A company that was co-founded by a Wharton alumnus is currently engaged in two separate lawsuits, one involving the Justice Department and another involving a Wharton professor.
Over the past year, Bazaarvoice, Inc. — a software company founded by 1999 Wharton MBA graduate Brett Hurt and his business partner Brant Barton — has become involved in a lawsuit filed by the U.S. Department of Justice and a second suit filed by Wharton finance professor Alex Edmans.
The DOJ’s antitrust lawsuit against the company resulted from a government investigation into Bazaarvoice’s June 2012 merger with PowerReviews, Inc. Both businesses provide internet retailers with a ratings and reviews platform, which enables customers to offer feedback for products online.
The DOJ’s complaint alleged that Bazaarvoice’s acquisition of PowerReviews violated the Clayton Act, which forbids mergers that may “substantially lessen competition, or tend to create a monopoly.” On Jan. 8, Judge William Orrick of the U.S. District Court of Northern California ruled that the merger violated this act.
“Bazaarvoice violated … the Clayton Act by purchasing its closest and only serious competitor, creating the likelihood of an anticompetitive effect in the R&R [ratings and reviews] market in the United States,” Orrick wrote in his 141-page ruling.
The major implication of the court’s ruling for Bazaarvoice is that the government can now file an injunction that would force the company to divest from PowerReviews, which would ultimately separate the two companies. However, Orrick’s ruling noted that since the companies have been merged for 18 months, divestment would prove to be a complex task.
This difficulty stems from the fact that the merger has already taken place, and the purpose of divestment would be to “unwind the transaction” and restore the pre-merger status of the R&R market, explained Clifford Aronson, an antitrust attorney at the Skadden, Arps, Slate, Meagher & Flom law firm.
Because of the intricacies of the case, the DOJ and Bazaarvoice have a status conference scheduled for Wednesday, at which both parties will discuss how to proceed with finding a remedy. The DOJ and Bazaarvoice also filed a joint statement on Friday outlining the plan for negotiations in the coming months.
The DOJ could not be reached for a comment. A spokesperson for Bazaarvoice deferred comment to a press release from Jan. 9, which said the company was “disappointed in the outcome of the litigation,” as it believed the merger with PowerReviews had been “beneficial to customers.”
Despite the fact that a meeting is set for Wednesday, a resolution to the antitrust violation may not be finalized for some time. According to someone familiar with the situation, who wished to remain anonymous, “It may be a while before anything of substance comes from this.” The person also stated that if a solution that is favorable to both parties is not reached, Bazaarvoice will probably appeal the decision.
Experts say the decision in this case will still be significant and will likely be cited in future merger cases.
Kiran Bhat and Joseph Rancour, associates at Skadden Arps who practice antitrust law, said the case is “notable” because it is the second time a federal court has “thoroughly appl[ied]” 2010 merger guidelines in finding a violation of Section 7 of the Clayton Act, the specific law at issue in the Bazaarvoice case.
The other case pending against Bazaarvoice, brought by Edmans, a Wharton professor suing the company and 13 of its officers and directors, alleges the defendants “breached their fiduciary duties” to Bazaarvoice and its shareholders by merging with PowerReviews. Edmans claims the defendants harmed shareholders by “knowingly approving a patently anticompetitive acquisition” that would subject Bazaarvoice to “significant government scrutiny and liability.”
Edmans and his lawyer declined to comment on the lawsuit. Bazaarvoice deferred comment to a Nov. 26 Securities and Exchange Commission filing, which described the nature of the suit to Bazaarvoice’s shareholders, noting at the time that it was “not possible to reliably predict the outcome of the case.”