Bazaarvoice: Stories from the GCR Archives

DOJ challenges product rating merger

Originally published 11 January 2013

The US Department of Justice’s Antitrust Division has filed a lawsuit challenging Bazaarvoice’s completed acquisition of PowerReviews, arguing the $168.2 million deal “extinguishes” competition in the US review platform market.

Austin-based Bazaarvoice acquired its smaller rival PowerReviews in June, without first notifying the US antitrust agencies. The DOJ opened an investigation of the transaction shortly afterwards.

The department’s lawsuit, filed in the District Court in the Northern District of California, argues that the transaction substantially lessened competition in the US market for product rating and review (R&R) platforms, resulting in higher prices and diminished innovation.

Companies like Bazaarvoice and PowerReviews allow retailers and manufactures to collect, organise and display consumer-generated product ratings and reviews online.

According to the department’s complaint, Bazaarvoice is the dominant supplier of R&R platforms in the US. Prior to the merger, PowerReviews was its closest rival and an “aggressive price competitor”.

“As a result of the competition between Bazaarvoice and PowerReviews, many retailers and manufacturers received substantial price discounts,” says the DOJ.

The department says Bazaarvoice bought PowerReviews knowing that it was acquiring its most significant rival and “hoping to benefit from diminished price competition”. The complaint quotes executives’ correspondence saying the transaction will eliminate Bazaarvoice’s primary competitor and provide “relief from price erosion”.

The DOJ says the acquisition has allowed Bazaarvoice to raise the price of its product R&R platform above a competitive level. “As a result of the transaction, many customers have lost critical negotiating leverage and are vulnerable to anticompetitive price increases,” it says.

DOJ assistant attorney general William J Baer says: “Without competitive pressure from PowerReviews, Bazaarvoice will be able to increase prices to retailers and manufacturers for its product R&R platforms. This lawsuit seeks to prevent one firm from dominating the product R&R platforms market, and demonstrates that transactions that are not reported to us are not immune from scrutiny.”

A spokesperson for Bazaarvoice denies the transaction had anticompetitive consequences. They say the company did not originally file the merger because it fell below the DOJ’s notification thresholds.

“We are surprised that the DOJ would choose to invest scarce and valuable resources in challenging a consummated transaction of an entity that made under $12 million in revenues in its most recent fiscal year,” says the spokesperson. “Put simply, at the time it was acquired, PowerReviews was in no way the viable competitive threat the DOJ’s complaint tries to suggest.”

Bazaarvoice says the department’s market definition was “overly narrow”, and argues social networking sites such as Facebook and Twitter should be viewed as competitors.

“We believe the testimony of Bazaarvoice executives, customers and competitors will demonstrate this to a judge,” says the spokesperson. “But even assuming the validity of the DOJ’s product market definition, there is still robust competition for R&R all over the social commerce landscape; the market is much bigger and more nuanced than the DOJ appreciates.”

In Bazaarvoice merger trial, documents and customers take main stage

By Ron Knox

Originally published 23 September 2013

US government prosecutors aiming to unwind a deal between high-tech ratings companies Bazaarvoice and rival PowerReviews appear ready to go to trial this week, armed with a trove of compelling documents but, the companies hope, a less intriguing story to tell about competition within the developing market.

The trial between Bazaarvoice and the DOJ officially opens with the first day of testimony tomorrow. The government believes Bazaarvoice’s $162 million purchase of PowerReviews combined essentially the only two competitors in the market for online R&R systems, extinguishing almost all competition in the market.

Both companies make a product R&R platform, which companies can include on their websites so that customers can write R&R products.

The government’s complaint, filed in January, detailed internal conversations between Bazaarvoice executives who, in documents cited in the lawsuit, predicted aloud that buying PowerReviews would ease pricing pressure on the company and weaken competition in the market.

In both the lawsuit and a redacted pretrial brief published by the District Court for the Northern District of California late last week, prosecutors lean heavily on apparently damning internal memos and emails between top executives. In one email, Brett Hurt, the company’s co-founder and then chief executive, wrote to the company’s board that the purchase of PowerReviews would take out Bazaarvoice’s only competitor that suppressed what the company could charge for its software.

