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/1

!

MAY 2 42010

UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

DOCKET NO. 9327

PUBLIC DOCUMENT

In the Matter of

POLYP ORE INTERNATIONAL, INC.,

a corporation.

ANSWERING BRIEF OF

COUNSEL SUPPORTING THE COMPLAINT

RICHARD A. FEINSTEIN

Director

PETER J. LEVITAS

Deputy Director

Bureau of Competition

J. ROBERT ROBERTSON

STEVENDAHM

BENJAMIN GRIS

JOEL CHRISTIE

STEPHEN ANTONIO

CHRISTIAN H. WOOLLEY

PRIY A VISW ANA TH

CA THARINE MOSCA TELL!

Assistant Director

MORRIS BLOOM

Deputy Assistant Director

Bureau of Competition

Mergers II

Federal Trade Commission

Bureau of Competition

600 Pennsylvania Ave., N.W.

Washington, DC 20580

Telephone: (202) 326-2008

Fax: (202) 326-2884

Counsel Supporting the Complaint

MAY 24,2010
Table of Contents

Table of Cases and Authorities............................ ................................................ .iv

Table of Abbreviations.......................................................................... ............ .vi

I. Statement of the Case.......................................................................................................... 1

II. Statement of Facts....................................................... ........................................................4

1 . The Relevant Markets. ............... ..... ... ..... ........... ....... ...... ............................... ......... 4

a. Microporous and Daramic competed in four product markets: ...................... 4

b. North America is the Proper Geographic MarkeL......................................... 4

2. Microporous Mattered ............................................................................................5

a. Competition between Microporous and Daramic

drove prices down in deep-cycle and motive ........................................ ..... 5

b. Microporous was a "viable competitor" which was disrupting

a comfortable duopoly in SLI ................. .................................................... 6

c. Microporous Was A Threat To Daramic's UPS Monopoly....................... 8

d. Daramic Developed its Microporous "MP Plan" To Stem its Losses ........ 9

e. Daramic acquired Microporous to Eliminate Competition......................... 9

3. The Acquisition Permitted Daramic To Raise Prices ........................................... 1 i

a. Daramic Has Exerted Unilateral Market Power

In Deep-Cycle, Motive And UPS ......................... .................................... 1 1

b. Unilateral And Coordinated Effects In SLI .............................................. 13

4. There is no Timely, Likely, or Suffcient Entry.................................................... 13

III. Complaint Counsel Established A Strong Prima Facie Case........................................... 15

1. Complaint Counsel Proved Four Product Markets ............................................... 16

a. Deep-Cycle Separators... .............. ......... .......................... .......................... 17

b. Motive Separators ..................................................................................... 18

c. Uninterruptable Power Supply ("UPS") is a Product Market................. 20

d. SLI is a Product Market .....................................................................~...... 21

2. Respondent's Alternative Markets are Unpersuasive ...........................................23

a. Flex-Sil Alone is not a Product Market .................................................... 23

b. An All PE Market is not Supported by the Evidence. ..................... ......... 25

3. The Geographic Market is North America ........................................................... 26
iv. The Acquisition Harmed Competition..............................................................................29

1. Complaint Counsel Has Shown a High Probability of

Anticompetitive Effects as a Result of This Transaction...................................... 30

a. The Transaction Created a Monopoly in Deep-cycle and Motive ............ 31

b. The Transaction Maintained a Monopoly in UPS .................................... 32

c. The Transaction Has Substantially Reduced Competition

and Unduly Increased Concentration in SLI............................................. 32

2. Entek was Not an Uncommitted Entrant in UPS, Deep-Cycle, or Motive ...........34

3. Evidence of Anticompetitive Intent.....................................................................35

V. Finding of Actual Anticompetitive Effects Requires Finding of Liability ....................... 36

1. Acquisition Led to Actual Anticompetitive Effects in Deep-Cycle ..................... 36

2. Acquisition Led to Actual Anticompetitive Effects in Motive ............................. 37

3. Acquisition Led to Actual Anticompetitive Effects in UPS .................................39

4. Acquisition Led to Actual Anticompetitive Effects in SLI ..................................39

5. Entek will not constrain Daramic in SLI .............................................................. 40

6. Coordination in SLI is more likely ....................................................................... 41

Vi. The AU Correctly Assessed That Entry Will Not Counteract the

Anticompetitive Effects Of The Acquisition .................................................................... 43

1. Entry Barriers are High ......................................................................................... 44

2. No Evidence of Entry.................................................... ........................................45

3. New Entry Would Not Be Timely ........................................................................ 47

4. Entry Would not Be Likely...................................................................................47

5. No Evidence that Entry Would Be Sufficient...................................................... 48

6. Customers Are Not "Power Buyers" Capable of Counteracting the

Anticompetitive Effects ofthe Acquisition .......................................................... 50

ii
VIl. Complete Divestiture is Necessary to Restore the Competition

Eliminated by the Ilegal Acquisition ............................................................................... 52

1. The Commission Has the Legal Authority to Order Divestiture

of the Feistritz Plant..............................................................................................52

2. Divestiture of Feistritz Plant is necessary to restore

competition in North America .............................................................................. 55

a. The Feistritz Facility Freed Up Significant Capacity

at Microporous' U.S. Piney Flats Plant and Benefitted

Competition in North America ................................................................. 57

b. Divestiture ofthe Feistritz Facility and Production Lines

is Necessary to Return Microporous to its Pre-Acquisition

Position of Having the "Global Footprint" Needed

to Compete in North America.............;.....................................................57

c. Customers Want Suppliers with Multiple Plants to Provide

Security of supply Should there be an Outage ............. .......... ..... .............. 58

d. The Feistritz Plant Will Give Newco the Scale it Needs

to Compete Effectively ............................................................................. 59

e. Microporous' Pre-Acquisition Financial Condition Does Not

Weigh Against a Complete Divestiture. ... . . . ... . . . . .. . . . . . . . .. . . . . . .. ... .. .. 60

3. Additional Provisions Challenged by Respondent are Necessary

to Enable a Viable Divestiture .............................................................................. 60

V. Conclusion...... ..................................................................................................................62

TAB A, PROPOSED ORDER

ii
Table of Authorities

Cases

Brown Shoe Co. v. United States, 370 U.S. 294 (1962). ............................................ 15, 17,23,27

Cascade Natural Gas Corporation v. El Paso Natural Gas Co., 386 U.S. 129 (1967). .............. 55

Chicago Bridge & Iron Co. N. V v. F.TC., 534 F.3d 410 (5th Cir. 2008) ............................ passim

F. Hoffann-La Roche Ltd. V Empagran s.A., 542 U.S. 155 (2004).........................................54

Flegel v. Christian Hasp. Northeast-Northwest, 4 F.3d 682 (8th Cir. 1993)...............................27

Ford Motor Co. v. United States, 405 U.S. 562, (1972). .......... ................ ........ .....3,52-53

FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.e. 2004) ....................................................... 24

FTC v. Cardinal Health, Inc., et aI., 12 F. Supp. 2d 34 (D.D.e. 1998)...................... 16,26,45,49

FTC v. CCC Holdings, Inc., 605 F. Supp. 2d 26 (D.D.e. 2009) ............................................ 16, 41

FTC v. H.J. Heinz Co., 246 F.3d 708 (D.e. Cir. 2001) ................................................... 31, 41, 42

FTC v. Libbey Inc. ,21 IF. Supp. 2d 34 (D.D.C 2002) ................................................................ 36

FTC v. Staples, Inc., 970 F. Supp. 1066 (D.D.e. 1997) .................. ................................. 15, 26, 31

FTC v. Swedish Match, 131 F. Supp. 2d 151 (D.D.e. 2000)........................................................31

FTC v. Western Meat Co., 272 U.S. 554 (1926).............................................................................3

FTC v. Whole Foods Mkt., Inc., 548 F.3d 1028 (D.e. Cir. 2008) .......................................... 15,30

Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986)..............................................36

In re American General Ins. Co, 89 F.T.e. 557 (1977),

rev'd on other grounds, American General Ins. Co. v. FTC, 589 F.2d 462 (9th Cir. 1979) .... 50

In re B.F Goodrich Co., 110 F .T.e. 207 (1988) ................................................................... passim

In re Chicago Bridge & Iron Co., 138 F .T.e. 1024 (2005),

affd 534 F.3d 410 (5th Cir. 2008) ..................................................................................... passim

In re Chicago Bridge & Iron Co., 140 F.T.e. 1152 (2005).................................................... 52,54

In re Chicago Bridge & Iron Co., 2003 FTC LEXIS 96, (2003), affd, 138 F.T.e. 1024 (2005),

affd, 534 F.3d 410 (5th Cir. 2008) ...........................................................................................44

In re Diamond Alkali, 72 FTe. 700 (1967) .;.............................................................................. 55

In re Hospital Corp. of America, 106 F.T.e. 361 (1985) ............................................................. 61

In re Occidental Petroleum Corp., 115 F.T.e. 1010 (1992) .................................................60, 61-

In re Olin Corp., 113 F.T.e. 400 (1990).......................................................................................61

In re RSR Corp., 88 F.T.e. 800 (1976)......................................................................................... 53

Morgenstern v. Wilson, 29 F.3d 1291 (8th Cir. 1994), cert. denied, 513 U.S. 1150 (1995) ........ 26

Northern Securities Co. v. United States, 193 U.S. 197 (1904) .....................................................3

Rothery Storage & Van Co. v. Atlas Van Lines, 792 F.2d 210 (D.e. Cir. 1986).......................... 16

RSR Corp. v. FTC, 602 F.2d 13 1 7 (9th Cir. 1979) ....................................................................... 55

Tampa Elec. Co. v. Nashvile Coal Co., 365 U.S. 320 (1961).....................................................26

United States v. Continental Can Company, 378 Us. 441, 455 (1964) .......................................24

United States v. E.l du Pont de Nemours & Co., 351 U.S. 377 (1956) .................................15,24

United States v. E.l du Pont de Nemours & Co., 366 U.S. 316, 334 (1961) ............................... 53

United States v. El Paso Natural Gas Co., 376 U.S. 651 (1962) .................................................33

United States v. Franklin £lec. Co., 130 F. Supp. 2d 1025 (W.D. Wis. 2000)) ..................... 30,31

United States v. General Dynamics, 415 U.S. 486 (1975) ..........................................................36

United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. CaL. 2004).......................................24

United States v. Philadelphia Nat 'I Bank, 374 U.S. 321, (1963) ...........................................26,30

IV
UnitedStatesv. United Tote, 768F.Supp. 1064 (D.DeII991)...................................................47

Utah Pub. Servo Coml7 'n v. El Paso Natural Gas Co., 395 U.S. 464 (1969)............................... 55

Yamaha Motor Co. Ltd. v. FTC, 657 F .2d 971, 982 (8th Cir. 1981) ................... ........ ........... 52, 54

Statutes

Clayton Act § 7 (15 U .S.e. § i 8)........................................................................................ 1, 15, 52

Clayton Act, § 1 l(b) (15 U.S.e. § 2I(b)) ................................................................................. 3,54

Clayton Act, Section 7 ........................................................... ......................................................... 3

FTC Act, Section 5,15 U.S.e.§ 45(a) ......................................................................................3,54

Other Authorities

2A Areeda, Hovenkamp & Solow, Antitrust Law (2d ed. 2002) ................................................44

2B Phillip Areeda et aI., Antitrust Law ~ 562a (3d ed. 2007)...................................................... 15

Elzinga, The Antil7erger Law: Pyrrhic Victories, 12 J. Law & Econ. 43, 45 (1969)...................53

iv Phillip E. Areeda and Herbert Hovenkamp Antitrust Law ~ 912a (3d ed. 2006).................... 33

Merger Guidelines, ~ 1.0 (Dept. of Justice and Federal Trade Comm'n, Horizontal Merger

Guidelines (1992, rev. 1997) ............................................................................................. passim

Von Kalinowski J. ANTITRUST LAW & TRADE REGULATION (2d ed. 1996).................................. 36

v
Table of Abbreviations

The following abbreviations and citation forms are used:

ID

IDF

RAB

CCFOF

CCRB

CCRF

PX

RX

Initial Decision

Initial decision Finding of Fact

Respondent's appellate brief

Complaint Counsel Finding of Fact

Complaint Counsel Reply Brief

Complaint Counsel Reply Finding of Fact

Complaint Counsel Exhibit

Respondents Exhibit

Citations to the trial transcript include the witness name and page number: Whear, Tr. 4683.

In camera material is bracketed and appears in bold

vi
i. Statement of the Case

Polypore International Inc. and its subsidiary, Daramic, acquired Microporous (a.k.a.,

Amerace), its closest and only competitor in the deep-cycle, motive and UPS separator markets.

The acquisition also eliminated a third competitor in the North American market for SLI

separators, leaving only two. In the detailed, 376 page Initial Decision largely ignored by

Respondent, Administrative Law Judge Chappell correctly found that Complaint Counsel proved

by a "preponderance of the evidence that there is a reasonable probability that Respondent's

acquisition of Micro porous will substantially lessen competition" in these four markets in North

America. (ID-7). Evidence of extremely high concentration levels, barriers to entry, and actual

post-acquisition price effects establish that the acquisition violates Clayton Act § 7 (15 U .S.c. §

18). (ID-7-8).

None of Respondent's arguments have merit. For example, Respondents' product-market

arguments ignore both economic realities and 'practical indicia' ofthe markets, including their

own documents and testimony. Respondent's attempts to confuse the product market boundaries

are simply "contrived." (ID-226). Evidence of price discrimination, customers' desire for local

supply, and barriers to entry dictate that these are North American geographic markets. (ID239).

The HHI's are extraordinarily high, but this is not a case that requires deep HHI analysis.

Before the acquisition, Respondent was often unsuccessful in raising prices when Microporous

competed against it. Indeed, Respondent decided to buy Microporous to "terminate price

erosion" (PX0935 at 001) and "eliminate price competition" (PX0932), and that ifPolypore

failed to buy Microporous (Amerace) as a "defensive move," Respondent knew that

Microporous would "drag (its) prices down" (PXOI68 at 002). Polypore's predictions proved to
be true: There is substantial evidence of higher prices, decreased output, and a loss of innovation

as a result of the acquisition.

As for potential entry, Respondent failed to prove that entry would be timely, likely, or

sufficient. There are no entrants anywhere in the world for deep-cycle, motive, or UPS

separators. In SLI, none are entering North America. The evidence is undisputed that foreign

suppliers cannot enter at Daramic's higher-than-market prices, much less at pre-acquisition

prices.

Respondents' claim of power buyers is equally unfounded. Indeed, Daramic's

management admitted that "battery manufacturers lack purchasing power despite their scale due

to (a) limited number of suppliers." (IDF-435).

Ultimately, Respondent's arguments depend on its assertions that every single one of

Complaint Counsel's third part witnesses were not credible and its expert was wrong.

Moreover, to believe Respondent, one would have to reject the testimony of Respondent's own

executives and witnesses and their contemporaneous documents and statements. The ALJ

correctly found Respondent's arguments to be without merit.

Regarding the remedy, a complete divestiture of the assets that Daramic acquired is

necessary for a divested entity to restore the competition lost in North America from the

acquisition. This includes both the Tennessee plant and the Feistritz facility, which freed up

capacity for Microporous in North America and allowed Microporous to expand production in

North America and which is necessary for NewCo to do business with large multinational

customers. Indeed, after years of study and customer prodding, Microporous' management

determined that "to continue to grow, it needled) to position itselfwith an international

manufacturing base in the same fashion as its competitors," and that to compete successfully

2
against Polypore and Entek it had to become a "global player," like Polypore and Entek.

(PX06I1 at 009); (Gilchrist Tr., 309-311)

However, Polypore would like this Commission to divest far less than what Microporous

had before the acquisition. This would create an even smaller Microporous and would not come

close to fulfilling the requirement under the Clayton Act, § 1 I(b) (15 U.S.c. § 21(b)), that

Polypore divest itself of the assets held in violation of the Act and put Microporous on "equal

footing," "equally capable of competing in the future" as it was prior to the acquisition. Chicago

Bridge & Iron Co. N. V. v. FTC, 534 F.3d 410, 441 (5th Cir. 2008); FTC v. Western Meat Co.,

272 U.S. 554, 559 (1926) (Commission has a duty to issue an order directing that a violator of §

7 "cease and desist therefrom and divest itself of what it had no right to hold."). Indeed, "it

would be a novel, not to say absurd, interpretation of the anti-trust" laws, that after a finding of

liability, Polypore "must be left in possession ofthe power that it has acquired, with full freedom

to exercise it." Northern Securities Co. v. United States, 193 U.S. 197, 357 (1904) , quoted and

followed by Ford Motor Co. v. United States, 405 U.S. 562, 574 (1972). In short, Respondent's

proposed remedy "would perpetuate the anticompetitive effects of the acquisition." Id.

Faced with the overwhelming evidence in this case, it would be incomprehensible that

Polypore would continue its appeal, except for the fact that it has raised prices substantially postacquisition and, until stopped, will continue to reap supra-competitive profits and thus harm

competition and customers. We thus ask for an expedited treatment ofthis case to limit the harm

caused by what the evidence has shown is an extreme violation of Clayton Act, Section 7 and the

FTC Act, Section 5. Accordingly, Complaint Counsel asks this Commission to affirm the AU's

Initial Decision and enter his Order as the Order of this Commission.

3
II. Statement of Facts:

1. The Relevant Markets

a. Microporous and Daramic competed in four product markets:

Microporous and Daramic competed in four product markets prior to the acquisition. The

ALl correctly identified the relevant product markets as separators for UPS, SLI, deep-cycle, and

motive flooded batteries. The acquisition greatly increased concentration levels in each market.

(ID-21 0). The products in each market are differentiated from products in other markets (IDF94, 97, 122- 123, 141, i 50, i 80, 196,227,231, 249, 266), manufacturers design separators for

specific end-uses, (IDF-98- 113), and the industry recognizes these market distinctions. (IDF100,102,128,181,185, 196,216-218,244,268). Separators are tailored to provide

functionality for particular applications, and interchanging separators impacts the battery's life

and functionality. (IDF-90, 94, 97). These four product markets are widely recognized by

Daramic and the industry. (IDF - 1 20, 183-185, 196, 245, 268; PX0316 at 02).

b. North America is the Proper Geographic Market:

Daramic and Microporous produced separators in North America. (IDF-38,43). North

American customers (100% of the market) purchase their separators only from North American

suppliers, and have a strong preference for local supply.1 (IDF-283-311, 346; ID-240-241).

).

(IDF-346-349, 448-451; CCFOF 249-252). Foreign manufacturers have not produced or

qualified separators for motive, UPS, and deep-cycle batteries, and therefore Daramic is now the

i The only separator imported into North America is Daramic's Darak UPS separator which is only

manufactured in Germany, and sells at substantially higher prices than PE or PE/rubber separators. (IDF234, 283).

4
sole supplier of those separators. (lD-241-242; IDF-339, 374, 1061). Prices are also quite

different in different regions of the world. (IDF- 104, 106, 117, 275-280; ID-240). Arbitrage has

never occurred in the past, nor have foreign companies ever competed in North America. (lDF118, 274; Kahwaty Tr. 5363-64, in camera).

2. Microporous Mattered:

"Amerace is a real threat to our business, not only in the industrial market, but later in

the automotive market, because there is no doubt that JCI and EXIDE wil contact them

for a deal, when our contracts wil expire. I'm stil recommending to buy Amerace, as a

defensive action." (Frank Nasisi, Daramic President - PX0168 at 002).

For years prior to the acquisition, Daramic viewed Microporous as a competitive threat

that was harming Daramic's margins. (lDF-582-596,750-759). As early as 2003 Daramic

understood that Microporous was a threat to Daramic' s business model due to "continued price

erosion" from competition with Microporous. (IDF-750). Soon thereafter, the President of

Daramic put an acquisition of Micro porous at the top of his list of possible acquisitions, for the

sole purpose to "( e Jliminate price competition." (lDF-751 -752).

a. Competition between Microporous and Daramic drove prices down in deepcycle and motive:

"We had reacted to the Amerace initial threat by adjusting the price and had no idea

Amerace would continue to lower the price. "(Daramic's VP of Sales - PX0836 at 001)

In deep-cycle and motive, Microporous and Daramic were the sole competitors in North

America, and the two companies had been competing fiercely on price in both. (IDF-371-383,

386-388,392-398,577-581). In deep-cycle, the acquisition increased Daramic's market share to

100%, and increased the HHI by 1,891 points to 10,000. (lD-247). In motive, the acquisition

5
also increased Daramic' s market share to 100%, and increased the HHI by 1,663 points to

10,000.2 (ID-249).

In motive, the threat of competition from Microporous forced Daramic to drop prices on

numerous occasions. (IDF-582-602). Daramic lowered motive pricing to East Penn and

EnerSys, and others due to competition from Microporous. (IDF-583-595). Prior to the

acquisition, Microporous was the only price constraining competitor for motive separators in

North America. (IDF-580; Roe, Tr. 1264-66, 1278-79, 1812-13).

In deep-cycle, Microporous and Daramic were the only competitors. Competition from

Daramic's HD deep-cycle separators constrained Microporous' prices ofFlex-Sil and CellForce.

(ID-247-248; IDF-520-542). The three largest customers repeatedly used Daramic's deep-cycle

separators to get better pricing and terms from Microporous. (ID-248). For example, Trojan

Battery "continually used the threat of buying Daramic HD to get lower prices from

Microporous." (ID-248).

b. Microporous was a "viable competitor" which was disrupting a comfortable

duopoly in SLI:

"fUJnlike prior years, we have a true legitimate big competitor entering the market (MP)

andfor sure they wil capture volume at whatever it takes." (Daramic VP of Sales -

PX0238 at 001).

