Applying these principles, Judge Collyer’s analysis tracked Judge Brown’s opinion in Whole Foods. After laying out the relevant product markets for Estimatics and TLV systems, and noting that the definition of the United States as the relevant geographic market was uncontested, the court turned its attention to the issue of market concentration. In the Estimatics market, the court acknowledged that there are five competitors but found that three of the five – CCC, Mitchell, and Audatex – comprise 99 percent of the market and are the only suppliers for insurance companies. The court concluded that two other firms, Web-Est and Applied Computer Resources, “do not compete to any meaningful extent with CCC, Mitchell and Audatex.”13

Furthermore, a combined CCC/Mitchell firm would hold an approximate 70 percent market share and would be more than twice the size of the only remaining substantial competitor, Audatex North America. According to the opinion, the merger would increase the Herfindahl-Hirschman Index (HHI) measurement in Estimatics from approximately 3,650 to 5,685, an increase of 2,035 points.

In the TLV market, the court found only three providers, CCC, Mitchell, and Audatex. A combined CCC/Mitchell would hold an approximate 65 percent market share. The pre-merger HHI in the TLV market exceeds 4,900. Consummation of the transaction would result in an HHI of 5,460, a 545 point increase. Noting that the post-merger HHIs here would be even higher than they were in Heinz, where a presumption was created by a “wide margin,”14 the court stated, “[b]ecause of the high market concentrations and HHIs in the pre- and post-merger Estimatics and TLV markets, the FTC has established a strong prima facie case that a merger between CCC and Mitchell would violate Section 7 of the Clayton Act.”15

While the court concluded that the FTC was entitled to a presumption in favor of a preliminary injunction based solely on a showing of market shares and market concentration levels, the merging parties faced a significantly higher burden. Judge Collyer holds that in light of an established presumption, the FTC is entitled to an injunction “unless particularly strong equities favor the merging parties.”16 Furthermore, the merging parties must actually show that the market share statistics give an inaccurate account of the merger’s probable effect on competition.17 The court found that CCC and Mitchell failed to meet this burden.

Despite considerable rebuttal evidence, the court found that the merging parties could not overcome the presumption created by the FTC’s structural case. The merging parties presented evidence of efficiencies, including alleged cost savings of $48 million to $55 million per year and a significant increase in the combined firm’s ability to develop new products. The court termed this evidence speculative and not merger-specific. Any efficiencies to be realized by the market were “too far afield,”18 if not completely illusory.

The court also considered the parties’ argument that coordinated interaction is nearly impossible in these markets as a result of highly customized products and non-transparent pricing procedures that involve secret bids and complex RFPs. The court concluded, however, that contrary evidence from the FTC regarding standard product packages and readily available competitive intelligence was more persuasive.

In considering, and ultimately dismissing, CCC and Mitchell’s claims that the Estimatics and TLV markets would lack significant barriers to entry after the proposed merger and that existing competitors are poised for future expansion, the court commented on everything from the history of entry in the market to the technical nature of the products.

At the outset of its entry discussion, the court remarked that only two of the four recent entrants touted by the merging parties are still present in the market and that those two collectively hold less than 1 percent of the market. The court found that, for a potential entrant, the time, cost and expertise involved in researching, developing and maintaining the sophisticated databases of parts, labor and vehicle costs and values and the associated complex algorithms required to effectively compete in the industry are extremely high.

Similarly, the substantial costs and the prolonged time periods involved in switching between providers of these complex systems significantly entrench customers with current and incumbent competitors. The low return on investment in both product markets may make entry of new firms unlikely. Moreover, acknowledging that the significance of reputational barriers to entry in antitrust analysis is somewhat unsettled, Judge Collyer found that “reputation for experience and scale are legitimate barriers to entry in the Estimatics and TLV markets.”19

Even CCC and Mitchell’s proposal to sponsor entry into the market by licensing their proprietary databases to Web-Est, one of the insignificant fringe competitors in the Estimatics market, was insufficient to convince the court. Noting the current 10-12 person size of Web-Est and its lack of experience, Judge Collyer likened competition between it and a combined CCC/Mitchell firm to “an ant” and “an elephant.”20

Referencing the merging parties’ own documents that repeatedly demonstrated CCC and Mitchell’s historic capitalization on a wide variety of barriers to entry, Judge Collyer concluded that any entry into the Estimatics and TLV was unlikely to undercut the anticompetitive effects of the proposed merger.

