[Federal Register Volume 74, Number 45 (Tuesday, March 10, 2009)]
[Notices]
[Pages 10279-10298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-5018]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. InBev NV/SA, InBev USA LLC, and Anheuser-Busch 
Companies, Inc.; Response to Public Comments on the Proposed Final 
Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes the public comments 
received on the proposed Final Judgment in United States v. InBev NV/
SA, InBev USA LLC, and Anheuser-Busch Companies, Inc., Civil Action No. 
1:08-cv-1965 and the response to the comments. On November 14, 2008, 
the United States filed a Complaint alleging that the proposed merger 
between InBev NV/SA (``InBev'') and Anheuser-Busch Companies, Inc. 
would violate Section 7 of the Clayton Act, 15 U.S.C. 18 by 
substantially reducing competition for the sale of beer in the Buffalo, 
Rochester, and Syracuse, New York, metropolitan areas. The proposed 
Final Judgment, filed at the same time as the Complaint, requires InBev 
to divest InBev USA LLC d/b/a Labatt USA and grant a perpetual license 
to the acquirer to brew and sell Labatt brand beer for consumption 
throughout the United States. Pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h), public comment was invited within 
the statutory 60-day comment period. Copies of the Complaint, proposed 
Final Judgment, Competitive Impact Statement, Public Comments, the 
United States' Response to the Comments, and other materials are 
currently available for inspection in Suite 1010 of the Antitrust 
Division, Department of Justice, 450 5th Street, NW., Washington, DC 
20530, telephone: (202) 514-2481, on the Department of Justice's 
website (http://www.usdoj.gov/atr), and the Office of the Clerk of the 
United States District Court for the District of the District of 
Columbia, 333 Constitution Avenue, NW., Washington, DC 20001. Copies of 
any of these materials may be obtained upon request and payment of a 
copying fee set by Department of Justice Regulations.

 J. Robert Kramer II,
 Director of Operations, Antitrust Division.

The United States District Court for the District of Columbia

    United States of America, Plaintiff, v. InBev N.V./S.A., InBev 
USA LLC, and Anheuser-Busch Companies, Inc. Defendants.

CASE NO: 1:08-cv-01965 (JR)
JUDGE: Robertson, James

Response of Plaintiff United States To Public Comments On the Proposed 
Final Judgment

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), the 
United States hereby files comments received from members of the public 
concerning the proposed Final Judgment in this case and the responses 
by the United States to these comments. The United States will move the 
Court for entry of the proposed Final Judgment after the public 
comments and this Response have been published in the Federal Register, 
pursuant to 15 U.S.C. 16(d).
    The United States filed a civil antitrust Complaint under Section 
15 of the Clayton Act, 15 U.S.C. 25, on November 14, 2008, alleging 
that the proposed merger of InBev N.V./S.A. (``InBev'') and Anheuser-
Busch Companies, Inc. (``Anheuser-Busch'') would violate Section 7 of 
the Clayton Act, 15 U.S.C. 18. Simultaneously with the filing of the 
Complaint, the United States filed a proposed Final Judgment and a Hold 
Separate Stipulation and Order (``Stipulation'') signed by the United 
States and Defendants consenting to the entry of the proposed Final 
Judgment after compliance with the requirements of the Tunney Act.\1\ 
Pursuant to those requirements, the United States filed a Competitive 
Impact Statement (``CIS'') in this Court on November 14, 2008; 
published the proposed Final Judgment and CIS in the Federal Register 
on November 25, 2008, see 73 FR 71682 (2008); and published summaries 
of the terms of the proposed Final Judgment and CIS, together with 
directions for the submission of written comments relating to the 
proposed Final Judgment, in The Washington Post for seven days 
beginning on December 7, 2008, and ending on December 13, 2008. The 60-
day period for public comments ended on February 11, 2009, and the 
United States received four comments as described below and attached 
hereto.
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    \1\ The merger closed on November 14, 2008. In keeping with the 
United States' standard practice, neither the Stipulation nor the 
proposed Final Judgment prohibited the closing of the merger. See 
ABA Section of Antitrust Law, Antitrust Law Developments 406 (6th 
ed. 2007) (noting that ``[t]he Federal Trade Commission (as well as 
the Department of Justice) generally will permit the underlying 
transaction to close during the notice and comment period''). Such a 
prohibition could interfere with many time-sensitive deals and 
prevent or delay the realization of substantial efficiencies.
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I. The United States' Investigation And The Proposed Final Judgment

    On July 13, 2008, InBev and Anheuser-Busch entered into an 
agreement, whereby InBev agreed to acquire all of the voting securities 
of Anheuser-Busch. The United States Department of Justice (the 
``Department'') conducted an extensive, detailed investigation into the 
competitive effects of the proposed transaction. As part of this 
investigation, the Department obtained and considered more than 500,000 
pages of material. The Department deposed officials of Anheuser-Busch 
and Inbev and interviewed beer wholesalers, retail customers, brewers, 
and other individuals with knowledge of the industry.
    After conducting a detailed analysis of the acquisition, the 
Department concluded that the combination of InBev and Anheuser-Busch 
likely would substantially lessen competition for the sale of beer in 
the Buffalo, Rochester, and Syracuse, New York, areas. In contrast to 
InBev's small (less than 2 percent) share in most parts of the country, 
InBev's Labatt brand accounts for a significant portion of beer sales 
in the Buffalo, Rochester, and Syracuse areas. Anheuser-Busch beers and 
InBev's Labatt brand beers collectively account for over 40 percent of 
the total beer sales in the Buffalo, Rochester, and Syracuse areas.
    As more fully explained in the CIS, the Stipulation and proposed 
Final Judgment in this case are designed to preserve competition in the 
sale of beer in the Buffalo, Rochester, and Syracuse areas by requiring 
InBev to divest InBev USA d/b/a Labatt USA (``IUSA'') \2\ and all of 
the real and intellectual property rights required to brew, promote, 
market, distribute, and sell Labatt brand beer for consumption in the 
United

[[Page 10280]]

States (``Divestiture Assets''). See Proposed Final Judgment II.F. The 
Stipulation and proposed Final Judgment also require InBev to take 
several steps to assist the acquirer in providing prompt and effective 
competition in the Buffalo, Rochester, and Syracuse areas, including 
offering a transitional supply agreement to the acquirer. Id. at J. 
InBev must also provide transition support services as are reasonably 
necessary for the acquirer to operate the Divestiture Assets. Id. at H.
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    \2\ The Divestiture Assets do not include certain assets of IUSA 
(e.g., books, records, and data) that relate solely to the sale of 
non-Labatt brand beer. See Proposed Final Judgment II.F(iii), (iv).
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    In the Department's judgment, the divestiture of InBev USA and the 
right to brew and sell Labatt brand beer for consumption in the United 
States, along with the other requirements contained in the Stipulation 
and proposed Final Judgment, are sufficient to remedy the 
anticompetitive effects identified in the Complaint.

II. Standard of Judicial Review

    Upon the publication of the Comments and this Response, the United 
States will have fully complied with the Tunney Act and will move for 
entry of the proposed Final Judgment as being ``in the public 
interest.'' 15 U.S.C. 16(e)(1), as amended.
    The Tunney Act states that, in making that determination, the Court 
shall consider:

    (A) The competitive impact of such judgment, including 
termination of alleged violations, provisions for enforcement and 
modification, duration of relief sought, anticipated effects of 
alternative remedies actually considered, whether its terms are 
ambiguous, and any other competitive considerations bearing upon the 
adequacy of such judgment that the court deems necessary to a 
determination of whether the consent judgment is in the public 
interest; and
    (B) The impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and 
individuals alleging specific injury from the violations set forth 
in the complaint including consideration of the public benefit, if 
any, to be derived from a determination of the issues at trial.

15 U.S.C. 16(e)(1)(A)-(B); see generally United States v. AT&T Inc., 
541 F. Supp. 2d 2, 6 n.3 (D.D.C. 2008) (listing factors that the Court 
must consider when making the public-interest determination); United 
States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1, 11 (D.D.C. 2007) 
(concluding that the 2004 amendments to the Tunney Act ``effected 
minimal changes'' to scope of review under Tunney Act, leaving review 
``sharply proscribed by precedent and the nature of Tunney Act 
proceedings'').\3\
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    \3\ The 2004 amendments substituted ``shall'' for ``may'' in 
directing relevant factors for courts to consider and amended the 
list of factors to focus on competitive considerations and to 
address potentially ambiguous judgment terms. Compare 15 U.S.C. 
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006).
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    As the United States Court of Appeals for the District of Columbia 
Circuit has held, under the APPA, a court considers, among other 
things, the relationship between the remedy secured and the specific 
allegations set forth in the government's complaint, whether the decree 
is sufficiently clear, whether enforcement mechanisms are sufficient, 
and whether the decree may positively harm third parties. See United 
States v. Microsoft Corp., 56 F.3d 1448, 1458-62 (D.C. Cir. 1995). With 
respect to the adequacy of the relief secured by the decree, a court 
may not ``engage in an unrestricted evaluation of what relief would 
best serve the public.'' United States v. BNS, Inc., 858 F.2d 456, 462 
(9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 
666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62. Courts 
have held that:

[t]he balancing of competing social and political interests affected 
by a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's 
role in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to 
the decree. The court is required to determine not whether a 
particular decree is the one that will best serve society, but 
whether the settlement is ``within the reaches of the public 
interest.'' More elaborate requirements might undermine the 
effectiveness of antitrust enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted); cf. BNS, 
858 F.2d at 464 (holding that the court's ``ultimate authority under 
the [APPA] is limited to approving or disapproving the consent 
decree''); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. 
Mass. 1975) (noting that, in this way, the court is constrained to 
``look at the overall picture not hypercritically, nor with a 
microscope, but with an artist's reducing glass''). See generally 
Microsoft, 56 F.3d at 1461 (discussing whether ``the remedies [obtained 
in the decree are] so inconsonant with the allegations charged as to 
fall outside of the `reaches of the public interest' '').
    The government is entitled to broad discretion to settle with 
defendants within the reaches of the public interest. AT&T Inc., 541 F. 
Supp. 2d at 6. In making its public-interest determination, a district 
court ``must accord deference to the government's predictions about the 
efficacy of its remedies, and may not require that the remedies 
perfectly match the alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d 
at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts 
to be ``deferential to the government's predictions as to the effect of 
the proposed remedies''); United States v. Archer-Daniels-Midland Co., 
272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant 
due respect to the United States' prediction as to the effect of 
proposed remedies, its perception of the market structure, and its 
views of the nature of the case).
    Court approval of a consent decree requires a standard more 
flexible and less strict than that appropriate to court adoption of a 
litigated decree following a finding of liability. ``[A] proposed 
decree must be approved even if it falls short of the remedy the court 
would impose on its own, as long as it falls within the range of 
acceptability or is `within the reaches of public interest.' '' United 
States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) 
(citations omitted) (quoting United States v. Gillette Co., 406 F. 
Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United 
States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum 
Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent 
decree even though the court would have imposed a greater remedy). To 
meet this standard, the United States ``need only provide a factual 
basis for concluding that the settlements are reasonably adequate 
remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
    Moreover, the Court's role under the APPA is limited to reviewing 
the remedy in relationship to the violations that the United States has 
alleged in its complaint, rather than to ``construct [its] own 
hypothetical case and then evaluate the decree against that case.'' 
Microsoft, 56 F.3d at 1459. Because the ``court's authority to review 
the decree depends entirely on the government's exercising its 
prosecutorial discretion by bringing a case in the first place,'' it 
follows that ``the court is only authorized to review the decree 
itself,'' and not to ``effectively redraft the complaint'' to inquire 
into other matters that the United States did not pursue. Id. at 1459-
60. As this Court recently confirmed in SBC Communications, courts 
``cannot look beyond the complaint in making the public interest 
determination unless the complaint is drafted so narrowly as to make a 
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.

[[Page 10281]]

    In its 2004 amendments to the Tunney Act, Congress made clear its 
intent to preserve the practical benefits of utilizing consent decrees 
in antitrust enforcement, adding the unambiguous instruction that 
``[n]othing in this section shall be construed to require the court to 
conduct an evidentiary hearing or to require the court to permit anyone 
to intervene.'' 15 U.S.C. 16(e)(2). The amendments codified what 
Congress intended when it passed the Tunney Act in 1974, as Senator 
Tunney then explained: ``[t]he court is nowhere compelled to go to 
trial or to engage in extended proceedings which might have the effect 
of vitiating the benefits of prompt and less costly settlement through 
the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement 
of Senator Tunney). Rather, the procedure for the public-interest 
determination is left to the discretion of the court, with the 
recognition that the court's ``scope of review remains sharply 
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC 
Commc'ns, 489 F. Supp. 2d at 11.\4\
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    \4\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the 
court to make its public interest determination on the basis of the 
competitive impact statement and response to comments alone''); 
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ] 
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt 
failure of the government to discharge its duty, the Court, in 
making its public interest finding, should * * * carefully consider 
the explanations of the government in the competitive impact 
statement and its responses to comments in order to determine 
whether those explanations are reasonable under the 
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6 
(1973) (``Where the public interest can be meaningfully evaluated 
simply on the basis of briefs and oral arguments, that is the 
approach that should be utilized.'').
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III. Summary of Public Comments and the United States' Response

    During the 60-day comment period, the United States received 
comments from (1) ten individuals who filed a complaint in the United 
States District Court for the Eastern District of Missouri asking the 
court to enjoin InBev's acquisition of Anheuser-Busch (``Missouri 
Plaintiffs'') \5\; (2) Esber Beverage Company, RL Lipton Co., and Tri-
County Distributing Co. (``Ohio Distributors''); (3) Onondaga Beverage 
Corporation, Rochester Beer & Beverage Corp., McCraith Beverages, 
Owasco Beverage Inc., Seneca Beverage Corp, and Rocco J. Testani Inc. 
(``New York Distributors''); and (4) Tri-County Beverage Company. The 
comments are attached to this Response.
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    \5\ The Missouri Plaintiffs filed their complaint on September 
10, 2008, alleging that the merger would eliminate InBev as a 
potential competitor to Anheuser-Busch and thereby lessen 
competition in a relevant market consisting of the entire United 
States. Nearly two months later, Missouri Plaintiffs filed a motion 
for a preliminary injunction. See Ginsberg v. InBev SA/NV, No. 
4:08CV01375, 2008 WL 4965859, at *1 (E.D. Mo. Nov. 18, 2008). The 
Missouri District Court denied the motion, holding that Missouri 
Plaintiffs' ``characterization [of InBev] as a perceived potential 
or actual potential competitor in the U.S. beer market [is] purely 
speculative and the evidence presented is insufficient to warrant 
granting [Missouri] Plaintiffs' Motion for Preliminary Injunction or 
holding a hearing regarding their Motion.'' Id. at *4. The court 
held further that ``the evidence presented demonstrates that it is 
overwhelmingly likely that Plaintiffs cannot succeed on the merits 
of their case * * *. '' Id.
    In addition to filing a complaint in the Eastern District of 
Missouri, Missouri Plaintiffs sought to intervene in these Tunney 
Act proceedings ``for the purpose of challenging the merger.'' 
Missouri United States District Court Plaintiffs' Motion to 
Intervene, filed Jan. 14, 2009, 1. The Court denied their motion to 
intervene. Order, dated Feb. 3, 2009.
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    The commenters raise two main concerns: (A) That the United States 
should have alleged and remedied harm to competition in a nationwide 
geographic market, rather than the Buffalo, Rochester, and Syracuse, 
New York, markets alleged in the United States' Complaint; and (B) that 
the proposed Final Judgment should contain additional requirements to 
ensure that competition is preserved in the Buffalo, Rochester, and 
Syracuse, New York, markets. After reviewing the comments, the United 
States has determined that the proposed Final Judgment remains in the 
public interest.

