[Federal Register Volume 76, Number 156 (Friday, August 12, 2011)]
[Notices]
[Pages 50254-50265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20534]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Verifone Systems, Inc. and Hypercom Corporation;
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation and Competitive Impact Statement have been filed with the
United States District Court for the District of Columbia in United
States of America v. Verifone Systems, Inc. and Hypercom Corporation,
Civil Action No. 1:11-cv-00887. On June 27, 2011, the United States
filed an Amended Complaint alleging that the proposed acquisition by
Verifone Systems, Inc. of the business assets of Hypercom Corporation
would violate Section 7 of the Clayton Act, 15 U.S.C. 18. The proposed
Final Judgment, filed on August 4, 2011, requires the Defendants to
divest Hypercom's U.S. business, along with certain tangible and
intangible assets.
Copies of the Complaint, proposed Final Judgment and Competitive
Impact Statement are available for inspection at the Department of
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at http://www.usdoj.gov/atr, and at the Office of the Clerk of the United States District Court
for the District of Columbia. Copies of these materials may be obtained
from the Antitrust Division upon request and payment of the copying fee
set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to James J. Tierney, Chief, Networks and Technology Enforcement
Section, Antitrust Division, Department of Justice, Washington, DC
20530 (telephone: 202-307-6200).
Patricia A. Brink,
Director of Civil Enforcement.
In the United States District Court for the District of Columbia
United States of America, United States Department of Justice,
Antitrust Division, 450 Fifth Street, NW., Suite 7100, Washington,
DC 20530, Plaintiff, v. Verifone Systems, Inc., 2099 Gateway Place,
Suite 600, San Jose, CA 95110, and Hypercom Corporation, 8888 East
Raintree Drive, Suite 300, Scottsdale, AZ 85260, Defendants.
Case: 1:11-cv-00887.
Assigned to: Kessler, Gladys.
Assign. Date: 5/12/2011.
Description: Antitrust.
Amended Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil action against
VeriFone Systems Inc. (``VeriFone''), and Hypercom Corporation
(``Hypercom'') pursuant to the antitrust laws of the United States to
enjoin VeriFone's proposed acquisition of Hypercom, and to obtain such
other equitable relief as the Court deems appropriate. The United
States alleges as follows:
I. Nature of Action
1. Point of sale (``POS'') terminals enable retailers and other
firms to accept a wide range of non-cash payment types, such as credit
cards and debit cards, at millions of locations nationwide. Given the
increasing popularity of electronic payments, the vast majority of
merchants need to accept such cards and use POS terminals to handle
billions of dollars of on-site electronic payments daily. This
complaint seeks to enjoin Defendants
[[Page 50255]]
VeriFone and Hypercom from proceeding with a transaction that, if
permitted, would eliminate nearly all competition in the sale of POS
terminals in the United States.
2. VeriFone and Hypercom are two of the three leading providers of
POS terminals in the United States. If the Verifone-Hypercom
transaction is not enjoined, Hypercom would cease to exist as an
independent competitor in this concentrated market. The proposed
transaction would result in VeriFone and the third leading provider of
POS terminals in the United States, Ingenico, S.A. (``Ingenico''),
becoming a duopoly in full control of the sale of POS devices in the
United States.
3. POS terminals can operate on a standalone basis, connected to
payment networks by a standard telephone line or by wired or wireless
internet protocol technologies. POS terminals of this type are commonly
referred to in the industry as ``countertop'' machines, and are
typically used by small- or medium-sized businesses or retailers to
enable them to accept credit and debit cards. POS terminals can also be
connected to an electronic cash register or similar device as part of
an integrated point of sale system. POS terminals of this type are
often referred to in the industry as ``multi-lane'' or ``consumer-
facing'' machines, and are typically used by large retailers to accept
credit and debit cards. Each of these industry segments constitutes an
antitrust market. The countertop POS terminals market and the multi-
lane POS terminals market are the two relevant markets that would be
affected by the proposed transaction challenged in this Complaint. The
line of business including both relevant markets is referred to as the
``POS terminals industry.''
4. The POS terminals industry, both in the United States and on a
worldwide basis, is extremely concentrated and dominated by VeriFone,
Hypercom, and Ingenico. In 2009, according to a leading market analyst
report, VeriFone had a 48 percent share of the sale of all POS
terminals in the United States, while Hypercom had an 18 percent share
and Ingenico had a 26 percent share.
5. Similarly, each of the relevant markets is extremely
concentrated in the United States and there is little timely prospect
of either of them becoming less concentrated. VeriFone and Hypercom
together control over 60 percent of the countertop POS terminals market
in the United States. VeriFone, Hypercom, and Ingenico together control
well over 90 percent of the multi-lane POS terminals market in the
United States. Their position in the relevant markets is also protected
by the high barriers to entry that characterize these markets.
6. In November 2007, VeriFone's CEO, Douglas G. Bergeron, projected
that the worldwide POS terminals industry was trending towards a ``very
benevolent duopoly'' consisting solely of VeriFone and Ingenico.
Bergeron's description of such a potential duopoly as ``very
benevolent'' has led VeriFone to eschew robust and vibrant competition
in favor of cooperation with, and benevolence toward, competitors.
Consummation of the proposed transaction would achieve Mr. Bergeron's
vision.
7. On November 17, 2010, following approximately eighteen months of
negotiations, VeriFone agreed to purchase Hypercom in a $485 million
deal that would combine two of only three significant sellers of POS
terminals in the United States.
8. VeriFone's proposed acquisition of Hypercom would substantially
extend VeriFone's position as the largest seller of all POS terminals
in the United States. Ingenico would be the only remaining substantial
competitor to VeriFone. Post-transaction, VeriFone and Ingenico
together would dominate the multilane POS terminals market--the very
duopoly envisioned by VeriFone's CEO four years ago. The acquisition
would reduce competition in the relevant markets by eliminating
Hypercom as an independent source of competitive discipline and by
reducing impediments to successful coordination. This would inevitably
lead to higher prices, inferior service, a reduction in the variety of
products sold, and reduced innovation.
9. The United States requests that the Court enjoin VeriFone's
acquisition of Hypercom to protect consumers throughout United States
from the loss of competition in the provision of devices used to
facilitate billions of retail transactions each year.
II. Defendants
10. VeriFone is a corporation organized and existing under the laws
of the State of Delaware, with its principal place of business located
in San Jose, California. In the fiscal year ending October 31, 2010,
VeriFone earned more than $1 billion in revenues worldwide.
11. Hypercom is a corporation organized and existing under the laws
of the State of Delaware, with its principal place of business located
in Alpharetta, Georgia. In 2010, Hypercom earned more than $450 million
in revenues worldwide.