Judge Collyer’s decision transformed §13(b) into a silver bullet for use by the FTC to obtain preliminary injunctions in the D.C. district court. Even though the judge found that the evidence in this case was “complicated and uncertain”,21 the court expounded that:

Although defendants present several arguments why coordination is not likely to occur despite their merger, the FTC has responded with substantial evidence of significant barriers to entry as well as credible evidence that coordination is possible, and even likely, in these markets. Whether the defendants’ argument . . . negates the probability that the merger may tend to lessen competition substantially, or whether the FTC is correct that the market dynamics confirm the presumptions that follow its prima facie case, is ultimately not for this court to decide. As Judge Tatel confirmed in Whole Foods, ‘[c]ritically, the district court’s task is not “to determine whether the antitrust laws have been or are about to be violated. That adjudicatory function is vested in the FTC in the first instance”.’ 22


Thus, because the FTC raised “serious and substantial” questions, the court granted the preliminary injunction.23

If CCC is any indication, it is difficult to imagine a circumstance when the FTC couldn’t construct “serious” questions regarding any element of a prima facie structural §7 case, whether it pertains to product market, geographic market, entry barriers or presumptive competitive effects. Like it or not, a finding of “likelihood of success” or “serious questions” in favor of the FTC just got a whole lot more likely in the District of Columbia. Until the district courts realize that a standard of “serious, substantial, difficult and doubtful” is not “reasonably interchangeable” with the §13(b) standard of “ultimate likelihood of success on the merits,” the best outcome for parties seeking to merge with a significant competitor would be that the proposed transaction is cleared for review by Department of Justice.

Neal R. Stoll and Shepard Goldfein are partners at Skadden, Arps, Slate, Meagher & Flom. Anne K. Six, an associate in the D.C. office of the firm, assisted with the preparation of this article.

Endnotes:

1. FTC Act, 15 U.S.C. §53(b) (2009).

2. Id.

3. Whole Foods, 548 F.3d at 1035 (Brown, J.).

4. Id.

5. Id. at 1042 (Brown, J.)

6. See id. at 1051-1063 (Kavanaugh, J., dissenting).

7. Marks v. United States, 430 U.S. 188, 193 (1977).

8. Whole Foods, 548 F.3d at 1063 (Kavanaugh, J., dissenting).

9. FTC v. CCC Holdings Inc., Civ. Action No. 08-2043 (RMC), 2009 WL 723031 (D.D.C. March 18, 2009).

10. The FTC last obtained a preliminary injunction without appeal in FTC v. Libby Inc., 211 F. Supp. 2d 34 (D.D.C. 2002).

11. CCC Holdings Inc., Civ. Action No. 08-2043 (RMC), 2009 WL 723031 at *6 (citing Heinz, 246 F.3d at 714-715; Whole Foods, 548 F.3d at 1035 (Brown, J.)).

12. Id. at *43 n.11.

13. Id. at *13.

14. Heinz, 246 F.3d at 716.

15. CCC Holdings Inc., Civ. Action No. 08-2043 (RMC), 2009 WL 723031 at *15.

16. Id. at *6 (emphasis added).

17. Id.

18. Id. at *42.

19. Id. at *22.

20. Id. at *25.

21. Id. at *1.

22. Id. at *34 (quoting Whole Foods, 548 F.3d at 1042 (Tatel, J., concurring) (quoting Heinz, 246 F.3d at 714-715)).

23. Agency proceedings were set to begin on the merits on March 31, 2009. Two days following the district court’s decision, nearly three weeks before the administrative hearing was set to begin, CCC and Mitchell abandoned the merger.