United States v. Baker Hughes Inc.
908 F.2d 981 (1990)
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Rule of Law:
A defendant in a Section 7 Clayton Act case can rebut the government's prima facie case of anticompetitive effects by producing evidence that market concentration statistics inaccurately predict the merger's probable effects on competition; the defendant is not limited to showing that market entry by new competitors will be quick and effective.
Facts:
- Oy Tampella AB (Tamrock) and a subsidiary of Baker Hughes Inc. (Secoma) both manufactured and sold hardrock hydraulic underground drilling rigs (HHUDRs) in the United States.
- In 1989, Tamrock proposed to acquire Secoma from Baker Hughes.
- The U.S. market for HHUDRs was highly concentrated and small; from 1986 to 1989, only four firms actively sold the products.
- In 1988 alone, the combined market share of Tamrock and Secoma in the U.S. HHUDR market was 76%.
- Because so few HHUDRs were sold each year (e.g., 38 in 1988), a single contract could increase a firm's market share by two to five percent, making market share statistics highly volatile.
- HHUDRs are expensive, custom-made products costing hundreds of thousands of dollars, and are sold to sophisticated consumers who typically solicit multiple, confidential bids for each order.
Procedural Posture:
- The United States sued Oy Tampella AB and Baker Hughes Inc. in the U.S. District Court for the District of Columbia, alleging the proposed acquisition violated Section 7 of the Clayton Act.
- The district court granted the government's motion for a temporary restraining order in December 1989, halting the acquisition.
- Following a bench trial, the district court (a court of first instance) issued a decision in February 1990 denying the government's request for a permanent injunction and dismissing the claim.
- The United States (appellant) filed an immediate appeal to the U.S. Court of Appeals for the D.C. Circuit.
- The Court of Appeals granted the government's motion for expedited proceedings but denied its motion for an injunction pending appeal, after which the companies consummated the acquisition.
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Issue:
After the government establishes a prima facie case under Section 7 of the Clayton Act based on market concentration statistics, must a defendant rebut that presumption by making a clear showing that entry into the market by competitors will be quick and effective?
Opinions:
Majority - Circuit Judge Clarence Thomas
No. A defendant is not required to rebut the government's prima facie case by making a clear showing that entry will be quick and effective. A defendant can successfully rebut the presumption of anticompetitive effect by presenting evidence on a variety of factors that show market-share statistics give an inaccurate account of the acquisition's probable effects on competition. The government's proposed standard is too narrow, as it improperly elevates ease of entry above all other factors and wrongly shifts the ultimate burden of persuasion to the defendant. A court must engage in a totality-of-the-circumstances analysis, considering factors such as the misleading nature of the statistical evidence, the sophistication of consumers, the financial health of the merging firms, and the likelihood of future entry. The burden on the defendant is one of production, not persuasion, and does not require a 'clear showing' that would force a defendant to rebut a probability with a certainty.
Analysis:
This decision significantly clarifies the defendant's burden in rebutting a prima facie case in a Section 7 merger challenge, solidifying the flexible, multi-factor approach established in United States v. General Dynamics. The court's rejection of the government's rigid 'quick and effective entry' test prevents the government from winning cases based almost solely on market concentration statistics. By affirming that the ultimate burden of persuasion remains with the government and lowering the defendant's rebuttal burden from the older 'clear showing' standard, this case makes it more feasible for defendants in highly concentrated markets to defend a merger by pointing to real-world competitive dynamics that statistics alone do not capture.