III. Jurisdiction, Venue, and Commerce
12. The United States brings this action pursuant to Section 4 of
the Sherman Act, 15 U.S.C. 4 to prevent and restrain Defendants from
violating Section 1 of the Sherman Act, 15 U.S.C. 1, and pursuant to
Section 15 of the Clayton Act, as amended, 15 U.S.C. 25, to prevent and
restrain Defendants from violating Section 7 of the Clayton Act, as
amended, 15 U.S.C. 18.
13. The Court has subject-matter jurisdiction over this action
pursuant to Section 4 of the Sherman Act, 15 U.S.C. 4, Section 15 of
the Clayton Act, as amended, and 28 U.S.C. 1345. The Court also has
subject-matter jurisdiction pursuant to 28 U.S.C. 1331 and 1337(a), as
Defendants sell POS terminals and/or other products and services in the
United States, and sell products and services in the flow of interstate
commerce. Defendants' products and services involve a substantial
amount of interstate commerce. Sales of countertop POS terminals and
multi-lane POS terminals each exceeded $150 million in the United
States in 2010.
14. This Court has personal jurisdiction over each Defendant and
venue is proper over VeriFone and Hypercom in this District under
Section 12 of the Clayton Act, 15 U.S.C. 22, because Defendants
VeriFone and Hypercom both transact business and are found within this
District.
IV. Adverse Competitive Effects
15. VeriFone's proposed acquisition of Hypercom would reduce
competition in two antitrust markets: The sale of countertop POS
terminals and the sale of multi-lane POS terminals. VeriFone and
Hypercom are two of only three companies with substantial sales in the
countertop POS terminals market; the third company with significant
sales is First Data Corporation (``First Data''), which is vertically
integrated and only sells devices to customers of its merchant
processing services. VeriFone and Hypercom are two of the only three
substantial competitors in the multi-lane POS terminals market;
Ingenico is the third competitor in that market. The proposed
acquisition would eliminate all competition between VeriFone and
Hypercom, and would increase the likelihood of coordination in the POS
terminals markets.
A. Relevant Product and Geographic Markets
1. Countertop POS Terminals Market
16. The sale of countertop POS terminals suitable for use in the
United States is a relevant antitrust market for purposes of Section 1
of the Sherman Act and a relevant antitrust market and
[[Page 50256]]
line of commerce for purposes of Section 7 of the Clayton Act.
17. Other types of payment devices are not adequate substitutes for
countertop POS terminals. Purchasers of countertop POS terminals would
not switch to other types of payment systems in sufficient numbers to
render unprofitable a price increase imposed by a hypothetical
monopolist in the sale of countertop POS terminals suitable for use in
the United States.
18. A hypothetical monopolist of countertop POS terminals suitable
for use in the United States could profitably raise prices by at least
a small but significant, non-transitory amount. Purchasers of
countertop POS terminals located in the United States would not be able
to switch to other products, including to countertop POS terminals made
for non-U.S. markets, to defeat such a price increase by a hypothetical
monopolist.
19. The relevant geographic market is the United States, where the
customers for countertop POS terminals suitable for use in the United
States are located. Countertop POS terminals suitable for use in the
United States may be manufactured anywhere in the world.
20. Countertop POS terminals sold in other parts of the world will
not work unmodified in the United States. Countertop POS terminals sold
in the United States must be customized for the demands of U.S.
purchasers and must comply with distinct U.S. technical specifications
and certification requirements.
2. Multi-lane POS Terminals Market
21. The sale of multi-lane POS terminals suitable for use in the
United States is a relevant antitrust market for purposes of Section 1
of the Sherman Act and a relevant antitrust market and line of commerce
for purposes of Section 7 of the Clayton Act.
22. Other types of payment devices are not adequate substitutes for
multi-lane POS terminals. Purchasers of multi-lane POS terminals would
not switch to other types of payment systems in sufficient numbers to
render unprofitable a price increase imposed by a hypothetical
monopolist in the sale of multi-lane POS terminals suitable for use in
the United States.
23. A hypothetical monopolist of multi-lane POS terminals suitable
for use in the United States could profitably raise prices by at least
a small but significant, non-transitory amount. Purchasers of multi-
lane POS terminals located in the United States would not be able to
switch to other products, including to multi-lane POS terminals made
for non-U.S. markets, to defeat such a price increase by a hypothetical
monopolist.
24. The relevant geographic market is the United States, where the
customers for multi-lane POS terminals suitable for use in the United
States are located. Multi-lane POS terminals suitable for use in the
United States may be manufactured anywhere in the world.
25. Multi-lane POS terminals sold in other parts of the world will
not work unmodified in the United States. Multi-lane POS terminals sold
in the United States must be customized for the demands of U.S.
purchasers and must comply with distinct U.S. technical specifications
and certification requirements.
B. Market Concentration
26. VeriFone's proposed acquisition of Hypercom would increase
market concentration in the POS terminals markets.
27. As articulated in the Horizontal Merger Guidelines issued by
the Department of Justice and the Federal Trade Commission, the
Herfindahl-Hirschman Index (``HHI'') is a measure of market
concentration.\1\ Market concentration is often one useful indicator of
the level of competitive vigor in a market and the likely competitive
effects of a merger. The more concentrated a market, and the more a
transaction would increase concentration in a market, the more likely
it is that a transaction would result in a meaningful reduction in
competition harming consumers. Mergers resulting in highly concentrated
markets (with an HHI in excess of 2500) that involve an increase in the
HHI of more than 200 points are presumed to be likely to enhance market
power under the merger guidelines.
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\1\ See U.S. Dep't of Justice, Horizontal Merger Guidelines
Sec. 5.3 (2010), available at http://www.justice.gov/atr/public/guidelines/hmg-2010.html. The HHI is calculated by squaring the
market share of each firm competing in the market and then summing
the resulting numbers. For example, for a market consisting of four
firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600
(30\2\ + 30\2\ + 20\2\ + 20\2\ = 2,600). It approaches zero when a
market is occupied by a large number of firms of relatively equal
size and reaches a maximum of 10,000 points when a market is
controlled by a single firm. The HHI increases both as the number of
firms in the market decreases and as the disparity in size between
those firms increases.
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28. The countertop POS terminals market and the multi-lane POS
terminals market are already highly concentrated, even before the
effect of the proposed transaction is taken into account. VeriFone's
proposed acquisition of Hypercom would result in a substantial increase
in the HHI in both markets in excess of the 200 points presumed to be
anticompetitive under the merger guidelines.
C. VeriFone's Proposed Acquisition of Hypercom Would Result in
Competitive Harm
29. VeriFone's proposed acquisition of Hypercom would reduce
competition in the relevant markets, leading to unilateral and
coordinated effects such as an increase in prices and a reduction in
innovation, quality, product variety, and service.
30. VeriFone's proposed acquisition of Hypercom would eliminate all
competition between the two companies. VeriFone is the largest provider
of both countertop and multi-lane POS terminals. Hypercom is one of
only two other companies currently selling a significant number of
countertop POS terminals and is the third-largest provider of multi-
lane POS terminals. The competition between VeriFone and Hypercom is
therefore especially important to consumers, and the elimination of
that competition would substantially reduce the overall level of
competition in each market.
