Federal Register: Part III : United States v. Abitibi-Consolidated Inc. et al.; Response to Public Comment on the Proposed Final Judgment

DEPARTMENT OF JUSTICE

Veterans Affairs Department

NOTICE: Part III

SUBJECT CATEGORY: United States v. Abitibi-Consolidated Inc. et al.; Response to Public Comment on the Proposed Final Judgment

DOCUMENT SUMMARY:

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)(h), the United States hereby publishes the public comment received on the proposed Final Judgment in United States of America v. AbitibiConsolidated Inc. et al., Civil Action No. 1:07cv1912 and the response to the comment. On October 23, 2007, the United States filed a Complaint alleging that the merger between AbitibiConsolidated Inc. (``Abitibi'') and Bowater Inc. (``Bowater'') violated Section 7 of the Clayton Act, 15 U.S.C. 18. The proposed Final Judgment, filed on October 23, 2007, requires the combined company to divest Abitibi's Snowflake, Arizona paper mill. Public comment was invited within the statutory 60day comment period. Copies of the Complaint, proposed Final Judgment, Competitive Impact Statement, Public Comment and the United States' Response to the Comment and other papers are currently available for inspection in Suite 1010 of the Antitrust Division, Department of Justice, 450 5th Street, NW., Washington, DC 20530, telephone: (202) 5142481 and the Office of the Clerk of the United States District Court for the District of the District of Columbia, 333 Constitution Ave., NW, Washington, DC 20001. Copies of any of these materials may be obtained upon request and payment of a copying fee. J. Robert Kramer II,

Director of Operations, Antitrust Division.

In the matter of: United States of America, Plaintiff, v. Abitibi Consolidated Inc. and Bowater Inc., Defendants.

Case No: [1:07cv01912]

Judge: Collyer, Rosemary M.; Deck type: Antitrust. Response of Plaintiff United States to Public Comments on the Proposed Final Judgment

Pursuant to the requirements of the Antitrust Procedures and Penalties Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)(h), the United States hereby files the Comment received from members of the public concerning the proposed Final Judgment in this case and the Response by the United States to the Comment. The United States will move the Court for entry of the proposed Final Judgment after the Comment and this Response have been published in the Federal Register, pursuant to 15 U.S.C. 16(d).

The United States filed a civil antitrust Complaint under Section 15 of the Clayton Act, 15 U.S.C. 25, on October 23, 2007, alleging that the merger of AbitibiConsolidated Incorporated (``Abitibi'') and Bowater Incorporated (``Bowater'') would violate Section 7 of the Clayton Act, 15 U.S.C. 18. Simultaneously with the filing of the Complaint, the United States filed a proposed Final Judgment and an Asset Preservation Stipulation and Order (``Stipulation'') signed by plaintiff and defendants consenting to the entry of the proposed Final Judgment after compliance with the requirements of the Tunney Act. Pursuant to those requirements, the United States filed a Competitive Impact Statement (``CIS'') in this Court on October 23, 2007, published the proposed Final Judgment and CIS in the Federal Register on November 8, 2007, see United States v. AbitibiConsolidated Inc. and Bowater Inc., 72 FR 63187 (November 8, 2007); and published 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, in The Washington Post for seven days beginning on November 18, 2007, and ending on November 24, 2007. The 60day period for public comments ended on January 7, 2008, and one comment was received as described below and attached hereto.
I. Background: The United States' Investigation and the Proposed Resolution

On January 29, 2007, Abitibi and Bowater announced plans to merge into a new company to be called AbitibiBowater Incorporated (``AbitibiBowater''). Over the next nine months, the United States Department of Justice (the ``Department'') conducted an extensive, detailed investigation into the competitive effects of the proposed transaction. As part of this investigation, the Department obtained substantial documents and information from the merging parties and issued 37 Civil Investigative Demands to third parties. In response, the Department received and considered more than 150,000 pages of material. The Department conducted more than 60 interviews with customers, competitors and other individuals with knowledge of the industry. The sole commenter here, the Newspaper Association of America (the ``NAA''), represents newspaper publishers in the United States. During the course of the Department's investigation into the proposed merger, the NAA shared with the investigative staff its concerns about the impact of the proposed merger on competition; the investigative staff carefully analyzed its concerns and submissions, as well as the data, market facts and opinions of other knowledgeable parties.

The Department concluded that the combination of Abitibi and Bowater likely would lessen competition in the North American newsprint market. Newspapers are printed on newsprint, the lowest quality and generally the least expensive grade of groundwood paper. Newspaper publishers, who buy more than 80 percent of all newsprint sold in the United States, have no close substitutes to use for printing newspapers because of newsprint's price and physical characteristics. Because publishers' newsprint presses are optimized to use newsprint, switching to another grade of paper would be costly. A small but significant increase in price likely would not cause customers to switch sufficient newsprint tonnes to other products or otherwise curtail their newsprint usage so as to render the increase unprofitable.

As explained more fully in the Complaint and CIS, the merger of Abitibi and Bowater would substantially increase concentration and lessen competition in the production, distribution and sale of newsprint in North America. After conducting a detailed analysis of the merger, the Department filed its Complaint alleging competitive harm in the newsprint market in North America and sought a remedy that would ensure that such harm is prevented.

The proposed Final Judgment in this case is designed to preserve competition in the production, distribution and sale of newsprint in North America. It requires the divestiture of a newsprint mill that manufactures newsprint for sale in North America. Specifically, the proposed Final Judgment directs a sale of Abitibi's Snowflake, Arizona, newsprint mill (``Snowflake,'' or the ``Snowflake mill'') to a purchaser acceptable to the United States.

