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DOJ Charges Particleboard Companies with Gun-jumping Violation
Practical Law Legal Update 8-587-7048 (Approx. 4 pages)
DOJ Charges Particleboard Companies with Gun-jumping Violation
by Practical Law Antitrust
| Published on 10 Nov 2014 • USA (National/Federal) |
The Department of Justice (DOJ) charged Flakeboard America Limited, its parent companies Celulosa Arauco y Constitución, S.A. and Inversiones Angelini y Compañía Limitada, and their competitor SierraPine with prematurely coordinating before obtaining clearance to close a proposed transaction under the HSR Act, known as gun-jumping.
On November 7, 2014, the DOJ issued a proposed final judgment in its case against Flakeboard America Limited, its parent companies Celulosa Arauco y Constitución, S.A. and Inversiones Angelini y Compañía Limitada (Flakeboard), and SierraPine. Flakeboard and SierraPine are competitors in the sale of particleboard. Flakeboard had entered into an agreement to acquire three of SierraPine's particleboard mills in a transaction reportable under Section 7A of the Clayton Act (HSR Act).
In its complaint, the DOJ charged Flakeboard and SierraPine with prematurely coordinating before the expiration of the HSR Act waiting period in violation of Section 1 of the Sherman Act and the HSR Act, also known as gun-jumping. The DOJ alleged that the parties coordinated to, among other things:
- Permanently shut down one of SierraPine's mills during the HSR Act waiting period.
- Direct the closed mill's customers to a competing Flakeboard mill, which would honor SierraPine's prices.
- Share competitively sensitive information about customers of the SierraPine mill, including customer names, contact information, and types and volumes of purchases.
- Delay announcing the mill closure until Flakeboard's sales representatives were ready to approach SierraPine's customers.
- Offer assurance of further employment to key SierraPine employees so they would direct the closed mill's customers to Flakeboard.
The DOJ noted that by working with SierraPine, Flakeboard's profits increased significantly after obtaining a substantial amount of the closed mill's business, despite there being another functioning SierraPine mill nearby.
The DOJ argued that the parties' conduct:
- Constituted a per se illegal agreement to reduce particleboard output and allocate customers in violation of Section 1 of the Sherman Act.
- Gave Flakeboard operational control and beneficial ownership over SierraPine's business in violation of the HSR Act.
The DOJ alleged that the parties were in violation of the HSR Act from approximately January 17, 2014, to August 27, 2014, when the HSR Act waiting period expired, and were subject to the maximum penalty of $16,000 for each day of that period.
In the final order, the DOJ required Flakeboard and SierraPine to pay $1.9 million each, or approximately $8,600 for each day of the violation. The DOJ required Flakeboard to disgorge an additional $1.15 million in illegal profits for violating Section 1 of the Sherman Act, an unusual remedy in gun-jumping actions. The DOJ stated this amount was a reasonable approximation of Flakeboard's ill-gotten profit as a result of the parties' coordination.
The parties are also each required to institute an antitrust compliance program and are prohibited from entering any agreement with any acquiring or to-be-acquired party to:
- Establish price or output for a competing product.
- Allocate customers.
- Share customer, price or output information for a competing product.
- Close a facility that produces a competing product without prior notice and approval from the government.
For more information on gun-jumping, see Practice Note, Antitrust Enforcement Actions: Gun-jumping, Avoiding Gun-jumping in Corporate Transactions Checklist and HSR Act Enforcement Actions: Comprehensive Civil Penalties Chart