[Federal Register Volume 75, Number 243 (Monday, December 20, 2010)]
[Notices]
[Pages 79394-79404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31863]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. L.B. Foster Company and Portec Rail Products,
Inc.; Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Hold Separate Stipulation and Order, and Competitive Impact Statement
have been filed with the United States District Court for the District
of Columbia in United States v. L.B. Foster Company and Portec Rail
Products, Inc., Civil Action No. 1:10-cv-02115. On December 14, 2010,
the United States filed a Complaint alleging that the proposed
acquisition by L.B. Foster Company (``Foster'') of Portec Rail
Products, Inc. (``Portec'') would violate Section 7 of the Clayton Act,
15 U.S.C. 18. The proposed Final Judgment, filed at the same time as
the Complaint, requires Foster to divest Portec's entire rail joint
operations (excluding some assets in the United Kingdom), including
Portec's manufacturing facility located in Huntington, West Virginia
and tangible and intangible assets associated with Portec's rail
joints, as well as assets used to manufacture and sell certain other
related and complementary products currently manufactured at the
Huntington facility. The proposed Final Judgment requires that these
assets be sold to Koppers Inc. Copies of the Complaint, proposed Final
Judgment, and Competitive Impact Statement are available for inspection
at the Department of Justice, Antitrust Division, Antitrust Documents
Group, 450 Fifth Street, NW., Suite 1010, Washington, DC 20530
(telephone: (202) 514-2481), on the Department of Justice's Web site at
http://www.usdoj.gov/atr, and at the Office of the Clerk of the United
States District Court for District of Columbia. Copies of these
materials may be obtained from the Antitrust Division upon request and
payment of the copying fee set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this notice.
Such comments and responses thereto will be published in the Federal
Register and filed with the Court. Comments should be directed to
Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division,
U.S. Department of Justice, 450 Fifth Street, NW., Suite 8700,
Washington, DC 20530 (telephone: (202) 307-0924).
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the District Of Columbia
United States of America, United States Department of Justice,
Antitrust Division, 450 Fifth Street, NW., Suite 8700, Washington, DC
20530, Plaintiff
v.
L.B. Foster Company, 415 Holiday Drive, Pittsburgh, Pennsylvania 15220,
and Portec Rail Products, Inc., 900 Old Freeport Road, Pittsburgh,
Pennsylvania 15238, Defendants.
Case: 1:10-cv-02115.
Assigned To: Urbina, Ricardo M.
Assign. Date: 12/14/2010.
Description: Antitrust.
Complaint
The United States of America (``United States''), acting under the
direction of the Attorney General of the United States, brings this
civil antitrust action against Defendants L.B. Foster Company
(``Foster'') and Portec Rail Products, Inc. (``Portec'') to enjoin
Foster's proposed acquisition of Portec and to obtain other equitable
relief. The United States complains and alleges as follows:
I. Nature of the Action
1. On February 16, 2010, Foster and Portec entered into an
Agreement and Plan of Merger (``Merger Agreement''). Pursuant to the
Merger Agreement, on February 26, 2010, Foster made a cash tender offer
to acquire all the outstanding shares of common stock of Portec for
$11.71 per share. On August 30, 2010, Foster increased its offer to
$11.80 per share. The transaction is valued at approximately $114
million.
2. In the United States, Foster's proposed acquisition of Portec
likely would substantially lessen competition in two separate product
markets--bonded insulated rail joints (``bonded joints'') and
polyurethane-coated insulated rail joints (``poly joints''). Foster and
Portec are virtually the only manufacturers of bonded joints in the
United States and currently supply approximately 95 percent of the
market. For many customers, Foster and Portec are the only approved
suppliers of these joints. In addition, Foster and Portec are two of
only three suppliers of poly joints in the United States and currently
supply approximately 54 percent of the market.
3. Elimination of the competition between Foster and Portec likely
will result in Foster's ability to unilaterally raise prices of bonded
joints and poly joints to most customers. The proposed acquisition also
likely would reduce Foster's incentive to invest in innovation in
bonded joints. In addition, by eliminating Portec as a supplier, the
acquisition increases the likelihood of coordinated interaction between
Foster and the other supplier of poly joints.
4. As a result, the proposed acquisition likely would substantially
lessen competition in the development, manufacture, and sale of bonded
joints and in the development, manufacture, and sale of poly joints in
the United States, in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
II. The Defendants
5. Foster is incorporated in Pennsylvania and has its headquarters
in Pittsburgh, Pennsylvania. It manufactures and distributes numerous
products and services for the rail, construction, energy, and utility
industries and has approximately 30 locations throughout the United
States. For the rail industry, Foster manufactures, among other
products, bonded joints, poly joints, tie plates, and rails. Foster had
total revenues of approximately $512 million in 2008 and approximately
$382 million in 2009.
6. Portec is incorporated in West Virginia and has its headquarters
in Pittsburgh, Pennsylvania. Portec also manufactures and distributes
numerous products and services for the rail industry and other
industries. For the rail industry, Portec manufactures, among other
things, bonded joints, poly joints, rail lubricators, end posts, and
curv blocks. Portec has several locations in the United States and
abroad. Portec had total revenues of approximately $109 million in 2008
and approximately $92.2 million in 2009.
III. Jurisdiction and Venue
7. The United States brings this action under Section 15 of the
Clayton Act, 15 U.S.C. 4 and 25, as amended, to prevent and restrain
Defendants from violating Section 7 of the Clayton Act, 15 U.S.C. 18.
8. Defendants develop, manufacture, and sell bonded joints, poly
joints, and other products in the flow of interstate commerce.
Defendants' activities in the
[[Page 79395]]
development, manufacture, and sale of these products substantially
affect interstate commerce. 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. 1331, 1337(a), and 1345.
9. Defendants have consented to venue and personal jurisdiction in
this judicial district.
IV. Trade and Commerce
A. Background
(1) Insulated Rail Joints
10. Railroad tracks are divided into discrete sections, called
track circuits. Electricity flows through the rail in each track
circuit. Each track circuit is electrically isolated from the others.
As the train enters a track circuit, the circuit allows the train to
signal that it is passing through that particular circuit, which leads
to the operation of automatic signals at rail crossings and switches
farther up the line. The track circuit also enables the railroad
operator to monitor the location of the trains.
11. Railroad tracks are generally welded together, within a track
circuit, forming the strongest possible bond. However, welding cannot
be used to connect the pieces of rail between separate track circuits
because that would allow the electric current to flow between the
circuits and interfere with a train's signaling. Using an insulated
rail joint is the only method available to connect the rail pieces at
the ends of the track circuits and insulate the circuits from one
another. Rail joints consist of steel bars that are bolted onto the
ends of each of the rail pieces and are used to connect the abutting
ends of the rails. Insulated rail joints are joints that are used to
break the electric current flowing through the rail, using a material
placed on the steel bars and between the two abutting pieces of rail.
12. The reliability of an insulated rail joint is critical to the
safety and efficient operation of the railroad. It is difficult to
develop and manufacture insulated rail joints that can successfully
withstand railroads' usage without failing, particularly in the most
demanding applications. Rail connected by a rail joint is inherently
weaker than rail that has been welded together. If the joint is
subjected to heavy usage--for example, because the track it is on
frequently carries heavily loaded rail cars--the joint may wear down
over time and eventually break. In addition, an insulated rail joint
may lose its insulating properties. If an insulated rail joint fails,
the railroad operator will not know the location of the train and the
signals will not operate properly. At the extreme, the failure of an
insulated rail joint could cause a train derailment. At the least,
failure of an insulated rail joint could cause the railroad to expend
significant amounts of money determining the location of and replacing
the failed joints. It could also bring the operation of the railroad to
a halt while the failed joints are replaced.
13. Ensuring that the insulated rail joints will last for the
expected life of the joint without failure is vital to the railroads.
