[Federal Register Volume 75, Number 49 (Monday, March 15, 2010)]
[Notices]
[Pages 12256-12270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5519]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF JUSTICE
Antitrust Division
United States, et al. v. Election Systems and Software, 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,
Stipulation and Competitive Impact Statement have been filed with the
United States District Court for the District of Columbia in United
States, et al. v. Election Systems and Software Inc., Civil Action No.
10-00380. On March 8, 2010, the United States filed a Complaint
alleging that the proposed acquisition by Election Systems and
Software, Inc., (``ES&S'') of Premier Election Services, Inc., and PES
Holdings, Inc. violated Section 7 of the Clayton Act, 15 U.S.C. 18. The
proposed Final Judgment, filed the same time as the Complaint, requires
ES&S to divest certain tangible and intangible assets.
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 the 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,
Deputy Director of Operations.
United States District Court for the District of Columbia
CASE: 1:10-cv-00380
Assigned To: Bates, John D.
Assign Date: 3/8/2010
Description: Antitrust
UNITED STATES OF AMERICA Department of Justice, Antitrust Division,
450 5th Street, NW., Suite 8700, Washington, D.C. 20530; STATE OF
ARIZONA Office of the Attorney General, 1275 West Washington, Phoenix,
Arizona 85007; STATE OF COLORADO Office of the Attorney General, 1525
Sherman St., Seventh Floor, Denver, Colorado 80203; STATE OF FLORIDA
Office of the Attorney General, PL-01, The Capitol, Tallahassee,
Florida 32399; STATE OF MAINE Office of the Attorney General, 6 State
House Station, Augusta, Maine 04333; STATE OF MARYLAND Office of the
Attorney General, Antitrust Division, 200 St. Paul Place, 19th Floor,
Baltimore, Maryland 21202; COMMONWEALTH OF MASSACHUSETTS Office of the
Attorney General Martha Coakley, One Ashburton Place, Boston,
Massachusetts 02108; STATE OF NEW MEXICO Office of the Attorney General
of New Mexico, 111 Lomas Blvd. NW., Suite 300, Albuquerque, New Mexico
87102; STATE OF TENNESSEE Office of the Attorney General and Reporter,
425 Fifth Avenue North, Nashville, Tennessee 37243; and STATE OF
WASHINGTON Office of the Attorney General, 800 Fifth Avenue, Suite
2000, Seattle, Washington 98104; Plaintiffs, v. ELECTION SYSTEMS AND
SOFTWARE, INC. 11208 John Galt Boulevard, Omaha, Nebraska 68137;
Defendant.
COMPLAINT
Plaintiffs, the United States of America (``United States''),
acting under the direction of the Attorney General of the United
States, and the States of Arizona, Colorado, Florida, Maine, Maryland,
New Mexico, Tennessee, and Washington, and the Commonwealth of
Massachusetts (the ``Plaintiff States''), acting under the direction of
their respective Attorneys General, bring this civil antitrust action
against defendant Election Systems and Software, Inc. (``ES&S''), to
obtain a permanent injunction and other relief to remedy the harm to
competition caused by
[[Page 12257]]
ES&S's acquisition of Premier Election Solutions, Inc. and PES
Holdings, Inc. (collectively, ``Premier''). Plaintiffs allege as
follows:
I. NATURE OF THE ACTION
1. ES&S is the largest provider of voting equipment systems in the
United States. On September 2, 2009, ES&S acquired Premier, a
subsidiary of Diebold, Inc. (``Diebold''), then the second largest
provider of voting equipment systems in the United States. As a result
of that acquisition, ES&S provides more than 70 percent of the voting
equipment systems that registered voters rely on to vote in federal,
state and local elections held in the United States.
2. Competition in the provision of voting equipment systems is
critical to ensure that vendors continue to develop accurate, reliable
and secure systems, and provide those systems to state, county and
local election administrators at competitive prices.
3. ES&S's acquisition of Premier combined the two largest providers
of voting equipment systems in the United States and the two firms that
had been, for many customers, the closest bidders for the provision of
voting equipment systems. As a result of this transaction, prices for
voting equipment systems likely will increase, while quality and
innovation likely will decline, as a consequence of reduced competition
in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18.
II. THE DEFENDANT
4. Defendant Election Systems and Software, Inc. (``ES&S'') is a
Nebraska corporation with its headquarters in Omaha, Nebraska, and
includes its successors and assigns, its subsidiaries, including
Premier, and its divisions, groups, affiliates, partnerships and joint
ventures, and their directors, officers, managers, agents, and
employees. Prior to its acquisition of Premier, ES&S was already the
largest provider of voting equipment systems in the United States, had
systems installed in at least 41 states, and collected revenue of
$149.4 million in 2008. Premier, now an ES&S subsidiary, was the second
largest provider of voting equipment systems in the United States prior
to its acquisition, had equipment installed in 33 states, and collected
revenue of approximately $88.3 million in 2008.
III. JURISDICTION AND VENUE
5. The United States brings this action against defendant ES&S
under Section 15 of the Clayton Act, 15 U.S.C. Sec. 25, as amended, to
prevent and restrain ES&S from continuing to violate Section 7 of the
Clayton Act, 15 U.S.C. Sec. 18. Each of the Plaintiff States brings
this action under Section 16 of the Clayton Act, 15 U.S.C. Sec. 26, to
prevent and restrain the violation by Defendant of Section 7 of the
Clayton Act, 15 U.S.C. Sec. 18. The Plaintiff States, by and through
their respective Attorneys General, or other authorized officials,
bring this action in their sovereign capacities and as parens patriae
on behalf of the citizens, general welfare, and economy of each of
their states.
6. Defendant ES&S develops, sells and services voting equipment
systems in the flow of interstate commerce. ES&S's activities in
developing, selling and servicing voting equipment systems
substantially affect interstate commerce. The Court has jurisdiction
over this action and over the parties pursuant to 15 U.S.C. Sec. 25
and 28 U.S.C. Sec. Sec. 1331 and 1337.
7. ES&S transacts business, and has consented to venue and personal
jurisdiction, in the District of Columbia. Venue is therefore proper in
this District under Section 12 of the Clayton Act, 15 U.S.C. Sec. 22
and 28 U.S.C. Sec. 1391(c).
IV. BACKGROUND
8. In the wake of the 2000 Presidential Election, Congress enacted
the Help America Vote Act (HAVA) to address perceived shortfalls in the
accuracy, security and reliability of voting equipment. 42 U.S.C.
15301-15545 (2002). HAVA authorized funding of approximately $3.86
billion to encourage jurisdictions responsible for the administration
of elections to replace mechanical voting devices such as lever and
punch card machines with new electronic voting equipment systems. HAVA
also created a new agency, the Election Assistance Commission (EAC), to
adopt standards for and certify voting equipment systems to ensure
their reliability and security. The EAC issued standards in 2002 and
2005, and those standards continue to evolve. HAVA also required that
voting equipment systems contain devices that allow disabled voters to
cast and verify their votes privately and independently. 42 U.S.C.
15481(a)(3)(A)-(B) (2002).
9. State law sets the certification requirements for any voting
equipment system installed within a state. Most states require that
voting equipment systems or the devices that comprise those systems be
certified, either at the federal level by the EAC, or at the state
level according to standards set by the election authorities of that
state. State certification regimes may be more or less rigorous than
that of the EAC, and some states require that a vendor be certified by
both the EAC and the state's own process. A minority of states require
neither federal nor state certification, but describe technical
standards for vendors responding to requests for proposal (``RFP'') for
voting equipment systems.
10. Voting equipment systems are purchased either by a state agency
or by an election board or official at the county or local level. A
jurisdiction typically goes through an extensive public procurement
process to identify the correct system to meet its needs and determine
its preferred vendor. Before bids are seriously considered, vendors
often must be qualified by meeting certain financial criteria. The
procurement process for large, complex customers can span more than a
year, involves extensive communications between the customer and
vendors, typically requires public demonstrations of equipment, and
often involves third-party consultants hired by the customer. As
vendors proceed through the procurement process, they usually become
more familiar with the needs of the customer and the competing vendors
under consideration. Often, customers allow a discrete group of vendors
to proceed to a best and final round, where vendors may revise the
terms of their bids, including price terms, before a winning bid is
selected.
11. Performance of voting equipment systems on Election Day is
critical because the failure of a system, or any of the devices within
a system, can affect the integrity of the democratic process, a failure
that often cannot be remedied. Although certification testing of voting
equipment systems and devices is designed to identify technical
deficiencies, many certified devices have demonstrated security and
accuracy problems when deployed in the field for an election. However,
customers typically use voting equipment systems only once or twice
every two years, so opportunities to test the reliability of equipment
are few. As a result, an established record of successful voting
equipment performance is of great importance to customers in evaluating
the likely accuracy and reliability of a voting equipment system.
