F.T.C. v. Libbey, Inc.

• Decision Date: 20 May 2002
• Docket Number: Civil Action No. 02-0060 (RBW).
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. LIBBEY, INC., et al., Defendants.
• Court: U.S. District Court — District of Columbia

211 F.Supp.2d 34

FEDERAL TRADE COMMISSION, Plaintiff, v. LIBBEY, INC., et al., Defendants.

Civil Action No. 02-0060 (RBW).

United States District Court, District of Columbia.

May 20, 2002.

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Rhett R. Krulla, Washington, DC, for Plaintiff.

Steven H. Schulman, E. Marcellus Williamson, Latham & Watkins, Washington, DC, Richard C. Weisberg, Merion, PA, William S. D'Amico Chadbourne & Parke, Washington, DC, for Defendants.

AMENDED MEMORANDUM OPINION

WALTON, District Judge.

On June 17, 2001, Libbey, Inc., ("Libbey") and Newell Rubbermaid, Inc. ("Newell") entered into a merger agreement whereby Libbey would acquire all of the stock of Newell's subsidiary, Anchor Hocking Corporation ("Anchor"). The Federal Trade Commission ("Commission" or "FTC") sought to enjoin this merger pursuant to section 13(b) of the Federal Trade Commission Act (FTCA), 15 U.S.C. § 45(b) (1995). Approximately one month after the Commission voted in favor of seeking the injunction, Libbey and Newell amended their agreement. Although the agreement as amended ostensibly addressed the FTC's concerns about the original agreement's potential anti-competitive effects, the FTC continues to seek a preliminary injunction based on its belief that the agreement, even as amended, may violate Section 7 of the Clayton Act, 15 U.S.C. § 18 (1995) or Section 5 of the FTCA, 15 U.S.C. § 45, by either substantially reducing competition in the relevant product market or by constituting an unfair method of competition.

The Court shares some of the FTC's concerns as to why the amended agreement may have an anti-competitive effect on the relevant product market and for the reasons stated below, the FTC's motion for a preliminary injunction is granted.

I. BACKGROUND

Libbey is the largest manufacturer and seller of food service glassware in the United States.¹ ("Compl." ¶ 11.)² Libbey produces and sells both food service and retail glassware. (Plaintiff's Motion for Preliminary Injunction ("Pl.'s Mot.") at 2.) In particular, Libbey produces and sells soda-lime glassware.³ (Id.) Libbey's glassware product line consists of various styles of tumblers, stemware and other products "ranging from serving platters to candle holders." (Compl.¶ 11.) Libbey's food service customers include distributors who resell soda-lime glassware⁴ to restaurants, hotels, and other food service establishments. (Compl.¶ 11.)⁵

The food service glassware market in the United States is a "highly concentrated" market that generates sales of approximately $270 million a year. (Pl.'s Mot. at 1.) Libbey currently has a market share in excess of 65 percent⁶ in the food service glassware market. (Plaintiff's Proposed Findings of Fact and Conclusions of Law ("Pl.s' Proposed Findings") ¶ 210 at 66.) Aside from Libbey, there are three other domestic companies⁷ that make "significant" food service glassware sales in the United States: Anchor, Arc International, and Oneida Limited.⁸ (Id. at 3.) Anchor is Libbey's most formidable competitor in the food service glassware market. (Id.) Anchor has the third largest share of the market with an approximate seven percent.⁹ (Id.) Both Libbey and Anchor produce and sell soda-lime glassware in the food service and the retail markets.¹⁰ (Id. at 2.)

The food service glassware market differs significantly from the retail glassware market.¹¹ (Id.) While the majority of purchases in the retail glassware market involve the sale of new products, as stores are constantly trying to change and improve their merchandise, nearly 80 percent of food service glassware purchases are for the replacement of glassware that has been stolen, broken, or otherwise rendered useless in order to maintain consistency with food service providers' existing stock. (Id.) Accordingly, because Libbey dominates the food service glassware market, most food service customers must acquire new glassware from Libbey or glassware that resembles Libbey's products. (Id.) Thus, to compete meaningfully in the food service glassware market, a competitor needs the dual capacity to produce "Libbey look-alike" products at the same or lower prices than Libbey. (Id. at 3.)

Anchor has been selling Libbey look-alike food service glassware for over 20 years and has been able to sell Libbey look-alikes at prices lower than Libbey. (Id.) Anchor was the first company to produce such Libbey look-alike food service glassware and is currently the leading seller of Libbey look-alikes, with nearly 80 percent of its sales resulting from the sale of such glassware.¹² (Id.) Anchor's prices are frequently 10 to 20 percent lower than Libbey's prices. (Pl.'s Proposed Findings ¶ 243 at 77.) As a result, Anchor has been able to secure the business of prior Libbey customers and has plans to more aggressively target Libbey's customers in the future. (Pl.'s Mot. at 39 n. 71.)

