Complaint Counsel's Post-Trial Reply Brief
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PUBLIC UNITED STATES OF AMERICA BEFORE THE FEDERAL TRADE COMMISSION 09 17 2018 OFFICE OF ADMINISTRATIVE LAW JUDGES 592216 In the Matter of Tronox Limited a corporation, National Industrialization Company PUBLIC (TASNEE) a corporation, Docket No. 9377 National Titanium Dioxide Company Limited (Cristal) a corporation, and Cristal USA Inc. a corporation. COMPLAINT COUNSEL’S POST-TRIAL REPLY BRIEF PUBLIC TABLE OF CONTENTS INTRODUCTION.................................................................................................................................................. 1 ARGUMENT ....................................................................................................................................................... 3 I. RESPONDENT’S “BACKGROUND” SECTION IS MISLEADING ............................................................................................ 3 II. COMPLAINT COUNSEL’S EVIDENCE IS BOTH COMPLETE AND RELIABLE .......................................................................... 10 A. Complaint Counsel’s Case is Based on Voluminous Evidence from A Variety of Sources ........................ 11 B. Dr. Malichky’s Testimony is Credible, Consistent With the Weight of the Evidence, and Should Be Given Significant Weight .............................................................................................................................................. 13 C. Dr. Hill’s Analysis and Testimony are Reliable .......................................................................................... 17 1. Dr. Hill’s Market Definition Analysis Follows the Merger Guidelines ................................................................... 19 2. The Capacity Closure Model is Reliable ................................................................................................................ 21 III. COMPLAINT COUNSEL PROVED THE SALE OF CHLORIDE TIO2 TO NORTH AMERICAN CUSTOMERS IS A RELEVANT MARKET ..... 27 A. North America is a Relevant Geographic Market ..................................................................................... 27 1. The Existence of Trade Flows Does Not Undermine a North American Market ................................................... 30 2. Respondents Reliance on Correlation and Cointegration Does Not Address Market Definition .......................... 33 3. Respondents’ Attack on Complaint Counsel’s Hypothetical Monopolist Test is Erroneous ................................. 37 B. The Relevant Product Market Is Chloride TiO2 ........................................................................................ 38 C. The Proposed Acquisition is Presumptively Unlawful Because it Would Substantially Increase Concentration in the Relevant Market .............................................................................................................. 47 IV. EVIDENCE OF LIKELY HARM BOLSTERS THE PRESUMPTION .......................................................................................... 50 A. Real‐World Evidence and Fundamental Economic Principles Both Confirm That the Merger is Likely to Result in Output Withholding ............................................................................................................................ 50 1. Respondents’ Attacks on the Capacity Closure Model Are Unavailing ................................................................. 52 2. Respondents Have Unilaterally Reduced Output To Increase Prices .................................................................... 56 B. Complaint Counsel Has Shown that the Acquisition Would Increase the Likelihood of Coordination in an Already Vulnerable Market ................................................................................................................................ 58 1. The Market for North American Sales of Chloride TiO2 Is Vulnerable to Coordination and Operates as an Interdependent Oligopoly ............................................................................................................................................... 60 2. This Is Precisely the Type of Merger That the Clayton Act is Intended to Address .............................................. 66 3. The Acquisition Will Increase the Likelihood of Coordination .............................................................................. 70 V. RESPONDENTS DID NOT REBUT THE STRONG PRESUMPTION OF ILLEGALITY ............................................... 71 A. Entry and Expansion by Chinese TiO2 Producers Would Not Be Timely, Likely, and Sufficient ............... 72 B. Respondents’ Efficiencies Claims Do Not Rebut the Presumption of Harm ............................................. 