Election administrators, who often are elected officials themselves,
use successful past experience as one basis for judging the reliability
of a voting equipment system.
12. The significant variation of election laws and practices among
jurisdictions results in substantial differences in customers'
technical requirements for their voting equipment systems. A
jurisdiction's voting equipment system needs also may be
[[Page 12258]]
based on the number of registered voters; the density of population
within geographic boundaries; the number of polling sites;
accommodation of the needs of disabled voters; ballot complexity,
including legal requirements for ballot design, and the number of
different ballot layouts, languages, and political parties; frequency
of elections; requirements for processing absentee ballots; timing of
reporting results; and other issues.
13. Between 2002 and 2006, most states procured new voting
equipment systems, exhausting their HAVA funds. Most of these
jurisdictions anticipate that their new systems will last at least ten
years. Given the current economic environment, many jurisdictions are
considering attempts to extend the life of existing systems by
investing in repair, service, and upgrades, in order to forestall the
need to purchase new systems. However, a few states and several large
counties anticipate purchasing a new voting equipment system in the
next year or two. A number of other jurisdictions have relatively old
voting equipment systems that may need to be replaced within the next
several years.
14. Since 2005, several jurisdictions have required that voting
equipment systems create a paper-based record of each vote cast, out of
concern that the electronic audit component of some devices within the
system was insufficiently secure to guarantee the accuracy of election
results. Vendors believe this movement has created and will continue to
create additional demand for new voting equipment systems over the next
few years, despite the exhaustion of HAVA funding.
V. TRADE AND COMMERCE
A. The Relevant Product Market
15. A voting equipment system is the integrated collection of
customized hardware, software, firmware and associated services used to
electronically record, tabulate, transmit and report votes in an
election. The number, variety, and operation of electronic components
vary depending on the needs of the jurisdiction responsible for
administering elections, which may be the state, county or local
government, depending on state law.
16. A voting equipment system differs from the mechanical lever and
punch card voting devices used in the past in conjunction with manual
tabulation methods. Mechanical systems cannot accommodate speedy
tabulation across a large number of voters; do not allow disabled
voters the opportunity to cast an independent, private ballot; and are
considered less accurate and reliable than voting equipment systems.
17. Hardware devices used to electronically record votes vary by
recording method, and can be used for a variety of functions. These
devices may include precinct or central count Optical Scan (``OS'')
devices; Direct Recording Electronic (``DRE'') devices; and Ballot
Marking Devices (``BMD''). In addition to the basic function of
recording a vote cast on Election Day, these devices may be used to
create a paper record of each vote, to allow independent voting by
disabled voters, and to read votes cast by absentee or vote-by-mail
voters. Depending on the needs of the jurisdiction, a voting equipment
system may include only one type of device, or several different types
of devices used in concert. All three types of recording devices feed
votes into a tabulator, which counts each vote and prepares a report,
with the assistance of associated software and firmware.
18. OS devices create a paper record of each vote and are commonly
used to read absentee ballots, but cannot provide a completely private
and independent voting experience for any disabled voter. OS devices
require a voter to mark an individual paper ballot, which is then
inserted into a scanner to be electronically read. Central Count OS
devices, particularly high-speed, digital models, are commonly used to
read ballots submitted by absentee or vote-by-mail voters. Most OS
devices read and record voter marks as data, though some digital
devices capture the actual image of the ballot, to better judge the
intent of the voter. Typically, OS devices cannot fully enable a
disabled voter to cast a ballot independently, as assistance in marking
the ballot and transferring it to the ballot box is required.
19. DRE devices, sometimes referred to as touch screens, allow a
voter to enter a vote by interfacing directly with a monitor screen,
and some models are equipped with a device that creates a scrolling
paper record of the votes recorded, often referred to as a Voter
Verified Paper Trail. DRE devices allow disabled voters to cast their
vote independently, so they often are provided exclusively for the use
of disabled voters at polling places that may otherwise rely on OS
equipment. DRE devices cannot be used to read ballots submitted by
mail.
20. BMD's require a voter to insert an individual paper ballot into
an electronic device, and then mark that ballot using a small monitor
interface and specialized electronic pen. BMDs are designed to
accommodate disabled voters, allowing the independent recording of a
vote, but pollworker assistance still is required to transfer the
marked ballot to the ballot box. BMDs cannot be used to read ballots
submitted by mail.
21. The recording and tabulation devices contained within a voting
equipment system are bound together by a collection of proprietary
election management software and firmware. The software and firmware
enables the operation of each device, communication between devices and
reporting of the election results.
22. Jurisdictions purchase voting equipment systems bundled with a
variety of services for the initial implementation and long-term
service and support of the system. Initial implementation services
often include project management, equipment delivery, administrator and
pollworker training, and warrantees on devices. Post-implementation
services include hardware, software and firmware maintenance
agreements, and also may include annual services such as ballot layout,
ballot printing, Election Day help-desk support and other Election Day
services. Typically, any service that may require changes to hardware,
software or firmware must be performed by the original vendor, or that
vendor's licensed representative.
23. Jurisdictions evaluate competing bids to provide voting
equipment systems based on compliance with state law, technical
standards, certification standards, experience in other jurisdictions
and commercial standards such as price, delivery schedule and other
terms of sale. The combined technical and commercial needs of the
customer differ for each voting equipment system bid.
24. A small but significant increase in the price that vendors bid
to provide voting equipment systems to customers would not cause
customers to substitute away from electronic voting equipment systems
so as to make such a price increase unprofitable. Accordingly, voting
equipment systems are a line of commerce and relevant product market
within the meaning of Section 7 of the Clayton Act.
B. Geographic Market
25. In the United States, customers of voting equipment systems
prefer suppliers with a substantial physical presence in the United
States, including a network of sales, technical and support personnel
and parts distribution.
26. Customers prefer such vendors because, during the design, bid,
and implementation phases of installing a
[[Page 12259]]
new voting equipment system, customers interact with vendors to test
system functionality, adjust technical specifications, correct design
flaws, track progress and ensure successful implementation. Further,
customers require that vendors have a significant local service
presence to assist annually in the preparation for Election Day, and to
immediately address system problems arising on Election Day.
27. A small but significant increase in the price of voting
equipment systems would not cause a sufficient number of U.S. customers
to turn to suppliers of voting equipment systems that do not have a
substantial physical presence in the United States so as to make such a
price increase unprofitable. Accordingly, the United States is a
relevant geographic market within the meaning of Section 7 of the
Clayton Act.
C. Anticompetitive Effects of the Acquisition
28. ES&S's acquisition of Premier united two firms that many
customers considered the two closest competitors in the provision of
voting equipment systems, with the likely effects of higher prices, a
decline in quality and innovation and changes in other key elements
that are considered detrimental by most U.S. customers in the
evaluation of bids to provide voting equipment systems. ES&S and
Premier were considered the closest competitors by many customers
because the two companies offer systems certified in the greatest
number of jurisdictions; offer a complete suite of voting equipment
system products; and have a reputation for reliable equipment. Having
acquired its closest competitor, ES&S will have a reduced incentive to
compete as aggressively for bids or to invest in new products,
unilaterally reducing the quality and increasing the price of voting
equipment systems available to most jurisdictions.
29. Some customers identified ES&S and Premier as the only vendors
qualified to meet the jurisdiction's certification requirements. For
instance, ES&S and Premier are the only two vendors that offer EAC-
certified voting equipment systems that include an OS device and a BMD.
Indeed, at the time of the acquisition, ES&S and Premier were the only
active vendors that had achieved EAC-certification at all. Likewise,
ES&S and Premier voting equipment systems are certified or approved in
42 and 33 states, respectively; more states, by far, than any other
vendor.
30. Prior to the acquisition, ES&S and Premier had the unique
ability to offer a complete suite of voting equipment choices. An array
of devices often is important to meet the goals of providing a paper-
based system, accommodating disabled voters, and processing absentee
ballots expeditiously. Because voting equipment systems use proprietary
software, customers do not have the option of selecting the best in
breed of each type of device from many vendors and integrating those
pieces into a coherent system. A vendor that can offer a full
complement of equipment choices within a given system often provides a
benefit to the customer.