31. The acquisition would result in unilateral effects in each
relevant market as VeriFone would be able to raise the price of both
VeriFone and Hypercom products because it would recapture some sales
that would have been lost absent the acquisition as purchasers reacted
to such price increases by switching between VeriFone and Hypercom
products.
32. Eliminating competition between Verifone and Hypercom would
also reduce the number of significant competitors from three to two in
the POS terminals markets, resulting in the very ``duopoly'' projected
by VeriFone's CEO and heightening the potential for coordinated
behavior. Coordination, whether tacit or explicit, is especially likely
because the acquisition would enhance each company's ability to deter
competitive behavior in one market by retaliating across a range of
other product and geographic markets, if necessary.
D. Absence of Countervailing Factors
1. Entry
33. Supply responses from competitors or potential competitors
would not prevent the likely anticompetitive effects of the proposed
transaction.
34. Industry participants have described the POS terminals industry
as highly concentrated, with high barriers to entry. These entry
barriers include the need to obtain certifications, keeping up with
changing payment
[[Page 50257]]
regulations, having sufficient scale, being in close proximity to
customers, and having a broad portfolio of customer applications. These
factors are entry barriers for both the countertop and multi-lane POS
terminals markets. Given these and other significant barriers to entry
or expansion, entry or repositioning would not be likely, timely, or
sufficient to prevent the anticompetitive effects that would result
from the proposed transaction.
35. Hypercom's CEO, Philippe Tartavull, has emphasized the
difficulty of entering the POS terminals industry, explaining that
``[s]maller regional manufacturers who enter the business find it
difficult because a typical product cycle is often too long for them to
support'' and they are ``limited in the number of products they can
bring to market.'' When these factors are combined with the ``high
costs of certifying new products,'' Tartavull concluded, ``it can be
very difficult to enter a new market geography or market segment. It's
not impossible, but it's not easy. Other companies have tried, but when
all is said and done, there are two primary providers to the North
American market, and Hypercom is one of them.''
36. The only firm to enter the U.S. market in recent years and
achieve any non-trivial amount of sales is First Data, a leading
provider of electronic payment networks and services. Despite being as
well placed as any company to break into the countertop POS terminals
market given its complementary lines of business and its position as
the largest merchant acquirer, and despite the fact that it purchased a
small provider of U.S. POS terminals, First Data's sales are limited
entirely to customers using its own network and First Data therefore
has a very minimal ability to further expand its presence in the
countertop POS terminals market. Smaller merchant processors would have
less incentive and ability than First Data to place their own terminals
on their network simply as a result of their significantly smaller
volume of sales. First Data has no significant presence in the multi-
lane POS terminals market.
37. Even after First Data entered the market, VeriFone's CEO
expressed the view that the overall POS terminals business was likely
to continue to consolidate until it was controlled by a duopoly
consisting solely of VeriFone and Ingenico. Hypercom's statements
regarding the difficulty of entry that are quoted in paragraph 36 were
also made after First Data's entry.
38. Ingenico, an otherwise significant competitor in the POS
terminals markets around the world, has faced significant difficulty in
entering and expanding in the countertop POS terminals market in the
United States. Ingenico has itself explained to investors that the POS
terminals industry is ``highly concentrated,'' has ``consolidated in
recent years,'' and is characterized by ``high barriers to entry.''
Ingenico has detailed a number of these entry barriers, including the
need to obtain certifications, the ``[c]onstant intensification of the
Global Card Regulation over the last 10 years,'' and the importance of
``[s]cale,'' ``[p]roximity,'' and a ``[p]ortfolio of customer
application[s].'' These barriers to entry have affected Ingenico's
ability to expand in the countertop POS terminals market.
39. The countertop and multi-lane POS terminals markets are
characterized by a number of common barriers to entry, including those
identified above. Amongst the most significant other general entry
barriers are the importance of reputation and a proven track record of
success serving customers generally and certain types of customers in
particular. Customers are reluctant to entrust their sales process to a
company without the proven ability to operate in their type of
environment, especially since service and software maintenance are
critical factors in the decision-making process.
40. In addition, a new producer's countertop POS terminals must be
certified to work with the various payment processors in order for the
processor to be willing to fully support that producer's terminals.
This certification is costly and time-consuming, and payment processors
are unlikely to prioritize the terminals of a new company with no
committed customers. Without this certification, it is very difficult
for a producer to sell a significant number of countertop POS
terminals.
41. In the multi-lane POS terminals market, new entrants face an
additional entry barrier relating to the need to demonstrate that a
terminal can interoperate with the electronic cash register and
integrated payment system used by each potential customer. As there are
a range of integrated systems on the market and their providers are
again unlikely to spend significant effort to work with a fledgling
company with no customer base, new entrants face an uphill challenge.
Even if a new entrant has a device with features comparable to those of
VeriFone, Hypercom, and Ingenico, at an attractive price point, the
consumer may not even consider bids from the company if it cannot
demonstrate that its terminal already works with the integrated system
used by that consumer.
2. Efficiencies
42. The anticompetitive effects of the proposed transaction are not
likely to be eliminated or sufficiently mitigated by any efficiencies
that may be achieved by the proposed transaction.
V. Violation Alleged
43. The United States incorporates the allegations of paragraphs 1
through 42 above.
44. The proposed acquisition of Hypercom by VeriFone likely would
substantially lessen competition in interstate trade and commerce, in
violation of Section 7 of the Clayton Act, 15 U.S.C. 18, in that:
a. Actual and potential competition between VeriFone and Hypercom
in the sale of countertop and multi-lane POS terminals in the United
States would be eliminated; and
b. competition in the sale of countertop and multi-lane POS
terminals in the United States likely would be lessened substantially.
VI. Relief Requested
45. The United States requests that:
a. The proposed acquisition of Hypercom by VeriFone be adjudged to
violate Section 7 of the Clayton Act, 15 U.S.C. 18;
b. VeriFone and Hypercom be enjoined from carrying out the proposed
acquisition of Hypercom by VeriFone or carrying out any other
agreement, understanding, or plan by which VeriFone and Hypercom would
acquire, be acquired by, or merge with each other, in whole or in part;
c. The United States be awarded their costs of this action; and
d. The United States receive such other and further relief as the
case requires and the Court deems just and proper.
Dated: June 15, 2011.
Respectfully submitted,
For Plaintiff United States.
Christine A. Varney (DC Bar 411654),
Assistant Attorney General.
Joseph F. Wayland,
Deputy Assistant Attorney General.
Patricia A. Brink,
Director of Civil Enforcement.
James J. Tierney (DC Bar 434610),
Chief.
Scott A. Scheele (DC Bar 429061),
Assistant Chief, Networks and Technology Enforcement Section.
Ryan S. Struve (DC Bar 495406),
Attorney, Networks and Technology Enforcement Section, Antitrust
Division, U.S. Department of Justice, 450 Fifth Street, NW., Suite
7100, Washington, DC 20530.
