[Federal Register Volume 76, Number 213 (Thursday, November 3, 2011)]
[Notices]
[Pages 68210-68219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28249]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. George's Foods, LLC, et al.; Public Comment and 
Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the comment 
received on the proposed Final Judgment in United States v. George's 
Foods, LLC, et al., Civil Action No. 5:11-cv-00043, which was filed in 
the United States District Court for the Western District of Virginia, 
Harrisonburg Division, on May 10, 2011, together with the response of 
the United States to the comment.
    Copies of the comment and the response are available for inspection 
at the Department of Justice Antitrust Division, 450 Fifth Street NW., 
Suite 1010, Washington, DC 20530 (telephone: (202) 514-2481), on the 
Department of Justice's Web site at http://www.usdoj.gov/atr, and at 
the Office of the Clerk of the United States District Court for the 
Western District of Virginia, Harrisonburg Division, 116 N. Main 
Street, Harrisonburg, Virginia 22802. Copies of any of these materials 
may be obtained upon request and payment of a copying fee.

Patricia A. Brink,
Director of Civil Enforcement.

In The United States District Court for the Western District of 
Virginia

Harrisonburg Division

    United States of America, Plaintiff, v. George's Foods, LLC, 
George's Family Farms, LLC.
Civil Action No. 5:11-cv-00043.
By: Glen E. Conrad, Chief United States District Judge.

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the 
United States hereby files the public comment concerning the proposed 
Final Judgment in this case and the United States' response to that 
comment. After careful consideration of the comment submitted, the 
United States continues to believe that the proposed Final Judgment 
will provide an effective and appropriate remedy for the antitrust 
violations alleged in the Complaint. The United States will move the 
Court for entry of the proposed Final Judgment after the public comment 
and this response have been published in the Federal Register, pursuant 
to 15 U.S.C. 16(d).

I. Procedural History

    On May 10, 2011, the United States filed a civil antitrust 
Complaint against George's Foods, LLC; George's Family Farms, LLC; and 
George's, Inc. (collectively, ``Defendants'' or ``George's'') alleging 
that George's acquisition of a Harrisonburg, Virginia chicken 
processing complex (``the Transaction'') from Tyson Foods, Inc. 
(``Tyson'') likely would substantially lessen competition for the 
services of broiler growers operating in and around the Shenandoah 
Valley area of Virginia and West Virginia, in violation of Section 7 of 
the Clayton Act, 15 U.S.C. 18.
    On June 23, 2011, the United States filed a proposed Final 
Judgment, which is designed to remedy the expected anticompetitive 
effects of the Transaction, and a Stipulation signed by the United 
States and the Defendants consenting to the entry of the proposed Final 
Judgment after compliance with the requirements of the Tunney Act, 15

[[Page 68211]]

U.S.C. 16. Pursuant to those requirements, the United States also filed 
its Competitive Impact Statement (``CIS'') with the Court on June 23, 
2011 (Docket 45); the proposed Final Judgment and CIS were 
published in the Federal Register on June 30, 2011, see United States 
v. George's Foods, Inc., et. al., 76 FR 38419; and summaries of the 
terms of the proposed Final Judgment and CIS, together with directions 
for the submission of written comments relating to the proposed Final 
Judgment, were published in the Washington Post for seven days, 
beginning on June 29, 2011 and ending on July 7, 2011, and for seven 
days in the Harrisonburg Daily News-Record, beginning on June 29, 2011 
and ending on July 8, 2011. The sixty-day period for public comment 
ended on September 3, 2011; one comment was received as described in 
Section IV below and is attached hereto.

II. The Complaint and Proposed Resolution

A. Background

    On May 7, 2011, George's purchased Tyson's Harrisonburg broiler 
processing complex and related assets. George's and Tyson are competing 
chicken processors, each involved in the production, processing, and 
distribution of ``broilers,'' which are chickens raised for meat 
products. Chicken processors, such as George's and Tyson, rely on the 
services of farmers, called ``growers,'' to care for and raise chickens 
from hatch to slaughter. Growers work under production contracts with a 
nearby processor, which maintains ownership of the birds throughout the 
process.
    George's and Tyson operated processing facilities about 30 miles 
away from each other in the Shenandoah Valley region of Virginia and 
West Virginia. George's operates a processing facility in Edinburg, 
Virginia, while Tyson operated a facility in Harrisonburg, Virginia. In 
addition, a third processor, Pilgrim's Pride, operates plants in 
Timberville, Virginia (mid-way between Edinburg and Harrisonburg) and 
in nearby Moorefield, West Virginia.

B. The Complaint

    The United States' Complaint alleges that the Transaction would 
likely lessen competition for purchases of grower services in the 
Shenandoah Valley area. Prior to the Transaction, George's, Tyson, and 
Pilgrims' Pride competed against each other for grower services in the 
region. The transaction reduced the number of competitors in the 
relevant market from three to two and left George's with approximately 
40% of the processing capacity in the market. The Complaint alleges 
that the Transaction would likely have the effect of enhancing George's 
incentive and ability to force growers to accept lower prices and less 
favorable contractual terms for grower services.

C. Proposed Final Judgment

    The proposed Final Judgment requires George's within 60 days 
following entry of the Judgment (subject to two 30-day extensions at 
the discretion of the United States) to enter into contracts to 
implement certain capital improvements to its Shenandoah Valley area 
processing facilities. Under the proposed Final Judgment, George's must 
install at the Harrisonburg plant an individually frozen (``IF'') 
freezer; install a whole leg or thigh deboning line at either the 
Harrisonburg or Edinburg plants; and make substantial repairs to the 
roof of the Harrisonburg plant. The proposed Final Judgment requires 
that the contracts for these improvements provide for completion within 
12 months. The proposed Final Judgment terminates upon motion by either 
the United States or the Defendants that the Defendants have satisfied 
the Judgment's requirements.
    The proposed Final Judgment ensures that George's has the ability 
and incentive to increase production at its Shenandoah Valley poultry 
processing facilities.
    Utilization of the freezer and the deboning equipment will reduce 
the variable costs George's incurs in its Shenandoah Valley operations. 
For George's to fully realize the cost savings it anticipates from the 
Transaction and to maximize its return on the investments required by 
the proposed Final Judgment,\1\ George's will need to operate the 
Harrisonburg plant at or near capacity--something Tyson had only rarely 
done in the past few years. The increases in output resulting from the 
improvements will in turn lead to a significant increase in the total 
number of chickens George's must procure from area growers. This 
increased demand for chickens will increase demand for grower services 
in the Shenandoah Valley region beyond the level demanded when Tyson 
owned the Harrisonburg plant, which will benefit growers.
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    \1\ The installation of the IF freezer will allow George's to 
produce higher margin items at both of its Shenandoah Valley 
facilities, and the deboning equipment will allow George's to alter 
the mix of products produced at these facilities. Together, these 
improvements will allow George's to produce products more highly 
valued in the marketplace and thereby earn higher margins.
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III. Standard of Review Under the Tunney Act