31. In order to better secure voting equipment systems that have
been tested by past experience in similar jurisdictions, many customers
view the past experience of a vendor's equipment as a key element in
evaluating its bid. Moreover, the more that past experience replicates
conditions anticipated in the customer's jurisdiction, the more it
augurs for success. ES&S and Premier are two of only three vendors
whose voting equipment systems have been deployed in multiple statewide
implementations. Likewise, the two companies have the broadest range of
past experiences to call upon, making them most likely to be the
bidders with the most experience and the most relevant experience for
any particular bid.
32. Only three other firms compete to provide voting equipment
systems. None of these competitors is likely to replace the constraint
Premier once exercised on ES&S's bidding behavior. Each of these firms
is limited by the level of certification obtained, lack of a full
product line, and the lack of proven equipment. At least one of these
firms is also limited by the lack of financial ability to expand. None
of these vendors shares the attributes that made Premier a close
competitor to ES&S, and none is likely to substantially constrain
ES&S's behavior in future bids.
33. In contrast, numerous jurisdictions have benefitted from
vigorous price competition between ES&S and Premier in the past. ES&S
and Premier were the first and second lowest bidders for recent bids
let by states for statewide voting equipment systems. In at least three
recent bids for county-wide voting equipment systems, each worth
between $1 million and $6 million, ES&S and Premier were the closest
bidders.
34. ES&S and Premier have been more successful than any other
vendor in competing to meet the disparate requirements of U.S.
customers, as evidenced by each company's portion of the installed base
of voting equipment systems. Prior to the acquisition, ES&S was the
incumbent provider to 47 percent of all registered voters in the United
States, and Premier was the incumbent to 23 percent of all registered
voters. As a result of its acquisition of Premier, ES&S became the
incumbent for more than 70 percent of all registered voters in the
United States.
35. One recent state-wide procurement illustrates the closeness of
competition between ES&S and Premier, and how that competition
restrained ES&S's bidding behavior. The state issued a long-anticipated
set of RFPs for procurement of a new statewide voting equipment system
that called for the provision of a system that included OS devices that
had been tested by an EAC-certified laboratory. As part of the scoring
methodology, the RFPs also required that bidders identify past
installations of voting equipment systems, and describe the scope and
complexity of the installed jurisdiction. ES&S anticipated Premier
would be the front runner for this opportunity. In early 2009, ES&S
projected that Premier would low-ball the bid, and gave serious
consideration to changing its bid price in response. Six days before
bids were due, ES&S acquired Premier. Bids were submitted on behalf of
both Premier and ES&S, but the state could not consider the Premier bid
as a result of ES&S's acquisition of and changes to Premier. No other
vendor responded to this RFP, and ES&S was approved by the state board
overseeing the procurement in December 2009.
36. The acquisition of Premier both ended its competitive influence
on specific bids, and reduced ES&S's incentive to develop new products
and upgrade existing products. In response to continuing concerns about
the security and reliability of voting equipment systems, technical
standards for voting equipment systems are constantly evolving. ES&S
considered Premier the firm most responsive to these evolving
certification standards, and elected to follow Premier's lead in the
development of new products. For example, in the Fall of 2009, ES&S
introduced its own digital scan high-speed OS central count device in
response to a similar device introduced by Premier a year earlier. ES&S
is unlikely to continue such innovation absent competition from
Premier. Prior to its acquisition, Premier submitted an improved voting
equipment system to certification authorities for testing in two
states, but ES&S withdrew those applications following the acquisition.
In the absence of competitive pressure from Premier, ES&S is unlikely
to have the same incentive to develop new products in the future.
[[Page 12260]]
37. ES&S's acquisition of Premier, therefore, likely will
substantially lessen competition in the United States market for voting
equipment systems, which likely will lead to higher prices, lower
quality and less innovation in violation of Section 7 of the Clayton
Act.
D. Difficulty of Entry Into the Provision of Voting Equipment Systems
38. Successful entry into the provision of voting equipment systems
is challenging, time-consuming, and costly. Entry requires not only the
design and development of hardware, software and firmware products, but
also obtaining multiple levels of certification, establishing a
reputation for reliable performance, and financial wherewithal
sufficient to assure a buyer of long-term service capabilities.
39. EAC certification may cost more than $1 million for each system
certified, and may take fifteen to twenty-four months. These costs are
in addition to internal development costs, estimated at $2.5 to $5
million. Previous certification attempts by established companies such
as Premier have consumed more than $3 million and required three years.
For at least three of the largest state jurisdictions, certification
requires an additional investment of time and money. ES&S, for
instance, spent approximately $4 million to become certified in one
state. Other states may be even more rigorous, requiring that voting
systems be certified both by the EAC and by the state.
40. Certification alone is not sufficient for a company that does
not have equipment with a proven record of reliable performance. One
company recently obtained 2005 EAC-certification for its new OS device,
after two years of product development and testing, and an investment
of millions of dollars. Despite the time and money invested, the
company has yet to sell a single certified device.
41. Given the time and expense required for certification, the long
lifecycle of voting equipment systems, the time required to demonstrate
reliable performance of equipment, and the absence of ready capital to
fund new investment in the voting equipment system industry, entry into
the provision of voting equipment systems would not be timely, likely
and sufficient to prevent an exercise of market power by ES&S.
VI. VIOLATION ALLEGED
42. ES&S's acquisition of Premier substantially lessened
competition in the U.S. market for voting equipment systems in
interstate trade and commerce in violation of Section 7 of the Clayton
Act, 15 U.S.C. Sec. 18.
43. This acquisition has had the following anticompetitive effects,
among others:
a. competition between ES&S and Premier in the provision of voting
equipment systems in the United States has been eliminated;
b. competition generally in the provision of voting equipment
systems in the United States has been substantially lessened; and
c. prices will likely increase, quality will likely decrease, and
innovation will be less likely.
VII. REQUESTED RELIEF
44. Plaintiffs request that this Court:
a. Adjudge and decree that the Defendant ES&S's acquisition of
Premier violated Section 7 of the Clayton Act, 15 U.S.C. Sec. 18;
b. Compel ES&S to divest Premier assets related to the development,
manufacture and sale of the relevant products to enable independent and
effective competition;
c. Award such temporary and preliminary injunctive and ancillary
relief as may be necessary to avert the likelihood of the dissipation
of Premier's tangible and intangible assets during the pendency of this
action and to preserve the possibility of effective final relief;
d. Award the Plaintiffs the cost of this action; and
e. Grant the Plaintiffs such other and further relief as the case
requires and the Court deems just and proper.
Dated: March 8, 2010.
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA
/s/ ------
Molly S. Boast,
Acting Assistant Attorney General.
/s/ ------
Patricia A. Brink,
Deputy Director of Operations.
/s/ ------
Maribeth Petrizzi,
Assistant Chief, Litigation II Section, D.C. Bar # 435204.
/s/ ------
Dorothy B. Fountain,
Assistant Chief, Litigation II Section, D.C. Bar #439469.
Stephanie A. Fleming, James K. Foster, Erin Carter Grace, Blake
Rushforth,
Attorneys, U.S. Department of Justice, Antitrust Division, Litigation
II Section, 450 Fifth Street, NW., Suite 8700, Washington, D.C. 20530,
Tel: (202) 514-9228, Fax: (202) 514-9033, Email:
[email protected].
CERTIFICATE OF SERVICE
I, Stephanie Fleming, hereby certify that on March 8, 2010, I
caused a copy of the Complaint to be served on defendant Election
Systems and Software, Inc., by mailing the document via email to the
duly authorized legal representative of the defendant, as follows:
FOR ELECTION SYSTEMS & SOFTWARE, INC.
Joseph G. Krauss, Hogan & Hartson LLP, 555 Thirteenth Street, NW.,
Washington, DC. 20004, (202) 637-5600, [email protected]
/s/ ------
Stephanie A. Fleming, Esq.
United States Department of Justice, Antitrust Division, Litigation II
Section, 450 Fifth Street, NW., Suite 8700, Washington, D.C. 20530,
(202) 514-9228, (202) 514-9033, [email protected]
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
CASE NO.:
JUDGE:
DECK TYPE: Antitrust
DATE STAMP:
UNITED STATES OF AMERICA, et al., Plaintiffs, v. ELECTION SYSTEMS
AND SOFTWARE, INC., Defendant.
FINAL JUDGMENT
WHEREAS, Plaintiffs, the United States of America (``United
States''), the States of Arizona, Colorado, Florida, Maine, Maryland,
New Mexico, Tennessee, and Washington, and the Commonwealth of
Massachusetts (the ``Plaintiff States''), filed their Complaint on
March 8, 2010; Plaintiffs and Defendant, Election Systems and Software,
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, Defendant agrees 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 Defendant to restore
competition;
AND WHEREAS, the United States requires Defendant to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
AND WHEREAS, Defendant has represented to the United States that
the
[[Page 12261]]
divestiture required below can and will be made and that it 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 Defendant under Section 7 of the Clayton
Act, as amended (15 U.S.C. Sec. 18).