Prior to Microporous' entry into SLI, Daramic and Entek had been the only two

suppliers, and "were not aggressively competing against each other for (SLIJ business." (lD266). The duopoly was viewed as "lazy and unresponsive; they do not appear to compete and do

2 By 2010, Microporous would have had a market share greater than 50% in motive. (ID-249; IDF-IDF404-405). Post-acquisition Daramic had a 94% market share in motive worldwide. (PX78-7) The

remaining player in Europe had a different technology (PVC) and is not likely to compete in North

America. (Jd; IDF - 105 J ; PX 15 I 6-7 (Daramic says European company is "no serious threat").

6
not have to, given the absence of market forces." (ID-266). With Microporous' decision to enter

SLI, this duopoly was destroyed.

Microporous' attempt to gain JCl's SLl business in 2003 was the first serious threat by

Microporous in SLI. (IDF-663,666). Daramic successfully forced JCI into a contract by

threatening to cut off supply, but even that move could not eliminate the threat of Microporous'

entry into SLI. (IDF-667,67I,676-684).

By 2005, Daramic concluded that Microporous would target Daramic's largest

customers, and was a "real threat" to its business, including in SLI. (IDF-755-756). Daramic

recognized that Microporous was disruptive in SLI, remarking that "there had not been an

aggressive rivalry among competitors" until Microporous' entry. (ID-265-266; IDF-435-436,

646-650, 656, 660, 663, 666-667, 678-683).3

Microporous had targeted an expansion into the SLI business for years and by January

2006, had expansion plans for North America and Europe. (IDF-642, 766-804; PX061 1).

Microporous shook up the SLI market when it began competing aggressively to supply the three

largest customers:

. JCI - In 2007, Daramic feared the loss of a significant portion of JCl's SLI business to

Microporous. Microporous' SLl separators were qualified by JCI, and Microporous was

actively bidding for JCI's SLI business. (IDF-689-690; 780; 806-807). Microporous'

SLI work with JCI also led Entek to consider Microporous a threat. (IDF-436).4

. Exide - Attempting to break Daramic's stranglehold on its business, Exide worked with

Microporous throughout 2007 and into 2008 to develop it as an SLl supplier in North

3

"(PXI800, in camera).

JeI's decision to move to Entek took place in 2007 when Daramic, Entek and Microporous were

actively competing for that business. (IDF -734; Gilchrist, Tr. 423, 466-467, in camera; Roe, Tr. 1685-

1686, in camera; Hall, Tr. 2884, in camera).

7
America and Europe.5 (lDF-697-699, 707-710; Gillespie, Tr. 2966, 2976-2978). Exide

had the "full intention" "to be buying Microporous (SLI) separators in 2010." (Gillespie,

Tr. 2976).

. East Penn - In fall 2007, East Penn wanted sought SLI separators from Microporous to

get an alternative supplier on the East Coast. (lDF-71 7-71 9). Daramic recognized that

its SLI business with East Penn was might be lost to Microporous. (lDF-820-821). The

acquisition halted Microporous' work with East Penn. (Trevathan, Tr. 3722-23).

Daramic viewed Microporous as a viable competitor for SLl separators. (lDF-805). Just

months before the acquisition, Daramic's VP of Sales, informed his management that 2008

would be "the most challenging year ever faced by Daramic," because Daramic was "beginning

to feel the real effects" of price competition from Microporous. (lDF-809). He recognized the

unique disruptive effect of Microporous, noting that "unlike prior years, we have a true

legitimate big competitor entering the market (MP) and for sure they will capture volume at

whatever it takes." (lDF-809).

c. Microporous Was A Threat To Daramic's UPS Monopoly:

Microporous was a thorn in Daramic's side in UPS. (IDF-422-423, 616; ID-252).

Microporous was in the process of developing an innovative separator designed to overcome a

technical hurdle (known as black scum) that had plagued Daramic's UPS separators. (ID-252-

53; IDF-618-622). Microporous was optimistic that there would be customer demand for this

new separator and expected the project would soon be generating revenue. (lDF-625-628). This

optimism was not unfounded. One customer was already testing samples and had already

decided to switch to Microporous' new separator. (IDF-623-624). Business from this customer

alone would have given Microporous more than half the UPS market. (See CCFOF ~~ 503-504,

520).

5 r l owners of Microporous testified that nothing in the so-called draft

mandate prevented Microporous from pursuing SLI opportunities, and that absent the acquisition

Microporous intended to supply Exide. (IDF-7I2-714, 716, 800-804; Gilchrist, Tr. 438-439, in camera).

8
d. Daramic Developed its Microporous "MP Plan" To Stem its Losses:

"What do we want to achieve? Secure select LT agreement to fight the Amerace threat. "

(MP Plan - PX0258 at 001).

In late 2007, Daramic believed that absent an acquisition, it was facing an EBITDA loss

oft L between 2008 and 2010 due to competition from Microporous. (IDF-808).

With this projected loss ofEBITDA in mind, Daramic implemented a project dubbed the "MP

Plan" to try to prevent the further loss of millions of square meters of motive and SLI sales to

Microporous.6 The goal of the MP Plan was to secure long term agreements from customers

identified by Daramic as at risk ofloss to Microporous. (IDF-820-823).

The MP Plan demonstrates that Microporous was a competitive constraint in SLI. (ID257; IDF-638; 820-823, 849-852). Under the MP Plan, Daramic specifically identified business

in North America that might be lost to Microporous, including SLI business with East Penn and

Crown, and offered them terms, including (

l. (IDF852). Daramic got Iongtern1 contracts with the MP Plan customers, and in so doing, (

l.

(IDF -849-851).

e. Daramic acquired Microporous to Eliminate Competition:

"No Acquisition - Sales volume loss and aggressive approach to block MP phase 3

expansion." (PX0738 at 017)

In the fall of2007, Daramic's General Manager informed the Polypore Board that absent

an acquisition, Daramic would lower prices to prevent Microporous' planned expansion. (lDF856). The Board was informed that without the acquisition, Daramic would target specific

6 Daramic was so fixated on the potential loss of business to Microporous that the MP Plan indicated that

"(aJs a last resort we play hard - no agreement - no supply." (IDF-IDF-823).

9
Microporous customers with a minimum l J price reduction and would "(b)uild low cost

production line to compete on price." (IDF-876).

Daramic's rationale for acquiring Microporous was set forth in its presentations made to

the Polypore Board: without the acquisition, prices would go down; with the acquisition, it could

raise prices. (IDF-882-885, 867-868) Before the acquisition, Daramic was set to lose upwards of

l Jmillion square meters of business to Microporous over the next three years if it did not

make the acquisition. (IDF-855, 873, 867-868). This translated into a projected "5-year

EBITDA loss of l J by fighting against" Microporous' planned expansion, and "( e )xcess

supply and market price erosion" ultimately resulting in a "market share loss of l J" for

Daramic. (IDF-858, 872). Conversely, Daramic was well aware that with an acquisition of

Microporous it would be able to increase prices. (ID-269). The AU thus correctly found that

Daramic acquired Microporous "to eliminate Microporous as a competitive threat, protect

Daramic's market share, prevent price decreases, and implement price increases." (ID-266, see

also ID-266-269).

10
3. The Acquisition Permitted Daramic To Raise Prices:

The acquisition gave Daramic a monopoly in deep-cycle, motive, and UPS. (lD-247-249,

252; IDF-385, 410). It also returned the SLI market to a comfortable duopoly. (lD-253; IDF435,439,646-648). The elimination of Microporous has allowed Daramic to raise prices.7 (ID251,262,269; IDF-723-729, 856, 861, 867, 880-881; 917-922). The AU correctly found that

post-acquisition, Daramic has exerted unilateral market power in the deep-cycle, motive, and

UPS markets where it has a monopoly.8 (ID-262). The AU also correctly found that the

acquisition "has had unilateral anti competitive effects in the SLI market, . . ." and that without

Microporous as an SLI competitor, "there are fewer incentives to engage in healthy

competition." (lD-264, 266).

a. Daramic Has Exerted Unilateral Market Power In Deep-Cycle, Motive And

UPS:

After the acquisition "there was no way to negotiate a lower price. There was no place

to go." (Benjamin, Tr. 3522)

Following the acquisition, purchasers of deep-cycle and motive separators no longer have

an alternative. (lD-251; IDF-I67-168, 206, 210, 376, 379, 384-385, 407-410). Thus,

Microporous' former president informed his owners that the "strategic implications" of the

acquisition would provide Daramic with "(t)otal control of deep-cycle markets (no competitor);

Total control of(motive) markets (no competitor)." (lDF-887). Prior to the acquisition, for

these reasons, Microporous and Daramic agreed that assignment of Micro porous' contracts to

7 The acquisition also eliminated Daramic's planned price reductions, and eliminated Microporous'

planned capacity expansion, negatively impacting competition in all four markets. (IDF -766-804, 8 I 0-

8I3).

8 Exertion of market power was an explicit goal for Polypore's CEO, whose "CEO/Company Goals for

2008" included l

(PX0468 at 001, in camera).

11
Daramic was irrelevant, because the "reality is that everyone would be stuck with Daramic -like

it or not." (IDF-895-896).

There has been actual post-merger anticompetitive effects in deep-cycle9:

. Trojan: Microporous and Trojan had a pre-acquisition agreement on prices for 2008 and

had negotiated long-term pricing. Immediately post-acquisition, Daramic informed

Trojan that it would "stand behind the commitments (MicroporousJ made to you before

this acquisition." However, Daramic then instituted two price increases during 2008 and

insisted on material changes to the contract.JO (IDF-552-561; ID-262; Godber, Tr. 223-

224, 232-241 in camera, 291-292).

. Exide: Daramic implemented a post-acquisition rubber surcharge on deep-cycle

separators. Exide had previously avoided paying a surcharge due to the competition

between Microporous and Daramic. (ID-263; Gillespie, Tr. 2952-2953, 3132-3134, in

camera). Thus Exide pays f L higher prices for Flex-Sil post-acquisition. (ID-263).

. US Battery: US Battery must purchase higher-priced Flex-Sil separators instead ofHD

separators post-acquisition because Daramic has restricted availability ofHD. (IDF-169,

473,570-573; ID-263).

Daramic raised priced in motive separators as well, i i raising prices from f L for

motive customers in North America not protected under the MP Plan.12 (ID-263-2644; IDF-582-

602). Bulldog Battery is a motive customer that received two post-acquisition price increases

from Daramic, and it had no choice but to pay because without an alternative supplier, "there

was no way to negotiate a lower price. There was no place to go."l3 (ID-263-264).

9 In deep-cycle, Daramic has not lost any business since the acquisition, despite imposing price increases.

(ID-263; IDF-I 70). 10 l ). (PX21 17, in camera).

11 In motive, Daramic has not lost il business since the acquisition, nor has it made il price

concessions due to competition, despite imposing price increases. (ID-264).

12 These price increases stand in stark contrast to l

(IDF -611, 849-852, 856, 867-868).

In the five-year period prior to the acquisition, Bulldog Battery's cumulative price increases for the

CellForce separators it uses in motive batteries totaled about 3%, with no increase higher than 1.5%. (lD263). After the acquisition, Daramic instituted a 7% energy surcharge on CellForce separators, and

subsequently raised them 10%. (ID-263).

12
In UPS, the AU correctly found additional anticompetitive effects from the merger in the

form ofDaramic's elimination of innovation. (lD-264). Following the acquisition, Daramic

broke up Microporous' R&D group, and chose not to pursue a separator that Microporous was

developing for the UPS market because the separator under development was set to replace a

costly "very high-margin" product sold by Daramic, with a less expensive, lower margin

separator. (lD-264).

b. Unilateral And ,Coordinated Effects In SLI:

In SLI, Daramic's acquisition led to unilateral anti competitive effects. (ID-264). Before

the acquisition, Microporous was finalizing an agreement to supply SLI separators to Exide and

Exide had every intention of purchasing SLI separators from Microporous beginning in 2010.

(lD-264,IDF-71O). Microporous also planned to sell SLI separators to East Penn. (Trevathan

Tr. 3722-3723) However, once Daramic bought Microporous, these customers lost the

Microporous option, and Daramic raised prices. (lD-264-265).

The acquisition also made coordinated effects more likely in SLI. Microporous' presence

was shaking up an "unhealthy" SLI market where Daramic and Entek had not been operating as

competitors. (ID-266).

4. There is no Timely, Likely, or Suffcient Entry:

"Battery manufacturers lack purchasing power despite their scale due to limited number

of Supp.liers." (Daramic's 2007 Strategic Audit - PX0265 at 008, in camera)

Entry is not likely due to substantial barriers to entry. These include scale, experience

and learning effects, capital requirements, reputation, brand, access to distribution, and knowhow. (lDF-928-930). These are not the only barriers to entry -- other barriers include (1)

product development (lDF-993-1000); (2) global supply capabilities (IDF-928; PX061 1 at 011,

028); (3) time to build a production line (IDF -973-992);(4) lack of a manufacturing facility in

13
North America (IDF-923); (5) patent protected technology (IDF-924; 931 -934); (6) limited

market size (IDF-927); and (7) product testing (IDF- 1 001- 1026).

No other company is able to enter the deep cycle, motive or UPS separator markets. For

example, Entek does not currently sell these products, nor is it likely to enter these markets

within the next two years. (IDF-I027-1048). Entek t

L the other markets. (IDF -1029-1030). Entek has passed up opportunities to enter

these markets (IDF-394-397, 1031-1034, 1041, 1045), and has indicated that t

l. (IDF-I035). Moreover,

. l. (IDF-I050).

Entry by Asian firms is unlikely and could not replace the competition eliminated by the

acquisition. Indeed, t .l (IDF-I079-1107, 1110-

1112). Second, Asian companies cannot overcome the large cost-disadvantage to compete

effectively in North America (IDF-314-338), nor are Asian competitors able to overcome any of

the other barriers to entry in order to replace the competition lost by the acquisition in a timely,

likely and sufficient manner. (IDF-335-336, 1059, 1064-1067, 1073-1075). The Asian

producers t L (IDF-346,

349; CCFOF 249-252), and there is no reason to think that they will in the future. (IDF-332-333,

335,337-338,341-343,1060,1063).14

14 Even Polypore's CEO admitted that Asian firms have not entered because they cannot make enough

money here. (IDF-347).

14
III. Complaint Counsel Established A Strong Prima Facie Case.

The AU found that Complaint Counsel met its burden of establishing a strong prima

facie case. (ID-270). Judge Chappell found four product markets (UPS, SLI, deep-cycle, and

motive separators) within which the acquisition greatly increased concentration levels. (ID-21 0).

The AU also appropriately rejected Respondent's proposed all PE and Flex-Sil product markets.

(ID-210).

Aprimafacie Section 7 case typically "rests on defining a market and showing undue

concentration in that market." FTC v. Whole Foods MIa., Inc., 548 F.3d 1028, 1036 (D.C. Cir.

2008) (Brown, J.) (citing Baker Hughes, 908 F.2d at 982-83).15 In determining product markets,

courts have traditionally considered two factors: (l) "the reasonable interchangeability of use

(and (2) J the cross-elasticity of demand between the product itself and substitutes for it." Brown

Shoe Co. v. United States, 370 U.S. 294, 325 (1962). In other words, the issue is "whether two

products can be used for the same purpose, and if so, whether and to what extent purchasers are

willing to substitute one for the other." FTC v. Staples, Inc., 970 F. Supp. 1066, 1074 (D.D.C.

1997) (internal quotations omitted). Cross-elasticity of demand refers to the "responsivèness of

the sales of one product to price changes of the other." United States v. £.1. du Pont de Nemours

& Co., 351 U.S. 377, 400 (1956) (finding cellophane in same market as other wrapping products

even though the prices were very different); See 2B Phillip Areeda et aI., Antitrust Law ~ 562a,

at 371 (3d ed. 2007) ("(A Jctual shifts between two products in response to - or even withoutchanges in their relative prices indicate a single market.").

15 But see Whole Foods, 548 F.3d at 1036 (Brown, 1.) (noting that "this analytical structure does not

exhaust the possible ways to prove a § 7 violation").

15
Ultimately, however, markets are best defined by the firms that operate within them.

FTC v. Cardinal Health, 12 F. Supp. 2d 34, 46 (D.D.C. 1998) (citations omitted)("the

determination of the relevant market in the end is 'a matter of business reality - of how the

market is perceived by those who strive for profit in it."); FTC v. CCC Holdings, Inc., 605 F.

Supp. 2d 26, 42 n.18 (D.D.C. 2009). Indeed, the Merger Guidelines, ~ 1.0 (Dept. of Justice and

Federal Trade Comm'n, Horizontal Merger Guidelines (1992, rev. 1997) explains that market

definition must focus "solely on demand substitution factors," which is why "possible customer

responses" are criticaL. Thus, '''industry or public recognition of the (market) as a separate

economic' unit matters because we assume that economic actors usually have accurate

perceptions of economic realities." Rothery Storage & Van Co. v. Atlas Van Lines, 792 F.2d

210, 219 (D.C. Cir. 1986). "Courts generally will include functionally interchangeable products

in the same product market unless factors other than use indicate that they are not actually part of

the same market." CCC Holdings, 605 F. Supp. 2d at 38).

1. Complaint Counsel Proved Four Product Markets

"Any confusion about the product market boundaries for battery separators seems more

contrived than real." (lD-226).

Judge Chappell correctly found four product markets. (ID-21 0). Respondent devotes

nearly five pages to criticizing Dr. Simpson's critical loss analysis while ignoring Judge

Chappell opinion that such analysis "is not necessary to support (Simpson's) overall product

market analysis..." (ID-213). Critically, the AU found "considerable evidence" of no, or very

few, alternatives to the products made by the merged parties. (lD-213). Taking each market in

turn, the AU found Complaint Counsel sustained its burden of proving product markets.

16
a. Deep-Cycle Separators

In describing the deep-cycle market the AU found "both producers and customers note

the rubber or PE/rubber deep-cycle separators meet a unique need that other separators cannot

meet." (ID-21 5; IDF- 174). Citing Brown Shoe, the AU found that the practical indicia, such as

industry recognition and peculiar characteristics, established deep-cycle separators as a product

market. (ID-21 5). The parties themselves viewed deep-cycle separators as a distinct market.

(IDF-174, 184, 186-87).

Deep-cycle separators have distinct characteristics and the batteries that employ them

have distinctive uses and functions. (IDF-128-56, 162-66, 180). This product market is made up

of separators for golf carts and floor scrubber machines. (IDF - 19). Due to the uniquely high

levels of antimony in deep-cycle batteries (IDF-136-137; ID-214), separators used in these

batteries must have the ability to suppress antimony migration from the positive to the negative

plate in order to prevent cycle reduction and, ultimately, battery failure. (IDF -136-140; ID-2 1 4).

The AU correctly found that only separators made of rubber or a combination of rubber and PE

provide sufficient antimony suppression for deep-cycle applications. (ID-214-2 15; IDF -140, 150,

152).

Before the acquisition, Microporous and Daramic were the sole deep-cycle competitors.

(lD-246). Microporous made two deep-cycle separators-- Flex-Sil and Cellforce, and Daramic

made HD. (IDF-I43-145).

The ALl found that deep-cycle separators were uniquely suited to their intended

application and could not be substituted for by non-rubberized separators. (ID-2 1 4). Both

Daramic and Microporous documents refer to a unique deep-cycle market consisting of golf carts

17
and floor scrubbers. (IDF-I8I, 183; see also PX0316 at 002 (Tucker Roe email describing the

deep-cycle market as "golf cart, marine and floor scrubber")); IDF -182 (Microporous identifying

a deep-cycle market). The specialized requirements for deep-cycle applications are recognized

in the industry, ànd due to these requirements only rubberized separators are suitable for this

application. (IDF -150-156). The effect of rubber and rubber blended separators is profound.

Using a PE, non-rubberized separator would result in reducing the life of a golf cart battery by at

least 50 percent. (IDF-153). Even Daramic's General Manager, Pierre Hauswald, admitted that

separators without rubber do not perform as well as those that contain rubber. (IDF-I50).

Even in the face of significant price increase, customers would not switch to another type

of separator for deep-cycle applications. Complaint Counsel's expert Dr. Simpson testified, and

the AU found, that not only could a 5% price increase be successful but it actually was. (IDF170-71, 174-75, 179). The AU noted Daramic's deep-cycle customers' refusal to switch to an

alternate technology in the face of a reduction in supply of HD during the labor interruption at

Daramic's Owensboro Kentucky plant. (IDF-I72-73). This HD supply interruption caused

Exide to pay a premium (and forgo a credit) for Flex-Sil separators rather than resort to another

type of separator. (IDF-I73).

Thus, the AU correctly determined "( d)eep-cycle battery separators" are "a relevant

product market." (ID-21 6).

b. Motive Separators

Motive or "traction" batteries are typically used in fork lifts to provide power and serve

as counierweight.16 (ID-216; IDF-I90, 193,204; PX21 10 at 035). These batteries provide a

low steady stream of power over a longer period of time than a standard deep-cycle battery.

16 "Traction" is synonymous with "motive." (IDF-34).

18
(lDF-204). These batteries are huge and as a result, require much larger separators. (lDF-195;

ID-216). In North America motive separators are made of PE or a blend of rubber and PE.

(lDF-I97-203).