It is costly to replace these joints and an unscheduled replacement can
disrupt the operations of the railroad. As a result, the largest U.S.
railroads, called Class 1 railroads, engage in extensive, multi-year
testing to ensure that any new insulated rail joint, or any insulated
rail joint offered by a new supplier, will meet their reliability and
quality needs. The railroads must be assured that the joints are
designed to last and the supplier's manufacturing processes are
sufficiently well controlled that all joints will last the requisite
time without failing.
14. Railroads gain substantially from improvements in the
reliability and effective life of insulated rail joints. Therefore,
railroads have made research and development associated with these
joints an important component of the competitive process. Manufacturers
must make substantial investments in research and development to
compete effectively for the business of the major railroads.
15. The two primary types of insulated rail joints are bonded
joints and poly joints. Customers seek bids for either bonded joints or
poly joints, based on the particular application.
(2) Bonded Joints
16. Bonded joints use epoxy in addition to bolts to bind the steel
bars to the rails. With the addition of epoxy, the rails, bars, bolts,
and insulating material that make up the joint are less subject to
movement when a railcar passes over the joint and thus suffer less wear
and tear. As a result, bonded joints are able to withstand the heaviest
loads for extended periods of time. Because of their strength, certain
of Foster's and Portec's bonded joints typically are guaranteed to last
until 500 million gross tons have passed over the joints.
17. The strength of bonded joints makes them necessary for the
freight railroads' high-usage main track lines. This is especially true
for the Class 1 railroads, which handle most of the heavy rail traffic
in the United States. No other insulated rail joint is strong enough to
withstand the heavy loads on these lines. Bonded joints are also
necessary for some heavily traveled areas on main passenger lines and
regional and short line railroads.
(3) Poly Joints
18. Poly joints can be used to electrically isolate track circuits
from one another. In contrast to bonded joints, poly joint components
are not bound together by epoxy. Instead, electrical insulation in poly
joints is provided by a polyurethane-covered bar that is bolted to the
rail. No mechanism is added to provide additional strength, and nothing
binds the joint to the rails except the bolts. Poly joints are not as
strong and long lasting as bonded joints. They are significantly less
expensive than bonded joints.
19. Poly joints are generally used by Class 1 railroads to create
track circuits in areas with lesser loads and traffic than on the main
tracks, or on other less-heavily used sections of track. Poly joints
also may be used as temporary replacements for bonded joints, but only
until bonded joints can be installed. In addition, poly joints are used
by some passenger railroads or other smaller railroads, which carry
less weight on their tracks.
B. Relevant Markets
(1) Bonded Joints
20. The development, manufacture, and sale of bonded joints in the
United States is a line of commerce and relevant market within the
meaning of Section 7 of the Clayton Act.
21. Bonded joints have specific applications, for which other types
of joints can rarely, if ever, be employed. Bonded joints are typically
used on the main tracks of the freight railroads. Other types of
joints, such as poly joints, cannot handle over time the heavy loads on
these tracks because they are not strong enough.
22. The vast majority of Foster's and Portec's sales of bonded
joints are made to large customers located in the United States. Major
U.S. customers consider only those suppliers of bonded joints located
in the United States because of these suppliers' proximity to their
rail lines. A supplier's proximity to customers' rail lines reduces
both freight costs, which are a significant factor in the final cost of
a bonded joint, and delivery times, and allows better customer service.
23. A small but significant increase in the price of bonded joints
would not cause U.S. customers of bonded joints to substitute a
different joint or other product, reduce purchases of bonded joints, or
turn to suppliers outside the United States, in volumes sufficient to
make such a price increase unprofitable.
[[Page 79396]]
(2) Poly Joints
24. The development, manufacture, and sale of poly joints in the
United States is a line of commerce and relevant market within the
meaning of Section 7 of the Clayton Act.
25. A customer whose requirements will be satisfied by a poly joint
would rarely, if ever, substitute a bonded joint, even if the price of
poly joints were to rise.
26. The three primary suppliers of poly joints in the United States
ship poly joints to customers located throughout the United States.
Because all three suppliers are located within approximately 200 miles
of one another, customers pay only minimal differences in freight
costs. U.S. customers of poly joints consider only those suppliers
located in the United States to avoid higher freight costs, reduce
delivery times, and allow better customer service.
27. A small but significant increase in the price of poly joints
would not cause U.S. customers of poly joints to substitute a different
joint or other product, reduce purchases of poly joints, or turn to
suppliers outside the United States, in volumes sufficient to make such
a price increase unprofitable.
C. Market Participants
(1) Bonded Joints
28. Foster and Portec are the only significant competitors in the
U.S. market for bonded joints. Currently, Foster and Portec sell
approximately 51 and 44 percent, respectively, of U.S. bonded joints.
One other company accounts for the remaining five percent of this
market. In addition, this third competitor does not have the same
commitment to research and development as Foster and Portec. As a
result, the combination of Foster and Portec will create a virtual
monopoly in the U.S. market for bonded joints.
(2) Poly Joints
29. Foster, Portec, and one other company are the only competitors
in the U.S. market for poly joints. Currently, Foster and Portec sell
approximately 21 and 33 percent, respectively, of U.S. poly joints. The
third competitor accounts for the remaining sales in this market.
V. Competitive Effects
A. Bonded Joints
30. Foster's proposed acquisition of Portec likely would
substantially lessen competition in the U.S. market for bonded joints.
Foster and Portec are the two primary suppliers of bonded joints to
most U.S. customers. If the acquisition is not enjoined, the combined
firm would supply approximately 95 percent of the bonded joints in the
United States. Using a measure called the Herfindahl-Hirschman Index
(``HHI'') (explained in Appendix A), the HHI would increase by
approximately 4,500 points, resulting in a post-acquisition HHI of more
than 9,000 points.
31. Foster's and Portec's bidding behavior often has been
constrained by the possibility of losing sales of bonded joints to the
other. For many customers of bonded joints, Foster and Portec are
either the only sources, or the two best sources.
32. Customers have benefitted from the competition between Foster
and Portec for sales of bonded joints by receiving lower prices. In
addition, Foster and Portec have competed vigorously by providing
innovations that have resulted in higher-quality and longer-lasting
joints. The combination of Foster and Portec would eliminate this
competition and its future benefits to customers. Post-acquisition,
Foster likely would have the incentive and gain the ability profitably
to increase prices, reduce quality, reduce innovation, and provide less
customer service compared to these aspects of competition absent the
acquisition. The small remaining competitor has limited customer
acceptance and would not have the ability to make additional sales
sufficient to discipline post-acquisition anticompetitive effects.
33. The proposed acquisition, therefore, likely would substantially
lessen competition in the United States for the development,
manufacture, and sale of bonded joints. This likely would lead to
higher prices, lower quality, less customer service, and less
innovation in violation of Section 7 of the Clayton Act.
B. Poly Joints
34. Foster's proposed acquisition of Portec likely would
substantially lessen competition in the U.S. market for poly joints. If
the acquisition is not enjoined, the combined firm would supply
approximately 54 percent of the poly joints in the United States. The
HHI would increase by more than 1,300 points, resulting in a post-
acquisition HHI of more than 5,000 points.
35. Foster's and Portec's bidding behavior often has been
constrained by the possibility of losing sales of poly joints to the
other.
36. Customers have benefitted from competition between Foster,
Portec, and the other competitor by receiving lower prices. The
products of the three firms are to some degree different, and the
elimination of Portec likely would allow the two remaining competitors
to increase prices. The combination of Foster and Portec would
eliminate the significant competition between Foster and Portec and its
future benefits to customers. Post-acquisition, Foster likely would
have the incentive and gain the ability to profitably increase prices
and provide less customer service compared to these aspects of
competition absent the acquisition.