[[Page 50258]]
Telephone: (202) 514-4890. Fax: (202) 616-8544. E-mail:
[email protected].
Sanford M. Adler,
Aaron D. Hoag,
Ihan Kim,
Adam T. Severt,
Jennifer A. Wamsley (DC Bar 486540),
Attorneys for the United States.
In the United States District Court for the District of Columbia
United States of America, Plaintiff, v. Verifone Systems, Inc., and
Hypercom Corporation, Defendants.
Case: 1:11-cv-00887.
Assigned to: Kessler, Gladys.
Assign. Date: 5/12/2011.
Description: Antitrust.
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment submitted for entry
in this civil antitrust proceeding.
I. Nature and Purpose of This Proceeding
On November 17, 2010, VeriFone Systems, Inc. (``VeriFone'') entered
into a $485 million merger agreement to acquire Hypercom Corporation
(``Hypercom'') that would combine two of only three significant sellers
of Point of Sale (``POS'') terminals in the United States. On April 1,
2011, VeriFone and Hypercom entered into an agreement whereby
Hypercom's United States POS business would be licensed to Ingenico
S.A. (``Ingenico''), the only other substantial provider of POS
terminals. The United States filed a civil antitrust Complaint on May
12, 2011, seeking to enjoin VeriFone's proposed acquisition of Hypercom
and the related licensing agreement with Ingenico because the likely
effect of the transactions would be to lessen competition substantially
for POS terminals in the United States in violation of Section 7 of the
Clayton Act, 15 U.S.C. 18. This loss of competition likely would result
in less innovation and higher prices for POS terminals. On May 19,
2011, Defendants announced they would abandon the agreement to license
certain Hypercom assets to Ingenico. Therefore, the United States filed
an Amended Complaint on June 22, 2011 to dismiss Ingenico as a
defendant in this matter
On August 4, 2011, the United States filed a Hold Separate
Stipulation and Order (``Hold Separate'') and proposed Final Judgment,
which are designed to eliminate the anticompetitive effects of the
acquisition in the United States. Under the proposed Final Judgment,
which is explained more fully below, VeriFone and Hypercom are required
to divest Hypercom's entire business engaged in the development,
production, distribution, and sale of POS terminals in the United
States (hereafter, the ``Divestiture Assets''). Under the terms of the
Hold Separate, VeriFone and Hypercom will take certain steps to ensure
that the Divestiture Assets are operated as a competitive independent,
economically viable and ongoing business that will remain independent
and uninfluenced by the consummation of the acquisition, and that
competition is maintained during the pendency of the ordered
divestiture.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate this action, except that
the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish and remedy
violations thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The POS Terminal Industry
POS terminals enable retailers and other firms to accept a wide
range of non-cash payment types, such as credit cards and debit cards,
at millions of locations nationwide. Given the increasing popularity of
electronic payments, the vast majority of merchants need to accept non-
cash payment options and use POS terminals to handle on-site electronic
payments. POS terminals can be operated as standalone machines,
commonly referred to in the industry as ``countertop'' machines, or
connected to an electronic cash register or similar device as part of
an integrated point of sale system, commonly referred to in the
industry as ``multi-lane'' machines.
Countertop POS terminals can be connected to payment networks by a
standard telephone line, by wired or wireless Internet protocol
technologies, or cellular networks. Countertop POS terminals are
typically sold to small- or medium-sized businesses or retailers to
enable them to accept credit and debit cards.
Multi-lane POS terminals are connected to an electronic cash
register or similar device as part of an integrated point of sale
system. POS terminals of this type are typically used by large
retailers such as a multi-lane retail merchant or department store to
accept credit and debit cards.
B. The Defendants and the Proposed Transaction
VeriFone, a Delaware corporation, is the leading seller of both
countertop and multi-lane POS terminals in the United States. VeriFone
offers POS terminals and related software designed for numerous
applications, including financial, retail, petroleum, government, and
healthcare. VeriFone markets dial-up, IP-enabled, and wireless POS
terminals. In addition, VeriFone provides POS operating systems for its
POS terminals. Merchants using VeriFone terminals vary in size and
transaction volume from small, local businesses to national, multi-lane
retail chains. In the fiscal year ending October 31, 2010, VeriFone
earned more than $1 billion in revenues worldwide.
Hypercom, a Delaware corporation, is the third largest provider of
POS terminals in the United States, with a large presence in the
countertop POS terminals market and an emerging presence in the multi-
lane POS terminals market. Its customers include financial
institutions, electronic payment processors, transaction network
operators, retailers, system integrators, independent sales
organizations, and distributors. It also sells products to companies in
the hospitality, transportation, healthcare, and restaurant industries.
Hypercom's products include POS terminals and peripheral devices,
including a range of PIN pads and keyboards, card readers, and payment
controllers designed to permit the efficient integration of payment
functionality in a variety of self-service environments, such as
transportation ticketing, gasoline station pumps, parking machines, and
general purpose kiosks. In 2010, Hypercom earned more than $450 million
in revenues worldwide.
On November 17, 2010, following approximately eighteen months of
negotiations, VeriFone agreed to purchase Hypercom in a $485 million
deal that would combine two of only three significant sellers of POS
terminals in the United States. The proposed acquisition would extend
VeriFone's position as the largest seller of POS terminals in the
United States. This transaction would substantially lessen competition
in the market for POS terminals and is the subject of the Amended
Complaint and proposed Final Judgment filed by the United States in
this matter.
[[Page 50259]]
C. Relevant Markets
Antitrust law, including Section 7 of the Clayton Act, protects
consumers from anticompetitive conduct, such as firm's acquisition of
the ability to raise prices or reduce choice. Market definition assists
antitrust analysis by focusing attention on those markets where
competitive effects are likely to be felt. Well-defined markets
encompass actors including both sellers and buyers whose conduct most
strongly influences the nature and magnitude of competitive effects. To
ensure that antitrust analysis takes account of a broad enough set of
products to evaluate whether a transaction is likely to lead to a
substantial lessening of competition, defining relevant markets in
merger cases frequently begins by identifying a collection of products
or set of services over which a hypothetical monopolist profitably
could impose a small but significant and non-transitory increase in
price.
Here, the United States's investigation revealed two distinct
markets for POS terminals. The first market consists of countertop POS
terminals, which are directly connected to credit card processors
through a telephone line, Internet connection or cellular network. The
second market consists of multi-lane POS terminals, which are
integrated into a merchant's cash register and integrated point of sale
system. There are no reasonable alternative payment devices to
countertop or multi-lane POS terminals to which merchants could turn to
defeat a price increase. Accordingly, both countertop and multi-lane
POS terminals are relevant product markets.
Antitrust analysis must also consider the geographic dimensions of
competition. Here, the relevant markets exist within the United States
and are not affected by competition outside the United States. POS
terminals sold in the United States must be customized for the demands
of the United States purchaser and comply with distinct technical
specifications and certifications unique to the United States.