Libbey, however, according to the FTC, has been able to maintain its dominant position in the food service glassware market by allegedly "tying up distributors, penalizing those distributors for carrying competing goods, and suing entrants." (Id. at 1.)¹³ Libbey is currently the price leader in the food service glassware market and its glassware prices tend to be higher than it those for similar products offered by other suppliers. (Pl.'s Proposed Findings ¶ 94 at 245.) Libbey's prices are at least 10 percent higher in the food service market, where it dominates the market, than in the retail market, where it has a smaller market share. (Id. ¶ 295 at 96.) In addition, entry into the food service glassware market would be costly and difficult for a new company because it would require "large sunk investments in building distribution and inventory, and acquiring the molds needed to produce glassware that would substitute for Libbey's." (Id. at 3-4.) Thus, if Anchor is eliminated from the market, it "is unlikely to be replaced by the entry of new food service glassware suppliers." (Id. at 3.)

Pursuant to the Stock Purchase Agreement dated June 17, 2001, Libbey sought to acquire all of Anchor's assets from Newell, Anchor's parent corporation, for $332 million.¹⁴ (Defendants' Amended Joint Proposed Findings of Fact and Conclusions of Law ("Defs.' Am. Proposed Findings") ¶ 29 at 11.) This initial acquisition agreement would have resulted in Libbey acquiring Anchor's food service, retail, and speciality/industrial¹⁵ glassware businesses, including its two glassware manufacturing plants in Lancaster, Ohio and Monaca, Pennsylvania.¹⁶ (Id.) The FTC alleged that the proposed acquisition would "reduc[e] the limited competition that exists today in th[e] highly concentrated [food service] market, which Libbey already dominates." (Pl.'s Mot. at 3.) As a result, on December 18, 2001, the Commissioners authorized the initiation of this action pursuant to Section 13(b) of the FTCA, 15 U.S.C. § 45, to obtain a preliminary injunction that would bar Libbey's acquisition of Anchor until the completion of the FTC's administrative process to determine whether the proposed acquisition violated Section 5 of the FTC Act, 15 U.S.C. § 45, or Section 7 of the Clayton Act, 15 U.S.C. § 18.

On January 21, 2002, in response to the FTC's concerns, and in an attempt to salvage the merger, defendants amended the proposed merger agreement. (Am. Compl.¶ 11.) The amended agreement eliminated the purchase of Anchor's food service business, which is worth an estimated $17.9 million, while still permitting Libbey to acquire Anchor's retail and specialty/ industrial business, worth an estimated $179.1 million, for a total cost of $277.5 million. (Defs.' Am. Proposed Findings ¶¶ 48-50 at 17-18.)

The defendants argue that the amended agreement should have alleviated the FTC's concerns about the potential anti-competitive effect the original agreement would have on the food service glassware market for several reasons. (Defendants' Joint Memorandum in Opposition to Plaintiff's Motion for Preliminary Injunction ("Defs.' Joint Opp'n") at 13.) First, under the amended agreement, Newell would retain Anchor's food service business and Rubbermaid Commercial Products ("RCP"), a division of Newell with an "extensive food service distributor network" and a significant presence in the food service industry, would operate what is now Anchor's food service glassware business. (Defs.' Opp'n at 7.) Second, Newell argues that RCP will be as effective a competitor as Anchor has been in the food service glassware market because "RCP will have the [219] forming molds [which accounted for 93% of Anchor's food service revenues in 2001], the distribution network, the sales force, the marketing experience, a years worth of inventory and [the] backing of a $7 billion company necessary to compete in the sale of food service glassware." (Defs.' Am. Proposed Findings ¶ 58 at 21.)¹⁷ Third, Libbey contends that Newell's representations to its customers and shareholders that it will continue Anchor's food service business, coupled with its financial investment in the food service market, demonstrate that Newell is committed to making RCP a strong competitor in the food service glassware market. (Defs.' Opp'n at 13.) Fourth, the American Flint Glass Workers Union, which represents Libbey's and Anchor's factory workers support the acquisition as a "major and necessary step to insure the very competitive nature of [the] domestic industry." (Defs.' Am. Proposed Findings ¶ 30 at 11; Defendants' Exhibit ("Defs.' Ex.") 36, Letter from Joe Coccho, President of the American Flint Glass Workers Union, AFL-CIO, dated December 11, 2001.) As a final reason for why the Court should permit the revised acquisition to proceed, Libbey points out that if the FTC's motion for a preliminary injunction is granted, the proposed acquisition will dissolve because the financing arrangement to fund the purchase of Anchor will be withdrawn by the banks who have agreed to fund this acquisition on ...