A. Missouri Plaintiffs' Comment that the United States Should Have 
Alleged and Remedied Additional Competitive Concerns

1. Summary of Comment
    The Missouri Plaintiffs argue that ``the Complaint is too narrow 
[and] the proposed remedies inadequate,'' because the United States did 
not challenge the merger under a ``potential competition'' theory and 
did not challenge the legality of a November 2006 import agreement 
between InBev and Anheuser-Busch. Missouri Plaintiffs Comment at 3-4. 
In other words, they assert that the United States should have pled and 
remedied anticompetitive effects asserted by the Missouri Plaintiffs 
that are neither alleged nor related to the competitive harms 
identified in the United States' Complaint. Missouri Plaintiffs also 
assert that this Court should ``inquire'' about why the United States 
did not produce any ``determinative'' documents, as defined by the 
Tunney Act, 15 U.S.C. 16(b), and suggest that an import agreement 
between InBev and Anheuser-Busch is in fact such a determinative 
document. Missouri Plaintiffs Comment at 15-16.
2. The United States' Response
a. Competitive Concerns Not Addressed in the Complaint
    Missouri Plaintiffs' comment that the United States should have 
alleged harm to competition for the sale of beer in a nationwide market 
concerns matters that are outside the scope of this APPA proceeding 
because neither claimed harm relates to the harms alleged in the United 
States' Complaint. As explained by this Court, in a Tunney Act 
proceeding, the district court should not second-guess the 
prosecutorial decisions of the Department regarding the nature of the 
claims brought in the first instance; ``rather, the court is to compare 
the complaint filed by the United States with the proposed consent 
decree and determine whether the proposed decree clearly and 
effectively addresses the anticompetitive harms initially identified.'' 
United States v. Thomson Corp., 949 F. Supp. 907, 913 (D.D.C. 1996); 
accord Microsoft, 56 F.3d at 1459 (in APPA proceeding, ``district court 
is not empowered to review the actions or behavior of the Department of 
Justice; the court is only authorized to review the decree itself''); 
BNS, 858 F.2d at 462-63 (``the APPA does not authorize a district court 
to base its public interest determination on antitrust concerns in 
markets other than those alleged in the government's complaint''). This 
Court has held that ``a district court is not permitted to `reach 
beyond the complaint to evaluate claims that the government did not 
make and to inquire as to why they were not made.' '' SBC Commc'ns, 489 
F. Supp. 2d at 14 (quoting Microsoft, 56 F.3d at 1459).
    Further, the Missouri Plaintiffs' suggestion that the 2004 
Amendments to the Tunney Act require a more extensive review of the 
United States' exercise of its prosecutorial judgment, Missouri 
Plaintiffs Comment at 6-7, conflicts with this Court's holding in SBC 
Communications. In SBC Communications, this Court held that ``a close 
reading of the law demonstrates that the 2004 amendments effected 
minimal changes, and that this Court's scope of review remains sharply 
proscribed by precedent and the nature of [APPA] proceedings.'' SBC 
Commc'ns, 489 F. Supp. 2d at 11. This Court continued that because 
``review [under the 2004 amendments] is focused on the `judgment,' it 
again appears that the Court cannot go beyond the scope of the 
complaint.'' Id.
    In short, the Tunney Act, as amended in 2004, requires the Court to 
evaluate the effect of the ``judgment upon competition'' as alleged in 
the

[[Page 10282]]

Complaint, in this case, competition in the market for beer in the 
Buffalo, Rochester, and Syracuse, New York, areas. See 15 U.S.C. 
16(e)(1)(b). Because the United States did not allege that InBev's 
acquisition of Anheuser-Busch would cause harm in additional markets, 
it is not appropriate for the Court to seek to determine whether the 
acquisition will cause anticompetitive harms in other regions of the 
country.\6\
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    \6\ Missouri Plaintiffs also assert that ``the result of the 
[proposed Final Judgment] would be to eliminate InBev, and its 
LaBatt brands, from competing head to head with Anheuser Busch 
Budweiser brands,'' Missouri Plaintiffs Comment at 4, but make no 
attempt to explain why the proposed divestiture, which requires the 
divestiture of all of InBev's assets related to the sale of Labatt 
brand beers in the United States, would not preserve head-to-head 
competition between Labatt brands and Budweiser brands.
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b. Determinative Documents
    In its CIS, the United States certified that there were no 
determinative documents within the meaning of the Tunney Act, 15 U.S.C. 
16(b). CIS at 16. Missouri Plaintiffs appear to argue that this 
certification is wrong, suggesting that the United States failed to 
submit determinative documents including ``the Import Agreement entered 
into by the Defendants in November 2006,'' Missouri Plaintiffs Comment 
at 16-17, which, in their view, is an illegal agreement or somehow 
relates to the theory of harm they alleged in their case against 
Defendants that is pending before the United States District Court for 
the Eastern District of Missouri.
    There is no support for Missouri Plaintiffs' argument. The Tunney 
Act's notice and comment provision requires the government to make 
available to the public copies of the proposed consent decree, and 
``any other materials and documents which the United States considered 
determinative in formulating such proposal.'' 15 U.S.C. 16(b). In 
Massachusetts School of Law of Andover v. United States, 118 F.3d 776, 
785 (D.C. Cir. 1997) (``MSL''), the court held that ``the Tunney Act 
does not require that the government give access to evidentiary 
documents gathered in the course of an investigation culminating in 
settlement.'' The United States had argued that the statute referred to 
documents ``that individually had a significant impact on the 
government's formulation of relief--i.e., on its decision to propose or 
accept a particular settlement.'' Id. at 784 (quoting brief of the 
United States). The Court concluded that the statutory language ``seems 
to point toward the government's view * * * and confines section 16(b) 
at the most to documents that are either `smoking guns' or the 
exculpatory opposite.'' Id.; accord United States v. Microsoft, 215 F. 
Supp. 2d 1, 11 (D.D.C. 2002) (holding that the Tunney Act ``makes clear 
that the calculus by which documents are to be deemed `determinative' 
is left entirely to the United States'' and calls only for ``documents 
`which the United States considered determinative,' not documents which 
the Court or other parties would consider determinative''). The court 
added that ``[t]he legislative history in fact supports the 
government's still narrower reading.'' MSL, 118 F.3d at 784.
    As stated, the United States certified to the Court in the CIS that 
there were no determinative documents. CIS at 16. It did so because 
there was no document, including the InBev/Anheuser-Busch import 
agreement, that was a ``smoking gun or its exculpatory opposite,'' or 
of similar nature, and because no document individually had a 
significant effect on the United States' formulation of the proposed 
Final Judgment. Accordingly, the Court should reject Missouri 
Plaintiffs' unsupported suggestion that the United States failed to 
submit determinative documents.

B. Comments That the Proposed Final Judgment Be Modified To Contain 
Additional Requirements for Defendants and the Acquirer

1. Summary of Comments
    New York Distributors, Ohio Distributors, and Tri-County Beverage 
state that the proposed Final Judgment should be modified to require 
that Labatt brand beer sold in the United States be brewed in Canada, 
to preserve its identity as a Canadian import. New York Distributors 
Comment at 5; Ohio Distributors Comment at 5; Tri-County Beverage 
Comment at 2. Ohio Distributors state that the proposed Final Judgment 
should be modified further to require the purchaser of the Divestiture 
Assets to maintain the current distributor network for a ``commercially 
reasonable time period'' and to give them the option to purchase Labatt 
brand beer from InBev beyond the three-year period provided for in the 
proposed Final Judgment. Ohio Distributors Comment at 2, 5. Finally, 
Ohio Distributors and Tri-County Beverage state that to be a viable 
competitor, the purchaser of the Divestiture Assets must remain priced 
at domestic beer levels, maintain brand (e.g., Labatt Blue Light) and 
packaging offerings (e.g., thirty packs), and continue to invest in 
marketing and promotion. Ohio Distributors Comment at 6; Tri-County 
Beverage Comment at 2 (concurring with Ohio Distributors' comments).
2. The United States' Response
a. The Proposed Final Judgment Is Sufficient To Eliminate the Alleged 
Anticompetitive Effects
    The modifications proposed by Ohio Distributors, New York 
Distributors, and Tri-County Beverage are not necessary to ensure that 
competition will remain in the market alleged in the Complaint. The 
proposed Final Judgment imposes extensive requirements on Defendants 
that are sufficient to eliminate the alleged anticompetitive effects. 
First, the proposed Final Judgment requires Defendants to divest all of 
the assets of IUSA (except for a narrow class of assets unrelated to 
the brewing, promotion, marketing or distribution of Labatt brand 
beers) and all of the real and intellectual property rights required to 
brew, promote, market, distribute, and sell Labatt brand beer for 
consumption in the United States. Proposed Final Judgment II.F. These 
rights include an exclusive, perpetual, assignable, transferable, and 
fully paid-up license that grants the acquirer the rights to (a) brew 
Labatt brand beer in Canada and/or the United States, (b) promote, 
market, distribute, and sell Labatt brand beer for consumption in the 
United States, and (c) use all of the intellectual property rights 
associated with the marketing, sale, and distribution of Labatt brand 
beer for consumption in the United States, including the trade dress, 
the advertising, the licensed marks, and such molds and designs as are 
used in the manufacturing process of bottles for the Labatt brand beer. 
Id.
    Second, to ensure that the Acquirer can brew Labatt beer without 
any loss of quality or consistency, the proposed Final Judgment 
requires Defendants to sell to the Acquirer all production know-how for 
Labatt brand beer, including recipes, packaging and marketing and 
distribution know-how and documentation. Id. The recipes required to be 
divested include all ``formulae, recipes, processes and specifications 
specified * * * for use in connection with the production and packaging 
of Labatt Brand Beer in the United States, including * * * yeast, 
brewing processes, equipment and material specifications, trade and 
manufacturing secrets, know-how and scientific and technical 
information. * * *'' Id. at II.M.
    Third, the proposed Final Judgment ensures the uninterrupted sale 
of Labatt brand beer in the United States by requiring Defendants to 
divest all rights pursuant to distributor contracts and, at

[[Page 10283]]

the option of the Acquirer, to negotiate a transition services 
agreement of up to one year in length, and to enter into a supply 
contract for Labatt brand beer sufficient to meet all or part of the 
Acquirer's needs for a period of up to three years. Id. at II.F, IV.H, 
IV.J.
    Fourth, to ensure that the Acquirer can continue to develop, grow, 
and improve the Labatt brand over time, the proposed Final Judgment 
requires Defendants to grant to the Acquirer a perpetual license that 
will allow the Acquirer to brew, distribute, market, and sell 
``extensions'' of Labatt brand beer (e.g., a ``Light'' or ``Ice'' 
version). Id. at II.J.
    Fifth, Defendants are required to satisfy the United States in its 
sole discretion that the proposed Acquirer of the Divestiture Assets 
will operate them as a viable, ongoing business that will compete 
effectively in the relevant markets, and that the divestiture will 
successfully remedy the otherwise anticipated anticompetitive effects 
of the proposed merger. Id. at IV.I. In approving the Acquirer, the 
United States may appropriately consider the issues raised by the 
distributors' comments.
b. The Proposed Modifications Could Reduce Competition
    Not only are the additions to the proposed Final Judgment 
recommended by the New York Distributors, Ohio Distributors, and Tri-
County Beverage not needed to supplement the already extensive 
requirements and safeguards in the proposed Final Judgment, as the 
United States now explains, they could in fact reduce the ability of 
the Acquirer of the Divestiture Assets to compete.
i. Requirement To Brew Labatt in Canada
    The distributor groups argue that the proposed Final Judgment 
should be modified to require the purchaser of the divested assets to 
maintain Labatt as a Canadian import. They allege that ``[t]he Labatt 
Brand derives much of its cachet from its status as a Canadian 
import,'' Ohio Distributors Comment at 2, and that brewing Labatt in 
the United States ``would make it impossible to maintain the Labatt 
Brand as a competitive brand,'' New York Distributors Comment at 4.
    The proposed Final Judgment allows the Acquirer of the Divestiture 
Assets to brew Labatt brand beer in Canada, but also gives the Acquirer 
the flexibility to brew the beer in the United States, Proposed Final 
Judgment II.F(i)(A), so as not to limit the Acquirer's ability to adopt 
the most cost-effective strategies. Brewing Labatt brand beer in the 
United States may enable the Acquirer to offer lower prices. Beer can 
be segmented by price into four categories: sub-premium (e.g., Busch); 
premium (e.g., Budweiser); super-premium (e.g., Michelob); crafts/
import (e.g., Sam Adams, Heineken). Imports generally are priced 
significantly higher than premium. Labatt brands, however, are priced 
at premium levels. The distributor commenters recognize that premium 
pricing is an important part of Labatt's success. See, e.g., Ohio 
Distributors Comment at 6. Modifying the Final Judgment to require the 
Acquirer of the Divestiture Assets to brew Labatt brand beer in Canada, 
could impair the Acquirer's ability to maintain premium-level prices 
over time. In contrast, the proposed Final Judgment gives the Acquirer 
the option to choose a brewing location that will maximize its ability 
to compete with other premium beers.
ii. Requirement To Maintain Existing Distributor Network
    The Ohio Distributors argue that the Final Judgment should 
``require the Acquirer [of the Divestiture Assets] to keep the Labatt 
Distributors for a commercially reasonable period of time.'' Ohio 
Distributor Comment at 8. Without such a requirement, they claim, the 
divestiture could precipitate consolidation among beer distributors, 
resulting in higher prices to consumers. Id. at 2.
    Such a requirement is not necessary to preserve the current level 
of competition and could inhibit the Acquirer's ability to compete. The 
requirement in the proposed Final Judgment that InBev sell to the 
Acquirer all of its existing U.S. wholesaler and distributor agreements 
for Labatt brand beer (along with the supply agreement), Proposed Final 
Judgment II.F(iii)(B), IV.J, will prevent interruptions in the 
distribution of Labatt beer in the United States. If these wholesaler 
and distributor agreements are the most efficient mechanism to 
distribute Labatt brand beer, then the Acquirer of the Divestiture 
Assets will have a strong incentive to keep them. If they are not, or 
if market conditions change, then the proposal of the commentators may 
reduce the ability of the Acquirer to sell Labatt brand beer at 
competitive prices. Moreover, limiting the Acquirer's ability to change 
distributors could prevent the deconcentration of the distributor 
market if, for example, the Acquirer desires to switch from a joint 
Labatt/Anheuser-Busch distributor to a distributor with no other major 
brands.
iii. Other Competitive Practices
    The Ohio Distributors identify additional business practices that 
they believe contribute to the competitiveness of the Labatt brand, but 
do not appear to specifically recommend that the proposed Final 
Judgment include requirements that the Acquirer adhere to these 
practices. Rather, they state that the Division should consider the 
Acquirer's product mix and sales and marketing plans to determine that 
the Acquirer will maintain competitive pricing, an attractive brand and 
packaging mix, and sufficient spending on promotion. Ohio Distributors 
Comment at 6. The requirements of the proposed Final Judgment 
adequately ensure that the Acquirer of the Divestiture Assets will have 
the ability and means to aggressively market and sell Labatt brand beer 
and to continue to develop and grow the brand. As described above, the 
proposed Final Judgment allows the Acquirer the flexibility to brew 
Labatt brand beer in the most cost-effective location, giving it the 
ability to maintain competitive levels of marketing and prices. In 
addition, the Divestiture Assets contains the Labatt brand portfolio, 
which includes ``extensions of any one or more of [the Labatt brands] * 
* * as may be developed from time to time by the Acquirer.'' Proposed 
Final Judgment II.J. The proposed Final Judgment also requires that 
Defendants demonstrate ``to the sole satisfaction of the United States 
that the Divestiture Assets will remain viable and the divestiture of 
such assets will remedy the competitive harm alleged in the 
Complaint.'' Proposed Final Judgment IV.I. Finally, before approving 
the divestiture, the United States may properly consider the Acquirer's 
plans for packaging, marketing, and promotion.

IV. Conclusion

    The issues raised in the four public comments were among the many 
considered during the United States' extensive and thorough 
investigation. The United States has determined that the proposed Final 
Judgment as drafted provides an effective and appropriate remedy for 
the antitrust violations alleged in the Complaint, and is therefore in 
the public interest. The United States will move this Court to enter 
the proposed Final Judgment after the comments and this response are 
published in the Federal Register.


    Dated: February 25, 2009.

[[Page 10284]]

Respectfully Submitted,
Mitchell H. Glende,
Trial Attorney, Litigation I Section--Antitrust Division, United States 
Department of Justice, 1401 H Street, NW., Suite 4000, Washington, DC 
20530, (202) 353-3106, (202) 307-5802 (facsimile).

The United States District Court for the District of Columbia

    United States of America, Plaintiff, v. InBev N.V./S.A., InBev 
USA LLC, and Anheuser-Busch Companies, Inc., Defendants.

CASE NO: 1:08-cv-01965 (JR)
JUDGE: Robertson, James

Notice Regarding Video Exhibit Attachment

    New York Distributors Comment Exhibit O (``Exhibit O''), which 
is an attachment to the United States' Response to Public Comments 
on the Proposed Final Judgment, is a compact disc consisting of nine 
(9) movies in MPEG format. Exhibit O is being maintained in the case 
file in the Clerk's Office. The exhibit will be available for public 
viewing and copying between the hours of 9 a.m. to 4 p.m., Monday 
through Friday.

Dated: February 25, 2009.

Mitchell H. Glende,
Trial Attorney, Litigation I Section--Antitrust Division, United 
States Department of Justice, 1401 H Street, NW., Suite 4000, 
Washington, DC 20530, (202) 353-3106, (202) 307-5802 (facsimile).

January 23, 2009

Via FedEx Express:
Joshua H. Soven, Chief, Litigation I Section, Antitrust Division,
Department of Justice, 1404 H Street, NW., Suite 4000, Washington, 
DC 20530, Re: Public Comment on United States of America v. InBev 
NV/SA, et al., Case No. 08-cv-1965-JR.

