[Federal Register Volume 80, Number 103 (Friday, May 29, 2015)]
[Notices]
[Pages 30726-30736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13025]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Verso Paper Corp. and NewPage Holdings Inc.;
Public Comments and Response on Proposed Final Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes below the comments
received on the proposed Final Judgment in United States v. Verso Paper
Corp., et al., Civil Action No. 1:14-CV-2216-TSC (D.D.C. 2014),
together with the Response of the United States to Public Comments.
Copies of the comments, attachments to these comments, and the
United States' Response are available for inspection at the Department
of Justice Antitrust Division, 450 Fifth Street NW., Suite 1010,
Washington, DC 20530 (telephone: 202-514-2481), on the Department of
Justice's Web site at http://www.justice.gov/atr/cases/verso.html, and
at the Office of the Clerk of the United States District Court for the
District of Columbia, 333 Constitution Avenue NW., Washington, DC
20001. Copies of any of these materials may also be obtained upon
request and payment of a copying fee.
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the District of Columbia
UNITED STATES OF AMERICA, Plaintiff, v. VERSO PAPER CORP., and
NEWPAGE HOLDINGS INC., Defendants.
Case No. 1:14-cv-2216 (TSC)
Response of Plaintiff United States to Public Comments on the Proposed
Final Judgment
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (``APPA'' or ``Tunney Act''),
the United States hereby responds to the public comments received
regarding the proposed Final Judgment in this case. After careful
consideration of the submitted comments, the United States continues to
believe that the proposed Final Judgment will provide an effective and
appropriate remedy for the antitrust violations alleged in the
Complaint. The United States will move the Court for entry of the
proposed Final Judgment after the public comments and this response
have been published in the Federal Register pursuant to 15 U.S.C. Sec.
16(d).\1\
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\1\ On May 7, 2015, the United States submitted its Unopposed
Motion and Supporting Memorandum to Excuse Federal Register
Publication of Attachments to Public Comments requesting that this
Court authorize an alternative means for publishing the attachments
to the public comments received in this action. (Docket No. 11.)
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[[Page 30727]]
I. Procedural History
On January 3, 2014, Verso Paper Corp. (``Verso'') entered into an
agreement to acquire NewPage Holdings Inc. (``NewPage'') in a
transaction valued at approximately $1.4 billion.\2\ The United States
filed a civil antitrust Complaint on December 31, 2014, seeking to
enjoin Verso from acquiring NewPage. The United States alleged in its
Complaint that the acquisition likely would substantially lessen
competition in the sale of coated freesheet web paper, coated
groundwood paper, and label papers to customers in North America in
violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. At the
time the Complaint was filed, Verso and NewPage were vigorous
competitors in these coated paper markets.
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\2\ After the United States initiated this action on December
31, 2014, Verso Paper Corp. changed its name to Verso Corporation.
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Simultaneously with the filing of the Complaint, the United States
filed a proposed Final Judgment and a Stipulation signed by Plaintiff
and Defendants consenting to entry of the proposed Final Judgment after
compliance with the requirements of the Tunney Act, 15 U.S.C. Sec. 16,
and a Competitive Impact Statement (``CIS'') describing the transaction
and the proposed Final Judgment. The United States published the
proposed Final Judgment and CIS in the Federal Register on January 14,
2015, see 80 FR 1957, and caused summaries of the proposed Final
Judgment and CIS, together with directions for the submission of
written comments relating to the proposed Final Judgment, to be
published in The Washington Post on January 14, 15, 16, 19, 20, 21, and
22, 2015. The 60[hyphen]day period for public comment ended on March
24, 2015. The United States received two comments, as described below
and attached hereto as Exhibits 1 and 2.
II. The Investigation and the Proposed Resolution
The proposed Final Judgment is the culmination of a nearly year-
long investigation by the Antitrust Division of the United States
Department of Justice (``Department'') of the proposed transaction. As
part of its investigation, the Department issued 19 Civil Investigative
Demands for documents and information to third parties, collected
almost one million documents from the Defendants and third parties,
interviewed more than 100 customers, brokers, and competitors in the
relevant coated paper markets, deposed 12 Verso and NewPage employees,
and consulted with industry experts. The Department carefully analyzed
the information it obtained from these sources and thoroughly
considered all of the issues presented.
The Department found that the proposed acquisition would likely
have eliminated substantial head-to-head competition in the relevant
markets between Verso and NewPage, providing the combined firm with an
incentive to raise prices and reduce output. The Department also found
in the coated freesheet web paper and coated groundwood paper markets
that the transaction would have likely caused the remaining players to
accommodate one another's price increases and output reductions.
Overall, the Department concluded that if Verso and NewPage had
completed the proposed transaction as structured, the loss of
competition likely would have resulted in higher prices to consumers.