    As discussed in detail in the CIS (at pp. 13-16), the Tunney Act 
calls for the Court, in making its public interest determination, to 
consider certain factors relating to the competitive impact of the 
proposed Final Judgment and whether it adequately remedies the harm 
alleged in the complaint. See 15 U.S.C. 16(e)(1)(A) & (B) (listing 
factors to be considered).
    This public interest inquiry is necessarily a limited one as the 
United States is entitled to deference in crafting its antitrust 
settlements.\2\ See generally United States v. Microsoft Corp., 56 F.3d 
1448, 1458-62 (D.C. Cir. 1995); Massachusetts v. Microsoft Corp., 373 
F.3d 1199, 1236 (D.C. Cir. 2004) (A ``district court's `public 
interest' inquiry into the merits of the consent decree is a narrow 
one.''); United States v. SBC Commc'ns, 489 F. Supp. 2d 1, 12-17 
(D.D.C. 2007).
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    \2\ The purpose of Tunney Act review is not for the court to 
engage in commenters' desire for an ``unrestricted evaluation of 
what relief would best serve the public,'' United States v. BNS, 
Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. 
Bechtel Corp., 648 F.2d 660, 666 (91 Cir. 1981)), or to determine 
the relief ``that will best serve society,'' Bechtel, 648 F.2d at 
666; rather, it is to determine whether the proposed decree is 
within the reaches of the public interest--``even if it falls short 
of the remedy the court would impose on its own.'' United States v. 
AT&T Co., 552 F. Supp. 131, 151 (D.D.C. 1982).
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    In making a Tunney Act determination, the relevant inquiry is 
``whether there is a factual foundation for the government's decisions 
such that its conclusions regarding the proposed settlement are 
reasonable.'' United States v. KeySpan Corp., 763 F. Supp. 2d 633, 637-
38 (S.D.N.Y. 2011) (quoting United States v. Abitibi--Consol. Inc., 584 
F. Supp. 2d 162, 165 (D.D.C. 2008)) (internal alterations omitted). 
Under this standard, the United States need not show that a settlement 
will perfectly remedy the alleged antitrust harm; rather, it need only 
provide a factual basis for concluding that the settlement is a 
reasonably adequate remedy for the alleged harm. SBC, 489 F. Supp. 2d 
at 17. The proposed Final Judgment should remedy only the 
anticompetitive behavior alleged in the Complaint and is not required 
to go beyond that. Microsoft, 56 F.3d at 1459.
    With respect to the sufficiency of the proposed remedy, the United 
States is entitled to deference as to its views of the nature of the 
case, its perception of the market structure, and its predictions as to 
the effect of proposed remedies. See, e.g., SBC, 489 F. Supp. 2d at 17. 
A court should not reject the United States' proposed remedies merely

[[Page 68212]]

because commenters believe that other remedies may be preferable. See 
KeySpan, 763 F. Supp. 2d at 637-38.

IV. Summary of Public Comment and the United States' Response

    During the sixty-day public comment period, the United States 
received only one comment, co-authored by attorney David A. Balto and 
law professor Peter C. Carstensen (the ``Balto/Carstensen Comment'' or 
``the Comment''). The Comment, which objected to both the scope and 
duration of the remedy in the proposed Final Judgment, is attached 
hereto. As explained in detail below, after careful review, the United 
States continues to believe that the proposed Final Judgment is in the 
public interest.

A. Summary of the Public Comment

    The Balto/Carstensen Comment asserts that the proposed Final 
Judgment is not sufficient to remedy the harms alleged in the Complaint 
in that it fails to address the potential for the Defendants to degrade 
the terms of their contracts with growers.\3\ The Comment maintains 
that to address adequately any harm to growers that might result from 
George's acquisition of the Tyson's Harrisonburg plant, the proposed 
Final Judgment must incorporate the following: (1) Defendants' 
agreement ``to refrain from degrading the contractual provisions solely 
by virtue of its buyer power;'' (2) an extension of the termination 
date of the proposed Final Judgment to ``some reasonable time period, 
e.g. five or seven years;'' (3) a provision requiring Defendants to 
collect complaints from growers and forward them to the Department of 
Justice along with a requirement that Defendants notify growers of 
their right to complain directly to the Department of Justice or the 
Department of Agriculture; and (4) a requirement that the Department of 
Justice reassess the competitive effects of the Transaction in three to 
five years and, if necessary, revise the remedy.\4\
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    \3\ Comment at 2.
    \4\ Comment at 2-3.
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B. Response to Comment

    The remedy called for in the proposed Final Judgment is an 
effective one given the particular facts and circumstances of this 
matter. The increased demand for grower services likely to result from 
George's adherence to the terms of the proposed Final Judgment is 
likely to be sufficient to counteract any potential adverse effects 
(both price and nonprice) arising from the Transaction. As such, the 
concerns raised by the comment are misplaced. Moreover, the United 
States is confident that the Comment's suggestions for additional 
remedial measures are unnecessary to serve the public interest.
1. The Proposed Final Judgment Addresses Both Price and Nonprice 
Competition for Grower Services
    The United States respectfully submits that the proposed Final 
Judgment is sufficient to remedy the harm alleged in the Complaint. 
Here, the principal competitive concern alleged in the Complaint is 
that the Transaction enhances George's ability to exercise monopsony 
power; i.e., power over growers selling their services to George's. The 
economic concern regarding monoposony is that a buyer (such as George's 
buying services from growers) with market power will reduce purchases 
in order to gain a pricing advantage over sellers (i.e., growers). As 
Professors Areeda and Hovenkamp explain, ``Unlike the competitive 
buyer, the monopsony buyer can reduce the purchase price by scaling 
back its purchases.'' IIB Philip E. Areeda, Herbert Hovenkamp, & John 
L. Solow, Antitrust Law 575 at 442 (3d ed. 2007).
    In analyzing competitive effects resulting from a horizontal 
acquisition like this one, there is no substantive difference in 
approach applied between price and nonprice considerations,\5\ and 
competition on nonprice contract terms is considered as important as 
competition on price.\6\
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    \5\ ``When the Agencies investigate whether [an acquisition] may 
lead to a substantial lessening of non-price competition, they 
employ an approach analogous to that used to evaluate price 
competition.'' U.S. Dep't of Justice and Federal Trade Comm'n, 
Horizontal Merger Guidelines, at 2 (2010).
    \6\ ``A. refusal to compete with respect to the package of 
services offered to customers, no less than a refusal to compete 
with respect to the price term of an agreement, impairs the ability 
of the market to advance social welfare by ensuring the provision of 
desired goods and services to consumers at a price approximating the 
marginal cost of providing them.'' Federal Trade Commission v. 
Indiana Federation of Dentists, 476 U.S. 447,459 (1986). See also 
Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980) (an 
agreement to eliminate a term of trade extinguishes a form of 
competition among sellers).
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    The remedy in the proposed Final Judgment, accordingly, is designed 
to ensure that output is enhanced, which will promote prices and 
contractual terms that are favorable for growers. As discussed above, 
the remedy creates a significant incentive for George's to increase 
production at its Shenandoah Valley plants. To accomplish this, 
George's will need additional chickens. This in turn will increase the 
overall demand for grower services in the Shenandoah Valley beyond the 
level demanded pre-Transaction when Tyson was operating the 
Harrisonburg plant at less-than-capacity levels.\7\
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    \7\ The Comment agrees that the requirements imposed by the 
proposed Final Judgment will expand overall demand for grower 
services in the Shenandoah Valley. Comment at 10.
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    As set forth in the Horizontal Merger Guidelines, lowered variable 
cost efficiencies, such as those likely resulting from the proposed 
Final Judgment, will serve to ``reduce or reverse any increases in the 
merged firm's incentive'' to exercise market power.\8\ The efficiencies 
in this case are specific to George's acquiring the Harrisonburg plant 
in that an alternative purchaser of the plant would not likely have 
been able to justify the equipment's high cost without the ability to 
spread the overhead cost across the output of two plants in the area, 
as George's can.
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    \8\ Horizontal Merger Guidelines 10 (instructing that the United 
States can consider whether verifiable, transaction-specific 
efficiencies would be sufficient to reverse the transaction's 
potential harm to growers in the relevant market, e.g., by 
preventing price decreases to growers in that market).
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    In addition, the significant cost of the improvements--which 
altogether could exceed George's purchase price for the Harrisonburg 
facility--provides George's with a substantial economic incentive to 
increase production that is consistent with George's public commitment 
to keeping the Harrisonburg plant open and fully operational.
    The Comment states that to sufficiently protect growers from being 
harmed by the Transaction, the United States should amend the proposed 
Final Judgment to incorporate terms prohibiting the Defendants from 
degrading grower contract provisions.\9\ As explained above, the 
proposed Final Judgment is designed to protect competition with respect 
to nonprice terms so there is no need for added protections. Thus, 
amending the proposed Final Judgment in this case as the Comment 
suggests would only serve to unnecessarily interject the United States 
or the Court into contract negotiations and disputes.\10\
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    \9\ Comment at 12.
    \10\ The Comment also asserts that the proposed Final Judgment 
is inadequate because the Comment believes George's extension of the 
grower contracts it inherited from Tyson was an ``implied remedy'' 
that should have been included ``as an express condition of the 
settlement.'' Comment at 8-9. Contrary to the Comment's assertion, 
George's extension of the contracts, which George's offered on its 
own without the knowledge or consent of the United States, was not a 
term--either express or implied--of the settlement between the 
United States and George's. The only terms of the settlement are 
those contained in the proposed Final Judgment.

