evidence to support

such a pretext, and it is refuted by Mr. Scorsone who testified that Mr. Miles had no authority

regarding subcontracting. Scorsone, Tr.5059-61; CRF-6.127. 

27

extends as well to customers such as BOC and Air Liquide who settled for a LIN/LOX tank from

a less experienced and less qualified supplier.19 

Contrary to Respondents’ arguments, the evidence of price increases for at least seven of

these customers (Williams, BP, CMS, Linde, Praxair, Spectrum Astro, and [ ],) do not depend

on comparing firm to budget pricing. RRCRB-34. Moreover, Respondents’ argument that a budget

price is less precise than a firm, fixed bid price (RRCRB34-36), fails to address why, after entering

into the acquisition agreement, Respondents increased the margins in their price quotes. 

A. Following the Acquisition, CB&I asked Howard Fabrication to

coordinate on a bid to TRW for a TVC.

 Credible trial testimony from the president of Howard Fabrication, a manufacturer of small

thermal vacuum chambers, establishes that although Howard’s president informed him that Howard

had presented a proposal to TRW for the job, CB&I’s Business Development Manager (“BDM”)

20

nevertheless asked Howard to coordinate on making a bid or a price quote to TRW.21 IDF-449-50;

Gill, Tr.247, 374; CPF-1173-77. Prior to the meeting between CB&I’s BDM and Howard’s

president, TRW sought bids from both CB&I and Howard for its new TVC to “help maintain the

competitiveness . . . within the marketplace.” Neary, Tr.1444-45. At the meeting, Howard’s
22

 This was not, as Respondents now claim (RRCRB-34 n.41), merely a response to a

hypothetical. Neary, Tr.1451 (“[I]t’s not right . . . because we’re not going to get a competitive bid

from two independent companies.”)

28

president informed CB&I’s BDM that Howard had already submitted an initial bid for the TRW

project. Gill, Tr.245, 252-53, 274. Instead of ending any further conversation with Howard about

the TRW project, CB&I’s BDM proceeded to propose that Howard and CB&I “coordinate” on the

next bidding round for the TRW project. Gill, Tr.247, 274; CPF-1173-1177. Mr. Neary of TRW

testified that the effect of CB&I’s proposal to Howard on TRW is “we’re basically hosed.”22 Neary,

Tr.1451; CPF-1177-78.

B. During negotiation of the Acquisition executives of CB&I and PDM discussed

Spectrum Astro’s request for final bids; CB&I management then outlined

coordination strategies for CB&I and PDM to avoid price competition prior to

the Acquisition; keen competition between CB&I and PDM ceased; CB&I

increased price and margin further following the Acquisition.

Complaint Counsel detailed in its proposed findings the vigorous pre-acquisition competition

between CB&I and PDM for the Spectrum Astro TVC project (CPF-1108-1118); the inappropriate

communications between executives of CB&I and PDM concerning Spectrum Astro’s request for

bids during negotiation of the Acquisition agreement (CPF-1119-1124); written communication

within CB&I detailing proposed responses by CB&I and PDM to avoid pre-acquisition price

competition for the project (CPF-1125-1129), including “CB&I and PDM bid high” (CPF-1129);

and the result that both CB&I and PDM did, in fact, bid high, causing a witness who had been

involved in CB&I’s bidding on the project to acknowledge that he did not see the same sort of

competitive pricing behavior on the November 2000 bidding as he had seen in previous competition

between CB&I and PDM (CPF-1130-1136; Scully, Tr.1193-1194). Respondents simply disclaim

that all of this is any evidence of collusion. RRCRB33-34. 
29

As Complaint Counsel noted in the Cross-Appeal Brief, the Commission need not decide

whether collusion actually occurred. CCACB-49. The question instead is whether competition and

customers have been harmed by the Acquisition. Spectrum Astro clearly lost the benefit of

competition once CB&I and PDM began Acquisition discussions and turned their attention to ending

fractious competition rather than winning the job. CB&I and PDM management recognized that

whichever company won the bid, the business would belong to the merged firm; there simply was

no one else to whom the customer could turn, and Respondents used the opportunity to increase

price.

But harm to Spectrum Astro did not end with the Acquisition. Following the Acquisition,

CB&I took advantage of project delay to increase the price of the project by 11.7%. CPF-1140-1154.