The motive market is delineated by "practical indicia" and a lack of reasonable

substitutes. (ID-21 8). Motive separators have distinctive characteristics that make them

conducive to the particular demands ofthe motive application. (lDF -215). Motive separators

are much thicker than those used for SLI or deep-cycle applications. (ID-216; IDF-195, PXI450

in camera). Compared to SLI separators, motive separators have higher requirements with

respect to their mechanical and chemical properties as described in a Daramic's own marketing

materials. (IDF-196; PXI790-001). Kevin Whear, Daramic's VP of Technology, testified that

not only are Daramic's separators tailored for specific end-uses, but that interchanging one type

of separator for another would change the way the battery functioned. (lDF-94, 97; Whear Tr.

4681-85).

The industry is consistent in its recognition of a discrete motive market. Daramic's

internal documents refer to a specific motive market within, a broader "industrial" market. (lDF216). In its testimony and documents, Daramic repeatedly refers to the "motive power traction

market" (Roe, Tr. 1202; PX03 1 6 at 002), or the "traction market" in which Daramic and

Microporous competed head-to-head. (lDF-577-58l).

Similarly, Microporous recognized a motive market. For example in its presentations to

its Board, Microporous separately analyzed a US motive market, including listing customers and

assigning shares to Microporous and Daramic, and also separately analyzed the motive market

for Europe. (PXL 100 at 40,33).

19
Given the unique characteristics of separators sold into the motive market, the ultimate

question is whether customers, given a SSNIP would switch to an alternate separator for use in

their motive batteries. Merger Guidelines § 1.11. The AU correctly analyzed the motive market

and agreed with Dr. Simpson's conclusion that the demand for motive separators was sufficiently

inelastic to prevent customers from switching to alternative separators for a SSNIP. (ID-218-

219; IDF-206, 214).

c. Uninterruptable Power Supply ("UPS") is a Product Market

UPS batteries are used to supply a quick burst of power to data centers,

telecommunications networks, and large computer networks in a power outage. (ID-219; IDF224). These batteries are designed to last 15 to 20 years, thus long-term dependability is crucial

to purchasers of these batteries. (ID-219; IDF-225). UPS separators are generally made ofPE

but with altered chemistry from the PE ofa SLI separator. (ID-219; IDF-227, 231).

To ensure the proper function and life of UPS batteries, regular maintenance is

required.17 (Brilmyer Tr. 1854- 1855). The battery must be free of "black scum," a residue that

forms inside UPS batteries caused by oil in the separator. (IDF-227-230; Brilmyer Tr. 1834-

1835, 1854- 1855). This scum obscures level indicators or interferes with automatic watering

systems. (IDF-228, 229; Brilmyer Tr. 1852-1855).

Daramic created a special separator, Daramic CL, using "clean oil," to address this

problem. (IDF-230-232). Microporous was in the late stages of developing a competing "white

PE" separator (project LENO) which also addressed scumming. (IDF-244, 417-420; Brilmyer

Tr. 1836). The LENO project was a replacement effort targeting Daramic's "Darak" gel battery

separator in Europe and a "white PE" separator targeting flooded UPS batteries in North

17 The cases of 

UPS batteries are clear to facilitate visual monitoring of the active materials and

water levels. (IDF-225-228).

20
America. (IDF -6 i 8-620, 622-628). For UPS customers there is no alternative separator to

Daramic's "CL" that addresses scumming. (Brilmyer Tr. 1850-1851; see also IDF-239 (citing

Enersys testimony identifying a complete lack of alternative sources for UPS). Microporous

expected its white PE separator to be selling within the year. (IDF-628). Other PE separators

will not work for UPS. (IDF-631, 633-635).

The UPS market is well recognized in the industry among both separator manufacturers

and customers. (ID-220). Microporous documents reflect a plan to enter the UPS market with

LENO/white PE project, demonstrating its belief that such a market existed and was worth

penetrating. (ID-220; IDF-244). Daramic also recognized a UPS market within a broader

reserve power segment. (ID-220; IDF-245).

The AU correctly determined that UPS separators constitute a product market: 1) UPS

separators meet a unique need in the marketplace; 2) customers would pay a SSNIP due to lack

of alternatives; and 3) contemporaneous documents reflect that the parties recognized and

analyzed competition within a distinct UPS market. (ID-220-221; IDF-242). Moreover, the AU

also found that customers would absorb a significant price increase on Daramic's UPS separators

because there is no alternative in North America.18 (ID-220; IDF-236-241).

d. SLI is a Product Market

SLI batteries are primarily used in automotive applications and the term "automotive" has

become synonymous with SLI. (lD-22 1; IDF-259). In North America, SLI separators are made

from PE. (See CCFOF ~~ 293-294). SLI batteries contain little or no antimony and, therefore,

do not require a rubberized separator. SLI separators must also have a very low electrical

resistance ("ER") to allow a quick surge in current. (lDF-249; PX0913 at 004, in camera).

18 Enersys, one ofthe largest producers of UPS batteries, searched worldwide for an alternative supplier

in 2006 after Daramic declared force majeure and could not find anyone. (ID-nO; IDF-238).

21
SLI separators are far thinner than any other type of separator. Roughly 99% of all

Daramic's SLI separators sold in North America have a backweb thickness between six and ten

mils.19 (IDF-250). The most common thickness in North America is six mils. (IDF-250). In

comparison, ~ L percent of deep-cycle separators are between 13 and 15 mils, while over ~ L

percent of motive separators are greater than 18 mils. (PXi 450, in camera; Roe Tr. 1312-13;

Hauswald Tr. 680).

There is industry recognition of a SLI separator market. Respondent's documents

analyze competition in a market for SLI separators. (IDF-268; See also, e.g., PX0088 at 001;

PX0131 at 032-035; PX0402 at 012, in camera; PX0506 at 001-002, 006-007). Similarly a

presentation by Microporous's management to its Board shows ~

1 (PX0080 at 060, in camera).

SLI customers also recognize a distinct SLI market. For instance, Exide Battery

recognized SLI separators as unique. Gillespie of Exide Battery testified that he had issued an

RFP after conducting a worldwide search for alternative SLI suppliers. (Gillespie Tr. 2962).

That search uncovered only three firms able to bid on Exide's SLI business: Daramic, Entek, and

Microporous. (IDF-264; Gillespie Tr. 2962).

The AU correctly found that SLl is a product market. This finding is supported by the

testimony of Dr. Simpson. (IDF-265). Dr. Simpson found the following: 1) both customers and

producers indicate that PE SLI separators, for which there are no foreseeable substitutes, "meet a

unique need;" 2) customers state that they would not switch to other separators in response to a

SSNIP; ånd 3) company documents analyze competition in the context ofaseparate SLl market.

(IDF-265).

19 Six mils is . i 5 millimeters.

22
2. Respondent's Alternative Markets are Un persuasive

In response to the AU's finding of four relevant markets, Respondent argues for just

two: all-PE and Flex-Sil. (RAB at 16). After a thorough examination, the AU found these

proposed markets, and the arguments in support, unpersuasive. (ID-224-232).

In accordance to the Supreme Court's decision in Brown Shoe, the AU looked at both of

Respondent's proposed markets, and determined that Respondent had drawn the boundaries too

narrowly in one and too broadly in the other. (ID-224-225). As the Court in Brown Shoe held,

"the boundaries of the relevant market must be drawn with suffcient breadth to include the

competing products of each of the merging companies and to recognize competition where, in

fact, competition exists." 370 U.S. at 326.

a. Flex-Sil Alone is not a Product Market

"HD is for deep-cycle application/sJ. This is golf cart, marine and floor

scrubber. This is the marketfor Amerace's Flex-Sil." (PX0316lit 2).

The competition between Microporous' Flex-Sil and Daramic's HD in deep-cycle

demonstrates that they are competitive substitutes. Industry participants testified to the

interchangeability of the two separators and the constraining effect HD had on Flex-Sil prices.

Indeed, Exide and US Battery both benefitted from the development ofHD as an alternative to

Flex-Sil. (IDF-502-505, 508-509, 513).

In response to Daramic's success with HD, Microporous began offering CellForce to

deep-cycle customers to stem the loss of sales to the cheaper HD. (IDF-543-548). Respondent's

expert testified that HD, Flex-Sil and CellForce are ~ J. (Kahwaty, Tr. 5328-

29, in camera). Customers confirmed that they were also economic substitutes. (IDF-464-466,

468-469,473,497,508)

23
The three largest deep-cycle customers were successful in using HD to obtain lower

prices or other concessions from Microporous. (ID-228; IDF-521, 522, 529). In some cases, HD

totally replaced Flex-Sil in entire battery lines. (1DF-513-515; see also IDF-517-5 1 8 (noting

Daramic's efforts to win more business from Microporous in deep-cycle at Exide just prior to the

merger).

Just as cellophane, even given its unique attributes and premium price, did not represent

its own market outside of the flexible packaging market,20 neither does Flex-Sil's higher price or

unique composition serve to separate it as its own market. (ID-228). As noted by the Supreme

Court in Continental Can, "(t)hat there are price differentials between the two products" is "not

determinative ofthe product market." United States v. Continental Can Company, 378 U.S. 441,

455 (1964). Here, the evidence shows that HD constrained the prices for Flex-Sil and that they

were substitutes for each other. In Arch Coal the Court ruled that the interchangeability between

two products can be best determined by looking at "the degree to which buyers treat the products

as interchangeable." FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109, 122 (D.D.C. 2004) (emphasis

added). The fact that some customers reserve a portion of their requirements for one product

over another is not fatal to the determination of interchangeability. Even customers with this

preference benefit from competition from the alternative. !d.

Moreover, "( c )ustomer preference towards one product over another does not negate

interchangeability." United States v. Oracle Corp" 331 F. Supp. 2d 1098, 1130-3 i (N.D. CaL.

2004). Trojan successfully used the threat of switching to HD as leverage in negotiations with

Microporous. (Godber, Tr. 258, in camera (confirmed by the former president of Microporous, at

Gilchrist, Tr. 371-72, 379,406); PX0428 at 3 and 1). At trial, the top executive at Trojan, the

20 DuPont, 351 U.S. at 398, 401, 403.

24
largest deep-cycle battery manufacturer, testified that Daramic's "HD competes with Flex-Sil for

use in deep-cycle applications." (Godber, Tr. 152- 154)

The evidence thus does not support Respondent's Flex-Sil market, and the AU correctly

rejected it.

b. An All PE Market is not supported by the Evidence.

Respondent proposes an all-PE product market encompassing the motive, SLI, and UPS

markets established by Complaint CounseL. (ID-225). Respondent claims, incorrectly, that

because some separators for different applications are polyethylene or PE based and may be of

similar thicknesses, they must be in the same market. (See RAB at 16- 17). The AU properly

rejected this argument.

Among the overlaps claimed by Respondent is the claim that "(sJeparators with a 12 mil

backweb are used in Automobiles (SLI), golf carts (deep-cycle) and telecom batteries

(Stationary)." (RAB at 17). The AU accurately found that any 'overlap' between separators of

that thickness for automobiles and for golf carts would be slight" - approximately l ). (ID

at 231; Hauswald, Tr. 678-679; PX 1 450, in camera).

But similar thickness does not tell the whole story. (ID-231). Separators are also

distinguished by chemical and material differences. (See IDF-85-87, 89-91). Ifa separator

intended for one application were used in a different application, it would change the way the

battery was intended to work and even change (reduce) the life of the battery?! (Whear, Tr.

4683). In short, Respondent's argument regarding overlaps grossly oversimplifies the profound

differences between various types of separators.

21 Similarly, swapping SLI for deep-cycle those separators would "devalue (the) product...basicaJly cut

the life" and would not be attempted. (IDF-90-91).

25
In addition, Respondent's supposed PE market ignores the competition between HD

(Daramic's PE and Rubber, deep-cycle separator) and Flex-Sil, Microporous' separator, which

has no PE in it. (See p. 24-26 supra) Thus, the all PE market makes no sense.

3. The Geographic Market is North America

The Supreme Court has defined the geographic market as the region "in which the seller

operates, and to which the purchaser can practicably turn for supplies." Tampa Elec. Co. v.

Nashvile Coal Co., 365 U.S. 320, 327 (1961). The leading case on geographic market definition

is Philadelphia National Bank, in which the Court held that the "proper question" to ask about

the geographic market definition is "not where the parties to the merger do business or even

where they compete, but where, within the area of competitive overlap, the effect of the merger

on competition will be direct and immediate." United States v. Philadelphia Nat 'i Bank, 374

U.S. 321,357 (1963). More recently, the Eighth Circuit elaborated on the analysis, determining

that the geographic market is the area "to which consumers can practicably turn for alternative

sources of the product and in which the antitrust defendants face competition. " Morgenstern v.

Wilson, 29 F.3d 1291, 1296 (8th Cir. 1994), cert. denied, 513 U.S. 1150 (1995);followed by

Staples, 970 F. Supp. at 1073; see United States v. Pabst Brewing Co., 384 U.S. 546, 549 (1966)

(approving of geographic markets where the merging parties competed the most). "Nonetheless,

the relevant geographic market must be sufficiently defined so that the Court understands in

which part of the country competition is threatened." FTC v. Cardinal Health, Inc., et aI., 12 F.

Supp. 2d 34, 49 (D.D.C. 1998). The geographic market may also be proven by demonstrating

that it is the smallest region within which a hypothetical monopolist could "profitably impose at

least a 'small but significant and nontransitory' increase in price." ,Merger Guidelines § 1.21.

26
The AU found Dr. Simpson's expert opinion regarding the presence of price

discrimination based on geography compelling. (ID-242; IDF-271-274). In determining the

proper geographic market the AU correctly considered the unique commercial realities that

consumers that purchase the relevant products face, within the framework provided by the

Merger Guidelines. See Brown Shoe, 370 U.S. at 336-37; Flegel v. Christian Hasp. NortheastNorthwest, 4 F.3d 682, 690 (8th Cir. 1993) (liThe proper market definition" requires a "factual

inquiry into the commercial realities' faced by consumers." (Citations omitted). Here, Daramic

does charge different prices to customers in different parts ofthe world. (IDF-275-280; Roe, Tr.

1317). The record of price increases in these markets in North America shows that a SSNIP

would be (and has been) profitable. (IDF-272, 273).

In deep-cycle, UPS and motive, the transaction created a monopoly; while in SLI, only

Entek provides an alternative to Daramic in North America. North American customers buy

deep-cycle, motive and UPS separators only from Daramic and, with respect to SLI separators,

Daramic and Entek. (IDF-371, 385-386, 410, 422, 439, 442).

Respondent argues that Asian manufacturers were the closest competitors to Daramic and

Entek, yet neither Microporous nor Entek considered Asian manufacturers a threat. (IDF-359,

348, 349). In fact Entek had no know ledge of an Asian separator ever being imported into North

America. (IDF-349). Daramic itself conceded that it did not consider Asian manufacturers a

competitive concern in North America. (IDF-346,45I). No customer in North America has

ever sourced a separator from outside of North America.22 (See CCFOF ~~ 247-252). In short,

there are no viable alternatives outside of North America for North American customers to turn

22 The exception proves the rule: In the only example on record EnerSys paid a 20% premium during a

supply disruption to ship separators from Daramic's Feistritz plant to Mexico. (IDF-I 19).

27
to for a SSNIP. (See IDF-27I, 374 (deep-cycle), 386 (motive), 422 (UPS), IDF-425, 437, ID284-285 (SLI)).

Even if there were viable suppliers outside of North America, customers would be

unlikely to turn to them due to their overwhelming preference for local supply. (See IDF-286-

294). From reduced supply chain disruption and speedier delivery, to minimized shipping,

inventory and other costs, customers depend on the close proximity of their suppliers. (See IDF287-92,296-298, 300, 309). Daramic admitted that "(IJocal supply from a global company" was

important to customers. (PX0582 at 018-30; Roe, Tr. 1322-24; IDF-293).

Respondent argues that customer arbitrage might deter the local exercise of market

power. (RAB at 21). But a SSNIP would neither entice imports nor spur arbitrage. Arbitrage is

unlikely due to the products' high level of differentiation,23 the need for direct shipment to

customer plant locations, freight, and other costs of import. (IDF-274). As the AU correctly

found "arbitrage of separators... is unlikely because separators are for the most part

differentiated products, manufactured with customer-specific designs." (IDF- 117). Indeed, there

is no evidence that arbitrage has ever happened, even in the face of price increases in North

America.

For example, in 2007. Daramic!Microporous and Entek all f

L in North America. (PX0263 at 003,005, in camera; PX091 1 at 031 -032, in

camera). Prices to f L in 2007 (PX0044-00I-006, in camera),

yet not one customer began importing separators for any of the relevant products from outside of

North America. (IDF-360). Similarly EnerSys Mexico got a f L price increase on industrial

separators in 2008, while EnerSys China received f l. (PX0044 at 002, 007, in camera). In

23 Even Dr. Kahwaty concedes that separators are highly differentiated. (lDF-638).

28
2006, when Daramic declared force majeure and stopped significant sales in North America,

customers were unable to import any of the relevant products. Again in October 2008 when

Daramic declared force majeure because of a strike at its Owensboro, KY plant: customers were

24

unable to ship in any products from any other producer around the world.

Despite the testimony of Polyp ore's CEO that Asians suppliers do not compete in North

America because their profit margins would not be high enough (Toth, Tr. 1404), Respondent

argues that Asian manufacturers would find it profitable to enter the North American markets in

response to a SSNIP. (RAB at 24). Respondent points to Dr. Kahwaty's calculation of

production costs for a (

) PE separator. (RAB at 24). However, Dr. Kahwaty took the

cost figures of Daramie's own RAMA II plant, not an independent rival's. (ID-243; IDF-361).

This plant is Daramic's state-of-the-art, lowest-cost facility in Thailand. (IDF-361). Dr.

Kahwaty's analysis was rightly rejected because (1) there is no reason for Daramic to undercut

its own North American prices; (2) Dr. Kahwaty failed to analyze costs for any non-Daramic

Asian companies.; (IDF-366) and, (3) he was unable to identify a single instance of international

separator arbitrage (despite recent history ofpost'-acquisition price increases). (IDF-360).

For the foregoing reasons the AU correctly found that North America is the relevant

geographic market.

iv. The Acquisition Harmed Competition

Daramic's liability under Section 7 of the Clayton Act is not a close calL. The AU found

the acquisition "presumptively illegal" in the deep-cycle and motive markets because it created a

monopoly in each market. (lD-246, quoting United States v. Franklin Elec. Co., 130 F. Supp. 2d

24 EnerSys shipped a container from Daramic from Feistritz at a significantly higher cost. (IDF-119,

PX1285).

29
1025 (W.D. Wis. 2000)). The acquisition also led to a monopoly in the UPS market and returned

the SLI market to a duopoly. (ID-246, 252-259). While these market conditions alone are

sufficient to establish liability, given Daramic's failure to rebut "the strong presumption" of

anti competitive effects (ID-25 1 (citing cases), 266), the evidence goes well beyond the mere

"incipiency" standard of proof oflikely harm. Indeed, Daramic' s anti competitive intent, coupled

with evidence that Respondent implemented its anticompetitive schemes, makes clear that the

probable and actual effects of the acquisition surpass the standard for Section 7 liability. (ID244,270; see also Whole Foods, 543 F.3d at 1047 (discussing intent evidence).

1. Complaint Counsel Has Shown a High Probabilty of Anticompetitive Effects as a

Result of This Transaction

After proving product and geographic markets, Complaint Counsel presented evidence

showing an undue increase in concentration caused by the transaction in each market. "By

showing that a transaction will lead to undue concentration in the market for a particular product

in a particular geographic area, the government establishes a presumption that the transaction

will substantially lessen competition." United States v. Baker Hughes, Inc, 908 F.2d 981, 982

(D.C. Cir. 1990); see Philadelphia Nat 'i Bank, 374 U.S. at 363. The burden then switches to the

respondent to show why, given the presumptively anticompetitive outcome of the transaction,

particular facts and circumstances in each market clearly show that the transaction is unlikely to

have such effects. See Philadelphia Natl Bank, 374 U.S. at 363. In each market the AU

correctly found "undue concentration" as evidenced by the structure ofthe four markets and the

resulting HHI calculations.

30
a. The Transaction Created a Monopoly in Deep-cycle and Motive

The AU correctly found that, as a result of the transaction, Daramic has a monopoly in

the deep-cycle and motive markets. (ID-246). The acquisition is therefore presumptively illegaL.

Franklin Elec. Co., 130 F. Supp. 2d 1025 at 1032.

Daramic and Microporous were the only competitors in the deep-cycle market in North

America. (ID-246). Microporous and Daramic had 90% and 10% of the market respectively,

with Daramic increasing its share every year since the introduction of its HD separator in 2005.

(IDF-384-385,477). In this market the acquisition increased the HHI by 1,891 to 10,000.

In motive the transaction likewise created a monopoly. (IDF-386, 577, 580). Not only

were Microporous and Daramic the only sources of supply for motive separators in North

America, but the burgeoning presence of Microporous constrained Daramic's ability to raise

prices at multiple customers. (IDF-582-595). Even more vigorous competition was imminent

had Microporous not been acquired. (IDF-390, 404-405, 596).

In the motive market the acquisition raised the HHI by 1663 to 10,000. (IDF-41 0). The

increase in HHI to 10,000 more than satisfies the presumption of anticompetitive effects

resulting from the transaction. See FTC v. H.J. Heinz Co., 246 F.3d 708, 716 (D.e. Cir. 2001);

see also FTC v. Swedish Match, 13 1 F. Supp. 2d 151, 169 (D.D.e. 2000) (elimination of one of

two "primary direct competitors" created likelihood of unilateral price increase); see also

Staples, 970 F. Supp. at 1082. Due to the acquisition, deep-cycle and motive customers have no

alternative to Daramic; thus, the AU rightly found the transaction presumptively illegaL. (ID251 ).