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[[Page 68213]]

2. The Comment's Proposals for Further Modifications to the Proposed 
Final Judgment Should Be Rejected
    The Comment states that the proposed Final Judgment should be 
modified to include certain additional terms. (See supra pp. 6-7.) As a 
whole, the United States does not believe that additional provisions 
are warranted given that the proposed Final Judgment suffices to remedy 
the harm alleged in the Complaint. While the additional provisions set 
forth in the Comment may be beneficial, the purpose of Tunney Act 
review is not to determine what other remedies are preferable but 
instead to determine whether there is a factual basis for concluding 
that the settlement agreed upon by both the United States and the 
Defendants is in the public interest.\11\ As discussed above, that test 
is satisfied.
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    \11\ See supra Section III; see also United States v. KeySpan, 
763 F.Supp.2d 633, 642 (S.D.N.Y. 2011) (holding in Tunney Act 
proceeding that Government is entitled to deference in choosing to 
pursue settlement).
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    Moreover, the specific provisions requested in the Comment are not 
necessary to protect the public interest. For example, the Comment 
states that the United States and Defendants should take certain steps 
in relation to the enforcement of the Packers and Stockyards Act 
(``PSA''), including a process for collecting grower concerns relating 
to their rights under the PSA.\12\ There is no need, however, to 
include PSA-related requirements in this particular proposed Final 
Judgment. The Complaint in this matter was brought under Section 7 of 
the Clayton Act. The PSA is a separate statute dealing with marketplace 
practices that specifically relate to livestock, meats and poultry and 
is enforced primarily by the United States Department of Agriculture. 
The USDA has established processes to collect and handle grower 
complaints arising under the PSA and the Department of Justice has a 
similar process for individuals to raise concerns arising under the 
antitrust laws.\13\ The Department of Justice and the USDA already work 
together to ensure that all concerns raised by growers brought to the 
attention of either agency are properly investigated and handled, 
regardless of whether they arise under the antitrust laws or the PSA.
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    \12\ Comment at 13.
    \13\ To contact the Department of Agriculture regarding concerns 
under the PSA, growers can use the following email address: 
``[email protected]''. To report an antitrust concern to the 
Department of Justice, growers can contact the DOJ at http://www.justice.gov/atr/contact/newcase.html.
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    The Comment also recommends that the term of the proposed Final 
Judgment last for ``five to seven years'' \14\ and that the United 
States conduct a review of the effects of the Transaction and have the 
power to require additional remedies at the end of that period.\15\ The 
United States does not see the need to extend the duration of the 
proposed Final Judgment as, once the Defendants comply with its terms, 
likely harm from the merger will be addressed and there will be no 
further need for the judgment to remain in force. Similarly, the United 
States is confident that the effectiveness of the proposed Final 
Judgment obviates the need for requiring undefined ``additional 
remedies.'' \16\
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    \14\ The proposed Final Judgment currently provides for 
termination, at the request of either party, upon the Defendants 
completing all of the specified capital improvements; the Judgment 
specifies that the Defendants must have entered into contracts for 
the mandated improvements within 60 days of entry of the proposed 
Final Judgment and that all such contracts be fulfilled within six 
to twelve months of the contract execution date. Assuming the 
Defendants have contracts executed for the required investments at 
the time Court enters the Judgment, the Judgment could be terminable 
within twelve months.
    \15\ Comment at 3, 12 & 13.
    \16\ A large part of what drives litigating parties to enter 
into settlements as a means of resolving their disputes is the 
certainty afforded by knowing the cost of what ultimately will be 
required by each side going forward. Parties would rarely, if ever, 
resolve a dispute short of engaging in a full trial on the merits if 
the proffered settlement stated that one of the parties could 
unilaterally decide to change the terms of the Judgment post-entry.
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    Underlying the additional provisions requested in the Comment is 
concern as to the rights of growers. The United States shares that 
concern, as evidenced by its bringing this action in the first place. 
The Defendants will remain fully subject to the antitrust laws during 
the pendency of the Final Judgment and after its termination. The 
United States will remain able to investigate any potential 
anticompetitive conduct in the poultry industry and will not hesitate 
to take appropriate action. In sum, the Comment's proposed additional 
provisions to the proposed Final Judgment are not needed.

V. Conclusion

    The United States has determined that the proposed Final Judgment, 
as drafted, provides an effective and appropriate remedy for the 
antitrust violations alleged in the Complaint and is therefore in the 
public interest. The United States will move this Court to enter the 
proposed Final Judgment after the comment and this response are 
published in the Federal Register. The United States does not believe 
that any further public hearing is required and the Tunney Act does not 
require a hearing as to whether a final judgment is in the public 
interest. United States v. Lucasfilm, Inc., 2011 WL 2636850 at *2 
(D.D.C. 2011).
Dated: October 25, 2011
Respectfully submitted,
/s/

Jill A. Ptacek, Attorney Transportation, Energy and Agriculture 
Section, Antitrust Division, U.S. Department of Justice, 450 Fifth 
Street NW., Suite 8000, Washington, DC 20530, Telephone: (202) 307-
6607, Facsimile: (202) 307-2784, Email: [email protected]

Certificate of Service

    I certify that on October 25, 2011, I caused the Response of 
Plaintiff United States to Public Comment on the Proposed Final 
Judgment and attached exhibit to be electronically filed with the Clerk 
of the Court using the CM/ECF system, which will provide electronic 
notice to the following counsel.