    Dear Mr. Soven: Pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h)(``APPA'' or ``Tunney Act''), this 
Public Comment is respectfully submitted by the following 
individuals, all citizens of the State of Missouri: Marty Ginsburg, 
Patricia Odenbach, Daniel Sayle, Joseph Lott, Terri Lott, Ariel 
Young, Ronald Martin, Sharon Martin, William Stage and Barry 
Ginsburg.\1\ These individuals (``Missouri Plaintiffs'') request 
that the Court not enter the Proposed Final Judgment, as it is not 
within the public interest. 15 U.S.C. 16(e)(1).\2\
---------------------------------------------------------------------------

    \1\ These individuals are consumers and purchasers of Anheuser-
Busch's beers who in the four years prior to the filing of this 
action by the United States Department of Justice, have purchased 
beer produced by one or both of the defendants, and each individual 
expects to continue to purchase beer produced by one or both of the 
defendants in the future.
    These individuals have also filed a private antitrust action in 
United States District Court for the Eastern District for Missouri, 
contending that the acquisition by InBev NV/SA (``InBev'') of 
Anheuser-Busch Companies, Inc. (``Anheuser-Busch'') violates Section 
7 of the Clayton Act, and that they are threatened with loss and 
damage in the form of higher prices, fewer services, fewer 
competitive choices, deterioration of products and product 
diversity, suppression and destruction of smaller actual competitors 
through exclusive distribution, full-line forcing, and the like, and 
other anticompetitive effects and consequences that may, and most 
probably will, result from the elimination of the actual and 
potential competition of InBev as a result of the acquisition.
    \2\ Additionally, on January 14, 2009, the Missouri Plaintiffs 
filed a Motion for Intervention in this case, requesting this Court 
to allow intervention by the Missouri Plaintiffs for the purpose of 
challenging the acquisition as being against the public interest and 
illegal.
---------------------------------------------------------------------------

I. Summary of Public Comment

    Notably, this is the largest cash acquisition in the history of the 
antitrust laws. If InBev is allowed to purchase the United States' 
largest brewer, Anheuser-Busch, there no longer would be any 
significant major potential competitor to influence pricing and 
marketing practices in the United States anywhere near the degree to 
which InBev, as the largest brewer in the world, is able to do; the 
beer market in the United States would be controlled by absentee 
foreign owners; consumer welfare and choice and the benefits of 
competition would be substantially lessened and tend toward the 
creation of a monopoly; and prices would be artificially enhanced and 
raised and extracted without regard to supply, demand and competition 
on the merits.
    These Missouri Plaintiffs also respectfully submit that under the 
``actual potential competition'' doctrine and the ``perceived potential 
competition'' doctrine, this Court as part of its review under the 
Tunney Act, must conduct an analysis of the Defendant InBev's objective 
ability to enter the target market, either de novo, or through a ``toe-
hold'' acquisition. After doing so, the Court should reject the 
Proposed Final Judgment.
    The ``actual potential competition'' doctrine seeks to determine 
whether the defendant is a potential market entrant and, if so, whether 
its eventual entry would be likely to de-concentrate the market or lead 
to other pro-competitive affects, such as increased competition, lower 
prices, better service or higher quality standards.
    The ``perceived potential competition'' doctrine looks at whether 
the defendant's presence on the periphery of the market, or ``in the 
wings'' exerts a present pro-competitive impact on the market 
participants. The reasoning underlying this doctrine is the current 
market participants will compete hard against one another, seeking to 
prevent the would-be competitor from entering. In both cases, the 
doctrines lead to increased competition which inures to consumers' 
benefit.
    In this regard, the position of InBev, the largest beer 
manufacturer in the world, is mentioned in the Government's Complaint, 
but there is no mention, much less analysis of the fact that InBev has 
waited in the wings of the U.S. beer market. The focus of the DOJ's 
Complaint is on but one region, in New York State where InBev's Labatt 
brand is in heated competition with Anheuser-Busch and MillerCoors. 
Missouri Plaintiffs contend that InBev is well-situated as an ``actual 
potential competitor,'' because the market economics are attractive and 
InBev is well-suited to take advantage of them. Its entry, Missouri 
Plaintiffs contend, would likely eventually de-concentrate the market 
to consumers' benefit. Missouri Plaintiffs also contend that InBev is a 
``perceived potential competitor,'' whose presence on the periphery of 
the market currently exerts pro-competitive influence on the market.
    Nor is there any analysis in the Government's filings about the 
Import Agreement between InBev and Anheuser-Busch signed in November 
2006. While mentioned almost in passing, there has been no explanation 
about the Import Agreement's impact on the public interest and how it 
is an integral component of the Court's mandatory independent analysis 
of the Complaint, the requested relief, and the PFJ. Missouri 
Plaintiffs submit that this is at the genesis of why the Complaint is 
too narrow, the proposed remedies inadequate, and the PFJ is inimical 
to the public interest. As we explain below, under APPA's standards of 
review, the Court may properly consider the Import Agreement, and its 
impact, and its relationship to the suggested remedies in this case. 
Such evidence is in fact part and parcel of an appropriate inquiry into 
the purpose, meaning and efficacy of the PFJ.
    As an overview, this Public Comment submits the following issues 
are germane to the Court's consideration of whether this Proposed Final 
Judgment falls outside of the public interest. First, as noted above, 
that the Court must deny entry of the PFJ under the ``actual potential 
competition'' doctrine and the ``perceived potential competition'' 
doctrine. Notably, in this void of any discussion of these doctrines, 
there are also no ``determinative documents'' which have been made 
available to the public as required under the Tunney Act, 15 U.S.C. 
16(b).
    In conjunction with this, there is a corresponding failure of the 
DOJ to address the legality and impact of the November 2006 Import 
Agreement between the Defendants, and whether or

[[Page 10285]]

not the terms and effects of the Import Agreement have an 
anticompetitive impact upon the relevant market or markets. Third, even 
in the three separate geographic areas which are the subject of the 
proposed remedy, the result of the PFJ would be to eliminate InBev, and 
its LaBatt brands, from competing head to head with Anheuser Busch 
Budweiser brands, thereby reducing the number of strong market 
competitors while at the same time eliminating InBev--the wealthiest 
and most viable potential entrant into those markets.\3\
---------------------------------------------------------------------------

    \3\ Here there has been no showing at all that any 
``independent, viable acquirer'' can step into the shoes of InBev, 
who the Government claims had market shares of 21 percent in Buffalo 
and Rochester and 13 percent in Syracuse market. See Competitive 
Impact Statement at 6, noting that ``Entry of a new competitor into 
the marketplace is particularly unlikely because a new entrant would 
not possess the highly important brand acceptance necessary to 
succeed.''
---------------------------------------------------------------------------

    The record in this action also has shed a light on the Government 
and the Defendants' procedural gamesmanship with regard to 
representations and omissions to the District Courts in connection with 
the two-track litigation in Missouri District Court and this Court, in 
order to lead these Courts into prematurely approving the acquisition. 
In this context, the Court must consider the bi-partisan comments of 
high-ranking elected officials of the State of Missouri condemning the 
transaction as anticompetitive and otherwise against the public 
interest. The Court should also exercise its independent evaluation of 
this controversial acquisition in the context of the public comments of 
Congress encouraging independent determination by the reviewing court 
and the 2008 concerns of the Chairman of the House Judiciary Committee 
Task Force on Competition Policy and Antitrust Laws questioning the 
``hands off approach'' of the Antitrust Division concerning mergers.

II. Procedural History

    1. Pursuant to the Antitrust Procedures and Penalties Act, 15 
U.S.C. 16(b)-(h), a Proposed Final Judgment, Hold Separate Stipulation 
and Order and Competitive Impact Statement were all filed with this 
Court on November 14, 2008.
    2. Also on November 14, 2008, the United States Department of 
Justice, Antitrust Division, filed a civil antitrust Complaint seeking 
to enjoin the proposed acquisition of Anheuser-Busch Companies 
(``Anheuser-Busch'') by InBev N.V./S.A. (``InBev''). See Competitive 
Impact Statement, Docket No. 2 at 1.
    3. The Complaint alleges, inter alia, that certain aspects of the 
proposed acquisition by Inbev NV/SA of Anheuser-Busch Companies, Inc. 
would violate Section 7 of the Clayton Act, 15 U.S.C. 18, in that ``the 
likely effect of the merger would be to lessen competition 
substantially in the market for beer in the metropolitan areas of 
Buffalo, Rochester and Syracuse, New York.'' See DOJ Complaint, ]] 1-7. 
The DOJ also filed a Proposed Final Judgment (``PFJ''), Hold Separate 
Stipulation and Order, Plaintiff United States' Explanation of Consent 
Decree Procedures, and Competitive Impact Statement in this Court. (See 
Docket Nos. 1, 2.)
    4. On the evening of November 14, 2008, this Court signed the DOJ's 
Hold Separate Stipulation and Order. (Docket No. 9.) This Court has not 
signed the Proposed Final Judgment.
    5. Pursuant to 15 U.S.C. 16(b), the revised Proposed Final Judgment 
and Competitive Impact Statement were published in the Federal Register 
on November 25, 2008, at 73 FR 71682 (Nov. 25, 2008).
    6. The 60-day comment period specified in 15 U.S.C. 16(b) commenced 
on November 25, 2008, 73 FR 71682 (Nov. 25, 2008), and ends no earlier 
than January 24, 2009.

III. Summary of Standard of Review

    The Antitrust Procedures and Penalties Act of 1974, also known as 
the Tunney Act, directs this Court to determine whether entry of the 
Proposed Final Judgment ``is in the public interest.'' 15 U.S.C. 
16(e)(1); United States v. SBC Communications, 489 F.Supp.2d 1, 10 (D. 
D.C. 2007). In amending the Tunney Act in 2004, Congress was clear that 
a court should be careful to independently weigh the statutory factors. 
See 150 Cong.Rec. S3616-14, S3619 (Apr.2, 2004)(Statements of Senators 
Hatch and Devine), 150 Cong.Rec. H3659-60 (June 2, 2004)(Statements of 
Representatives Scott and Conyers).
    In making that determination, in accordance with 2004 Amendments, 
pursuant to 15 U.S.C. 16(e)(1)(A), the Court must consider a number of 
factors including:

    The competitive impact of such judgment * * * anticipated 
effects of alternative remedies actually considered * * * and any 
other competitive considerations bearing upon the adequacy of such 
judgment that the court deems necessary to a determination of 
whether the consent judgment is in the public interest.''
    Under section (B), this Court must also consider:
    ``The impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally * * * and * * 
* consideration of the public benefit, if any, to be derived from a 
determination of the issues at trial.
    This grants the court wide discretion to assure that the 
judgment is in the public interest. The Court is not required, as 
the DOJ has claimed in its Competitive Impact Statement, to ``accord 
deference to the government's predictions about the efficacy of its 
remedies * * *'' Competitive Impact Statement, Docket No. 2 at 14. 
To the contrary, the Tunney Act is designed to constrain the 
Department of Justice from entering into settlements that provide 
DOJ with an exit from an antitrust case but do not provide the 
public with a remedy commensurate with the defendant's antitrust 
violations. Indeed, the Court is empowered to ``take testimony of 
government officials \4\ or expert witnesses, appoint a special 
master or expert consultant, authorize participation by other 
parties as amici or intervenors, or `take such other action in the 
public interest as the court may deem appropriate.' '' United States 
v. SBC Communications, supra, 489 F.Supp.2d 1, 10-11.

    As we explain below, while the Complaint seeks to enjoin the entire 
acquisition, the Proposed Final Judgment and Competitive Impact 
Statement focuses only on three metropolitan areas in New York State 
(the Buffalo, Rochester, and Syracuse areas) and does not provide any 
relief for any other antitrust violations which arise from the 
acquisition.
---------------------------------------------------------------------------

    \4\ The Tunney Act authorizes the district judge to ``take 
testimony of Government officials as the court may deem appropriate 
* * *'' U.S. v. Microsoft, 56 F.3d 1448, 1459 (D.C. Cir. 2001), 
citing 15 U.S.C. Sec.  16(f)(1). Under certain conditions, a Court 
can consider whether the DOJ's approach is in fact suggestive of 
either ``bad faith or malfeasance.'' United States v. Microsoft 
supra, 56 F.3d at 1458; 15 U.S.C. 16(e)(2) (1988).
---------------------------------------------------------------------------

    At bottom, it appears that while the Court must not engage in an 
unrestricted evaluation of what relief is appropriate, nor can it act 
as a ``judicial rubber stamp of proposed consent decrees.'' As 
explained by Senator Kohl at the time of the amendments to the Tunney 
Act, there are ``concerns with the political influence of large 
companies in these matters.'' And, as stated in United States v. SBC 
Communications, the 2004 amendments were intended to ``assure that 
courts undertake meaningful review of antitrust consent decrees to 
assure that they are in the public interest and analytically sound.'' 
489 F.Supp.2d at 10.
    It is also noteworthy that while a Court may not require that 
remedies ``perfectly match the alleged violations'' a Court is also not 
obligated to accept on its face everything that is or is not in the 
Complaint. Nor must the Court bless a proposed settlement that as some 
cases have noted, makes a ``mockery of

[[Page 10286]]

judicial power.'' Here, the DOJ antitrust Complaint seeks to enjoin the 
entire InBev/Anheuser-Busch acquisition, but the proposed settlement 
addresses the sale and distribution of beer in only three discreet 
metropolitan regions in New York State--Rochester, Buffalo and 
Syracuse. There is no remedy for the rest of the entire country, no 
consideration of the elimination of InBev as a potential entrant into 
the relevant market or markets, and under applicable standards for the 
Tunney Act, this Court may properly consider if the Government's 
Complaint is too narrowly drawn.
    Further, the Court must also consider if the Government's action is 
so limited and the remedy so unsatisfactory as to amount to a virtual 
sham, thereby making it both against the public interest as well as a 
mockery of judicial power. Further, were obvious anticompetitive injury 
to occur under this settlement in relevant markets or upon the public 
generally, or the enforcement mechanism appears to be inadequate or 
otherwise ineffective, then the Court may reject the Proposed Final 
Judgment.

IV. The Pending Missouri Action

    On September 10, 2008, these Missouri Plaintiffs filed a private 
antitrust suit in the District Court for the Eastern District of 
Missouri, brought under Section 16 of the Clayton Antitrust Act (15 
U.S.C. 26) alleging a violation of Section 7 of the Clayton Antitrust 
Act, 15 U.S.C. 18. See Missouri Plaintiffs' Motion for Intervention 
filed January 14, 2009, Docket No. 13, (hereinafter the ``Motion for 
Intervention''), Schwartz Decl., Docket No. 13-3, Exh. 1, Complaint, 
Ginsburg, et al., v. InBev NV/SA, and Anheuser-Busch Companies, Inc., 
Case No.: 08-cv-01375-JCH. The Missouri Plaintiffs' Complaint was filed 
two months before the Department of Justice filed its action in the 
present case. To our knowledge, neither the DOJ nor the Defendants in 
this action advised this Court of the pendency of that Missouri action, 
the alleged market definition, the pricing impact immediately following 
the announcement of the decision and, more generally, the underlying 
legal and factual basis for the claims asserted.
    In the Missouri Action, the Missouri Plaintiffs seek a permanent 
injunction to prohibit the acquisition of Anheuser-Busch, the largest 
brewer in the United States, by InBev, the largest brewer in the world, 
for $52 billion, the largest cash payment ever offered to purchase a 
competitor. Following a Rule 16 conference held on January 5, 2009, the 
Missouri District Court has set a trial date for February 1, 2010, also 
leaving open the possibility for an earlier trial. As noted above, on 
January 20, 2009 filed under seal, an Emergency Motion for Injunction 
Pending Appeal in the United States Court of Appeals for the Eighth 
Circuit.