Those internal documents also show that PowerReview’s lower prices often forced Bazaarvoice to “offer significant price concessions”, prosecutors allege. The two companies competed head-to-head for business in about 80% of Bazaarvoice’s sales opportunities, according to court papers.

But the company says that while its documents may be unflattering, the reality that has unfolded in the market since then is far different than the one portrayed in the complaint.

Not only are there more outside rivals to Bazaarvoice than the government mentioned in its lawsuit, but numerous retail companies now create their own online R&R systems in-house. The company says the effects of the considerable competition have been apparent: since the deal closed 15 months ago, prices have held steady and new rivals have found room in the market to grow.

The statements, made in court papers filed on Friday, show the true benefit of defending an already closed merger: months of real-world evidence to back up contentions that the deal has done no damage to the competitive landscape.

“The court does not need to guess what the effects of this merger will be since it has the benefit of concrete post-merger facts. And those facts are that, since the deal closed, prices have not increased; new competitors have entered and expanded; and the social commerce business has seen continued rapid evolution and innovation,” the company says in the filing.

To help prove its case, the company plans to include the testimony of between 15 and 20 of its customers and other companies in the market to show the diversity of options for retailers who want to give online shoppers the power to rate and review products. The government may also call retailers to testify during the trial.

While lawyers for Bazaarvoice believe using customers to make their case is simply a reflection of case law, the strategy mirrors that of the defence in Oracle/PeopleSoft, one of the last high-tech mergers the government sought to block in federal court. It was the last government merger challenge to include customer testimony, and that testimony helped sway the court to reject the DOJ’s arguments and clear the way for the deal to close.

Since then, however, prosecutors at the DOJ’s Antitrust Division have enjoyed a string of successful deal challenges, including winning its fight against H&R Block’s purchase of TaxAct at trial, and convincing AT&T to abandon its attempt to purchase rival T-Mobile before trial.

Bazaarvoice trial winds down with differing views of customer evidence

By Ron Knox

Originally published 17 October 2013

As the US government’s merger trial against online R&R company Bazaarvoice draws to a close, lawyers for the company said yesterday that evidence and testimony proves that new, rival ratings companies are easily able to step into the market and offer choices for online retailers.

At the close of trial yesterday, lawyers from both sides of the Bazaarvoice merger trial pressed arguments made throughout the trial and, each side believes, buttressed by three weeks of testimony from Bazaarvoice’s customers, economic experts and a host of others.

Lawyers for the DOJ stressed yesterday that the devil remains in the scores of internal Bazaarvoice emails and memos that suggest what the economic evidence allegedly showed: Bazaarvoice purchased its rival, PowerReviews, with the intention of creating a monopoly in the market and easing pressure to lower its prices.

In the closing statements, Peter Huston, a prosecutor from the DOJ’s Antitrust Division, told Judge William Orrick in the District Court for Northern California that the company’s internal records again and again suggest that the merger was a way to end the need to offer discounts to compete with PowerReviews.

And the company’s belief that the merger would allow it to end the discounts without losing customers is strong evidence that a monopolist in the industry could do the same thing, he said.

“Bazaarvoice paid $168 million to eliminate its only significant competitor, and they knew exactly what they were doing,” Huston said in court yesterday. “And we’re here to have that merger declared illegal, and to restore competition and consumer choice to the marketplace.”

Huston explained in court that the antitrust laws were established to ensure companies cannot buy their way to market power by taking over their closest rivals. The law has no problem with monopoly power, so long as that power was won fairly in the market through real competition, he said.

“We don’t shoot the winner of the fight,” he said. “But we want the fight to happen. The customers and society deserve that fight.”

But in the company’s closing statement, Bazaarvoice attorney Jonathan Jacobson, a partner at Wilson Sonsini Goodrich & Rosati, pushed case law that was the foundation for the company’s defence: that under the Syufy standard at the Ninth Circuit Court of Appeals, a closed merger should duck antitrust scrutiny so long as barriers to entry are low or non-existent.