William B. Poff, Woods Rogers PLC, P.O. Box 14125, Roanoke, VA 
24038-4125

Gary V. Weeks, Bassett Law Firm, 221 North College Avenue, P.O. Box 
3618, Fayetteville, AK 72702

Michael L. Keeley,
John D. Harkrider,
Rachel J. Adcox,
Russell M. Steinthal, Axinn, Veltrop & Harkrider LLP, 114 West 47th 
Street, New York, NY 10036

Respectfully Submitted,
/s/
Jill A. Ptacek, Attorney, United States Department of Justice

In the United States District Court for the Western District of 
Virginia

Harrisonburg Division

United States Of America, Plaintiff, v. George's Foods, LLC, George's 
Family Farms, LLC, and George's, Inc., Defendants. 
Civil Action No. 5:11-cv-00043.
By: Glen E. Conrad, Chief United States District Judge.

[[Page 68214]]

 Comments of David A. Balto \1\ and Peter C. Carstensen \2\ on the 
Proposed Final Judgment
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    \1\ David A. Balto is nationally known for his expertise in 
competition policy and is a prolific author on antitrust and 
consumer protection issues in high-tech industries, health care, 
pharmaceuticals, and financial services. Mr. Balto has over 25 years 
of antitrust experience spanning across the private sector, the 
Antitrust Division at the Department of Justice, and the Federal 
Trade Commission. From 1995 to 2001, Mr. Balto was Policy Director 
for the Bureau of Competition at the Federal Trade Commission and 
attorney advisor to Chairman Robert Pitofslcy. Mr. Balto is also a 
Senior Fellow at the Center for American Progress where he focuses 
on competition policy.
    \2\ Peter C. Carstensen is the George H. Young-Bascom Professor 
of Law at the University of Wisconsin Law School. One of his areas 
of expertise is the application of competition law and policy to 
agricultural market issues. In addition to his scholarship, he has 
testified before the various congressional committees on these 
topics, and was a panelist at the Workshop on Agricultural 
Competition Issues in the Dairy Industry jointly sponsored by the 
Department of Justice and the Department of Agriculture.
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I. Introduction

    In a case commonly studied in a first year law course on contracts, 
Judge Friendly began his opinion with a simple statement: ``[t]he issue 
is, what is a chicken? \3\ '' In this case the issue is not ``what is a 
chicken?'' but instead ``what is an appropriate remedy?'' For the 
reasons set forth below, the remedy secured by Department of Justice 
(``DoJ'') is inadequate and we respectfully request that this Court 
find the Proposed Final Judgment (``PFJ'') not to be in the public 
interest and correspondingly reject the PFJ as drafted.
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    \3\ Frigaliment Importing Co. v. B.N.S. Int'l Sales Corp., 190 
F. Supp. 116 (S.D.N.Y. 1960).
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    The DoJ should be applauded for bringing this civil antitrust 
action against George's Foods, LLC; George's Family Farms, LLC; and 
George's, Inc. (collectively ``George's'' or ``Defendants'') 
challenging their acquisition of a chicken processing complex from 
Tyson Foods, Inc. (``Tyson''). Following on the heels of an earlier DoJ 
enforcement action against Dean Foods Company, the instant action 
demonstrates the DoJ's firm commitment to restoring antitrust 
enforcement in critical agricultural sectors. A period of non-
enforcement has led to a situation today that is analogous to the 
deplorable state of the U.S. agriculture industry during the late 19th 
century--which was one of the motivating factors behind enacting the 
Sherman Act in the first place.\4\ Consumers are paying more, farmers 
are receiving less, and dominant agricultural processers, such as the 
Defendants, are reaping outsized profits.
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    \4\ Philip J. Weiser, Deputy Assistant Attorney Gen., U.S. Dep't 
of Justice, Toward a Competition Policy Agenda for Agriculture 
(August 7, 2010) available at http://www.justice.gov/atr/public/speeches/248858.htm.
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    The DoJ's decision to bring this enforcement action also reflects 
an important antitrust policy point: greater scrutiny of transactions 
that affect buyer power. The challenged transaction's adverse effect on 
consumers of poultry products was uncertain; however, the DoJ 
determined that the potential adverse effect on those who raise 
chickens (``growers'') was sufficient to prompt litigation. Although 
regarded as a contentious claim by some observers, this enforcement 
action is consistent with long-standing and well-accepted antitrust 
doctrine. Hence, bringing this law suit reconfirms the DoJ's commitment 
to challenging mergers that--primarily or exclusively--adversely affect 
competition on the buyer's side of the market.
    The DoJ also deserves credit for bringing this enforcement action 
despite the small size of the transaction in terms of dollars, falling 
well below the current transaction size reporting threshold under the 
Hart-Scott-Rodino Act. The DoJ examined the specific facts and 
circumstances of this particular transaction and correctly concluded 
that the potential for adverse competitive effects on growers is 
substantial. The challenged transaction reduces the number of buyers 
for grower services in the Shenandoah Valley from three to two and 
represents a serious loss of opportunity for growers.
    Despite these positive aspects, the remedies contained in the PFJ 
are ultimately incomplete because they do not adequately address all 
the theories of competitive harm alleged in the Complaint. 
Specifically, the PFJ and corresponding Competitive Impact Statement 
(``CIS'') fail to address the potential for the Defendants to 
substantially lessen competition in the market for grower services in 
the Shenandoah Valley vis-[agrave]-vis degrading the terms of their 
contracts with growers, a concern specifically raised in the Complaint.
    Given the unique nature of this case and its potential long-lasting 
implications on antitrust enforcement in agricultural markets, it is 
imperative that the DoJ obtain an appropriate remedy.
    For these reasons, we respectfully request that this Court find the 
PFJ not to be in the public interest and correspondingly reject the PFJ 
as drafted. We also, however, encourage the DoJ to file an amended PFJ, 
which incorporates the following:
     Defendants' promise to refrain from degrading the 
contractual provisions solely by virtue of its buyer power;
     A new termination date for the PFJ based on some 
reasonable time period, e.g. five or seven years;
     A provision requiring the Defendants to collect grower 
complaints on contract issues, report those complaints to the DoJ on a 
quarterly basis, and send annual notice to growers informing them that 
they can take complaints about contract issues to the U.S. Department 
of Agriculture's Grain Inspection and Packers and Stockyards Act 
Administration (``GIPSA''), which enforces the Packers and Stockyards 
Act (``PSA'') that provides protection for growers from buyer abuses, 
and/or contact the DoJ directly with their concerns; and
     A provision allowing for a review at some reasonable time 
in the future, e.g. three or five years, at which point the DoJ can 
reassess the competitive effect of the challenged transaction and, if 
warranted, revise the remedy. With the addition of these 
recommendations, the amended PFJ will address all the theories of 
competitive harm alleged in the Complaint and will fully eliminate the 
competitive harm arising from this transaction.

