The U.S. District Court for the Northern District of California determined last week that Bazaarvoice, Inc., a social media marketing company, violated Section 7 of the Clayton Act with its acquisition of its competitor, PowerReviews, Inc.

In June 2012, Bazaarvoice acquired PowerReviews in a $168.2 million transaction. Bazaarvoice did not report the transaction to the government prior to its closing because the transaction did not satisfy the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”) reporting thresholds. Nevertheless, in January 2013, the U.S. Department of Justice (“DOJ”) filed a civil antitrust lawsuit against Bazaarvoice challenging the completed transaction as anticompetitive under Section 7 and seeking to divest Bazaarvoice of sufficient assets to create a separate business to replace PowerReviews as a competitor in the product ratings and review platforms market.

Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18. Bazaarvoice is the main supplier in the market for product rating and review platforms used by online retailers and other businesses to organize and display customer-produced ratings for their products. According to the DOJ, prior to its acquisition, PowerReviews was Bazaarvoice’s main competitor.

During the three-week trial in September/October 2013, the DOJ argued that the PowerReviews acquisition harmed competition and was a merger to monopoly that eliminated the biggest competitor in the market and made it difficult for others to enter. Bazaarvoice contended that PowerReviews was in fact a weak competitor and that many companies such as Google or Amazon could quickly enter the market. Bazaarvoice also presented testimony from over 100 customers in support of its position that the transaction did not hurt competition.

District Judge William H. Orrick found that the merger eliminated Bazaarvoice’s only meaningful competitor in the product rating and review platform market. Judge Orrick focused on internal Bazaarvoice premerger documents, which the court viewed as admissions by company officers and employees that supported the government’s case. With respect to the customer testimony, Judge Orrick explained that “[t]heir testimony on the impact and likely effect of the merger was speculative at best and is entitled to virtually no weight.”

A hearing will be held on January 22 for the Court to discuss potential remedies with the parties, as the Court will now need to determine how to address the already consummated transaction.

As we wrote when the DOJ first filed its complaint, this litigation should serve as a cautionary tale for all parties contemplating a transaction, regardless of the size of the transaction and HSR thresholds. The DOJ will challenge a non-reportable transaction it deems anticompetitive and it can succeed in such challenges. Assistant Attorney General William Baer confirmed this in a statement issued after the ruling, which said that the Bazaarvoice decision shows that “anticompetitive transactions that are not reported to federal agencies will not receive a free pass from antitrust scrutiny.” Thus, parties contemplating a transaction should be keenly aware of the potential antitrust exposure whether or not the transaction is reportable.