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BEFORE THE FEDERA TRAE COMMISSION

UNITED STATES OF AMERICA :\.... 5~391'~ .I ~/

In the Matter of

)

)

)

)

)

)

PUBLIC

Docket No. 9327

Polypore International, Inc.

a corporation.

ERRTA SHEET

Ths erata sheet provides several attached pages to be replaced in the public version of

Complaint Counsel's Post-Trial Findings of Fact filed on July 17,2009.

Page No. Finding

13 61

15 79

18 98

19 105

26 163

32 203

37 234

43 281

49-50 323

51 336

53 347, 350

56-57 373

62 412

63-64 420,421

77 502

84 554

99 659

105 692

106 695

110 717, 724

111 729

119 770, 771

129 827

142 918

148 950

149 956

154-155 990

Corrections

Additional in camera information redacted

In camera label has been removed from PX1791

PX0922 has been labeled in camera

RX01519 has been labeled in camera

PX0920 and PX0033 have been labeled in camera

PX0782 has been labeled in camera

Additional in camera information redacted

Additional in camera information redacted

RX00945 and Simpson Tr. 3438 are labeled in camera

PX0911 has been labeled in camera

PX0911 has been labeled in camera

PX0263 has been labeled in camera

PX has been added to cite 1657

In camera label has been removed from PX1664

Gilespie, Tr. 3048 has been labeled in camera

Last cite, PX2112 at 019 is labeled in camera

In camera label has been removed from PX2241

PX0922 and PX0263 are labeled in camera

Additional in camera information redacted

Additional in camera information redacted

Additional in camera information redacted

Additional in camera information redacted

PX0905 has been labeled in camera

Gillespie, Tr. 3127 has been labeled in camera

Additional in camera information redacted

Gilchrst, Tr. 423-434 has been labeled in camera

In camera label has been removed from PX1124 and
181 1156, 1158

PX2300

In camera label has been removed from PX2300

In camera label has been removed from PX2301

Axt, Tr. 2251-2252 and Axt, Tr. 2252-2253 have been

labeled in camera

Gilchrst, Tr. 454 and PX0089 at 002 have been labeled in

camera

PX0920 and PX0923 have been labeled in camera

PX0913 has been labeled in camera

PX0924 has been labeled in camera

156

173

177

997

1100

1126, 1127

191

192

193

1221, 1223

1226

1232

Dated: August 12, 2009 Respectfully Submitted

s~ By: CL, 1? ~ C7

J. Robert Robertson

Federal Trade Commission

Bureau of Competition

600 Pennsylvana Ave., N.W.

Washington, DC 20580

Telephone: (202) 326-2008

Fax: (202) 326-2884

Complaint Counsel
market participants) are the same. (Simpson, Tr. 3174; Kahwaty, Tr. 5294-5295, in

camera).

59. Such aggregation leads to the following four markets described in the FTC's complaint:

deep-cycle, motive, UPS, and SLI. (Simpson, Tr. 3170-3171). Aggregating beyond the

markets identified in the FTC's complaint would lead to a loss of detail because one

would combine markets where market paricipants differ and entry conditions differ.

(Simpson, Tr. 3175).

60.

in camera).

61.

C. Deep-cycle Battery Separators are a Product Market

62. The market for deep-cycle battery separators is a product market. (Simpson, Tr. 3170-

3171).

63. Company documents analyze competition in the context of a market for deep-cycle

battery separators. (PX0131 at 028-029; PX0506 at 001-003, in camera).

1. Product Characteristics

64. A deep-cycle battery is one that is built for long durations of discharge at a lower

amperage. (Godber, Tr. 137-138). The construction ofa deep-cycle is much different

from other tyes of batteries. (Godber, Tr. 138). Deep-cycle batteries are made with

thicker plates so that they can better withstand deep discharges and corrosion of the grid

(lead plates pasted with lead oxide) that occurs in a golf car battery. (Godber, Tr. 138).

Furher, the active ma.terial that is put into the positive plate is a different material than

what is used in automotive batteries. (Godber, Tr. 138). The important measurers of a

deep-cycle battery are capacity and life. (Godber, Tr. 138).

65. Daramic uses the term "deep-cycle" in its business operations to denote batteries that

deeply discharge such as those intended for golf cars and floor scrubbers. (Whear, Tr.

4764).

13
73. Antimony also is what makes the battery a deep-cycle; if you do not have enough

antimony the cycle loses capacity. (Qureshi, Tr. 2001-2002). During the operation of a

deep-cycle battery, traces of antimony comes out from the corrosion of paricles on the

metal grd, which if allowed to migrate to the negative plate will cause the battery to gas

more. (Qureshi, Tr. 2002).

74. The deposition of antimony onto the negative plate, sometimes called "antimony

poisoning" drastically reduces the cycle life of the battery. (PX1791 at 001; PX1124 at

001).

ii) Need to suppress antimony transfer

75. Antimony poison occurs when the antimony migrates from the positive to the negative

plate. (Godber, Tr. 139; see also Qureshi, Tr. 2002). Antimony poisoning causes the

voltage of the battery to drop, and that causes the charger to charge longer, which creates

more gas and more heat leading to increased water loss and corrosion. (Godber, Tr. 139-

140).

76. Excessive gassing weakens the battery causing the battery to have a shorter life.

(Qureshi, Tr. 2002-2003). Excessive gassing also results in water loss, which requires the

battery owner to water the battery more frequently. (Qureshi, Tr. 2002-2003). Daramic's

technical bulletin on golf cart separators has an entire section that explains this antimony

effect. (Hauswald, Tr. 663; PX1791 (Technical Bulletin Topic: Golf Car Battery

Separators)).

77. Rubber based separators work best at preventing antimony transfer. (Godber, Tr. 140,

150). Rubber based separators reduce the antimony effect. Daramic offers multiple

separator products that are designed for golf cart applications and have the "Rubber

Effect" to combat antimony. (PX1791 at 001; Hauswald, Tr. 663-664). For the deepcycle applications the separators are enhanced with latex and rubber additives in order to

aid in the suppression of antimony migration and styie water loss that deep discharging

batteries tends to produce. (Whear, Tr. 4682; PX0913 (Whear, Dep. at 052, in camera)).

78.

a. Pure Rubber (Flex-Sil)

79. In Daramic products like Flex:"Sil, the separator is made of natual rubber. (Hauswald,

Tr. 664; PX1791 at 001). Flex-Sil includes rubber in a solid form, the rubber makes up

about 40% of the separator's content. (Hauswald, Tr. 673).

15
more than a flooded battery, and a gel battery costs around 50% more than a flooded

battery. (Godber, Tr. 149).

96. Sealed batteries go into deep-cycle applications where there may be a regulation that

prohibits a flooded battery such as in an airport or a hospitaL. (Godber, Tr: 148). Trojan

does not produce sealed batteries, but buys some for resell. (Godber, Tr. 148). About

one percent of the batteries Trojan sells are sealed. (Godber, Tr. 148).

4. End Use Applications

97. The primary end-use application for deep-cycle batteries is golf carts, but deep-cycle

batteries also are used in other applications. (Godber, Tr. 143; see also Gilchrist, Tr. 305;

Wallace, Tr. 1955-1956; Gilespie, Tr. 2931). The biggest markets for Trojan are golf,

floor scrubbers, scissor lifts, and boom lifts. (Godber, Tr. 143).

98.

99. Daramic's marketing Flex-Sil, CellForce and HD for golf cart batteries. (PX1791 at

001).

i) Original Equipment

100. Exide expects to qualify HD for use in all of its deep-cycle batteries, including those

going into DE applications. (Gilespie, Tr. 3091).

ii) After Market

101. Typically, 14-15% of deep-cycle batteries are sold by original equipment manufactuers

while the remaining portion of deep-cycle batteries are sold in the aftermarket.

(Gilchrst, Tr. 357-358, 608-609).

102. Exide sells golf cart batteries into both DE and aftermarket markets. (Gillespie, Tr.

2932). Approximately 90% ofthe golf cart batteries that Exide sells are sold into the

aftermarket, with the remainder going to DE applications. (Gilespie, Tr. 2932).

5. Demand for Deep-cycle Separators is inelastic

i) Post Acquisition Price Increases on Deep-cycle Separators have

not Induced Switching to non-rubber based separators

18
103. Since the acquisition, U.S. Battery must single source the separators for its deep-cycle

flooded batteries from Daramic. (Wallace, Tr. 1951).

104. Following the acquisition, Daramic increased prices on Flex-Sil, CellForce, and HD.

(Roe, Tr. 1218). Despite these price increases, Daramic has not lost any deep-cycle

business to any competitor anywhere in the world. (Roe, Tr. 1217-1218). Nor have

Daramic's post-acquisition price increases on deep-cycle separators caused any customer

to switch from a rubber or hybrid rubber/PE separator to a straight PE separator for use in

a deep-cycle battery. (Roe, Tr. 1218).

105. East Penn purchases HD from Daramic for use in its golf car batteries under a contract

.that Daramic and East Penn entered into in 2008. (Roe, Tr. 1220-1221; RX01519, in

camera). East Penn continued to purchase HD for their golf cart batteries despite the 5%

price increase that Daramic passed through to East Penn on the HD separators in 2009.

(Roe. Tr. 1222-1223).

