Source: https://www.justice.gov/atr/case-document/competitive-impact-statement-29
Timestamp: 2018-01-24 05:02:09
Document Index: 512292764

Matched Legal Cases: ['§ 18', '§ 2', '§ 18', '§ 2', '§ 16', '§ 16', '§ 16']

DATE STAMP: April 18, 2007
This case was brought because Defendant Amsted Industries, Inc. ("Amsted") acquired all of the assets of FM Industries, Inc. ("FMI"), a business unit of Progress Rail Services Holding Corporation, Inc. ("Progress Rail").(1) On April 25, 2006, Amsted dismantled FMI by firing its employees and disposing of virtually all FMI plant equipment through an auction. The United States filed a civil antitrust Complaint on April 18, 2007, alleging that the acquisition lessened competition substantially for the design, manufacture, and sale of new and reconditioned end-of-car cushioning units ("EOCCs") in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 2 of the Sherman Act, 15 U.S.C. § 2. This loss of competition has impacted the rail industry through higher prices, reduced services, and decreased innovation.
Amsted is a diversified manufacturer of industrial components for the railroad, vehicular, and construction markets. Its products include a range of railroad car parts, including couplers, side frames, bolsters, draft gears, and EOCCs. Amsted's EOCC sales in the United States are made through its wholly owned subsidiary, ASF-Keystone. ASF-Keystone is a Delaware corporation with its principal place of business in Granite City, IL.
Railroads must equip all freight cars with energy absorption devices to mitigate the effects of draft, buff, and coupling stresses. The most common device is known as a draft gear, which provides the minimum protection required for safe railroad operation. Draft gears rely on friction between two steel plates to absorb and dissipate the energy created by longitudinal forces impacting the freight car. Another type of device is commonly referred to as an "elastomeric" device. These devices use an elastic substance (e.g., rubber) and steel coils to absorb the draft, buff, and coupling stresses. Elastomeric devices are lightweight and low cost, but they are not suitable for all applications as they return much of the absorbed energy back into the draft system. Neither draft gears nor elastomers are sufficient to protect sensitive cargos.
Though sensitive cargos can be transported by "intermodal" freight cars with articulated connectors, railroads cannot substitute intermodal transportation for freight cars equipped with EOCCs. Intermodal freight cars are specially designed railcars that allow standard cargo containers to be stacked for rail transport. The cars must travel in groups connected by a "slackless" articulated coupling system. The coupling system transfers longitudinal forces to the ends of the intermodal group, protecting the containers from damage. Despite their suitability for certain applications, intermodal freight cars do not provide sufficient cushioning for some sensitive commodities, cannot physically transport certain sensitive commodities (such as automobiles and certain lumber products), and are typically much more expensive to own and operate than freight cars equipped with EOCCs. The intermodal groups must also travel to the same destination due to their slackless connection. Because of these additional costs and operational constraints, intermodal rail transportation in North America tends to be most economical for large shipments manufactured outside of North America and imported by sea. When soliciting prices for EOCCs from prospective suppliers, railroad customers do not consider the cost of transporting goods using intermodal freight cars with articulated connectors.
A small but significant increase in the price of new EOCCs would not cause purchasers to substitute draft gear, elastomeric devices, intermodal cars, or reconditioned EOCCs so as to make such a price increase unprofitable. Accordingly, the design, manufacture, and sale of new EOCCs is a separate and distinct line of commerce and a relevant product market for the purpose of analyzing the effects of the acquisition under Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 2 of the Sherman Act, 15 U.S.C. § 2. Likewise, a small but significant increase in the price of reconditioned EOCCs would not cause purchasers to substitute draft gear, elastomeric devices, intermodal cars, or new EOCCs so as to make such a price increase unprofitable. Accordingly, the design, manufacture, and sale of reconditioned EOCCs is also a separate and distinct line of commerce and a relevant product market for the purpose of analyzing the effects of the acquisition under Section 7 of the Clayton Act and Section 2 of the Sherman Act.
Prior to Amsted's acquisition of FMI, the markets for EOCCs were highly concentrated. For new EOCCs, the merging entities were the only two suppliers.(2) For reconditioned EOCCs, the market was limited to three suppliers, and the merging parties controlled over 80% of the market. Thus, the markets were highly concentrated and became substantially more so following the acquisition. Using the Herfindahl-Hirschman Index ("HHI"),(3) the consolidation in the market for reconditioned EOCCs resulted in a post-merger concentration of over 7000 (an increase of over 2700), while the consolidation in the market for new EOCCs resulted in a monopoly.