37. In addition, by reducing the number of competitors in the U.S.
market for poly joints from three to two, Foster and its only remaining
competitor likely would gain the incentive and ability to raise prices
through coordinated interaction by directly increasing prices,
allocating customers, or restricting output or capacity. Coordination
would be more likely or more effective because, with two significant
competitors in the market, both could be reasonably certain of the
identity of the other's customers, likely making cheating, such as
discounting, easier to detect and discipline.
38. The proposed acquisition, therefore, likely would substantially
lessen competition in the United States for the development,
manufacture, and sale of poly joints. This likely would lead to higher
prices and less customer service in violation of Section 7 of the
Clayton Act.
VI. Difficulty of Entry
A. Bonded Joints
39. Sufficient, timely entry of additional competitors into the
U.S. market for bonded joints is unlikely. Therefore, entry or the
threat of entry into this market is not likely to prevent the harm to
competition caused by the elimination of Portec as a supplier.
40. Firms attempting to enter the U.S. market for the development,
manufacture, and sale of bonded joints face several significant
impediments to rapid, successful, and profitable entry. The new
supplier of bonded joints must develop and successfully operate a
production process that consistently produces a large number of high-
quality bonded joints that meet the rigorous specifications set by the
railroads. In addition, a new entrant must be committed to investing in
research and development to meet the railroads' ongoing desire for
innovation. The design for bonded joints is continually evaluated in
order to improve the strength and longevity of the joints. The
technical know-how and expertise necessary to consistently manufacture
a large number of high-quality bonded
[[Page 79397]]
joints and to design improvements that pass customers' qualification
tests are difficult to obtain and learned only after years of direct
experience.
41. Further, a new supplier's bonded joint must pass potential
customers' approval processes by demonstrating that the joints can meet
rigorous quality and performance standards and perform well over time
with heavy freight loads. For example, many railroads, especially the
Class 1 railroads, insist that new bonded joints undergo laboratory
testing plus several years of in-track testing. Railroads want to
observe that the joints perform well over time before installing a
significant number on their tracks. Moreover, attempts for approval are
not guaranteed to be successful, and the approval process can take
several years, especially if the first few attempts for approval are
not successful. Because each customer's specifications may be unique,
approval by one customer does not guarantee approval by any other
customer.
42. For these reasons, entry by new firms or the threat of entry by
new firms into the U.S. market for the development, manufacture, and
sale of bonded joints would not defeat the substantial lessening of
competition that likely would result if Foster acquires Portec.
B. Poly Joints
43. Sufficient, timely entry into the U.S. market for poly joints
is also unlikely. Therefore, entry or the threat of entry into this
market is not likely to prevent the harm to competition caused by the
elimination of Portec as a supplier.
44. The expertise to design and implement a process to manufacture
a large number of high-quality poly joints on a consistent basis is
difficult to obtain and takes years of experience to develop. In
addition, a new poly joint supplier must obtain approvals from the
railroads by demonstrating that its joints can meet the railroads'
rigorous quality and performance standards. This rigorous approval
process can take eighteen months or more. Further, attempts for
approval are not guaranteed to be successful and can take several
years, especially if the first few attempts for approval are
unsuccessful.
45. For these reasons, entry by new firms or the threat of entry by
new firms into the U.S. market for the development, manufacture, and
sale of poly joints would not defeat the substantial lessening of
competition that would likely result if Foster acquires Portec.
VII. The Proposed Acquisition Violates Section 7 of the Clayton Act
46. Foster's proposed acquisition of Portec likely would
substantially lessen competition in the development, manufacture, and
sale of bonded joints and the development, manufacture, and sale of
poly joints in the United States in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18.
47. Unless enjoined, the proposed acquisition likely would have the
following anticompetitive effects, among others:
(a) Actual and potential competition between Foster and Portec in
the markets for the development, manufacture, and sale of bonded joints
and the development, manufacture, and sale of poly joints in the United
States would be eliminated;
(b) Competition in the markets for the development, manufacture,
and sale of bonded joints and the development, manufacture, and sale of
poly joints in the United States likely would be substantially
lessened;
(c) For bonded joints in the United States, prices likely would
increase and quality, customer service, and innovation likely would
decrease; and
(d) For poly joints in the United States, prices likely would
increase and customer service likely would decrease.
VIII. Requested Relief
48. The United States requests that this Court:
(a) Adjudge and decree that Foster's acquisition of Portec would be
unlawful and violate Section 7 of the Clayton Act, 15 U.S.C. 18;
(b) Preliminarily and permanently enjoin and restrain Defendants
and all persons acting on their behalf from consummating the proposed
acquisition of Portec by Foster, or from entering into or carrying out
any other contract, agreement, plan, or understanding, the effect of
which would be to combine Foster with Portec;
(c) Award the United States its costs for this action; and
(d) Award the United States such other and further relief as the
Court deems just and proper.
For Plaintiff United States of America:
Christine A. Varney,
Assistant Attorney General.
Molly S. Boast,
Deputy Assistant Attorney General.
Katherine B. Forrest,
Deputy Assistant Attorney General.
Patricia A. Brink,
Director of Civil Enforcement.
Maribeth Petrizzi (DC Bar 435204),
Chief, Litigation II Section.
Dorothy B. Fountain (DC Bar 439469),
Assistant Chief, Litigation II Section.
Christine A. Hill (DC Bar 461048),
Leslie D. Peritz,
Robert W. Wilder,
Erin Carter Grace,
Attorneys, United States Department of Justice, Antitrust Division,
450 Fifth Street, NW., Suite 8700, Washington, DC 20530. (202) 305-
2738.
Dated: December 14, 2010.
Appendix A
Definition of HHI
The term ``HHI'' means the Herfindahl-Hirschman Index, a
commonly accepted measure of market concentration. The HHI 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 30, 30, 20, and 20
percent, the HHI is 2,600 (30\2\ + 30\2\ + 20\2\ + 20\2\ = 2,600).
The HHI takes into account the relative size distribution of the
firms in a market. It approaches zero when a market is occupied by a
large number of firms of relatively equal size and reaches its
maximum of 10,000 points when a market is controlled by a single
firm. 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 1,500 and 2,500 points are
considered to be moderately concentrated, and markets in which the
HHI is in excess of 2,500 points are considered to be highly
concentrated. See Horizontal Merger Guidelines Sec. 5.3 (issued by
the U.S. Department of Justice and the Federal Trade Commission on
Aug. 19, 2010). Transactions that increase the HHI by more than 200
points in highly concentrated markets will be presumed likely to
enhance market power. Id.
United States District Court for the District of Columbia
United States of America, Plaintiff
v.
L.B. Foster Company and Portec Rail Products, Inc,. Defendants.
Case: 1:10-cv-02115.
Assigned To: Urbina, Ricardo M.
Assign. Date: 12/14/2010.
Description: Antitrust.
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant
to Section 2(b) of the Antitrust Procedures and Penalties Act
(``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), files this
Competitive Impact Statement relating to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
Defendants L.B. Foster Company (``Foster'') and Portec Rail
Products, Inc. (``Portec'') entered into an Agreement and Plan of
Merger, dated February 16, 2010. Pursuant to the Merger Agreement,
on February 26, 2010, Foster made a cash tender offer to acquire all
the outstanding shares of common stock of Portec for $11.71 per
share. Foster later
[[Page 79398]]
increased its offer to $11.80 per share. The transaction value is
currently approximately $114 million.
The United States filed a civil antitrust Complaint on December
14, 2010, seeking to enjoin the proposed acquisition, alleging that
it likely would substantially lessen competition in two separate
product markets--bonded insulated rail joints (``bonded joints'')
and polyurethane-coated insulated rail joints (``poly joints'')--in
violation of Section 7 of the Clayton Act, 15 U.S.C. 18. Foster and
Portec are virtually the only manufacturers of bonded joints in the
United States. The loss of competition from the acquisition likely
would result in higher prices, lower quality, less customer service,
and less innovation in the development, manufacture, and sale of
bonded joints in the United States. In addition, Foster and Portec
are two of only three suppliers of poly joints in the United States.