V. Statement of Facts and Specific Comments on the Complaint, Relief 
Requested and Proposed Final Judgment

A. The U.S. Beer Market

    Beer is a line of commerce and a relevant product market within the 
meaning of section 7 of the Clayton Act. Docket No. 1, Complaint, ] 14. 
Beer is sold to consumers through a three-tier market system throughout 
the United States. Complaint, ] 15. In the United States, the largest 
and the most profitable beer selling market in the world and InBev's 
most targeted market, Anheuser-Busch, with 50% of the market, is the 
undisputed United States leader, with more than 2\1/2\ times as large 
as its closest United States competitor, SABMiller (formed from the 
combine of South Africa Brewing and Miller), which has 18% of the 
market; 4\1/2\ times as large as the third largest competitor in the 
United States, MolsonCoors (formed from the combine of Canadian Molson 
and Coors), which has 11% of the market; 3\1/2\ times as large as all 
imported beers, which have a total of 14.5% of the market; and 7 times 
as large as all domestic craft or microbrewery beers, which have a 
total of 7% of the market.
    Recently, the number two and number three competitors in the United 
States, SABMiller and MolsonCoors, combined their American businesses, 
and now account for 30% of the market. Consequently, with Anheuser-
Busch's 50% of the United States market, more than 80% (some analysts 
say 90%) of the production and sale of beer in the United States is 
controlled by only two companies. The United States market is 
substantially more than simply ``highly concentrated,'' as measured by 
the objective standards of the universally accepted Herfindahl-Hersch 
Index (``HHI''). (HHI measures and grades market concentration by 
adding the squared market share percentages of each of the competitors 
in the market.) The threshold for ``highly concentrated'' is under 
Department of Justice Guidelines, a value of 1800. An additional 100 
points causes great concern among antitrust enforcers. Here, the market 
substantially exceeds that number, especially since the recent 
marketing combination of SABMiller and MolsonCoors in the United 
States. In 2007, the U.S. Beer Market carried an HHI of 3251, 
indicating its extraordinary concentration.
1. Anheuser-Busch
    Anheuser-Busch has the country's largest network of independent 
distributors/wholesalers, numbering approximately 600. Almost all of 
the distributors are independent, and operate under exclusive 
agreements with Anheuser-Busch in which they agree not to deal with any 
products of any competitor of Anheuser-Busch and not to distribute any 
products outside of their own designated territories. Anheuser-Busch 
sells nearly 70 percent of the company's volume through wholesalers. 
Anheuser-Busch also owns 13 company-owned distributors/wholesale 
operations. Anheuser-Busch sold 104.4 million barrels of beer to United 
States wholesalers in 2007. The most influential factor in the sale of 
beer in the United States is advertising. Anheuser-Busch is a 
substantial advertiser, spending approximately $378 million last year 
alone, more than the combined spending of its main actual competitors 
in the United States.
2. The Creation of InBev and Its Position Relative to the Market
    InBev sells the number one (<greek-i>1) or number two (<greek-i>2) 
beers in over 20 key beer markets throughout the world. InBev is the 
number one (<greek-i>1) seller in the following countries: Canada, 
Brazil, Bolivia, Paraguay, Uruguay, Argentina, Belgium, Luxembourg, 
Croatia, Serbia, Montenegro, and the Ukraine; and the Number Two seller 
in Cuba, the Dominican Republic, Guatemala, Ecuador, Peru, Chile, 
Netherlands, Germany, Bulgaria, the Czech Republic, Russia and South 
Korea.
    By way of background, prior to forming InBev in the merger of 
Belgium's Interbrew and Brazil's AmBev in 2004, the world's largest 
brewers were: (<greek-i>1) Anheuser-Busch; (<greek-i>2) SABMiller; 
(<greek-i>3) Interbrew; (<greek-i>4) Heineken, and (<greek-i>5) AmBev. 
After the combination of Interbrew and AmBev, InBev became the largest 
brewer in the world.
    As the world's largest brewer, InBev has enormous economic 
capabilities. Its 2007 market capitalization was in excess of $50 
Billion, with net profits of $7.8 Billion from revenues exceeding $21 
Billion. These capabilities have also been demonstrated by its ability 
to raise, and then pay, the $52 Billion in cash to acquire Anheuser-
Busch.
    Prior to this attempt to acquire Anheuser-Busch, InBev stated 
unequivocally that it intended to become a ``player'' in the production

[[Page 10287]]

and sale of beer in the United States. Only eight months after the 
merger of AmBev and Interbrew, forming InBev, Mr. Brito stated his 
intention to shortly ``complete our dream of becoming a pan-America 
player.''
    InBev also announced to competitors and to the public alike that it 
intended to be an entrant into the United States market for the 
production and sale of beer. InBev even stated in press releases as 
recent as 2007 that its ``strategy is to strengthen its local platforms 
by building significant positions in the world's major beer markets.'' 
InBev's strategy began with the Interbrew-AmBev merger and in November 
2006 InBev executed a distribution contract with Anheuser-Busch for the 
distribution of InBev premium brands Stella Artois, Beck's and Bass in 
the United States. It is this November 2006 Import Agreement which is 
described in the DOJ's Complaint in this case.
    InBev has operations around the world and internally divides its 
operations into six regions: North America, Western Europe, Central and 
Eastern Europe, Asia Pacific, Latin America North and Latin America 
South. One if its regions is North America, where it sells Labatt Blue, 
the number one Canadian brand in the world.
    The North American region includes both Canada and the United 
States. InBev has eight breweries in Canada. As explained below, 
immediately prior to the acquisition, InBev was not operating any 
breweries in the United States. InBev traded in the United States 
through its exclusive distribution agreement with Anheuser-Busch. InBev 
has also owned Labatt USA, and the Labatt brand is described in detail 
in the Complaint filed in this case.
3. The Reaction to the Creation of InBev
    Once InBev was created in 2004, competition in the United States 
increased dramatically. The industry fell into a protracted price war 
in 2004 that lasted between a year and 18 months. During this same 
period, Anheuser-Busch further cut its prices by offering greater 
promotional discounts. Its share of volume sold through promotional 
discount increased from 57% in the first quarter of 2004 to 64% by the 
first quarter of 2006. Compared to other years, it spent millions more 
discounting its products the year after InBev's creation: \5\
---------------------------------------------------------------------------

    \5\ These figures derive from Anheuser-Busch's annual reports, 
which are filed with Securities Exchange Commission, and therefore 
subject to judicial notice.

           Anheuser-Busch Promotional Discounting ($ millions)
------------------------------------------------------------------------
    2002         2003        2004        2005        2006        2007
------------------------------------------------------------------------
    543.5         511.8       535.7       716.7       675.3       688.6
 % Change           -6%          4%         25%         -6%          2%
------------------------------------------------------------------------

    Anheuser-Busch also markedly increased its advertising expenditures 
the year after InBev was created. While advertising expenditures were 
flat from 2002 through 2004, they increased by $45 Million in 2005, 
falling again after InBev and Anheuser-Busch executed the 2006 ``Import 
Agreement.''

          Anheuser-Busch Advertising Expenditures ($ millions)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
    2002        2003            2004            2005      2006      2007
------------------------------------------------------------------------
Anheuser       821.7      806.7     806.7      849.5     771.2     782.7
 
------------------------------------------------------------------------

    Further evidence of InBev's competitive threat, Anheuser-Busch and 
Miller responded by investing to protect their market shares: ``InBev 
is coming into a market that is like a hornet's nest that has been 
disturbed * * * Anheuser and Miller aren't willing to lose a single 
case, and they're spending money to ensure that nobody else gains 
share.''
    In addition, there is already substantial evidence in the record 
from the Government that InBev's presence in the market actually 
increases competition. InBev's Labatt beer competes vigorously against 
both Anheuser-Busch and MillerCoors in the northeast United States. In 
those markets, and as the Complaint in this case generally agrees 
through its analysis of the three areas (Rochester, Buffalo and 
Syracuse), Labatt enjoys a 21% share of the market, while Anheuser-
Busch and MillerCoors (the MolsonCoors/SABMiller joint venture) have 
24% and 26%, respectively. As a result of this competition, prices have 
been kept at competitive levels.
    In 2006, InBev began discussions with Anheuser-Busch that 
contemplated InBev's agreed withdrawal from competing in the United 
States market. In May 2006 InBev sold its only U.S. brewery, Rolling 
Rock, to Anheuser-Busch. Eventually, the firms began discussing what 
would become the ``Import Agreement,'' a twenty-year agreement which 
authorized Anheuser-Busch as the exclusive importer of InBev's brands: 
Stella Artois, Beck's, Bass Ale, Boddington's, and others. The 
agreement was signed in November 2006 and was the subject of press 
releases announcing it.
    After InBev's sale of Rolling Rock and the consummation of the 
Import Agreement, Anheuser-Busch stopped competing as vigorously as it 
had the previous year, cutting both its advertising expenditures and 
promotional discounts in 2006.

B. Specific Comments on the Proposed Final Judgment

1. Despite the Huge Size of the Acquisition, There Are No Determinative 
Documents
    Missouri Plaintiffs have reviewed the Court's docket and the 
Federal Register and believe that there are not ``any other materials 
and documents which the United States considered determinative in 
formulating [a consent decree] * * *'' 15 U.S.C. 16(b); United States 
v. Alex Brown & Sons, Inc. 169 F.R.D. 532, 541 (S.D.N.Y. 1996), citing 
United States v. General Contracting Co. 531 F.Supp. 133, 537 F.Supp. 
571 (E.D. Va. 1982) (affirming that Government must make available to 
the public all

[[Page 10288]]

``determinative documents'' in formulating a proposed consent decree).
    In the absence of any such documents being made available, Missouri 
Plaintiffs respectfully submit that the Court first inquire as to why 
there are no such documents in an acquisition of this size.
2. The DOJ Has Provided No Information or Analysis About the Highly 
Publicized and Material November 2006 Import Agreement Between the 
Defendants
    One of the determinative documents that has not been put in the 
record is the Import Agreement \6\ entered into by the Defendants in 
November 2006.
---------------------------------------------------------------------------

    \6\ http://www.inbev.com/go/media/global_press_releases/press_release.cfm?theID=27&theLang=EN. See also 73 FR.71683 (noting 
that Labette brands are excluded from the Import Agreement).
---------------------------------------------------------------------------

    The DOJ Complaint states that under this agreement, Anheuser-Busch 
became the exclusive distributor of InBev products in the United 
States. Missouri Plaintiffs contend that before approving the PFJ, this 
Court must determine if the Import Agreement is in and of itself, anti-
competitive as a matter of law. Indeed, the Complaint in this case 
clearly seeks to enjoin the acquisition as a whole. This Import 
Agreement provides for Anheuser Busch to be the exclusive distributor 
of InBev products in the United States. As a whole, the remedy proposed 
by the DOJ cannot be independently evaluated absent consideration of 
the terms of that agreement, nor can the Court determine whether the 
settlement of the United States' lawsuit on the proposed terms is in 
the public interest. (The Import Agreement is described at 73 FR 71683, 
Complaint at ] 9. There, the United States' Complaint does not explain 
any aspect of the agreement other than to mention the exclusion of the 
distribution of certain InBev brands.) The absence of any discussion 
about the single most significant agreement between the InBev and 
Anheuser Busch is glaring and should raise a red flag to this reviewing 
Court; this Court also cannot properly evaluate the extent of the 
Defendants' head-to-head competition without this Import Agreement.
    Here, the DOJ has stated that Anheuser-Busch accounts for 
approximately 50% of the beer sales nationwide and that beer is sold to 
consumers through a three-tier system in New York and the United 
States; but the United States has provided information to the Court 
only on the three areas in New York--where the United States claims the 
parties were in fact competing head-to-head. The public and the Court 
have not been provided with any explanation of the InBev's position as 
a perceived potential competitor, or an actual potential competitor, 
the effect of the Import Agreement on those doctrines, whether or not 
the industry viewed InBev as a competitive threat in the United States, 
and what impact occurred as a result of the November 2006 Import 
Agreement.
    Missouri Plaintiffs also submit that due to the Import Agreement, 
as even the United States impliedly concedes, this Court must consider 
whether or not this Import Agreement served to prevent entry into the 
marketplace of the world's largest brewer, and what InBev received in 
return for entering into that Import Agreement.
    These inquiries are clearly germane to whether or not the PFJ is in 
the public interest. 15 U.S.C. 16(e)(1)(A) & (B).
3. Potential Entry and the Potential Competition Doctrine
    As noted above, InBev has been ready, willing and able to enter the 
United States market. Anheuser-Busch perceived and understood and 
believed that InBev was ready, willing and able to enter the United 
States market, and so represented to the United States District Court.
    Section 7's ``potential competition'' theory has been split by the 
courts into two doctrines, both of which Missouri Plaintiffs allege are 
present here. The ``actual potential competition'' doctrine proscribes 
an acquisition of a large firm in an oligopolistic market if the 
acquiring firm would be expected to enter the market de novo or through 
a ``toe-hold'' acquisition, which would likely lead to eventual 
deconcentration of the target market. United States v. Siemens Corp., 
621 F.2d 499, 504 (2nd Cir. 1980) (``Siemens''). The ``actual potential 
competition'' doctrine, on the other hand, is concerned with the 
acquiring firm's ability to deconcentrate the market in the future. The 
``perceived potential competition'' doctrine forbids an acquisition 
where the presence of the acquiring firm ``waiting in the wings'' of 
the market, and perceived by market participants as a potential 
entrant, exerts a pro-competitive influence on the market. Id. The 
``perceived'' potential competition doctrine is concerned with the 
present effect that a noncompetitor has on the market. Id.
    InBev's presence on the periphery of the market--as a perceived 
potential and actual entrant as well as a potential and actual dominant 
entrant--has been an important consideration in the pricing and 
marketing decisions of Anheuser-Busch and other American brewers or 
importers in the United States. InBev (party to the Import Agreement 
with Anheuser-Busch) is so situated as to be a potential competitor and 
likely to exercise substantial influence on the market behavior of 
those brewers in the market. Entry into the United States beer market 
by InBev through the acquisition of Anheuser-Busch--although its 
competitive conduct may be the mirror image of that of Anheuser-Busch--
completely eliminates the potential major competitor exercising present 
influence on the market.
    The facts also show that InBev is an aggressive, well-equipped and 
well-financed corporation engaged in the same line of commerce as 
Anheuser-Busch and intended to enter the oligopolistic market in the 
United States. As the world's largest brewer, InBev has enormous 
economic capabilities. Its 2007 market capitalization was in excess of 
$50 Billion, with net profits of $7.8 Billion from revenues exceeding 
$21 Billion. By reason of its economic capabilities, InBev has been 
more than able to enter the United States market de novo and build new 
breweries, create new jobs, and establish its own and new distributors 
to market its products, which already have a market presence in the 
United States by reason of its agreements with Anheuser-Busch to divide 
markets.
    InBev possesses more resources than any other brewer in the world. 
It has the technical expertise to enter the market, producing over 200 
brands of beer in 123 breweries worldwide. The ``imported beer'' 
segment of the U.S. beer market--the segment on which InBev has 
directed its focus--is highly attractive, growing at a rapidly 
expanding rate of 8% annually. Even InBev admits that it is easy to 
turn a profit in this market, since American consumers pay higher 
premiums for imported beers. The costs associated with InBev's entry 
are relatively very small: It does not need to construct breweries, 
develop a distribution network, or sink costs into launching new 
brands. In addition, there is a substantial likelihood that InBev's 
entry into the U.S. beer market would lead to future deconcentration of 
that market or other procompetitive effects.
    The need to address these potential competition issues is 
consistent with the DOJ's own 1984 Merger Guidelines which specifically 
addresses situations where: (1) The acquired firm's market is highly 
concentrated (HHI above 1800); (2) entry barriers in that market are 
high so that firms without specific entry advantages cannot be expected 
to enter;

[[Page 10289]]

and (3) the acquiring firm's entry advantage is possessed by fewer than 
three firms. See Antitrust Law Developments (Fifth) (2002), American 
Bar Association Section of Antitrust Law at 356, citing United States 
v. Falstaff Brewing Corp. 410 U.S. 526, 532-537 (1973). There is no 
explanation before the Court as to how, in this case, the DOJ's 
analysis confirms to the established policies in its own Merger 
Guidelines.
    Indeed, in seeking approval of the PFJ, the DOJ expressly stated 
that it was the perceived lack of entry into the marketplace by a new 
competitor that justified a conclusion of a lack of anticompetitive 
effect. 73 FR 71690. If it turns out that that InBev is a potential 
entrant that is being eliminated thereby harming competition and the 
Import Agreement was also designed to keep out the well-financed 
competitor InBev from competing with Anheuser brands in the United 
States (as well as fix prices and the like) \7\--then the DOJ's and 
Defendants' rationale for the Complaint and PFJ completely collapses. 
Further, the DOJ and the Defendants would be judicially estopped from 
using an anticompetitive agreement to defend the purported competitive 
benefit of their merger.
---------------------------------------------------------------------------

    \7\ InBev's press release stated in relevant part that Anheuser 
had become the exclusive U.S. importer and controlled pricing and 
distribution of InBev import brands in the United States:
    Effective February 1, 2007, Anheuser-Busch will import these 
premium brands and be responsible for their sales, promotion and 
distribution in the United States. These InBev brands, which had 
sales volumes of about 1.9 million hectoliters (or about 1.5 million 
barrels) in 2005, will be available to Anheuser-Busch's U.S. 
wholesaler network where possible.
---------------------------------------------------------------------------

    Moreover, Missouri Plaintiffs contend that the DOJ's action fails 
to adequately protect the public interest because the Import Agreement 
(and other evidence) will show Anheuser-Busch knew that outside of New 
York areas, InBev fell within the potential doctrine and under its own 
internal guidelines was obligated to act, thus making the Complaint in 
this case a sham and a mockery of judicial power. InBev had, and 
continues to have, the ability to compete against Anheuser-Busch by 
importing and distributing beer in the United States. InBev's 
competition has, in fact, constrained prices in the beer market in 
areas outside of the New York state which are singled out in the 
Competitive Impact Statement; and the facts show that it would be 
economically feasible and profitable for the behemoth InBev to enter 
the market.
4. The Defendants' Failure To Advise the Two Courts of Proceedings in 
Each Action
    Defendants in this case failed to inform the Missouri District 
Court of the true facts of the status of its communications with the 
DOJ, subsequently used this Court's signature (late on November 14, 
2008) on the Hold Separate Stipulation and Order to attempt to pre-empt 
and moot the Injunction hearing in the Missouri Action, have informed 
the Missouri District Court that the deal is now closed, thereby making 
the Missouri Injunction Complaint now ``moot,'' and informed the 
Missouri District Court that the shareholders have been paid in an 
irreversible change to the pre-merger status quo.
    The Defendants also failed to tell the Missouri District Court that 
the DOJ could still change its mind and withdrawal, failed to 
adequately explain to the Missouri District Court that the Tunney Act 
public comment period was still open until at least 60 days after 
publication in the Federal Register and that with public comments still 
potentially in the offing that the Department of Justice had not yet 
filed a response to any public comments. Most importantly, the 
Defendants failed to tell the Missouri District Court that this 
Honorable Court had not yet signed the Final Judgment.
    In this action, the Government and the DOJ also failed to tell this 
Court, when seeking the Court's signature on the afternoon of November 
14, 2008, of the pendency not just of the litigation initiated by the 
Missouri Plaintiffs, but also that there had been extensive briefing on 
a Motion for Preliminary Injunction which also sought to enjoin the 
acquisition. After obtaining the signature from this Court on the Hold 
Separate Stipulation and Order, the Defendants then proceeded to 
announce the closing of the acquisition.
5. The Recognized Breaches of the Department of Justice's Duty To 
Protect the Public Interest When It Comes to Mergers and the Actions of 
the DOJ and Defendants In Not Advising the Court of the Clayton Act 
Claims in the Missouri Action
    In considering whether to approve the Proposed Final Judgment, one 
of the Court's role in protecting the public interest is to exercise 
independent discretion and is ``* * * [i]nsuring that the government 
has not breached its duty to the public in consenting to the decree.'' 
United States v. Bechtel, 648 F.2d 660,666 (9th Cir. 1991). Therefore, 
as part if its analysis of this acquisition, this Court should take 
into account the virtual ``blank check'' that the DOJ has afforded 
controversial mergers among even direct competitors.
    Here, the acquisition involves that of a large firm in an 
oligopoly. Anheuser-Busch is the undisputed leader in the United States 
beer market with almost 50% market share. There are only two additional 
significant rivals, SABMiller and MolsonCoors, as noted above. No other 
competitor has more than 6% market share. Furthermore, the number 2 and 
3 rivals have combined their United States operations, further 
consolidating the industry. Finally, the HHI of the market is an 
astounding 3000+, well above the Department of Justice's threshold 
value of 1800 which indicates a ``highly concentrated'' market.
    As we noted above, in April 2008--just a few months before this 
merger was announced--the Chairman of the Judiciary Committee Task 
Force on Competition Policy and Antitrust Laws, Representative John 
Conyers (D. Mich.) made the following comment about the present 
Antitrust Division of the Department of Justice when it comes to 
controversial mergers:

    ``We have an Antitrust Division that approved mergers left and 
right frequently overturning judgments of the career staff of the 
Department of Justice. The Department has not attempted to block or 
modify any major merger over the past seven years, including some of 
the largest, controversial mergers among direct competitors. * * * 
The Department hands-off approach has even encouraged companies with 
questionable merger justifications to give it a try. And some 
analysts have stated that the government has nearly stepped out of 
the antitrust enforcement business leaving companies to mate with 
whom they wish.''