106. U.S. Battery sought additional suppliers for its deep-cycle separator needs over the years,

but was unsuccessful in finding anyone willing or able to do so. (Wallace, Tr. 1943-

1944). At one point in the last few years, U.S. Battery sought to persuade Entek to

supply these separators, but Entek said it was not interested in entering the deep-cycle

separator market. (Wallace, Tr. 1943-1944; 1950-1951).

107. In the last year, U.S. Battery designed two new battery product lines called US 27DC and

US 31DC which contained Daramic's HD separators. (Wallace, Tr. 1947-1948). During

the design phase, U.S. Battery informed Daramic of these new applications for HD

separators. At that time, Daramic did not indicate it would not be able to supply the

specified HD separators. After the acquisition and close in time to the production phase,

Daramic informed U.S. Battery that it would only supply the Flex-Sil separator, which

cost twice as much as the HD separator, for the two new battery lines. (Wallace Tr.

1948-1950 . Dr. Sim son evaluated the critical loss and determned that

012, in camera; Simpson Tr. 3169-3172)

ii) Limited Supply of Deep-cycle separators due to Owensboro strike

did not cause substitution to non-deep-cycle separators

108. HD supply was limited during the 2008 strike at Daramic's Owensboro manufactung

plant. (Roe, Tr. 1219). Despite the limited availability ofHD during the strke, no

customers switched from HD to a straight PE product for use in deep-cycle applications.

(Roe, Tr. 1219).

109. The Owensboro strike limited the availability ofHD for use at Exide. (Roe, Tr. 1223).

Because of the HD shortage, Exide was forced to purchase Flex-Sil, which was the only

19
157.

158.

159.

160.

iv.

The backweb thicknesses of SLI separators have been reduced in recent years. (Leister, Tr.

4024). This reduction in thickness is meant to reduce the overall cost of the separators.

(Leister, Tr. 4024). SLI battery separators are very thin and very strong so as to resist

punctues and have mechanical strength. (Brilmyer, Tr. 1829, 1831).

r-i is the standard backweb thickness in use in SLI batteries sold in the US.

(~Dep. at 75-76, 80), in camera).

Over 99% of the separators that Daramic tracks that are sold in the automotive market have

a backweb thickness between 6 and 10 mils (150-250 microns). (Hauswald, Tr. 677-678).

arator manufactuer to chan e the thickness of their PE se

Geographic Market is North America

A. Manufactuers in Nort America can price discriminate to customers based on

geography.

161. Dr. Simpson explained that North America is the relevant geographic market with which to

analyze this transaction. (Simpson, Tr. 3183). Because manufactuers of deep-cycle,

motive, UPS, and SLI battery separators can set different prices for different geographic

regions they can price discriminate based on geography. (Simpson, Tr. 3183).

162. Where sellers can price discriminate based on geographical location, the Merger Guidelines

state: "The agency wil consider additional geographic markets consisting of particular

locations of buyers for which a hypothetical monopolist would profitably and separately

impose at least a small but significant and nontransitory increase in price." (Merger

Guidelines, Section 1.22). Dr. Simpson concluded from reviewing the testimony of buyers

and the documents in this case that a hypothetical monopolist could impose such a price

increase on buyers in North America. (Simpson, Tr. 3183).

163. A hypothetical monopolist of all production facilities in North America can price

discriminate to North American customers because suppliers ship directly to customers.

(e.g., PX0920 (Gilchrist IHT 64-65) , in camera; see PX0033 at 005 FN5, in camera

(Simpson Report); PX2251 at 004 (Simpson Rebuttal Report), in camera).

164.

B. Daramic charges different prices in different geographic regions
196. Crown tres to maintainjust-in-time delivery of its separator supply. (Balcerzak, Tr. 4130).

Having to ship material from overseas would interfere with Crown's just-in-time methods.

(Balcerzak, Tr. 4130).

197. Douglas Battery has a preference for local supply because it reduces distance, time, travel,

just-in-time opportities, and enables the supplier to quickly respond if Douglas has

problems with their separators. (Douglas, Tr. 4080).

198. One ofthe explicit rationales

PX0640 at 001' PX0924

3. Cost of exporting separators to North America is prohibitively expensive

199. Daramic has not shipped separators from either of its Asian manufactung plants to

customers in North America. (Roe, Tr. 1233-1234).

200. EnerSys would prefer to have a supplier with plants both in North America and in Europe.

(Burkert, Tr. 2385). If EnerSys had to have a supplier with two plants in North America and

none in Europe, it would be a negative cost to EnerSys. (Burkert, Tr. 2386). EnerSys does

not want to stock, pay freight, or worr about supply interrptions. (Burkert, Tr. 2467).

201.

202. EnerSys was forced to ship a container of separators to its Monterrey plant from Daramic's

Feistritz facility durng the Ownsboro strike at a high freight and time cost. (PXI285).

203.

204. If the price of motive separators in North America increased by five percent, Douglas

Battery would not look for separator suppliers abroad. (Douglas, Tr. 4082).

205. PE separators that are manufactued in China are subject to added taxes by the Chinese

government resulting in higher manufacturing costs for Chinese separator manufactuers.

(PX0871 at 002, in camera). PE separators exported from China are subject to a valueadded tax. (Thuet, Tr. 4404-4405). The value-added tax includes a 12% charge on the

32
232.

233.

234.

b. l

235. When asked whether BFR can find customers in North America and sell its PE separators

to them, Mr. Kung answered: (PX0907 (Kung, Dep. at 176-177), in

camera).

(PX0907 (Kung, Dep. at 176-177, in camera).

236. When asked how much prices would have to increase in North America for BFR to

supply a North American battery manufacturer with PE SLI separators Mr. Kung

responded by saying

237.

238.

(PX0907 (Kung, Dep. at 186-187, in camera)).

in camera).

L (Hall, Tr. 2745, in camera).

37
276. Microporous developed CellForce in the mid-1990's to address customer needs for a

more flexible separator material that can fold around the battery plates and be sealed

along one edge, while retaining the electrochemical attributes of a rubber-based

separator. (Gilchrst, Tr. 316-317). Because there were cost advantages for customers to

use CellForce that related to sealing and sleeving the separator, Microporous anticipated

that its Flex-Sil customers would migrate to CellForce separators for many of its battery

applications. (Gilchrst, Tr. 373-374).

3. No Other Suppliers in the World

B. Daramic and MPLP were the only Suppliers of Motive Separators in North

America

277. Prior to the acquisition, Microporous participated in the North American motive market

with its CellForce product. (Gilchrst, Tr. 300-301).

278.

L (PX0211 at 001, in camera; Hauswal , Tr.

279. As a result of the acquisition, Daramic has "complete control" or more than 97% ofthe

industrial markets for motive power separators world-wide. Amer-Sil in Luxembourg

would be the remaining competitor. (PX0076 at 002, Gilchrst, Tr. 422).

280. Sales data from 2007 show that the change in HHI and the post-merger HHI for the

motive market far exceeds the thresholds listed in the Merger Guidelines. Sim son Tr.

3184-3185). Daramic's acquisition of Microporous increased the

_l in the motive market. (Simpson, Tr. 3185; PX0033 at 040,042

Report), in camera).

281.

282. Dr. Simpson noted that the 2007 data understates the competition between Microporous

and Daramic in this market because the firm with the smaller share was in the process of

gaining market share. (Simpson, Tr. 3438, in camera). Microporous anticipated that, by

the end of2009, new sales of Cell Force to manufactuers of motive batteries would

43
facilities. (Gaugl, Tr. 4618). Daramic estimated its calender rolls cost up to $80,000 a

piece and it has approximately 100 different ones. (Wear, Tr. 4678).

318. Trojan did not reach out to Entek as a potential supplier of deep-cycle battery separators

because Trojan had previously tested Entek separators for golf applications in the mid90s and the performance was not there. (Godber, Tr. 289). The technology that Entek

had available then is the same as Entek has available today. (Godber, Tr. 289). Since the

mid-90s, Entek has not called on Trojan for its deep-cycle business. (Godber, Tr. 290).

319. East Penn does not know whether Entek curently sells deep-cycle separators. (Leister,

Tr. 4041). East Penn did purchase some deep-cycle separators from Entek in the past, but

stopped buying those separators at least three years ago. (Leister, Tr. 3985). At that

time, East Penn was paying Entek higher prices for deep-cycle separators than East Penn

is curently paying to Daramic for HD separators. (Leister, Tr. 4041).

2. Suppliers outside North America are not Market Participants in North

America

320. Amer-Sil, a regional supplier, operates a plant facility in Luxembourg that produces

PVC-based separators for motive batteries. (PX0916 (Dauwe, Dep. at 15); Gilchrist, Tr.

306-307; PX0078, in camera). Amer-Sil produces PVC separators for lead acid batteries

and does not produce PE separators. (PX0916 (Dauwe, Dep. at 14)). Amer-Sil's PVC

separators are used in European flooded motive and stationary batteries, but are not used

in automotive batteries. (PX0916 (Dauwe, Dep. at 18-19)).

321. There are regional suppliers in India, China, Indonesia and Korea that produce separators

for local customers. They include Anpei and BFR, Chinese manufactuers of SLI

separators, Korido, an Indonesian manufacturer of SLI and industral separators, and

Global Industrial, a Korean manufactuer of SLI and industrial separators. (Gilchrist, Tr.

307-308,424,430).