31
b. The Transaction Maintained a Monopoly in UPS

Prior to the acquisition Daramic held 100% of the UPS market in North America. (IDF422-423, 616). Today, Daramic still holds a monopoly in UPS. (ID-252). In this market, the

transaction eliminated competition from Microporous with its Project LENO separator. (IDF417-420). This project was conceived when Enersys requested that Microporous develop a

separator to compete with Daramic's offerings and address the "black scum" problem inherent in

flooded UPS batteries. (IDF-617-624).

c. The Transaction Has Substantially Reduced Competition and Unduly

Increased Concentration in SLI

Prior to the acquisition, the SLI market consisted of just three suppliers, Daramic, Entek,

and Microporous. Entek accounted for 51.6 percent and Daramic 48.4 percent ofthe market,

while Microporous had not yet begun supplying separators. (IDF-439). The HHI for this market

was highly concentrated at 5005. (IDF-439). It was in this environment that Microporous

disrupted the incumbents' stranglehold on the marketplace. (IDF-435-436).

Microporous had firm expansion plans in SLI and in 2007 was bidding for SLI business

at the three largest customers in North America - JCI, Exide, and East Penn. (IDF-642,684-690,

697-699,706-710,717-719).

These actions did not go unnoticed. Daramic developed its MP Plan as a response to

Microporous' bids. (ID-257; IDF-820-821). This plan entailed r 1 to select

customers in order to obtain long-term contracts r 1 . (See e.g. IDF-820-822,

849-851). The MP Plan demonstrates the competitive constraint provided by Microporous in the

SLI market. (ID-257).

32
Respondent contends that since Microporous did not obtain commercial sales ofSLI

separators in 2007, it should not be viewed as a market participant. (RAB at 25-27). This is

incorrect as a matter of fact and law. The AU correctly cites United States v. El Paso Natural

Gas Co., 376 U.S. 651 (1962) for the proposition that a firm that competes for sales in a market

is indeed a market participant even ¡fit does not win the sales. Id. at 661; see also iv Phillip E.

Areeda and Herbert Hovenkamp Antitrust Law ~ 912a (3d ed. 2006) ('The acquisition by an

already dominant firm of a new or nascent rival can be just as anti competitive as a merger to

monopoly."). "Unsuccessful bidders are no less competitors than the successful one." El Paso,

376 U.S. at 661. But here, Microporous actually sold SLI separators, told customers it was in the

market to seIJ SLl separators, competed for SLI separator sales, and even told customers that it

had a 2% market share in SLI separator sales, and would have had a 6% share in 2010, based on

SLI business Microporous had already won from Exide. (See, e.g., PX0078 at 07, 16, in camera,

Microporous' customer sales pitch, one week before the acquisition; ID-429-436, 441).

Respondent's believed that Microporous had already entered the market and caused

"aggressive rivalry" between Polypore and Entek for SLI business. (ID435-36; PX0482 at 02).

Microporous had begun expansion to sell SLI separators, which was "discontinued because of

the acquisition." (IDF-770; Trevathan Tr. 3722-23). There is ample evidence that Microporous

would have continued to expand into the SLI market, and increased competition along the way.

(See, e.g., IDF-642, 697-714, 717-719, 803-804). The AU rightly concluded that Microporous

was an actual competitor in the North American SLI market because it was bidding for

33
business?5 iv Phillip E. Areeda and Herbert Hovenkamp Antitrust Law ~ 912a (3d ed. 2006);

ID-259).

2. Entek was Not an Uncommitted Entrant in UPS, Deep-Cycle, or Motive

An uncommitted entrant must have the "technological capability to achieve" the proper

supply response and it must be likely to do so. Guidelines § 1.32. Such entry must be likely to

occur within one year in response to a SSNIP and without the expenditure of significant sunk

costs.Id. (emphasis added).

In the markets for non-SLI separators, Entek does not meet the criteria for an

uncommitted entrant. Due to significant barriers to entry and Entek's own warnings that

1, there is ample evidence that Entek fails to meet

the requirements of an uncommitted entrant. (IDF - 1034-1037).

Over the years, Entek has had the opportunity to provide non-SLI separators to Exide,

Bulldog, Crown, Douglas, and EnerSys. Yet, Entek was unable or unwilling to actively pursue

any of those opportunities. (IDF-394-397, 1031 - 1034, 1041). Indeed, Entek has articulated a

strategy which 1

). (IDF-I027, 1029-30).

The AU properly accounted for these factors in analyzing, not only the ability ofEntek

to offer a sufficient supply response, but also the likelihood that such a response would occur in

time. Ultimately, the AU agreed with Dr. Simpson that Entek was not an uncommitted entrant.

(IDF-383, 403, 421).

25 Dr. Kahwahty acknowledged that Microporous was at least an uncommitted entrant in SLI and

therefore must be included in the market. (IDF-638).

34
3. Evidence of Anticompetitive Intent

Daramic's purpose in acquiring Microporous and its plans to increase prices post-merger

are evidence oflikely anticompetitive effects. Courts consider the respondent's intent helpful in

evaluating "the probable future conduct of the parties and the probable effects of the merger."

(ID-244, citing Whole Foods, 548 F.3d at 1047; see also ID-266-269; Areeda, ~964a.

("(E)vidence of anticompetitive intent cannot be disregarded, as it is clearly pertinent to the basic

issue in any horizontal merger case."); Brown Shoe v. United States, 370 U.S. 294, 329 and n48

("A most important such factor to examine is the very nature and purpose" of the acquisition).

First, historical and contemporaneous evidence shows that Daramic viewed Microporous

as a competitive threat and that its primary purpose in buying Microporous was to eliminate

price competition. (IDF-750-759, 809, 854-859). Daramic anticipated that the competition

would continue to reduce Daramic's revenues by f l over a five year period absent

an acquisition due to "( c )ompetitive pricing to block additional expansion (of Microporous )."

(IDF-879).

Second, the evidence shows that Daramic formulated "Project Titan" to eliminate the

competitive threat. (ID-268-269; IDF-869-878). Daramic's executives informed Polypore's

Board that absent an acquisition Daramic would lower prices and predicted that one of the

"(a)cquisition benefits" would be an increase in prices. (ID-269; IDF-'856). Absent the

acquisition, Daramic budgeted significant business losses to Microporous and future price

decreases from the competition. (IDF-865-868).

35
v. Finding of Actual Anticompetitive Effects Requires Finding of Liabilty

The law does not require Complaint Counsel to demonstrate that the acquisition led to

actual anti competitive effects. Hospital Corp. of America v. FTC, 807 F.2d 1381, 1389 (7th Cir.

1986). However, where evidence exists that Respondent has increased price or otherwise

exercised market power, it "cements" Complaint Counsel's case. Von Kalinowski 1. ANTITRUST

LA W & TRADE REGULATION (2d ed. 1996) at § 4.03 (4) (citations omitted). Indeed, proof of

actual anti competitive effects is suffcient even without detailed market analysis to establish that

the acquisition is likely to lessen competition. United States v. General Dynamics, 415 U.S. 486

at 505, n. 13 (1975); FTC v. Libbey, Inc. ,211 F. Supp. 2d 34 at 49 (D.D.C 2002) ("'Proof of

actual detrimental effects'" can '''obviate the need for an inquiry into market power, which is but

a 'surrogate for detrimental effects. ''') (citations omitted).

1. Acquisition Led to Actual Anticompetitive Effects in Deep-Cycle

Due to the acquisition, Daramic has been able to increase prices in the deep-cycle

market.26 Prior to the acquisition, Exide managed to avoid paying a Microporous rubber

surcharge by threatening to switch to HD. (IDF-562). As a result ofthe acquisition, Exide was

forced to accept Daramic's imposition ofthe same rubber surcharge -- a ~ ) price increase -

on all Flex-Sil purchases. Daramic's success in imposing this increase was a direct result of the

fact that Exide no longer had any alternate supply options and the fact that Daramic threatened to

cut of supply ifExide did not pay the price increase. (IDF-562-563; Gillespie, Tr. 2953-2954).

26 Respondent's citation to Steve McDonald that he did not consider HD a threat to Flex-SiJ is

contradicted by his testimony that Microporous lowered prices on Flex-Sil to protect against losses to

HD. (McDonald, Tr. 3943). Trojan, Exide, and US Battery all used HD as a competitive threat to FlexSil. (Gilchrist, Tr. 379-380, 406; Godber, Tr. 152-54 (HD "competes with Flex-Sil" and there are no

other competitors, "and we've looked.").

36
Similarly, price increases that Daramic imposed on Trojan are a direct result of the

acquisition. Trojan successfully used the threat ofHD to come to a contractual agreement with

Microporous ~ l any price increases and lock in Trojan's prices until at least ~

l. (IDF-540-542). This contract was specifically intended to protect Trojan from ~

l. (IDF-556). Post merger, Daramic disregarded Trojan's contractual agreement

with Microporous, demanding unprecedented price increases in ~ l. (IDF-556-

559). As with Exide, Trojan's ability to prevent the post-acquisition price increases was

eliminated by Daramic's acquisition of Micro porous. (IDF-555).27

Respondent argues that since customers have not actually switched all their deep-cycle

purchases to HD, that HD was never actually a constraint, and therefore that the post-acquisition

price increases are not anticompetitive. This is nonsense. The fact that some customers may

reserve a portion of their requirements for one product does not mean that those same customers

are not benefiting from the competition that the recognized alternative poses. Arch Coal, 329 F.

Supp. 2d at 122?8

2. Acquisition Led to Actual Anticompetitive Effects in Motive

The AU correctly found that Daramic has exerted unilateral market power in the motive

market. (ID-262-264). Daramic's own documents and testimony verify that Microporous acted

as a competitive constraint in the motive market with multiple motive customers (IDF-582-583)

including EnerSys (IDF-592-599), East Penn (IDF-584, 591), and C&D (IDF-585-590).

27 This was the second price increase that Daramic has imposed on Trojan, even though it breached its

2007 agreement with Microporous not to do so. (Godber Tr. 223-224).

28 Contrary to Respondents' claim that HD was not qualified for original equipment, US Battery had in

fact qualified and is using, HD in original equipment batteries. (Wallace Tr. 1934-35). Moreover,

i ) Exide would also do so. (IDF - i 64, 5 i 7).

37
As a result of the acquisition, Darainic exerted its market power by raising prices in the

motive market. Daramic announced price increases of ~ L for motive customers. (ID263; IDF-611). These price increases were unprecedented and "prett exorbitant." (IDF-613).

Bulldog Battery was forced to accept a 10% price increase after the acquisition because "there

was no place to go." (IDF-614). Contrasting Daramic's treatment of motive customers such as

Bulldog with the treatment ofthe customers identified in the MP Plan H

n (IDF-849-851), demonstrates that Daramic's post-acquisition price

increases were a direct result ofthe elimination of Microporous as a competitive constraint.

Respondent alleges that Microporous had no competitive influence with Crown or

Douglas Battery. This is nonsense. Daramic put together the MP Plan in the fall of2007

specifically because it feared losing these customers to Microporous. (IDF-602). Respondent

also claims that East Penn had not qualified Microporous separators and therefore could not

switch to Microporous. This claim is directly contradicted by East Penn testimony that it was

) Microporous separators for motive batteries (Leister Tr. 4004-4005, in camera,

4026-4027), and by Daramic's history of lowering prices to East Penn in the face of competition

from Microporous. (IDF-584,591).

A further anticompetitive effect in the motive market was the elimination of

Microporous' expansions. (IDF-788-797). Prior to the acquisition, Microporous contracted with

EnerSys to build a new manufacturing line in their existing Tennessee facility to supply motive

separators to EnerSys. (IDF-788-790). This additional line was never installed and is currently

sitting in boxes. (I.DF-813).

38
3. Acquisition Led to Actual Anticompetitive Effects in UPS

Daramic's acquisition of the only company entering the UPS market eliminated

innovation competition that would likely have led to lower prices. (ID-259,264). For some time

prior to the acquisition, Microporous' R&D group had been working on a new product for the

UPS market. (IDF-61 T..627). New separators were developed, samples of these separators were

undergoing product testing, (IDF-620-624), Microporous made capital expenditures in

anticipation of the sale of these separators (IDF-625-627), and revenues were expected from this

project as early as 2008. (IDF-628). Following the acquisition, Daramic halted work on this

, project, for fear of cannibalizing its own higher margin sales, despite the harm to customers.

(IDF-629-632; ID-264).

4. Acquisition Led to Actual Anticompetitive Effects in SLI

The AU correctly found that Daramic has exerted unilateral market power in the SLI

market. (ID-264-265). Exide decided to buy SLI separators from Microporous in order to obtain

lower prices, better quality and to mitigate supply risk. (Gillespie, Tr. 2977-2978; IDF-696, 710,

723).29 At the time ofthe acquisition, Exide and Microporous were on the cusp of finalizing an

agreement for Microporous to add manufacturing lines in its facilities in the United States and

Europe to supply Exide with SLI separators. (IDF-697-700, 707-711, 713, 716, 803)?O

When Daramic acquired Microporous, "the carpet was pulled out from" Exide's long

term strategy to inject competition into SLI. (Gillespie, Tr. 2979; IDF-812) ~

29 Exide spent months developing and negotiating a detailed MOU with Microporous (lDF-694-706),

tested SLI separators (lDF-707-709), spent money on the project (Gillespie, Tr. 2980), and actually

decided to buy from Microporous (IDF-71 0; Gillespie Tr. 2968-69, 2976).

30 The elimination of 

Microporous' planned addition of manufacturing lines is another anticompetitive

effect of the acquisition. (IDF-81 0-813).

39
L (IDF-743). Without Microporous as an independent entity, Exide has been forced

to pay higher prices. After the acquisition, Daramic t

l. (IDF-902-903).

Respondent argues that Microporous, with no current sales, was not one of the top two

choices for any customer seeking SLI supply.31 Yet Microporous was one of Ex ide's top two

choices for supply. Similarly, Microporous was Daramic's closest competitor for SLI supply to

East Penn at the time of the acquisition. That is because East Penn was seeking a second

supplier on the East Coast, and East Penn believed that Entek was unwilling to make such an

accommodation. (IDF-717-719).

The AU correctly found that the acquisition has had unilateral anticompetitive effects on

other smaller customers who can no longer turn to Microporous as a supply option. (ID-264-

265). t

.L (PX0950 at 015, in camera).

5. Entek wil not constrain Daramic in SLI:

Respondent argues that Entek will constrain Daramic from exertion of unilateral market

power. Yet Entek's ~ 1 has not constrained Daramic from raising prices on multiple

occasions. (IDF-737). In fact, Daramic's post-acquisition price increases were t

.l (Weerts, Tr. 4511, in camera; CCFOF 645). Additionally,

31 Microporous had previously made commercial sales of SLl separators. (lDF-640).

40
~

.L (IDF-738-739).

Entek's lack of constraining effect on Daramic can also be seen by comparing Daramic's

response to ~ ) with Daramic's response to Microporous' expansion

plans. (lDF-741-742). While Daramic took no steps in response to ~

,) Daramic took multiple steps in response to capacity expansions at Microporous,

including: (1) developing the MP Plan (IDF-742, 820-823); (2) plans to cut prices in the future

(IDF-856, 858, 866); and (3) plans to build low cost lines to compete on price. (ID-269; IDF876).

6. Coordination in SLI is more likely

The AU found that without Microporous' presence in the SLI market, there is a strong

presumption of coordinated effects. "The combination of a concentrated market and barriers to

entry is a recipe for price coordination" or the coordination of markets or customers. (ID-265

(quoting Heinz, 246 F.3d at 725). In SLI separators, where only Entek and Daramic remain, it is

axiomatic that two competitors are more likely to coordinate than three. Heinz, 246 F.3d at 716;

CCC Holdings, 605 F. Supp. 2d at 66-67. Respondent failed to establish the existence of any

"structural barriers" to coordination in this market, as the law requires. (ID-265; Heinz, 246 F.3d

at 724-25). Indeed, Daramic cannot escape the simple fact that "(w)ithout Microporous as a

competitor, there are fewer incentives (for the duopoly) to engage in healthy competition." (lD266; see also CCC Holdings, 605 F. Supp. 2d at 66).

"In a highly concentrated market, with stable market shares, low growth rates and

significant barriers to entry, there are few incentives to engage in healthy competition." CCC

Holdings, 605 F. Supp. 2d at 66. The competitive dynamics described in CCC Holdings mirror

41
those in the SLI market prior to Microporous' entry. A duopoly existed in the SLl market prior

to Microporous' entry. (IDF-636). Daramic and Entek were "'lazy' and unresponsive"; they did

"not appear to compete and d(idJ not have to, given the absence of market forces." (IDF-660).

Indeed, Daramic' s VP of Sales recognized that "there has not been an aggressive rivalry among

competitors" until Microporous' entry into the SLI market. (IDF -435).

When Microporous entered the SLI market the competitive dynamic changed. Daramic

understood Microporous to be a "real threat" to the comfortable duopoly. (IDF-435-436, 755-

56). With Microporous aggressively competing for SLI business, Daramic expected 2008 to "be

the most challenging year ever faced" in part because "unlike prior years, we have a true

legitimate big competitor entering the market (MP) and for sure they will capture volume at

whatever it takes." (IDF-809). Entek similarly feared that Microporous' entry would change the

competitive landscape ofthe SLImarket. (IDF-436). Signaling and coordination between

Daramic and Entek is not diffcult, considering the widespread knowledge of customers sourcing

decisions, sales data, prices and other competitive information (IDF-729-733). Moreover, actual

evidence from the marketplace that Daramic and Entek were involved in coordinated interaction

prior to Microporous' entry is evidence that the two can again coordinate now that Microporous

is gone. (IDF-435, 636, 655, 660).

Signally, no court has ever approved a Section 7 case of a merger to duopoly. Heinz Co.,

246 F.3d at 716 Yet, Respondent seeks just such approval based on the unsubstantiated assertion

that following the acquisition Daramic (

42
).32 What is actually in evidence is that prices before the acquisition were more

competitive when Microporous was bidding on SLI contracts than they are today.

For example, compare the price of SLI separators that ~

) .33 (RX00072 at 56, in camera). In contrast, the best price offered to ~

). (RX01668 at 002, in camera; Seibert, Tr. 5656, in camera).

~

) (RX01668 at 002, in camera;

Seibert, Tr. 5656, in camera; CCRF 1510). Competition is clearly deteriorating, postacquisition.

Daramic and Entek "were not aggressively competing against each other for business"

prior to Microporous' decision to enter the SLI market, and the AU correctly found that

Respondent has done nothing to show that there are any structural barriers to coordination

returning to the SLI market now that there are only two competitors. (ID-265-266; IDF-435,

655,660).

VI. The ALJ Correctly Assessed That Entry Wil Not Counteract the Anticompetitive

Effects of The Acquisition

32 There is actually no evidence that in fact i ). The only

evidence on the record is that Exide and Daramic entered a new evergreen supply contract on January 19,

20IO. (IDF-749).

33 Respondent claims that Jei's decision to buy from Entek shows post-acquisition competition, but that

decision occurred in 2007, long before the acquisition and when Microporous, Entek and Daramic were

competing for that same business. (lDF-734).

43
There is no evidence that entry into any of the markets has occurred or will occur in

North America. To prevent a reduction in competition, entry must be timely, likely, and

sufficient, meaning it "must restore the competition lost from the merger." Chicago Bridge, 534

F.3d at 429; Merger Guidelines § 3. The AU correctly held that there would not be entry that

would be timely, likely, and sufficient to allay the anticompetitive harm. (ID-272).

It is Respondent's burden to provide evidence of ease of entry. Chicago Bridge, 534 F.3d

at 423 'The more concentrated the market and the greater the threat posed by the challenged

practice, the more convincing must be the evidence of likely, timely, and effective entry." 2A

Areeda, Hovenkamp & Solow, Antitrust Law ~ 422 (2d ed. 2002). The AU found that based on

the extremely high levels of concentration in these markets, Respondent did not meet its burden

of providing evidence of ease of entry. (ID-277-274). Moreover, the AU found that entry

barriers existed in all four markets. (ID-272-274). "(EJvidence of high entry barriers. . .

strengthens the conclusions to be drawn from Complaint Counsel's showing of high

concentration levels." In re Chicago Bridge & Iron Co., 138 FTC. 1024, 1065-1066 (2005),

affd 534 F.3d 410 (5th Cir. 2008). The AU also found that Asian separator manufacturers

would not enter into any of the product markets and replace Microporous' competitive presence.

(ID-283-287). Thus, the AU correctly concluded that Respondent did not rebut Complaint

Counsel's prima facie case. ID-272.

1. Entry Barriers are High

The evidence demonstrates high barriers to entry in the four product markets. Barriers to

entry are any condition that necessarily delays entry into a market for a significant period of time

and, thus, allows market power to be exercised in the interim. In re B.F Goodrich Co., 110

FTC. 207, 297 (1988). In Chicago Bridge, the AU found entry barriers were categorized as

44
expertise in the industry, a fair amount of capital, a positive reputation, and possession of

specialized equipment. In re Chicago Bridge & Iron Co., 2003 FTC LEXIS 96, at **242-43

(2003), affd, 138 FTC. 1024 (2005), aifel 534 F.3d 410 (5th Cir. 2008). Those are the same

kinds of barriers existing in this case. (ID-272). For example, Respondent's documents and

testimony display numerous high entry barriers, including scale, experience and learning effects,

capital requirements, reputation, brand, access to distribution, and know-how. (IDF-928-930).

