Eleventh Circuit Upholds FTC's Merger Ruling And Divestiture Order

In a recent ruling, reinforcing the Federal Trade Commission's (FTC) aggressive merger policy, the United States Court of Appeals for the Eleventh Circuit upheld a FTC decision condemning a merger of two could-be rivals, and also rejected challenges to the FTC's remedial order requiring complete divestiture. Polypore International, Inc. v. Federal Trade Commission, No. 11-10375, 2012 U.S. App. LEXIS 14195 (11th Cir. July 11, 2012). The decision is also noteworthy in its (and the FTC's) treatment of the potential competition issue, the use of the anticompetitive presumption in such circumstances, and the questions of market definition raised in the case.

In 2008, Polypore International Inc. (Polypore), a manufacturer of components used in batteries and medical devices, acquired fellow battery separator company Microporous Products, LP (Microporous) for $76 million. The FTC filed an administrative complaint in September 2008 challenging the transaction. In particular, the Commission alleged that the deal substantially reduced competition in four distinct markets for battery separators: car batteries, golf cart batteries, motive batteries used in industrial equipment, and batteries used in uninterruptible power supplies. Battery separators are membranes installed between the positive and negative plates in flooded lead-acid batteries to prevent short circuits and to regulate the flow of electrical current between the plates.

Some important factors underlying the discussion below were that: (1) although Microporous had been investigating entry into the automotive batteries market for several years, it did not actually sell the product; (2) Microporous operated one Tennessee plant and had constructed one in Austria, which was not yet operational and was intended to serve European customers; (3) Microporous had also purchased equipment for another production line ("line in boxes"), which constituted some of the acquired assets; (4) for deep-cycle batteries, Microporous had the industry standard product, with approximately 90% of the market, despite higher prices; and (5) in the motive battery market, Polypore's subsidiary had the 90% market share.

After a four-week hearing, FTC Chief Administrative Law Judge D. Michael Chappell held that the acquisition was reasonably likely to substantially lessen competition in four relevant markets. He ordered divestiture of all acquired assets, including the plant in Austria. The Commission unanimously...