Friday, January 17, 2014

FTC v. H.J. Heinz Co. case brief

FTC v. H.J. Heinz Co. case brief summary

FACTS
The Federal Trade Commission (FTC) attempted to restrain the merger of Heinz and Beech-Nut, two of the three firms that dominated the baby food market (with Gerber holding a 65% market share and the other two holding 32.8% of the market, combined).

HOLDING
The Court used the Baker Hughes burden shifting scheme to analyze the likelihood of success on the merits and ruled that the defendants failed to rebut the prima facie case, since the more compelling the prima facie case, the more evidence the defendant must present to rebut it.

Notable Facts
  • Baker testified to the existence of numerous cartel problems that would reduce any incentive of the merged firm to collude with Gerber; it would attempt to increase its market share at Gerber’s expense.
  • The baby food industry has significant barriers to entry.
Legal Considerations
  • Merely establishing a prima facie case (the structural presumption) is insufficient to be awarded a preliminary injunction.
Analysis
  • There are two possible interpretations of Heinz: either market concentration places a heavy thumb on the scale in favor of finding harm to competition (strengthening the structural presumption) OR the Baker Hughes totality of circumstances test simply came out against the defendants.
  • Although the burden shifting scheme is consistent with Baker Hughes, it seems as if the presumption created by the prima facie case is significantly stronger.
NOTES
    • Professor Baker thinks that this is really a 1 to 2 merger because neither Heinz nor Beech-Nut could really compete with Gerber pre-merger, but after Heinz and Beechnut merged, they could compete. Beech-nut had a really topnotch brand, but had old, insufficient production facilities; Heinz had modern production facilities but did not have a strong brand.
    • Baker also did some studies about the brands and concluded that there was very little competition between the Heinz and Beechnut brands (because you would have to change supermarkets in order to switch between Heinz and Beechnut).

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