322. JCI entered into a three way joint ventue in February 2007 with Rising and Fengfang rl

)l to form the joint ventue known as BFR. (Hall, Tr. 2715-2716,

2740, in camera). JCI does not have a controlling interest in BFR. (Hall, Tr. 2741, in

camera). JCI has a equity share in BFR, while Fengfang's equity share in BFR is

.l and Risin 's is L (Hall, Tr. 2740, in camera). The principal owner of

Rising is Hall Tr.2836 in camera). Unanimous BFR board approval

is required for L (Hall, Tr. 2826, in camera).

323. Dr. Kahwaty estimated market shares for a global PE battery separator market.

(RX00945-179, in camera). Using these market shares, Daramic's acquisition of

Microporous increa~ed the HHI by 189 points to 3920. (Simpson, Tr. 3189). These

figures understate the change in HHI because Dr. Kahwaty had erroneously assigned

some Daramic sales to Entek. (Simpson, Tr. 3190). Dr. Simpson also testified that the

49
2007 data understates the competition between Microporous and Daramic in this market

because the firm with the smaller share was in the process of gaining market share.

(Simpson, Tr. 3438, in camera).

VI. Competitive Effects

A. MPLP and Daramic were Closest Competitors in 3 of 4 Markets

324. The acquisition enabled Daramic to increase price unilaterally. (Simpson, Tr. 3192-3194,

in camera).

325.

326. MPLP's low-priced competition made it a maverick in the separator industry.

Historically, there was not an "aggressive rivalry among competitors." (PX0482 at 002).

According to Daramic's worldwide VP of sales and marketing, that changed when MPLP

entered the market with its PE-based CellForce separators. (PX0482 at 002; Roe, Tr.

1281).

1. Daramic was MPLP's only competitive Constraint in Deep-cycle

327. Flex-Sil has unique properties that differentiate it from other battery separators. (PX0131

at 14). Dr. Simpson explained that because Flex-Sil is differentiated from other products,

its owner has market power, and thus would not lose all of its sales if it were to increase

price above cost. (Simpson, Tr. 3176). Consequently, in Dr. Simpson's opinion, "the

owner of Flex-Sil has the incentive to increase price until it gets to the point where the

profit that it loses as sales shift to other products just begins to exceed the additional

profit that it gets from getting a higher price on those sales it continues to make."

(Simpson, Tr. 3177; PX2251 at 017, in camera).

328. Dr. Simpson rejects Dr. Kahwaty's arguent that Flex-Sil's pricing is constrained by a

long-term contract with Trojan which set its price below the profit maximizing level

because MPLP was recently wiling to offer concessions to buyers of Flex-Sil and MPLP

presumably would be unwiling to lower price further if it already thought that it had set

too low a price. (Simpson, Tr. 3181-3182).

50
329. Daramic HD was the closest independently-owned substitute for Flex-Sil. Thus, if the

owner ofFlex-Sil were to increase price a little more, some of the sales that would be lost

would shift to Daramic HD. (Simpson, Tr. 3177-3178). IfFlex-Sil and Daramic HD are

owned by the same owner, then the joint owner recovers some of the profit on the lost

Flex-Sil sales that shift to Daramic HD. (Simpson, Tr. 3178). "(IJn this way a price

increase that would not make sense for an independently owned Flex-Sil (or Flex-Sil and

CellForce) would make sense if they also owned Daramic HD." (Simpson, Tr. 3178,

PX2251 at 017, in camera; Kahwaty, Tr. 5514-5515, in camera).

330. Daramic analyzed the effect of rubber price increases on Flex-Sil versus HD in an effort

to gauge the impact of rubber prices on the prices of the two competing products because

of MPLP's new rubber pass-through agreements. (PX0948; Whear, Tr. 4785- 4786).

331. Before the acquisition, Daramic's pricing for HD was _l than Microporous's

pricing for CellForce and Flex-Sil. (Gilchrist, Tr. 467, in camera).

332. None of the Asian battery separator manufactuers are producing a deep-cycle separator

containing an antimony suppression additive. (Thuet, Tr. 4396).

333. Exide believes that following Daramic's acquisition of MPLP, Exide no longer has the

same leverage for the purchase of deep-cycle battery separators that it had prior to the

acquisition, because now there is only one provider of deep-cycle separators for Exide to

negotiate with. (Gilespie, Tr. 2953-2954).

334.

i) Daramic DC Introduced to Compete with MPLP's Flex-Sil

335. Daramic spent many years tring to develop a battery separator that would work well in

deep-cycle applications. (PX0433 at 001).

336. Daramic made repeated attempts to develop a product to compete with MPLP's Flex-Sil

separators in the deep-cycle market. (PX0433 at 001). Daramic first developed a

separator known as DC, a separator for deep-cycle batteries manufactued by combining

PE with a hardwood lignan additive intended to suppress antimony transfer and water

loss in deep-cycle batteries. (PX0911 (Roe, Dep. at 69-70, in camera)).

337. Daramic DC was Daramic's original deep-cycle separator introduced to the market in

2002. (PX0319 at 003).

338. Daramic DC was specifically designed for the golf cart application. (Whear, Tr. 4776).

51
344. Beginning in 2003, U.S. Battery began manufactuing deep-cycle batteries with

Daramic's DC separator in place ofFlex-Sil. (Wallace, Tr. 1945). Prior to purchasing

Daramic's separator, U.S. Battery was only buying Flex-Sil for its deep-cycle batteries.

(Wallace, Tr. 1945-1946).

345.

ii) MPLP Responded to Competition

346. Prior to purchasing Daramic's DC separator, U.S. Battery was only buying Flex-Sil for

its deep-cycle batteries. When Microporous found out that U.S. Battery was additionally

buying Daramic's DC separator for its deep-cycle batteries, it lowered its pricing on FlexSil separators. (Wallace, Tr. 1945-1946).

iii) Daramic Improved Product and Introduced HD

347. Daramic developed the HD separators to replace its DC separators. (Roe, Tr. 1196).

Daramic HD separators are manufactured by combining PE with a latex rubber additive.

(Hauswald, Tr. 699-700). HD separators provide improved performance over the DC

separators. (Roe, Tr. 1196; (PX0911 (Roe, Dep. at 69-70, in camera)). HD separators

provide better antimony suppression and less water loss in deep-cycle batteries than the

old DC separators. (Roe, Tr. 1196). HD separators also provide improved end-of-charge

performance over time than standard PE separators. (PX0423 at 002).

348. U.S. Battery tested Daramic HD product and the Microporous Flex-Sil product side by

side and determined the two "are very comparable." (Qureshi, Tr. 2033). The main

advantage ofHD is its cost advantage. (Qureshi, Tr. 2033).

349. Exide had tested previous versions of Daramic separators for deep-cycle batteries and

none of the versions prior to HD had passed Exide testing. (Gilespie, Tr. 2937).

350. Daramic HD was developed to compete in the deep-cycle market. (Roe, Tr. 1195-1196;

PX0911 (Roe, Dep. at 56, in camera); PX1791; PX1744 at 004, in camera; PXI071;

PX222 at 001, in camera).

351.
367.

J PX0911 Roe, Dep. at 227, in camera . For

example, when HD was introduced to the marketplace with a 12 mill backweb thickness

there were problems associated with wrinling of the separators. (Roe, Tr. 1312-1313).

Daramic was subsequently able to overcome this wrinkling problem by increasing the

backweb thickness of the HD separators to 13 mill. (Roe, Tr. 1312-1313).

368. Exide understood that Daramic was marketing the HD separators for use in golf cart

batteries. (Gillespie, Tr. 2937). When Daramic introduced the HD separators, Mr.

Tucker Roe approached Mr. Gillespie and asked that Exide test the HD in golf cart

batteries to see how it performs. (Gillespie, Tr. 2937). Daramic wanted to know what it

would take for Exide to et HD into Exide's olf cart batteries. Gilles ie Tr.2937- 2938). .J

(Gilespie, Tr. 2996, in camera.

369. From Exide's perspective, Daramic's interest in getting Exide's golf cart business was a

ten on a scale of one to ten. (Gillespie, Tr. 2938-2939; see also PX1071 at 001-002 (May

2006 email from Mr. Roe to Mr. Gillespie "we are aggressively pursuing this market")).

370. When Daramic introduced the HD separators Exide was interested in buying HD for its

deep-cycle batteries for performance and commercial reasons. Exide's testing indicated

that HD met Exide's performance criteria for deep-cycle batteries. Daramic offered

Exide a competitive price on the HD separators. Additionally, Exide received a "double

kiss" when buying HD because it also received a credit back from Daramic for every

purchase ofHD under their contractual agreements. (Gillespie, Tr. 2937-2938).

371. Prior to Daramic's acquisition of MPLP, Daramic was attempting to grow HD's sales in

the deep-cycle segment. (Roe, Tr. 1209; PX0736 at 002). In fact, in February of2006,

Mr. Roe informed Exide's head of procurement that Daramic was "aggressively

pursuing" sales in the "golf cartdeep-cycle and motorcycle battery business." (PX1071

at 001-002; Roe Tr. 1209-1211). In order to grow HD's market share in the deep-cycle

market, Daramic provided HD samples to most of the significant deep-cycle battery

manufactuers including Trojan, Exide, US Battery, and Crown. (PX0262 at 003).

372.

373.

.J

56
008, in camera). This "action plan" targeted a complete conversion of Exide's deepcycle batteries from Flex-Sil to HD. (pX0263 at 008, in camera). Daramic's "action

plan" also including qualification ofHD for use in Exide's dee -c cle OEM batteries.

PX0263 at 008 in camera .