The loss of competition from the acquisition likely would result in
higher prices and less customer service in the development,
manufacture, and sale of poly joints in the United States.
At the same time the Complaint was filed, the United States
filed a Hold Separate Stipulation and Order (``Hold Separate'') and
proposed Final Judgment, which are designed to eliminate the
anticompetitive effects that would result from Foster's acquisition
of Portec. Under the proposed Final Judgment, which is explained
more fully below, Foster is required to divest Portec's entire rail
joint business,\1\ including Portec's only U.S. manufacturing
facility, located in Huntington, West Virginia. Foster is also
required to divest several other products currently manufactured in
Portec's Huntington facility. Under the terms of the Hold Separate,
Foster's and Portec's operations will remain entirely separate until
the divestiture takes place. Pursuant to the Hold Separate, Foster
and Portec must take certain steps to ensure that the assets being
divested continue to be operated in a competitively and economically
viable manner and that competition for the products being divested
is maintained during the pendency of the divestiture.
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\1\ This excludes, however, Portec's Coronet products, which are
manufactured in the United Kingdom. The Coronet rail joints are
based on different specifications than the rail joints manufactured
and sold by Portec in the United States. In addition, the Coronet
rail joints have never been sold in the United States.
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The United States and Defendants have stipulated that the
proposed Final Judgment may be entered after compliance with the
APPA. Entry of the proposed Final Judgment would terminate this
action, except that the Court would retain jurisdiction to construe,
modify, or enforce the provisions of the Final Judgment and to
punish violations thereof.
II. Description of the Events Giving Rise to the Alleged Violations
A. The Defendants
Foster manufactures and distributes numerous products and
services for the rail, construction, energy, and utility industries.
For the rail industry, Foster manufactures, among other products,
bonded joints, poly joints, tie plates, and rails. Foster had total
revenues of approximately $512 million in 2008 and approximately
$382 million in 2009. Foster supplies approximately 51 percent of
the bonded joints and 21 percent of the poly joints in the United
States.
Portec also manufactures and distributes numerous products and
services for the rail industry and other industries. For the rail
industry, Portec manufactures, among other things, bonded joints,
poly joints, rail lubricators, end posts, and curv blocks. Portec
had total revenues of approximately $109 million in 2008 and
approximately $92.2 million in 2009. Portec supplies approximately
44 percent of the bonded joints and 33 percent of the poly joints in
the United States.
B. The Competitive Effects of the Acquisition on the U.S. Markets
for Bonded Joints and Poly Joints
1. Relevant Markets
Railroad tracks are divided into discrete sections, called track
circuits. Electricity flows through the rail in each track circuit,
and each track circuit is electrically isolated from the others. As
the train enters a track circuit, the circuit allows the train to
signal that it is passing through that particular circuit, which
leads to the operation of automatic signals at rail crossings and
switches. The track circuits also enable the railroad operator to
monitor the location of the trains. Most pieces of railroad track
are welded together within a track circuit, forming the strongest
possible bond. However, welding cannot be used to connect the pieces
of rail between separate track circuits because that would allow the
electric current to flow between the circuits and interfere with the
train's signaling. Using an insulated rail joint is the only method
available to connect the rail pieces at the ends of the track
circuits and insulate the circuits from one another. Rail joints
consist of steel bars that are bolted onto the ends of each of the
rail pieces and are used to connect the abutting ends of the rails.
Insulated rail joints contain material placed on the steel bars and
between the two abutting pieces of rail, which prevents the electric
current from flowing between the track circuits.
The reliability of an insulated rail joint is critical to the
safety and efficient operation of the railroad. It is difficult to
develop and manufacture insulated rail joints that can successfully
withstand railroads' usage without failing, particularly in the most
demanding applications. Rail connected by a rail joint is inherently
weaker than rail that has been welded together, and if the joint is
subjected to heavy usage, the joint may wear down over time and
eventually break. An insulated rail joint may also lose its
insulating properties over time. The consequences of a failed
insulated joint can be quite serious, as the railroad operator will
not know the location of the train and the signals will not operate
properly.
It is vital to the railroads that insulated rail joints last for
their expected life without failure. To that end, the largest U.S.
railroads engage in extensive, multi-year testing to ensure than any
new insulated rail joint product, or any insulated rail joint
offered by a new supplier, will meet their reliability and quality
needs. The railroads must be assured that the joints are designed to
last and the supplier's manufacturing processes are sufficiently
well controlled that all joints will last the requisite time without
failing. Railroads gain substantially from improvements in the
reliability and effective life of joints. Consequently, research and
development is an important component of the competitive process,
and insulated joint manufacturers must make substantial investments
in research and development to compete effectively for sales to the
major railroads.
The two primary types of insulated rail joints are bonded joints
and poly joints. Customers seek bids for either bonded joints or
poly joints, based on the particular application. Bonded joints use
epoxy in addition to bolts to bind the steel bars to the rails. With
the addition of epoxy, the rails, bars, bolts, and insulating
material that make up the joint are less subject to movement when a
railcar passes over the joint, and thus suffer less wear and tear.
Bonded joints are able to withstand the heaviest loads for extended
periods of time, and are typically guaranteed to last until 500
million gross tons have passed over them.
Because of their strength, bonded joints are necessary for the
freight railroads' high-usage main track lines. This is especially
true for the Class 1 railroads, which are the largest U.S. railroads
and handle most of the heavy freight rail traffic in the United
States. No other insulated rail joint is strong enough to withstand
the heavy loads on these lines over time. Bonded joints are also
necessary for some heavily traveled areas on main passenger lines
and regional and short line railroads. Bonded joints have specific
applications, for which any other type of joint can rarely, if ever,
be employed.
The vast majority of Foster's and Portec's sales of bonded
joints are made to large customers located in the United States.
Major U.S. customers consider only those suppliers of bonded joints
located in the United States because of these suppliers' proximity
to their rail lines, which significantly reduces both freight costs
and delivery times and allows better customer service. A small but
significant increase in the price of bonded joints would not cause
U.S. customers of bonded joints to substitute a different joint or
any other type of product, reduce purchases of bonded joints, or
turn to suppliers outside the United States, in volumes sufficient
to make such a price increase unprofitable. Thus, the development,
manufacture, and sale of bonded joints in the United States is a
line of commerce and relevant market within the meaning of Section 7
of the Clayton Act.
Like bonded joints, poly joints also are used to electrically
isolate track circuits. Unlike bonded joints, the electrical
insulation in poly joints is provided by a polyurethane-covered bar
that is bolted to the rail. The joint components are not bound
together by epoxy, and no mechanism is added to provide additional
strength to the joint. Poly joints are not as strong and do not last
as long as bonded joints. They are also
[[Page 79399]]
significantly less expensive than bonded joints. Because they are
weaker than bonded joints, freight railroads typically use poly
joints to create track circuits in areas with lesser loads and
traffic than on the main tracks or on other less-heavily used
sections of track. Poly joints also may be used as temporary
replacements for bonded joints, but only until bonded joints can be
installed. Poly joints are used by some passenger railroads or other
smaller railroads, which carry less weight on their tracks. A
customer whose requirements will be satisfied by a poly joint would
rarely, if ever, substitute a bonded joint, even if the price of
poly joints were to rise.
The three primary suppliers of poly joints in the United States
ship poly joints to customers located throughout the United States.
Because all three suppliers are located within approximately 200
miles of one another, customers pay only minimal differences in
freight costs. U.S. customers of poly joints consider only those
suppliers located in the United States to avoid higher freight
costs, reduce delivery times, and allow better customer service.