The customer agreed with Respondents’ counsel’s assessment that CB&I simply saw an opportunity

to “stuff some extra profit into the work,” because, following the Acquisition, CB&I was not 

satisfied with the margin it had included in its pre-acquisition bid. Thompson, Tr.2119-121; Scully,

Tr.1179-81; CPF-1154-58. Respondents’ revised claim that the price increase was “based on scope

changes in the project” (RRCRB-37), is not supported by the record. CPF-1146-164. 

C. CB&I increased price to [ ] following the Acquisition.

None of Respondents’ TVC customers escaped a price increase following the Acquisition.

 simply asked CB&I, following the Acquisition, to restate the price for the same TVC for

which, prior to the Acquisition, PDM had provided a fixed, firm price. CPF-1207-220. As

successor to PDM, CB&I had all the files and data relating to PDM’s fixed, firm bid, and the same

personnel who worked at PDM now worked for CB&I. However, because PDM’s bid had expired,

CB&I was not obligated to honor the price quoted by PDM, and CB&I could adjust the price to

account for inflation. CPF-1211-12. Instead, CB&I increased the price by [ ], seizing on yet
23 PDM’s analysis is confirmed by PDM’s and CB&I’s price quotes to BP for alternative size

tanks. CPF-869-870, 882-928.

30

another opportunity to raise price following the Acquisition. CPF-1213-14.

In light of the detailed data already known to CB&I and the customer’s request for renewal

of the fixed, firm price, Respondents’ suppositions about the uncertainty of budget pricing are beside

the point. [ ], Tr. 1933-35. 

D. Respondents repeatedly increased the price and margin of the

Cove Point LNG tank after signing the Acquisition agreement.

Respondents concede that the Cove Point LNG margin increased substantially following the

Acquisition, but attempt to explain this as variously attributable to the difference between projected

margin and actual margin, the difference between margin and profit, cost savings realized by CB&I

from project delay, and the difference in the size of the tank purchased by the customer and that

specified in the initial bid. RRCRB-38. Respondents’ excuses for the margin increase fail to explain

why, in the post-acquisition competitive environment, instead of passing through to the customer

the cost savings CB&I realized from the project delay, CB&I used the project delay as an excuse to

increase the price and the margin. CPF-812-13, 910. Respondents’ distinction between price and

margin does not explain Respondents’ price increases. Respondents’ escalation of price, profit and

margin of the Cove Point LNG tank, since they signed the Acquisition agreement, is well

documented. See CPF-825-830. 

The fact that the customer elected to purchase a larger tank than that for which Respondents

submitted competing firm bids in March 2000 (CPF-779-788, 887-897) does not explain the increase

in margin. PDM’s analysis of the two tanks showed no difference in percent margin and only a 9%

difference in price.23 CPF-792-94, 900-01. In fact, PDM increased the price and margin of both size
24

 The customer requested the price quote from CB&I because “[it is] the only one who can

give a reliable answer to the question, how much [the new LNG tank] would cost.” Hall, Tr.1827-

28. CB&I had substantial information regarding the proposed tank because it had built the same size

tank at the site and had detailed costs for the previous tank. 

31

tanks immediately after signing the Acquisition agreement with CB&I. CPF-788-795, 907-08.

Respondents’ only explanation for PDM’s September 2000 price increase is that it was characterized

by PDM as a budget estimate and therefore is irrelevant. But PDM had in September 2000 the same

information regarding the smaller tank that it had in March 2000 when it submitted its firm bid. The

only change was that Respondents had signed the Acquisition agreement and that change in

ownership of the Cove Point facility gave Respondents an opportunity to rebid. CPF-788-793.

Moreover, Respondents offer no explanation for PDM’s further increase in price and margin when

it submitted its firm, final bid to the customer in November 2000, a bid that even PDM’s account

manager for the project characterized as “fat” and “excessive.” CPF-796-811, 823, 825-26, 909.

E. Following the Acquisition, Respondents used the inflated Cove

Point price to increase the margin and price quoted to MLGW.