79 1. Respondents Have Not Demonstrated that Vertical Integration Will Result in Cognizable Efficiencies .............. 81 2. Respondents’ Output‐Enhancing Synergy Claims Are Not Cognizable ................................................................. 82 3. Respondents’ Cost Saving Synergy Claims Are Not Cognizable ............................................................................ 84 4. KPMG’s Diligence Does Not Demonstrate Verifiable Efficiencies under the Merger Guidelines ......................... 85 5. Dr. Zmijewski’s Expertise and Experience in Applying the Guidelines’ Efficiencies Criteria Are Well‐Suited to Analyzing Respondents’ Claims ....................................................................................................................................... 86 CONCLUSION .................................................................................................................................................... 87 i PUBLIC TABLE OF AUTHORITIES Cases Brown Shoe Co. v. United States, 370 U.S. 294 (1962) ......................................................... 27, 67 Chicago Bridge & Iron Co. v. FTC, 534 F.3d 410 (5th Cir. 2008) .............................................. 66 FTC v. Advocate Health Care Network, 841 F.3d 460 (7th Cir. 2016)……………………….....30 FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (D.D.C. 1998) ................................................. 27 FTC v. CCC Holdings Inc., 605 F. Supp. 2d 26 (D.D.C. 2009) ............................................. 27, 60 FTC v. Elders Grain, Inc., 868 F.2d 901 (7th Cir. 1989) ............................................................. 63 FTC v. H.J. Heinz, 246 F.3d 708 (D.C. Cir. 2001) ................................................................ passim FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327 (3d Cir. 2016) ............................... 35, 80, 87 FTC v. Staples, Inc., 190 F. Supp. 3d 100 (D.D.C. 2016) ...................................................... passim FTC v. Staples, Inc., 970 F. Supp. 1066 (D.D.C. 1997) ............................................................... 87 FTC v. Sysco Corp., 113 F. Supp. 3d 1 (D.D.C. 2015) ............................................... 14, 36, 43, 59 FTC v. Tronox, Case No. 1:18-cv-01622 (TNM) (D.D.C. Sept. 5, 2018) ............................. passim FTC v. Wilh. Wilhelmsen Holding ASA, Civ. A No. 1:18-cv-00414-TSC (D.D.C. July 21, 2018) .................................................................................................. 37, 38, 79 In re High Fructose Corn Syrup Litig., 295 F.3d 651 (7th Cir. 2002) ......................................... 64 In re Polypore Int’l, Inc., 150 FTC 586 (2010) ...................................................................... 28, 30 In re Titanium Dioxide Antitrust Litig., 959 F. Supp. 2d 799 (D. Md. 2013) ........................ passim Polypore Int'l, Inc. v. FTC, 686 F.3d 1208 (11th Cir. 2012) ........................................................ 28 United States v. Aetna Inc., 240 F. Supp. 3d 1 (D.D.C. 2017) .................................................... 59 United States v. Abitibi Consolidated, Inc., 584 F. Supp. 2d 162 (D.D.C. 2008) ....................... 22 United States. v. BazaarVoice, Inc., No. 13-00133 2014 WL 203966 (N.D. Cal. Jan. 8, 2014)…..………………………………………………….19, 47, 79 United States v. Citizens & S. Nat’l Bank, 422 U.S. 86 (1975) .................................................... 72 United States v. General Dynamics Corp., 415 U.S. 486 (1974) ................................................. 60 United States v. H&R Block, 833 F. Supp. 2d 36 (D.D.C. 2011) ..................................... 60, 80, 87 United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004) ....................................... 59 Valspar Corp. v. E. I. Du Pont De Nemours & Co., 152 F. Supp. 3d 234 (D. Del. 2016) ..... 61, 68 Valspar Corp. v. E. I. Du Pont De Nemours & Co., 873 F.3d 185 (3d Cir. 2017) ................ passim ii PUBLIC Statutes and Regulations Clayton Act § 7, 15 U.S.C. § 18 ................................................................................. 66, 67, 72, 87 Federal Trade Commission Act § 5, 15 U.S.C. § 45 .................................................................... 88 Sherman Act, 15 U.S.C. § 1 ........................................................................................ 67, 68, 69, 72 Other Authorities Herbert Hovenkamp, Prophylactic Merger Policy, HASTINGS L.J. (2018) .......................... passim Jonathan Baker, “Why Price Correlations Do Not Define Antitrust Markets: On Econometric Algorithms for Market Definition,” FTC Bureau of Economics Working Paper No. 149 (Jan. 1987)................................................................................................................................. 34 Patrick Coe &