II. DEFINITIONS
As used in this Final Judgment:
A. ``Acquirer'' means the entity to whom Defendant divests the
Divestiture Assets.
B. ``ES&S'' means Defendant, Election Systems & Software, Inc., a
Delaware corporation with its headquarters in Omaha, Nebraska, its
successors and assigns, its subsidiaries, including Premier Election
Solutions, Inc. and PES Holdings, Inc., both Delaware corporations
(collectively, ``Premier''), and its divisions, groups, affiliates,
partnerships and joint ventures, and their directors, officers,
managers, agents, and employees.
C. ``Premier Voting Equipment System Products'' means all versions,
past, present, and in development, of Premier hardware, software, and
firmware used to record, tabulate, transmit or report votes, including
all such systems certified by federal certification authorities
(including, but not limited to the Assure 1.2 system that was certified
by the United States Election Assistance Commission on August 6, 2009),
and all such systems certified by the election authorities of any
state.
D. ``AutoMARK Products'' means ES&S's ballot marking device that
allows voters with disabilities to privately and independently mark a
ballot.
E. ``Divestiture Assets'' means:
(1) all intangible assets related to the use, operation,
certification, design, production, modification, enhancement,
distribution, sale, repair or service of the Premier Voting Equipment
System Products, including, but not limited to, intellectual property
(including, but not limited to, patents, patent applications, licenses,
sublicenses, copyrights, databases containing design information and,
with respect to the Assure 1.2 suite of products only, trademarks,
trade secrets, trade names, service marks, service names, slogans,
domain names, logos and trade dress); the unregistered trademark
``Premier''; data related to the use, operation, certification testing,
internal testing, and beta testing; documentation of pending and
current certification efforts with the United States Election
Assistance Commission (``EAC'') and the election authorities of any
state; technical information, software, software source code and
related documentation, know-how, drawings, blueprints, designs, design
tools and simulation capability, and specifications for materials,
parts, and devices; safety procedures for the handling of materials and
substances; quality assurance and control procedures; all manuals,
performance, financial, operational, and other records Defendant
provides to its own employees, customers, suppliers, agents, dealers or
licensees; and all available research data concerning historic and
current research and development efforts relating to the Premier Voting
Equipment System Products, including, but not limited to, designs of
experiments and the results of successful and unsuccessful designs and
experiments;
(2) tangible assets, including:
(a) all tooling and fixed assets owned by Defendant and used in
connection with the manufacture, assembly, production, service and
repair of the Premier Voting Equipment System Products, as detailed in
Section 2.7 and Schedule 2.7(a) of the Purchase Agreement by and among
ES&S, Diebold, Inc., Premier Election Solutions, Inc., PES Holdings,
Inc., and Premier Election Solutions Canada ULC, dated September 2,
2009 (``Diebold Purchase Agreement'').
(b) inventory, parts and components for both the Premier Voting
Equipment Products and the AutoMARK Products, including those that are
not commercially available, sufficient for the Acquirer to assemble,
manufacture, produce, service and repair the Premier Voting Equipment
System Products and the AutoMARK Products.
(3) a fully paid-up, non-exclusive, perpetual, transferable license
to certify, produce, modify, enhance, distribute, sell, repair and
service the AutoMARK Products. Such license shall include all
intellectual property (including, but not limited to, patents, patent
applications, licenses, sublicenses, copyrights, trademarks, trade
names, trade secrets, service marks, service names, slogans, domain
names, logos, and trade dress), data, drawings, ideas, concepts, know-
how, procedures, processes, technical information, software, software
source code and related documentation, blueprints, specifications,
manuals, and any other intangible assets related to the use, operation,
certification, production, modification, enhancement, distribution,
sale, repair or service of the AutoMARK Products.
III. APPLICABILITY
A. This Final Judgment applies to ES&S, as defined above, and all
other persons in active concert or participation with it who receive
actual notice of this Final Judgment by personal service or otherwise.
B. If, prior to complying with Section IV and V of this Final
Judgment, Defendant sells or otherwise disposes of all or substantially
all of its assets or of lesser business units that include the
Divestiture Assets, it shall require the purchaser to be bound by the
provisions of this Final Judgment. Defendant need not obtain such an
agreement from the Acquirer of the assets divested pursuant to this
Final Judgment.
IV. DIVESTITURE
A. Defendant is ordered and directed, within sixty (60) calendar
days after the filing of the Complaint in this matter, or five (5)
calendar days after notice of the entry of this Final Judgment by the
Court, whichever is later, to divest the Divestiture Assets in a manner
consistent with this Final Judgment to an Acquirer acceptable to the
United States, in its sole discretion, after consultation with the
Plaintiff States. The United States, in its sole discretion, after
consultation with the Plaintiff States, may agree to one or more
extensions of this time period not to exceed sixty (60) calendar days
in total, and shall notify the Court in such circumstances. Defendant
agrees to use its best efforts to divest the Divestiture Assets as
expeditiously as possible.
B. In accomplishing the divestiture ordered by this Final Judgment,
Defendant promptly shall make known, by usual and customary means, the
availability of the Divestiture Assets. Defendant shall inform any
person making inquiry regarding a possible purchase of the Divestiture
Assets that they are being divested pursuant to this Final Judgment and
provide that person with a copy of this Final Judgment. Defendant shall
offer to furnish to any prospective Acquirer, subject to customary
confidentiality assurances, all information and documents relating to
the Divestiture Assets customarily provided in a due diligence process,
except such information or documents subject to the attorney-client
privilege or work-product doctrine. Defendant shall make available such
information to the
[[Page 12262]]
United States at the same time that such information is made available
to any other person.
C. Defendant shall provide the Acquirer and the United States
information relating to its current and former employees involved in
the use, operation, certification, design, production, modification,
enhancement, distribution, sale, repair or service of the Premier
Voting Equipment System Products and/or Premier's use of the AutoMARK
Products to enable the Acquirer to make offers of employment to such
personnel. Defendant shall not interfere with any negotiations by the
Acquirer to employ any such employee whose primary responsibility is
the use, operation, certification, design, production, modification,
enhancement, distribution, sale, repair or service of the Premier
Voting Equipment System Products and/or Premier's use of the AutoMARK
Products.
D. Defendant shall waive all nondisclosure and noncompete
agreements for all of the current and former employees of Premier for a
period of six (6) months following the date of the divestiture of the
Divestiture Assets, for the exclusive purpose of allowing those
employees to seek employment with the Acquirer.
E. Defendant shall permit any prospective Acquirer of the
Divestiture Assets to have reasonable access to personnel involved in
the use, operation, certification, design, production, modification,
enhancement, distribution, sale, repair or service of the Premier
Voting Equipment System Products and/or the AutoMARK Products, and
access to any and all financial, operational, or other documents and
information customarily provided as part of a due diligence process.
F. At the option of the Acquirer, Defendant shall enter into a
contract for the purchase of additional parts and inventory for up to
two (2) years sufficient to meet the Acquirer's needs to assemble,
manufacture, produce, service or repair the Premier Voting Equipment
System Products. The terms and conditions of any sale or contractual
arrangement intended to satisfy this provision must be commercially
reasonable.
G. In addition, Defendant shall provide any Acquirer of the
Divestiture Assets information relating to suppliers of parts and
components used for the assembly, manufacture, production, repair or
service of the Premier Voting Equipment System Products and the
AutoMARK Products. Defendant shall not interfere with the Acquirer's
ability to contract for the supply of parts or components from any
vendor.
H. Defendant shall immediately provide any Acquirer with a list of
all current and former customers for the Premier Voting Equipment
System Products.
I. To the extent that current Premier contracts prevent Premier
customers from selecting the Acquirer as its provider of equipment or
services related to the Premier Voting Equipment System Products, the
Defendant agrees to waive any such contractual impediment at the option
of the customer.
J. At the option of the Acquirer, Defendant shall enter into a
transition services agreement sufficient to meet the Acquirer's needs
for assistance in the use, operation, certification, design,
production, modification, enhancement, distribution, sale, repair or
service of the Premier Voting Equipment System Products and/or the
AutoMARK Products for a period of up to six (6) months. The terms and
conditions of any contractual arrangement intended to satisfy this
provision must be commercially reasonable.
K. On the date of the sale of the Divestiture Assets, Defendant
shall provide Acquirer with copies of contracts with all current and
former customers for any of the Premier Voting Equipment System
Products.