A de novo entrant in any of the markets would require considerable capital to build a

separator plant of suffcient size and scale to sustain profitability and service large customers.

(ID-274; IDF-925, 928-929). The costs of doing so are not insignificant and would require a

team of engineers with specialized technological experience to build the manufacturing lines.

(ID-275-277; IDF-927, 933-945).

Finding and employing a skilled workforce is another barrier to entry. (IDF-959-963).

Microporous illustrated this point by building a plant in Feistritz where a pool of experienced

workers already existed. (IDF-950). A new entrant would also have to work around proprietary

specifications for production lines (IDF-933-934), design around existing patents (IDF-924, 931-

934), and develop a goOd reputation with North American customers (IDF-969-972). Other

barriers include product development (IDF-993-1 000), global supply capabilities (IDF-928;

PX06I1 at 01 1,028), and product testing. (IDF-IOOI-1026).

These are exactly the kinds of barriers to entry that were upheld in Chicago Bridge and

apply with equal force here. Chicago Bridge, 534 F.3d at 437-440.

2. No Evidence of Entry

"The history of entry into the relevant market is a central factor in assessing the

likelihood of entry in the future." Cardinal Health, 12 F. Supp. 2d. at 56; Chicago Bridge, 138

45
FTC. at 1037 n.45 (quoting 2A Areeda, Hovenkamp & Solow, Antitrust Law ~ 420b at 60 (2d

ed. 2002) ("The only truly reliable evidence of low barriers is repeated past entry in

circumstances similar to current conditions."); B.F Goodrich Co., 110 FTC. at 299-300 (noting

that history of lack of de novo entry supported conclusion that entry barriers were high)). With

the exception of Micro porous' and Daramic's own long term efforts, there has been no de novo

entry in any of the markets in North America.

Additionally, it is proper to consider post-acquisition evidence when determining whether

entry is likely to negate anticompetitive effects. See Chicago Bridge, 138 FTC. 1024, 1036-

1037. Since the acquisition, Respondent has increased prices on its separators. (IDF-897-916).

Yet no entrant has entered the market and no existing separator producer has added capacity.

Battery manufacturers have searched the world for alternative suppliers and found no viable

candidates. (IDF -1079- 1107, 1 110-1112).

There is no evidence of Respondent's assertion that foreign firms like Anpei and BFR are

in the process of entering any of the four markets in North America. There had never been a

single sale by an Asian separator manufacturer in any of the markets in North America. (IDF346-349,448-449). Although customers have spoken to Asian separator producers, no customer

actually believes that they will enter in a manner that restores the competition lost from the

acquisition. (IDF-I079-1107). As noted in Chicago Bridge, mere evidence of customers

inquiring about suppliers willingness in the future to provide separators for any of the four

markets "falls short of proving... that entry ( will be) sufficient to replace competition lost from

the acquisition." Chicago Bridge, & Iron Co., 138 FTC. at 1102. Instead, as the Commission

explained in Chicago Bridge, such efforts show "little more than a refusal to throw themselves

on (a supplier's) mercy." Id.

46
3. New Entry Would Not Be Timely

After analyzing the testimony and documents, Judge Chappell correctly held that "(t)he

experiences of Daramic and Microporous show that developing a profitable, competitive

separator product takes several years, even for established and experienced manufacturers." (ID279). Thus, Judge Chappell correctly concluded that entry would not be timely.

Judge Chappell found that "(o)n average, it takes an experienced PE line builder

approximately 18 to 20 months to design, equip, install and 'de-bug' a PE battery separator line,"

not including the time to evaluate and purchase the land and obtain the necessary permitting.

(ID-278; IDF-974-975, 988-990, 992). Moreover, it would take longer than 20 months for a de

novo entrant to obtain commercial sales. (ID-279).

Testing requirements also make it impossible to enter any ofthe markets within a timely

manner. Customers test both the separator itself and how the separator works within the battery

before the separator can be qualified. (IDF -1001- 1008). Product testing lasts 18 to 24 months

for deep-cycle separators (IDF- 1015- 1017, 1019-1023), two to three years for motive and UPS

separators (IDF-I01 1-1014), and one year or longer for SLI separators. (IDF-I025).

Moreover, these events must happen in sequence. (IDF-923). Thus, adding just the

elapsed time for building a plant and obtaining qualification on a SLI separator, the separator

with the shortest testing period, would be well over two years. (IDF-974-975, 1025). See United

States v. United Tote, 768 F. Supp. 1064, 1074-75 (D.Del 1991) (holding that the two year time

assessment includes the time for study, development, and debugging to achieve a "truly

competitive" product). And, yet, two years after the acquisition, there is no evidence of anyone

actually attempting to do so.

4. Entry Would not Be Likely

47
In order to demonstrate that entry is likely, Respondent must demonstrate that entry

would be profitable at pre-merger prices, and such prices could be secured by the entrant.

Merger Guidelines § 3.3; Cardinal Health, 12 F. Supp 2d at 56. Asian manufacturers ~

1 believe that they cannot be price competitive as entrants. (lDF-320, 322, 332, 335-337,

347, 1035). Industry participants do not believe that Asian producers will enter the North

American geographic market. (lDF-I079-1 107,1110-1112). Moreover customers have

uniformly concluded that these alternatives are significantly more expensive and of a lesser

quality. (lDF-I079-1107, 1110-1112,1035,1061).

Judge Chappell correctly held that the "evidence demonstrates that Entek is unlikely to

enter the deep-cycle, motive, and UPS separator markets within the next two years." (lD-283-

284). ~ 1 would need to develop a reliable product, modify its production line, get qualified

by customers, and then gain the learning by doing necessary to be efficient. (lDF-973,I028,

1047). This is unlikely because Entek has made a strategic decision to ~

1. (IDF1029- 1 030). Since that time, Entek has repeatedly refused to supply non-SLI separators for

reasons such as ( ) (IDF-395-398,

400,1029-1031-1039,1041; PX1806 at 001, in camera) ~

1 (RXOOI 14 at 008, in camera).

5. No Evidence that Entry Would Be Suffcient

To be sufficient, entry must be of "sufficient scale" to "be able to restore competitive

pricing" by permitting the new entrant to "compete on the same plàying field" as Daramic. In re

Coca-Cola Co., 117 FTC. 795, 953, 960 (1994); Chicago Bridge, 534 F.3d at 429-430. To

48
replace Microporous an entrant must possess multiple manufacturing lines in plants located in

North America and elsewhere in the world producing separators in all four product markets, a

reputation for quality separators, and technical expertise.

Dr. Simpson testified and Judge Chappell found that a new entrant would have to possess

tangible assets like production facilities similar to Microporous qualified separators, a technical

workforce that could troubleshoot and innovate, and an effective sales force, as well as intangible

assets like a positive reputation and "know-how." (lDF-923,973). Judge Chappell correctly

found that no Asian separator suppliers "presently possess such assets for the relevant markets"

and are unlikely to acquire them in two years.34 (lD-287). In short, no potential entrants have

demonstrated that they have the technology, product quality, supply capability, reputation, and

comparable pricing for entry at a sufficient level to counter the anticompetitive effects ofthe

acquisition. Cardinal Health, 12 F. Supp. 2d at 58 (quoting Merger Guidelines § 3.0) ("(E)ntry

must also 'be suffcient' to return market prices to tl1eir premerger levels.").

Respondent failed to show that entry by Asian separator manufacturers would be

profitable at pre-merger prices. Merger Guidelines § 3.3; Chicago Bridge, 534 F.3d at 430.

Judge Chappell correctly found that an Asian separator manufacturer could not operate profitably

in North America. (lD-284).

Respondent failed to produce evidence that Asian separator manufacturers can price

competitively in North America. Asian producers have never acted as a price constraint in North

America. (lDF-346, 349; CCFOF 249-252). The evidence demonstrates that pricing for Asian

separators would be substantially higher than separators manufactured in North America due to

34 Notably, the Asian producers Respondent mentions are very smalL. (IDF- I 057).

49
higher manufacturing costs, import charges, shipping costs, and additional warehousing costs.

(lDF-314-337, 341-342,1060,1084,1094,1096,1100,1102,1104,1110).

Although some North American customers have conducted testing of Asian separators,

the testing ( J . (lDF-I06I, 1081-1082). Customer 

testimony

demonstrated that customers consider Asian separator manufacturers qualitl5 to be poor

compared to North American suppliers (IDF-l 061, 1082, 1088-1089, 1101), and no Asian

separator manufacturer has even been qualified for use in North America in any market. (ID242).

In non-SLI separators, Entek is also not a timely, likely, or suffcient entrant. It does not

even have such products designed, much less tested, and it has stated that if it did produce

industrial separators, t

l IDF-I035; see also Weerts, Tr. 4509, in camera; Gillespie, Tr. 3040, in camera

H

.l Thus, Entek would not replace the competition lost by the

elimination of Microporous. Chicago Bridge, 534 F.3d at 430. Thus, there is no evidence of

sufficient entry in this case.

6. Customers Are Not "Power Buyers" Capable of Counteracting the Anticompetitive

Effects of the Acquisition

In order for customers to be power buyers, they must have alternative suppliers to have

any real bargaining power. Chicago Bridge, 138 FTC. at 1151. Choosing among alternative

suppliers "depend(sJ in the first instance on the existence of those alternatives." In re American

35 Daramic's Strategy Audit identified f ") for service and

support, product portfolio, technology performance, technology processibility, technology quality and

proximity to all markets. (IDF-J 065; PX0265 at 016, in camera). AdditionaJIy,

) (IDF--I075-J077).

50
General Ins. Co, 89 FTC. 557, 643 (1977), rev'd on other grounds, American General Ins. Co.

v. FTC, 589 F.2d 462 (9th Cir. 1979) This is not the case in three of the markets. Judge

Chappell correctly held that "(iJn the deep-cycle, motive, and UPS markets, as a result of the

acquisition of Micr 0 porous, customers have no alternative suppliers to Daramic." (ID-289). Just

as in Chicago Bridge, North American customers have no real alternatives to Daramic in these

three markets and therefore, do not have "any real ability to thwart price increases post-merger."

Chicago Bridge, 138 FTC. at 1152.

In SLI, with only one alternative to Daramic, the evidence does not support a power

buyer argument either.36 (ID-29I). Neither Exide nor East Penn have any plans to vertically

integrate, sponsor entry of a separator manufacturer, or enter a joint venture with a separator

manufacturer. (IDF- 1116, 1125, 1126). Notwithstanding discussions various customers have

held with Asian suppliers, customers are not likely to be able to use Asian separators as a

meaningful alternative to Daramic in the SLI market. (ID-292). The evidence is that neither

sponsored entry nor vertical integration by any so-called power buyer is likely at alL. (ID-287,

292).

Moreover, the assertion that any customer has buying power is contradicted by evidence

from Daramic's own strategic audit that found that "battery manufacturers lack purchasing

power despite their scale due to limited number of suppliers." (IDF-435). According to

Daramic, the separator suppliers f"

(PX0265 at 004, 007-008, in camera). Moreover, Daramic believes that the large

36 Exide's purpose f

) "

not to gain leverage with Daramic. (ID-29 I ). Daramic's f

) demonstrates that Daramic wields the power in the relationship. (See CCFOF 1283).

51
separator suppliers will have f J. (PX0265 at 01 1,

in camera). Finally, Respondent's unsubstantiated assertions about Enersys or Exide fail to

account for all the customers in the markets, all of which have no other choice but to deal with

Polypore. (ID-288-92).

VII. Complete Divestiture is Necessary to Restore the Competition

Eliminated by the Ilegal Acquisition

The AU appropriately ordered complete divestiture as the best means of restoring

competition to the state in which it existed prior to, and would have continued to exist but for the

unlawful acquisition. Respondent concedes the propriety of virtually all of the ALl's Order, but

nonetheless argues that divestiture of Micro porous' Feistritz, Austria manufacturing plant is

inappropriate because it is located in Europe and, according to Respondent, had no effect on

competition in North America. Neither argument is correct on the law or the facts. It is well

established that complete divestiture can properly include assets outside the relevant market in

which an antitrust violation is found, including foreign assets, especially where complete

divestiture is necessary to restore effective competition. In re Chicago Bridge & Iron Co., 140

FTC. 1152, 1169-1 i 70 (2005); Yamaha Motor Co, Ltd. v. FTC, 657 F.2d 971,982 (8th Cir.

1981) (upholding the FTC's authority to order a U.S. company to divest its stockholdings in a

foreign company); Ford Motor Co., 405 U.S. at 573 ("(c)omplete divestiture is particularly

appropriate where asset or stock acquisitions violate the antitrust laws.") (Citations omitted).

Accordingly, the AU's Order should be affirmed and adopted by the Commission.

1. The Commission Has the Legal Authority to Order Divestiture of the Feistritz Plant

As the Commission has explained, "in Section 7 cases, the principal purpose of 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. '" B.F Goodrich Co., 110 FTC. 207, 345 (1988), (quoting In re RSR

52
Corp., 88 FTC. 800, 893 (1976)). Indeed, the Clayton Act requires that upon a finding of a

Section 7 violation, "the Commission. . . shall. . . order. . . such person to cease and desist from

such violations, and divest itself of the ... assets, held." 15 U.sc. § 2I(b). Moreover, "(o)nce

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." United States v. E.l du Pont de

Nemours & Co., 366 U.S. 316,334 (1961) (footnote omitted); see also Ford Motor Co, 405 U.S.

at 573; Chicago Bridge, 534 F.3d at 441. "Ordinarily, a presumption should favor total

divestiture of the acquired assets as the best means of accomplishing this result." In re RSR

Corp., 88 F.T.C. 800, 893 (citation omitted), afJ'd 602 F.2d 13 1 7 (9th Cir. 1979). Consistent

with these established principles, complete divestiture is the presumptive relieffor the unlawful

acquisition. Id. at p. 328.

Restoring competition means returning the new "Microporous" to the competitive

position it would have been in but for the illegal acquisition, and assuring its viability.

Establishing "a mere shadow of (Microporous's) former self is not acceptable." See Elzinga, The

Antimerger Law: Pyrrhic Victories, 12 J. Law & Econ. 43, 45 (1969). As the Supreme Court

observed, "ifthe Government proves a violation but fails to secure a remedy adequate to redress

it," it has "won a lawsuit and lost a cause." United States v. E. 1. du Pont de Nemours and Co.,

366 U.S. 316, 323-24 (1961 ) (citations omitted).

Consistent with appropriate remedial standards, the Commission in Chicago Bridge

ordered complete divestiture of what CB&I acquired - both the former PDM Engineered

Construction Division, which made the relevant products, and its former Water Division, which

made and sold other products worldwide - together with ancillary provisions crucial to

establishing a viable new entity that could restore the lost competition. As the Commission

53
stated: "no evidence (suggests) that a smaller set of assets than those illegally acquired by CB&I

will suffice to restore competition, and what we know with certainty is that this combination of

assets has made a saleable package in the past." Chicago Bridge, 138 FTC. 1024, 1164 (2005),

aff'd, 534 F.3d 410 (2008).

The ALl correctly concluded that the Commission's authority to order complete

divestiture under both Section 5(a) of the FTC Act, 15 U.sc.§ 45(a), and Section 1 I(b) of the

Clayton Act, 15 U.S.c.§ 21(b), including divestiture of the Feistritz Plant, is properly based on

the Commission's jurisdiction over the Respondent, the acquisition, and Respondent's activities

in or affecting interstate commerce, all of which Respondent admits. (ID-I98-199,333-334;

IDF-I-I 1, 43-46; Answer~3). See also CCRB-56-6L. Divestiture orders against domestic

corporations have included requirements to divest foreign assets where, as here, this is

appropriate to restore competition lost through an illegal acquisition. See Yamaha Motor Co.

Ltd. v. FTC, 657 F.2d 971, 982 (8th Cir. 1981) (affrming FTC order requiring a U.S. company

to divest foreign stock acquired in illegal acquisition); Chicago Bridge & Iron Co., 140 F.T.C.

1152, 1 169-1 170 (modifying final order to specify divestiture of foreign assets if necessary to

restore competition in relevant markets).

Thus, under the Clayton Act and the FTC Act, the Commission has ample authority to

order effective relief, including not only divestiture of foreign assets but also additional assets if

needed to reconstitute Microporous to the competitive strength it would have possessed absent

the Acquisition.37 For example, in the related Cascade and El Paso cases, the Supreme Court

37 The extraterritorial application of the Commission's authority under § 5, is irrelevant to this case that

challenges Polypore's combining two U.S. firms operating in the U.S., with direct, substantial, and

reasonably foreseeable effect on domestic or export commerce with effects on U.S. commerce. Section

5(a)(3)(A) of the FTC Act actually extends FTC authority to cases like this one. F. Hoffmann-La Roche

54
ordered that gas reserves be given by the defendant to the newly-divested company "no less in

relation to present existing reserves than Pacific Northwest had when it was independent; and the

new gas reserves developed since the merger must be equitably divided between EI Paso and the

New Company." Cascade Natural Gas Corporation v. El Paso Natural Gas Co., 386 U.S. 129,

136-37 (1967). The Court explained: "The purpose of our mandate was to restore competition"

by placing the "New Company in the same relative competitive position (it) ... enjoyed

immediately prior to the illegal merger." Utah Pub. Servo Comm 'n v. El Paso Natural Gas Co.,

395 U.S. 464, 470 (1969); see also Chicago Bridge & Iron, 534 F.3d 441-42 (Remedy created a

Newco "equally capable" of competing as the acquired company would have been).

Thus, Respondent cannot properly object to divestiture of the Feistritz plant merely

because it is in Europe. Total divestiture can appropriately include assets outside the relevant

market in which an antitrust violation is found, "especially where, as here, total divestiture is

necessary to restore effective competition." Chicago Bridge, 534 F.3d at 441 (citing OKC Corp.

v. FTC, 455 F.2d 1159, 1163 (lOth Cir. 1972)); see also RSR Corp. v, FTC, 602 F.2d 1317, 1326

n.5 (9th Cir. 1979) (divestiture of a plant that was outside the product market); In re Diamond

Alkali, 72 F.T.C. 700, 742 (1967) (divestiture of acquiring company's plant, when it had already

shut down the acquired company's factory).

2. Divestiture of Feistritz Plant is necessary to restore competition in North America

"In order for Microporous to continue to grow, it needs to position itself with an

international manufacturing base in the same fashion as its competitors." (PX061 1 at

010).

At the time of the acquisition, Microporous had already built and begun manufacturing

separators in the Feistritz Plant in order to be a more competitive supplier and to gain more

Ltd V. Empagran SA., 542 U.S. 155, 168 (2004) explains that the "government" is not precluded from

"challenging worldwide conduct that has an effect on U.S. commerce."

55
business in North America and abroad. (lDF-I275; Gilchrist, Tr. 309; PX0078 at 012, in

camera). Within one week ofthe acquisition, Feistritz was in full operation. (ID-335)

Microporous built the plant because it had determined that if it wanted to be a "major supplier"

to world-wide companies like Enersys, it needed to "become a global player." (Gilchrist, Tr.

309-311). Microporous' owners understood that the company had been disadvantaged by not

having an international manufacturing base with multiple manufacturing facilities, like those of

Daramic and Entek. (PX06Il at 009-010, 028).38 Customers agreed. (lDF-1276-1279). In

fact, Microporous was only able to secure an increase in business from EnerSys in North

America by agreeing to add a plant in Europe, and if it did that, Microporous would shift

production to Europe and expand additional production in Tennessee. (lDF-786-790,I277;

RX0207, in camera; PXI200, in camera). For Trojan, the Microporous expansion in Austria

meant that it could switch more Flex-Sil to CellForce in the U.S., giving it a "cost advantage"

and a backup source if anything happened to the Piney Flats Plant. (lDF -1280; see also CCFOF

~~ 1213-1215). These two examples of expansion in Austria directly causing additional

expansion for Microporous in North America both involved the patented product, CellForce,

which includes as its key ingredient, Ace-Sil rubber, made and exported from Tennessee.

(Gilchrist, Tr. 311-312, 331-332, 337-338; Trevathan, Tr. 3712-3713). In short, without the

plant in Feistritz and the additional equipment that was destined for Tennessee, Microporous

would not have been able to expand in North America and grown its role as a maverick. It

makes no sense to force Microporous to give up its only foreign plant, which would force it to

lose its additional North American business with EnerSys and Trojan, and then allow Daramic to

38 Daramicalso recognized this as a competitive advantage. (IDF- 1274).

56
sell Microporous' patented CellForce in Europe. That would harm Microporous' ability to

compete in North America.

a. The Feistritz Facilty Freed Up Significant Capacity at Microporous'

U.S. Piney Flats Plant and Benefitted Competition in North America

Microporous' new facility in Feistritz freed up significant capacity in North America, so

that Microporous could obtain major worldwide accounts and take on smaller accounts in North

America, like East Penn. (IDF-795-797, 1271). Because of the impending completion ofthe

Feistritz facility, Microporous was competing vigorously in North America to "backfill" or

replace the expected extra capacity freed up by the new factory in Europe. (IDF-796-797, 1271).