Therefore, the competitive dynamic for POS terminals market is
distinctly different outside the United States.
D. Competitive Effects
The POS terminals industry in the United States is extremely
concentrated, and would become substantially more so if VeriFone were
to acquire Hypercom. VeriFone and Hypercom are two of only three
dominant providers of POS terminals in the United States. In 2009,
according to a leading market analyst report, VeriFone had a 48 percent
share of the sale of all POS terminals in the United States, while
Hypercom had an 18 percent share. The only other significant company to
offer POS terminals in the United States is Ingenico, representing a 26
percent share of the sale of all POS terminals in the United States.
In the United States, VeriFone and Hypercom together control over
60 percent of the countertop POS terminals market. VeriFone, Hypercom
and Ingenico together control well over 90 percent of the multi-lane
POS terminals market in this country. Using a measure of market
concentration called the Herfindahl-Hirschman Index (``HHI''), the
proposed transaction would substantially increase the HHI in each
relevant market in excess of the 200 points presumed to be
anticompetitive under the Horizontal Merger Guidelines issued by the
Department of Justice and the Federal Trade Commission.
The vigorous competition between VeriFone and Hypercom in the
development, distribution and sale of countertop and multi-lane POS
terminals has benefitted customers through better prices and increased
innovation, quality, product variety and service. The proposed
transaction would eliminate this competition between VeriFone and
Hypercom and likely result in unilateral and coordinated effects. The
acquisition would likely result in unilateral effects in each relevant
market as VeriFone would be able to raise the price of both VeriFone
and Hypercom products because it would recapture some sales that would
have been lost absent the acquisition as purchasers reacted to such
price increases by switching between VeriFone and Hypercom products.
The elimination of Hypercom as a competitor would also reduce the
number of significant competitors from three to two in the POS
terminals markets, resulting in a duopoly and heightening the potential
for coordinated behavior. Coordination, whether tacit or explicit, is
especially likely because the acquisition would enhance each company's
ability to deter competitive behavior in one market by retaliating
across a range of other product and geographic markets.
The POS terminals markets are protected by high barriers to entry.
These barriers include the need to obtain certifications for countertop
POS terminals or the ability for the multi-lane POS terminal to work
with a merchant's integrated payment system, keeping up with changing
payment regulations, having sufficient scale, being in close proximity
to customers, having a broad portfolio of customer applications, and
the need for a reputation for reliability.
As a result of these barriers to entry, entry or expansion by any
other firms into the countertop or multi-lane POS terminals markets
would not be timely, likely, or sufficient to prevent the
anticompetitive effects that would result from the proposed
transaction.
III. Explanation of the Proposed Final Judgment
The divestiture requirement of the proposed Final Judgment will
eliminate the likely anticompetitive effects of the acquisition in the
development, production, distribution, and sale of POS Terminals in the
United States by establishing a new, independent and economically
viable competitor. The proposed Final Judgment requires defendants to
divest Hypercom's entire business engaged in the development,
production, distribution, and sale of POS Terminals in the United
States. The assets must be divested in such a way as to satisfy the
United States in its sole discretion that the operations can and will
be operated by the purchaser as a viable, ongoing business that can
compete effectively in the relevant markets.
The proposed Final Judgment designates Gores as the company to
which the divested assets must be sold.\2\ The Final Judgment will
enable Gores to become a new, independent, economically viable
competitor in the sale of POS Terminals in the United States. In
addition to defining the assets to be divested to Gores, the Final
Judgment requires VeriFone to (1) license the intellectual property
necessary to compete in the provision of POS Terminals in the United
States to Gores; (2) provide access to Hypercom employees; and (3)
provide transitional support to Gores.
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\2\ The Hold Separate requires that until the assets being
divested are sold according to the terms of the Final Judgment,
VeriFone and Hypercom must continue to operate their entire
businesses as independent, ongoing, and economically viable
businesses that are held entirely separate, distinct and apart.
VeriFone and Hypercom shall not coordinate their production,
marketing or terms of sales until the assets being divested are
sold. It is necessary to keep Hypercom's entire business separate
from VeriFone's business in the event the divested assets are not
sold to Gores for any reason. If the assets are not sold to Gores,
VeriFone and Hypercom will be unable to combine their operations,
thus preserving Hypercom as an independent competitor in the POS
Terminals markets.
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The United States typically requires that ownership of intellectual
property is divested to the acquirer and if required a license to the
intellectual property is granted back to the seller.
[[Page 50260]]
The structure of the intellectual property transfer in this instance is
unique due to the nature of the divestiture relative to the entire
global market. VeriFone will retain ownership of Hypercom's
international POS Terminals business which relies on similar, and in
some instances the same, intellectual property rights relied upon in
Hypercom's United States POS Terminals. Therefore, VeriFone retaining
ownership of Hypercom's intellectual property and licensing those
rights to Gores allows Gores to compete effectively in the United
States and VeriFone to utilize the Hypercom intellectual property
abroad.
The Final Judgment allows Gores access to Hypercom employees and
prohibits VeriFone interfering with any negotiations by Gores to employ
any current or former Hypercom employee who is responsible in any way
for the design, production and sale of POS Terminals in the United
States. It also requires VeriFone to waive any non-compete agreements
for current and former Hypercom employees involved in the design,
production or sale of POS Terminals in the United States. These
provisions will provide Gores will access to the engineering and sales
talent at Hypercom which will help to ensure that Gores can operate
effectively as a standalone competitor to VeriFone.
Gores may require assistance in transitioning the databases,
software, and technical support that relates to the divested assets and
may require time to develop their own capabilities to manage these
items on a ongoing bases. Therefore, the Final Judgment allows for
Gores to enter into a transitional support agreement for up to one year
after the sale of the divestiture assets. These transition services
will enable Gores to compete effectively in providing POS Terminal in
the United States. In addition, the Final Judgment forecloses VeriFone
from taking any action to impede the operation of the transitional
support services agreement.
Gores, a privately held acquisition and management company, is well
suited to acquire the divestiture assets. Gores specializes in
acquiring technology organizations and managing them for growth and
profitability. In addition, it has experience in the POS Terminal
industry. In 2001, Gores purchased VeriFone from Hewlett-Packard
Company. Gores and another firm recapitalized VeriFone, focused the
company on its POS Terminals products and services, and made VeriFone a
profitable company. In 2005, VeriFone launched an initial public
offering and became an independent company. Given Gores' financial
resources, management expertise and POS Terminals industry knowledge,
Gores is well positioned to successfully compete with the merged firm
in the development, production, distribution, and sale of POS Terminals
in the United States
In the event that Defendants do not accomplish the divestiture to
Gores as prescribed in the proposed Final Judgment, the Final Judgment
provides that the Court will appoint a trustee selected by the United
States to effect the divestiture. If a trustee is appointed the
proposed Final Judgment provides that defendants will pay all costs and
expenses of the trustee. The trustee's commission will be structured so
as to provide an incentive for the trustee based on the price obtained
and the speed with which the divestiture is accomplished. After his or
her appointment becomes effective, the trustee will file monthly
reports with the Court and the United States setting forth his or her
efforts to accomplish the divestiture. At the end of six months, if the
divestiture has not been accomplished, the trustee and the United
States will make recommendations to the Court, which shall enter such
orders as appropriate, in order to carry out the purpose of the trust,
including extending the trust or the term of the trustee's appointment.
