United States v. H&R Block, Inc.
| Decision Date | 10 November 2011 |
| Docket Number | Civil Action No. 11–00948 (BAH). |
| Citation | 833 F.Supp.2d 36,2011 Trade Cases P 77678 |
| Court | U.S. District Court — District of Columbia |
| Parties | UNITED STATES of America, Plaintiff, v. H & R BLOCK, INC., et al., Defendants. |
OPINION TEXT STARTS HERE
Joseph Franklin Wayland, Anthony David Scicchitano, David Z. Gringer, Kent R. Brown, Lawrence E. Buterman, Mary N. Strimel, Scott Alan Scheele, U.S. Department of Justice, Washington, DC, for Plaintiff.
J. Robert Robertson, Corey William Roush, Logan Michael Breed, Benjamin F. Holt, Hogan Lovells U.S. LLP, Washington, DC, Eric J. Stock, Hogan Lovells U.S. LLP, New York, NY, for Defendant.
Last year, approximately 140 million Americans filed tax returns with the Internal Revenue Service (“IRS”). Paying taxes is a fundamental civic duty in our democracy. Taxes pay for the government to carry out its constitutionally mandated functions and enable the government to give force to the laws and policies adopted by the people of the United States through their elected representatives. Despite the necessity of taxes to fund our government and to sustain services that many citizens depend upon, the task of preparing a tax return brings joy to the hearts of few. Many find it to be a complex and tedious exercise. Fortunately, various businesses offer different products and services designed to assist taxpayers with preparing their returns. These tax preparation businesses principally include accountants, retail tax stores, and digital tax software providers—all of which provide important services to the American taxpayer. In this case, the United States, through the Antitrust Division of the Department of Justice, seeks to enjoin a proposed merger between two companies that offer tax software products—H & R Block and TaxACT—on the grounds that the merger violates the antitrust laws and will lead to an anticompetitive duopoly in which the only substantial providers of digital tax software in the marketplace would be H & R Block and Intuit, the maker of the popular “TurboTax” software program. After carefully considering all of the evidence, including documents and factual and expert testimony, the applicable law, and the arguments before the Court, the Court will enjoin the proposed merger for the reasons explained in detail below.
I. BACKGROUNDA. Overview
The United States, through the Antitrust Division of the Department of Justice (the “DOJ,” the “government,” or the “plaintiff”), filed this action on May 23, 2011. The DOJ seeks to enjoin Defendant H & R Block, Inc. from acquiring Defendant 2SS Holdings, Inc. (“TaxACT”), which sells digital do-it-yourself tax preparation products marketed under the brand name TaxACT. Compl. ¶ 10. H & R Block (“HRB”) is a Missouri corporation headquartered in Kansas City, Missouri. Id. ¶ 9. 2SS Holdings, or TaxACT, is a Delaware corporation headquartered in Cedar Rapids, Iowa. Id. ¶ 10. Defendant TA IX, L.P. (“TA”), a Delaware limited partnership headquartered in Boston, Massachusetts, owns a two-thirds interest in TaxACT. Id. ¶ 11.
As noted above, approximately 140 million Americans filed tax returns with the IRS in 2010. Id. ¶ 1. Broadly speaking, there are three methods for preparing a tax return. The “pen and paper” or “manual” method includes preparation by hand and with free, electronically fillable forms available on the IRS website. A second method, known as “assisted” preparation, involves hiring a tax professional—typically either a certified public accountant (“CPA”) or a specialist at a retail tax store. HRB operates the largest retail tax store chain in the United States. Cobb, TT, 9/19/11 a.m., at 37. The companies Jackson–Hewitt and Liberty Tax Service also operate well-known retail tax stores. Finally, many taxpayers now prepare their returns using digital do-it-yourself tax preparation products (“DDIY”), such as the popular software product “TurboTax.” DDIY preparation is becoming increasingly popular and an estimated 35 to 40 million taxpayers used DDIY in 2010. GX 19 at 3; see also GX 27.2
The three most popular DDIY providers are HRB, TaxACT, and Intuit, the maker of TurboTax. According to IRS data, these three firms accounted for approximately 90 percent of the DDIY-prepared federal returns filed in tax season 2010.3 GX 27. The next largest firm is TaxHawk, also known as FreeTaxUSA, with 3.2 percent market share, followed by TaxSlayer, with 2.7 percent. Id. The remainder of the market is divided among numerous smaller firms. Id. Intuit accounted for 62.2 percent of DDIY returns, HRB for 15.6 percent, and TaxACT for 12.8 percent. Id. DDIY products are offered to consumers through three channels: (1) online through an internet browser; (2) personal computer software downloaded from a website; and (3) personal computer software installed from a disk, which is either sent directly to the consumer or purchased by the consumer from a third-party retailer. GX 629 at 11. In industry parlance, DDIY products provided through an internet browser are called “online” products, while software applications downloaded onto the user's computer via the web or installed from a disk are referred to as “software” products. See id.
The proposed acquisition challenged in this case would combine HRB and TaxACT, the second and third most popular providers of DDIY products, respectively. According to the government, this combination would result in an effective duopoly between HRB and Intuit in the DDIY market, in which the next nearest competitor will have an approximately 3 percent market share, and most other competitors will have less than a 1 percent share. GX 27. The government also alleges that unilateral anticompetitive effects would result from the elimination of head-to-head competition between the merging parties. Compl. ¶ 45.
Thus, the DOJ alleges that because the proposed acquisition would reduce competition in the DDIY industry by eliminating head-to-head competition between the merging parties and by making anticompetitive coordination between the two major remaining market...
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