A small but significant increase in the price of poly joints
would not cause U.S. customers of poly joints to substitute a
different joint or any other type of product, otherwise reduce
purchases of poly joints, or turn to suppliers outside the United
States, in volumes sufficient to make such a price increase
unprofitable. Thus, the development, manufacture, and sale of poly
joints in the United States is a line of commerce and relevant
market within the meaning of Section 7 of the Clayton Act.
2. Anticompetitive Effects
Foster's acquisition of Portec likely would substantially lessen
competition in the United States for bonded joints and poly joints.
For most U.S. customers of bonded joints, Portec and Foster are the
two primary suppliers and are often the only suppliers. Currently,
Foster and Portec sell approximately 51 and 44 percent,
respectively, of U.S. bonded joints. One other company, which does
not have the same commitment to research and development as Foster
and Portec, accounts for the remaining five percent of sales. If the
acquisition is not enjoined, the combined firm would supply
approximately 95 percent of bonded joints in the United States and
would have a virtual monopoly in that market. Using a measure called
the Herfindahl/Hirschman Index (``HHI''), the HHI would increase by
approximately 4,500 points, resulting in a post-acquisition HHI of
more than 9,000 points.
The possibility of losing sales of bonded joints to each other
has often constrained Foster's and Portec's bidding behavior. The
competition between Foster and Portec for sales of bonded joints has
resulted in lower prices and innovations that have produced higher-
quality and longer-lasting joints. Without the competition provided
by Portec on bonded joints, Foster would have the incentive and gain
the ability profitably to increase prices, reduce quality, reduce
innovation, and provide less customer service. The remaining
competitor, with only five percent of bonded joint sales, has
limited customer acceptance and would not be able to increase its
sales post-acquisition sufficiently to discipline the
anticompetitive effects of the acquisition.
For most U.S customers, Foster and Portec are two of only three
suppliers of poly joints. Currently, Foster and Portec sell
approximately 21 and 33 percent, respectively, of poly joints in the
United States. The third competitor accounts for the remaining sales
in this market. If the acquisition is not enjoined, the combined
firm would supply approximately 54 percent of poly joints in the
United States. The HHI would increase by more than 1,300 points,
resulting in a post-acquisition HHI of more than 5,000 points. The
possibility of losing sales of poly joints to each other has often
constrained Foster's and Portec's bidding behavior. Competition
among the three poly joint suppliers has resulted in lower prices.
As the products of the three companies are to some degree different,
the acquisition of Portec likely will eliminate the closest
competitor to Foster for some customers and thus allow the two
remaining competitors to increase prices. Also, because the price
levels and the dollar magnitude of the margins are higher for bonded
joints than poly joints, any sales diverted from poly joints to
bonded joints offer the prospect of additional profits to the merged
firm. The acquisition of Portec by Foster would eliminate the
significant competition between Foster and Portec and its future
benefits to customers. Post-acquisition Foster likely would have the
incentive and gain the ability to profitably increase prices and
provide less customer service.
If the number of competitors in the U.S. poly joint market is
reduced from three to two, Foster and its only remaining competitor
will have the incentive and ability to raise prices through
coordinated interaction by directly increasing prices, allocating
customers, or restricting output or capacity. Unlike in the bonded
joint market where post-acquisition Foster will have close to a
monopoly, coordination will be more likely or more effective in the
poly joint market because, with two significant competitors, both
could be reasonably certain of the identity of each other's
customers, likely making cheating, such as discounting, easier to
detect and discipline. The enhanced ability to detect cheating would
be facilitated by, among other things, the fact that bids by public
transit companies are often or usually made public.
3. Entry
Sufficient, timely entry of additional competitors into either
the U.S bonded joint market or the U.S. poly joint market is
unlikely, and the threat of entry thus will not prevent the likely
competitive harm resulting from Foster's acquisition of Portec. For
bonded joints, rapid, successful, and profitable entry requires that
a new supplier develop and successfully operate a production process
that consistently produces a large number of high-quality bonded
joints that meet the railroads' rigorous specifications. A new
supplier of bonded joints also must invest in research and
development to meet the railroads' desire for innovation and
increased strength and longevity. These capabilities are difficult
to obtain, and it takes years for a joint manufacturer to develop
the know-how and expertise required to meet customers' qualification
requirements. Further, many Class 1 railroads insist that new bonded
joints undergo not only laboratory testing, but also several years
of in-track testing on the railroads' lines, to ensure that the
joints meet the railroads' performance standards under actual usage
conditions. Attempts by suppliers to meet a Class 1 railroad's
requirements may not be successful, and approval by one railroad
does not guarantee approval by others.
Similarly, a new supplier of poly joints in the United States
must develop the expertise to manufacture a large number of joints
on a consistent base, which could take years. A new poly joint
supplier must obtain approvals from its customers, whose rigorous
approval processes can take eighteen months or more. Approval by any
customer cannot be assured, and approval by one customer does not
guarantee approval by any other.
Therefore, entry by new firms or the threat of entry by new
firms would not defeat the substantial lessening of competition in
the development, manufacture, and sale of bonded joints and poly
joints in the United States that likely would result from Foster's
acquisition of Portec.
III. Explanation of the Proposed Final Judgment
The divestiture required by the proposed Final Judgment will
eliminate the anticompetitive effects that likely would result from
Foster's acquisition of Portec. This divestiture will preserve
competition in the development, manufacture, and sale of bonded
joints and the development, manufacture, and sale of poly joints by
creating an independent, economically viable competitor to Foster in
the United States for these products.
The acquirer of the divested assets will obtain from Defendants
the assets it needs to replace the competition in the sale of bonded
joints and poly joints that would be lost as a result of Foster's
acquisition of Portec. The proposed Final Judgment requires
Defendants to divest the assets used to manufacture and sell
Portec's bonded joints and poly joints, including Portec's facility
in Huntington, West Virginia, and the tangible and intangible assets
used to manufacture and sell these joints. The tangible assets
include, among other things, manufacturing equipment, tooling,
inventory, and materials. The intangible assets include, among other
things, patents, licenses, intellectual property, know-how, trade
secrets, trade names, drawings, specifications, computer software,
marketing and sales data, manuals and technical information, and
research data. The divested assets will provide the acquirer with
the assets it needs to successfully manufacture and sell bonded
joints and poly joints in the United States.
This divestiture also ensures that the Huntington facility will
be able to operate efficiently. Defendants are required to divest
the assets used to manufacture and sell the following other Portec
products currently manufactured at the Huntington facility: end
[[Page 79400]]
posts, polyurethane-coated gauge and tie plates, fiberglass joint
kits, plastic insulation, standard rail joints, compromise and
transitional rail joints, and Weldmate joint bars. These assets need
to be divested because the products use the same inputs or machinery
as bonded joints and poly joints or are closely related or
complementary to the bonded joints and poly joints. The assets used
to manufacture these related or complementary products will be sold
to the acquirer so the acquirer's ability to continue producing
bonded joints and poly joints efficiently at that facility will not
be impaired. These products together constitute Portec's full line
of rail joints and complementary products and will make the acquirer
a stronger competitor than if it acquired only the bonded joint and
poly joint assets. This full range of products will allow the
Huntington facility to be operated as a viable standalone facility.
A few other Portec products currently being manufactured at the
Huntington facility, primarily friction management products and
Shipping Systems Division (``SSD'') products, are not being
divested. These products are not related to bonded joints and poly
joints and do not use the same equipment or inputs. For example, the
friction management and SSD products are merely assembled at
Huntington from off-the-shelf parts. As a result, the products not
being divested do not directly alter the efficient operation of the
bonded joint and poly joint assets.
The proposed Final Judgment designates Koppers Inc. as the
company to which the divested assets must be sold. While the United
States does not generally require that the purchaser of the divested
assets be identified and approved prior to and as a condition of
settlement, the unique circumstances of this case necessitate such
an approach. In many cases, numerous potential acquisition
candidates would be acceptable to the customers and the United
States. Also, acquirers in most cases would be able to continue
selling the divested products without significant delays made
necessary by extensive testing requirements. Here, the upfront
designation of the acquirer ensures the sale will be made to an
acquirer with the expertise and resources necessary to replace
Portec immediately as a full-fledged competitor to Foster.
