Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Supreme Court Asked to Consider Standard for Reviewing Mergers of Potential Competitors, (Feb 20, 2013)

By Jeffrey May, J.D.

A recently filed petition for certiorari is asking the U.S. Supreme Court to clear up “substantial confusion in the courts of appeals concerning how to distinguish mergers of current competitors,” which are subject to rules of presumptive illegality, from mergers of potential competitors, which “are subject to far more exacting legal standards” (Polypore International, Inc. v. FTC, Dkt. 12-1016).

In September 2008, the FTC issued an administrative complaint challenging the acquisition by Daramic, LLC, a division of Polypore International, Inc., of the parent company of Microporous Products L.P. The Commission ultimately ruled that the merger of the two producers of battery separators—membranes placed between the positive and negatively-charged plates in batteries to prevent electrical short circuits—was likely to harm competition in three North American markets in violation of Section 7 of the Clayton Act. The U.S. Court of Appeals in Atlanta upheld the Commission's Opinion, as well as an order requiring Polypore’s divestiture of Microporous assets.

Polypore has now asked the U.S. Supreme Court to review the Eleventh Circuit's decision (686 F.3d 1208, 2012-1 Trade Cases ¶77,970). In its petition, Polypore argues that, with respect to the largest and most important market at issue, the Eleventh Circuit incorrectly treated the merging companies as current competitors at the time of the transaction, even though the acquired company had zero share of the relevant market before the acquisition, had no firm orders or contracts to supply the relevant product to any customers, and had neither determined nor formulated an approved business plan to enter the relevant market. After determining that the merging parties were competitors, the appellate court (like the FTC) relied on the burden-shifting presumption of liability established in U.S. v. Philadelphia National Bank (374 U.S. 321, 1963 Trade Cases ¶70,812).

The appellate court had reasoned that Microporous was already making similar separators and had purchased a new production line that could produce the particular type of separators. It had begun discussions with several companies, had produced a sample product, and had even submitted quotes and entered into memoranda of understanding with one large customer. Further, Polypore considered the acquisition as a way to remove a competitive threat in the relevant market, according to the appellate court.

In its petition, Polypore asks specifically: (1) whether the Philadelphia National Bank presumption should be applied where the acquired company has zero share of the relevant market before the acquisition, has no firm orders or contracts to supply the relevant product to any customers, and has neither determined nor formulated an approved business plan to enter the relevant market; (2) what legal standards govern potential competition cases under Section 7 of the Clayton Act; and (3) whether the FTC may order the unconditional divestiture of a production plant that was not in operation at the time of the acquisition and that was never intended to serve the relevant markets in which the alleged harms were found in crafting a remedy under Section 7 of the Clayton Act.

Polpore sought leave from the Supreme Court to file its petition under seal with redacted copies for the public record on January 15, 2013. Yesterday, the Court granted the motion.

Attorneys: Steven G. Bradbury (Dechert LLP) for Petitioner Polypore International, Inc.. Donald B. Verrilli Jr., Department of Justice, for Respondent FTC.

Companies: Polypore International, Inc.; Microporous Products L.P.

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