Introductory remarks, April 24, 2008, hearings on the ``Northwest/Delta 
Airlines merger.'' Given the circumstances of this acquisition, and the 
manner in which the Antitrust Division has proceeded, these remarks 
appear not just particularly apt, but very disconcerting. In filing 
this action on November 14, 2008, the Government was well aware that 
there was Clayton Act litigation pending in the Eastern District of 
Missouri, that the Missouri Plaintiffs had requested a Motion for 
Preliminary Injunction and that the Defendants had filed an opposition 
to the request for injunctive relief. Rather than advise this Court of 
such material facts, the DOJ stood silent while the Defendants sought 
this Court's signature on the Hold Separate Stipulation and Order.
    Any meaningful review of this transaction requires that this Court

[[Page 10290]]

consider whether the DOJ conducted a sufficient inquiry into the total 
competitive relationship between the parties, the effect of the 
transaction on the public as a whole, including the limited relief 
requested in just three geographic areas, and any need for additional 
relief, why the DOJ focused simply on the one area excluded by the 
Import Agreement between the Defendants and if the relief directed in 
these metropolitan areas is in the public interest.
6. The Bi-Partisan Statements by Public Officials
    The public interest in this case is substantial. This case, before 
the Court during extraordinary economic struggles, has an extreme and 
overriding importance to not just the citizens of St. Louis, Missouri, 
but all of America. The public has a legitimate public interest in free 
and functioning markets. This interest is particularly significant to 
the American public in light of the recent nationwide and global 
history of huge multinational corporations engaging in unscrupulous and 
economically dangerous conduct that harm many citizens of Missouri and 
the United States. This is the largest all cash acquisition in the 
history of the antitrust laws.
    The extreme public interest in this case is perhaps most evident in 
the bi-partisan statements of its elected representatives, charged with 
the responsibility of advancing the interests of their constituents. 
Missouri Governor Matt Blunt opposed the combination of InBev and 
Anheuser-Busch and [was] ``deeply troubled'' by the proposed merger. In 
a letter to William Kovacic, Chairman of the Federal Trade Commission, 
Governor Blunt affirmed his concerns that the sale ``would have 
destabilizing impacts on our nation and [Missouri]'s long-term economic 
interests.'' (Motion for Intervention, Schwartz Decl., Docket No. 13-3, 
Exh. 4, Blunt letter, June 16, 2008.) Governor Blunt has also directed 
Missouri's Department of Economic Development to ``explore every option 
and any opportunity we may have at the state level to help keep 
Anheuser-Busch where it belongs--in St. Louis.''
    Senator Kit Bond (R.-Mo.) stated his opposition to the merger and 
the ``yielding of control and threatening of operations that have been 
beneficial to consumers, workers, American communities, and 
shareholders alike.'' Senator Bond also sought scrutiny to protect the 
interest of Missourians and all Americans, stating that ``Anheuser-
Busch is a major driver in the local, state, and national economy up 
and down the supply chain.'' In a letter to Attorney General Mukasey 
and FTC Chairman William Kovacic, Senator Bond wrote, ``The proposed 
foreign acquisition of Anheuser-Busch is troubling to me because it 
potentially raises antitrust issues under existing law by putting 
significant market share of the U.S. in the hands of few competitors.'' 
(Motion for Intervention, Schwartz Decl., Docket No. 13-3, Exh. 5, Bond 
letter, June 12, 2008.)
    Missouri Senator McCaskill (D. Mo.) expressed similar views, 
stating in June 2008 that ``this is not a company that is in stress * * 
* [a]nd has provided good middle class jobs.'' (Motion for 
Intervention, Schwartz Decl., Docket No. 13-3, Exh. 6, McCaskill 
letter, June 2008.) Senator McCaskill later stated in a letter dated 
November 12, 2008:

    ``Moreover, it is a company that has built its brand on the 
tremendous pride from a dedicated workforce and firm commitment to 
the community. It is also clear that dramatic changes to Anheuser-
Busch's marketing, workforce, and culture, will be needed to make 
the deal work, and these will have a big negative impact on the 
community.''

(italics added) (Motion for Intervention, Schwartz Decl., Docket No. 
13-3, Exh. 7, McCaskill letter, November 2008.) The public interest in 
the issues at bar should not be ignored.

VII. Conclusion

    For the foregoing reasons, the Court should not enter the Proposed 
Final Judgment and after discovery, conduct a trial on the issue of 
whether or not the transaction is in the public interest.

Joseph M. Alioto, Theresa D. Moore, Joseph M. Alioto, Jr., Thomas P. 
Pier, Alioto Law Firm, 555 California Street, Suite 3160, San 
Francisco, California 94104, Telephone: (415) 434-8900, Facsimile: 
(415) 434-9200.

/s/

Theodore F. Schwartz, Kenneth R. Schwartz, Law Offices of Theodore F. 
Schwartz, 230, South Bemiston, Suite 1010, Clayton, MO 63105, 
Telephone: (314) 863-4654, Facsimile: (314) 862-4357.
Gilmur R. Murray, Derek G. Howard, Murray & Howard, LLP, 436 14th 
Street, Suite 1413, Oakland, California 94612, Telephone: (510) 444-
2660, Facsimile: (510) 444-2522.
Daniel R. Shulman, Gray, Plant & Mooty, 500 IDS Center, 80 South Eighth 
Street, Minneapolis, Minnesota 55402, Telephone: (612) 632-3335, 
Facsimile: (612) 632-4335.

Attorneys for Missouri Plaintiffs

/s/

James Coyne King

Email: <a href="/cdn-cgi/l/email-protection#43292028032b222d2a253a6d202c2e"><span class="__cf_email__" data-cfemail="761c151d361e17181f100f5815191b">[email protected]</span></a>

January 15, 2009

By Hand
Joshua H. Soven, Esq., Chief, Litigation I Section, Antitrust 
Division, U.S. Department of Justice, 1401 H Street, NW., Suite 
4000, Washington, D.C. 20530

Re: Written Comments on Proposed Final Judgment/United States of 
America v. InBev N.V./S.A., et al., U.S.D.C. for D.C., Case: 1:08-
cv-01965

    Dear Mr. Soven:

    I and this firm represent Esber Beverage Company of Canton and 
Mansfield, Ohio, the RL Lipton Co. of Cleveland, Ohio, and the Tri 
County Distributing, Co. of Youngstown, Ohio (collectively ``Labatt 
Distributors''). The Tri It Beverage Company of Buffalo, New York 
and the Onondaga Beverage Corporation of Syracuse, New York share 
some of the concerns expressed in this letter. We understand that 
those distributors and Tri County Distributing, Inc. of Detroit, 
Michigan will file additional comments. We provide this letter on 
the Proposed Final Judgment in the above-referenced action which 
requires InBev to divest all assets associated with the Labatt Brand 
(``Labatt Brand'') consistent with the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec. Sec.  16(b)-(c).
    These comments outline the views of our clients relating to the 
Complaint, the Competitive Impact Statement and the Proposed Final 
Judgment in the above-referenced action relating to the acquisition 
by InBev N.V./S.A. (``InBev'') of the Anheuser-Busch Companies, Inc. 
(``Anheuser-Busch''). Our clients are available to you and are 
prepared to supplement and expand upon the comments set forth 
herein.

PURPOSE

    At the outset, let me be clear that the Labatt Distributors 
concur with the Division's goal in the Proposed Final Judgment of 
preserving the Labatt Brand as a viable brand and as a competitor of 
the products of Anheuser-Busch and other competitive products in the 
relevant markets. The primary purpose of these comments is to ensure 
that the goals of the Proposed Final Judgment are achieved at all 
market levels to maximize the positive competitive impact of the 
divestiture.
    The comments bear on two principal areas of concern. The initial 
concern goes to the identity of the eventual Acquirer (as defined in 
the Proposed Final Judgment as the entity or entities to whom 
Defendants divest the Divested Assets) and the actual terms of the 
divestiture. The second concern relates to preserve and enhance the 
maintenance of Labatt's existing distribution network as a means to 
more competitive markets.
    First, the Acquirer must be well-positioned to support and 
market the Labatt Brand so that the position of the Labatt Brand is 
maintained and enhanced. The Labatt Brand

[[Page 10291]]

is a niche product, with a specific set of characteristics that make 
the Brand appealing. The Labatt Brand derives much of its cachet 
from its status as a Canadian import, and is most popular in those 
U.S. states closest to the Canadian border. The Labatt Brand 
products also have a price point more akin to domestic premium beer 
brands, such as Budweiser, Miller and Coors than most imported 
beers. That market positioning, as a Canadian import for the price 
of a domestic, has been the lynchpin the Labatt Brand's success. Any 
significant change in this price point will adversely affect 
competition in the relevant geographic markets. It is no accident 
that the Division's investigation concluded that InBev's acquisition 
of Anheuser-Busch could lead to unlawful market concentration in 
Buffalo, Rochester and Syracuse, which are just down the road (or 
across a lake) from Canada.
    Second, another condition essential to the Division's goal of 
maintaining the Labatt Brand as a competitive brand is for the 
Acquirer to maintain the existing distribution network for a 
commercially reasonable period of time, especially where the 
alternative network would concentrate the distribution of the Labatt 
Brand and the Anheuser-Busch products. Such a requirement is clearly 
consistent with the intent of the Proposed Final Judgment and 
relates solely to the distribution system for the Labatt Brand 
products. The language of the Proposed Final Judgment leaves open 
the possibility that competition at the distributor level will be 
suppressed because the Acquirer may terminate existing distributors 
and consolidate the Labatt Brand with other brands at the 
distributor level. The most likely result of brand consolidation is 
unwanted market concentration and likely price increases. 
Consequently, the Final Judgment should require any Acquirer to 
maintain the existing distribution network for the Labatt Brand for 
a commercially reasonable time period.

Background

    As proposed, InBev's acquisition of Anheuser-Busch would 
eliminate substantial, direct competition between InBev and 
Anheuser-Busch in Buffalo, Rochester and Syracuse, New York, as well 
as in other regions where the Labatt Brand is a significant player. 
For the reasons set forth in the Competitive Impact Statement, the 
proposed Final Judgment requires InBev USA LLC (``IUSA'') to divest 
the Labatt Brand, along with a license to brew, market, promote and 
sell Labatt Brand products for consumption in the United States as a 
condition for InBev proceeding with its $52 billion acquisition of 
Anheuser-Busch. The essential reason for requiring the divestiture 
is that the transaction, absent divestiture, would likely lead to 
higher prices for beer in the Buffalo, Rochester and Syracuse, New 
York metropolitan areas and possibly in other areas where the Labatt 
Brand has significant market share because the Labatt Brand's and 
Anheuser-Busch's offerings collectively constitute a substantial 
percentage of those markets.
    As alleged in the Complaint, the Buffalo, Rochester and Syracuse 
beer markets are highly concentrated. The top three brewers--
Anheuser-Busch, Miller-Coors and IUSA, respectively possess 
approximately 24%, 26% and 21% of the Buffalo and Rochester beer 
markets. In the Syracuse geographic market, the same three brewers 
respectively possess approximately 28%, 28% and 13% of the beer 
market. According to the Complaint, the supply responses from 
competitors or potential competitors would not likely prevent the 
anticompetitive effects of the proposed acquisition. Competition 
from other competitors is insufficient to prevent a small but 
significant and non-transitory price increase implemented by the 
combined entities in those markets from being profitable. Entry of a 
significant new competitor into the marketplace is particularly 
unlikely because a new entrant would not possess the highly-
important brand acceptance necessary to proceed.
    The remedy set forth in the Proposed Final Judgment for this 
anticompetitive aspect of the InBev acquisition of Anheuser-Busch is 
to require InBev to divest the Labatt Brand and grant a perpetual 
license to the Acquirer to sell Labatt Brand products for 
consumption throughout the United States, as well as to assign 
additional rights and contracts necessary to maintain the viability 
of the Labatt Brand. These rights include an exclusive, perpetual, 
assignable, transferable, and fully-paid-up license that grants the 
Acquirer the rights to (a) brew Labatt Brand products in Canada and/
or the United States, (b) promote, market, distribute and sell 
Labatt Brand products for consumption in the United States, and (c) 
use all the intellectual property rights associated with the 
marketing, sale, and distribution of Labatt Brand products for 
consumption in the United States.
    The Proposed Final Judgment ensures the uninterrupted sale of 
Labatt Brand products in the United States by ``requiring defendants 
to divest all rights pursuant to distributor contracts, and at the 
option of the Acquirer, to negotiate a Transition Service Agreement 
of up to one year in length, and to enter into a supply contract for 
Labatt Brand products sufficient to meet all or part of the 
Acquirer's needs for a period of up to three years.'' Competitive 
Impact Statement at 8 [emphasis added].

Comments and Rationale

    As the Proposed Final Judgment and Competitive Impact Statement 
make clear, the goal of the Labatt Brand divestiture will only be 
realized if the Acquirer of the Labatt Brand assets maintains the 
brand as a viable competitor for Anheuser-Busch products in the 
relevant markets. If the Labatt Brand does not remain a viable 
competitor, the beer markets could fall victim to the concentration 
and anticompetitive price increases the Division is seeking to avoid 
through the divestiture ordered by the Proposed Final Judgment. 
Similarly, while not the focus of the Complaint or the remedy 
provided in the Proposed Final Judgment, the Labatt Brand has a 
significant market share in Ohio, Michigan, Indiana and Wisconsin, 
and the weakening of the Labatt Brand overall, including in those 
states, would have a similarly negative impact on competition in 
those regional beer markets.

Divestiture Only Remedies Antitrust Violations If the Divested Business 
Remains Viable Thereafter

    In considering remedies for antitrust violations, the Courts, 
the Division and the FTC have uniformly recognized that the 
viability of a divested business line as a competitor is crucial to 
the usefulness of divestiture as a cure for an antitrust violation. 
See, e.g., Utah Public Service Comm'n v. El Paso Natural Gas Co., 
395 U.S. 464, 470 (1969) (``The purpose of our mandate was to 
restore competition in the California market * * * [t]he object of 
the allocation of gas reserves must be to place New Company in the 
same relative competitive position vis-[agrave]-vis El Paso in the 
California market as that which Pacific Northwest enjoyed 
immediately prior to the illegal merger.''). Indeed, post-
transaction viability is the sine qua non of a curative divestiture. 
See, e.g., White Consol. Indus. v. Whirlpool Corp., 612 F.Supp. 
1009, 1028 (N.D. Ohio 1985) vacated after compliance by 619 F.Supp. 
1022 (holding that company acquiring divested assets must (1) have 
capacity to compete effectively and (2) be free to operate divested 
business absent control by seller). The Courts, the Division, and 
the FTC have fashioned hold separate orders, like the Stipulation in 
the above-referenced action, to maintain the viability of the 
business which is the subject of a divestiture as a competitor in 
the relevant markets.