374. Daramic wrote in their September 2007 America Monthly Sales Report that East Penn

and US Battery were concerned about receiving a consistent supply of HD separators

from Daramic. (PX0305 at 007). In fact, US Battery wanted to increase its purchases of

HD separators from Daramic. (PX0305 at 007). In the Monthly Sales Report, Daramic

noted it must continue to improve its service or it would "stand a good chance of losing

golf car business back to Amerace Flex-Sil." (PX0305 at 007).

a. Customers Viewed Daramic HD and MPLP's Deep-cycle

Products as Substitutes

375. Exide regards Flex-Sil and Daramic HD separators to be substitutes for each other.

(Gilespie, Tr. 2933). Exide uses Flex-Sil and Daramic's HD separators in its flooded

lead acid batteries for use in golf cart and floor scrubber applications. (Gilespie, Tr.

2932). Exide does not use any other tye of separators in its deep-cycle batteries.

(Gilespie, Tr. 2933). No other separators meet Exide performance criteria for deep-cycle

batteries. (Gillespie, Tr. 2933).

376. Flex-Sil and HD are used as exact substitutes in Exide's most common golf cart battery,

the GCIlO, which makes up approximately 80% of Ex ide's deep-cycle sales. (Gilespie,

Tr. 2941-2944; PX1401 and PX1402 (demonstrative batteries)). With the exception of

the separator, there are no differences between these batteries. The batteries have the

exact same labels and there is no way to tell the difference between them without cutting

them open. (Gilespie, Tr. 2941-2944). For the end user, there is no difference in the

price or warranty between Exide's GCI10 batteries which use HD and those that use

Flex-Sil. (Gilespie, Tr. 2944).

377. The testing conducted by US Battery comparing Flex-Sil and HD showed comparable

results. (Wallace, Tr. 1972; Qureshi, Tr. 2004, 2063).

378. US Battery's 1800 model deep-cycle battery contains either Flex-Sil or Daramic HD

today with no distinction in their performance or warranty claims rate. (Wallace, Tr.

1946). Based on its battery performance testing, U.S. Battery found that Flex-Sil and HD

separators are comparable products, i.e., one is not better than the other. (Wallace, Tr.

1971-1972).

57
interested in learning if the HD product had some pricing advantage. (Godber, Tr. 182-

183).

409. Trojan discussed the potential of using the Daramic HD separator at an internal meeting

on February 21,2005 because of its "(n)eed for a second source to ensure supply and

competitive pricing." (PX 1651; Godber Tr. 183-184). After February 2005, Daramic's

potential ability to offer a competitive product became a platform for discussions with

Microporous regarding price reductions and capacity. (Godber, Tr. 183-184; see also

PX0429 (email from Rick Godber to Mike Gilchrst: "We now understand that Daramic

May have a separator that can compete in performance, and may have cost advantages to

Flex-Sil and CellForce.")).

410. At the 2005 BCI convention, Daramic made a presentation about the HD product, which

left people very excited that Daramc had a product that could match Flex-Sil

pedormance. (Godber, Tr. 187-188; see also PX1653 (email from Trojan's technical

director stating: "Daramic's technical presentation at BCI was well received by the

people I talked to. . . . Their (Daramic's) presentation wil generate additional interest in

HD separators which wil make it a common separator for deep-cycle applications in

time.). Trojan received samples of and pricing for the HD separator in May 2005.

(Godber, Tr. 188). The pricing on the HD separator was, depending on the product line,

10 to 28 percent below what Trojan was curently paying Microporous for Flex-Sil.

(Godber, Tr. 188).

411. Trojan tested Daramic's HD separator and approved it in its Pacer line of golf cart

batteries. (Godber, Tr. 171). Today, CellForce, Daramic HD, and Flex-Sil are qualified

for use in Trojan's Pacer batteries. (Godber, Tr. 172).

412. Trojan was able to get Microporous to provide cost reductions based on Trojan

threatening to test and switch to Daramic's HD separator. (Godber, Tr. 190-191; see also

PX1655 at 001 (email from Trojan to Microporous stating: "(HD) appears to be a fairly

immediate replacement for CellForce at a substantial lower cost. Longer term it may

work as a Flex-Sil replacement in our products.")). The cost savings were around

$200,000 to $300,000, which represents two percent of Trojan's spend with Microporous

at that time. (Godber, Tr. 191-192; PX1659 ("total savings to Trojan will be about

$350,000."); PX1657 at 001 "As you can see, based on the volumes you gave us there is

a potential annual savings of over $288,000. ").

413. Prior to the introduction of HD separators by Daramic, Microporous did not respond

positively to Trojan's request for price reductions. (Godber, Tr. 199). After the

introduction ofthe Daramic HD separator, however, Microporous told Trojan that it was

going to work with Trojan to reduce its costs to alleviate the need for Trojan to star using

HD separators. (Godber, Tr. 199-200). Mr. Godber, Trojan's CEO testified that Daramic

HD was mentioned by both him and Microporous's CEO, Mike Gilchrst, during their

discussions relating to Microporous's price reductions. (Godber, Tr. 200).

62
414. Mr. Godber testified he does not recall any intance where Trojan successfully used any

product other than HDas leverage in price negotiations with Microporous. (Godber, Tr.

223).

415. Durg the 2005 discussions with Microporous regarding cost reduction related to the

threat of switching to Daramic HD, Trojan also was tring to accelerate its ability to use

more CellForce since it was less expensive than Flex-Sil. (Godber, Tr. 191). At the time,

Trojan was not able to get all the CellForce that it wanted from Microporous because

there was limited capacity and a large demand from the motive market. (Godber, Tr.

195).

416. From 2005 to the time of the acquisition, Trojan continually used the threat of buying

Daramic HD to get lower prices from Microporous. (Godber, Tr. 200-215). In October

2005, Trojan used the threat of moving business to HD as leverage against Microporous

to negotiate down a proposed energy charge from 5.5 percent to 3.75 percent. (Godber,

Tr. 200-201).

417. In early 2006, Microporous attempted to increase the prices it charged Trojan by around

6.5 percent for Flex-Sil and by 4.5 percent for CellForce. (Godber, Tr. 202). Trojan did

not accept the price increases. (Godber, Tr. 202). Mr. Godber testified that in his

negotiations with Microporous, Trojan used the only ammunition it had -- the theat of

switching to HD separators -- to reduce the amount of the price increase down to 4.5

percent across the board for all Microporous separators. (Godber, Tr. 202). At the time

Trojan was negotiating the price increase, Mr. Gilchrst stated: "We must put the specter

ofDaramic's (HDJ product totally behind us." (PX1660 at 004; Godber, Tr. 203-204).

418. During 2007 pricing negotiations, Trojan threatened Microporous that it would switch to

HD separators for its deep-cycle batteries. (Gilchrist, Tr. 371-372, 379, 468, in camera,

535,609-610; PX1789 at 041, in camera).

419. In August 2007, Microporous once again proposed a price increase to Trojan on its FlexSil and CellForce products of 6.5 and 4.5 to 5 percent, respectively. (Godber, Tr. 204).

The price increases covered separators that went into Trojan's OE and aftermarket golf

batteries. (Godber, Tr. 293-295). The August 2007 price increase led to heated

discussions in which Trojan told Microporous "(y Jou're forcing us to again now go look

at an alternative like Daramic HD, which was the only alternative." (Godber, Tr. 204-

205; see also PX0428 at 004, in camera ("appears to be a perception we have no options.

. . . I felt they (IGPJ needed to understand there are alternatives."). A Trojan internal

email exchange confirms that Trojan was contemplating HD as an alternative on some of

its product lines and was also contemplating giving up the exclusive separator design that

Microporous provided Trojan in retu for its sole source commitment. (Godber, Tr.

206-207; PXI663).

420. Trojan's use ofHD as a competitive threat to Micro

Microporous's across the board price increases. r

63
o er, Tr. 214-215; PXL 64. By accepting t ese pnce increases, Trojan and

Microporous agreed that there would be no fuer price increases available to

MiClIo orous on December 1,2008. Godber Tr. 214-215). Thus, the next price increase

to r l could not occur until L (Godber, Tr. 235 in camera). Mr. Go er testified that an I agreed" that would

be allowed no fuher rice increases over and above the signed r

~ (Godber, Tr. 214-215; 235, in camera;

421. As a result of its 2007 negotiations with _llowered its pricing

~ L and agreed that it=ces again until after

_~ (Gilchrst, Tr. 408-409; PXI664). This compromise occured in

response to TrOJan's threat to switch to HD separators for some of its deep-cycle batteries

sold to the replacement market. (Gilchrst, Tr. 410, 526, in camera).

422.

423.

424.

d. MPLP Responded to HD with CellF orce

425. When MPLP began to recognize the HD threat, Mr. McDonald and his sales force began

to offer CellForce at a cost savings as a means of combating the lower cost Daramic

deep-cycle separator. (McDonald, Tr. 3949).

426. In response to the competition from Daramic's HD separator, Microporous developed the

CellForce separator and offered to sell it to U.S. Battery. (Wallace, Tr. 1952-1953).

Prior to US Battery's use ofHD Microporous had not offered it CellForce for deep-cycle

application. (Wallace, Tr. 1953).

427. U.S. Battery approved the purchase of Cell Force and planned to purchase this new brand

of separators from Microporous. (Wallace, Tr. 1977).

64
501. Prior to the acquisition, Daramic and Microporous were the only suppliers of separators

for reserve power for flooded high-end batteries to North American customers.

(Gilchrist, Tr. 305-306; 343).