II. Background

    On March 18, 2011, Tyson and George's publicly announced that 
George's would purchase Tyson's chicken processing complex located in 
Harrisonburg, Virginia.\5\ The DoJ opened an investigation and issued 
Civil Investigative Demands (``CIDs'') on April 18, 2011.\6\ Although 
aware of the DoJ's concerns regarding the competitive effects of the 
transaction, and before responding to the CIDs, Tyson and George's 
closed the transaction on May 7, 2011 for approximately $3.1 million 
for the facilities and an additional amount for equipment and current 
inventory.\7\ The DoJ filed its complaint against George's on May 10, 
2011.\8\
---------------------------------------------------------------------------

    \5\ Complaint at 2, United States v. George's Foods, LLC, No. 
5:11-CV-00043 (W.D. Va. May 5, 2010) [hereinafter Complaint].
    \6\ Id. at 2.
    \7\ Competitive Impact Statement at 5-6, United States v. 
George's Foods, LLC, No. 5:11-CV-00043 (W.D. Va. June 23, 2011) 
[hereinafter CIS].
    \8\ Complaint, supra note 5.
---------------------------------------------------------------------------

    Tyson and George's are agricultural processors, specifically, 
chicken processors.\9\ Contrary to the traditional depictions of 
farming in classic film and literature such as The Wizard of Oz or Of 
Mice and Men, modern agriculture operates quite differently. In the 
poultry

[[Page 68215]]

and many other agricultural markets, the traditional notion of 
``farming''--where the farmer owns the land, raises his crop, and sells 
it to the market--has given way to a market structure where the 
middlemen, agricultural processors, dominate the market and ``farmers'' 
are merely contracted agents of the agricultural processors for so-
called ``grower services.'' \10\
---------------------------------------------------------------------------

    \9\ Id. at 2.
    \10\ See generally, Richard J. Sexton, Industrialization and 
Consolidation in the U.S. Food Sector: Implications for Competition 
and Welfare, 82(5) AMER. J. AGR. ECON. 1087 (2000) (documenting the 
increased market concentration in the processing segment of 
agriculture markets).
---------------------------------------------------------------------------

    Under existing industry dynamics, chicken processors typically 
furnish the growers with chicks, feed, and any necessary medicines.\11\ 
Growers typically provide the chicken houses, labor, and other 
miscellaneous expenses related to raising the chickens.\12\ The 
processor handles the transportation costs which, when combined with 
the processors' storage constraints, means that a processor usually 
contracts with growers in the geographic area surrounding one of its 
facilities, typically within a fifty to seventy miles radius.\13\ There 
is no cash market for chickens, so farmers who want to raise chickens 
on a large scale must work with a chicken processor.\14\
---------------------------------------------------------------------------

    \11\ CIS, supra note 7, at 3.
    \12\ Id.
    \13\ Id.; Complaint, supra note 5, at 8.
    \14\ CIS, supra note 7, at 3..
---------------------------------------------------------------------------

    Given these market parameters, prior to the challenged transaction, 
three processors competed for grower services in the Shenandoah 
Valley.\15\ The Defendants have a facility in Edinburg, Virginia that 
has the capacity to process 1,650,000 birds per week.\16\ Tyson's 
facility in Harrisonburg, Virginia, which Defendants acquired in the 
challenged transaction, has a capacity of approximately 625,000 birds 
per week.\17\ The third and largest player in the Shenandoah Valley 
market, who was not involved in the transaction, Pilgrim's Pride 
Corporation (``Pilgrim's Pride'') has a facility in Moorefield, West 
Virginia that can process 2,400,000 birds per week as well as a 
facility in Timberville, Virginia that can process 660,000 birds per 
week.\18\
---------------------------------------------------------------------------

    \15\ Complaint, supra note 5, at 9.
    \16\ CIS, supra note 7, at 4.
    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

    Tyson is the largest chicken processor in the United States but it 
was the smallest player in the Shenandoah Valley market. And, even 
though Defendant's acquisition of the Tyson facility only constitutes a 
merger between the two smaller processors in the Shenandoah Valley in 
terms of capacity, the transaction increases the Herfindahl-Hirschman 
Index (``HHI'') by more than 700 points and results in a post-
transaction market HHI in excess of 5000.\19\ These HHI figures support 
the presumption that the transaction likely enhances Defendants' market 
power.\20\ Additionally, the barriers to entry in the chicken 
processing market are significant in terms of both cost and time. 
Construction of a new facility requires an investment of at least $35 
million and it would take at least two years before it would be 
operational.\21\
---------------------------------------------------------------------------

    \19\ Id. at 9.
    \20\ U.S. Dep't of Justice, HORIZONTAL MERGER GUIDELINES 5.3 
(2010).
    \21\ Complaint, supra note 5, at 12.
---------------------------------------------------------------------------

    As detailed in the Complaint, growers benefitted from competition 
between the three processors ``in a variety of respects.'' \22\ 
Competition among the processors benefitted growers in terms of better 
prices for their services.\23\ The processers, however, also competed 
for grower services through their non-price contractual terms, terms 
that growers consider when choosing which processor to contract 
with.\24\ The DoJ specifically noted four areas where the three 
processors' contracts differed: (1) Degree in which processors share 
various costs with growers; (2) number of flocks the processors provide 
the grower per year; (3) the extent to which processors require certain 
features in their growers' chicken houses; and (4) the degree in which 
processors support growers investment in upgrades to their chicken 
houses.\25\
---------------------------------------------------------------------------

    \22\ Id at 10.
    \23\ Id.
    \24\ Id.
    \25\ Id. at 10-11.
---------------------------------------------------------------------------

    The importance of these non-price contractual terms was central to 
the DoJ's allegations of competitive harm from the challenged 
transaction. That importance is reflected in the DoJ statement of the 
cause of action:
    George's acquisition of Tyson's Harrisonburg, Virginia chicken 
complex will substantially lessen competition for the purchase of 
broker grower services in the Shenandoah Valley in violation of Section 
7 of the Clayton Act, 15 U.S.C. 18. The Transaction would likely have 
the following effects, among others:
    a. Actual and potential competition between George's and Tyson in 
the procurement of broiler grower services in the Shenandoah Valley 
will be eliminated;
    b. Competition generally in the procurement of broiler grower 
services in the Shenandoah Valley will be substantially lessened; and
    c. Suppliers of broiler growing services will receive less than 
competitive prices or less competitive contract terms for their 
services.\26\
---------------------------------------------------------------------------

    \26\ Id. at 13 (emphasis added).
---------------------------------------------------------------------------

    The harm arising from the challenged transaction, therefore, was 
that the transaction will enhance Defendants' ability to abuse their 
power relative to growers in terms of both price and non-price 
contractual provisions. As also noted in the Complaint, in response to 
unfavorable contract terms or prices, ``the grower's only practicable 
recourse'' is switching to another processor.\27\ The reduction of the 
number of competitors in this market from three to two will reduce the 
practicability of that option, especially since the other player, 
Pilgrim's Pride, does not have available capacity to take on a 
significant number of growers who may want to switch away from the 
Defendants.\28\
---------------------------------------------------------------------------

    \27\ Complaint, supra note 5, at 11.
    \28\ Id. at 4.
---------------------------------------------------------------------------

    The acquisition was already consummated at the time the DoJ 
initiated the suit; a fact that may have created a serious obstacle in 
terms of remedy. Moreover, the acquired facility apparently needs 
significant renovation and its total size is constrained because of its 
location. We are free to speculate that, before entering into the 
proposed settlement agreement allowing Defendants to keep the acquired 
facility, the DoJ made a substantial effort to find an alternate buyer 
for the acquired facility. Perhaps there was no viable alternative 
buyer.
    In an attempt to mitigate the competitive concerns in light of 
these unique obstacles, the PFJ is premised on three structural 
remedies: (1) Defendants must purchase and install a freezer at the 
Harrisonburg, Virginia facility; (2) Defendants must purchase and 
install a deboning line at either the Harrisonburg, Virginia facility 
or Edinburg, Virginia facility; and (3) Defendants must repair the roof 
at the Harrisonburg, Virginia facility. These provisions hopefully will 
deter the defendants from exercising their power, to decrease output by 
committing them to expanding capacity and improving their overall 
operations. The DoJ contends that these remedies will expand the demand 
for grower services in the Shenandoah Valley.
    What the PFJ fails to address are the anticompetitive concerns 
given the Defendants' enhanced ability to degrade contract terms it 
offers to growers in the Shenandoah Valley. For this reason, which is 
the focus of the remainder of these comments, the PFJ is inadequate and 
should be rejected as not in the public interest.

