Antitrust/Competition Practice April 2014
Department of Justice – Bazaarvoice Settlement Unwinds Completed Transaction On April 25, 2014, U.S. District Judge William H. Orrick III of the Northern District of California said that he would approve a settlement reached between the U.S. Department of Justice (“DOJ”) and Bazaarvoice Inc. (“Bazaarvoice”) to unwind Bazaarvoice’s acquisition of competitor PowerReviews, Inc. In June 2012, Bazaarvoice acquired PowerReviews in a $168.2 million transaction. Bazaarvoice is the main supplier in the market for product rating and review platforms used by online retailers and other businesses to organize and display customerproduced ratings for their products. According to the DOJ, prior to its acquisition, PowerReviews was Bazaarvoice’s main competitor. Bazaarvoice did not report the transaction to the government prior to its closing because the transaction did not meet certain Hart-Scott-Rodino Antitrust Improvements Act (“HSR”) reporting thresholds. Nevertheless, in January 2013, the DOJ filed a civil antitrust lawsuit against Bazaarvoice challenging the completed transaction as anticompetitive under Section 7 of the Clayton Act1 and seeking to divest Bazaarvoice of sufficient assets to create a separate business to replace PowerReviews as a competitor in the product ratings and review platforms market.
1 Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18.
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Following a three-week trial, in January 2014, Judge Orrick found that the merger violated Section 7 because it eliminated Bazaarvoice’s only meaningful competitor in the product rating and review platform market. On April 8, Bazaarvoice announced that it had entered into a letter of intent with Viewpoints, LLC, another consumer reviews platform, to divest Bazaarvoice’s subsidiary that held most of the assets that were formally part of PowerReviews. Last week, the DOJ and Bazaarvoice announced that they have reached a settlement agreement to resolve the DOJ’s litigation related to the PowerReviews acquisition. Under the terms of the agreement, Bazaarvoice will divest all of the assets it acquired in the acquisition of PowerReviews. Subject to the Court’s approval, Viewpoints will acquire those assets. In addition, Bazaarvoice must provide syndication services to Viewpoints (or any other buyer) for the next 5 years and waive any potential breach-of-contract claims against its customers to allow them to switch providers without any penalty Bazaarvoice must also waive trade secret restrictions for any of its employees hired by Viewpoints. Finally, a trustee will be appointed to oversee the divestiture process and monitor compliance. The trustee’s costs and the DOJ’s litigation costs will be paid by Bazaarvoice.
Antitrust/Competition Practice Two important lessons can be drawn from the Bazaarvoice litigation. First, if the DOJ is successful in its litigation challenging a merger under Section 7, it can seek, and courts will grant, divestiture of a significant number (or all) of the acquired assets to unwind a completed transaction. Bazaarvoice’s assets from its acquisition of PowerReviews will be fully divested to a competitor, and in light of the syndication and other requirements of the settlement, such as payment of DOJ litigation costs, Bazaarvoice is arguably in a worse position than where it started. Second, as we have noted in the past, this litigation should serve as a cautionary tale for all parties contemplating a transaction, regardless of the size of the transaction in relation to
HSR thresholds and regardless of the industry involved. The DOJ will challenge a non-reportable transaction it deems anticompetitive, and it has now shown that it can succeed in such challenges, including in the high-tech industry. Thus, parties to a potential transaction should evaluate the potential antitrust enforcement exposure and consider whether to allocate risk of such exposure in the purchase or merger agreement. If there are competition concerns in connection with a transaction, the parties should address them in the same manner as they would with a reportable transaction, including potentially affirmatively engaging the government to structure the transaction so that it will appropriately address antitrust concerns.
Related Professionals If you have questions, please contact any of the Winston & Strawn attorneys listed below or your usual Winston & Strawn LLP contact. Richie Falek Brandon Duke Elizabeth Cate Jeffrey Kessler A. Paul Victor Robert Pringle Robert Ruyak H. Stephen Harris Peter Crowther Paul Griffin
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