502.

impson, Tr. 3193, in camera; i espie, Tr. 3048, in

503.

L (Axt, Tr. 2216-2217, in camera). There is no one

other than Daramic w 0 ma es UPS separators either in North America or worldwide.

(Axt, Tr. 2102-2103).

504. EnerSys planned to shift its separator purchases from a split between Daramic and MPLP

to sole sourcing with MPLP. The only component of the plan that had not been achieved

was having a replacement for Daramic's Darak product. (McDonald, Tr. 3929-3930;

PX0511).

505. Prior to the acquisition, Microporous had made some sales for over a "year and a half' to

C&D and had already won a contract with EnerSys that would have given Microporous

40-50% of the North America UPS market. (Gilchrist, Tr. 398-399).

506.

507. In its lobal search for UPS se arators,

L Axt, Tr. 2216-17, in camera). As 0 today, other

than Daramic, there is no one in the world that makes a separator that can be used in

EnerSys's UPS batteries. (Axt, Tr. 2101).

1. MPLP was in the process of commercializing a UPS separator to address

the black scum issue

508. Planning for project LENO began in late 2006 at the approval of the R&D steering

committee which included Mike Gilchrist and Larr Travathan, as well as Steve

McDonald and Matt Wilhjelm. (Brilmyer, Tr. 1836).

509. The LENO had a variety of people with different areas of expertise from development

and sales to finance, in order to keep the R&D developers "based in reality." The finance

and sales team members kept the team focused on the market for the new product. and the

costs associated with its development as well as the price the product could achieve in

that market. (Brilmyer, Tr. 1837-1838).

77
552.

Exide, V oltmaster and several battery manufactuers in the European Union. Several

trckloads of material were shipped to Johnson Control's Tampa plant. (Gilchrst, Tr.

312-13, 417-18). Mr. McDonald also talked to East Penn about supplying them PE for

SLI. (McDonald, Tr. 3879-3880 in camera).

1. Worked with customers to qualify in SLI

i) Work with JCI in 2003 to brig competition to SLI market

553. Johnson Controls ("JCI") is the largest manufactuer of flooded lead acid batteries in the

world. (Hall, Tr. 2662-2663). In the United States, JCI is one of "only three major

automotive battery manufactuers." (PX0088 at 001)

554.

555. As part of JCI's separator sourcing strategy, JCI engaged in discussions with MPLP prior

to 2003 in an effort to develop MPLP as a new entrant into the SLI separator business.

(Hall, Tr. 2670).

556. JCI tested a sample PE SLI separator manufactued by MPLP in 2003. (Hall, Tr. 2696).

The MPLP sample SLI separator was produced off of a production line in MPLP's

Tennessee facility that was not set up to run the process; instead MPLP's production line

was modified to t to create the re uisite SLI sam Ie for JCI. Hall Tr. 2696 .

camera; PX0672 at 006, in camera).

a. Daramic forced JCI into contract extension that styied entry

84
1. Daramic tried to stop MPLP from building a European plant by suing MPLP for

using Jungfer technology in Europe

657. Polypore became aware in the spring of2005 that it might be able to stop any futue

Microporous expansion in Europe, or better yet buy Microporous at a discount to other

potential bidders. In May 2005, Frank Nasisi, the departing CEO of Polyp ore, notified

Michael Graffby email that while looking through his files he had found the contract

between Jungfer and Microporous relating to the PE production line that Jungfer installed

for Microporous in 2001. (PX0747). In the email he stated:

The contract puts a restriction on Microporous Products to sell PE

product for automotive application in Europe or Korea, places

where at that time Jungfer was selling its product. This is certainly

a big restrction of anyone who wants to expand the business by

going into the automotive market. . . .

It certainly will reduce their value for anyone outside Daramic.

Phillp (Bryson, Polypore GC,) wil investigate it fuher and

provide us with a clear pictue of this new finding.

658. In June 2006 Michael Graff emailed Mr. Toth and Mr. Hauswald

659. Daramic not only took legal action to stop the Micro orous ex

took other initiatives as well. Pierre Hauswald

99
689. Nothing in the mandates would have prevented Microporous management from

continuing to work with Exide on possible expansion for the PE SLI separator market.

(PX2301 (Heglie, Dep. at 74)). In fact, the Microporous Board was supportive of

management's activity with Exide, "(b Jecause it could generate a fair amount of capital,

good retu on the investment if it worked." (PX2300 (Heglie, IHT at 153)).

690. Microporous management was working in good faith with Exide and that at no point was

it working in something other than good faith with Exide on potential expansion for PE

SLI separators. (PX2301 (Heglie, Dep. at 75-76)).

691. Mr. Heglie testified that growth opportities as it relates to customer development

would have continued to be a focus oflGP and Microporous absent the acquisition.

(PX2300 (Heglie, IHT at 220-221)). In reaching that conclusion, Mr. Heglie had

discussions with other Board members from IGP about where they saw Microporous

going if there was not an acquisition by Daramic. (PX2300 (Heglie, IHT at 219)). With

regard to those discussion, Mr. Heglie provided the following testimony:

(WJe were stil moving forward on at least a broad view of the

investment thesis in the strategic plan. . .. evaluating growth

opportities with the company, trying to grow the company,

trying to grow the cash flow, tring to improve the margins, trying

to generate cash to pay down debt.

I'm sure we would have continued attempting to move forward on

some of these customer opportities that we had.

So I don't know that there was a major deviation from the original

strategy. . . . But, again, it's really case-by-case, and we had plenty

of opportities on the radar screen, as we talked about.

(PX2300 (Heglie, IHT at 219-220)).

L. Competition between Daramic and MPLP increased in the months preceding the

acquisition

692. In 2007, Daramic faced growing competition from MPLP at no fewer than five of its top

ten customers. (Roe, Tr. 1307). This included renewed competition from MPLP in both

motive and automotive markets. In the automotive market, Daramic understood that

MPLP was competing with Daramic for business at JCI, Exide, East Penn and Fiamm.

(Roe, Tr. 1303-1307). Daramic durig this period viewed MPLP as a viable competitor

for automotive separator supply. (Roe, Tr. 1307-1308; PX0922 (Roe, IHT 359-361, in

camera)). At the same time, MPLP was competing with Daramic for motive business at

EnerSys, Exide and East Penn. (Roe, Tr. 1303-1306). Daramic and Microporous

continued to compete for deep-cycle customers as well. (PX0263 at 03-04; 08, in

camera).

105
693. The threat of increased competition with MPLP was increasing in the months preceding

Daramic's acquisition ofMPLP. In 2007, Daramic grew concerned about the possible

loss of automotive business to MPLP at JCI. (PX2078). At that time, Daramic was

supplying about 55 million square meters of separators to JCI on an annual basis. (Roe,

Tr. 1296). Daramic also understood that it was JCI's strategy to have multiple suppliers

in each geographic region (the Americas, Europe and Asia) in order to exert pressure on

PE suppliers. (Roe, Tr. 1296-1298; PX2078).

694. At that time, Daramic considered MPLP to be a competitive threat for JCI's automotive

business. (Roe, Tr. 1307). In August 2007, Mr. Roe informed Mr. Hauswald that "one

likely scenaro" for JCI would include MPLP taking 20-25 million square meters of

product in 2009 - product which to date was being supplied to JCI by Daramic.

(PX2078; Roe, Tr. 1301). Mr. Roe fuher believed that MPLP might get an even larger

share of JCI's separator business begining in 2010. (PX2078; Roe, Tr. 1301).

695.

696.

PX0238 at 001; PX0922 Roe, IHT at

362-63 , in camera). Mr. Roe responded by stating that "2008 will be the most

challenging year ever faced by Daramic." (PX0238 at 001). Mr. Roe noted that Daramic

was "finishing 2007 on a down-swing" and was "beginning to feel the real effects" of

price competition and Daramic's past performance issues. (PX0238 at 001). Mr. Roe

indicated that Daramic had to be the "price leader" and "continue to push/force price

increases" even as the competition was lowering prices. (PX0238 at 001).

697. Mr. Roe also emphasized to Mr. Hauswald that 2008 would a uniquely difficult year for

Daramic because ofMPLP's ongoing expansion project which was "an element we have

not faced in many years." (PX0238 at 001). According to Mr. Roe, "unlike prior years,

we have a tre legitimate big competitor entering the market (MP) and for sure they will

captue volume at whatever it takes." (PX0238 at 001; PX0922 (Roe, IHT at 362-363),

in camera; Roe, Tr. 1302-1303).

M. The acquisition eliminated capacity expansion plans

698. The fourh PE line was never installed. (Gaugl, Tr. 4560). Some of the equipment for

that line is sitting in boxes in Austria and Piney Flats. The extruder is at the supplier in a

semifinished stage, and the pinole detector is being used in Piney Flats. (Gaugl, Tr.

4565).

699. With the acquisition ofMPLP by Daramic, "basically the carpet was pulled out from

under us" with regard to Exide's strategy of adding separator suppliers to the

106
717. The manager ofthe LENO project, Mr. Brilmyer, expected that the new products from the

Qro' ect would enerate revenues from commercial sales b the end of 2008 or earl 2009.

718. Despite the bright prospects for the new gel battery separator from the LENO project, after

the acquisition, Daramic' s management was not interested in the fuher development of a

product to replace DAR, a very high-margin product for Daramic. (Brilmyer, Tr. 1863-

64).