[[Page 68216]]

III. Applicable Standards

    Pursuant to the Antitrust Procedures and Penalties Act (``APPA''), 
the standard for judicial review of PFJs in antitrust cases is whether 
or not entry of the PFJ ``is in the public interest.'' 15 U.S.C. 
16(e)(1). When conducting its public interest determination, the court 
``may not simply rubberstamp the government's proposal, but rather it 
must engage in an independent determination of whether a proposed 
settlement is in the public interest.'' United States v. AT&T, Inc., 
541 F. Supp. 2d 2, 6 (D.D.C. 2008) (internal quotations marks and 
citations omitted).
    In making the public interest determination, the APPA requires the 
court to consider the following:
    (A) The competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration of relief sought, anticipated effects of alternative remedies 
actually considered, whether its terms are ambiguous, and any other 
competitive considerations bearing upon the adequacy of such judgment 
that the court deems necessary to a determination of whether the 
consent judgment is in the public interest; and
    (B) The impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and individuals 
alleging specific injury from the violations set forth in the complaint 
including consideration of the public benefit, if any, to be derived 
from a determination of the issues at trial.
    15 U.S.C. 16(e)(1)(A)-(B). The court's review of a PJF is therefore 
limited, as the court may only inquire ``into whether the government's 
determination that the proposed remedies will cure the antitrust 
violations alleged in the complaint was reasonable, and whether the 
mechanisms to enforce the Final Judgment are clear and manageable.'' 
United States v. InBev N.V./S.A., 2009 U.S. Dist. LEXIS 84787, at *3 
(D.D.C. Aug. 11, 2009).
    A court may not ``engage in an unrestricted evaluation of what 
relief would best serve the public.'' United States v. BNS, Inc., 858 
F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 
648 F.2d 660, 666 (9th Cir. 1981)). As explained by the Ninth Circuit 
in Bechtel, in determining whether a PFJ is in the public interest, 
``[t]he court is required to determine not whether a particular decree 
is the one that will best serve society, but whether the settlement is 
`within the reaches of the public interest.' '' Bechtel, 648 F.2d at 
666 (citations omitted). See also United States v. SBC Commc'ns, Inc., 
489 F. Supp 2d 1, 17 (D.D.C. 2007) (``The government need not prove 
that the settlements will perfectly remedy the alleged antitrust harms, 
it need only provide a factual basis for concluding that the 
settlements are reasonably adequate remedies for the alleged harms.'').
    A court may only review the decree itself in relation to the 
complaint and cannot ``effectively redraft the complaint.'' United 
States v. Microsoft Corp., 56 F.3d 1448, 1459 (DC Cir. 1995). Courts 
also should not ``look beyond the complaint in making the public 
interest determination unless the complaint is drafted so narrowly as 
to make a mockery of judicial power.'' SBC Commc'ns, 489 F. Supp 2d at 
15.
    Even under these extremely narrow boundaries of judicial review, as 
further explained below, the PFJ in this case fails to satisfy the 
public interest requirement. A court's ``ultimate authority under the 
[APPA] is limited to approving or disapproving the consent decree.'' 
BNS, 858 F.2d at 464. Therefore, this Court, after finding that the PFJ 
fails to satisfy the public interest requirement, should reject the PFJ 
as drafted.

IV. The Proposed Remedies Do Not Adequately Redress the Competitive 
Harms Alleged in the Complaint

    The PFJ in this case fails to satisfy the public interest 
requirement, even under the narrow confines for judicial review of PFJs 
in antitrust cases, because it omits any remedy of a key competitive 
harm alleged in the Complaint: the competitiveness of non-price 
contractual terms in agreements between growers and processors.
    In its statement of the cause of action, the DoJ specifically 
alleges that the transaction enhances the Defendants' ability to impose 
``less competitive contract terms for [grower] services.'' \29\ There 
are repeated references throughout the Complaint to this particular 
manifestation of the adverse competitive impact of the challenged 
transaction.\30\
---------------------------------------------------------------------------

    \29\ Complaint, supra note 5, at 13.
    \30\ Id. at 4, 9-11.
---------------------------------------------------------------------------

    This concern is well-founded. Extensive past experience shows that, 
when competition is weak or non-existent in the market for buyers of 
growers' services, processors have frequently changed the terms of 
their contracts to exploit the growers and appropriate their 
investment. The facilities for raising chickens represent a 
significant, long-term capital investment by a grower and these 
facilities have only one practical economic use.\31\ A grower who makes 
a long term commitment to raising chickens, usually finances this with 
long term debt, hence in a non-competitive environment, buyers have 
substantial opportunity and ability to impose new, exploitive terms on 
growers after they have made that initial commitment. These tactics 
were highlighted at several of the recent Workshops on Agricultural 
Competition Issues jointly sponsored by the Department of Justice and 
the Department of Agriculture.\32\
---------------------------------------------------------------------------

    \31\ Id. at 6-7.
    \32\ In August 2009, the Attorney General Eric Holder and 
Agriculture Secretary Tom Vilsack announced a series of joint public 
workshops to explore competition issues affecting the agriculture 
industry, and were intended to specifically address buyer power and 
vertical integration. Press Release, U.S. Dep't of Justice, Justice 
Department and USDA to Hold Public Workshops to Explore Competition 
Issues in the Agriculture Industry (Aug. 5, 2009), available at 
http://www.justice.gov/atr/public/press_releases/2009/248797.htm. 
The series of five workshops were held in Iowa, Alabama, Wisconsin, 
Colorado and Washington, DC and there were over 3,500 participants 
through the first four workshops. Christine Varney, Assistant 
Attorney General, U.S. Dep't of Justice, Joint DOJ and USDA 
Agriculture Workshops: Concluding Remarks (Dec. 8, 2010), available 
at http://www.justice.gov/atr/public//264911.pdf. The workshop held 
in Alabama was dedicated to competitive issues in the poultry 
market. Transcript of Record of Poultry Workshop (May 21, 2010), 
available at http://www.justice.gov/atr//workshops/ag2010/alabama-agworkshop-transcript.pdf.
---------------------------------------------------------------------------

    The PFJ contains no remedy designed to address the impact that the 
challenged transaction will have on the terms of grower service 
contracts. And, in stark contrast to the language in the Complaint, the 
CIS contains no discussion of the impact that the challenged 
transaction will have on the non-price terms of grower service 
contracts. Instead, there is merely a passing reference to this issue 
in a footnote in the CIS noting only that Defendants have assumed the 
existing written agreements that Tyson had with growers as of the date 
of the transaction and has offered to extend those contracts thru 
2018.\33\ Somewhat paradoxically, the CIS explicitly reaffirms this 
particular potential adverse competitive impact of the merger, re-
acknowledging that most growers will not abandon their initial 
investment in response ``to small decreases in the prices (or 
degradations of other contract terms) they receive for their 
services.'' \34\
---------------------------------------------------------------------------

    \33\ CIS, supra note 7, at 9 n.5.
    \34\ Id. at 5-6 (emphasis added).
---------------------------------------------------------------------------

    The DoJ's recognition of the likely harm that the merger will lead 
to reduced competition vis-[agrave]-vis the non-price contractual terms 
demonstrates