Because bonded joints and poly joints are critical to the safe
and efficient operation of a railroad, customers must be confident
that the acquirer of the divested assets will be able to maintain
the current quality and long-term reliability of these joints. If
the customers lack this confidence, they likely would conduct
lengthy in-track testing before purchasing joints from a new
supplier in significant quantities. Such lengthy testing periods
could mean that the divested Portec joint businesses would not
provide meaningful competition to Foster for several years, and, as
a result, the divestiture would not remedy the competitive harm that
would likely result from Foster's acquisition of Portec. The
possibility that customers would require long testing periods before
purchasing from an acquirer led the United States to require an
acceptable acquirer prior to entering into a settlement.
Defendants presented Koppers to the United States as a potential
acquirer of the divested assets. Foster and Koppers entered into an
agreement for the purchase of the divested assets on December 9,
2010. Koppers is a global integrated producer of carbon compounds
and treated and untreated wood products and services for use in a
variety of industries, including the rail industry. In 2009, Koppers
had total revenues of approximately $1.12 billion. Approximately 58
percent of its 2009 sales were generated in the United States.
Koppers currently supplies all the Class 1 railroads. In addition,
Koppers maintains relationships with many short-line and regional
rail lines. Koppers has a strong relationship with the Class 1
railroads, an excellent reputation as a supplier to railroads, and
is committed to research and development. The United States
determined, after a thorough investigation, that railroad customers
would be sufficiently confident in Koppers's ability consistently to
manufacture quality bonded joints and poly joints and, therefore,
would not be likely to insist upon a lengthy in-track testing period
for these joints.
The United States typically requires that assets be divested
within 60 to 90 days after the filing of the Complaint or five days
after the entry of the Final Judgment by the Court. Because the
acquirer of the divested assets has been selected and approved by
the United States prior to the filing of the Complaint, there is no
need for 60 to 90 days to engage in a search for an acquirer.
Further, the United States has already reviewed the documents
related to the divestiture. Accordingly, the proposed Final Judgment
requires that the divested assets be sold to Koppers within ten days
after the Court signs the Hold Separate.\2\ The entry of the Hold
Separate was chosen as the date upon which the divestiture period
begins to run because Foster cannot consummate its acquisition of
Portec until the Court enters the Hold Separate, and that
acquisition must be consummated before the divested assets are sold.
---------------------------------------------------------------------------
\2\ The Hold Separate requires that until the assets being
divested are sold according to the terms of the proposed Final
Judgment, Foster and Portec must continue to operate their entire
businesses as independent, ongoing, and economically viable
businesses that are held entirely separate, distinct, and apart.
Foster and Portec shall not coordinate their production, marketing,
or terms of sale until the assets being divested are sold. It is
necessary to keep Portec's entire business separate from Foster's
business in the event the divested assets are not sold to Koppers
for any reason. If the assets are not sold to Koppers, Foster and
Portec will be unable to combine their operations, thereby
preserving Portec as an independent competitor in the bonded joint
and poly joint markets.
---------------------------------------------------------------------------
The proposed Final Judgment prohibits Defendants from
interfering with any negotiations by Koppers to employ any current
or former Portec employee who is responsible in any way for the
design, production, and sale of the products being divested. It also
requires that Defendants waive any non-compete agreements for
current or former employees involved in the design, production, and
sale of the products being divested. The proposed Final Judgment
also requires that the assets being divested be operational on the
date of sale. In addition, the proposed Final Judgment requires that
Defendants divest Portec's entire business relating to each of the
divested products and not manufacture any products using the
intangible assets divested pursuant to the proposed Final Judgment.
To allow Foster time to remove the assets used for those products
not being divested, the proposed Final Judgment allows Defendants to
occupy that portion of the Huntington facility that is used to
manufacture the products not being divested for sixty days from the
date Foster acquires Portec.
Finally, the proposed Final Judgment requires that Defendants
provide advance notice to the United States of any acquisition of
the assets of or any interest in, any company in the business of
designing, developing, producing, marketing, servicing,
distributing, and/or selling bonded joints and/or poly joints, or
any company in the business of producing, marketing, distributing,
and/or selling friction management products; or any relationship
with another company that involves the distribution of friction
management products in North America.\3\ Until very recently, Foster
and Portec competed in the sale of friction management products in
the United States. Few competitors sell these products in the United
States. Portec is the leader in the development, production, and
sale of certain friction management products. Foster was a
distributor of friction management products for an overseas
manufacturer and it recently terminated its relationship with that
manufacturer. However, in the future Foster could begin selling
friction management products made by that manufacturer or others. As
a result, the proposed Final Judgment ensures that the United States
will have the ability to investigate the competitive impact if
Foster attempts to resume its sale of friction management products
in the United States.
---------------------------------------------------------------------------
\3\ Friction management products are defined as wayside gauge-
face lubrication systems, top-of-rail lubrication systems, and any
other system or equipment used to lubricate rail.
---------------------------------------------------------------------------
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that
any person who has been injured as a result of conduct prohibited by
the antitrust laws may bring suit in Federal court to recover three
times the damages the person has suffered, as well as costs and
reasonable attorneys' fees. Entry of the proposed Final Judgment
will neither impair nor assist the bringing of any private antitrust
damage action. Under the provisions of Section 5(a) of the Clayton
Act, 15 U.S.C. 16(a), the proposed Final Judgment has no prima facie
effect in any subsequent private lawsuit that may be brought against
Defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and Defendants have stipulated that the
proposed Final Judgment may be entered by the Court after compliance
with the provisions of the APPA, provided that the United States has
not withdrawn its
[[Page 79401]]
consent. The APPA conditions entry upon the Court's determination
that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding
the proposed Final Judgment. Any person who wishes to comment should
do so within sixty (60) days of the date of publication of this
Competitive Impact Statement in the Federal Register, or the last
date of publication in a newspaper of the summary of this
Competitive Impact Statement, whichever is later. All comments
received during this period will be considered by the United States
Department of Justice, which remains free to withdraw its consent to
the proposed Final Judgment at any time prior to the Court's entry
of judgment. The comments and the response of the United States will
be filed with the Court and published in the Federal Register.
Written comments should be submitted to: Maribeth Petrizzi, Chief,
Litigation II Section, Antitrust Division, United States Department
of Justice, 450 Fifth Street, NW., Suite 8700, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against Defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions preventing Foster's
acquisition of Portec. The United States is satisfied, however, that
the divestiture of the assets described in the proposed Final
Judgment will preserve competition for the development, manufacture,
and sale of bonded joints and poly joints in the United States.
Thus, the proposed Final Judgment would achieve all or substantially
all of the relief the United States would have obtained through
litigation, but avoids the time, expense, and uncertainty of a full
trial on the merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination
in accordance with the statute, the court is required to 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). In considering these statutory
factors, the court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States
v. Microsoft Corp., 56 F.3d 1448, 1461 (DC Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act); United
States v. InBev N.V./S.A., 2009-2 Trade Cas. (CCH) ]76,736, 2009
U.S. Dist. LEXIS 84787, No. 08-1965 (JR), at *3 (D.D.C. Aug. 11,
2009) (noting that the court's review of a consent judgment is
limited and only inquires ``into whether the government's
determination that the proposed remedies will cure the antitrust
violations alleged in the complaint was reasonable, and whether the
mechanisms to enforce the final judgment are clear and
manageable.'').