719. Of the MPLP inovation projects, only project _l is still active in the flooded

lead-acid battery arena after having come under Daramic's control. (Whear, Tr. 4736-

4752, in camera).

720. Pr?)ect _l was patent protected by MPLP. (Whear, Tr. 4814, in camera).

721.

722.

iii) Innovation competition existed in SLI

723. IGP believed CellForce had applicability in the automotive market because in testing,

Microporous "thought that potentially using CellForce you could ultimately reduce the lead

content in an automotive battery." (PX2300 (Heglie, IHT at 121)). IfCellForce were

proven to allow for a reduced lead content in SLI batteries, it would be an attactive

product to battery manufacturers: "Lead is a huge component of cost on a lead acid battery,

so if you can eliminate some of that lead, you can take cost out of the battery which is very

valuable to a battery manufactuer." (PX2300 (Heglie, IHT at 121)). Mr. Heglie, as an

IGP Board Member, continued to see value in CellForce for the automotive SLI market

throughout IGP's ownership of Micro porous. (PX2301 (Heglie, Dep. at 170)).

724. At the time of the acquisition, Microporous was develo in several new product ideas for

SLI separators. One, called a "smart separator," r n allowed for the

controlled shrining or expansion of the separator under certain conditions. (Gilchrst, Tr.

340).

N. Daramic Reaction to the MPLP Expansion - The MP Plan

110
725. In the fall of 2007, Daramic took active steps to respond to the MPLP threat to Daramic' s

automotive and motive power business in the US and Euro e. Mr. Roe and Mr.

Hauswald ut to ether a ro. ect known as the

PX0258; PX02 5, in camera; PX 0911 Roe, Dep. 173-174 , in camera. In

Nort America, Daramic identified East Penn, Douglas and Crown as customers whose

business Daramic believed was immediately at risk ofloss to MPLP in 2008. (PX0258 at

002). At East Penn, Daramic was concerned about the potential loss of automotive and

motive power business, while at Crown and Douglas the concern related to potential loss

of motive power business. (PX0258 at 002; Roe, Tr. 1303-1304). These customers were

specifically identified because Daramic understood that MPLP had submitted proposals

to win each of these customers business. (Roe, Tr. 1289-1290).

726. Understanding the threat that MPLP posed, Daramic developed the r _ l to offer

beneficial terms to customers wilin to enter into exclusive or near e~on term

contracts with

in camera).

727. With the MP Plan in pocket, Daramic went to certain customers offering beneficial

contractual terms in order to secure their business and to prevent erosion ofDaramic's

customer base. (Roe, Tr. 1290-1291). In addition to beneficial pricing terms, Daramic

offered those customers identified as at risk of loss to MPLP guaranteed delivery times,

committed inventory stock, rebate schedules and consignent to secure the business with

Daramic. PX0258 at 01' Roe Tr. 1292). Daramic entered ~contracts with

J as per the terms of the r_i (Roe, Tr. 1352,

in camera .

728. Crown signed a r

(Balcerzak, Tr. 4104, in camera; RX00994, in camera).

l

729.

L (Balcerzak, Tr. 4105, in camera). Prior to

the most recent contract the term for the agreement between Crown and Daramic

extended only r l (Balcerzak, Tr. 4111, in camera).

111
770.

771.

772.

camera. Moreover, the

would benefit because

."l (PX0738 at 017, in camera).

L PX0203 at 088, in camera; Hauswa Tr. 785-86, in

camera).

camera). ). (PX0051, PX0095 at 001-002, in

ii) Daramic acquired MPLP in order to raise prices

773. Mr. Hauswald explained to the Pol ore Board that with the ac uisition Daramic would be able to institute a L products which would result in .l (Hauswald, Tr. 782, 819-

20, in camera; PX0203 at 84, in camera; PX0738 at 006-007, in camera; PX0463 at 008,

in camera; PX0464 at 004).

774. . . .

l

119
823. Bariers to entry include a significant capital investment, sophisticated production

processes, extensive customer relationships, patent protected technology and high customer

switching costs. (Gilchrist, Tr. 604-05; RX00741 at 015).

824.

Dep. at 100), in camera).

825. Prior to designing and starting up the line for Microporous in Tennessee, Mr. Gaugl had

previously designed and started up four other PE battery separator lines - two for Global

Industries in South Korea; one for Batou in the province of inner Mongolia in China; and 1

for Jungfer in Jungfer's Feistrtz, Austra facility. (Gaugl, Tr. 4532-34). By the time Mr.

Gaugl became responsible for designing the Microporous line in Piney Flats, Tennessee, he

had seven years of experience setting up PE production lines. (Gaugl, Tr. 4543).

826. According to Mr. Gaugl, the eighteen months include: about two months to do the generic

layout of the lines and the specification of the main equipment; about ten months to obtain

the long lead time items; approximately four months to install the equipment; and about

two months to start-up and debug the lines. (Gaugl, Tr. 4543-44).

827. The, on average, 18-month project of setting up a PE battery separator line ends at the 24-

hour test ru. (Gaugl, Tr. 4595). In the 24-hour test, the line must demonstrate that it is

capable of producing in spec material at a certain thoughput. (Gaugl, Tr. 4539). The 24-

hour test is to demonstrate the technical capabilities of the line. It has nothing to do with

whether one is able to make a commercial product at a competitive cost. (PX0905 (Gaugl,

Dep. at 43-44, in camera).

828. Debugging of new lines continue well after the 24-hour test. (Gaugl, Tr. 4594-95).

Passing the 24-hour test ru does not mean that a new PE line wil operate without

problems. (Gaugl, Tr. 4595). Problems that occur after the 24-hour test are not always

obvious at the time of the 24-hour test. (Gaugl, Tr. 4595).

B. Building and operating a PE line is a long and difficult process

829.

830.

129
how to set the proper conditions of pressure, temperatue and speed on the equipment.

(Gilchrist, Tr. 394-395).

912. Manufactuers of separators have special know-how obtained in a learning-by-doing

fashion. For example, Microporous "learned a lot of lessons, painful lessons, expensive

lessons" when initially manufactuing CellForce at Piney Flats. These "expensive lessons"

were incorporated into its new production lines in Feistritz. (Gilchrst, Tr. 395-396).

913. Microporous's manufactung lines for CellForce use PE technology that it obtained from

Jungfer. (Gilchrst, Tr. 563). Depending on the tye of calender rolls attached to the line,

these manufactung lines can produce separators for either SLI applications or industral

applications. (Gilchrist, Tr. 562, 569-570).

1. Lack of experience is a barrier to entr:

914.

915. L (pX0265 at 012, in camera). EnerSys believes that a

via Ie supp ier needs to be a reputable company with financial stability, technical

innovation, research capabilities, customer service and support. (Gagge, Tr. 2484).

916. Reputation is an important component for entry into any North American PE market.

EnerSys was wiling to tr MPLP's CellForce product only after acquiring Hawker and

learning from its European operations about MPLP's reputation and stellar customer focus.

(Axt, Tr. 2127).

917. Customers care about their separator suppliers' reputations for financial stability, technical

expertise, manufactuing capabilities, and leadership capabilities. (Axt, Tr. 2107-2108).

Technical expertise is important for innovation, weekly support, and monthly support.

(Axt, Tr. 2110; see also Hauswald, Tr. 784-785, in camera).

918. MPLP had a very good reputation in the marketplace. (Gillespie, Tr. 3127, in camera).

E. Entek is not likely to enter the deep-cycle, motive or UPS markets

142
948.

949.

950. BFR has not had

in camera).

(PX0907 (Kung, Dep. at 283, in camera)).

1. Epoch and Baotou are less likely to supply to Exide in North America than BFR

951. In Daramic's discussions with _l Daramic learned that L was having

financial difficulties. Daramic had multiple meetings with L to discuss possible

business ventures. (PX0903 (Th~p. at 58-60 in camera. After the most recent

meetings between Daramic and __l in L Daramic felt thaI-l

was chasing Daramic in order to get into a partnership with Daramic because -r was

having financial issues. (Thuet, Tr. 4413-4414, in camera).

952.

camera).

148
953.

J. NSG is not an option for supply ofPE separators to customers in North America

954. NSG is a separator manufactuer located in Japan. (Gilespie, Tr. 2963). In July 2006,

NSG expressed interest in supplying PE separators to Exide, noting that the opportity

was "most interesting to NSG, and be assured we will take this most seriously."

(PXI073 at 001).

955. Subsequently, NSG refused to quote on Exide's RFP due ofNSG's new relationship with

Daramic, despite previous assurances that it wanted to bid on Exide's PE business.

(Gilespie, Tr. 2963-2964; PXI079 at 001-003). In July 2007, NSG informed Exide that

it had sold the majority interest of its Tianjin, China facility to Daramic, and suggested

that Exide contact Daramic for a quote on supply from Tianjin because according to

NSG, "Daramic has the management authority to decide product mix and customer

pricing." (PXI079 at 003). NSG also informed Exide that it did not have the capacity to

service new PE separator customers from its manufacturing facility in Japan. (PX1079 at

003). Subsequently, NSG has not approached Exide about possible supply ofPE

separators. (Gilespie, Tr. 2965).

K. Asian entry would not be sufficient to replace MPLP

956. Mr. Gilchrst explained, aside from Daramic and Entek, there were no other competitors

that "could actually do what Microporous was doing in SLI" against Daramic and Entek.

(Gilchrist, Tr. 423-434, in camera).

