At Bazaarvoice Closings, Lessons for Antitrust Lawyers
SAN FRANCISCO — To hear the Department of Justice tell it, antitrust lawyers arrived on the scene too late to save Bazaarvoice executives from themselves.
In a trial over the fate of a relatively small software merger, the DOJ has made heavy use of internal documents in which executives of Austin-based Bazaarvoice cheered that they would be able to hike up prices after acquiring their company's primary business rival. Antitrust lawyers generally urge clients not to say anything to suggest that a deal will dampen competition, but Bazaarvoice didn't get the message, DOJ lawyer Peter Huston suggested during his closing argument Tuesday.
"Those documents are devastating to Bazaarvoice's defense in this case," said Huston, who is assistant chief of the Antitrust Division in San Francisco.
The bench trial pits Huston and his colleagues against a team of lawyers from Wilson Sonsini Goodrich & Rosati, which also represented Bazaarvoice in the underlying acquisition.
Jonathan Jacobson, a New York-based partner at Wilson Sonsini, said the documents gave government lawyers an opening to bring a case against his client but may also have led them to get carried away.
"The problem with these documents was that they tended to obscure careful analysis," he said. "They thought they had something, it must be there."
The DOJ sued earlier this year to unravel Bazaarvoice's 2012 acquisition of PowerReviews, arguing that it had wiped out competition in the market for online product ratings and reviews. The case has garnered attention as an unusual example of the Justice Department throwing enforcement resources at an acquisition too small to require reporting under the Hart-Scott-Rodino Act.
Huston urged U.S. District Judge William Orrick III, who has presided over the three-week bench trial, to order Bazaarvoice to divest enough assets to create a company that can replace PowerReviews in the market.
Orrick, who is not expected to issue a decision until both sides file post-trial briefs, gave no indication of how he will rule.
Bazaarvoice insists that no remedy is necessary. The company has not raised prices since the acquisition, and some 100 customers gave sworn declarations that they had not been harmed by the tie-up, Jacobson argued.
Huston urged Orrick to take any post-merger evidence with a grain of salt, arguing Bazaarvoice has surely been on its best behavior. The evidence may have been manipulated by Bazaarvoice, he argued. "They've known about this investigation since two days after the merger closed," he said.
Huston said the U.S. Supreme Court has found that mergers which heighten concentration in an already concentrated market are illegal. The government's economics expert, UC-Berkeley professor Carl Shapiro, testified earlier in the trial that this was just such a merger. Using each company's share of customers in the Internet Retailer 500 list, Shapiro found that Bazaarvoice had claimed about 40 percent of the market, with PowerReviews accounting for another 28 percent.
The merger stifled competition in other ways too, Huston said. Although PowerReviews did not lure many customers away from Bazaarvoice, it gave companies leverage in negotiations. "When a company reaches a critical mass like PowerReviews did after years of efforts and investment, that's when a company like Bazaarvoice starts to sit up and take notice," he said.
But Jacobson said that other competitors, such as Gigya and Pluck, continue to challenge Bazaarvoice. Describing PowerReviews as a "particularly annoying but not particularly successful rival," Jacobson said the company was in dire straits before Bazaarvoice stepped in and would likely have folded.
"If PowerReviews didn't sell itself or raise new cash, simple math tells us it would be unable to pay its bills," he said.
In the government's rebuttal argument, DOJ lawyer Michael Bonanno questioned why Bazaarvoice would have shelled out $168 million to buy such a struggling company.
"It's a little bit hard to square that with PowerReviews having declining significance going forward," Bonanno said.
Jacobson stressed that Bazaarvoice may yet face competition from companies still on the sidelines of the online ratings market, such as Amazon.com.
"It could enter in a heartbeat, and it considers doing so almost daily," Jacobson said. "There's nothing that could prevent it from capturing substantial sales almost overnight."
Jacobson took issue with many aspects of DOJ expert Shapiro's methodology. But he was most indignant over the government's assertion that an expert's testimony should be given more weight than customers' own words.
"Dr. Shapiro says he's a better judge of their welfare than they are," Jacobson said. "We believe the customers are the ones who had it right."