In the mid-1980s, the Ninth Circuit rejected the division’s attempt to sue Syufy Enterprises for buying its way to a monopoly in the Las Vegas cinema market. The circuit court – which oversees the California court hearing the Bazaarvoice trial – found that there were no barriers to entry in the city’s cinema business, and the city had in fact seen the entry of rival theatres soon after Syufy bought out its previous competitors.

As Syufy makes clear, Jacobson said, “competition is enhanced by maintaining the free market in which competitors can buy other competitors to make themselves more competitive.”

In the government’s remarks, Huston did not attempt to differentiate the Bazaarvoice case from the Syufy precedent, but said that the antitrust laws under the Clayton Act did not establish a different standard for reviewing pending and closed mergers.

While prosecutors do not ignore what has happened since the Bazaarvoice/PowerReviews merger, Huston said, the court must be careful because “any post-merger evidence that could arguably be subject to manipulation by Bazaarvoice” has limited value.

“The cases are clear on that. And they’ve known about this investigation which led to this lawsuit since two days after the merger closed,” he said.

During closing arguments, the lawyers also hashed out which description of the market to believe – the one described by government expert witness Carl Shapiro, in which there were no so-called “rapid entrants” into the R&R market, or the testimony of customers and others who spoke of a vibrant market with ample competition, as Bazaarvoice claims.

Huston used testimony shown during trial – an interview with an executive from a company called TurnTo – to suggest the price of entering the market was actually much higher than lawyers for Bazaarvoice alleged.

While TurnTo may be interested in an R&R product, the executive said during testimony, the price would be significant, as would the losses, if the product failed to gain traction.

“All of the companies that Bazaarvoice points to as rapid entrants, they’re all in the same boat,” Huston said. “They would all have to incur these costs to get an R&R product off the ground.”

But Jacobson said in his statement that many rival companies who were witnesses during the trial were “doing fine” in the post-merger market, including Giga, Rating System and Amazon – the last of which the government did not mention during its closing statement.

“None said – and this is quite important – that the acquisition of PowerReviews by Bazaarvoice made their expansion any more difficult,” Jacobson said.

And then there were the customers, Jacobson said, who all took the stand and told the same post-merger story. “No witness who testified here claimed any harm,” he said.

There is no set time for Judge Orrick to rule on the case, although lawyers are hopeful he will do so before Thanksgiving.

DOJ wins Bazaarvoice merger challenge

By Pallavi Guniganti

Originally published 10 January 2014

In a rare example of successfully challenging a consummated deal, the DOJ has been successful in court against product R&R software provider Bazaarvoice over its acquisition of a rival, PowerReviews.

Judge William Orrick ruled that Bazaarvoice violated Section 7 of the Clayton Act in a lengthy opinion that devoted more than 100 pages to factual findings and 20 to legal reasoning. The trial in the Northern District of California lasted three weeks, creating a long record, and the judge was still issuing an order regarding evidentiary objections on the same day he handed down his decision.

In that order, Bazaarvoice’s marketing director Jason Goldberg was deemed unqualified to opine on the antitrust issues, leading the judge to sustain the government’s objections to his expert opinions on a number of topics: product comparison; competing in-house solutions; and Amazon as a competing, stand-alone R&R service.

Judge Orrick defined the relevant market as R&R platforms sold to US customers, and held that PowerReviews was Bazaarvoice’s only real commercial competitor in this market. Repeatedly referring to the Supreme Court precedent of Philadelphia National Bank, he wrote: “Bazaarvoice’s percentage share of the relevant market exceeds 50% and establishes a prima facie Section 7 violation” as an anticompetitive merger.

With the burden of proof now shifted to the company, Bazaarvoice proved unable to persuade the judge that new competitors would arise easily. In the opinion’s fact section, Judge Orrick found that syndication, switching costs, intellectual property and reputation were high barriers to entry both for new companies and existing providers thinking of adding services comparable to PowerReviews’.