957. Asian manufactuers do not have the same engineering know how gained from learnin

and doin as North American com anies like Daramic and Micro orous.

For

example, in assessin

Daramic noted that:

149
"l

i) Daramic documents recognize that barriers to entry exist

987.

. 988. Mr. Graff, chairan of the board of Polyp ore, was a member of the Warburg Pincus team

that conducted the due dili ence to determine whether to invest in Pol ore. Graff Tr.

4851 .

ra , Tr. 4900; PX0746 at 002, in camera.

989. In order to get money to fud the acquisition of Polypore, Mr. Graff and other managing

directors from Warburg Pincus went to banks and various credit rating agencies such as

Standard & Poors and Moodys. (Graff, Tr. 4900-01, in camera). At the presentations

made to the credit rating agencies, Mr. Graff and the other Warburg directors are

attributed with providing the "Sponsor Remarks and Investment Considerations" where

they stated that "High barriers to entr due to significant up front capital costs,

industry/technical expertise, and high customer switching costs" are among the

"(fJavorable market dynamics" that should be considered. (PX0982 at 002,008; PXI720

at 002, 008; PXI722 at 002, 006).

990. Similar to Warburg Pincus's findings prior to its investment into Polypore, IGP

determined that flooded lead acid battery separator markets are characterized by high

barriers to entry. A document prepared by IGP prior to its investment in Microporous

gives an "Executive Summary" of Microporous' s including an assessment of its

strengths. (PX1124; PX2300 (Heglie, IHT at 119)). Under "strengths," the document

states

High barriers to entr/high switching costs

~ Major capital costs and know-how required to enter the market. . . . .

154
): Limited market size detracts potential entrants. . . . .

): It generally takes 1-2 years within the lead acid battery industry to

complete the design-in, full testing and final acceptance of a new separator

into a battery.

(PX1124 at 001).

991.

e-mai was sent on February 26, 2007 at 11 :26 pm.

Toth, Tr. 1459, in camera).

992.

993. Mr. Toth responded to Mr. Dossani on February 27,2007. (PX1715 at 001, in camera).

Mr. Toth stated that that he was meetin with his staff that morning and would provide

L (PX1715 at 001, in camera;

994. That same day, Polypore held a senior leadershi team "SLT" meetin . Mr. Toth's

!ì0tes on the a enda for the SL T meeting are r

l: "Be clear that price was out in ont and consistent with cost

esca ation ... no more price erosion;" "Barriers to entry - 'technology' - global

scalelinfrastructue, low-cost, grades/product development, and low cost %, but

fuctionaL." Toth Tr. 1421' PX0485 at 001). Mr. Toth testified that he r_

l (Toth, Tr. 1463-65, in camera).

995. Polypore had a deck with the title "Initial Public Offering" which Polypore used with a

variety of investors in June 2007. (Toth, Tr. 1424-25; PX3015, in camera). Investors

were able to look at this deck, and Mr. Toth understood that it was ve im ortant to be

as accurate as ossible to investors. Toth Tr. 1427-28 .

155
996.

2. MPLP also recognized barriers to entr

997. Mr. Heglie testified that high barrers to entry and the size of the market are important to

IGP because "the fewer competitors in a market, the higher potential profitability is."

(PX2300 (Heglie, IHT at 126-27)). Likewise, he testified that the long time it takes to

design in and test a product is an important consideration to IGP because "it would delay

. . . a new competitor to get into the market." (PX2300 (Heglie, IHT at 127)).

998. IGP viewed Microporous's CellForce as proprietary and differentiated. (PX2300

(Heglie, IHT at 119), in camera; PX1124 at 001). Microporous's patent protection for

CellForce until 2019, and Microporous's significant know-how and process intellectual

propert in the production of all its products, was viewed by IGP as one ofthe company's

strengths when it evaluated acquiring the company. (PX1124 at 001).

999. Microporous' s management believed that its significant capital investment and strong

employee base creates formidable barriers to entry into the markets in which it competed.

(Trevathan, Tr. 3665; RX00741 at 048-049).

i) Risk of acquisition by Daramic is a barrier to entry.

1000. Even if a customer sponsors entry into one ofthe PE separator markets, it still faces the

risk that the entrant could be acquired by Daramic. With Respect to NSG ("Nippon"),

EnerSys related its own experience in this regard:

156
to Microporous in exchange for its agreement to stay out of the SLI separator market.

The offer was made to Mr. Gilchrist, Lar Trevathan of Micro porous and an attorney

representing Microporous. (Gilchrst, Tr., 426-27, 431-32,575-76; Trevathan, Tr. 3707-

3708; PX0077, in camera; PXL 103 at 001).

1099. Microporous's Michael Gilchrst reported back that at the meeting Daramic "offered us

basically all of their industrial business!!! . . . All of that was prefaced by them for us

staying out of automotive. Amazing conversation." (PX 1103 at 001). In reporting the

meeting to Mr. Heglie, Mr. Gilchrst stated that "Daramic is definitely looking for a

solution that keeps us out of automotive and/or takes us completely out of the game."

(PXI103 at 002).

1100. At its Board of Director's meeting two weeks later, Microporous management reported

the August 2 meeting to the full board. (PXI106 at 035). The handout for the board

meeting discusses Daramic's offer to give Microporous its deep-cycle and industral

business "all in exchange for MPLP not particitJating in SLI markets." (PXI106 at 035

(emphasis in original)). Mr. Heglie testified that he was reasonably certain that the Board

discussed Daramic's proposal, but that he did not recall anything specific outside of what

was written in the Board presentation. (PX2301 (Heglie, Dep. at 81)). He fuher

testified that Daramic's offer '''all in exchange for MPLP not participating in SLI

markets,'" does not appear to be limited to a geographic area. (PX2301 (Heglie, Dep. at

81)).

C. Daramic's Latest Effort to Block the MPLP Expansion - the MP Plan

(See CCFOF 725-747)

D. Exclusionary effects on MPLP.

1101.

L PX0033 at 025, in camera, 030,

in camera). This delay imposed costs on Microporous. (PXI215).

1102. Michael Gilchrist, Microporous's President at the time, later wrote Mr. Axt: "We

(Microporous) are taking a significant hit with the altered dates as our initial profitability

and retu on our ca ital is thrown offb almost a ear later due to Daramic."

PX1215 .

173
camera).

1123.

1125. In May 2006,

in camera; PX1200 at 004, in camera.

l. (Axt, Tr. 2256,

1126.

PX1201 at 002, in camera; Axt, Tr. 2251-2252, in camera).

1127. EnerSys decided in June 2006 that it would move forward with Microporous. Mr. Axt

scheduled a meeting with Daramic offcials in Charlotte, North Carolina, because he "felt

it important to tell them face to face" that EnerSys had decided to reject Daramic's

proposal. (Axt, Tr. 2252-2253, in camera).

1128.

2128-2129,2148,2159, in camera).

1129. Mr. Roe related this news to Daramic management by email dated July 7, 2006. He

concludes his internal communication this way: "Needless to say, this is not acceptable

and we will respond accordingly." (PX0986 at 001).

1130.

177
1. The Impact of the Contract Extension with Daramic

1155.

2128-2129,2148,2159, in camera; PX1259, in camera).

1156.

Simpson, Tr. 3230-3231, in camera. Without

suffcient volume commitments, Microporous could not fully utilize its capacity when the

new lines it was building became operationaL. (Gilchrst, Tr. 454, in camera).

1157. The force majeure event "delayed several pieces of business that Microporous was going

to be granted, the timing of the Mexico business for our backfll, the timig ofltaly. The

Italian plant for EnerSys was also delayed and parts of the Tennessee business for

EnerSys (were) delayed as well." (Gilchrist, Tr. 413).

1158. With the potential for supplying significant PE volumes to EnerSys pushed out to June

2009 and beyond, Microporous needed to find additional customer orders to fill up its

two new lines starting in March 2008, particularly the second PE line. (PX0089 at 002,

in camera). ("The revenue gap will be over $4,500,000 (approximately 2,800,000 square

meters) that will be open until the backfill with EnerSys US can commence in 2009

a roximatel fifteen months ." . Gilchrist Tr. 454 in camera

1159. To be competitive against Daramic in motive, stationary and SLI applications, MPLP

needed to operate its lines at an effcient scale. (Gilchrist, Tr. 422-424; RX00401 at 002

("(T)he filling of these Austrian lines with solid, profitable business is an absolute

requirement for the continued success and financial health ofMPLP.")).

1160.

1161. At the same time that Daramic was threatening to withhold separators from EnerSys due

to Ticona's European force majeure, Daramic also increased the pressure on C&D, whom

181
1219. Richard R. Godber is CEO and president of Trojan Battery Company in Santa Fe

Springs, California. (Godber, Tr. 133). Trojan Battery is the largest producer of deepcycle batteries in the world. Trojan Battery has been in business for 84 years and has

been producing deep-cycle batteries since 1952. (Godber, Tr. 133). As president and

CEO, Mr. Godber is responsible for the overall operation ofthe company, including

strategic planning. (Godber, Tr. 134). Mr. Godber is extensively involved in

procurement of the three largest and most expensive pars of a deep-cycle battery, the

lead, the plastic, and the separators. (Godber, Tr. 134). Mr. Godber personally

negotiates the final pricing and contract terms with battery separator suppliers. (Godber,

Tr. 135).

1220. Trojan has been Microporous's largest customer since it began doing business with

Microporous a little over 20 years ago. (Godber, Tr. 156-57). At the time of the

acquisition of Microporous by Daramic, Trojan was Microporous's largest customer.