For these reasons, the Department filed a civil antitrust lawsuit to
block the merger and alleged that the proposed transaction violated
Section 7 of the Clayton Act, 15 U.S.C. Sec. 18.
The proposed Final Judgment eliminates the anticompetitive effects
identified in the Complaint by requiring Defendants to divest NewPage's
Rumford, Maine and Biron, Wisconsin paper mills and related assets
(collectively, ``the Divestiture Assets'') to Catalyst Paper
Corporation (``Catalyst'') on terms acceptable to the United States.
The divestitures eliminate the anticompetitive effects of the
transaction by transferring the Rumford and Biron paper mills to a
vigorous and independent competitor and preserving the pre-merger
market structure in the coated freesheet web paper, coated groundwood
paper, and label paper markets.
Since the United States submitted the proposed Final Judgment on
December 31, 2014, Verso has acquired NewPage, and Catalyst has
acquired and is operating the Divestiture Assets.
III. Standard of Judicial Review
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a 60-day public
comment period, after which the court shall determine whether entry of
the proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
Sec. 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. Sec. 16(e)(1). In considering these statutory factors, the
court's inquiry is necessarily a limited one as the government 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 (D.C. Cir. 1995); see also United States v. SBC
Commc'ns, Inc., 489 F. Supp. 2d 1, 10-11 (D.D.C. 2007) (assessing
public interest standard under the Tunney Act); United States v. InBev
N.V./S.A., No. 08-cv-1965 (JR), 2009 U.S. Dist. LEXIS 84787, at *3
(D.D.C. Aug. 11, 2009) (discussing nature of review of consent judgment
under the Tunney Act; inquiry is limited to ``whether the government's
determination that the proposed remedies will cure the antitrust
violations alleged in the complaint was reasonable, and whether the
mechanisms to enforce the final judgment are clear and manageable'').
Under the APPA, a court considers, among other things, the
relationship between the remedy secured and the specific allegations
set forth in the Complaint, whether the decree is sufficiently clear,
whether the 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)). Instead, 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
[[Page 30728]]
the one that will best serve society, but whether the settlement in
``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).
In determining whether a proposed settlement is in the public
interest, ``the court `must accord deference to the government's
predictions about the efficacy of its remedies.''' United States v.
U.S. Airways Grp., Inc., 38 F. Supp. 3d 69, 76 (D.D.C. 2014) (quoting
SBC Commc'ns, 489 F. Supp. at 17). See also Microsoft, 56 F.3d at 1461
(noting that the government is entitled to deference as to its
``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' ``prediction as to the effect of the proposed remedies, its
perception of the market structure, and its views of the nature of the
case''); United States v. Morgan Stanley, 881 F. Supp. 2d 563, 567-68
(S.D.N.Y. 2012) (explaining that the government is entitled to
deference in choice of remedies).
Courts ``may not require that the remedies perfectly match the
alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17. Rather, the
ultimate question is 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.' '' Microsoft, 56 F.3d at 1461.
Accordingly, 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. And, 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 the public interest.''
United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C.
1982) (citations and internal quotations omitted); 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).
In its 2004 amendments to the Tunney Act,\3\ Congress made clear
its intent to preserve the practical benefits of using 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. Sec. 16(e)(2). The procedure for the public
interest determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of the Tunney Act proceedings.''
SBC Commc'ns, 489 F. Supp. 2d at 11; see also United States v. Enova
Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (``[T]he Tunney Act
expressly allows the court to make its public interest determination on
the basis of the competitive impact statement and response to public
comments alone.'').
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\3\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for courts 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.
Sec. 16(e) (2004), with 15 U.S.C. Sec. 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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IV. Summary of Public Comments and the United States' Response
A. Summary of the Public Comments
During the 60-day comment period, the United States received two
comments regarding the proposed Final Judgment, although no comments
were received from any printer, publisher, or other paper customer. The
only comments were made by former employees of the now closed
Bucksport, Maine paper mill. Verso produced coated groundwood and
specialty paper products at the Bucksport mill until closing the mill
in December 2014 and selling it to AIM Development (USA) LLC (``AIM'').
AIM is the U.S. subsidiary of American Iron & Metal, Inc., a company
that purchases discontinued manufacturing facilities and salvages the
metal. Both comments focus upon competition in the coated groundwood
paper market and the closure of the Bucksport mill.