As the United States Court of Appeals for the District of
Columbia 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 Microsoft, 56 F.3d at 1458-62. 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;
United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001);
InBev, 2009 U.S. Dist. LEXIS 84787, at *3. 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).\4\ In determining whether a proposed settlement is in the
public interest, the 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'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. Republic
Serv., Inc., 2010-2 Trade Cas. (CCH) ] 77,097, 2010 U.S. Dist. LEXIS
70895, No. 08-2076 (RWR), at *10 (D.D.C. July 15, 2010) (finding
that ``[i]n light of the deferential review to which the
government's proposed remedy is accorded, [amicus curiae's] argument
that an alternative remedy may be comparably superior, even if true,
is not a sufficient basis for finding that the proposed final
judgment is not in the public interest.'').
---------------------------------------------------------------------------
\4\ 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' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[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). Therefore,
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; Republic
Serv., 2010 U.S. Dist. LEXIS 70895, at *2-3 (entering final judgment
``[b]ecause there is an adequate factual foundation upon which to
conclude that the government's proposed divestitures will remedy the
antitrust violations alleged in the complaint.'').
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;
see also InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (``the `public
interest' is not to be measured by comparing the violations
[[Page 79402]]
alleged in the complaint against those the court believes could
have, or even should have, been alleged''). 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. Microsoft, 56 F.3d at 1459-60. As this Court 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.'' 489 F.
Supp. 2d at 15.
In its 2004 amendments to the Tunney Act,\5\ Congress made clear
its intent to preserve the practical benefits of utilizing consent
decrees in antitrust enforcement, stating: ``[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 language wrote into the statute
what Congress intended when it enacted the Tunney Act in 1974, as
Senator Tunney 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.\6\
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\5\ The 2004 amendments substituted the word ``shall'' for
``may'' when directing the courts to consider the enumerated factors
and amended the list of factors to focus on competitive
considerations and address potentially ambiguous judgment terms.
Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see
also SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004
amendments ``effected minimal changes'' to Tunney Act review).
\6\ 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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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: December 14, 2010.
Respectfully submitted, Christine A. Hill (DC Bar No. 461048),
U.S. Department of Justice, Antitrust Division, Litigation II
Section, 450 Fifth Street, NW., Suite 8700, Washington, DC 20530.
(202) 305-2738.
Certificate of Service
I, Christine A. Hill, hereby certify that on December 14, 2010,
I caused a copy of the foregoing Competitive Impact Statement to be
served upon Defendants L.B. Foster Company and Portec Rail Products,
Inc. by mailing the documents electronically to the duly authorized
legal representatives of Defendants as follows:
Counsel for L.B. Foster Company
John H. Korns, Esquire, Buchanan, Ingersoll & Rooney PC, 1700 K
Street, NW., Suite 300, Washington, DC 20006. (202) 452-7939.
[email protected].
Wendelynne J. Newton, Esquire, Buchanan, Ingersoll & Rooney PC,
One Oxford Centre, 20th Floor, 301 Grant Street, Pittsburgh, PA
15219. (412) 562-8932. [email protected].
Counsel for Portec Rail Products, Inc.
Timothy M. Walsh, Esquire, Steptoe & Johnson, LLP, 1330
Connecticut Avenue, NW., Washington, DC 20036. (202) 429-3000.
[email protected].
Christine A. Hill, Esquire, United States Department of Justice,
Antitrust Division, Litigation II Section, 450 Fifth Street, NW.,
Suite 8700, Washington, DC 20530. (202) 305-2738.
United States District Court for the District of Columbia
United States of America, Plaintiff
v.
L.B. Foster Company and Portec Rail Products, Inc., Defendants. 10
2115.
Proposed Final Judgment
Whereas, Plaintiff United States of America (``United States'')
filed its Complaint on December 14, 2010, the United States and
Defendants L.B. Foster Company and Portec Rail Products, Inc., by
their respective attorneys, have consented to the entry of this
Final Judgment without trial or adjudication of any issue of fact or
law, and without this Final Judgment constituting any evidence
against or admission by any party regarding any issue of fact or
law;
and whereas, Defendants agree to be bound by the provisions of
this Final Judgment pending its approval by the Court;
and whereas, the essence of this Final Judgment is the prompt
and certain divestiture of certain rights or assets by Defendants to
assure that competition is not substantially lessened;
and whereas, the United States requires Defendants to make
certain divestitures for the purpose of remedying the loss of
competition alleged in the Complaint;
and whereas, Defendants have represented to the United States
that the divestitures required below can and will be made and that
Defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, adjudged, and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each
of the parties to this action. The Complaint states a claim upon
which relief may be granted against Defendants under Section 7 of
the Clayton Act, as amended (15 U.S.C. 18).
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' means Koppers, the entity to which Defendants
shall divest the Divestiture Assets.
B. ``Foster'' means Defendant L.B. Foster Company, a
Pennsylvania corporation headquartered in Pittsburgh, Pennsylvania,
its successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their directors,
officers, managers, agents, and employees.
C. ``Portec'' means Defendant Portec Rail Products, Inc., a West
Virginia corporation headquartered in Pittsburgh, Pennsylvania, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their directors,
officers, managers, agents, and employees.
D. ``Koppers'' means Koppers Inc., a Pennsylvania corporation
headquartered in Pittsburgh, Pennsylvania, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, and their directors, officers,
managers, agents, and employees.
E. ``Divested Portec Product Lines'' means Portec's bonded
insulated rail joints (assemblies and kits), polyurethane-coated
insulated rail joints, end posts, polyurethane-coated gauge and tie
plates, fiberglass (CyPly) joint kits, plastic insulation, standard
rail joints, compromise and transitional rail joints, and Weldmate
joint bars, but excluding Coronet rail joints and end posts
manufactured by Coronet Rail Limited.
F. ``Divestiture Assets'' means:
(1) Portec's facility located at 900 9th Avenue W, Huntington,
West Virginia (the ``Huntington Facility''), including all equipment
located in and around the Huntington Facility that is used in
connection with the Divested Portec Product Lines;
(2) All tangible assets that are used for any of the Divested
Portec Product Lines, including research and development activities;
all manufacturing equipment, tooling and fixed assets, personal
property, inventory, office furniture, materials, supplies, and
other tangible property and all assets used in connection with any
of the Divested Portec Product Lines; all licenses, permits and
authorizations issued by any governmental organization relating to
any of the Divested Portec Product Lines; all contracts, teaming
arrangements, agreements, leases, commitments, certifications, and
understandings, relating to any of the Divested Portec Product
Lines, including supply agreements; all customer lists,
[[Page 79403]]
contracts, accounts, and credit records; all repair and performance
records and all other records relating to any of the Divested Portec
Product Lines;
(3) All intangible assets used in the design, development,
production, marketing, servicing, distribution, and/or sale of any
of the Divested Portec Product Lines, including, but not limited to,
all patents, licenses and sublicenses, intellectual property,
copyrights, trademarks, trade names, service marks, service names,
technical information, computer software and related documentation,
know-how, trade secrets, drawings, blueprints, designs, design
protocols, specifications for materials, specifications for parts
and devices, safety procedures for the handling of materials and
substances, all marketing and sales data relating to any of the
Divested Portec Product Lines, quality assurance and control
procedures, design tools and simulation capability, all manuals and
technical information Portec provides to its own employees,
customers, suppliers, agents or licensees, and all research data
concerning historic and current research and development efforts
relating to any of the Divested Portec Product Lines, including, but
not limited to, designs of experiments, and the results of
successful and unsuccessful designs and experiments; and
(4) The Divestiture Assets exclude the trademark, trade name,
service mark, or service name ``Portec.''
G. ``Friction Management Products'' means wayside gauge-face
lubrication systems, top-of-rail lubrication systems, and any other
system or equipment used to lubricate rail.
H. ``Transaction'' means Foster's acceptance for payment of at
least 65 percent of the Fully Diluted Number of Company Shares of
Portec, as defined in the Agreement and Plan of Merger dated
February 16, 2010, between L.B. Foster Company, Foster Thomas
Company, and Portec Rail Products, Inc.