L. The Acquirer shall grant Defendant a non-exclusive license to
use the Premier Voting Equipment System Products and the assets
described in II(E)(2)(A), but Defendant may not use such a license to
attempt to compete for any opportunity to sell or lease Premier Voting
Equipment System Products contained within a Request for Proposal (or
RFP) or a Request for Quote (or RFQ) for a voting equipment system, or
any upgrade, request or order that calls for replacement of 50 percent
or more of a customer's installed voting equipment, other than in the
case of a force majeure event (i.e., Act of God, fire, earthquake,
flood, explosion, war, or terrorist act), or to the extent the
Defendant is obligated under a contract with a Premier or Diebold
customer in existence at the time of Closing, or to the extent that the
Defendant is obligated under a settlement agreement formed by Diebold
pursuant to Section 4.2(d) of the Diebold Purchase Agreement. Subject
to the limitations described in Section IV, Defendant may use the
license described in this paragraph to provide equipment and services
to current customers.
M. Any improvement or modification to the Divestiture Assets
developed by either Defendant or the Acquirer shall be owned solely by
the developing party.
N. Defendant shall not take any action that will impede in any way
the operation or divestiture of the Divestiture Assets.
O. Unless the United States, in its sole discretion, after
consultation with the Plaintiff States, otherwise consents in writing,
the divestiture pursuant to Section IV, or by trustee appointed
pursuant to Section V, 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, after consultation
with the Plaintiff States, that the Divestiture Assets can and will be
used by the Acquirer as part of a viable, ongoing business that is
engaged in the provision of voting equipment systems and services. The
divestiture, whether pursuant to Section IV or Section V of this Final
Judgment:
(1) Shall be made to an Acquirer that, in the United State's sole
judgment, after consultation with the Plaintiff States, has the intent
and capability (including the necessary managerial, operational,
technical and financial capability) of competing effectively in the
provision of voting equipment systems and services; and
(2) Shall be accomplished so as to satisfy the United States, in
its sole discretion, after consultation with the Plaintiff States, that
none of the terms of any agreement between an Acquirer and Defendant
gives Defendant 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. Appointment of Trustee
A. If Defendant has not divested the Divestiture Assets within the
time period specified in Section IV(A), it shall notify the United
States of that fact in writing. Upon application of the United States,
the Court shall appoint a trustee selected by the United States and
approved by the Court to effect the divestiture of the Divestiture
Assets.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer acceptable to the United States, in its sole
discretion, after consultation with the Plaintiff States, at such price
and on such terms as are then obtainable upon reasonable effort by the
trustee, subject to the provisions of Sections IV, V, and VI of this
Final Judgment, and shall have such other powers as this Court deems
appropriate. Subject to Section V(D) of
[[Page 12263]]
this Final Judgment, the trustee may hire at the cost and expense of
Defendant any investment bankers, attorneys, or other agents, who shall
be solely accountable to the trustee, reasonably necessary in the
trustee's judgment to assist in the divestiture.
C. Defendant shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
Defendant must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VI.
D. The trustee shall serve at the cost and expense of Defendant, on
such terms and conditions as the United States approves, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to Defendant and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Divestiture Assets and based on a fee arrangement
providing the trustee with an incentive based on the price and terms of
the divestiture and the speed with which it is accomplished, but
timeliness is paramount.
E. Defendant shall use its best efforts to assist the trustee in
accomplishing the required divestiture. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the business to be divested, and Defendant
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secret or other confidential research, development, or
commercial information. Defendant shall take no action to interfere
with or to impede the trustee's accomplishment of the divestiture.
F. After its appointment, the trustee shall file monthly reports
with the United States, the Plaintiff States, and the Court setting
forth the trustee's efforts to accomplish the divestiture ordered under
this Final Judgment. To the extent such reports contain information
that the trustee deems confidential, such reports shall not be filed in
the public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Divestiture Assets, and
shall describe in detail each contact with any such person. The trustee
shall maintain full records of all efforts made to divest the
Divestiture Assets.
G. If the trustee has not accomplished the divestiture ordered
under this Final Judgment within six (6) months after its appointment,
the trustee shall promptly file with the Court a report setting forth:
(1) The trustee's efforts to accomplish the required divestiture; (2)
the reasons, in the trustee's judgment, why the required divestiture
has not been accomplished; and (3) the trustee's recommendations. To
the extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such report to
the United States and the Plaintiff States, which shall have the right
to make additional recommendations consistent with the purpose of the
trust. The Court thereafter shall enter such orders as it shall deem
appropriate to carry out the purpose of the Final Judgment, which may,
if necessary, include extending the trust and the term of the trustee's
appointment by a period requested by the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement, Defendant shall notify the United States, and
the Plaintiff States, of any proposed divestiture required by Section
IV of this Final Judgment. Within two (2) business days following
execution of a definitive divestiture agreement, the trustee shall
notify the United States of any proposed divestiture required by
Section V of this Final Judgment. The notice shall set forth the
details of the proposed divestiture and list the name, address, and
telephone number of each person not previously identified who offered
or expressed an interest in or desire to acquire any ownership interest
in the Divestiture Assets, together with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States and the Plaintiff States of such notice, the United States and
any Plaintiff State may request from Defendant, the proposed Acquirer,
any other third party, or the trustee if applicable, additional
information concerning the proposed divestiture, the proposed Acquirer,
and any other potential Acquirer. Defendant and the trustee shall
furnish any additional information requested within fifteen (15)
calendar days of the receipt of the request, unless the parties shall
otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendant, the
proposed Acquirer, any third party, and the trustee, whichever is
later, the United States, in its sole discretion, after consultation
with the Plaintiff States, shall provide written notice to Defendant
and the trustee, if there is one, stating whether or not it objects to
the proposed divestiture. If the United States, after consultation with
the Plaintiff States, provides written notice that it does not object,
the divestiture may be consummated, subject only to Defendant's limited
right to object to the sale under Section V(C) of this Final Judgment.
Absent written notice that the United States does not object to the
proposed Acquirer or upon objection by the United States, a divestiture
proposed under Section IV or Section V shall not be consummated. Upon
objection by Defendant under Section V(C), a divestiture proposed under
Section V shall not be consummated unless approved by the Court.
VII. FINANCING
Defendant shall not finance all or any part of any purchase made
pursuant to Section IV or V of this Final Judgment.
VIII. ASSET PRESERVATION
Until the divestiture required by this Final Judgment has been
accomplished, Defendant shall take all steps necessary to comply with
the Asset Preservation Stipulation and Order entered by this Court.
Defendant shall take no action that would jeopardize the divestiture
ordered by this Court.
IX. AFFIDAVITS
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestiture has been completed under Section IV or V, Defendant
shall deliver to the United States, the Plaintiff States, an affidavit
as to the fact and manner of its compliance with Section IV or V of
this Final Judgment. Each such affidavit shall include the name,
address, and telephone number of each person who, during the preceding
thirty (30) calendar days, made an offer to acquire, expressed an
interest in acquiring, entered into negotiations to acquire, or was
contacted or made an inquiry about
[[Page 12264]]
acquiring, any interest in the Divestiture Assets, and shall describe
in detail each contact with any such person during that period. Each
such affidavit shall also include a description of the efforts
Defendant have taken to solicit buyers for the Divestiture Assets, and
to provide required information to prospective Acquirers, including the
limitations, if any, on such information. Assuming the information set
forth in the affidavit is true and complete, any objection by the
United States, after consultation with the Plaintiff States, to
information provided by Defendant, including limitation on information,
shall be made within fourteen (14) calendar days of receipt of such
affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Defendant shall deliver to the United States an
affidavit that describes in reasonable detail all actions it has taken
and all steps Defendant has implemented on an ongoing basis to comply
with Section VIII of this Final Judgment. Defendant shall deliver to
the United States, the Plaintiff States, an affidavit describing any
changes to the efforts and actions outlined in Defendant's earlier
affidavits filed pursuant to this section within fifteen (15) calendar
days after the change is implemented.
C. Defendant shall keep all records of all efforts made to preserve
and divest the Divestiture Assets until one year after such divestiture
has been completed.
X. 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 (``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 Defendant, be permitted:
(1) Access during Defendant's office hours to inspect and copy, or
at the option of the United States, to require Defendant to provide
hard copy or electronic copies of, all books, ledgers, accounts,
records, data, and documents in the possession, custody, or control of
Defendant, relating to any matters contained in this Final Judgment;
and
(2) to interview, either informally or on the record, Defendant's
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 Defendant.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendant shall submit written reports or response 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, or to the Attorneys General of any of the Plaintiff States,
except in the course of legal proceedings to which the United States is
a party (including grand jury proceedings), or 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
Defendant to the United States, Defendant represents and identifies 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 Defendant marks 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 Defendant ten (10) calendar days notice prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding).