Local 1821 of the International Association of Machinists and
Aerospace Workers (``Local 1821''), consisting of 58 former employees
of the Bucksport mill, submitted a comment arguing that: (1) The
divestitures provided by the proposed Final Judgment are inadequate to
redress the merger's anticompetitive effects and should have included
the Bucksport mill; (2) Catalyst is an insufficiently independent and
vigorous competitor and should not have been selected as the buyer of
the Divestiture Assets; (3) recent price increases by Verso and
Catalyst demonstrate the failure of the proposed Final Judgment to
remedy the transaction's anticompetitive effects; and (4) the United
States should have investigated alleged anticompetitive conduct that
Verso's parent company, Apollo Capital Management (``Apollo''), has
engaged in since at least 2011, including efforts to buy NewPage,
acquiring NewPage's debt to influence its business operations, and
causing Verso and NewPage to shut down mills in order to reduce output
and raise prices. Local 1821 further argues that the Department should
open an investigation into whether the sale of the Bucksport mill to
AIM violated Section 1 of the Sherman Act.
Herbert R. Gilley also submitted a comment. Mr. Gilley, who is not
a member of Local 1821, worked at the Bucksport mill for more than 38
years before losing his job when the mill closed. In his comment, Mr.
Gilley similarly contests the closure and sale of the Bucksport mill
and argues that the closure was anticompetive and will result in
reduced output and higher prices.
B. The United States' Response to the Public Comments
1. The Divestiture Assets Are Sufficient To Remedy the Harm Alleged in
the Complaint
Local 1821 and Mr. Gilley argue that the required divestitures are
not sufficient to prevent the merger's anticompetitive effects and
assert that additional paper mills, including Verso's Bucksport mill,
should have been included in the divestiture package. But the required
divestitures essentially preserve the preexisting competitive structure
of the affected coated paper markets by providing Catalyst with
approximately the same capacity as Verso had prior to the merger. The
divested Rumford and Biron mills produced approximately 940,000 tons
per year of coated publication papers, label paper, and other papers,
which is approximately the same amount of production capacity that
Verso had after closing the Bucksport mill but before acquiring
NewPage. In the coated groundwood market in which the Bucksport mill
competed, the output of the divested mills actually exceeds the output
of the assets Verso held after it closed the Bucksport mill and before
it completed the merger. In fact, the Biron mill alone produces more
coated groundwood than Verso's remaining coated groundwood production
assets. Furthermore, both the Rumford and Biron mills have a strong
track record of competitively producing a range of coated publication
papers and label paper, and Catalyst's ownership of the mills will give
it a
[[Page 30729]]
market presence comparable to Verso's pre-merger market presence in the
relevant markets. See also Competitive Impact Statement at 11. For
these reasons, the Department concluded that Verso's divestiture of the
Rumford and Biron mills sufficiently redressed the merger's competitive
harm.
Local 1821 and Mr. Gilley assert that the Department should have
required Verso to divest the Bucksport mill. But, as discussed above,
the Department concluded that the required divestitures would
sufficiently preserve competition, making the divestiture of the
Bucksport mill unnecessary. See US Airways, 38 F. Supp. 3d at 75-76
(explaining that the government is entitled to deference in choice of
remedies); United States v. Abitibi Consol. Inc., 584 F. Supp. 2d 162,
166 (D.D.C. 2008) (rejecting claim that paper mill divestiture was too
small because the government had factual basis for concluding that a
single mill divestiture was adequate).
The Bucksport mill, moreover, was less viable than the mills
included in the Divestiture Assets. The Department carefully reviewed
evidence related to the Verso mills, including Verso's plans relating
to the Bucksport mill that pre-dated the merger and deposition
testimony of senior Verso executives about the future of the Bucksport
mill. Based on this evidence, the Department concluded that Verso
closed the Bucksport mill because the mill was not profitable and that
the merger did not cause the mill's closure.\4\
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\4\ Consequently, the closure of the Bucksport mill is not an
anticompetitive effect of Verso's acquisition of NewPage. See also
Competitive Impact Statement at 3 n.1.
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Notably, Local 1821 made many of the same antitrust arguments about
the Bucksport mill in a recent--and unsuccessful--lawsuit it brought to
enjoin Verso's sale of the Bucksport mill to AIM. On December 15, 2014,
Local 1821 filed a civil action in the United States District Court for
the District of Maine alleging that the pending sale violated federal
and state antitrust laws. See Int'l Ass'n of Machinists and Aerospace
Workers v. Verso Paper Corp., No. 1:14-cv-00530 (JAW), ___F. Supp. 3d
___, 2015 WL 248819, at *8-*34 (D. Me. Jan. 20, 2015) (attached as
Exhibit 3). After extensive briefing and oral argument, the Court
rejected Local 1821's motion for a preliminary injunction and temporary
restraining order, concluding in a 73-page opinion that Local 1821 had
not ``met its burden to prove a strong likelihood of success on the
merits of their claims under federal antitrust law.'' Verso Paper, 2015
WL 248819, at *73.