The opinion concludes by acknowledging that “this case inescapably adds fuel to the debate over the proper role of antitrust law in rapidly changing high-tech markets.” Judge Orrick states that it is not the court’s role to weigh in on this debate, only to assess the antitrust allegations before it.

“While Bazaarvoice indisputably operates in a dynamic and evolving field, it did not present evidence that the evolving nature of the market itself precludes the merger’s likely anticompetitive effects,” he writes.

Although the government has prevailed in the liability phase, the judge has yet to decide on a remedy. In its complaint filed on 10 January last year, the Antitrust Division requested that the court order Bazaarvoice to divest assets, whether originally its own or PowerReviews’, “sufficient to create a separate, distinct and viable competing business that can replace PowerReviews’ competitive significance in the marketplace”.

Bazaarvoice released an official statement yesterday saying that it will not make a decision regarding an appeal until after the remedy phase of the litigation.

Company president Gene Austin said: “We are disappointed in the outcome of the litigation. We believe that the merger with PowerReviews has been beneficial to customers, as did the more than 100 customers who testified that they did not believe that the acquisition affected them adversely in any way.”

Judge Orrick told the company and the government to file a joint statement regarding the remedy phase by next Friday, and to attend a case management conference on 22 January.

Bazaarvoice agrees to compliance monitor after divestiture hiccup

By Ron Knox

Originally published 2 December 2014

The US government has saddled online ratings company Bazaarvoice with an antitrust compliance monitor after the company continued to use technology it had agreed to sell off in the wake of the government’s successful challenge of its merger with rival PowerReviews.

The monitor is necessary, the government says, to ensure that Bazaarvoice complies with the terms of its settlement with prosecutors from the DOJ’s Antitrust Division, as well as the antitrust laws generally.

The latest twist in the years-long Bazaarvoice case marks at least the third time the government has asked for, and received, a court-mandated watchdog to ensure a company that fought antitrust charges and lost complies with the law going forward.

The DOJ also asked for and received a monitor in its criminal cartel case against AU Optronics, which was convicted of fixing the price of LCD screens, and Apple, the ubiquitous device maker, that was found to have organised a hub-and-spoke conspiracy in the e-books market.

Judge William Orrick in January found that Bazaarvoice had violated the Clayton Act by buying PowerReviews, its only rival in the online R&R market. According to a final judgment filed in April, the company agreed to sell off certain PowerReviews technologies to Viewpoints, a consumer review platform, in a deal that closed two months later.

In its filing this week, the government says that by the end of July “the United States became aware there was a question whether Bazaarvoice was improperly continuing to use certain PowerReviews technology that the proposed final judgment required it to divest.”

While the company stopped the conduct – and both it and the government investigated the issue – the DOJ felt that a compliance monitor was the best way to ensure such communication breakdowns did not happen again.

“[T]he United States was concerned that the lack of timely communication between Bazaarvoice and the United States led to an investigation and dispute that could have been avoided by a greater focus from the company on its compliance obligations,” the government says in the court filing.

Both sides agreed to revise the final judgment to put a compliance monitor in place. The company will pay for the monitor under the terms of the agreement.

A spokesperson from the DOJ declined to comment on the decision to ask for a compliance monitor beyond the government’s court papers.

Matt Krebsbach, a spokesperson for Bazaarvoice, says the company is satisfied that the DOJ’s investigation is now closed and the company is focusing its attention on ensuring it complies with the court’s final judgment.

Krebsbach declined to comment on the nature of the PowerReviews technology it continued to use. However, two sources familiar with the investigation say the technology was relatively minor and involved mashing technology that incorporates elements from two or more sources in one online application.

The issue arose amid a change in legal representation for Bazaarvoice. While a team of lawyers from Wilson Sonsini Goodrich & Rosati had been advising the company, they ended their representation earlier this year, and court records show that Gibson, Dunn & Crutcher began working for Bazaarvoice in October.

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