Similarly, complete divestiture including the Feistritz Plant will permit Newco to

compete more effectively with Daramic (with its worldwide plants) in North America and would

benefit customers. (See, e.g., Godber, Tr. 224-225, 226-227 (with more CellForce products

available in the U.S., Trojan Battery planned to switch an additional five to ten percent of 

its

purchases from Flex-Sil to the less expensive CellForce, saving roughly 10 percent). Prior to the

acquisition, Microporous' new European capacity created more available capacity in North

America, rendering it more competitive against Daramic in North America. As the AU found,

"(iJn these circumstances, and given the fact that Microporous planned the Feistritz plant in order

to be more competitive in the relevant markets, (IDFJ-768-72, there is no valid basis for

concluding that the Feistritz plant should not be divested." (ID-335).

b. Divestiture of the Feistritz Facilty and Production Lines is Necessary

to Return Microporous to its Pre-Acquisition Position of Having the

"Global Footprint" Needed to Compete in North America

The AU correctly found that the ability to supply a battery manufacturer's needs on a

global basis is important to customers in North America. (ID-334). The Feistritz Plant is critical

to give the acquirer a "global footprint" to locally supply the worldwide demand of customers

57
who purchase separators in the North America market. (lDF- I 272; Gilchrist, Tr. 309-3 i 0

(testifYing to importance of a global footprint); Hauswald, Tr. 713-714). As Microporous'

former CEO testified, it is ~

1 (Gilchrist, Tr. 524-525). He explained how important it was for Microporous to have a

global footprint to compete for large customers. (Gilchrist, Tr. 593-601 (world-wide expansion

was a "key element")).

Daramic's Hauswald also admitted that having worldwide facilities gives a competitor in

these markets a "competitive advantage" and reduces the supply-chain risks to customers. (IDF1274; Hauswald, Tr. 722, 726~727, 807, in camera H

n; PX0206 at 004; PX0923 at 012 (Hauswald, IH at 68, in

camera); see also CCFOF ~ i 202). Daramic advertises that it provides local supply on a global

basis, and considers this to be a market advantage. (Hauswald, Tr. 71 1, 722, 13 i 8- 1319;

PX0582 at 018). The Feistritz Plant is thus a necessary part of the divestiture because it will

allow Newco to serve North American customers' global demand as a viable competitor.

c. Customers Want Suppliers with Multiple Plants to Provide Security

of Supply Should there be an Outage

Having multiple locations gives customers security of supply should one plant stop

operating. (IDF-1273; Gillespie, Tr. 2993 (lessons from the Daramic strike); Gaugl, Tr. 4602

("continuity of supply" important)). Customers state they prefer a supplier with multiple plants

so that an outage in one facility will not result in a complete disruption of supply. (Godber, Tr.

225-226; Toth, Tr. 1440-1441). For Enersys, it was critical that its suppliers have more than one

plant, because halfofits revenue depended on the source of separator supply. (IDF-1277; Axt,

Tr. 2129; see also CCFOF ~ 1209). An effective divestiture must restore a competitor that can

58
provide customers with the security of supply they demand. The Feistritz Plant is thus needed to

provide the acquirer with backup capacity in case of a supply disruption at the Piney Flats Plant.

Indeed, Feistritz has also been the only other alternative for customers when Daramic has shut

off supply of products. (lDF-119).

d. The Feistritz Plant Wil Give Newco the Scale it Needs to Compete

Effectively

The Feistritz Plant will also give the acquirer the scale necessary to compete with

Daramic. Scale to supply entire plants is important to the large battery-manufacturer customers.

(IDF-1272; Hauswald, Tr. 806-807, in camera). Scale is important for a new company because

it will need the scale to be "sustainable in the long run." (Gillespie, Tr. 3053, in camera).

Finally, scale provides a cost advantage due to the significant economies it provides. (Simpson,

Tr. 3225-3226, 3229, 3233, in camera (citing PX024I, in camera); Gillespie, Tr. 3052-3053;

Hauswald, Tr. 821-825, in camera; Toth, Tr. 1443 (citing PX0476)). Even Daramic ~

1 (Hauswald, Tr. 726-727; PX0194 at 036, in camera H

L Toth, Tr. 1433-1434 (referring to PX0483 at 013)).

In addition, the operations of both the Tennessee and Feistritz plants are intertwined

because the key ingredient in half ofthe products (e,g., the patented Cell-Force) sold in both

plants (Ace-Sil (rubber) dust) is made in the Tennessee plant and, in the case of 

Feist ritz is

exported there from Tennessee. There is no other source for this key ingredient, and its export to

Europe makes Microporous' Tennessee plant more efficient. (Gilchrist, Tr. 311-312, 331 -332,

337-338; Trevathan, Tr. 3712-13, 3728-29)

59
e. Microporous' Pre-Acquisition Financial Condition Does Not Weigh

Against a Com plete Divestiture

The AU appropriately rejected Respondent's contention that Microporous was

financially unstable, finding that the record does not support such a claim. (lD-331).

Microporous invested in Feistritz and purchased equipment to build an additional line in Piney

Flats. Like in Chicago Bridge, there is "no evidence to suggest that a smaller set of assets than

those illegally acquired by (respondent) will suffice to restore competition, and what we know

with certainty is that this combination of assets has made a saleable package in the past."

Chicago Bridge, 138 FTC. 1024, 1164 (2005).

The undisputed facts are that Microporous was "profitable" and had "more offers for

business than" Microporous was "going to be able to handle". (Gilchrist, Tr. 344, 403, 507, in

camera; Trevathan, Tr. 3652, 3659, 3750 (lfthe Daramic deal had not happened, Microporous

was "on track to improve... profitability")). A new Microporous should have the same

competitive clout to be able to compete profitably, and that includes its Austrian plant.

3. Additional Provisions Challenged by Respondent are Necessary to Enable

a Viable Divestitu re

Respondent objects to certain provisions in the Order that would prevent it from shifting

all production out of the divestiture plants, undoing improvements, and firing all the employees

before the Order becomes finaL. As the AU correctly observed, these provisions are common in

Commission relief and are needed to restore the competition lost through the acquisition and to

protect the viability of the business pending divestiture. (ID-339-34I). In similar circumstances

the Commìssion has ordered respondents: (1) to assign current contracts, as well as customer

records and files, to the acquirer tore store competition (Chicago Bridge, 138 FTC. at 1165,

1186; Goodrich, 11 0 F.T.C. at 364; In re Occidental Petroleum Corp., 115 FTC. 1010, 1292

60
(1992); In re Hospital Corp. of America, 106 FTC. 361, 521 (1985)); (2) to divest post-merger

improvements (Chicago Bridge, 138 F.T.C. at 1181 -82, 1185-87; Goodrich, 110 FTC. at 363;

In re Olin Corp., 113 F.T.C. 400, 620 (1990); Occidental, 115 FTC. at 1291; HCA, 106 F.T.C.

at 521; In re American Medical International, Inc., 104 FTC. 1,239 (1984); and (3) to divest or

license respondents' technology (Chicago Bridge, 138 FTC. at 1179, 1187; Goodrich, 110

FTC. at 363; Occidental, 115 FTC. at 1292). These requirements are remedial, not punitive.

Such ancilary relief is necessary to undo the competitive harm that Daramic deliberately caused.

With respect to contracts entered into by Daramic prior to the acquisition of 

Micro porous,

Complaint Counsel agrees that it is appropriate that they not be included as "Terminable

Contract(s)" so long as post-acquisition changes and modifications to any pre-acquisition

Polypore contracts remain terminable. The proposed language effectuating this result - adding

"Respondent or" to the definition of 'Terminable Contract" -- is appended to this brief.

Respondent also objects to the requirement regarding NewCo's access to shared

intellectual propert. "Shared Intellectual Property License" is defined in the Order to mean

only Polypore's intellectual property "that was also used by respondent in connection with. . .

Microporous battery separators or otherwise used in connection with Microporous . . ."

(emphasis added). Accordingly, this requirement only applies to intellectual propert that

Respondent voluntarily chose to use in and commingle with Microporous' operations in the face

of a pending FTC investigation and adjudication. This provision is to ensure that those plants

can continue to operate post-divestiture without fear of litigation from Daramic, which had a

history of suing Mictbporous. As noted in the Initial Decision, "this requirement is necessary

since there would be no effective way to purge information, such as best practices, from the

61
minds of personnel involved in those operations who might become employees of 

the acquirer in

connection with the divestiture." (ID-338).

In a footnote, Respondent contends that the Order's requirement that Respondent

maintain a Microporous work force equal to the force in place as ofthe acquisition is out of

"sync" with the facts since it has already eliminated some ofthat work force. The evidence

demonstrates that it takes a specially skilled workforce to run a separator plant and training such

a work force to operate effciently takes six months. (Gaugl Tr. at 4606; CCFOF 817). The

Commission has the authority to order respondents to take affrmative actions to facilitate the

acquirer's ability to hire employees ofthe now-merged entity and to induce them to accept such

employment. (See, e.g., Chicago Bridge, 138 FTC. at 1186-89, 1195-96). Thus the Order is

perfectly in "sync" with the divestiture of a viable new Microporous that will be as competitive

as it would have been but for the acquisition.

V. Conclusion

For the reasons stated above, as is fully supported by the evidence at trial, Daramic's

acquisition of Microporous and its anticompetitive conduct are illegaL. The public deserves a

complete remedy to restore competition and prevent further harm to competition. The AU's

proposed Order is appropriate with the small word change suggested in Section I.WW.

Complaint Counsel respectfully requests that this Order, attached in Tab A, be issued.

62
Dated: May 24, 2010 Respectfully subm itted,

By: ~~ it¡elL ¿ /

J. ROBERT ROBERTSON

Federal Trade Commission

Bureau of Competition

600 Pennsylvania Ave., N.W.

Washington, DC 20580

Telephone: (202) 326-2008

Fax: (202) 326-2884

Complaint Counsel

63
CERTIFICATE OF SERVICE

1 hereby certify that on May 24, 2010, 1 filed via hand delivery an original, twelve copies

and electronic and electronic mail delivery of the foregoing public version of the Answering

Brief of Counsel Supporting the Complaint with:

Donald S. Clark, Secretary

Office of the Secretary

Federal Trade Commission

600 Pennsylvania Avenue, NW, Rm. H-159

Washington, DC 20580

I hereby certify that on May 24, 2010, I served via hand and electronic mail delivery two

copies of the foregoing public version of the Answering Brief of Counsel Supporting the

Complaint with:

The Honorable D. Michael Chappell

Administrative Law Judge

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

oaljiQiftc.iwv

1 hereby certify that on May 24, 2010, I fied via electronic and first class mail delivery a

copy of the foregoing public version of the Answering Brief of Counsel Supporting the

Complaint with:

William 1. Rikard, Jr., Esq.

Eric D. Welsh, Esq.

Parker, Poe, Adams & Bernstein, LLP

401 South Tryon Street, Suite 3000

Charlotte, North Carolina 28202

wi I IialirikardlC!parkerpoe.eoli

eri ewe I sh~ù.parkerpoe. eom

Linda D. Cunningha

Federal Trade Comm' n

600 Pennsylvania Avenue, NW

Washington, DC 20580

Telephone: (202) 326-2638

Icul1l1 iii gham(Q)ftc.gOV
TAB A

TO

ANSWERING BRIEF OF

COUNSEL SUPPORTING THE COMPLAINT

In the Matter of

POLYPORE INTERNATIONAL, INC.,

a corporation.
UNITED STATES OF AMERICA

BEFORE THE FEDERAL TRADE COMMISSION

COMMISSIONERS: Jon Leibowitz, Chairman

Wiliam E. Kovacic

J. Thomas Rosch

Edith Ramirez

Julie Bril

)

)

)

)

)

)

Docket No. 9327

In the Matter of

Polypore International, Inc.

a corporation.

PROPOSED ORDER

I.

IT IS ORDERED that, as used in the Order, the following definitions shall apply:

A. "Acquirer" means any Person approved by the Commission pursuant to this Order

to acquire Microporous.

B. "Acquisition" means the acquisition of all of the outstanding shares of

Microporous by Respondent Polypore pursuant to a Stock Purchase Agreement

dated February 29, 2008.

C. "Acquisition Date" means February 29,2008.

D. "Battery Separator(s)" means porous electronic insulators placed between

positively and negatively charged lead plates in flooded lead-acid batteries to

prevent electrical short circuits while allowing ionic current to flow through the

separator.

E. "Books and Records" means all originals and all copies of any operating,

financial or other books, records, documents, data and files relating to

Microporous, including, without limitation: customer files and records, customer

lists, customer product specifications, customer purchasing histories, customer

service and support materials, Customer Approvals and Information; accounting

records; credit records and information; correspondence; research and

development data and files; production records; distributor files; vendor files,

vendor lists; advertising, promotional and marketing materials, including website
content; sales materials; records relating to any employee who accepts

employment with the Acquirer; educational materials; technical information, data

bases, and other documents, information, and files of any kind, regardless

whether the document, information, or files are stored or maintained in traditional

paper format, by means of electronic, optical, or magnetic media or devices,

photographic or video images, or any other format or media; provided, however,

that where documents or other materials included in the Books and Records to be

divested with Microporous contain information: (1) that relates both to

Microporous and to Polypore's Retained Assets or its other products or businesses

and cannot be segregated in a manner that preserves the usefulness of the

information as it relates to Microporous; or (2) for which the relevant part has a

legal obligation to retain the original copies, the relevant party shall be required to

provide only copies or relevant excerpts of the documents and materials

containing this information. In instances where such copies are provided to the

Acquirer, the relevant party shall provide the Acquirer access to original

documents under circumstances where copies of the documents are insufficient

for evidentiary or regulatory purposes. The purpose of this proviso is to ensure

that Polypore provides the Acquirer with the above described information without

requiring Polypore to divest itself completely of information that, in content, also

relates to its Retained Assets or its other products or businesses.

F. "Commission" means the Federal Trade Commission.

G. "Confidential Business Information" means any non-public information relating

to Microporous either prior to or after the Effective Date of Divestiture, including,

but not limited to, all customer lists, price lists, distribution or marketing methods,

or Intellectual Property relating to Microporous and:

1. Obtained by Respondent prior to the Effective Date of Divestiture; or,

2. Obtained by Respondent after the Effective Date of Divestiture, in the

èourse of performing Respondent's obligations under any Divestiture

Agreement;

Provided, however, that Confidential Business Information shall not include:

1. Information that Respondent can demonstrate it obtained prior to the

Acquisition Date, other than information it obtained from Microporous

during due diligence pursuant to any confidentiality or non-disclosure

agreement;

2. Information that is in the public domain when received by Respondent;

3. Information that is not in the public domain when received by Respondent

and thereafter becomes public through no act or failure to act by

Respondent;

- 2 -
4. Information that Respondent develops or obtains independently, without

violating any applicable law or this Order; and

5. Information that becomes known to Respondent from a third party not in

breach of applicable law or a confidentiality obligation with respect to the

information.

H. "Contracts" means all contracts or agreements of any kind related to Microporous,

and all rights under such contracts or agreements, including: Microporous

Customer Contracts, leases, softare licenses, Intellectual Property licenses,

warranties, guaranties, insurance agreements, employment contracts, distribution

agreements, product swap agreements, sales contracts, supply agreements, utility

contracts, collective bargaining agreements, confidentiality agreements, and nondisclosure agreements.

i. "Customer" means any Person that is a direct or indirect purchaser of any Battery

Separator.

J. "Customer Approvals and Information" means, with respect to any Microporous

Battery Separator(s):

1. All consents, authorizations and other approvals, and pending applications

and requests therefor, required by any Customer applicable or related to

the research, development, manufacture, finishing, packaging, distribution,

marketing or sale of any Battery Separator; and,

2. All underlying information, data, filings, reports, correspondence or other

materials used to obtain or apply for any of the foregoing, including,

without limitation, all data submitted to and all correspondence with the

Customer or any other Person.

K. "Daramic Battery Separator(s)" means any Battery Separators manufactured or

sold by Respondent as of the day before the Acquisition Date, and any Battery

Separators manufactured or sold by Respondent after the Acquisition Date that do

not utilize any Microporous Intellectual Property other than Shared Intellectual

Property.

1. "Direct Cost" means the cost of direct material and direct labor used to provide

the relevant assistance or service.

M. "Divestiture Agreement" means any agreement(s) between Respondent (or

between a Divestiture Trustee appointed under this Order) and the Acquirer

approved by the Commission, that effectuate the divestiture of Microporous

required by Paragraphs II. or iV. of this Order, to accomplish the purpose and

requirements of this Order, as well as all amendments, exhibits, attachments,

- 3 -
agreements and schedules thereto, including, but not limited to, any Technical

Assistance Agreement or Transition Services Agreement.

N. "Divestiture Trustee" means a Person appointed pursuant to Paragraph iv. Of 

this

Order to accomplish the divestiture of Microporous.

O. "Effective Date of Divestiture" means the date on which the divestiture of

Microporous to an Acquirer pursuant to the requirements of Paragraph II. or iv.

of this Order is completed.

P. "Employee Information" means the following, to the full extent permitted by

applicable law:

1.

Employee;

A complete and accurate list containing the name of each Microporous

2. With respect to each such employee, the following information:

a. The date of hire and effective service date;

b. Job title or position held;

c. A specific description of the employee's responsibilities related to

Microporous Battery Separators; provided, however, in lieu of this

description, Respondent may provide the employee's most recent

performance appraisal;

d. The base salary or current wages;

e. The most recent bonus paid, aggregate annual compensation for

Respondent's last fiscal year and current target or guaranteed

bonus, if any;

f. Employment status (i.e., active or on leave or disability; full-time

or part-time); and

g. Any other material terms and conditions of employment in regard

to such employee that are not otherwise generally available to

similarly situated employees; and

3. At the proposed Acquirer's option, copies of all employee benefit plan

descriptions (if any) applicable to the relevant employees.

Q. "Feistritz Plant" means all propert and assets, tangible and intangible, owned,

leased, or operated by Respondent and located or used in connection with the

research, development, manufacture, finishing, packaging, distribution, marketing

- 4 -
or sale of anyone or more of the Microporous Battery Separators at the former

Microporous facility in Feistritz, Austria, at any time between the Acquisition

Date and the Effective Date of Divestiture, including, but not limited to:

1. All real property interests (including fee simple and leasehold interests),

including all rights, easements and appurtenances, together with all

buildings, structures, facilities (including R&D and testing facilities),

improvements, and fixtures, including, but not limited to, all Battery

Separator production lines (including the two (2) production lines for

polyethylene (PE) and/or CellForce Battery Separators);

2. All Tangible Personal Property;

3. All governmental approvals, consents, licenses, permits, waivers, or other

authorizations, to the extent assignable; and

4. Inventories existing as of the Effective Date of Divestiture.

Provided, however, that the definition of "Feistritz Plant" shall not include any

assets used solely to manufacture Daramic Battery Separators.

R. "Force Majeure Event" means whatever events, actions, occurrences or

circumstances have been identified or specified as constituting "force majeure" or

a "force majeure event" in a contract or agreement between the Respondent and a

Customer for the supply of Battery Separators.

S. "Governmental Entity(ies)" means any federal, provincial, state, county, local, or

other political subdivision of the United States or any other country, or any

department or agency thereof.

T. "H&V Agreement" means the Cross Agency Agreement dated March 23, 2001,

between Daramic, Inc. and Hollingsworth & Vose Company, and all amendments

(including, but not limited to, the Renewal dated March 23, 2006), exhibits,

attachments, agreements, and schedules thereto.

U. "Intellectual Property" means Patents, Manufacturing Technology, KnowHow,

and Trade Names and Marks.

V. "Inventories" means:

1. All inventories, stores and supplies of finished Battery Separators and

work in progress; and,

2. All inventories, stores and supplies of raw materials and other supplies

related to the research, development, manufacture, finishing, packaging,

distribution, marketing or sale of any Battery Separators.

- 5 -
W. "Jungfer Technology" means all Intellectual Property owned or licensed by

Respondent as a result of its acquisition of Separatorenerzeungung GmbH

("Jungfer") on November 16,2001.

X. "Know-How" means all know-how, trade secrets, techniques, systems, software,

data (including data contained in softare), formulae, designs, research and test

procedures and information, inventions, processes, practices, protocols, standards,

methods (including, but not limited to, test methods and results), customer service

and support materials, and other confidential or proprietary technical,

technological, busin~ss, research, development and other materials and

information related to the research, development, manufacture, finishing,

packaging, distribution, marketing or sale of Battery Separators, and all rights in

any jurisdiction to limit the use or disclosure thereof, anywhere in the world.

Y. "Line in Boxes" means all propert and assets, tangible and intangible, related to

any capacity expansions proposed, planned or under consideration by

Microporous as of the Acquisition Date, including, but not limited to, all

engineering plans, equipment, machinery, tooling, spare parts, and other tangible

property, wherever located, relating to a proposed, planned or contemplated

capacity expansion to be accomplished through installation of an additional

Battery Separator production line at the Piney Flats Plant.

Z. "Manufacturing Technology" means all technology, technical information, data,

trade secrets, Know-How, and proprietary information, anywhere in the world,

related to the research, development, manufacture, finishing, packaging or

distribution of Battery Separators, including, but not limited to, all recipes,

formulas, formulations, blend specifications, customer specifications, equipment

(including repair and maintenance information), tooling, spare parts, processes,

procedures, product development records, trade secrets, manuals, quality

assurance and quality control information and documentation, regulatory

communications, and all other information relating to the above-desc~ibed

processes.