Respondents argue that the price quoted to MLGW, following the Acquisition, cannot be

compared to the price paid by MLGW when Respondents competed for a similar LNG tank at the

same site, because the earlier price was competitively bid, and the budget price might be revised

based on project details the customer would later provide.24 RRCRB35-36. Respondents’ assertions

fail to explain why CB&I included a [ ] profit margin in the its post-Acquisition quote although

CB&I knew from experience that it only got an [ ] margin when it competed against PDM. CPF930-954. Further, Respondents fail to dispel the fact that just before giving the 2002 price quote to

the customer, CB&I increased the price and margin [ ] to conform to the inflated price
32

PDM obtained for the Cove Point LNG tank, notwithstanding that CB&I determined that it could

have done the job for less with a [ ] margin. CPF-929, 948, 805-07, 816-821.

F. The BP projects provide credible evidence of anticompetitive effects.

BP’s decision to sole-source with CB&I its three proposed LNG tank projects in the United

States confirms the loss of competition resulting from the Acquisition. CPF-831-82. Inexplicably,

Respondents’ economic expert elected to exclude from his “critical loss” analysis these CB&I wins

as well as the other sole-source agreements awarded to CB&I since the Acquisition. CPF-636, 638.

Respondents’ reliance on Mr. Sawchuck’s testimony is misplaced (RRCRB40); the testimony is at

odds with BP’s internal documents (IDF-112-13) and merely confirms that BP values its relationship

with CB&I. Following the Acquisition, CB&I’s CEO Gerald Glenn made a personal request to BP’s

senior executive, for United States LNG, to provide the very statement made by Mr. Sawchuck in

his deposition. CX691 at BP 01 033; CPF-864-67. In forwarding Glenn’s request to Mr. Sawchuck,

BP’s executive noted that the request is “a sticky one.” Id. 

Respondents urge the Commission to discount [ ] analysis of CB&I’s, PDM’s and

Whessoe’s price quotes because the document, RX157, does not explain the circumstances under

which the price quotes were provided. RRCRB-40-41. However, Respondents elected to offer no

other documents or other evidence to further explain CB&I’s and PDM’s price quotes to [ ], and

Mr. Scorsone testified that BP’s pricing model is “very, very accurate.” Scorsone, Tr.4995-96.

G. The Acquisition enabled CB&I to increase price to CMS.

Contrary to Respondents’ assertion (RRCRB-38), CB&I’s price increase to CMS was

presented in detail to the ALJ. CRF-3.470-3.483, 7.106 and record evidence cited therein. Despite

Respondents’ reassertion, the margin cited by Respondents for the overall project (RRCRB-39 n.45),

does not account for whatever profit CB&I loaded into the inflated $35 million price tag for the LNG
33

tank. CRF7.106; CCACB-54. Respondents question the very comparisons [ 

 ] – the final price paid to CB&I

for the Cove Point LNG tank and [ ]. CRF-7.106. But

Respondents themselves argued that [ 

 ] performing these same comparisons. RPF-3.473-75; CRF-3.473-75. In addition to documenting

a price increase by CB&I following the Acquisition, the [ ]

compare actual prices and budget prices in making purchase decisions. 

H. CB&I increased price to Linde and Praxair following the

Acquisition.

Linde concluded that CB&I’s price quote following the Acquisition was 8.7% higher than

what PDM would have charged, based on Linde’s highly accurate model, which it routinely used to

distinguish between reasonable and unreasonable price quotes from tank suppliers. CX-1584; Fan,

Tr.965-66,1002-05, 1009-012; CPF-1058-070. This difference was statistically significant (Fan,

Tr.1005, 1009-011) and cannot be explained by any alleged difference between budget prices and

firm prices because Linde’s model took into account corresponding price quotes from PDM and

CB&I. Fan, Tr.965-67, 970, 983-84, 1023; see CX1584. Respondents’ observation that CB&I’s

price was higher than PDM’s price both before and after the Acquisition (RRCRB-37 n.43) says little

about the loss of competition. Prior to the Acquisition, Linde and Praxair bought from PDM because

it offered the best value. The Acquisition eliminated this alternative. Respondents’ argument that

the price CB&I quoted to Linde should be ignored because it is merely a budget price overlooks the

fact that Linde requested a “close to firm” price (CPF-1061) and that two months later CB&I

provided, in a firm bid to Praxair, virtually the same price for essentially the same size tank for the

same location. CPF-1071-76.
34

Respondents’ argument that CB&I’s 8.7% price increase on a another Praxair tank should

be ignored, because the comparison is based on budget prices, overlooks the fact that both tanks use

Praxair’s standard design and that Praxair expected that the post-Acquisition price should be lower

than PDM’s pre-acquisition price. CPF-1077-1084; CPF-1079 CX444; CX446; JX7 at 70 (Knight

Dep.). 