To Maintain the Labatt Brand as a Viable Brand, the Eventual Acquirer 
Will Need to Adopt Specific Strategies

    The Labatt Distributors are concerned that certain potential 
Acquirers of the Labatt Brand are not good fits, and could diminish 
the Labatt Brand as a competitor for Anheuser-Busch in the relevant 
markets. While the Order correctly leaves to the Acquirer to decide 
the brand promotion and strategy to pursue, the Labatt Distributors 
wish to alert the Division and the Court to certain characteristics 
of the Labatt Brand that any Acquirer should attend to if the goal 
is to maintain the Labatt Brand as a viable competitor in the 
relevant markets. InBev, of course, has no incentive to sell the 
divested assets to the strongest competitor. To the contrary, after 
the divestiture, its financial interest will be to increase the 
sales of Anheuser-Busch products at the expense of the Labatt Brand. 
In this regard, the Labatt Distributors' list their strategic 
concerns.

The Acquirer of the Divested Assets Must Maintain the Labatt Brand as a 
Canadian Import

    Under the Proposed Final Judgment, the Acquirer can purchase the 
Labatt Brand brewed by InBev in Canada for three years. After that 
time, the Acquirer must find a new brewery. As set forth in the 
Proposed Final Judgment, the Acquirer could even elect to brew the 
Labatt Brand on its own, in the United States, from the outset. Such 
a decision would be antithetical to maintaining the Labatt Brand as 
a competitive brand.
    Much of the Labatt Brand's panache comes from its status as an 
import. With the sales volume and other relevant factors specific to 
the Labatt Brand products, the Acquirer's

[[Page 10292]]

options are limited. The Labatt Distributors are not aware of 
breweries with substantial capacity in Canada other than the 
breweries of InBev and Molson/Coors. Neither InBev nor Molson/Coors 
will have an incentive to assist the Acquirer in maintaining the 
Labatt Brand. The other breweries of which the Labatt Distributors 
are aware are too small to replace the approximately 20 million 
cases of the Labatt Brand products sold in the United States each 
year. The Labatt Distributors request that the Proposed Final 
Judgment be modified to give the Acquirer the option to extend its 
right to purchase the Labatt Brand brewed by InBev (which, after 
all, will presumably still be brewing it for sale in Canada and 
elsewhere) in Canada beyond the three-year period, or otherwise 
ensure that the Acquirer maintains the Labatt Brand as a Canadian 
import.

The Acquirer Must Maintain Competitive Pricing

    The Labatt Distributors are concerned that an Acquirer, 
potentially saddled with debt from the cost of the acquisition, will 
raise prices in an effort to generate additional cash. Beer sales 
are elastic and greatly impacted by pricing. Such a move would be 
devastating to the Labatt Brand. The Labatt Brand is successful as 
an import at its current competitive price point. At higher prices 
(such as those charged by other imported beers), the Labatt Brand 
will be less competitive and sales will go down as Labatt Brand's 
consumers often choose the Labatt Brand over domestic beers like 
Budweiser and Coors but would likely opt for a cheaper domestic beer 
over a more-expensive Labatt Brand product.

The Acquirer Must Maintain an Attractive Portfolio/Brand Mix

    The Labatt Distributors are concerned that the Acquirer will 
reduce the numbers of skus in the portfolio, thus weakening the 
Labatt Brand equity. The Acquirer must continue to offer the 
standard items including six, twelve, eighteen, twenty-four and 
thirty pack bottles and cans as well as the Seasonal Packages such 
as the Heritage packs, Sport packs as well as various brand 
extensions such as Light, Ale, Porter, Kokanee, Ice, etc. Beer sales 
in the United States are dependent on consumer factors, including 
packaging and convenience. In this way, beer sales are similar to 
most food products. Beer, in particular, is an extreme example of 
this phenomenon because of widespread situational use and the wide 
demographic range of consumers. Reduction in brand extensions for 
packages would further diminish the competitive level of Labatt 
Brand, decreasing competition in the relevant market.

The Acquirer Must Provide Sufficient Marketing and Promotional 
Resources to Maintain and Develop the Labatt Brand

    As the Division recognizes, only an Acquirer who intends to 
continue investing in the Labatt Brand will succeed in fulfilling 
the pro-competitive goals of the Proposed Final Judgment. The Labatt 
Distributors urge the Division to consider both the product mix of 
the Acquirer as well as its sales and marketing plans to ensure that 
the Acquirer has both the incentive to invest in the Labatt Brand 
and to provide sufficient resources for marketing the Labatt Brand 
going forward. Beer is not a commodity, but rather an ingested 
product that connotes a particular image and level of reward. 
Without proper advertising and image support, the Labatt Brand will 
suffer and decrease its competitive heft.

The Likely Acquirer of the Labatt Brand Could Promote Further 
Concentration at the Distributor Level

    The Labatt Distributors believe that maintaining the present 
distributor network is crucial to maintaining the Labatt Brand as a 
viable competitor in the relevant markets. The Labatt Distributors 
wholeheartedly concur with the Division's assessment of impact on 
competition caused by the InBev acquisition of Anheuser Busch. In 
fashioning its remedy for the anticompetitive impact, the Proposed 
Final Judgment included among the Divested Assets, ``all contracts 
and agreements of IUSA * * * including, without limitation, 
wholesaler and distributor agreements into which InBev or IUSA have 
entered for the sale or distribution of the Labatt Brand within the 
United States * * *;'' Proposed Final Judgment, Sec.  II 
(F)(iii)(B).
    The Division's clear intention is to preserve the existing 
distribution network for the Labatt Brand. As the Division has 
recognized, distributors play an important role in the market for 
beer. See Competitive Impact Statement (``CIS'') at 4-6. Keeping the 
present network of Labatt Distributors in place for a commercially 
reasonable time period--the existing Distributors collectively have 
invested substantial sums in building the brand strength of the 
Labatt Brand--is essential to maintaining the Labatt Brand as a 
viable competitor. Because of a quirk in the regulation of 
distributors in some states, however, the Proposed Final Judgment 
may have an unintended consequence of promoting further 
consolidation at the distributor level and weakening Labatt Brand's 
distribution network.
    An immediate change in the distribution network will result in 
the loss of a significant number of jobs and the elimination of 
certain businesses. Certainly, the Division does not want its 
actions to directly result in the loss of jobs and the consequent 
increase in market concentration. In addition, the Labatt 
Distributors have a very real and monetary interest in the success 
of the Acquirer and the Labatt Brand. For example, the Labatt 
Distributors in Ohio have invested hundreds of thousands of dollars 
in the success of the Labatt Brand.
    On the contrary, the requirement set forth in the Proposed Final 
Judgment that the Divested Assets included all rights pursuant to 
distributor contracts may not prevent the Acquirer from terminating 
the Labatt Distributors. This issue is especially pronounced for 
distributors in Ohio and is likely to impact Labatt Distributors in 
other states as well. Certain state laws which protect distributors 
permit termination upon the sale of assets. Because of these laws, 
and the restrictions placed on the power of suppliers/manufacturers 
to terminate distributors, brand acquirers often terminate 
distribution contracts as a matter of course after an acquisition. 
Under normal circumstances, where the sale is part of the ordinary 
operation of the marketplace, such reflexive terminations do not 
raise competitive concerns. Here, however, where the sale is a 
remedy for an antitrust violation, such a termination would have the 
effect of lessening competition between the Labatt Brand and the 
remaining Anheuser-Busch brands. The replacement of some or all of 
the present Labatt Brand distribution network with a new set of 
distributors, possibly tied to the Acquirer but without longstanding 
commitment to, and appreciation of, the Labatt Brand creates a risk 
of weakening Labatt Brand as a brand to the detriment of competition 
in the relevant markets. The simple solution is to require the 
Acquirer to keep the Labatt Distributors for a commercially 
reasonable period of time.

The Acquirer Needs To Maintain the Existing Distribution Network for 
the Labatt Brands To Enhance the Competitive Results of Divestiture

    The likely Acquirers of the Labatt Brand are Diageo-Guinness, 
USA (``Guinness''), High Falls-Genesee of New York, Heineken USA or 
certain investment groups not presently active in the beer market in 
the relevant geographic area. Many of the most likely Acquirers each 
sell brands competitive to the Labatt Brand in the relevant markets. 
While not exhaustive, the following discussion highlights the 
concern that the Labatt Distributors have around post-divestiture 
consolidation. The Labatt Distributors can expand on this 
information and likely scenarios.
    One potential Acquirer is Guinness. If, as a result of the 
acquisition, Guinness decides to discontinue the distribution 
arrangements with the current distributors of the Labatt Brand beer 
in Canton, Cleveland, Youngstown and Mansfield, Ohio, Guinness 
likely will consolidate the actual distribution of the Labatt Brand 
beer with distributors who presently also distribute other brands 
currently sold by Guinness. This result will shift the share of the 
imported beer market among the distributors for the Labatt Brand 
products and its competitive brands from 20% to 40% and, in a 
certain market, one distributor will have 60% to 90% of the market. 
For example, in the Ohio markets of Canton, Cleveland, Youngstown 
and Mansfield, the purchase of the Labatt Brand by Guinness and a 
change of the distribution of the Labatt Brand products from current 
distributors to the existing distributors of Guinness products would 
likely increase the market share for imported beers in those 
respective markets by 32%, 30%, 23% and 26%, respectively. Again, 
this consolidation of market share would give the current 
distributors of the Acquirer market power sufficient to increase 
price for the Labatt Brand products to consumers independent of the 
fact that Guinness owned the brand instead of the combining 
companies.
    Other potential Acquirers are independent investor groups with 
little or no experience in the relevant markets. If this Acquirer 
terminates the Labatt Distributors and

[[Page 10293]]

attempts to distribute the Labatt Brand through distributors which 
also sell products competitive to the Labatt Brand products, the 
results will likely be, similar to the example with Guinness as the 
Acquirer, a lessening of competition and an increase in prices. Such 
results are likely compounded by the specific strategy needs of the 
independent investor group/Acquirer.

CONCLUSION

    For the foregoing reasons, the comments of the Labatt 
Distributors are limited and only bear on issues ``around the 
edges'' of the Proposed Final Judgment. Indeed, the Labatt 
Distributors believe that their comments are consistent with the 
Division's intent as expressed in the Proposed Final Judgment. In 
short, the Acquirer of the Divested Assets must maintain the Labatt 
Brand as a Canadian import and must adopt and continue specific 
strategies for the Division to achieve its goal. One material risk 
presented by the current language of the Proposed Final Judgment is 
that the Acquirer will terminate some or all of the existing 
distributors of the Labatt Brand products. This is likely to lead to 
increased consolidation at the distributor level and weaken the 
Labatt Brand as a viable competitor. Such a result will increase 
concentration in the relevant market and likely result in higher and 
less-competitive pricing. The simple solution is to require the 
Acquirer to maintain the existing distribution network for the 
Labatt Brand products for a commercially reasonable period of time. 
Implementation of changes consistent with these comments will 
increase the likely success of the divestiture.
    Thank you.

Sincerely,

James Coyne King.
JCK/kjb--518505
January 22, 2009

By Hand

Joshua H. Soven, Esq.,
Chief, Antitrust Division, Litigation I Section, U.S. Department of 
Justice, 1401 H Street, NW., Suite 4000, Washington, D.C. 20530.

    Re: Written Comments on Proposed Final Judgment/United States of 
America v. InBev N.V./S.A., et al. , U.S.D.C. for D.C., Case: 1:08-
cv-01965/

    Dear Mr. Soven:
    I represent Onondaga Beverage Corporation (``Onondaga''), a 
wholesale beer distributor based in Syracuse, New York, which 
distributes the Labatt brands of beer (the ``Labatt Brand'') in its 
upstate New York territory. As indicated in the January 15, 2009 
letter from James C. King on behalf of certain Labatt Distributors, 
Onondaga shares some of the concerns expressed in Mr. King's letter. 
In addition, I represent Rochester Beer & Beverage Corp. of 
Rochester, New York, McCraith Beverages, Inc. of Utica, New York, 
and Owasco Beverage, Inc. of Auburn, New York, who join in this 
letter as well. I am further authorized to state that Seneca 
Beverage Corp. of Elmira, New York and Rocco J. Testani, Inc. of 
Binghamton, New York also join in these comments. All of these firms 
distribute the Labatt Brand in their respective territories.
    We provide this letter to discuss, in greater detail, our 
concerns on the Proposed Final Judgment in the above-referenced 
action, which requires InBev to divest all assets associated with 
the Labatt Brand (``Labatt Brand'') consistent with the Antitrust 
Procedures and Penalties Act, 15 U.S.C. Sec. Sec.  16(b)-(c).
    These comments outline the views of our clients relating to the 
Complaint, the Competitive Impact Statement and the Proposed Final 
Judgment in the above-referenced action relating to the acquisition 
by InBev N.V./S.A. (``InBev'') of the Anheuser-Busch Companies, Inc. 
(``Anheuser-Busch''). Our clients are available to meet with you and 
are prepared to supplement and expand upon the comments set forth in 
this letter if that would be helpful to the Division.

Purpose

    Let me emphasize first that our clients, as Labatt distributors, 
share the Division's goal, as set forth in the Proposed Final 
Judgment, of preserving the Labatt Brand as a viable brand and as a 
competitor of the products of Anheuser-Busch and other brewers in 
the relevant markets. The primary purpose of these comments is to 
ensure that the goals of the Proposed Final Judgment are achieved, 
so as to maximize the positive competitive impact of the 
divestiture. Our comments focus on one principal area of concern, 
which we view as critical to the Labatt Brand continuing as a viable 
competitive force in the upstate New York market area: the need to 
maintain the Labatt Brand as a Canadian imported beer.
    The Labatt Brand is a unique product, with a specific set of 
characteristics that have made the brand appealing and enabled it to 
compete effectively with other beers in the upstate New York market 
area, particularly those areas near the Canadian border. The Labatt 
Brand derives brand equity and successful market position from its 
status as a high-quality Canadian import, as its greater popularity 
along the Canadian border demonstrates. Indeed, as we show below, 
the Labatt Brand has consistently advertised so as to emphasize its 
Canadian origin.
    The Labatt Brand also is sold at prices closer to that of 
domestic premium beer brands, such as Budweiser, Miller and Coors, 
than most imported beers, which are generally higher-priced. That 
market positioning, as a Canadian import for the price of a 
domestic, has been the linchpin to the Labatt Brand's success. Any 
significant change in this brand identity will harm the Labatt Brand 
as a competitor and adversely affect competition in the relevant 
geographic markets.

Background

    As proposed, InBev's acquisition of Anheuser-Busch would 
eliminate substantial, direct competition between InBev and 
Anheuser-Busch in Buffalo, Rochester and Syracuse, New York, as well 
as in other regions where the Labatt Brand is a significant 
competitive force. For the reasons set forth in the Competitive 
Impact Statement, the proposed Final Judgment requires InBev USA LLC 
(``IUSA'') to divest the Labatt Brand, and grant the Acquirer a 
license to brew, market, promote and sell Labatt Brand products for 
consumption in the United States as a condition for InBev proceeding 
with its $52 billion acquisition of Anheuser-Busch. The essential 
reason for requiring the divestiture is that the transaction, absent 
divestiture, would likely lead to higher prices for beer in the 
Buffalo, Rochester and Syracuse, New York metropolitan areas and 
possibly in other areas where the Labatt Brand has significant 
market share, because the Labatt Brand's and Anheuser-Busch's 
offerings collectively constitute a substantial percentage of those 
markets.
    As alleged in the Complaint, the Buffalo, Rochester and Syracuse 
beer markets are highly concentrated. We estimate market shares in 
the Syracuse, Rochester and Buffalo markets as follows:

----------------------------------------------------------------------------------------------------------------
                                                           Anheuser-Busch      MillerCoors         Labatt USA
                                                             (percent)          (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
Syracuse...............................................               28.0               32.0               21.0
Rochester..............................................               29.0               24.0               24.0
Buffalo................................................               30.0               23.0               27.0
----------------------------------------------------------------------------------------------------------------

    According to the Complaint, the supply responses from 
competitors or potential competitors would not likely prevent the 
anticompetitive effects of the proposed acquisition. Competition 
from other competitors is insufficient to prevent a small but 
significant and non-transitory price increase implemented by the 
combined entities in those markets from being profitable. Both the 
Competitive Impact Statement and the Complaint noted that ``[e]ntry 
of a significant new competitor into the marketplace is particularly 
unlikely because a new entrant would not possess the highly-
important brand acceptance necessary to proceed.'' Statement at 6; 
Complaint at para. 25. Furthermore, even if a new competitor did 
enter the marketplace, the Complaint emphasized that such a ``new 
entry is not likely to prevent the likely anticompetitive effects of 
the proposed acquisition.'' (Complaint at para. 25).
    The remedy set forth in the Proposed Final Judgment for this 
anticompetitive aspect of

[[Page 10294]]

the InBev acquisition of Anheuser-Busch is to require InBev to 
divest the Labatt Brand and grant a perpetual license to the 
Acquirer to sell Labatt Brand products for consumption throughout 
the United States, as well as to assign additional rights and 
contracts necessary to maintain the viability of the Labatt Brand. 
These rights include an exclusive, perpetual, assignable, 
transferable, and fully-paid-up license that grants the Acquirer the 
rights to (a) brew Labatt Brand products in Canada and/or the United 
States, (b) promote, market, distribute and sell Labatt Brand 
products for consumption in the United States, and (c) use all the 
intellectual property rights associated with the marketing, sale, 
and distribution of Labatt Brand products for consumption in the 
United States.
    The Proposed Final Judgment ensures the uninterrupted sale of 
Labatt Brand products in the United States by ``requiring defendants 
to divest all rights pursuant to distributor contracts, and at the 
option of the Acquirer, to negotiate a Transition Service Agreement 
of up to one year in length, and to enter into a supply contract for 
Labatt Brand products sufficient to meet all or part of the 
Acquirer's needs for a period of up to three years.'' Competitive 
Impact Statement at 8 [Emphasis added]. As we discuss below, 
however, the three-year time limit on the supply agreement, the 
resulting shift in the brewer of the Labatt Brand after three years 
if not sooner, and the possibility that the Labatt Brand might be 
brewed in the United States contain the seeds of destruction of the 
Labatt Brand as a viable competitor in the upstate New York markets 
that were the Division's principal concern.