The divestiture provisions of the proposed Final Judgment will
eliminate the anticompetitive effects of the acquisition in the
development, production, distribution, and sale of POS terminals in the
United States.
IV. Remedies Applicable to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in Federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against Defendants.
V. Procedures Applicable For Approval Or Modification of the Proposed
Final Judgment
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least 60 days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within 60
days of the date of publication of this Competitive Impact Statement in
the Federal Register, or the last date of publication in a newspaper of
the summary of this Competitive Impact Statement, whichever is later.
All comments received during this period will be considered by the
United States, which remains free to withdraw its consent to the
proposed Final Judgment at any time prior to the Court's entry of
judgment. The comments and the response of the United States will be
filed with the Court and published in the Federal Register.
Written comments should be submitted to: James J. Tierney, Chief,
Networks & Technology Enforcement Section, Antitrust Division, United
States Department of Justice, 450 Fifth Street, NW., Suite 7100,
Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, seeking preliminary and permanent injunctions against
Defendants' transaction and proceeding to a full trial on the merits.
The United States is satisfied, however, that the relief in the
proposed Final Judgment will preserve competition in the markets for
countertop and multi-lane POS Terminals. Thus, the proposed Final
Judgment would protect competition as effectively as would any remedy
available through litigation, but avoids the time, expense, and
uncertainty of a full trial on the merits.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a 60-day comment period, after which the Court shall
determine whether entry of the
[[Page 50261]]
proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
16(e)(1). In making that determination, the Court, in accordance with
the statute as amended in 2004, is required to consider:
(A) The competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory factors,
the Court's inquiry is necessarily a limited one as the United States
is entitled to ``broad discretion to settle with the Defendant within
the reaches of the public interest.'' United States v. Microsoft Corp.,
56 F.3d 1448, 1461 (DC Cir. 1995); see generally United States v. SBC
Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing public
interest standard under the Tunney Act); United States v. InBev N.V./
S.A., 2009-2 Trade Cas. (CCH) ] 76,736, 2009 U.S. Dist. LEXIS 84787,
No. 08-1965 (JR), at *3 (D.D.C. Aug. 11, 2009) (noting that the court's
review of a consent judgment is limited and only inquires ``into
whether the government's determination that the proposed remedies will
cure the antitrust violations alleged in the complaint was reasonable,
and whether the mechanism to enforce the final judgment are clear and
manageable'').\1\
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\1\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for a court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
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Under the APPA a court considers, among other things, the
relationship between the remedy secured and the specific allegations
set forth in the United States's complaint, whether the decree is
sufficiently clear, whether enforcement mechanisms are sufficient, and
whether the decree may positively harm third parties. See Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by
the decree, a court may not ``engage in an unrestricted evaluation of
what relief would best serve the public.'' United States v. BNS, Inc.,
858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel
Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d
at 1460-62; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40
(D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. Courts have
held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is `within the reaches of the public
interest.' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\2\ In
determining whether a proposed settlement is in the public interest, a
district court ``must accord deference to the government's predictions
about the efficacy of its remedies, and may not require that the
remedies perfectly match the alleged violations.'' SBC Commc'ns, 489 F.
Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need
for courts to be ``deferential to the government's predictions as to
the effect of the proposed remedies''); United States v. Archer-
Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that
the court should grant due respect to the United States's prediction as
to the effect of proposed remedies, its perception of the market
structure, and its views of the nature of the case).
---------------------------------------------------------------------------
\2\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest.' '').
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In addition, ``a proposed decree must be approved even if it falls
short of the remedy the court would impose on its own, as long as it
falls within the range of acceptability or is `within the reaches of
public interest.''' United States v. Am. Tel. & Tel. Co., 552 F. Supp.
131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v.
Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom.
Maryland v. United States, 460 U.S. 1001 (1983); see also United States
v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985)
(approving the consent decree even though the court would have imposed
a greater remedy). To meet this standard, the United States ``need only
provide a factual basis for concluding that the settlements are
reasonably adequate remedies for the alleged harms.'' SBC Commc'ns, 489
F. Supp. 2d at 17.
Moreover, the Court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009
U.S. Dist. LEXIS 84787, at *20 (``[T]he `public interest' is not to be
measured by comparing the violations alleged in the complaint against
those the court believes could have, or even should have, been
alleged.''). Because the ``court's authority to review the decree
depends entirely on the government's exercising its prosecutorial
discretion by bringing a case in the first place,'' it follows that
``the court is only authorized to review the decree itself,'' and not
to ``effectively redraft the complaint'' to inquire into other matters
that the United States did not pursue. Microsoft, 56 F.3d. at 1459-60.
Courts ``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). This language effectuates what
Congress intended when it enacted the Tunney Act in 1974, as Senator
Tunney explained: ``[t]he court is nowhere compelled to go to trial or
to engage in extended proceedings which might have the effect of
vitiating the benefits of prompt and less costly settlement through the
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of
Senator Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the Court, with the
recognition that the
[[Page 50262]]
court's ``scope of review remains sharply proscribed by precedent and
the nature of Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d
at 11.\3\
---------------------------------------------------------------------------
\3\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that the United States considered in formulating
the proposed Final Judgment.
Dated: August 4, 2011.
Respectfully submitted,
For Plaintiff, United States of America.
Ryan Struve,
Attorney, U.S. Department of Justice, Antitrust Division, 450 Fifth
Street, NW., 7th Floor, Washington, DC 20530. Tel: (202) 514-4890.
Fax: (202) 616-8544. E-mail: [email protected].
In the United States District Court for the District of Columbia
United States of America, Plaintiff, v. Verifone Systems, Inc., and
Hypercom Corporation, Defendants.
Case: 1:11-cv-00887.
Assigned to: Kessler, Gladys.
Assign. Date: 5/12/2011.
Description: Antitrust.
Proposed Final Judgment
Whereas, Plaintiff United States of America (``United States'')
filed its Amended Complaint on June 22, 2011, the United States and
Defendants VeriFone Systems, Inc. and Hypercom Corp., by their
respective attorneys, have consented to entry of this Final Judgment
without trial or adjudication of any issue of fact or law, and without
this Final Judgment constituting any evidence against or admission by
any party regarding any issue of fact or law;
And whereas, Defendants agree to be bound by the provisions of the
Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt and
certain divestiture of certain rights or assets by the Defendants, to
assure that competition is not substantially lessened;
And whereas, the United States requires Defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Amended Complaint;
And whereas, Defendants have represented to the United States that
the divestitures required below can and will be made and that
Defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is Ordered, Adjudged and Decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each of
the parties to this action. The Amended Complaint states a claim upon
which relief may be granted against Defendants under Section 7 of the
Clayton Act, as amended (15 U.S.C. 18).