I. The ALJ improperly disregarded or excluded evidence regarding

anticompetitive effects.

Complaint Counsel ask that the Commission consider Complaint Counsel’s pedagogicaldevice summaries, their underlying exhibits, and the proposed findings based thereon: CPF-801,

825, 826, 827, 828, 829, 830, 869, 882-896, 902-911, 912-928, 935, 1043-1052, and CRF-7.106.

The graphs include detailed citations to the record for the data contained therein. Certain proposed

demonstrative exhibits corresponding to some of the graphs were used during the cross examination

of Dr. Harris and some of these were marked or modified by Dr. Harris. CX1760, corresponding

to CPF-882, was received in evidence after Dr. Harris substituted the abbreviation “WGT” for the

name “Whessoe” appearing in the legend of the graph. RX 157 at [ ] 02 002; see Harris, Tr.8035-

42. Based on this difference between CPF-882 and CX 1760 (e.g., “WGT” instead of “Whessoe”),

Respondents argue that CPF-882 is misleading and should be stricken. RRCRB 42, n.50. After

CX1760 was received in evidence, Dr. Harris refused to acknowledge that the prices recorded in

CX1761, corresponded to the prices on CPF-826. Harris, Tr.7837-47, 8043-8109. As alluded to by

Respondents (RRCRB-42), the ALJ rejected CX1761 because “[t]he witness does not agree with

what’s depicted on this exhibit.” Chappell, Tr.8108. This is not a basis for disregarding graphs that

accurately depict numbers contained in cited record evidence.
35

Respondents further argue that Mr. Vaughn’s testimony was properly excluded

notwithstanding that at the start of trial and at the time of his deposition, Mr. Vaughn was

Respondents’ designated expert on bids based on his many years of experience as a CB&I estimator.

CCACB-59. His sworn testimony regarding the comparability of budget estimates and firm bids is

squarely within his expertise. 

TheALJ improperly disregarded evidence involving price quotes. CCACB-58-60. An initial

price quote, sometimes called a budget price, may be a supplier’s only chance to quote a price to a

customer. CRF-7.8-13. As illustrated by [ ] price quote to CMS and BP’s decision to sole

source with CB&I, customers make purchase decisions based on budget prices and accept or reject

suppliers based on budget prices. Id. CB&I adjusts its price quotes to reflect recent actual prices,

as it did in using the Cove Point LNG price to quote prices to [ ]. Price quotes

and firm bids are both measures of price in the market. CMS and [ ] each accepted CB&I’s

price quote as the price it would have to pay. CRF-7.13, CRF-12.15. While CB&I can adjust the

price up or down after providing a price quote, it does so based on the competition it perceives and

does not lower the price unless it has to. Consequently, CB&I has quoted higher prices following

the Acquisition.
36

III. CONCLUSION

Forthe foregoingreasons Complaint Counsel respectfully requests that the Commission enter

Complaint Counsel’s Proposed Final Order as the Commission’s Final Order in disposition of this

matter. 

Dated: October 24, 2003 Respectfully submitted,

J. Robert Robertson

Counsel Supporting the Complaint
CERTIFICATE OF SERVICE

I hereby certify that I caused a copy of Reply Brief of Counsel Supporting the Complaint (Public

Version) to be delivered by hand to:

The Commission

Federal Trade Commission

H-104

6

th and Pennsylvania Ave. N.W.

Washington D.C. 20580

and by first class mail to:

Jeffrey A. Leon

Duane M. Kelley

Winston & Strawn

315 W. Wacker Drive

Chicago, IL 60601-9703

(312) 558-5600

Counsel for Respondents Chicago Bridge & Iron Company N.V.,

Chicago Bridge & Iron Company and Pitt-Des Moines, Inc.

________________________

Jacqueline Tapp,

Investigative Assistant

Dated: October 24, 2003