Comments and Rationale

    As the Proposed Final Judgment and Competitive Impact Statement 
make clear, the goal of the Labatt Brand divestiture will only be 
realized if the Acquirer of the Labatt Brand assets maintains the 
brand as a viable competitor for Anheuser-Busch products in the 
relevant markets. If the Labatt Brand does not remain a viable 
competitor, the relevant upstate New York beer markets will fall 
victim to the concentration and anticompetitive price increases the 
Division is seeking to avoid through the divestiture ordered by the 
Proposed Final Judgment.
    Under the Proposed Final Judgment, the Acquirer can purchase the 
Labatt Brand brewed by InBev in Canada for three years. After that 
time, the Acquirer must find a new brewery. As set forth in the 
Proposed Final Judgment, the Acquirer could change brewers or even 
elect to brew the Labatt Brand in the United States, from the 
outset. As set forth below, such a decision would make it impossible 
to maintain the Labatt Brand as a competitive brand.
    We attach to this letter a letter from Michael J. Mazzoni, an 
expert consultant in the beer industry with in-depth experience in 
the sales, marketing and distribution of imported and domestic beers 
at both the brewer-importer and the wholesale distributor tiers of 
the industry (the ``Mazzoni Letter''). Mr. Mazzoni describes the 
disastrous effect on the Labatt Brand from the loss of authenticity 
that will result if the brewing of the brand shifts to another 
brewer, and especially if the Canadian identity that is the core of 
its brand equity is lost by shifting production to the United 
States.

Divestiture Only Remedies Antitrust Violations If the Divested 
Business Remains Viable Thereafter

    In considering remedies for antitrust violations, the Courts, 
the Division and the FTC have uniformly recognized that the 
viability of a divested business line as a competitor is crucial to 
the usefulness of divestiture as a cure for an antitrust violation. 
See, e.g., Utah Public Service Comm'n v. El Paso Natural Gas Co., 
395 U.S. 464, 470 (1969) (``The purpose of our mandate was to 
restore competition in the California market. * * * [t]he object of 
the allocation of gas reserves must be to place New Company in the 
same relative competitive position vis-[agrave]-vis El Paso in the 
California market as that which Pacific Northwest enjoyed 
immediately prior to the illegal merger.''). Indeed, post-
transaction viability is the sine qua non of a curative divestiture. 
See, e.g., White Consol. Indus. v. Whirlpool Corp., 612 F.Supp. 
1009, 1028 (N.D. Ohio 1985) vacated after compliance by 619 F.Supp. 
1022 (holding that company acquiring divested assets must (1) have 
capacity to compete effectively and (2) be free to operate divested 
business absent control by seller). The Courts, the Division, and 
the FTC have fashioned hold separate orders, like the Stipulation in 
the above-referenced action, to maintain the viability of the 
business which is the subject of a divestiture as a competitor in 
the relevant markets.

The Acquirer of the Divested Assets Must Maintain the Labatt Brand 
as a Canadian Import

    Our clients are concerned that certain potential Acquirers of 
the Labatt Brand are not good fits, and could diminish the Labatt 
Brand as a competitor for Anheuser-Busch and MillerCoors in the 
relevant markets for reasons that may suit the potential Acquirers' 
economic interests but will not preserve the competitive viability 
of the Labatt Brand in the long term. While the Order correctly 
leaves to the Acquirer to decide the brand promotion and strategy to 
pursue, we wish to make certain that the Division and the Court 
understand that the Labatt Brand garners its brand equity, and, in 
turn, much of its market strength, from the fact that it is a high-
quality Canadian import sold at the price of domestic premium 
beers.\1\ This Canadian import status is the defining characteristic 
of the Labatt Brand (see advertising examples below) that any 
Acquirer must preserve if the goal is to maintain the Labatt Brand 
as a viable competitor in the relevant markets.
---------------------------------------------------------------------------

    \1\ See also Mazzoni Letter at 1.
---------------------------------------------------------------------------

    We request that the Proposed Final Judgment be modified to give 
the Acquirer the right to extend its right to purchase the Labatt 
Brand brewed by InBev (which, after all, will still be brewing it 
for sale in Canada and elsewhere) in Canada beyond the three-year 
period, and in any case to ensure that the Acquirer brews the Labatt 
Brand in Canada and so maintains the Labatt Brand as a Canadian 
import.

Short-Term Economic Incentives of Purchasers May Be at Odds with 
the Long-Term Competitive Viability of the Labatt Brand

    Certain potential acquirers \2\ with excess U.S. brewing 
capacity have economic incentives to shift the brewing of the Labatt 
Brand to their United States facilities that are unrelated to 
maintaining the Labatt Brand as an effective competitor. Because 
unused brewing capacity is extremely costly to any U.S. brewer, and 
filling unused brewing capacity is economically efficient in the 
short term, such a brewer can reduce the costs of its existing 
domestic products by brewing the Labatt Brand in its unused U.S. 
brewery capacity. This will help the brewer to get through difficult 
economic times, and to improve the competitiveness of its domestic 
brands, but these smaller brands cannot replace the Labatt Brand as 
a major competitive force in the key upstate New York markets. The 
disastrous long-term consequences of such a move for the Labatt 
Brand may be outweighed for the brewer by the benefits for its other 
products, but the resulting loss of the Labatt Brand as a viable 
competitor will have precisely the anticompetitive effects 
divestiture was intended to prevent. While such a step might benefit 
the Acquirer, it would not fulfill the Division's purpose of 
preserving the Labatt Brand as a viable competitor in the markets in 
which it is a strong competitor today.
---------------------------------------------------------------------------

    \2\ Currently, there are potential Purchasers with unused U.S. 
brewing capacity. One example of such a potential purchaser is High 
Falls/Genessee. See Mazzoni Letter at 3.
---------------------------------------------------------------------------

    The Labatt Brand's market position is based on its 
identification as a high-quality Canadian import brand, and its 
brand equity has been developed over many years by advertising 
emphasizing its Canadian origin. Losing that brand equity would 
destroy the identity of the Labatt Brand, insulting brand loyalists 
\3\ and rendering it a domestic brand with no distinguishing 
characteristics. Additionally, it is likely that MillerCoors Brewing 
Company would use advertising to inform U.S. Consumers that its own 
Molson brands were the only authentic Canadian beers brewed in 
Canada and sold in the U.S. Labatt could not remain a viable 
competitor were this to occur. If the Labatt Brand fails, the market 
share data and economics of distribution indicate that its 
distributors will likely fail as well in the key upstate New York 
markets.\4\
---------------------------------------------------------------------------

    \3\ See Mazzoni Letter at 2.
    \4\ See market share data at page 2 above and Mazzoni Letter at 
1.
---------------------------------------------------------------------------

L[ouml]wenbr[auml]u Failed as a Competitive Import When Miller 
Acquired It and Shifted Production to the U.S.

    The decline of the L[ouml]wenbr[auml]u Brand is an example of a 
Purchaser with unused U.S. brewing capacity acting on its economic 
incentive at the expense of the long-term viability of the brand. In 
the 1970s, the image and authenticity of L[ouml]wenbr[auml]u beer, 
then one of the nation's leading imported beers, was severely 
damaged after it was bought by the Miller Brewing Company, which 
moved production from Munich to its American

[[Page 10295]]

breweries. See, New York Times, ``With Some Risk To Its Image, 
Altoids Is Moving to the U.S., Bosman, J., October 5, 2005.\5\ The 
L[ouml]wenbr[auml]u Brand, once an effective competitor in the 
import space, effectively disappeared when it began being brewed in 
the U.S. and never recovered, even after the brand was taken over in 
1999 by Labatt Breweries of Canada. As the New York Times noted, 
``[a]ny whiff of inauthenticity can damage a brand in the case of 
finicky beer drinkers, for whom the line between domestic and 
imported brands is sacrosanct.'' Id. (emphasis added). As Mr. 
Mazzoni notes, the loss of authenticity vastly outweighed the 
lowered cost, and the brand disappeared as an effective competitor. 
The result was similar for Wurzburger Hofbrau, another German beer, 
when Anheuser-Busch began to import it in bulk for repackaging in 
the U.S. If Labatt is permitted to be brewed in the U.S., its demise 
as a viable competitor will be assured. (Mazzoni Letter at 2-3.)
---------------------------------------------------------------------------

    \5\ Available at: http://www.nytimes.com/2005/10/05/business/media/05adco.html?_r=1&scp=1&sq=altoids%20bosman&st=cse.
---------------------------------------------------------------------------

Canadian-Origin Emphasis in the Marketing of Labatt

    The Labatt Brand has deep roots as a Canadian-brewed beer, 
starting with its founder John Kinder Labatt, who purchased the 
Simcoe Street brewery in London, Canada in 1847. During the Canadian 
prohibition from 1915 through 1927, the Labatt brewery survived by 
exporting its product and by producing ``temperance ales'' (brews 
with less than two per cent alcohol) for sale in Ontario. In 1979, 
Labatt Blue claimed the top spot in the Canadian beer market, a 
position it has held ever since.
    The Labatt Brand has continuously and emphatically emphasized 
its deep Canadian roots in its advertising and product placement. 
Labels of Labatt Blue, Labatt Blue Light and other Labatt products 
prominently feature a distinctive red maple leaf design synonymous 
with the Canadian national flag, with the words ``IMPORTED,'' 
``IMPORTED DAILY FROM CANADA'' or ``CANADA'S PILSNER'' in block 
print on the face of the label. (See Exh. A.). Print advertisements 
and bar decorations for Labatt, such as branded mirrors and neon 
signs, also prominently feature the Canadian maple leaf and the 
words ``Imported,'' ``Imported from Canada'' or ``IMPORTED DAILY 
FROM CANADA.'' (See Exh. B.). Commemorative bottles of Labatt have 
featured the actual Canadian national flag (See Exh. C.). Labatt has 
also had a long history of support for ice hockey, the national 
winter sport of Canada, by sponsoring the 1972 Summit Series as well 
as four Canada Cup international ice hockey tournaments. (See Exh. 
D.).
    Several television commercials for Labatt Blue in the United 
States feature a popular character in a bear costume, involved with 
Labatt Blue in various ways (on the golf course, in a bar, on a 
date, etc). In one commercial, the announcer proclaims ``Today, 
Labatt announced the extension of Labatt Blue into the U.S. 
market,'' to which the bear character reacts with surprise, departs 
the woods of Canada, and proceeds to tour the United States talking 
to people about Labatt Blue. The bear tells one American citizen, 
``I love Canada; it's my home'' but proclaims that he can ``get the 
best part of Canada and live in the States.'' The commercial closes 
with a glass of beer in front of a waving Labatt Blue flag featuring 
the red Canadian maple leaf, as the announcer states ``Labatt Blue. 
Pure Canada.'' (See Exh. E.).\6\
---------------------------------------------------------------------------

    \6\ Copies of these commercials are included in the DVD-ROM 
marked as ``Exhibit O,'' and are also available on the Internet at 
Youtube.com. See Exhibit O, Folder 1. Also available at: http://www.youtube.com/watch?v=rmb8NK3oZZQ.
---------------------------------------------------------------------------

    In another television commercial, the bear character receives a 
gift of a red and white necktie covered with the distinctive 
Canadian maple leaves. (See Exh. F.).\7\ In another commercial, the 
bear character gulps down a Labatt Blue immediately after the beer 
is introduced to the viewers as ``The clean, crisp lager imported 
daily from Canada.'' \8\ In another, the bear character serves 
Labatt Blue in a bar, calling it ``Canada's finest.'' \9\ Another, 
not involving the bear character, prominently displays an entire 
refrigerator full of the product with the caption ``IMPORTED DAILY 
FROM CANADA.'' (See Exh. G.).\10\ In another commercial, the bear 
character carries a six-pack of Labatt Blue to a party and is 
introduced as being ``from Canada.'' The advertisement asks ``want 
your own taste of Canada?'' and states ``you can win your own lodge 
in the Labatt Blue Lodge Sweepstakes.'' (See Exh. H.).\11\
---------------------------------------------------------------------------

    \7\ See Exhibit O, Folder 2. Also available at: http://www.youtube.com/watch?v=xK01QWA27H8&NR=1.
    \8\ See Exhibit O, Folder 3. Also available at: http://www.youtube.com/watch?v=cKQ3Fnkdplg&feature=related.
    \9\ See Exhibit O, Folder 4. Also available at: http://www.youtube.com/watch?v=llgGjoTL7TI&feature=related.
    \10\ See Exhibit O, Folder 5. Also available at: http://www.youtube.com/watch?v=HntrObODHqQ&feature=related.
    \11\ See Exhibit O, Folder 6. Also available at: http://www.youtube.com/watch?v=IQ9IsiZqkGg.
---------------------------------------------------------------------------

    Other television commercials feature realistic talking animals 
(fish, deer) who plead with humans to enjoy themselves outside, as 
the voiceover urges, ``imported daily from Canada * * * come on up'' 
(See Exh. I.).\12\ In a 1994 television commercial not involving any 
animal characters, a Canadian man sits in his back yard imagining 
the U.S./Canada border crossing station (pictured in Exh. J.) \13\ 
thinking the following thought, which is read as a voiceover:
---------------------------------------------------------------------------

    \12\ See Exhibit O, Folder 7. Also available at: http://www.youtube.com/watch?v=fPrS5USJ4VM.
    \13\ See Exhibit O, Folder 8. Also available at: http://www.youtube.com/watch?v=HjGYbGe1VwE.

    Sometimes I wish my back yard stretched right up to the U.S.-
Canadian border. I'd sit on my lawn chair with a cold Labatt Blue. 
I'd watch some tourists, flash a smile at our customs agents, and 
taunt and tease the Americans with perhaps the finest example of a 
true Canadian lager. And if that doesn't rile them, I'll just stick 
in a tape of last year's World Series. Or, maybe the one before 
---------------------------------------------------------------------------
that.

    Labatt's international advertisements \14\ focus on Canadians 
doing a hard day's work (or a fun night of partying) in actual 
Canadian cities, as stated in the advertisements, including a 
helicopter rescue of a bear cub in ``Wawa, Ont.'' (See Exh. K.), a 
sunset campfire on the beach in ``Point Prim, P.E.I.'' (See Exh L.), 
at ``Expo '86, Vancouver'' (See Exh. M.), and roadies setting up a 
concert in ``Vancouver, B.C.'' (See Exh. N.), among other Canadian 
locations.
---------------------------------------------------------------------------

    \14\ See Exhibit O, Folder 9. Also available at: http://www.youtube.com/watch?v=miTfUrJ6VKA.
---------------------------------------------------------------------------

The ``Free Market'' Will Not Protect the Labatt Brand

    The Department and the Court should not rely on the ``free 
market'' to address the significant possibility that the Acquirer 
will not maintain the Labatt Brand as a Canadian import. With the 
sale volume and other relevant factors specific to the Labatt Brand 
products, the Acquirer's options are limited. Our clients are not 
aware of breweries with substantial capacity in Canada other than 
InBev's Labatt Brand brewery and Molson/Coors' breweries. Neither 
InBev nor Molson/Coors will have an incentive to assist the Acquirer 
in maintaining the Labatt Brand. Other Canadian breweries are likely 
too small to replace the approximately 20 million cases of the 
Labatt Brand products sold in the United States each year. Even if 
another Canadian brewer could be found, the loss of the economies of 
scale resulting from InBev's production of the same beer for the 
Canadian market will result in higher prices for the Labatt Brand in 
the U.S. (See Mazzoni Letter at 3.)

Conclusion

    The comments of our clients are limited and only bear on issues 
concerning one specific aspect of the Proposed Final Judgment. We 
believe that our comments are consistent with the Division's intent 
as expressed in the Proposed Final Judgment. In short, the Acquirer 
of the Divested Assets must maintain the Labatt Brand as a Canadian 
import, and ideally continue to have the Labatt Brand continue to be 
brewed by InBev's Canadian Labatt brewery, if the Division is to 
achieve its goal.
    One material risk presented by the Proposed Final Judgment is 
that an Acquirer with excess U.S. brewing capacity will use the 
Labatt Brand to fill that capacity in order to obtain short-term 
economic benefits at the long-term expense of the Labatt Brand. This 
will weaken--and likely cripple--the Labatt Brand as a viable 
competitor. Such a result will increase concentration in the 
relevant market and likely result in higher and less-competitive 
pricing.
    The simple solution is to give the Acquirer the right to extend 
its right to purchase the Labatt Brand brewed by InBev (which, after 
all, will still be brewing it for sale in Canada and elsewhere) in 
Canada beyond the present three-year period, and, in any event, to 
ensure that the Acquirer maintains the Labatt Brand as a Canadian 
import. Implementation of changes consistent with these comments 
will increase the likely success of the divestiture.