II. Definitions
As used in the Final Judgment:
A. ``Acquirer'' means Gores or a buyer designated by a trustee to
whom Defendants shall divest the Divestiture Assets.
B. ``Defendants'' means VeriFone and Hypercom, as defined below,
and any successor or assign to all or substantially all of the business
or assets of VeriFone or Hypercom involved in the provision of Point of
Sale Terminals.
C. ``Divestiture Assets'' means Hypercom's entire business engaged
in the development, production, distribution, and sale of POS Terminals
in the United States, including, but not limited to:
1. All facilities used in the operation of Hypercom's United States
POS Terminal business, including Hypercom's repair facility located in
Delegacion Benito Juarex, Mexico.
2. All existing inventory of Hypercom's POS Terminal devices
including parts.
3. All tangible assets used to operate the Divestiture Assets,
including, but not limited to, all research and development activities;
all manufacturing equipment, tooling and fixed assets, personal
property, inventory, office furniture, materials, supplies and other
tangible property; all licenses, permits and authorizations issued by
any governmental organization; all contracts, teaming arrangements,
agreements, leases, commitments, certifications, and understandings,
relating to the Divestiture Assets, including supply agreements and
current POS Terminal certifications; all customer lists, customer
contracts, accounts, and credit records; all repair and performance
records and all other records relating to the Divestiture Assets.
4. Irrevocable, exclusive, transferable, fully paid, royalty free,
non-sub licensable license to all patents and other intangible assets
related to the development, production, distribution, and sale of POS
Terminals in the United States, including, but not limited to, all
licenses and sublicenses, software and hardware intellectual property,
copyrights, trademarks, trade names, service marks, service names,
technical information, computer software and related documentation,
know-how, trade secrets, drawings, blueprints, designs, design
protocols, specifications for materials, specifications for parts and
devices, safety procedures for the handling of materials and
substances, all research data concerning historic and current research
and development relating to the Divestiture Assets, quality assurance
and control procedures, design tools and simulation capability, all
manuals and technical information Defendants provide to their own
employees, customers, suppliers, agents or licensees, and all research
data concerning historic and current research and development efforts
relating to the Divestiture Assets, including, but not limited to,
designs of experiments, and the results of successful and unsuccessful
designs and experiments.
5. In the event that a trustee is appointed, the trustee may, at
the trustee's sole discretion, include any assets, including tangible
assets as well as patents and other intangible assets that extend
beyond the United States, if the trustee finds it necessary to enable
the Acquirer to compete effectively in the POS Terminals Industry in
the United States and accomplish the divestiture of Hypercom's POS
Terminals business.
D. ``Gores'' means The Gores Group, LLC., with headquarters in Los
Angeles, California, its successors and assigns, and its subsidiaries,
divisions, groups, affiliates, partnerships, and joint ventures, and
their directors, officers, managers, agents, and employees.
E. ``Hypercom'' means Defendant Hypercom Corp., a Delaware
corporation, with headquarters in Scottsdale, Arizona, its successors
and assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
[[Page 50263]]
F. ``Gores'' means The Gores Group, LLC., with headquarters in Los
Angeles, California, its successors and assigns, and its subsidiaries,
divisions, groups, affiliates, partnerships, and joint ventures, and
their directors, officers, managers, agents, and employees.
G. ``Point of Sale (POS) Terminals'' means devices that enable
retailers and other firms to accept a wide range of non-cash payment
types, such as credit cards and debit cards. POS Terminals can operate
on a standalone basis or be connected to an electronic cash register or
similar device as part of an integrated point of sale system.
Standalone POS Terminals are commonly referred to in the industry as
``countertop'' machines. Integrated POS Terminals are commonly referred
to in the industry as ``multi-lane'' or ``customer facing.''
H. ``POS Terminals Industry'' means the market for POS Terminals
including countertop and integrated POS Terminals.
I. ``Transaction'' means VeriFone's proposed merger with Hypercom.
J. ``VeriFone'' means Defendant VeriFone Systems, Inc., a Delaware
corporation, headquartered in San Jose, California, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
III. Applicability
A. This Final Judgment applies to Defendants, as defined above, and
all other persons in active concert or participation with any of them
who receive actual notice of this Final Judgment by personal service or
otherwise.
B. If, prior to complying with Section IV and V of this Final
Judgment, Defendants sell or otherwise dispose of all or substantially
all of their assets or of lesser business units that include the
Divestiture Assets, they shall require the purchaser to be bound by the
provisions of this Final Judgment. Defendants need not obtain such an
agreement from the acquirers of the assets divested pursuant to this
Final Judgment.
IV. Divestiture
A. Defendants are ordered and directed, within twenty (20) calendar
days after the Court signs the Hold Separate Stipulation and Order in
this matter, to divest the Divestiture Assets to Gores in a matter
consistent with this Final Judgment.
B. Defendants will not interfere with any negotiations by the
Acquirer in connection with the transfer of the Divestiture Assets to
employ any Hypercom employee who is agreed to by the Acquirer and
Defendants to be an employee to be transferred in connection with the
divestiture of the Divestiture Assets or as specified by a trustee.
Interference with respect to this paragraph includes, but is not
limited to, enforcement of non-compete clauses and offers to increase
salary or other benefits apart from those offered company-wide. In
addition, for each employee who elects employment by the Acquirer in
connection with the divestiture of the Divestiture Assets, Defendants
shall vest all unvested pension and other equity rights of that
employee and provide all benefits to which the employee would have been
entitled if terminated without cause.
C. Defendants shall, as soon as possible, but within two business
days after completion of the relevant event, notify the United States
of: (1) The effective date of the Transaction and (2) the effective
date of the sale of the Divestiture Assets to the Acquirer.
D. Defendants shall enter into a transitional support services
agreement on customary and commercially reasonable terms and conditions
for a period up to twelve (12) months from the execution date of the
divestiture to enable the Acquirer to compete effectively in providing
POS Terminals in the United States.
E. Defendants shall not take any action that will impede in any way
the sales, operation, use or divestiture of the Divestiture Assets or
the operation of the transitional support services agreement.
F. Unless the United States otherwise consents in writing to the
divestiture pursuant to Section IV, or by trustee appointed pursuant to
Section V, of this Final Judgment, shall include the entire Divestiture
Assets, and shall be accomplished in such a way as to satisfy the
United States, in its sole discretion that the Divestiture Assets can
and will be used by the Acquirer as part of a viable, ongoing business,
engaged in providing POS Terminals in the United States. The
divestiture shall be:
1. Made to an Acquirer that, in the United States's sole judgment
has the intent and capability (including the necessary managerial,
operational, technical and financial capability) of competing in the
business of providing POS Terminals; and
2. accomplished so as to satisfy the United States, in its sole
discretion that none of the terms of the agreement between an Acquirer
and Defendants give Defendants the ability to raise the Acquirer's
costs, to lower the Acquirer's efficiency, or otherwise to interfere in
the ability of the Acquirer to compete effectively.