[[Page 68217]]

the inadequacy of the PFJ. The inadequacy is three-fold.
    First, as the footnote in the CIS suggests, presumably the DoJ 
conducted some inquiry to this particular issue. We believe that the 
Defendants' extension of the contracts inherited from Tyson was an 
implied condition of the proposed settlement. If this was in fact the 
case, then the PFJ should have included that as an express condition of 
the settlement. Implied remedies are simply inadequate and the 
enforceability of an implied remedy is unclear. Implied remedies should 
be disfavored because they do not comport with the APPA's requirement 
that the CIS recite ``an explanation of the proposal for a consent 
judgment, including an explanation of any unusual circumstances giving 
rise to such proposal or any provision contained therein, relief to be 
obtained thereby, and the anticipated effects on competition of such 
relief.'' 15 U.S.C. 16(b)(3).
    Second, there is no discussion of the nature of the Defendants' 
extension of the Tyson agreements, nor has this Court reviewed those 
revised agreements. We may speculate that the DoJ in fact reviewed the 
revised contract terms in light of what it had learned at the Workshops 
to ensure that they conformed to the PSA and the corresponding 
administrative rules promulgated thereunder which protect growers from 
exploitation.\35\ Nevertheless, the DoJ provides no information on 
either the price or the non-price contractual provisions of the 
purported addendum extending the contracts thru 2018. Therefore, the 
public and this Court has no information upon which to determine 
whether or not Defendants have already exercised its enhanced market 
power by imposing unfavorable terms on Tyson's growers.
---------------------------------------------------------------------------

    \35\ 7 U.S.C. 181-229c (2006); 9 CFR 201.1-.200 (2011).
---------------------------------------------------------------------------

    Third, and perhaps most disconcerting, the PFJ ignores the other 
side of the coin: the relationships that George's has with its existing 
growers. This failure even to consider the impact the transaction would 
have on the contracts Defendants have with their existing growers 
perhaps best illustrates the omission of any significant analysis of 
the non-price contractual terms of grower service contracts.
    The contracts that the Defendants inherited from Tyson are only 
part of the competitive concern raised by the Complaint. Before the 
transaction, Tyson growers could switch to the Defendants and vice-
versa in response to unfavorable contractual provisions. At the time of 
the transaction, Tyson had contracts with approximately 120 growers in 
the Shenandoah Valley, whereas George's had contracts with 
approximately 190 growers.\36\ After the merger, and in light of the 
Pilgrim Pride's limited available capacity, Tyson's and George's 
growers lose the ``only practicable recourse in the face of unfavorable 
contract terms.'' \37\
---------------------------------------------------------------------------

    \36\ Id. at 4.
    \37\ Complaint, supra note 5, at 11.
---------------------------------------------------------------------------

    Assuming arguendo that the Defendants assumed and renewed the 120 
or so existing Tyson contracts at their existing terms, nothing in the 
PFJ or the CIS addresses Defendants' potential to abuse their increased 
buyer power by manipulating the non-price contractual terms governing 
the relationship between Defendants and its 190 or so other growers. 
Therefore, even if the Defendants renewed the Tyson contracts as an 
undisclosed condition of the PFJ, that remedy alone would be inadequate 
because it wholly ignores the impact that the challenged transaction 
will have on the 190 growers whose services for the Defendants predate 
the transaction. Nothing in the PFJ remedies this concern and there is 
no meaningful discussion of this potential harm in the CIS, even though 
it was heavily emphasized in the Complaint.
    The DoJ's response to these three criticisms will likely be that, 
although not explicitly discussed in the PFJ or CIS, the proposed 
remedies impliedly and adequately redress the potential competitive 
harm of Defendants abusing their increased buyer power by degrading the 
non-price terms of their agreements with growers. This claim, however, 
is a non-sequitur.
    The purported goal of the structural remedies in the PFJ is to give 
Defendants ``the incentive and ability to increase local poultry 
production, thereby increasing the demand for grower services.'' \38\ 
As we stated above, we agree with the DoJ's assessment that the 
investments will increase Defendants' demand for grower services. We do 
not, however, agree that increased demand will preclude Defendants from 
simultaneously degrading the non-price contractual terms of its 
contracts with existing growers or even with new growers added in 
response to the expanded capacity of Defendants after they have made 
their initial irrevocable investment.
---------------------------------------------------------------------------

    \38\ Press Release, U.S. Dep't of Justice, Justice Department 
Reaches Settlement with George's Inc. (June 23, 2011), available at 
http://www.justice.goviatr/public/press_releases/2011/272510.htm.
---------------------------------------------------------------------------

    A rational economic actor seeks to reduce the total compensation it 
pays suppliers. The DoJ specifically alleged that the non-price terms 
in grower contracts factor into the total compensation processors pay 
to growers.\39\ The PFJ is inadequate because, to truly remedy the 
competitive harms alleged in the Complaint, the PFJ should also include 
a conduct remedy that prohibits Defendants from imposing unfavorable 
terms on growers.
---------------------------------------------------------------------------

    \39\ Complaint, supra note 5, at 10.
---------------------------------------------------------------------------

    Perhaps the DoJ has in mind that there is a task force that 
combines the GIPSA staff enforcing the PSA at the Department of 
Agriculture with lawyers from both the Antitrust and Civil Divisions of 
the DoJ whose mission is to enhance enforcement of the PSA in order to 
address problems of contract manipulation and exploitation. Moreover, 
the DoJ might have concluded that its ability under the PFJ to review 
contracts of the Defendants provides a means by which it could in fact 
monitor the Defendants' conduct and ensure that all growers working for 
Defendants would be protected from any violations of their rights under 
the PSA.
    Explicitly including a requirement in the PFJ that the Defendants 
adhere to the PSA would have clarified the mechanism by which the DoJ 
expected to protect growers from abuse in the future. And, doing so 
would have provided greater assurance that the Defendants would 
voluntarily comply with those rules because such a violation would 
constitute contempt under the PFJ. The DoJ, however, might prefer to 
see such enforcement done through the PSA process. But, if that is its 
preference, it should have been stated in both the PFJ and the CIS. 
Those statements would have made explicit how growers could trigger 
DoRGIPSA review of any questionable contractual actions by the 
Defendants.\40\
---------------------------------------------------------------------------

    \40\ A number of federal circuit courts of appeals, contrary to 
the views of the Secretary of Agriculture and the Civil Division of 
the DoJ (as an amicus), have held that there can be no violation of 
the PSA or the regulations promulgated thereunder unless there is an 
adverse effect on consumers. See, e.g., Terry v. Tyson, 604 F.3d 272 
(6th Cir. 2010) cert. denied, 131 S. Ct. 1044 (2011). The Secretary 
has no authority to directly enforce the PSA and corresponding 
regulations with respect to poultry markets. Enforcement requires 
either a private law suit or an action brought by the Civil Division 
on behalf of the Secretary. To date, we are unaware of any poultry 
case that the Civil Division has initiated on behalf of the 
Secretary and any such case would have to overcome some daunting 
precedents to protect growers for a buyer such as the Defendants. 
Hence, reliance on the Civil Division acting on behalf of the 
Secretary to protect growers is a process that would be novel and so 
would merit explicit acknowledgement so that all interested parties 
could be aware of this new enforcement strategy.