XI. 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. Sec. 18a (the ``HSR
Act''), Defendant, without providing advance notification to the
Antitrust Division, the Plaintiff States, shall not directly or
indirectly acquire any assets of or any interest (including, but not
limited to, any financial, security, loan, equity, or management
interest) in any entity engaged in the provision of voting equipment
systems and services in the United States during the term of this Final
Judgment.
Such notification shall be provided to the Antitrust Division, the
Plaintiff States, 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 voting equipment systems and
services. 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, Defendant 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.
XII. NO REACQUISITION
Defendant may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XIII. 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.
XIV. EXPIRATION OF FINAL JUDGMENT
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XV. 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. Sec. 16, including making copies available to
the public of this Final Judgment, the Competitive Impact Statement,
and any comments thereon
[[Page 12265]]
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.
Date:------------------------------------------------------------------
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16
-----------------------------------------------------------------------
United States District Judge
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
CASE: 1:10-cv-00380
Assigned To: Bates, John D.
Assign Date: 3/8/2010
Description: Antitrust
UNITED STATES OF AMERICA, et al., Plaintiffs, v. ELECTION SYSTEMS &
SOFTWARE, Inc., Defendant.
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. Sec. 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
Defendant Election Systems and Software, Inc. (``ES&S'') executed a
Purchase Agreement on September 2, 2009, pursuant to which ES&S agreed
to acquire Premier Election Solutions, Inc. and PES Holdings, Inc.
(collectively, ``Premier''), and other subsidiaries of Diebold, Inc
(``Diebold''). ES&S's acquisition of Premier was consummated on the
same day. Since the acquisition, Premier no longer functions as an
independent subsidiary, but has been integrated into ES&S's corporate
structure.
The United States and the States of Arizona, Colorado, Florida,
Maine, Maryland, New Mexico, Tennessee, and Washington, and the
Commonwealth of Massachusetts (the ``Plaintiff States''), filed a civil
antitrust Complaint on March 8, 2010, seeking injunctive and other
relief to remedy the likely anticompetitive effects arising from ES&S's
acquisition of Premier. The Complaint alleged that the acquisition
combined the two largest providers of voting equipment systems in the
United States, and the two firms that had been, for many customers, the
closest bidders for the provision of voting equipment systems. This
combination resulted in a substantial reduction in competition for the
provision of voting equipment systems in the United States, in
violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. The loss
of Premier as an independent competitor likely would result in higher
prices, a reduction in quality, and less innovation in the U.S. voting
equipment systems market.
At the same time the Complaint was filed, the United States filed
an Asset Preservation Stipulation and Order (``APSO'') and proposed
Final Judgment, which are designed to eliminate the anticompetitive
effects of ES&S's consummated acquisition of Premier. Under the
proposed Final Judgment, which is explained more fully below, ES&S is
required to divest all of the assets needed for an acquirer to compete
to provide voting equipment systems, including the intellectual
property related to the Premier voting equipment systems that it
purchased from Diebold; the tooling and fixed assets used to
manufacture those systems; and existing inventory and parts related to
the Premier voting equipment systems (collectively, ``Divestiture
Assets''). In addition, ES&S is required to divest a fully paid-up,
non-exclusive, irrevocable license to ES&S's AutoMARK products. Under
the proposed Final Judgment, only the Acquirer may offer Premier
systems to compete for a new voting equipment system procurement,
including orders that would require replacement of more than fifty
percent of an installed system. To facilitate the Acquirer's ability to
service the existing installations of Premier voting equipment systems,
the proposed Final Judgment also requires that ES&S waive all non-
competition agreements for employees and waive any contractual terms
that would otherwise prevent customers from selecting the Acquirer as
their voting equipment system service provider. ES&S must also provide
transition services to the Acquirer. Under the terms of the APSO, ES&S
will take certain steps to ensure that the Divestiture Assets are
preserved in their current condition and segregated from ES&S.
The United States and ES&S 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 until the divestiture is consummated
and to punish violations thereof.
II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATIONS
A. The Defendant
Election Systems and Software, Inc. is the largest provider of
voting equipment systems in the United States. Prior to its acquisition
of Premier, ES&S provided 47 percent of installed systems, in at least
41 states, and collected revenue of $149.4 million in 2008. Premier,
now an ES&S subsidiary, was the second largest provider of voting
equipment systems in the United States prior to its acquisition, with
approximately 23 percent of all installed systems in 33 states, and
collected revenue of approximately $88.3 million in 2008. On September
2, 2009, ES&S acquired Premier and other Diebold Inc., subsidiaries,
for $5 million in cash, and 70 percent of certain receivables.\1\
---------------------------------------------------------------------------
\1\ Because the purchase price for this transaction fell below
the reporting thresholds of the Hart-Scott-Rodino (``HSR'')
Antitrust Improvements Act of 1976, ES&S was not required to report
the acquisition to the Department of Justice or the Federal Trade
Commission before consummation. See 15 U.S.C. Sec. 18a(a)(2)(B)(i)
(2000); 75 Fed. Reg. 3468 (Jan. 21, 2010).
---------------------------------------------------------------------------
B. The Competitive Effects of the Acquisition on the U.S. Market for
Voting Equipment Systems
1. Relevant Markets
Since the 2002 implementation of the Help America Vote Act
(``HAVA''), 42 U.S.C. 15301-15545, most Americans rely on voting
equipment systems to electronically cast their votes in local, state
and federal elections. HAVA authorized funding for voting equipment
systems to replace mechanical voting devices, such as lever and punch
card machines, and established a new federal certification agency, the
Election Assistance Commission (EAC), in order to ensure the accuracy,
security and reliability of the voting process. Id. The EAC issued
standards for voting equipment systems in 2002 and 2005, and those
standards are continually evolving. HAVA also required that the voting
equipment systems provide disabled voters the opportunity to cast a
private and independent ballot. 42 U.S.C. 15481(a)(3)(A)-(B) (2002).
A voting equipment system consists of the integrated collection of
customized hardware, software, firmware and associated services used to
electronically record, tabulate, transmit and report votes in an
election. Hardware components may include recording devices such as
precinct or central count Optical Scan (``OS'') machines; Direct
Recording Electronic
[[Page 12266]]
(``DRE'') machines; and Ballot Marking Devices (``BMD''). Recording
devices may be used not only to cast votes, but also to create a paper
record of each vote, to allow independent voting by disabled voters,
and to read votes cast by absentee or vote-by-mail voters. Depending on
the needs of the jurisdiction, a voting equipment system may include
only one type of device, or several different types of devices used in
concert. Each type of recording device feeds votes into a tabulator,
which counts each vote and prepares a report. All devices are bound
together by a collection of proprietary election management software
and firmware, which enables their operation and the communication and
reporting of election results.
The number, variety, and operation of electronic components within
a voting equipment system vary depending on the needs of the
jurisdiction responsible for administering elections, which may be the
state, county or local government, depending on state law. Voting
equipment systems typically are sold to state, county and municipal
jurisdictions, pursuant to request for proposals. The jurisdictions
typically evaluate competing bids using a public procurement process
and select a winning bid based on its compliance with state law,
technical standards, certification standards, experience in other
jurisdictions and commercial terms, such as price, delivery schedule
and other conditions of sale. The combined technical and commercial
needs vary among customers. Most successful bids also include multi-
year service agreements.
A voting equipment system differs from the mechanical lever and
punch card voting devices used in the past in conjunction with manual
tabulation methods. Mechanical systems cannot accommodate speedy
tabulation across a large number of voters; do not allow disabled
voters the opportunity to cast an independent, private ballot; and are
considered less accurate and reliable than voting equipment systems.
A small but significant increase in the price that vendors bid to
provide voting equipment systems to customers would not cause customers
to substitute away from electronic voting equipment systems so as to
make such a price increase unprofitable. Accordingly, the Plaintiffs
allege that voting equipment systems are a relevant product market
within the meaning of Section 7 of the Clayton Act.
In the United States, customers of voting equipment systems prefer
suppliers with a substantial physical presence in the United States,
including a network of sales, technical and support personnel and parts
distribution. Customers prefer such vendors because, during the design,
bid, and implementation phases of installing a new voting equipment
system, customers interact with vendors to test system functionality,
adjust technical specifications, correct design flaws, track progress
and ensure successful implementation. A significant local service
presence also is required to assist annually in the preparation for
Election Day, and to address immediately system problems arising on
Election Day.