[[Page 10296]]

    Thank you for your consideration.
    Sincerely,

Andre R. Jaglom.

M.J. Mazzoni, Inc.
2637 Northwind Road, Lexington KY 40511, Phone: (859) 294-6888, Fax: 
(859) 294-0336, e-mail: <a href="/cdn-cgi/l/email-protection#701d110a0a131f3007191e1403040215111d5e1e1504"><span class="__cf_email__" data-cfemail="afc2ced5d5ccc0efd8c6c1cbdcdbddcacec281c1cadb">[email protected]</span></a>.

January 22, 2009

Andre R. Jaglom
Tannenbaum, Helpern, Syracuse & Hirschtritt, LLP, 900 Third Avenue, 
New York, NY 10022.

    Dear Mr. Jaglom:
    As you requested, I have reviewed the potential impact of the 
Department of Justice's required divestiture of Labatt U.S.A. (LUSA) 
by INBEV N.V./S.A. (INBEV) as a condition to the INBEV acquisition 
of Anheuser-Busch, Inc. My qualifications regarding this assignment 
are described in the attached curriculum vitae.
    Specific to the Department of Justice ruling, the required 
divestiture of LUSA by INBEV, as presently constructed, will have 
two unintended consequences. These will result from the fact that 
the divestiture order contemplates that the acquirer must find 
alternative brewing arrangements for the Labatt brands within three 
years, and may do so immediately. The first unintended consequence 
will be the loss of authenticity as a true Labatt product and, if 
brewed in the U.S., as a Canadian imported beer. It is important to 
emphasize that ``Canadian Import'' is the core of the Labatt brand 
identity. The second unintended consequence, ironically contrary to 
the intent of the divestiture order, will be an increase in the 
price of the Labatt brands for consumers, not only in New York and 
the northern tier markets, but throughout the U.S. Combined, the 
loss of authenticity and higher prices will prevent the Labatt 
brands from continuing as viable competitors in those U.S. markets 
in which they are now a strong competitive force. The result will be 
a reduction in competition in these markets and a substantial 
negative economic impact on all current Labatt distributors 
(regardless of whether they also distribute for Anheuser-Busch, 
Miller/Coors, or any other suppliers). This will ultimately result 
in the elimination of jobs, decreased profitability, loss of equity 
value and, in some cases, distributor failure. These consequences 
will be the result of two dynamics: a significant loss of volume and 
the higher cost of goods sold to distributors--both of which are 
inevitable if the acquirer shifts production away from the current 
Labatt brewery, whether after three years or sooner. The result will 
be even more extreme if production is shifted out of Canada and into 
the United States.
    Having the Labatt brands brewed by anyone other than the Labatt 
Brewing Company Limited (``Labatt Canada''), and especially by a 
brewery in the U.S., will raise the very real issue of authenticity. 
Labatt Canada is an iconic company. Sourcing the Labatt brands from 
any other brewer, and particularly any brewer outside of Canada, 
would negate the authenticity of the beer sold in the U.S. and it 
should be expected that significant numbers of Labatt drinkers would 
reject the product on that basis. It can also be assumed that if 
Labatt is brewed in the U.S., the MillerCoors Brewing Company would 
use advertising to inform U.S. consumers that its own Molson brands 
were the only authentic Canadian beers brewed in Canada and sold in 
the U.S. This would be a powerful message which would certainly 
drive consumers that prefer Canadian beers from the Labatt brands.
    The worst possible scenario for the Labatt brands and U.S. 
distributors would be contract brewing the Labatt brands from a U.S. 
supplier or having a brewer acquirer brew the Labatt brands in its 
own U.S. brewery. Simply stated, the overwhelming majority of Labatt 
consumers drink Labatt because the brands are Canadian. While any 
Canadian contract brewer other than Labatt Canada would create 
problems for the brands regarding authenticity, Labatt brewed in the 
U.S. would be insulting to the Labatt brands' loyalists. All of the 
Labatt brands' packaging, promotion, and advertising prominently 
uses the word ``Canada'' and emphasizes their Canadian origin. 
Indeed, the Labatt advertising slogan is ``imported daily from 
Canada''. It is important to note that the consumer has been 
constantly and consistently presented with Canada as the country of 
origin; and, Canada is also a concept in itself which is reinforced 
in Labatt advertising by imagery including blue skies, water, 
crispness, bears, cold, and the bigness of the country. Canada is 
the primary marketing component of the Labatt equity which has been 
promoted by LUSA, its importer predecessors and the U.S. 
distributors for decades.
    The situation is reminiscent of the demise of the Lowenbrau 
brand in the 1970s. Lowenbrau, an authentic German beer, was among 
the leading imported beers in the United States at that time. After 
Lowenbrau was acquired by the Miller Brewing Company (Miller), 
production was shifted from Germany to Miller breweries in the U.S. 
Miller's objective was to reposition the brand at domestic super 
premium levels based on their assumption that reducing prices for 
this well-respected brand would result in a consumer buying frenzy. 
While this initiative did allow Miller to lower production costs and 
save freight, therefore, effectively reducing the price of the beer, 
its authenticity as a German imported beer was demolished. U.S. 
brewed Lowenbrau rapidly lost volume and market share, going from 
one of the leading and most respected imported beers to an 
insignificant market presence in a matter of a few years. The 
failure of Lowenbrau was the unintended consequence of Miller 
Brewing Company's sacrificing authenticity for cost and convenience. 
It should also be noted that Anheuser-Busch, Inc. had a similar 
experience and result when it tried to import Wurzburger Hofbrau 
(another German beer) in concentrated bulk for repackaging at its 
U.S. breweries. Consumers flatly rejected Wurzburger Hofbrau as 
unauthentic. The same consequences can be expected for the Labatt 
brands on a much larger scale because of their higher volume and 
margin contribution if production is shifted to the United States.
    In view of this not-so-distant beer industry history regarding 
Lowenbrau and Wurzburger Hofbrau, one would expect any acquirer of 
the Labatt brands to recognize the need to keep production in 
Canada. Dynamics beyond marketing and sales implications, however, 
create the possibility that a small U.S. brewer could realize short 
term operating benefits to the brewer which would likely be far less 
than the long term harm to the many U.S. Labatt distributors and to 
viable competition from the Labatt brands. It is rumored that the 
High Falls Brewing Company/Genessee Brewing Company of Rochester, 
New York is among the potential acquirers and other small brewers 
have also been mentioned. Their sole interest would be to increase 
production to create economies and efficiencies which would lower 
cost for their domestic brands. The tradeoff between short term 
brewing profits for a small U.S. brewer and Labatt brand 
authenticity would be a poor bargain for the U.S. Labatt 
distributors and consumers.
    In addition to the concern about brand authenticity, without 
question, Labatt Canada is the lowest cost producer for the Labatt 
brands. The scale advantages from the Labatt volume sold in Canada 
ensure that all packaging and raw materials will always be cheaper 
for Labatt Canada than for any other contract brewer. In this case, 
the cost advantage is magnified because Labatt Canada's transfer 
price to LUSA was essentially at cost which allowed LUSA to spend 
more for advertising and sales promotion in the U.S. Any contract 
brewer to the Labatt licensee (including Labatt Canada) will include 
a brewing profit margin (estimated at 15-20%) which will be passed 
through to distributors. Further, the licensee will still have 
advertising and sales promotion expenses to support the brands, as 
would any brewer or importer. If brewing is shifted to another 
Canadian brewer, the cost of freight will also increase to most U.S. 
distributors because the likely contract brewers in Canada are 
located further from the majority of the Labatt volume than is 
Labatt Canada. Finally, it must be assumed that the acquirer of LUSA 
will have significant debt service which could also result in higher 
prices to distributors (or lower marketing support). Regardless of 
the contributing factors, a higher cost of goods for the Labatt U.S. 
distributors will create higher prices to consumers which will, in 
turn, cause volume declines for the Labatt brands. The likely (and 
most serious) scenario for distributors as a result of higher 
product cost will be lower margins and declining sales volume.
    The impact of higher consumer prices for the Labatt brands must 
also be considered in the context of historical price positioning in 
northern tier markets. The Labatt brands have always been positioned 
at the price point of the leading domestic (U.S.) premium beers 
which include Budweiser, Bud Light, Miller Genuine Draft, Lite, 
Coors, and Coors Light and Labatts' primary Canadian competition, 
the Molson Canadian brands. Forcing the Labatt brands to price 
points above historical competition would create a price value 
anomaly for Labatt drinkers and many will choose other premium 
priced beers instead of their customary Labatt brand. This would 
have an immediate and permanent negative

[[Page 10297]]

impact on brand volume and competiveness and, therefore, distributor 
profitability and viability.
    While some price increase is unavoidable given the divestiture, 
permitting the acquirer to continue to have the Labatt brands brewed 
by Labatt Canada, and requiring Labatt Canada to continue to brew 
them, beyond the current three year horizon will minimize that 
increase, because of the economies of scale provided by Labatt 
Canada's production for the Canadian market.

Conclusions:

    If the Labatt brands are brewed by any brewer other than Labatt 
Canada, the volume and margin in the northern tier markets will 
likely decline by 30-50% within three years. The decline will be 
steeper if the Labatt brands are brewed in the U.S. The result will 
be the demise of an effective competitor--precisely the opposite of 
the intended purpose of the divestiture. The implications for the 
northern tier Labatt distributors are obvious. The Department of 
Justice must recognize that most of the northern tier distributors 
have sold the Labatt brands for many years and that volume and 
margin contribution is critical to each independent business. In 
fact, for many distributors, the Labatt portfolio contributes more 
than 50% of total gross margin (in the case of Rochester, which has 
no other major supplier, the Labatt brands are more than 80% of 
total gross margin) and the loss of 30-50% of gross margin would 
severely impact profitability, jobs, competitiveness and the value 
of the business(es). The potential for this to become reality is a 
virtual certainty if the licensee contracts any brewer except Labatt 
Canada, especially if production is shifted to the U.S.
    Therefore, if the divestiture is enforced, the licensee should 
be permitted to contract the brewing for the Labatt brands from 
Labatt Canada well beyond the present three year period, and Labatt 
Canada should be required to continue to brew the Labatt brands for 
the acquirer. This is the only way to ensure the lowest possible 
transfer price to distributors, maintain brand authenticity, promote 
healthy competition, ensure each current distributor's business 
viability, preserve distributor equity, and protect consumers from 
higher prices.

Michael J. Mazzoni
MJM/nm

M.J. MAZZONI C.V.

    M.J. MAZZONI is an independent broker specializing in the 
valuation, purchase and/or sale of U.S. malt beverage distributors. 
Additionally, Mazzoni works with brewers in North America and Asia 
advising on sales organization and strategy, distributor relations, 
and long-range planning. Brewer/Importer clients include Heineken, 
U.S.A.; Cerveceria Cuauhtemoc Moctezuma S.A. de C.V., and D.G. 
Yuengling and Son, Inc. Mazzoni is also an active and founding 
partner of SEEMA International, Ltd., a Hong Kong consultancy 
specializing in strategic planning for multi-national brewers doing 
business in China and other Asian countries.
    After receiving a Masters Degree in Business Administration in 
1973, Mazzoni joined the beer industry and held a variety of sales, 
marketing and general management positions with Anheuser-Busch, Inc. 
(1973-80), The Pabst Brewing Company (1980-82) and Barton Beers, 
Ltd. which he established in 1983. Under his direction, Barton 
Beers, Ltd. became the second largest beer importer (Corona) in the 
U.S. within four years. The success of Barton Beers, Ltd. led to a 
management buyout of the company's parent, Barton Brands, Ltd. (a 
distilled spirits and wine company) in 1987 and Mazzoni participated 
in the buyout as a principal in the transaction.
    Since selling his interest in Barton, Inc. in 1991, Mazzoni has 
been an investor-partner in AFP, Inc., an Ohio beer distributorship 
(1992-2000); worked as a consultant assisting the Miller Brewing 
Company (1993-2002) with its distribution system reorganization, 
sales strategies, and distributor reconfiguration wherein he 
negotiated and facilitated the purchase and/or sale of independent 
Miller beer distributorships (including Miller-owned branch 
operations) and the sale or exchange of individual brand rights 
between distributors throughout the U.S. Mazzoni thus has in-depth 
experience in the sales and marketing of domestic and imported beers 
at both the supplier and wholesale distributor tiers of the 
industry.
333 Albert Avenue, Suite 500, East Lansing, MI 48823-4394 (517) 351-
6200, Fax (517) 351-1195, www.willinghamcote.com.

Anthony S. Kogut,
(517) 324-1046--Direct Dial
<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="7a1b11151d0f0e3a0d13161613141d121b1719150e1f5419151757573f57171b1316">[email protected]</a>

January 16, 2009

Via Hand Delivery and U.S. Mail

Mr. Joshua H. Soven, Esq.
Chief
Litigation I Section
Antitrust Division
U.S. Department of Justice
1401 H Street, NW
Suite 4000
Washington, DC 20530

RE: Written Comments on Proposed Final Judgment United States of 
America v InBev N.V./S.A., et al. U.S.D.C. for D.C., Case: 1:08-cv-
01965

    Dear Mr. Soven:
    This letter is submitted on the Proposed Final Judgment in the 
above-referenced action which requires InBev N.V./S.A. to divest all 
assets associated with the Labatt Brand consistent with the 
Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16 (b)-(c).
    This office represents Tri-County Beverage Company, a Labatt USA 
wholesaler headquartered in Dearborn and Warren, Michigan. Tri-
County Beverage services the Detroit, Michigan, metropolitan area 
which is an important market for the Labatt Brand. The Labatt Brand 
is a critical and integral component of Tri-County Beverage's 
portfolio, with the Labatt Brand accounting for about 50% of Tri-
County Beverage's annual sales (approximately 2.5 million cases out 
of 5.5 million cases of total sales).
    We are in receipt of a copy of the January 15, 2008 letter sent 
to you by Mr. James Coyne King on behalf of his clients, Esber 
Beverage Company, RL Lipton Co, and Tri County Distributing, Co. We 
write because we share many of the concerns raised by Mr. King in 
his letter.
    We agree with the observation that the Acquirer of the Labatt 
Brand must be well-positioned to support and market the Labatt Brand 
``so that the position of the Labatt Brand is maintained and 
enhanced.'' The Labatt Brand is a niche product with a specific set 
of characteristics that make the Brand appealing in particular 
markets, such as Michigan. Much of the Labatt's Brand competitive 
position derives from its status as a Canadian import. As such, it 
is particularly popular in states (such as Michigan) which border or 
are in close proximity to Canada. We agree that the ``Labatt Brand 
products also have a price point more akin to domestic premium 
brands * * * than most imported beers''. The Labatt Brand market 
position, as a Canadian import for the price of a domestic, has been 
the ``lynchpin'' of the Labatt's Brand success. (See page 2 of Mr. 
King's letter). We concur in the comments made on pages 4 through 6 
of Mr. King's January 15th letter which support the concept ``that 
the viability of a divested business line as a competitor is crucial 
to the usefulness of divestiture as a cure for an antitrust 
violation'' and his comments concerning the need to have a viable 
Acquirer to effectuate that principle and reach that goal of 
divestiture.
    Wholesalers have spent many years--with a commensurate 
expenditure of time, money and effort--nurturing and building the 
Labatt Brand to make it the success it is today in states like 
Michigan. For example, Tri-County Beverage spent approximately 
$400,000 to advertise and promote the Labatt Brand in 2008 to 
complement the approximately $2 million dollars spent by Labatt to 
advertise and promote the Labatt Brand in metropolitan Detroit 
during that same period. Similar sums were expended by Tri-County 
Beverage and Labatt in previous years. To maintain the Labatt's 
Brand competitive viability it is critical that it continue as a 
Canadian import and that the Acquiring entity continue the 
strategies and pricing which have made the Labatt Brand a success. 
Should an inappropriate Acquirer obtain the Labatt Brand and not 
follow the strategies and pricing that have heretofore made the 
Brand successful (through the efforts of the existing wholesaler 
network), it will have a devastating effect on the Labatt Brand 
market share and competition in the industry.
    Given the well thought out submission presented by Mr. King we 
have kept our comments to a minimum. We urge that the referenced 
comments be considered to help guide the decision making process.
    Tri-County Beverage stands ready and willing to meet with you or 
to supplement this letter with other information you may deem 
useful.
    Thank you for your attention to this matter.
    Very truly yours,

Willingham & Cot[eacute], P.C.

/s/

Anthony S. Kogut


[[Page 10298]]


ASK/nlh
cc: Mr. James Coyne King
Mr. Ron Feldman

 [FR Doc. E9-5018 Filed 3-9-09; 8:45 am]
BILLING CODE 4410-11-P


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