AA. "Microporous" means Microporous Holding Corporation, a corporation

organized, existing and doing business utider and by virtue of the laws of the

State ofDelaware, with its offices and principal place of business as of the

Acquisition Date located at 100 Spear Street, Suite 100, San Francisco, CA

9411 1, and its joint ventures, subsidiaries, divisions, groups, and affliates

(including, but not limited to, Microporous Products, L.P. and Microporous

Products, GmbH) controlled by Microporous Holding Corporation, and all assets

of Microporous Holding Corporation acquired by Respondent in connection with

the Acquisition, including, but not limited to:

1. All of Respondent's rights, title and interest in and to the following

propert and assets, tangible and intangible, wherever located, and any

improvements, replacements or additions thereto that have been created,

- 6 -
developed, leased, purchased, or otherwise acquired by Respondent after

the Acquisition Date, relating to the research, development, manufacture,

finishing, packaging, distribution, marketing, or sale of Microporous

Battery Separators:

a. the Piney Flats Plant;

b. the Feistritz Plant;

c. the Line in Boxes;

d. Microporous Intellectual Propert;

e. Contracts; and

f. Books and Records; and

2. All rights to use Shared Intellectual Property pursuant to a Shared

Intellectual Property License;

BB. "Microporous Battery Separator(s)" means all Battery Separators in which

Microporous was engaged in research, development, manufacture, finishing,

packaging, distribution, marketing or sale as of the Acquisition Date, and all

Battery Separators distributed, marketed or sold after the Acquisition Date using

any Microporous Trade Names and Marks.

Cc. "Microporous Copyrights" means all rights to all original works of authorship of

any kind, both published and unpublished, relating to Microporous Battery

Separators and any registrations and applications for registrations thereof and all

rights to obtain and file for copyrights and registrations thereof.

DD. "Microporous Customer Contracts" means all open purchase orders, contracts or

agreements or Terminable Contracts for Microporous Battery Separators or for

Battery Separators being supplied from the Piney Flats Plant or the Feistritz Plant

at any time between the Acquisition Date and the Effective Date of Divestiture

except for Daramic Battery Separators.

EE. "Microporous Employee(s)" means any Person:

1. Employed by Microporous as of the Acquisition Date;

2. Employed at the Piney Flats Plant at any time between the Acquisition

Date and the Effective Date of Divestiture; or

3. Employed at the Feistritz Plant at any time between the Acquisition Date

and the Effective Date of Divestiture.

- 7 -
FF. "Microporous Intellectual Propert" means all rights, title and interest in and to

all:

1 . Microporous Patents;

2. Microporous Manufacturing Technology;

3. Microporous Know-How;

4. Microporous Trade Names and Marks;

5. Microporous Copyrights; and

6. All rights in any jurisdiction anywhere in the world to sue and recover

damages or obtain injunctive relief for infringement, dilution,

misappropriation, violation or breach, or otherwise to limit the use or

disclosure of any of the foregoing.

GG. "Microporous Know-How" means all Know-How relating to the research,

development, manufacture, finishing, packaging, distribution, marketing, or sale

of Microporous Battery Separators or otherwise used in connection with

Microporous.

HH. "Microporous Manufacturing Technology" means all Manufacturing Technology

relating to the research, development, manufacture, finishing, packaging,

distribution, marketing, or sale of Microporous Battery Separators or otherwise

used in connection with Microporous.

II. "Microporous Patents" means all Patents relating to the research, development,

manufacture, finishing, packaging, distribution, marketing, or sale of Microporous

Battery Separators or otherwise used in connection with Microporous.

JJ. "Microporous Trade Names and Marks" means all Trade Names and Marks

relating to the research, development, manufacture, finishing, packaging,

distribution, marketing, or sale of Microporous Battery Separators or otherwise

used in connection with Microporous, including, but not limited to, all rights to

commercial names, "doing business as" (d/b/a!) names, service marks and

applications for or using the words: "Microporous," "Amerace," "CeIlForce,"

"FLEX-SIL,""ACE-SIL;" and all rights in internet web sites and internet domain

names using any of the above.

KK. "Monitor Trustee" means a Person appointed with the Commission's approval to

oversee the divestiture requirements of this Order, including Respondent's

compliance with the Order's requirements.

LL. "Patent(s)" means all patents, patents pending, patent applications and statutory

invention registrations, including reissues, divisions, continuations, continuationsin-part, substitutions, extensions and reexaminations thereof, all inventions

disclosed therein, all rights therein provided by international treaties and

- 8 -
conventions, and all rights to obtain and file for patents and registrations thereto,

anywhere in the world.

MM. "Person" means any individual, partnership, joint venture, firm, corporation,

association, trust, unincorporated organization, joint venture, or other business or

governmental entity, and any subsidiaries, divisions, groups or affiliates thereof.

NN. "Piney Flats Plant" means all propert and assets, tangible and intangible, owned,

leased, or operated by Respondent and located or used in connection with the

research, development, manufacture, finishing, packaging, distribution, marketing

or sale of anyone or more of the Microporous Battery Separators at the former

Microporous facility in Piney Flats, Tennessee, at any time between the

Acquisition Date and the Effective Date of Divestiture, including, but not limited

to:

1. All real propert interests (including fee simple and leasehold interests),

including all rights, easements and appurtenances, together with all

buildings, structures, facilities (including R&D and testing facilities),

improvements, and fixtures, including, but not limited to, all Battery

Separator production lines (including the three (3) production lines for

Ace-Sil, Flex-Sil, and polyethylene (PE) and/or CellForce Battery

Separators), pilot lines and test lines;

2. All Tangible Personal Property;

3. All governmental approvals, consents, licenses, permits, waivers, or other

authorizations, to the extent assignable; and

4. Inventories existing as of the Effective Date of Divestiture.

Provided, however, that the definition of "Piney Flats Plant" shall not include any

assets used solely to manufacture Daramic Battery Separators.

00. "Polypore" or "Respondent" means Polypore International, Inc., its directors,

offcers, employees, agents, representatives, predecessors, successors, and

assigns; and its joint ventures, subsidiaries, divisions, groups and affiliates

controlled by Polypore International, Inc. (including, but not limited to, Daramic,

LLC), and the respective directors, officers, employees, agents, representatives,

predecessors, successors, and assigns of each.

PP. "Releasee(s)" means the Acquirer, any entity controlled by or under common control

with the Acquirer, and any licensees, sublicensees, manufacturers, suppliers, and

distributors of the Acquirer ("affiliates"); and any Customers of the Acquirer or of

affiliates ofthe Acquirer.

QQ. "Retained Asset(s)" means:

1. Any propert(ies) or asset(s), tangible or intangible:

- 9 -
a. That were owned, created, developed, leased, or operated by Polypore

prior to the Acquisition; or

b. That relate(s) solely to any Polypore product, service or business

except what is included in the definition of Microporous under this

Order; and

2. Polypore's right to use, exploit, and improve Shared Intellectual Propert;

provided, however, that Polypore shall have no right to hinder, prevent, or

enjoin the Acquirer's use, exploitation, or improvement of Shared Intellectual

Propert, or to use without the Acquirer's consent any improvements after the

Effective Date of Divestiture to the Shared Intellectual Propert by the

Acquirer.

RR. "Retention Bonus" means the compensation provided for each of the Microporous

Employees.

SS. "Shared Intellectual Propert" means any Intellectual Propert that is a Retained

Asset or that has been used by Respondent in connection with a Retained Asset that

was also used in connection with the research, development, manufacture, finishing,

packaging, distribution, marketing, or sale of Microporous Battery Separators or

otherwise used in connection with Microporous at any time between the Acquisition

Date and the Effective Date of Divestiture.

TT. "Shared Intellectual Property License" means: (i) a worldwide, royalty free,

perpetual, irrevocable, transferrable, sub licensable, non-exclusive license to all

Shared Intellectual Propert owned by or licensed to Respondent for any use, and (ii)

such tangible embodiments of the licensed rights (including but not limited to

physical and electronic copies) as may be necessary to enable the Acquirer to utilize

the licensed rights.

UU. "Tangible Personal Property" means all machinery, equipment, spare parts, tools,

and tooling (whether customer specific or otherwise); furniture, offce equipment,

computer hardware, supplies and materials; vehicles and rolling stock; and other

items of tangible personal property of every kind whether owned or leased,

together with any express or implied warranty by the manufacturers, sellers or

lessors of any item or component part thereof, and all maintenance records and

other documents relating thereto.

VV. "Technical Services Agreement" means the provision by Respondent Polypore at

Direct Cost of all advice, consultation, and assistance reasonably necessary for

any Acquirer to receive and use, in any manner related to achieving the purposes

ofthis Order, any asset, right, or interest relating to Microporous.

WW. "Terminable Contract(s)" means all contracts or agreements and rights under

contracts or agreements between the Respondent and any Customer(s) for the

supply of any Battery Separator in or to North America (including the entirety of

- 10 -
any contract or agreement that includes in the same contract or agreement the

supply of Battery Separators both inside and outside North America) in effect at

any time between the date the Order becomes final and the Effective Date of

Divestiture; provided, however, that "Terminable Contracts" does not include any

contracts or agreements between Respondent or Microporous and any

Customer(s) for the supply of any Battery Separator that was entered into prior to

the Acquisition Date, except to the extent such contract or agreement was

amended or modified, including changes to the pricing terms, after the

Acquisition Date; provided further, however, that such amended or modified

portion of such contract or agreement shall be considered a "Terminable

Contract."

XX. "Trade Names and Marks" means all trade names, commercial names and brand

names, all registered and unregistered trademarks, including registrations and

applications for registration thereof (and all renewals, modifications, and

extensions thereof), trade dress, logos, service marks and applications,

geographical indications or designations, and all rights related thereto under

common law and otherwise, and the goodwill symbolized by and associated

therewith, anywhere in the world.

YY. "Transition Services Agreement" means an agreement requiring Respondent

Polypore to provide at Direct Cost all services reasonably necessary to transfer

administrative support services to the Acquirer of Micro porous, including, but not

limited to, such services related to payroll, employee benefits, accounts

receivable, accounts payable, and other administrative and logistical support.

II.

IT is FURTHER ORDERED that:

A. Not later than six (6) months after the date the divestiture provisions ofthis Order

become final, Respondent shall divest Microporous, absolutely and in good faith,

and at no minimum price, to an Acquirer that receives the prior approval of the

Commission and in a manner, including pursuant to a Divestiture Agreement, that

receives the prior approval ofthe Commission.

B. Respondent shall comply with all terms of the Divestiture Agreement approved

by the Commission pursuant to this Order, which agreement shall be deemed

incorporated by reference into this Order, and any failure by Respondent to

comply with any term of the Divestiture Agreement shall constitute a failure to

comply with this Order. The Divestiture Agreement shall not reduce, limit or

contradict, or be construed to reduce, limit or contradict, the terms of this Order;

provided, however, that nothing in this Order shall be construed to reduce any

rights or benefits of any Acquirer or to reduce any obligations of Respondent

under such agreement; provided further, however, that if any term of the

Divestiture Agreement varies from the terms of this Order ("Order Term"), then to

- 11 -
the extent that Respondent cannot fully comply with both terms, the Order Term

shall determine Respondent's obligations under this Order. Notwithstanding any

paragraph, section, or other provision of the Divestiture Agreement, any failure to

meet any condition precedent to closing (whether waived or not) or any

modification of the Divestiture Agreement, without the prior approval of the

Commission, shall constitute a failure to comply with this Order.

C. Prior to the Effective Date of Divestiture, Respondent shall:

1. Restore to Microporous any assets of Microporous as of the Acquisition

Date that were removed from Microporous at any time between the

Acquisition Date and the Effective Date of Divestiture, other than Battery

Separators sold in the ordinary course of business and Inventories

consumed in the ordinary course of business;

2. To the extent any fixtures or Tangible Personal Propert have been

removed from the Feistritz Plant, the Piney Flats Plant or the Line in

Boxes after the Acquisition Date and not returned or replaced with

equivalent assets, such fixtures or Tangible Personal Propert shall be

returned and restored to good working order suitable for use under normal

operating conditions or replaced with equivalent assets;

3. Secure at its sole expense all consents and waivers from Persons that are

necessary to divest any property or assets, tangible or intangible

(including, but not limited to, any Contract), of Microporous to the

Acquirer; provided, however, that in instances where (i) Microporous

Battery Separators are sold together with Daramic Battery Separators

under the same Terminable Contract, Respondent shall only be required to

obtain such consents and waivers from the Customer as necessary to

divest that portion of the Terminable Contract pertaining to Microporous

Battery Separators; or (ii) any Contracts (including, but not limited to,

supply agreements) are utilized in connection with the manufacture

ofMicro porous Battery Separators and Daramic Battery Separators under

the same Contract, Respondent shall only be required to obtain such

consents and waivers from the other contracting party as necessary to

divest that portion ofthe Contract pertaining to Microporous Battery

Separators; provided further, however, that if for any reason Respondent is

unable to accomplish such an assignment or transfer of Contracts, it shall

enter into such agreements, contracts, or licenses as are necessary to

realize the same effect as such transfer or assignment; and

4. Grant to the Acquirer a Shared Intellectual Property License for use in

connection with Microporous as divested pursuant to this Order.

D. Respondent shall take all actions reasonably necessary to assist the Acquirer in

evaluating, recruiting and employing any Microporous Employees, including (at

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the Acquirer's option), but not limited to, the following:

1. Not later than thirty (30) days before the execution of a Divestiture

Agreement, Respondent shall: (i) provide the Acquirer with a list of all

Microporous Employees, and Employee Information for each Person on

the list; (ii) provide any available contact information, including last

known address for any Person formerly employed as a Microporous

Employee whose employment terminated prior to execution of a

Divestiture Agreement; (iii) allow the Acquirer an opportunity to

interview any Microporous Employees personally, and outside the

presence or hearing of any employee or agent of Respondent; and, (iv)

allow the Acquirer to inspect the personnel files and other documentation

relating to such Microporous Employees, to the extent pennitted under

applicable laws;

2. Respondent shall: (i) not directly or indirectly impede or interfere with the

Acquirer's offer of employment to any Microporous Employee(s); (ii) not

directly or indirectly attempt to persuade, or offer any incentive to, any

Microporous Employee(s) to decline employment with the Acquirer; (iii)

remove any contractual impediments and irrevocably waive any legal or

equitable rights it may have that may deter any Microporous Employee

from accepting employment with the Acquirer, including, but not limited

to, any non-compete or confidentiality provisions of employment or other

contracts with Respondent; provided, however, that Respondent may

enforce confidentiality provisions related to Daramic Battery Separators;

and,

3. Respondent shall: (i) continue to extend to any Microporous Employees,

during their employment prior to the Effective Date of Divestiture, all

employee benefits offered by Respondent, including regularly scheduled

or merit raises and bonuses, and regularly scheduled vesting of all pension

benefits; (ii) pay a Retention Bonus to any Microporous Employee(s) to

whom the Acquirer has made a written offer of employment who accepts a

position with the Acquirer at the time of divestiture of Microporous.

E. For a period oftwo (2) years from the Effective Date of Divestiture, Respondent

shall not:

1. directly or indirectly solicit or induce, or attempt to solicit or induce, any

Microporous Employee who has accepted an offer of employment with, or

who is employed by, the Acquirer to terminate his or her employment

relationship with the Acquirer; or

2. hire or enter into any arrangement for the services of any Microporous

Employee who has accepted an offer of employment with, or who is

- 13 -
employed by, the Acquirer;

provided, however, Respondent may do the following: (i) advertise for employees

in newspapers, trade publications, or other media not targeted specifically at

anyone or more of the employees of the Acquirer; (ii) hire any Microporous

Employee whose employment has been terminated by the Acquirer; or (iii) hire a

Microporous Employee who has applied for employment with Respondent,

provided that such application was not solicited or induced in violation of this

Order.

F. Respondent shall include in any Divestiture Agreement related to Microporous

the following provisions:

1. Respondent shall covenant to the Acquirer that Respondent shall not join,

file, prosecute or maintain any suit, in law or equity, either directly or

indirectly through a third part, against the AcquIrer or any Releasees

under Intellectual Propert that is owned or licensed by Respondent as of

the Effective Date of Divestiture, including, but not limited to, the Jungfer

Technology, if such suit would have the potential to interfere with the

Acquirer's freedom to practice in the research, development, manufacture,

use, import, export, distribution, offer to sell or sale ofMicro porous

Battery Separators;

2. Upon reasonable notice and request from the AcquIrer to Respondent,

Respondent shall provide, in a timely manner, at no greater than Direct

Cost, assistance of knowledgeable employees of the Respondent to assist

the Acquirer to defend against, respond to, or otherwise participate in any

litigation related to the Microporous Intellectual Propert or Shared

Intellectual Property; and

3. At the option of the Acquirer:

a. A Technical Services Agreement, provided, however, the term of

any Technical Services Agreement shall be at the option ofthe

Acquirer, but not longer than two (2) years from the Effective Date

of Divestiture.

b. A Transition Services Agreement, provided, however, the term of

the Transition Services Agreement shall be at the option of the

Acquirer, but not longer than two (2) years from the Effective Date

of Divestiture;

Provided, however, that Respondent shall not (i) require the Acquirer to

pay compensation for services under such agreements that exceeds the

Direct Cost of providing such goods and services, or (ii) terminate its

obligation(s) under such agreements because of a material breach by the

- 14 -
Acquirer of any such agreement in the absence of a final order by a court

of competent jurisdiction, or (iii) seek to limit the damages (such as

indirect, special, and consequential damages) which any Acquirer would

be entitled to receive in the event of Respondent's breach of any such

agreement.

G. Respondent shall:

1. submit to the Acquirer, at Respondent's expense, all Confidential Business

Information;

2. deliver such Confidential Business Information as follows: (i) in good

faith; (ii) as soon as practicable, avoiding any delays in transmission ofthe

respective information; and (iii) in a manner that ensures its completeness

and accuracy and that fully preserves its usefulness;

3. pending complete delivery of all such Confidential Business Information

to the Acquirer, provide the Acquirer and the Monitor Trustee (if any has

been appointed) with access to all such Confidential Business Information

and employees who possess or are able to locate such information for the

purposes of identifying the books, records, and files that contain such

Confidential Business Information and facilitating the delivery in a

manner consistent with this Order;

4. not use, directly or indirectly, any such Confidential Business Information

(other than as necessary to comply with the following: (i) the requirements

ofthis Order; (ii) the Respondent's obligations to the Acquirer under the

terms of any Divestiture Agreement; or (iii) applicable Law);

5. not disclose or convey any such Confidential Business Information,

directly or indirectly, to any Person except the Acquirer, the Monitor

Trustee, or the Commission;

6. Respondent shall devise and implement measures to protect against the

storage, distribution, and use of Confidential Business Information that is

not expressly permitted by this Order. These measures shall include, but

not be limited to, restrictions placed on access by Persons to information

available or stored on any of Respondent's computers or computer

networks; and

7. Respondent may use Confidential Business Information only (i) for the

purpose of performing Respondent's obligations under this Order; or, (ii)

to ensure compliance with legal and regulatory requirements; to perform

required auditing functions; to provide accounting, information technology

and credit-underwriting services, to provide legal services associated with

actual or potential litigation and transactions; and to monitor and ensure

- 15 -
compliance with financial, tax reporting, governmental environmental,

health, and safety requirements.

H. The purpose of the divestiture of Microporous is to create an independent, viable

and effective competitor in the markets in which Microporous was engaged at the

time of the Acquisition Date, and to remedy the lessening of competition resulting

from the Acquisition as alleged in the Commission's Complaint.

III.

IT IS FURTHER ORDERED that:

A. Within thirty (30) days after this Order becomes final, Respondent shall retain a

Monitor Trustee, acceptable to the Commission, to monitor Respondent's

compliance with its obligations and responsibilities under this Order, consult with

Commission staff, and report to the Commission regarding Respondent's

compliance with its obligations and responsibilities under this Order.

B. If Respondent fails to retain a Monitor Trustee as provided in Paragraph III.A. of

this Order, a Monitor Trustee, acceptable to the Commission, shall be identified

and selected by the Commission's staffwithin fort-five (45) days after this Order

is finaL.

C. Respondent shall consent to the following terms and conditions regarding the

powers, duties, authorities, and responsibilities of the Monitor Trustee selected

under Paragraph III.A or m.B. of this Order:

1. The Monitor Trustee shall have the power and authority to monitor

Respondent's compliance with the terms ofthis Order and shall exercise

such power and authority and carry out the duties and responsibilities of

the Monitor Trustee pursuant to the terms of this Order in a manner

consistent with the purposes of the Order and in consultation with

Commission's staff.

2. Within ten (10) days after the Commission's approval of the Monitor

Trustee, Respondent shall execute an agreement that, subject to the

approval ofthe Commission, confers on the Monitor Trustee all the rights

and powers necessary to permit the Monitor Trustee to monitor

Respondent's compliance with the terms ofthis Order in a manner

consistent with the purposes of this Order. If requested by Respondent, the

Monitor Trustee shall sign a confidentiality agreement prohibiting the use,

or the disclosure to anyone other than the Commission (or any Person

retained by the Monitor Trustee pursuant to Paragraph m.c.5. of this

Order), of any competitively sensitive or proprietary information gained as

a result of his or her role as Monitor Trustee, for any purpose other than

performance ofthe Monitor Trustee's duties under this Order.

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3. The Monitor Trustee shall serve until the expiration of the period for

Customers to seek reopening and renegotiation or termination of

Terminable Contracts as provided in Paragraph VI. of this Order;

provided, however, that the Commission may modify this period as may

be necessary or appropriate to accomplish the purposes of the Order.

4. Subject to any demonstrated legally recognized privilege, the Monitor

Trustee shall have full and complete access to Respondent's personnel,

books, documents, records kept in the normal course of business, facilities

and technical information, and such other relevant information as the

Monitor Trustee may reasonably request, related to Respondent's

compliance with its obligations under the Order, including, but not limited

to, its obligations related to Microporous assets. Respondent shall

cooperate with any reasonable request of the Monitor Trustee and shall

take no action to interfere with or impede the Monitor Trustee's ability to

monitor Respondent's compliance with the Order.