Entry into the design, manufacture, and sale of new or reconditioned EOCCs will not be timely, likely, or sufficient to counter the anticompetitive effects of the transaction. A new entrant to either market would require certifications and approvals from the Association of American Railroads ("AAR"), including facility certification and design certification for each EOCC model to be manufactured or reconditioned. Additionally, the AAR requires that a new entrant undergo a conditional approval period during which production is monitored and significantly limited.
Although the manufacturing processes for new and reconditioned EOCCs are similar, both require unique inputs that are not readily available in the marketplace. For example, the manufacture of new EOCCs requires the use of patented designs and proprietary molds that are not needed in the reconditioning process. Similarly, the manufacture of reconditioned EOCCs requires the application of certain machining techniques and testing processes that are unique to the EOCC reconditioning market.
The proposed Final Judgment also requires Amsted to provide to the acquirer a royalty-free, perpetual license to all Amsted-generated intangible assets and a limited license to the use of all Amsted-generated casting patterns needed for the production of EOCC components. The license should effectively fill any intellectual property gaps in the FMI divestiture package and resolve questions concerning the completeness of the available FMI assets. The license includes all patents, blueprints, drawings, castings, dies, molds, toolings, fixtures, specifications, quality assurance plans, manufacturing plans, and product tracking information.
The proposed Final Judgment requires Amsted to release all industry participants of restrictive covenants that might otherwise inhibit the acquirer's access to employees, customers, or suppliers. Amsted must also release Progress Rail from an acquisition-related "covenant not to compete" if the acquirer is unable to deliver its first manufactured or reconditioned unit within twelve months after the entry of the Final Judgment.
The provisions of the proposed Final Judgment will facilitate new entry in order to eliminate the anticompetitive effects of the acquisition in the design, manufacture, and sale of EOCCs.
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Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).(4) In making its public interest determination, a district court must accord due respect to the government's prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case. United States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003).
Court approval of a final judgment requires a standard that is more flexible and less strict than the standard required for 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). The Court "must accord deference to the government's predications about the efficacy of its remedies, and may not require the remedies to perfectly match the alleged violations because this may only reflect underlying weaknesses in the government's case or concessions made during negotiations." United States v. SBC Commc'ns, Inc., Nos. 05-2102 and 05-2103, 2007 WL 1020746, at *16 (D.D.C. Mar. 29, 2007).
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, and does not authorize the Court 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 Commc'ns, 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, at *14.
In 2004, Congress amended the APPA to ensure that courts take into account the above-quoted list of relevant factors when making a public interest determination. Compare 15 U.S.C. § 16(e) (2004) with 15 U.S.C. § 16(e)(1) (2006) (substituting "shall" for "may" in directing relevant factors for court to consider and amending list of factors to focus on competitive considerations and to address potentially ambiguous judgment terms). These amendments, however, did not change the fundamental role of courts in reviewing proposed settlements. To the contrary, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction "[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). This language codified the intent of the original 1974 statute, expressed by Senator Tunney in the legislative history: "[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:
This Court recently examined the role of the district court in reviewing proposed final judgments in light of the 2004 amendments, confirming that the amendments "effected minimal changes[] and that this Court's scope of review remains sharply proscribed by precedent and the nature of Tunney Act proceedings." See United States v. SBC Commc'ns, Inc., Nos. 05-2102 and 05-2103, 2007 WL 1020746, at *9 (D.D.C. Mar. 29, 2007). This Court concluded that the amendments did not alter the articulation of the public interest standard in Microsoft. Id. at *15. VIII.
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2. American Hydraulics, Inc. is the only other manufacturer certified by the Association of American Railroads ("AAR") to build new units. However, American Hydraulics historically has had no revenue in this product area, and customers uniformly viewed the merging parties as the only suppliers of new EOCCs.
3. "HHI" means the Herfindahl-Hirschman Index, a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of thirty, thirty, twenty, and twenty percent, the HHI is 2600 (302 + 302 + 202 + 202 = 2600). The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Transactions that increase the HHI by more than 100 points in concentrated markets presumptively raise antitrust concerns under the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission. See Merger Guidelines ¶ 1.51.
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