---------------------------------------------------------------------------

[[Page 68218]]

    The incongruities between the competitive harms alleged in the 
Complaint and the remedies contained in the PFJ present sufficient 
grounds for this Court to find the PFJ not to be in the public 
interest. As this Court is limited to accepting or rejecting the PFJ as 
drafted, we respectfully request this Court reject the PFJ.

Revising the Remedies

    To reiterate our earlier statement, we strongly support the DoJ's 
decision to bring an enforcement action for this transaction. We also 
applaud the DoJ for developing innovative structural remedies in 
response to a unique situation where the traditional structural remedy, 
divestiture, was apparently not feasible. These innovative structural 
remedies, however, only redress some of the potential competitive 
concerns raised in the Complaint and therefore are incomplete. 
Correspondingly, the Court should reject the PFJ as drafted as not in 
the public interest.
    The DoJ should, however, fashion an amended PFJ that adequately 
remedies the competitive concerns set forth in the Complaint. In doing 
so, we offer one general and several specific recommendations. 
Generally, we would respectfully request that the DoJ look to the 
standards set forth in its own Guide to Merger Remedies (``GMR''). In 
that light, we also give several specific provisions that we believe 
will bring the amended PFJ in line with the GMR as well as the 
requirements of the APPA.

A. Guide to Merger Remedies

    Although concededly not as binding as the standards from the APPA 
are on courts, the DoJ also has principles by which they craft merger 
remedies. These principles are set forth in the GMR, which was recently 
updated in June of this year, and state that ``[t]here should be a 
close, logical nexus between the proposed remedy and the alleged 
violation--and the remedy should fit the violation and flow from the 
theory or theories of competitive harm.'' \41\
---------------------------------------------------------------------------

    \41\ U.S. Dep't of Justice, ANTITRUST DIVISION POLICY GUIDE TO 
MERGER REMEDIES at 4 (June 2011), available at http://www.justice.gov/atr/public/guidelines/272350.pdf.
---------------------------------------------------------------------------

    These principles further explain why the proposed PFJ is 
inadequate. The competitive harm alleged in the Complaint, specifically 
Defendants' enhanced ability to impose unfavorable, non-price 
contractual provisions on growers, is not addressed by the proposed 
remedies set forth in the PFJ, and therefore fails to demonstrate a 
``close, logical nexus'' with the alleged violation. Additionally, to 
approve a remedy that fails to comport with this basic requirement 
would create uncertainty regarding the GMR, which undermines the 
express purpose of ``provid[ing] transparency into the division's 
approach to merger remedies for the business community, the antitrust 
bar, and the broader public.'' \42\
---------------------------------------------------------------------------

    \42\ Press Release, U.S. Dep't of Justice, Antitrust Division 
Issues Updated Merger Remedies Guide (June 17, 2011), available at 
http://www.justice.gov/atr/public/press_releases/2011/272365.htm.
---------------------------------------------------------------------------

    In revising the PFJ, we ask that the DoJ follow the principles 
articulated in the GMR and craft a set of remedies that adequately 
addresses the alleged competitive harms set forth in the Complaint.

B. Our Recommendations for the Amended PFJ

    We propose that the DoJ make the following changes to the PFJ to 
adequately address the alleged competitive concerns of the challenged 
transaction. We also emphasize that these changes are supplements to, 
not replacements of, the structural remedies contained in the initial 
PFJ.
    First, the amended PFJ should include the Defendants' agreement to 
refrain from degrading the contractual provisions solely by virtue of 
its buyer power. While Defendants can retain the right to reduce or 
eliminate provisions that are beneficial to growers, this should only 
occur if there is mutuality, exhibited by either an increased benefit 
to growers under some other provision or a reduction in the obligations 
of the growers.
    To enforce this first proposed amendment to the PFJ, the DoJ should 
be permitted to seek to court enforcement; but, the amended PFJ should 
also include a provision allowing, at the DoJ's discretion, an 
aggrieved grower to pursue a commercial arbitration procedure as 
established under the amended PFJ. The DoJ already has a template for 
such a condition because a similar remedy was included in the PFJ in 
the Comcast/NBCU merger.\43\
---------------------------------------------------------------------------

    \43\ Proposed Final Judgment at 24-30, United States v. Comcast 
Corp., No. 1:11-CV-00106 (D.D.C. June 29, 2011).
---------------------------------------------------------------------------

    Second, to monitor the Defendants' compliance with the first 
recommended change to the PFJ, the termination date of the amended PFJ 
should be changed from the time that the Defendants have completed the 
required investments to some reasonable time period, e.g. five or seven 
years. We acknowledge that in the longer term, these issues should 
primarily be the concern of the USDA and the Civil Division given their 
responsibility of enforcing the PSA and corresponding GIPSA 
regulations. However, as part of the antitrust remedy to avoid undue 
risks of harm to growers resulting directly from an acquisition that 
would otherwise have violated antitrust law, the Antitrust Division 
ought to retain authority to ensure that anticompetitive conduct does 
not occur.
    Third, the amended PFJ should include a provision requiring the 
Defendants to collect any complaints from growers regarding the terms 
of contracts for grower services and report those complaints to the DoJ 
on a quarterly basis for the duration of the PFJ. The DoJ already has a 
template for such a provision, as they included such a provision in the 
Comcast/NBCU deal.\44\ In addition, the PFJ should require the 
Defendants annually to notify all growers of their rights under the PSA 
as well as their right to complain directly to the Department of 
Agriculture or the DoJ if they believe that they are subject to an 
abusive change in their contractual obligations.
---------------------------------------------------------------------------

    \44\ Proposed Final Judgment at 17, United States v. Comcast 
Corp., No. 1:11-CV-00106 (D.D.C. June 29, 2011) (``Comcast and NBCU 
shall furnish to the Department of Justice and the Plaintiff States 
quarterly electronic copies of any communication * * * containing 
allegations of Defendants' noncompliance with any provision in this 
Final Judgment''), available at http://www.justice.gov/atr/cases/f272600/272610.pdf.
---------------------------------------------------------------------------

    Fourth, the amended PFJ should establish a reasonable time in the 
future, e.g. three or five years from entry of the PFJ, at which point 
the DoJ will reassess the competitive effects that the challenged 
transaction has had on competition for grower services in the 
Shenandoah Valley. This provision should also expressly provide the DoJ 
with the option to require divestiture or other remedies it deems 
reasonable based on the results of that reassessment.

VI. Conclusion

    In this matter, the DoJ has adequately answered the question: 
``what is the competitive harm from this transaction?'' What the DoJ 
has failed to do is provide an answer to the question: ``what is the 
adequate remedy?''
    Under the standards of judicial review under the APPA, this Court 
should find that the PFJ is not in the public interest, primarily 
because the remedies contained in the PFJ do not adequately address the 
competitive harms detailed in the Complaint. Accordingly, we 
respectfully request that this Court reject the PFJ as drafted.

[[Page 68219]]

    We have outlined the ways in which the DoJ can modify the PFJ to 
adequately address the competitive harms and thereby comport with the 
public interest standard. In response to the rejection of its initial 
PJF, the DoJ and the Defendants should submit a revised PFJ that 
comports with the foregoing recommendations.

Respectfully submitted,

David A. Balto,

Law Offices of David Balto, 1350 I Street NW., Suite 850, 
Washington, DC 20005

Peter C. Carstensen,

George H. Young-Bascom Professor of Law University of Wisconsin Law 
School, 975 Bascom Mall, Madison, WI 53706
[FR Doc. 2011-28249 Filed 11-2-11; 8:45 am]
BILLING CODE 4410-11-M