5. The Monitor Trustee shall serve, without bond or other security, at the

expense of Respondent on such reasonable and customary terms and

conditions as the Commission may set. The Monitor Trustee shall have

authority to employ, at the expense ofthe Respondent, such consultants,

accountants, attorneys and other representatives and assistants as are

reasonably necessary to carry out the Monitor Trustee's duties and

responsibilities. The Monitor Trustee shall account for all expenses

incurred, including fees for his or her services, subject to the approval of

the Commission.

6. Respondent shall indemnify the Monitor Trustee and hold the Monitor

Trustee harmless against any losses, claims, damages, liabilities, or

expenses arising out of, or in connection with, the performance ofthe

Monitor Trustee's duties, including all reasonable fees of counsel and

other reasonable expenses incurred in connection with the preparations

for, or defense of, any claim, whether or not resulting in any liability,

except to the extent that such losses, claims, damages, liabilities, or

expenses result from the Monitor Trustee's gross negligence or willful

misconduct. For purposes of this Paragraph iii.c.6., the term "Monitor

Trustee" shall include all Persons retained by the Monitor Trustee

pursuant to Paragraph III.C.5. of this Order.

7. Respondent shall provide copies of reports to the Monitor Trustee in

accordance with the requirements of this Order and/or as otherwise

provided in any agreement approved by the Commission.

8. The Monitor Trustee shall report in writing to the Commission (i) every

sixty (60) days from the date the Monitor Trustee is appointed, (ii) at the

time a divestiture package is presented to the Commission for its approval,

- 17 -
and (iii) at any other time as requested by the staff of the Commission,

concerning Respondent's compliance with this order.

D. The Commission may, among other things, require the Monitor Trustee and each

of the Monitor Trustee's consultants, accountants, attorneys and other

representatives and assistants to sign an appropriate confidentiality agreement

related to Commission materials and information received in connection with the

performance of the Monitor Trustee's duties.

E. If at any time the Commission determines that the Monitor Trustee has ceased to

act or failed to act diligently, the Commission may appoint a substitute Monitor

Trustee in the same manner as provided in this Paragraph.

F. The Commission may on its own initiative, or at the request of the Monitor

Trustee, issue such additional orders or directions as may be necessary or

appropriate to assure compliance with the requirements of the Order.

G. Respondent shall cooperate with the Monitor Trustee appointed pursuant to this

Paragraph in the performance any duties and responsibilities under this Order.

iv.

IT is FURTHER ORDERED that:

A. If Respondent has not divested, absolutely and in good faith, Microporous within

the time period or in the manner required by Paragraph II. of this Order, then the

Commission may at any time appoint a Divestiture Trustee to divest Microporous

to an Acquirer and in a manner, including pursuant to a Divestiture Agreement,

that satisfies the purposes and requirements of this Order.

B. In the event that the Commission or the Attorney General brings an action

pursuant to § 5(1) of the Federal Trade Commission Act, 15 U.S.c. § 45(1), or

any other statute enforced by the Commission, for any failure by Respondent to

comply with this Order, Respondent shall consent to the appointment of a

Divestiture Trustee in such action. Neither the decision of the Commission to

appoint a Divestiture Trustee, nor the decision of the Commission not to appoint a

Divestiture Trustee, shall preclude the Commission or the Attorney General from

seeking civil penalties or any other available relief, including a court-appointed

trustee, pursuant to § 5(1) of the Federal Trade Commission Act, 15 U.S.c. §

45(1), or any other statute enforced by the Commission, for any failure by the

Respondent to comply with this Order.

C. The Commission shall select the Divestiture Trustee, subject to the consent of

Respondent, which consent shall not be unreasonably withheld. The Divestiture

Trustee shall be a Person with experience and expertise in acquisitions and

divestitures and may be the same Person as the Monitor Trustee appointed under

- 18 -
Paragraph IlL. of this Order. If Respondent has not opposed, in writing, including

the reasons for opposing, the selection of any proposed Divestiture Trustee within

ten (10) days after notice by the staff of the Commission to Respondent of the

identity of any proposed Divestiture Trustee, Respondent shall be deemed to have

consented to the selection of the proposed Divestiture Trustee.

D. Within ten (10) days after appointment of the Divestiture Trustee, Respondent

shall execute a trust. agreement ("Divestiture Trustee Agreement") that, subject to

the prior approval of the Commission transfers to the Divestiture Trustee all rights

and powers necessary to effect the relevant divestiture, and to enter into any

relevant agreements, required by this Order.

E. If a Divestiture Trustee is appointed by the Commission or a court pursuant to this

Paragraph iV. of this Order, Respondent shall consent to, and the Divestiture

Trustee Agreement shall include, the following terms and conditions regarding

the Divestiture Trustee's powers, duties, authority, and responsibilities:

1. Subject to the prior approval of the Commission, the Divestiture Trustee

shall have the exclusive power and authority to divest relevant assets or

enter into relevant agreements pursuant to the terms of this Order and in a

manner consistent with the purposes of this Order.

2. The Divestiture Trustee shall have twelve (12) months from the date the

Commission approves the Divestiture Trustee Agreement described in this

Paragraph iv. of this Order to divest relevant assets pursuant to the terms

ofthis Order. If, however, at the end ofthe applicable twelve-month

period, the Divestiture Trustee has submitted to the Commission a plan of

divestiture, or believes that divestiture can be achieved within a reasonable

time, such period may be extended by the Commission, or, in the case of a

courtappointed trustee, by the court.

3. Subject to any demonstrated legally recognized privilege, the Divestiture

Trustee shall have full and complete access to the personnel, books,

records and facilities of Respondent related to Micróporous or related to

any other relevant information, as the Divestiture Trustee may request.

Respondent shall develop such financial or other information as the

Divestiture Trustee may request and shall cooperate with the Divestiture

Trustee. Respondent shall take no action to interfere with or impede the

Divestiture Trustee's accomplishment of his or her responsibilities. At the

option of the Commission, any delays in divestiture or entering into any

agreement caused by Respondent shall extend the time for divestiture

under this Paragraph iV. in an amount equal to the delay, as determined by

the Commission or, for a court appointed Divestiture Trustee, by the court.

4. The Divestiture Trustee Agreement shall prohibit the Divestiture Trustee,

and each of the Divestiture Trustee's consultants, accountants, attorneys,

- 19 -
and other representatives and assistants from disclosing, except to the

Commission (and in the case of a court-appointed trustee, to the court)

Confidential Business Information; provided, however, Confidential

Business Information may be disclosed to potential acquirers and to the

Acquirer as may be reasonably necessary to achieve the divestiture

required by this Order. The Divestiture Trustee Agreement shall terminate

when the divestiture required by this Order is consummated.

5. The Divestiture Trustee shall use commercially reasonable best efforts to

negotiate the most favorable price and terms available in each contract that

is submitted to the Commission, subject to Respondent's absolute and

unconditional obligation to divest at no minimum price. The divestiture

shall be made to, and a Divestiture Agreement executed with, an Acquirer

in the manner set forth in Paragraph II. of this Order; provided, however, if

the Divestiture Trustee receives bona fide offers from more than one

acquiring entity, and if the Commission determines to approve more than

one acquiring entity, the Divestiture Trustee shall divest to the acquiring

entity or entities selected by Respondent from among those approved by

the Commission, provided further, however, that Respondent shall select

such entity within five (5) days of receiving notification of the

Commission's approvaL.

6. The Divestiture Trustee shall serve, without bond or other security, at the

expense of Respondent, on such reasonable and customary terms and

conditions as the Commission or a court may set. The Divestiture Trustee

shall have the authority to employ, at the expense of Respondent, such

consultants, accountants, attorneys, investment bankers, business brokers,

appraisers, and other representatives and assistants as are necessary to

carry out the Divestiture Trustee's duties and responsibilities. The

Divestiture Trustee shall account for all monies derived from the

divestiture and all expenses incurred. After approval by the Commission

and, in the case of a court-appointed trustee, by the court, ofthe account of

the trustee, including fees for his or her services, all remaining monies

shall be paid at the direction of Respondent. The Divestiture Trustee's

compensation shall be based at least in significant part on a commission

arrangement contingent on the Divestiture Trustee's locating an Acquirer

and assuring compliance with this Order. The powers, duties, and

responsibilities of the Divestiture Trustee (including, but not limited to,

the right to incur fees or other expenses) shall terminate when the

divestiture required by this Order is consummated, and the Divestiture

Trustee has provided an accounting for all monies derived from the

divestiture and all expenses occurred.

7. Respondent shall indemnify the Divestiture Trustee and hold the

Divestiture Trustee harmless against any losses, claims, damages,

liabilities, or expenses arising out of, or in connection with, the

- 20 -
performance of the Divestiture Trustee's duties, including all reasonable

fees of counsel and other expenses incurred in connection with the

preparation for, or defense of, any claim, whether or not resulting in any

liability, except to the extent that such losses, claims, damages, liabilities,

or expenses result from gross negligence, wilful or wanton acts, or bad

faith by the Divestiture Trustee. For purposes of this Paragraph, the term

"Divestiture Trustee" shall include all Persons retained by the Divestiture

Trustee pursuant to Paragraph IV.E.6. of this Order.

8. The Divestiture Trustee shall have no obligation or authority to operate or

maintain Microporous.

9. The Divestiture Trustee shall report in writing to the Commission every

two (2) months concerning his or her efforts to divest and enter into

agreements related to Microporous, and Respondent's compliance with the

terms ofthis Order.

F. If the Commission determines that the Divestiture Trustee has ceased to act or

failed to act diligently, the Commission may appoint a substitute trustee in the

same manner as provided in this Paragraph iv. ofthis Order.

G. The Commission or, in the case of a court-appointed trustee, the court, may on its

own initiative or at the request of the Divestiture Trustee issue such additional

orders or directions as may be necessary or appropriate to comply with the terms

of this Order.

H. Respondent shall comply with all terms of the Divestiture Trustee Agreement, and

any breach by Respondent of any term of the Divestiture Trustee Agreement shall

constitute a violation of this Order. Notwithstanding any paragraph, section, or

other provision of the Divestiture Trustee Agreement, any modification of the

Divestiture Trustee Agreement, without the prior approval of the Commission,

shall constitute a failure to comply with this Order.

v.

IT is FURTHER ORDERED that:

A. From the date this Order becomes final until the Effective Date of Divestiture,

Respondent shall take such actions as are necessary to maintain the full economic

viability, marketability, and competitiveness of Microporous, and shall prevent

the destruction, removal, wasting, deterioration, sale, disposition, transfer, or

impairment of Microporous and assets related thereto except for ordinary wear

and tear, including, but not limited to, continuing in effect and maintaining

Intellectual Propert, Contracts, Trade Names and Marks, and renewing or

extending any leases or licenses that expire or terminate prior to the Effective

Date of Divestiture.

- 21 -
B. Respondent shall maintain the operations of Microporous in the ordinary course

of business and in accordance with past practice (including regular repair and

maintenance of the assets included within Microporous). Among other things as

may be necessary, Respondent shall:

1. Maintain a work force at least as equivalent in size, training, and expertise

to what was associated with Microporous prior to the Acquisition Date;

2. Assure that Respondent's employees with primary responsibility for

managing and operating Microporous are not transferred or reassigned to

other areas within Respondent's organizations except for transfer bids

initiated by employees pursuant to Respondent's regular, established job

posting policy;

3. Provide sufficient working capital to operate Microporous at least at

current rates of operation, to meet all capital calls with respect to

Microporous and to carryon, at least at their scheduled pace, all capital

projects, business plans and promotional activities;

4. Make available for use by Microporous funds sufficient to perform all

routine maintenance and all other maintenance as may be necessary to,

and all replacements of, the assets of Micro porous;

5. Use best efforts to preserve and maintain the existing relationships with

Customers, suppliers, vendors, private and Governmental Entities, and

other Persons having business relations with Microporous; and

6. Except as part of a divestiture approved by the Commission pursuant to

this Order, not remove, sell, lease, assign, transfer, license, pledge for

collateral, or otherwise dispose of Microporous, provided however, that

nothing in this provision shall prohibit Respondent from such activities in

the ordinary course of business consistent with past practices.

VI.

IT IS FURTHER ORDERED that:

A. Respondent shall allow all Customers with Terminable Contracts the right and

option unilaterally to reopen and renegotiate or to terminate their contracts,

solely at the Customer's option, without penalty, forfeiture or other charge to the

customer, and consistent with the requirements ofthis Order including the

following:

1. No later than ten (l0) days from the date this Order becomes final,

Respondent shall notify all Customers with Terminable Contracts of their

rights under this Order and, for each such Terminable Contract, offer the

- 22 -
Customer the opportunity to reopen and renegotiate or to terminate their

contract(s). Respondent shall send written notification of this requirement

and a copy of this Order and the Complaint, by certified mail with return

receipt requested to: (i) the person designated in the Terminable Contract

to receive notices from Respondent; or (ii) the Chief Executive Officer

and General Counsel of the Customer. Respondent shall keep a fie of

such return receipts for three (3) years after the date on which this Order

becomes finaL.

2. No later that ten (l0) days from the Effective Date of Divestiture,

Respondent shall send written notification of the Effective Date of

Divestiture to all Customers with Terminable Contracts, by certified mail

with return receipt requested to: (i) the person designated in the

Terminable Contract to receive notices from Respondent; or (ii) the Chief

Executive Officer and General Counsel of the Customer. Respondent shall

keep a file of such return receipts for three (3) years after the date on

which this Order becomes finaL.

3. A Customer may exercise its option to reopen and renegotiate or terminate

any Terminable Contract by sending by certified mail, return receipt

requested, a written notice to Respondent either to: (i) the address for

notice stated in the Contract; or, (ii) Respondent's principal place of

business at any time prior to five (5) years after the Effective Date of

Divestiture. The written notice shall identify the Terminable Contract that

will be reopened or terminated, and the date upon which any termination

shall be effective; provided, however, that: (a) a Customer with more than

one Terminable Contract who sends written notice with regard to less than

all of its Terminable Contracts shall not lose its opportunity to reopen and

renegotiate or terminate any remaining Terminable Contracts; (b) any

Customer who reopens and renegotiates a Terminable Contract prior to the

Effective Date of Divestiture shall have a further opportunity to reopen

and renegotiate or terminate such Terminable Contract after the Effective

Date of Divestiture at any time prior to five (5) years after the Effective

Date of Divestiture; (c) Respondent shall not be obligated to reopen and

renegotiate or terminate, as the case may be, a Terminable Contract on less

than thirt (30) days' notice; and (d) any request by a Customer to reopen

and renegotiate or terminate a Terminable Contract on less than thirty (30)

days' notice shall be treated by Respondent as a request to reopen and

renegotiate or terminate, as the case may be, effective thirt (30) days

from the date of the request.

4. Respondent shall not directly or indirectly:

a. Require any Customer to make or pay any payment, penalty, or

charge for, or provide any consideration relating to, or otherwise

deter, the exercise of the option to reopen and renegotiate or

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terminate or the reopening and renegotiation or termination of any

Terminable Contract; or

b. Retaliate against, or take any action adverse to the economic

interests of, any Customer that exercises its right under the Order

to reopen and renegotiate or terminate any Terminable Contract;

provided, however, that Respondent may enforce Contracts, or seek

judicial remedies for breaches of Contracts, based upon rights or causes of

action that accrued prior to the exercise by a Customer of an option to

terminate a Contract.

5. Respondent shall include in the Divestiture Agreement a requirement that

the Acquirer shall allow all Customers with Terminable Contracts for

Microporous Battery Separators the right and option unilaterally to reopen

and renegotiate or to terminate their contracts, solely at the Customer's

option, without penalty, forfeiture or other charge to the Customer, and

consistent with the requirements of this Paragraph of the Order as ifthe

Terminable Contract remained with Respondent. Respondent shall include

in the Divestiture Agreement a requirement that all Customers with

Terminable Contracts for Microporous Battery Separators shall be third

part beneficiaries ofthis provision of the Divestiture Agreement, with the

right to enforce this provision independent of, and apart from, Respondent.

provided, however, that nothing in this Order will affect the rights and

responsibilities under any Terminable Contract for any Customer who fails

to notify Respondent or the Acquirer, as the case may be, within the time

allotted in this Paragraph.

VII.

IT IS FURTHER ORDERED that:

A. Respondent shall:

1. Within fifteen (15) days after the date this Order becomes final: (a) modify

and amend the H&V Agreement in writing to terminate and declare null

and void, and (b) cease and desist from, directly or indirectly, or through

any corporate or other device, implementing or enforcing, the covenant

not to compete set forth in Section 4 ofthe H&V Agreement, and all

related terms and definitions, as that covenant applies to North America

and to actual and potential customers within North America.

2. Within thirty (30) days after the date this Order becomes final, file with

the Commission the written amendment to the H& V Agreement

("Amendment") that complies with the requirements of 

Paragraph

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VII.A. 1, it being understood that nothing in the H& V Agreement,

currently or as amended in the future, or the Amendment shall be

construed to reduce any obligations of the Respondent under this Order.

The Amendment shall be deemed incorporated into this Order, and any

failure by Respondent to comply with any term of such Amendment shall

constitute a failure to comply with this Order. The Amendment shall not

be modified, directly or indirectly, without the prior approval of the

Commission.

B. Respondent shall cease and desist from, directly, indirectly, or through any

corporate or other device, in or affecting commerce, as "commerce" is defined in

the Federal Trade Commission Act, inviting, entering into or attempting to enter

into, organizing or attempting to organize, implementing or attempting to

implement, continuing or attempting to continue, soliciting, or otherwise

facilitating any combination, agreement, or understanding, either express or

implied, with any Person currently engaged, or that might potentially become

engaged, in the development, production, marketing or sale of any Battery

Separator, to allocate or divide markets, customers, contracts, lines of commerce,

or geographic territories in connection with Battery Separators, or otherwise to

restrict the scope or level of competition related to Battery Separators.

Provided, however, that it shall not, of itself, constitute a violation of this

Paragraph for Respondent to enter into a bona fide and written joint venture

agreement with any Person to manufacture, develop, market or sell a new Battery

Separator, technology or service, or any material improvement to an existing

Battery Separator, technology or service, in which both Respondent and the other

Person contribute significant personnel, equipment, technology, investment

capital or other resources, that prohibits such Person from selling products or

services in competition with the joint venture in geographic markets in which the

joint venture does business or competes for a reasonable period of time. Provided

jŽlrther, however, that Respondent shall, within ten (l0) days after execution, fie

a true and correct copy of such joint venture agreement with the Commission.

VIII.

IT IS FURTHER ORDERED that, for a period of two (2) years from the Effective Date

of Divestiture, Respondent shall not advertise, market or sell any Battery Separator

utilizing cross linked rubber anywhere in the world.

IX.

IT IS FURTHER ORDERED that, no later than ten (10) days from the date on which

this Order becomes final, Respondent shall provide a copy of this Order to each of

Respondent's officers, employees, or agents having managerial responsibilities for any of

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Respondent's obligations under this Order. X.

IT is FURTHER ORDERED that Respondent shall notify the Commission at least

thirty (30) days prior to:

A. any proposed dissolution of Respondent;

B. any proposed acquisition, merger or consolidation of Respondent; or

C. any other change in the Respondent, including, but not limited to, assignment and

the creation or dissolution of subsidiaries, if such change might affect compliance

obligations arising out of the Order.

Xi.

IT is FURTHER ORDERED that:

A. Within thirty (30) days after the date this Order becomes final and every thirt

(30) days thereafter until the Effective Date of Divestiture, and thereafter every

sixty (60) days until the Respondent has fully complied with the provisions of

Paragraphs II., II., IV., V., and VI. of this Order, Respondent shall submit to

the Commission (with simultaneous copies to the Monitor Trustee and

Divestiture Trustee(s), as appropriate) verified written reports setting forth in

detail the manner and form in which Respondent intends to comply, is

complying, and has complied with the relevant provisions of this Order.

B. Respondent shall include in its compliance reports, among other things

required by the Commission, a description of all substantive contacts or

negotiations for the divestiture required by this Order, the identity of all parties

contacted, copies of all material written communications to and from such

parties, and all reports and recommendations concerning the divestiture, the

Effective Date of Divestiture, and a statement that the divestiture has been

accomplished in the manner approved by the Commission.

C. One (1) year from the date this Order becomes final on the anniversary of the date

this Order becomes final, and annually until expiration or termination of

Respondent's obligations under the Order, Respondent shall file verified written

reports with the Commission setting forth in detail the manner and form in which

it has complied and is complying with this Order. Respondent shall deliver a copy

of each such report to the Monitor Trustee.

XII.

IT is FURTHER ORDERED that, for purposes of determining or securing

compliance with this Order, and subject to any legally recognized privilege, and upon

written request and upon five (5) days notice to Respondent, Respondent shall, without

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SEAL

ISSUED:

restraint or interference, permit any duly authorized representative of the Commission:

A. access, during business office hours of Respondent and in the presence of

counsel, to all facilities and access to inspect and copy all books, ledgers,

accounts, correspondence, memoranda and all other records and documents in

the possession or under the control of Respondent related to any matter contained

in this Order, which copying services shall be provided by Respondent at the

request of the authorized representative(s) of the Commission and at the expense

of the Respondent; and

B. to interview officers, directors, or employees of Respondent, who may have

counsel present, regarding such matters.

XIII.

IT IS FURTHER ORDERED that this Order shall terminate twenty (20) years from

the date this Order becomes finaL.

By the Commission.

Donald S. Clark

Secretary

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