2. Catalyst Is an Appropriate Buyer for the Divested Assets
Local 1821 asserts that Catalyst is not an appropriate buyer for
the Divestiture Assets because it is insufficiently vigorous and
independent to compete with Verso. However, Catalyst operated three
paper mills in British Columbia, Canada, before it acquired the
Divestiture Assets and the Department thoroughly examined Catalyst
before approving it as the purchaser of the Divestiture Assets. The
Department carefully reviewed the proposed transaction, Catalyst's
plans to compete in the relevant markets, and the transitional
agreements between Verso and Catalyst.\5\ Based upon this review, the
Department concluded that Catalyst would be a vigorous and independent
competitor.
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\5\ While Catalyst recently emerged from bankruptcy, bankruptcy
reorganization is a fairly common occurrence in the paper industry
and not a sign that Catalyst will not be an effective competitor.
See, e.g., Judy Newman, NewPage Corp. Emerges from Chapter 11
Bankruptcy, Wis. State J., Dec. 12, 2012, available at http://host.madison.com/business/newpage-corp-emerges-from-chapter-bankruptcy/article_d31c8f88-4bc8-11e2-9164-001a4bcf887a.html
(discussing NewPage's emergence from bankruptcy); Press Release,
AbitibiBowater, AbitibiBowater Emerges from Creditor Protection
(Dec. 9, 2010), available at http://www.newswire.ca/en/story/586251/abitibibowater-emerges-from-creditor-protection.
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3. Verso's and Catalyst's Recent Announcements of Price Increases Do
Not Show That the Department's Proposed Remedy Is Inadequate
Local 1821 notes that Verso and Catalyst each announced price
increases in January 2015 and argues that these announced price
increases demonstrate that the divestiture is inadequate. But Local
1821 has not offered any evidence that the price increases arise from
or are connected to the merger. To the contrary, the price increases
likely are related to a number of factors, including input costs,
demand fluctuations, and recent and significant capacity reductions in
the coated groundwood market that are unrelated to the merger. In
addition to Verso's Bucksport mill closure, coated groundwood paper
producer Futuremark also closed its Alsip, Illinois coated groundwood
mill in August 2014. See Press Release, FutureMark Alsip, FutureMark
Alsip to Idle Mill (Aug. 21, 2014), available at http://www.businesswire.com/news/home/20140821005972/en/#.VUjFcv-Jiig
(``FutureMark Alsip [] today announced that, due to increasingly
challenging market conditions in the North American coated paper
market, it will indefinitely idle its mill in early September.'').
4. Local 1821's Allegations That Other Conduct by Apollo and Verso
Violated the Antitrust Laws Are Outside the Scope of the Tunney Act
Lastly, Local 1821 alleges that Apollo, Verso's parent company, has
engaged in anticompetitive conduct since at least 2011 and argues that
the Department should have investigated these earlier activities. Local
1821 also asserts that the Department should investigate whether
Verso's 2015 sale of the Bucksport mill to AIM violates Section 1 of
the Sherman Act.
Although the Department takes all allegations of anticompetitive
conduct seriously, Local 1821's claim that the United States should
bring or have brought an enforcement action relating to conduct not
challenged in the Complaint is outside the scope of this Tunney Act
proceeding. It is well-settled that the Department's decision to bring
an action alleging harm is left to the Department's prosecutorial
discretion and is not part of the court's Tunney Act review. See
Microsoft, 56 F.3d at 1459 (explaining that in an APPA proceeding, the
``district court is not empowered to review the actions or behavior of
the Department of Justice; the court is only authorized to review the
decree itself''). Indeed, this Court has squarely held that ``a
district court is not permitted to `reach beyond the complaint to
evaluate claims that the government did not make and to inquire as to
why they were not made.' '' SBC Commc'ns, 489 F. Supp. 2d at 14
(quoting Microsoft, 56 F.3d at 1459) (emphasis in original); see also
US Airways, 38 F. Supp. 3d at 76. Consequently, Local 1821's
allegations of anticompetitive conduct not challenged in the Complaint
do not provide a basis for rejecting the proposed Final Judgment.
V. Conclusion
After reviewing the public comments, the United States continues to
believe that the proposed Final Judgment, as drafted, provides an
effective and appropriate remedy for the antitrust violations alleged
in the Complaint, and is therefore in the public interest. The United
States will move this Court to enter the proposed Final Judgment after
the comments and this response are published in the Federal Register.
Dated: May 18, 2015
Respectfully submitted, /s/Karl D. Knutsen., Karl D. Knutsen,
Richard Martin, Garrett M. Liskey (D.C. Bar No.
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1000937), Attorneys for the United States, Litigation I Section,
Antitrust Division, U.S. Department of Justice, 450 Fifth Street NW.,
Suite 4100, Washington, DC 20530, Telephone: (202) 514-0976, Facsimile:
(202) 305-1190, Email: [email protected].
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[FR Doc. 2015-13025 Filed 5-28-15; 8:45 am]
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