(Godber, Tr. 157). Microporous told Trojan that it was its largest customer. (Godber, Tr.

157).

1221. Michael Gilchrist was President and CEO of Microporous for about ten years at the time

of the acquisition. Prior to becoming CEO he was vice president of sales and marketing

and general manager at Microporous. (Gilchrst Tr. 297-298, 301). Following the

acquisition, Mr. Gilchrst worked at Daramic as Vice President of Product and Global

Strategy. This position gave Mr. Gilchrst a perspective on Daramic's product strategy.

(Gilchrst, Tr. 297; PX920 (Gilchrst, IHT at 44-45, in camera)). Mr. Gilchrst had

professional interactions with Daramic for over twenty years. (Gilchrst, Tr. 298).

1222. Nawaz Qureshi is vice president of engineering and technology at U.S. Battery

Manufacturing Company. (Qureshi, Tr. 1990). He has been involved in the battery

industry for 42 years and has 23 years of experience in deep-cycle batteries. (Qureshi,

Tr. 1990-91). Mr. Qureshi is primarily responsible for product design and development,

but he also is responsible for quality control, manufactung improvement, and customer

service. (Qureshi, Tr. 1991). In designing and developing batteries for U.S. Battery, Mr.

Qureshi is responsible for selecting and procuring battery separators. (Qureshi, Tr.

1992). In making a decision on what battery separator to use in a particular battery, Mr.

Qureshi looks at the price of the battery separator in order to select the most costeffective separator for that battery. (Qureshi, Tr. 1992).

1223. Pierre Hauswald has been at Daramic since 1981. In 2004, he was promoted to the

position of Vice President and General Manager of Daramic. (Hauswald, Tr. at 629-

630). Mr. Hauswald is the Chief Operating Officer of Daramic. (PX0923 (Hauswald

IHT at 5, in camera)). Pierre Hauswald is the Vice President and General Manager of

Daramic, LLC, and reports to Mr. Robert Toth. (PX0582 at 011). Mr. Hauswald is the

person at Daramic who is principally responsible for strategy and strategic planning.

Market intelligence is also a par of his 'ob. Hauswald Tr. 630-631' PX0923

(Hauswald IHT at 17, in camera)). ~

191
1224. Robert Toth is the Chief Executive Officer of Polyp ore, Inc. (PX0582 at 011). Mr. Bob

Tothjoined Polypore as CEO in 2005. (Hauswald, Tr. 13-15).

1225. Dr. George Brilmyer is an electrochemist formerly employed by Microporous and

subsequently by Daramic. He resigned from Daramic in August of 2008 whereupon he

began working for Atraverda Limited, a lead-acid battery manufactuer in the U.K., as

VP of Business Development for North America. (Brilmyer, Tr. 1825-1826). Dr.

Brilmyer worked for Johnson Controls for 10 years prior to joining Microporous.

(Brilmyer, Tr. 1848). Prior to workig for Microporous full time, Dr, Brilmyer consulted

with Microporous in 1997 through 1998 working on its CellForce project. (Brilmyer, Tr.

1900). While employed by Microporous, Dr. Brilmyer held the osition of Director of

Research and Develo ment. Brilm er Tr. 1826 .

1226. John "Kevin" Whear is the vice president of technology for Daramic. (Whear, Tr. 4659).

Along with product development, Mr. Whear is responsible for knowing how the

separators Daramic sells are used, including, "applying the right (separators J to the right

applications, and then if the customers are having trouble utilizing our products in their

application or problems with the batteries, . . . address(ingJ those as well." (Whear, Tr.

4661 (PX0913 at 002, in camera)).

1227. John Craig is the Chairman, President and CEO ofEnerSys. He is responsible for all

fuctions within EnerSys. Mr. Craig is knowledgeable aboutthe import and export of

batteries by EnerSys. (Craig, Tr. 2549).

1228. John Pharo Gagge, Jr. is the Senior Director of Engineering and Quality Assurance at

EnerSys and has been with the company for 14 years. (Gagge, Tr. 2481). Mr. Gagge

oversees all new product design development, troubleshooting of customer problems,

warranty issues, designing new applications, developing batteries for new markets,

supplier selection and control (including separators), and quality assurance. (Gagge, Tr.

2482-83).

1229. Larr Michael Burkert is the Senior Procurement Manager for EnerSys and reports to Mr.

Axt. Mr. Burkert has been working in a purchasing role at EnerSys for 13 years and

entered his current position in 1996. Mr. Burkert's responsibilities include support at a

corporate level some of the factories in North America, and then globally responsibility

for battery separators. He is responsible for negotiating prices with separator suppliers,

including Daramic. Prior coming to EnerSys, Mr. Burkert worked at East Penn for two

years. Mr. Burkert has a bachelor's degree from the University of Pittsburgh in

mechanical engineering and a master's degree in mechanical engineering from Penn

State. (Burkert, Tr. 2308-2310)

192
1230. Arhur T. Balcerzak began working as a consultant for Crown Battery in 1984-85.

(Balcerzak, Tr. 4090). Mr. Balcerzak joined the buyout team in 1998 and became a ~

nine percent owner of Crown Battery while maintaining his consultancy. (Balcerzak, Tr.

4091- 4092).

1231. Crown Battery sells deep-cycle, motive power and SLI batteries. (Balcerzak, Tr. 4092).

Fift percent of its business is motive power battery sales. (Balcerzak, Tr. 4092).

1232. Gary Jensen is currently the Director of Engineering for Daramic, with responsibilities

for worldwide capital equipment installation. (PX0924 (Jensen, Dep. at 5-6, in camera)).

1233. Steven McDonald became the director of sales fro MPLP in 2002. In that position he

was in charge of worldwide sales fro MPLP. (McDonald, Tr. 3781). After the purchase

by Polypore, Mr. McDonald became the director of sales for specialty products for the

merged firm. (McDonald, Tr. 3782). And eventually Mr. McDonald was promoted to

head of sales for the Americas for Daramic. (McDonald, Tr. 3783).

1234. Larr Trevathan is curently the Vice president of Operations at Daramic. He has

responsibilities for worldwide quality and continuous improvement as well. (Trevathan,

Tr. 3566). Mr. Trevathan began work at Microporous in November 2004, as Vice

President of Operations. (Trevathan, Tr. 3568-3569). As VP of operations, Mr.

Trevathan had responsibilities for all manufactung at Piney Flats facility and had

ultimate responsibility for purchasing. (Trevathan, Tr. 3571). After Microporous began

its efforts at expansion, Mr. Trevathan was put in charge of the European arm of the

expansion as co-managing director of Microporous Products GmbH. (Trevathan, Tr.

3572).

1235. Eric Heglie is a principal at Industral Growth Parters ("IGP"), a private equity firm that

makes investments in industrial manufactug companies. (PX2300 (Heglie, IHT at 7-

8)). IGP purchased a controlling interest in Microporous in late 2006. (PX2301 (Heglie,

Dep. at 8)). Mr. Heglie was the primar person at IGP involved in the purchase of

Microporous. (PX2300 (Heglie, Dep. at 8)). Mr. Heglie served on the board of

Microporous along with other IGP people and along with Mike Gilchrist, president of

Microporous. (PX2300 (Heglie, IHT at 33-34)). Mr. Heglie was the primary point

person at IGP for the Microporous investment. When Microporous management called

in to IGP they were mostly speaking to Mr. Heglie. (PX2301 (Heglie, Dep. at 11-12))

1236. Mr. Don Wallace is VP of sales and marketing for U.S. Battery manufactug in Corona,

Ca. He has held that position for the last eight years, and has been with the company in

different capacities since 1993. (Wallace, Tr. 1927-1928). Mr. Wallace serves on the

board of directors for U.S. Battery. (Wallace, Tr. 1928). Mr. Wallace is in charge of

domestic and international sales as well as serving on the new product development

committee where he assists in the planning and development of new battery products US

Battery intends to bring to market. In his capacity as a member of this committee he

helps evaluate separators for new batteries. (Wallace, Tr. 1929).

193
CERTIFICATE OF SERVICE

I hereby certify that on August 12,2009, I filed via hand delivery an original and

two copies of the foregoing Errata Sheet to the public version of Complaint Counsel's

Post-Trial Findings of Fact with:

Donald S. Clark, Secretary

Office of the Secretar

Federal Trade Commission

600 Pennsylvana Avenue, NW, Rm. H-135

Washington, DC 20580

I hereby certify that on August 12, 2009, I served via electronic mail and hand

delivery two copies of the foregoing Errata Sheet to the public version of Complaint

Counsel's Post-Trial Findings of Fact with:

The Honorable D. Michael Chappell

Administrative Law Judge

Federal Trade Commission

600 Pennsylvania Avenue, NW, H-106

Washington, DC 20580

oa1i~ftc.gOV

I hereby certify that on August 12,2009,2009, I served via electronic mail

delivery and first class mail two copies of the foregoing Errata Sheet to the public version

of Complaint Counsel's Post-Trial Findings of Fact with:

Wiliam L. Rikard, Jr., Esq.

Eric D. Welsh, Esq.

Parker, Poe, Adams & Bernstein, LLP

401 South Tryon Street, Suite 3000

Charlotte, North Carolina 28202

willamkard~parkerpoe.com

ericwelsh(£parkerpoe.com

Linda Cunningham

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

. Telephone: (202) 326-2638

lcunningham(qftc. gov