A small but significant increase in the price of voting equipment
systems in the United States would not cause a sufficient number of
U.S. customers to turn to suppliers of voting equipment systems that do
not have a substantial physical presence in the United States so as to
make such a price increase unprofitable. Accordingly, the Plaintiffs
allege that the United States is a relevant geographic market within
the meaning of Section 7 of the Clayton Act.
2. Anticompetitive Effects
ES&S's acquisition of Premier combined two firms that many
customers considered the two closest competitors in the provision of
voting equipment systems, and the two largest providers of U.S. voting
equipment systems, substantially reducing competition for the provision
of voting equipment systems in the United States. As a result of ES&S's
acquisition of its closest competitor, ES&S has a reduced incentive
both to compete as aggressively for bids and to invest in new products,
thereby increasing the price and reducing the quality of the voting
equipment systems available to most jurisdictions.
Prior to the acquisition, ES&S and Premier were considered the
closest competitors by many customers because the two companies offered
voting equipment systems certified in the greatest number of
jurisdictions; offered a complete suite of voting equipment system
products; had a reputation for reliable equipment; and enjoyed an
incumbent vendor's expertise on election administration in several
jurisdictions. ES&S and Premier were certified in more states by far
than any other vendor, and were the only two active vendors with EAC
certification at the time of the acquisition. Prior to the acquisition,
ES&S and Premier also offered two of the most complete suites of voting
equipment choices, an important factor for many jurisdictions because
proprietary election management software prevents customers from
selecting the best in breed of each type of device. Further, ES&S and
Premier voting equipment systems had the broadest installed bases prior
to the acquisition, which helped assure customers that the systems were
proven by experience in the field. A proven voting equipment system is
an important consideration for many customers because, although
certification testing is designed to screen out technical problems,
even certified machines have demonstrated security and accuracy
problems when deployed in an actual election, which can undermine the
integrity of the democratic process. In addition to supplying customers
with proven equipment, ES&S and Premier employees provided a variety of
valuable services to their customers, which gave the companies greater
familiarity with the needs of each customer, and a resulting advantage
in competing to sell each customer a new installation in the future.
A number of recent bid events substantiate the close competition
between ES&S and Premier prior to the acquisition, and demonstrate that
ES&S has responded to Premier's competition by reducing its own prices
and offering other favorable terms. ES&S's acquisition of Premier
eliminated ES&S's strongest competitor and, as a result, has given ES&S
both the incentive and ability to profitably raise its bid prices
significantly above the level they would be absent the acquisition. The
remaining three competitors, limited by the lack of a full product
line, inadequate certification, a limited record of proven equipment
and, in at least one case, lack of financing, cannot fully constrain a
unilateral exercise of market power by ES&S.
The acquisition of Premier also reduces ES&S's incentive to develop
new, more accurate, and more secure voting equipment system products.
In the past, ES&S has responded to Premier's efforts to meet new
standards by following Premier's lead in the development of new
products. The acquisition removes the firms' competitive pressure on
each other to innovate, and is likely to reduce the quality and variety
of new products brought to the market, reducing the choices offered to
customers. Since its acquisition of Premier, ES&S has already withdrawn
Premier products from certification testing in two states. In the
absence of competitive pressure from Premier, ES&S is unlikely to have
the same incentive to develop new products in the future.
[[Page 12267]]
Finally, entry or expansion by any other firm into the U.S. market
for the provision of voting equipment systems is unlikely to prevent
the substantial lessening of competition resulting from ES&S's
acquisition of Premier. Firms attempting to enter into the development,
production, and sale of voting equipment systems in the United States
face several barriers that make successful entry challenging, time-
consuming, and costly. Entry requires not only the design and
development of hardware, software and firmware products, but also
obtaining multiple levels of certification, establishing a reputation
for reliable equipment performance, and the financial wherewithal
sufficient to assure a buyer of long-term service capabilities. The
design and development of technology requires a considerable, risky
capital investment over a period of several years. Most jurisdictions
also require that vendors obtain federal and/or state certification,
which can cost millions and take multiple years to complete. In
addition, firms must establish a reputation for reliable system
performance. As most voting equipment systems are used only once or
twice every two years, establishing a reputation for reliable system
operation takes several years of successful performance. Finally,
providers of voting equipment systems must demonstrate both that they
are financially sound and that they will respond quickly and
effectively to requests for service or parts for many years after a new
voting equipment system has been installed.
Therefore, ES&S's completed acquisition of Premier likely will
substantially lessen competition in the United States market for voting
equipment systems, which likely will lead to higher prices, lower
quality and less innovation in violation of Section 7 of the Clayton
Act.
III. 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 Defendant. The
United States could have continued the litigation and sought a
permanent injunction requiring that ES&S divest the Premier assets and
voting securities. However, the acquisition of Premier by ES&S was
consummated before the United States learned of the transaction and
could commence an investigation. Given the diminution of the Premier
assets since ES&S acquired the company, relief that replicates the
condition of Premier prior to the acquisition is not available. Premier
operated as an independent subsidiary of Diebold prior to the
acquisition. After ES&S acquired the company, it dismantled the
business units necessary for independent operation, subsuming Premier
operations into the ES&S corporate structure. Less than a month after
the acquisition, the Premier business units responsible for sales,
product design and development, and voting equipment system
certification all were dismantled, and most employees of these business
units were terminated. While ES&S continues to serve current Premier
customers, it does so with the assistance of ES&S resources, staffing
and operations. Consequently, unwinding the transaction to require a
divestiture of only Premier voting securities and remaining assets
would not be sufficient to restore the Premier entity that existed
prior to ES&S's acquisition of the company.
Further, the litigation process would likely take considerable
time. The Premier assets likely would diminish substantially during the
pendency of litigation, particularly as preliminary relief is not
available to compel ES&S to invest in ongoing research, development and
certification of future Premier voting equipment systems. Even if a
court ultimately ordered a divestiture, the delay would diminish, if
not forestall, the competitive value of the Premier assets in the hands
of a divestiture buyer because the standards for voting equipment
systems would have evolved away from Premier's current line of
products. The United States is satisfied that the proposed Final
Judgment has allowed the government to secure relief more quickly than
if the matter had gone to litigation, and that the divestiture of the
assets described in the proposed Final Judgment will preserve
competition for the provision of voting equipment systems in the United
States. Thus, the proposed Final Judgment will 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.
IV. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The divestiture required by the proposed Final Judgment will
eliminate the anticompetitive effects that would otherwise likely
result from ES&S's acquisition of Premier. The divestiture will restore
competition by making available to an independent competitor the
Premier assets necessary to equip an economically viable competitor to
ES&S in the provision of voting equipment systems in the United States.
The proposed Final Judgment requires ES&S to take certain actions,
including divesting, within sixty (60) days after the filing of the
Complaint, or five (5) days after notice of the entry of the Final
Judgment by the Court, whichever is later, the following assets: (1)
all of the intangible assets related to past and present Premier voting
equipment system products, as well as those that were in development at
the time of the acquisition; (2) tangible assets including all tooling
and fixed assets related to the production, assembly and repair of
those products; and (3) inventory and parts sufficient to meet the
needs of the Acquirer.
In addition to these divestitures, the proposed Final Judgment also
requires ES&S to grant a fully paid-up, non-exclusive, irrevocable
license to ES&S's AutoMARK products. The AutoMARK products are Ballot
Marking Devices (``BMD''), used in some jurisdictions to allow some
disabled voters the opportunity to cast a private and independent
ballot. Prior to the acquisition, Premier used a limited, non-exclusive
license from ES&S to offer AutoMARK products as part of its EAC-
certified Assure 1.2 system. To allow customers the greatest number of
choices of systems that include an EAC-certified BMD, ES&S must provide
the Acquirer with a license to use, service, repair, modify and improve
the AutoMARK products.
In order to facilitate the Acquirer's ability to provide services
related to voting equipment systems to existing Premier customers, the
proposed Final Judgement also requires that ES&S waive all non-
competition and non-disclosure agreements for all current and former
Premier employees. Access to Premier employees will allow the Acquirer
to recruit employees with experience serving current customers, and
expertise related to the development, sale, repair or service of
Premier voting equipment system products. Allowing such recruitment
will enable the Acquirer to re-establish the experience and expertise
of Premier before its acquisition by ES&S, and so will facilitate its
ability to restore competition in the sale of voting equipment systems.
In addition to waiving all non-competition and non-disclosure
agreements, ES&S is prohibited from interfering with the Acquirer's
efforts to recruit Premier employees. The waiver is limited to six
months, in order to encourage the Acquirer to solicit staff
expeditiously, and minimize the disruption to upcoming elections that
otherwise
[[Page 12268]]
might result from significant staff turnover.