V. Appointment of Trustee To Effect Divestiture
A. If Defendants have not divested the Divestiture Assets as
specified in Section IV, Defendants shall notify the United States of
that fact in writing. Upon application of the United States, the Court
shall appoint a trustee selected by the United States and approved by
the Court to divest the Divestiture Assets in a manner consistent with
this Final Judgment.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer acceptable to the United States at such
price and on such terms as are then obtainable upon reasonable effort
by the trustee, subject to the provisions of Sections IV, V, and VI of
this Final Judgment, and shall have such other powers as this Court
deems appropriate.
C. Subject to Section V.E of this Final Judgment, the trustee may
hire at the cost and expense of Defendants any investment bankers,
attorneys, or other agents, who shall be solely accountable to the
trustee, reasonably necessary in the trustee's judgment to assist in
the divestiture.
D. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
defendants must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VI.
E. The trustee shall serve at the cost and expense of Defendants,
on such terms and conditions as the United States approves, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to Defendants and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Divestiture Assets and based on a fee arrangement
providing the trustee with an incentive based on the price and terms of
the divestiture and the speed with which it is accomplished, but
timeliness is paramount.
F. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestiture. The trustee and any
consultants,
[[Page 50264]]
accountants, attorneys, and other persons retained by the trustee shall
have full and complete access to the personnel, books, records, and
facilities of the business to be divested, including any information
provided to the United States during its investigation of the
Transaction related to the business to be divested, and Defendants
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secret or other confidential research, development, or
commercial information. Defendants shall take no action to interfere
with or to impede the trustee's accomplishment of the divestiture.
G. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestiture ordered under this Final
Judgment. To the extent such reports contain information that the
trustee deems confidential, such reports shall not be filed in the
public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring the Divestiture Assets, and shall describe in
detail each contact with any such person. The trustee shall maintain
full records of all efforts made to divest the Divestiture Assets.
H. If the trustee has not accomplished the divestiture ordered
under this Final Judgment within six (6) months after its appointment,
the trustee shall promptly file with the Court a report setting forth
(1) The trustee's efforts to accomplish the required divestiture, (2)
the reasons, in the trustee's judgment, why the required divestiture
has not been accomplished, and (3) the trustee's recommendations. To
the extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such report to
the United States which shall have the right to make additional
recommendations consistent with the purpose of the trust. The Court
thereafter shall enter such orders as it shall deem appropriate to
carry out the purpose of the Final Judgment, which may, if necessary,
include extending the trust and the term of the trustee's appointment
by a period requested by the United States.
VI. Notice of Proposed Divestiture
A. Within two (2) business days following execution of a definitive
divestiture agreement the trustee shall notify the United States and
Defendants of any proposed divestiture required by Section V of this
Final Judgment. The notice shall set forth the details of the proposed
divestiture and list the name, address, and telephone number of each
person not previously identified who offered or expressed an interest
in or desire to acquire any ownership interest in the Divestiture
Assets.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Defendants,
the proposed Acquirer(s), any other third party, or the trustee if
applicable, additional information concerning the proposed divestiture,
the proposed Acquirer(s), and any other potential Acquirer. Defendants
and the trustee shall furnish any additional information requested
within fifteen (15) calendar days of the receipt of the request, unless
the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer(s), any third party, and the trustee, whichever is
later, the United States shall provide written notice to Defendants and
the trustee, stating whether or not it objects to the proposed
divestiture. If the United States provides written notice that it does
not object, the divestiture may be consummated, subject only to
Defendants' limited right to object to the sale under Section V.D of
this Final Judgment. Absent written notice that the United States does
not object to the proposed Acquirer or upon objection by the United
States, a divestiture proposed under Section V shall not be
consummated. Upon objection by defendants under Section V.D, a
divestiture proposed under Section V shall not be consummated unless
approved by the Court.
VII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or V of this Final Judgment.
VIII. Hold Separate
Until the divestiture required by this Final Judgment has been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the divestiture
ordered by this Court.
IX. Affidavits
A. Within twenty (20) calendar days of the filing of the Proposed
Final Judgment in this matter, and every thirty (30) calendar days
thereafter until the divestiture has been completed under Section IV or
V, Defendants shall deliver to the United States an affidavit as to the
fact and manner of its compliance with Section IV or V of this Final
Judgment. Each such affidavit shall include the name, address, and
telephone number of each person who, during the preceding thirty (30)
calendar days, made an offer to acquire, expressed an interest in
acquiring, entered into negotiations to acquire, or was contacted or
made an inquiry about acquiring, any interest in the Divestiture
Assets, and shall describe in detail each contact with any such person
during that period. Each such affidavit shall also include a
description of the efforts defendants have taken to solicit buyers for
the Divestiture Assets, and to provide required information to
prospective Acquirers, including the limitations, if any, on such
information. Assuming the information set forth in the affidavit is
true and complete, any objection by the United States to information
provided by defendants, including limitation on information, shall be
made within fourteen (14) calendar days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Proposed
Final Judgment in this matter, defendants shall deliver to the United
States an affidavit that describes in reasonable detail all actions
Defendants have taken and all steps Defendants have implemented on an
ongoing basis to comply with Section VIII of this Final Judgment.
Defendants shall deliver to the United States an affidavit describing
any changes to the efforts and actions outlined in Defendants' earlier
affidavits filed pursuant to this section within fifteen (15) calendar
days after the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestiture has been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time authorized representatives of the United States
Department of Justice Antitrust Division (``DOJ''), including
consultants
[[Page 50265]]
and other persons retained by the United States, shall, upon written
request of an authorized representative of the Assistant Attorney
General in charge of the Antitrust Division, and on reasonable notice
to Defendants, be permitted:
(1) Access during Defendants' office hours to inspect and copy, or
at the option of the United States, to require Defendants to provide
hard copy or electronic copies of, all books, ledgers, accounts,
records, data, and documents in the possession, custody, or control of
Defendants, relating to any matters contained in this Final Judgment;
and
(2) to interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or respond to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by
Defendants to the United States, Defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(1)(G) of the
Federal Rules of Civil Procedure, and Defendants mark each pertinent
page of such material, ``Subject to claim of protection under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United
States shall give Defendants ten (10) calendar days notice prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding).
XI. No Reacquisition
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment.
XII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIII. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XIV. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Date: ------------
Court approval subject to procedures of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
------------
United States District Judge.
[FR Doc. 2011-20534 Filed 8-11-11; 8:45 am]
BILLING CODE ;P