Source: http://www.justice.gov/atr/cases/f271500/271579.htm
Timestamp: 2015-05-29 00:07:14
Document Index: 183091306

Matched Legal Cases: ['§ 18', '§ 18', '§ 25', '§ 18', '§ 25', '§ 1345', '§ 1331', '§ 22', '§ 1391']

Complaint : U.S. v. H&R Block Inc., et al.
v. H&R BLOCK, INC.
One H&R Block Way	Kansas City, MO 64105;
2SS HOLDINGS, INC.
5925 Dry Creek Lane NE
Cedar Rapids, IA 52402; and
TA IX L.P.
John Hancock Tower, 56th Floor
| Case: 1:11-cv-00948
Assigned To: Howell, Beryl A.
Assign. Date: 5/23/2011
Description: Antitrust COMPLAINT
The United States of America, acting under the direction of the Attorney General of the United States, brings this civil action to enjoin the proposed acquisition by Defendant H&R Block, Inc. (“H&R Block”) of Defendant 2SS Holdings, Inc. (“TaxACT”), an entity within Defendant TA IX L.P. (“TA”). The United States alleges as follows:
1. Last year, approximately 140 million Americans filed their tax returns with the Internal Revenue Service (“IRS”). Increasingly, taxpayers are choosing to prepare their U.S. federal and state tax returns using digital do-it-yourself tax preparation products (“Digital DIY Tax Preparation Products”), either over the Internet or on their desktop computers. Last year, an estimated 35 to 40 million taxpayers filed their taxes using Digital DIY Tax Preparation Products. In the U.S. Digital DIY Tax Preparation Product market, the three largest firms service approximately 90% of all consumers. H&R Block’s proposed acquisition of TaxACT, if allowed to proceed, would combine the second- and third-largest providers in that market and essentially create a duopoly. The proposed acquisition would (1) eliminate aggressive head-to-head competition between H&R Block and TaxACT, and (2) increase the likelihood that the two remaining significant providers would substantially reduce competition through successful coordination; both in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. 2. TaxACT has aggressively competed with H&R Block in the Digital DIY Tax Preparation Product market for over a decade. That competition has resulted in product innovations and lower prices that have benefitted the millions of U.S. taxpayers who use Digital DIY Tax Preparation Products. The proposed acquisition would remove this competition, resulting in less innovation and higher prices for consumers. H&R Block’s internal documents acknowledge that acquiring TaxACT would result in the “[e]limination of [a] competitor,” and would allow H&R Block to “regain control of industry pricing and avoid further price erosion.” 3. The reason the acquisition would “avoid further price erosion” is that TaxACT has, in its own words, been a “maverick” in the Digital DIY Tax Preparation Product market. Over the years, TaxACT has touted to the public that it is a “catalyst for change” that has “consistently forced the tax preparation industry to become more competitive, and in doing so [has] forced [its] competitors to change as well.” These views of TaxACT as a maverick and significant force of change in the market are also shared amongst TaxACT’s competitors. According to H&R Block internal documents, in 2005 TaxACT “disrupted” the entire marketplace by offering all taxpayers the ability to digitally prepare and electronically file (“e-file”) their federal returns for free over the Internet. This disruption caused the industry leader, Intuit, Inc. (“Intuit,” maker of “TurboTax”) and then H&R Block to provide their own free tax preparation and e-file offers. TaxACT has continued its pattern of disrupting H& R Block’s and Intuit’s businesses by offering products that are functionally comparable to those of H&R Block and Intuit, at comparatively lower prices. Most recently, TaxACT’s products have entered the retail (boxed software) segment of the market. Through lower prices and unique offerings at Staples, H&R Block’s second-largest retailer, TaxACT has, in H&R Block’s own words, put H&R Block’s sales volumes in those stores “at risk.” With the removal of this maverick from the marketplace, Intuit and H&R Block would be left with a virtual duopoly in which they need not aggressively compete with one another and can more successfully coordinate their pricing and other business actions.
4. For these reasons, as set forth and detailed below, the proposed acquisition violates Section 7 of the Clayton Act, 15 U.S.C. § 18. The United States, therefore, seeks injunctive relief preventing the consummation of the proposed acquisition. II. JURISDICTION, VENUE, AND COMMERCE
5. This action is filed by the United States under Section 15 of the Clayton Act, 15 U.S.C. § 25, to prevent and restrain the Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. § 18.
6. This Court has subject matter jurisdiction over this action pursuant to Section 15 of the Clayton Act, 15 U.S.C. § 25 and 28 U.S.C. § 1345. This Court also has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1337 as H&R Block and TaxACT are engaged in interstate commerce and in activities substantially affecting interstate commerce. H&R Block and TaxACT sell Digital DIY Tax Preparation Products and related services throughout the United States. H&R Block and TaxACT are engaged in a regular, continuous, and substantial flow of interstate commerce, and their digital DIY tax preparation businesses have had a substantial effect upon interstate commerce. 7. This Court has personal jurisdiction over each Defendant. Defendants H&R Block and TaxACT both transact business and are found within the District of Columbia. This Court has personal jurisdiction over Defendant TA because it transacts business in the District of Columbia through TaxACT, in which it has a two-thirds ownership interest. 8. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C. § 22, and 28 U.S.C. § 1391(b) and (c).