III. Applicability
This Final Judgment applies to Foster and Portec, as defined
above, and all other persons in active concert or participation with
any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
IV. Divestitures
A. Defendants are ordered and directed, within ten (10) calendar
days after the Court signs the Hold Separate Stipulation and Order
in this matter, to divest the Divestiture Assets to the Acquirer in
a manner consistent with this Final Judgment.
B. Defendants will not interfere with any negotiations by the
Acquirer to employ any current or former Portec employee who is
responsible in any way for the design, development, production,
marketing, servicing, distribution, and/or sale of any of the
Divested Portec Product Lines. Interference with respect to this
paragraph includes, but is not limited to, enforcement of non-
compete clauses and offers to increase salary or other benefits
apart from those offered company-wide. In addition, for each
employee who elects employment by the Acquirer, Defendants shall
vest all unvested pension and other equity rights of that employee
and provide all benefits to which the employee would have been
entitled if terminated without cause.
C. Defendants shall warrant to the Acquirer that each asset will
be operational on the date of sale.
D. Defendants shall not take any action that will impede in any
way the permitting, operation, use, or divestiture of the
Divestiture Assets.
E. Defendants shall warrant to the Acquirer that there are no
material defects in the environmental, zoning or other permits
pertaining to the operation of each asset, and that following the
sale of the Divestiture Assets, Defendants will not undertake,
directly or indirectly, any challenges to the environmental, zoning,
or other permits relating to the operation of the Divestiture
Assets.
F. Defendants shall be permitted to occupy, under sublease to
the Acquirer or other arrangement, for a period of sixty (60) days
from the date the Transaction is closed, that portion of the
Huntington Facility that is not currently being used to manufacture
any of the Divested Portec Product Lines.
G. Defendants shall divest Portec's entire business relating to
each of the Divested Portec Product Lines and will not manufacture
any products using any intangible assets divested pursuant to
paragraph II(F)(3) of this Final Judgment.
H. Defendants shall, as soon as possible, but within one
business day after completion of the relevant event, notify the
United States of: (1) The effective date of the Transaction; and (2)
the effective date of the sale of the Divestiture Assets to the
Acquirer.
I. Unless the United States otherwise consents in writing, the
divestiture pursuant to Section IV of this Final Judgment shall
include the entire Divestiture Assets, and shall be accomplished in
such a way as to satisfy the United States, in its sole discretion,
that the Divestiture Assets can and will be used by the Acquirer as
part of a viable, ongoing business involved in the design,
development, production, marketing, servicing, distribution, and
sale of the Divested Portec Product Lines, that the Divestiture
Assets will remain viable, and the divestiture of such assets will
remedy the competitive harm alleged in the Complaint. The
divestitures shall be:
(1) Made to an Acquirer that, in the United States's sole
judgment, has the intent and capability (including the necessary
managerial, operational, technical and financial capability) of
competing effectively in the design, development, production,
marketing, servicing, distribution, and sale of the Divested Portec
Product Lines; and
(2) Accomplished so as to satisfy the United States, in its sole
discretion, that none of the terms of any agreement between the
Acquirer and Defendants give Defendants the ability unreasonably to
raise the Acquirer's costs, to lower the Acquirer's efficiency, or
otherwise to interfere in the ability of the Acquirer to compete
effectively.
V. Financing
Defendants shall not finance all or any part of any purchase
made pursuant to Section IV of this Final Judgment.
VI. Hold Separate
Until the divestiture required by this Final Judgment have been
accomplished, Defendants shall take all steps necessary to comply
with the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the
divestitures ordered by this Court.
VII. Compliance Inspection
A. For the purposes of determining or securing compliance with
this Final Judgment, or of determining whether the Final Judgment
should be modified or vacated, and subject to any legally recognized
privilege, from time to time authorized representatives of the
United States Department of Justice Antitrust Division, including
consultants and other persons retained by the United States, shall,
upon written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division, and
on reasonable notice to Defendants, be permitted:
(1) Access during Defendants' office hours to inspect and copy,
or at the option of the United States, to require Defendants to
provide hard copy or electronic copies of, all books, ledgers,
accounts, records, data, and documents in the possession, custody,
or control of Defendants, relating to any matters contained in this
Final Judgment; and
(2) To interview, either informally or on the record,
Defendants' officers, employees, or agents, who may have their
individual counsel present, regarding such matters. The interviews
shall be subject to the reasonable convenience of the interviewee
and without restraint or interference by Defendants.
B. Upon the written request of an authorized representative of
the Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this Section shall be divulged by the United States to any person
other than an authorized representative of the executive branch of
the United States, except in the course of legal proceedings to
which the United States is a party (including grand jury
proceedings), for the purpose of securing compliance with this Final
Judgment, or as otherwise required by law.
D. If, at the time information or documents are furnished by
Defendants to the United States, Defendants represent and identify
in writing the material in any such information or documents to
which a claim of protection may be asserted under Rule 26(c)(1)(G)
of the Federal Rules of Civil Procedure, and Defendants mark each
pertinent page of such material, ``Subject to claim of protection
under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure,''
then the United States shall give Defendants ten (10) calendar days
notice prior to divulging such material in any legal proceeding
(other than a grand jury proceeding).
[[Page 79404]]
VIII. Notification
Unless such transaction is otherwise subject to the reporting
and waiting period requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C. 18a (the ``HSR
Act''), during the term of this Final Judgment, Defendants, without
providing advance notification to the Antitrust Division, shall not
directly or indirectly: (a) Acquire any assets of or any interest
(including, but not limited to, any financial, security, loan,
equity, or management interest) in, any company in the business of
designing, developing, producing, marketing, servicing,
distributing, and/or selling bonded insulated rail joints and/or
polyurethane-coated insulated rail joints, or any company in the
business of producing, marketing, distributing, and/or selling
Friction Management Products; or (b) enter into any relationship
with another company that involves the distribution of Friction
Management Products in North America.
Such notification shall be provided to the Antitrust Division in
the same format as, and per the instructions relating to the
Notification and Report Form set forth in the Appendix to Part 803
of Title 16 of the Code of Federal Regulations as amended, except
that the information requested in Items 5 through 9 of the
instructions must be provided only about bonded insulated rail
joints, polyurethane-coated insulated rail joints, and Friction
Management Products. Notification shall be provided at least thirty
(30) calendar days prior to acquiring any such interest, and shall
include, beyond what may be required by the applicable instructions,
the names of the principal representatives of the parties to the
agreement who negotiated the agreement, and any management or
strategic plans discussing the proposed transaction. If within the
30-day period after notification, representatives of the Antitrust
Division make a written request for additional information,
Defendants shall not consummate the proposed transaction or
agreement until thirty (30) calendar days after submitting all such
additional information. Early termination of the waiting periods in
this paragraph may be requested and, where appropriate, granted in
the same manner as is applicable under the requirements and
provisions of the HSR Act and rules promulgated thereunder. This
Section shall be broadly construed and any ambiguity or uncertainty
regarding the filing of notice under this Section shall be resolved
in favor of filing notice.
IX. No Reacquisition
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
X. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this
Final Judgment to apply to this Court at any time for further orders
and directions as may be necessary or appropriate to carry out or
construe this Final Judgment, to modify any of its provisions, to
enforce compliance, and to punish violations of its provisions.
XI. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XII. Public Interest Determination
Entry of this Final Judgment is in the public interest. The
parties have complied with the requirements of the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16, including making copies
available to the public of this Final Judgment, the Competitive
Impact Statement, and any comments thereon and the United States's
responses to comments. Based upon the record before the Court, which
includes the Competitive Impact Statement and any comments and
responses to comments filed with the Court, entry of this Final
Judgment is in the public interest.
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16 United States District Judge.
[FR Doc. 2010-31863 Filed 12-17-10; 8:45 am]
BILLING CODE 4410-11-P