Under the terms of the proposed Final Judgment, only the Acquirer
will be permitted to offer Premier voting equipment systems to existing
customers for new installations. New installations of voting equipment
systems are defined broadly to capture any procurement let under a
Request for Proposal or Request for Quote, as well as any procurement
that calls for replacement of 50 percent or more of a customer's
installed equipment. By providing the Acquirer with the exclusive right
to offer the Premier voting equipment systems to customers for new
installations, the remedy replicates the incentive that Premier would
have had, giving the Acquirer the greatest incentive to invest in the
development of new Premier products.
The proposed Final Judgment also provides for the creation of new
competition in the provision of services related to voting equipment
systems, in order to permit the Acquirer to replace the competition in
the sale of voting equipment systems that was lost as a result of
ES&S's acquisition of Premier. Currently, only one vendor typically is
able to provide certain services to a voting equipment system customer,
as these services are linked to the proprietary election management
software that a particular vendor provides. The proposed Final
Judgment, however, will allow both the Acquirer and ES&S to compete to
provide all services related to Premier voting equipment systems,
giving customers the option to switch to the Acquirer or to remain with
ES&S for service of their existing Premier voting equipment systems.
ES&S is required to waive any contractual provisions that otherwise
would prevent or hinder the Acquirer from competing to provide services
to current Premier customers. The potential to serve current customers
enhances competition in the sale of voting equipment systems by
enabling the Acquirer to develop expertise about a customer's election
administration needs and practices. These provisions further enhance
the divestiture's efficacy by ensuring that ES&S does not retain sole
control over the quality and extent of service on the installed base of
Premier equipment, and would not be able to use its provision of
service to undermine the competitive goals of the divestiture. Leaving
the ultimate choice of service providers to customers accommodates
customer concerns that an outright divestiture of customer service
contracts would disrupt the administration of upcoming primaries and
elections.
In addition, the proposed Final Judgment requires that ES&S provide
a transition services agreement and a transitional supply agreement for
parts and inventory. The transition services agreement must be
sufficient to meet the Acquirer's needs for assistance in matters
relating to the utilization of the divestiture assets for a period of
up to six months. ES&S also must agree to supply parts and inventory to
the Acquirer at commercially reasonable terms for up to two years, in
order to allow the Acquirer access to parts and inventory while it
arranges for independent manufacturing. ES&S also must not interfere
with the Acquirer's efforts to contract with third party manufacturers,
on whom vendors typically rely for the manufacture of parts and
assembly of finished devices.
The divestiture must be accomplished in such a way as to satisfy
the United States in its sole discretion, after consultation with the
Plaintiff States, that these assets can and will be operated by the
Acquirer as a viable, ongoing business that will compete effectively in
the development, production, sale, repair, and service of voting
equipment systems in the United States. ES&S must take all reasonable
steps necessary to accomplish the divestiture quickly and shall
cooperate with prospective purchasers.
In the event that ES&S does not accomplish the divestiture within
the periods prescribed in the proposed Final Judgment, the Final
Judgment provides that the Court will appoint a trustee selected by the
United States to effect the divestiture. If a trustee is appointed, the
proposed Final Judgment provides that ES&S will pay all costs and
expenses of the trustee. The trustee's commission will be structured so
as to provide an incentive for the trustee based on the price and terms
obtained and the speed with which the divestiture is accomplished.
After his or her appointment becomes effective, the trustee will file
monthly reports with the Court and the United States setting forth his
or her efforts to accomplish the divestiture. At the end of six (6)
months, if the divestiture has not been accomplished, the trustee and
the United States will make recommendations to the Court, which shall
enter such orders as appropriate, in order to carry out the purpose of
the trust, including extending the trust or the term of the trustee's
appointment.
The divestiture and other provisions of the proposed Final Judgment
will eliminate the anticompetitive effects that likely would result
from ES&S's acquisition of Premier.
V. 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.
Sec. 16(a), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against Defendant.
VI. PROCEDURES AVAILABLE FOR MODIFICATION OF THE PROPOSED FINAL
JUDGMENT
The United States and Defendant 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 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, N.W., Suite
8700, Washington, D.C. 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
[[Page 12269]]
modification, interpretation, or enforcement of the Final Judgment.
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. Sec. 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. Sec. 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 (D.C. 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 mechanism 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).\2\ 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).
---------------------------------------------------------------------------
\2\ 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' '').
---------------------------------------------------------------------------
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.
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 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,\3\ Congress made clear
its
[[Page 12270]]
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. Sec.
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.\4\
---------------------------------------------------------------------------
\3\ 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. Sec. 16(e) (2004), with 15 U.S.C. Sec. 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).
\4\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.DC 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.'').
---------------------------------------------------------------------------
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: March 8, 2010
Respectfully submitted,
------/s/------
Stephanie A. Fleming, Esq.
United States Department of Justice, Antitrust Division, Litigation II
Section, 450 Fifth Street, NW., Suite 8700, Washington, D.C. 20530,
(202) 514-9228, (202) 514-9033, [email protected].
CERTIFICATE OF SERVICE
I, Stephanie A. Fleming, hereby certify that on March 8, 2010, I
caused a copy of the foregoing Competitive Impact Statement to be
served upon Defendant Election Systems and Software, Inc. and the
Plaintiff States by mailing the documents electronically to their duly
authorized legal representatives as follows:
FOR DEFENDANT, ELECTION SYSTEMS & SOFTWARE, INC.
Joseph G. Krauss, Esq., Hogan & Hartson, LLP, 555 Thirteenth Street,
NW., Washington, DC 20004, (202) 637-5832, [email protected]
FOR PLAINTIFF STATE OF ARIZONA
Nancy M. Bonnell, Antitrust Unit Chief, Consumer Protection & Advocacy
Section, 1275 West Washington, Phoenix, AZ 85007, Tel: (602) 542-7728,
Fax: (602) 542-9088, Email: [email protected]
FOR PLAINTIFF STATE OF COLORADO
Devin Laiho, Assistant Attorney General, Antitrust Enforcement, Office
of the Attorney General, 1525 Sherman St., Seventh Floor, Denver,
Colorado 80203, Tel: (303) 866-5079, [email protected]
FOR PLAINTIFF STATE OF FLORIDA
Russell S. Kent, Special Counsel for Litigation, Office of the Attorney
General, PL-01; The Capitol, Tallahassee, FL 32399, Tel: (850) 414-
3300, Fax: (850) 488-9134, Email: [email protected]
FOR PLAINTIFF STATE OF MAINE
Christina M. Moylan, Assistant Attorney General, 6 State House Station,
Augusta, ME 04333, Tel: (207) 626-8838, Fax: (207) 624-7730, Email:
[email protected]
FOR PLAINTIFF STATE OF MARYLAND
Ellen S. Cooper, Assistant Attorney General, Chief, Antitrust Division,
200 St. Paul Place, 19th Floor, Baltimore, MD 21202, Tel: (410) 576-
6470, Fax: (410) 576-7830, Email: [email protected]
FOR PLAINTIFF COMMONWEALTH OF MASSACHUSETTS
Matthew M. Lyons, Assistant Attorney General, Office of Attorney
General Martha Coakley, One Ashburton Place, Boston, MA 02108, Tel:
(617) 727-2200, Fax: (617) 727-5765, Email: [email protected]
FOR PLAINTIFF STATE OF NEW MEXICO
Deyonna Young, Assistant Attorney General, Office of the Attorney
General of New Mexico, 111 Lomas Blvd., NW., Suite 300, Albuquerque, NM
87102, Tel: (505) 222-9089, Fax: (505) 222-9086, Email: [email protected]
FOR PLAINTIFF STATE OF TENNESSEE
Victor J. Domen, Jr., Senior Counsel, Office of the Tennessee Attorney
General, Consumer Advocate and Protection Division, 425 Fifth Avenue
North, Nashville, TN 37243, Tel: (615) 532-5732, Fax: (615) 532-2910,
Email: [email protected]
FOR PLAINTIFF STATE OF WASHINGTON
David Kerwin, Assistant Attorney General, Washington State Attorney
General's Office, 800 Fifth Avenue, Suite 2000, Seattle, WA 98104, Tel:
(206) 464-7030, Fax: (206) 464-6338, Email: [email protected]
------/s/------
Stephanie A. Fleming, Esq.
United States Department of Justice, Antitrust Division, Litigation II
Section, 450 Fifth Street, NW., Suite 8700, Washington, D.C. 20530,
(202) 514-9228, (202) 514-9033, [email protected]
[FR Doc. 2010-5519 Filed 3-12-10; 8:45 am]
BILLING CODE 4410-11-P