9. H&R Block is a corporation organized and existing under the laws of Missouri, with its headquarters located in Kansas City, Missouri. H&R Block claims that it prepares 1 in every 7 tax returns filed in the United States and has a brick-and-mortar assisted tax preparation office within 5 miles of most Americans. H&R Block’s digital DIY products, called “H&R Block At Home” (formerly called “TaxCut”), were used to file approximately 5.9 million U.S. individual federal tax returns in 2010. H&R Block is the second-largest provider of Digital DIY Tax Preparation Products, behind Intuit. These digital products are an increasingly important source of business for H&R Block.
10. 2SS Holdings, Inc. is a corporation organized and existing under the laws of Delaware and headquartered in Cedar Rapids, Iowa. 2SS Holdings, Inc.’s products are currently sold as, and referred to by the industry under the brand, “TaxACT.” TaxACT’s products were used to file approximately 5.2 million U.S. individual federal tax returns last year. TaxACT is the third-largest Digital DIY Tax Preparation Product provider in the United States and the second-largest provider of such products through the online channel. 11. In 2004, the private equity firm TA made a significant investment in 2SS Holdings, Inc. As a result, Defendant TA IX L.P., a limited partnership organized and existing under the laws of Delaware and headquartered in Boston, Massachusetts, now holds approximately a two-thirds interest in TaxACT. TaxACT executives and employees retain the approximate other one-third interest. 12. On October 13, 2010, H&R Block, 2SS Holdings, Inc., and the TaxACT shareholders entered into an Agreement and Plan of Merger, pursuant to which H&R Block would ultimately acquire TaxACT for approximately $287.5 million in cash. IV. THE RELEVANT MARKET
13. With the rise of the Internet and personal computer usage, in the 1990s, several companies began to offer consumers a unique method of preparing their individual U.S. federal and state tax returns without any professional tax assistance — Digital DIY Tax Preparation Products.
14. These Digital DIY Tax Preparation Products are offered through three basic channels: (1) online; (2) software that can be downloaded from an Internet website; and (3) software on a disc that is either sent directly to the consumer or purchased by the consumer from a third-party retailer. Intuit, H&R Block, and TaxACT are the only major suppliers of Digital DIY Tax Preparation Products, and they are the only digital DIY tax preparation firms that offer their products through all three channels.
15. The online channel allows digital DIY tax preparation firms to offer their products to taxpayers that wish to complete their returns on the provider’s website using a personal computer, an Internet connection, and an Internet browser. By way of example, a taxpayer can direct his or her Internet browser to H&R Block’s website and access an online version of H&R Block At Home. The taxpayer can then fill out relevant information directly on the company’s website. When using the online channel, all tax calculations are conducted remotely on the servers owned by the company. After all relevant information is entered and tax calculations are made, a completed tax return is generated and the information is saved on the company’s servers. That return can then either be printed by the individual to mail to the IRS or state revenue agency, or filed electronically (sometimes referred to as “e-filed”) with the IRS or state revenue agency over the Internet. In recent years, e-filing has been an increasingly popular method of filing tax returns.
16. The second and third channels for using Digital DIY Tax Preparation Products entail a taxpayer installing software on his or her personal computer. The second channel permits taxpayers to access an Internet website and download the software onto the taxpayer’s personal computer. The third channel permits taxpayers to load and install software, which is stored on a CD-ROM or DVD, onto his or her personal computer. The CD-ROM or DVD is either sent directly to the consumer, or purchased by the consumer from a retail store (such as Staples or Best Buy). When using any software product, the information that is entered by the taxpayer for generating the return is not transmitted over the Internet. Similarly, the calculations necessary for creating the tax return are conducted on the taxpayer’s computer, not a company’s servers, and the completed tax return is saved to the taxpayer’s computer. As with the online version, the completed return can either be printed or e-filed.
17. Regardless of the channel, all Digital DIY Tax Preparation Products function in the same way and consist of the same two basic parts: the user interface, which prompts users to provide relevant information, and the underlying tax engine, which processes that information. 18. A user interface is the means by which individuals interact with the tax engine. The standard user interface for the Digital DIY Tax Preparation Products of Intuit, H&R Block, and TaxACT is referred to as an “interview,” and it provides consumers with a series of questions relating to their personal and financial information. The answers the consumer gives during the interview are provided to the tax engine for calculation.
19. The tax engine is essentially a complicated software program based upon federal and state tax code and regulations. A taxpayer’s relevant personal and financial information is provided to the tax engine by way of the user interface, and the tax engine processes the information. Based upon the state or federal tax code, the tax engine determines what forms should be provided to the IRS or the state revenue agency and records the appropriate figures on the relevant tax forms.
20. Digital DIY Tax Preparation Product providers typically offer their products in more than one version and at different prices. The different versions and