In the Department's judgment, divestiture of the Snowflake mill to a qualified purchaser would remedy the violation alleged in the Complaint because the Snowflake mill, located in northeastern Arizona, is one of the most efficient and profitable newsprint mills in North America. Plans to improve the mill's efficiency in coming years with investments in energy and machinery are already underway. Snowflake's size and cost position ensure that its divestiture to a competitor of the
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merged firm will preserve competition in the North American newsprint market. Although entry of the proposed Final Judgment would terminate this action, the Court would retain jurisdiction to construe, modify, or enforce the provisions of the proposed Final Judgment and punish violations thereof. \1\
\1\ The merger closed on October 29, 2007. In keeping with the United States' standard practice, neither the Stipulation nor the proposed Final Judgment prohibited closing the merger. See ABA Section of Antitrust Law, Antitrust Law Developments 406 (6th ed. 2007) (noting that ``[t]he Federal Trade Commission (as well as the Department of Justice) generally will permit the underlying transaction to close during the notice and comment period''). Such a prohibition could interfere with many timesensitive deals and prevent or delay the realization of substantial efficiencies. In consent decrees requiring divestitures, it is also standard practice to include a ``preservation of assets'' clause in the decree and to file a stipulation to ensure that the assets to be divested remain competitively viable. That practice was followed here. Proposed Final Judgment Sec. IV(K). In addition, the Stipulation entered by the Court in this case required AbitibiBowater to hold separate the Snowflake newsprint mill, pending the divestiture contemplated by the proposed Final Judgment.

II. Standard of Judicial Review

Upon the publication of the Comment and this Response, the United States will have fully complied with the Tunney Act and will move for entry of the proposed Final Judgment as being ``in the public interest.'' 15 U.S.C. 16(e), as amended.

The Tunney Act states that, in making that determination, the Court shall consider:
(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); see generally United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1, 11 (D.D.C. 2007) (concluding that the 2004 amendments ``effected minimal changes'' to scope of review under Tunney Act, leaving review ``sharply proscribed by precedent and the nature of Tunney Act proceedings'').\2\
\2\ The 2004 amendments substituted ``shall'' for ``may'' in directing relevant factors for court to consider and amended the list of factors to focus on competitive considerations and to address potentially ambiguous judgment terms. Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006).

As the United States Court of Appeals for the District of Columbia Circuit has held, under the APPA a court considers, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. See United States v. Microsoft Corp., 56 F.3d 1448, 145862 (D.C. Cir. 1995). With respect to the adequacy of the relief secured by the decree, 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)); see also Microsoft, 56 F.3d at 146062. Courts have held that:
[t]he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The 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.'' More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted). Cf. BNS, 858 F.2d at 464 (holding that the court's ``ultimate authority under the [APPA] is limited to approving or disapproving the consent decree''); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the court is constrained to ``look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass''). See generally Microsoft, 56 F.3d at 1461 (discussing whether ``the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the `reaches of the public interest' ''). In making its public interest determination, a district court ``must accord deference to the government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations'' because this may only reflect underlying weakness in the government's case or concessions made during negotiation. SBC Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts to be ``deferential to the government's predictions as to the effect of the proposed remedies''); United States v. Archer DanielsMidland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant due respect to the United States' prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case).

Court approval of a consent decree requires a standard more flexible and less strict than that appropriate to court adoption of a litigated decree following a finding of liability. ``[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is `within the reaches of public interest.' '' United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy). To meet this standard, the United States ``need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.

Moreover, the Court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its complaint, and does not authorize the Court to ``construct [its] own hypothetical case and then evaluate the decree against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place,'' it follows that ``the court is only authorized to review the decree itself,'' and not to ``effectively redraft the complaint'' to inquire into other matters that the United States did not pursue. Id. at 145960. As this Court recently confirmed in SBC Communications, courts ``cannot 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.

In its 2004 amendments, Congress made clear its intent to preserve the
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practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction ``[nlothing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.'' 15 U.S.C. 16(e)(2). The language wrote into the statute what the Congress that enacted the Tunney Act in 1974 intended, as Senator Tunney then explained: ``[t]he court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney). Rather, the procedure for the public interest determination is left to the discretion of the court, with the recognition that the court's ``scope of review remains sharply proscribed by precedent and the nature of Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d at 11.\3\
\3\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting that the ``Tunney Act expressly allows the court to make its public interest determination on the basis of the competitive impact statement and response to comments alone''); United States v. MidAm. Dairymen, Inc., 19771 Trade Cas. (CCH) ] 61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt failure of the government to discharge its duty, the Court, in making its public interest finding, should * * * carefully consider the explanations of the government in the competitive impact statement and its responses to comments in order to determine whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93298, 93d Cong., 1st Sess., at 6 (1973) (``Where the public interest can be meaningfully evaluated simply on the basis of briefs and oral arguments, that is the approach that should be utilized.'').

III. Summary of the Comment and Response

During the 60day comment period, the United States received one Comment, from the NAA. That Comment is attached to this memo. After reviewing the Comment, the United States continues to believe that the proposed Final Judgment is in the public interest. The Comment includes concerns relating to whether the proposed Final Judgment adequately remedies the harms alleged in the Complaint. The United States addresses these concerns below and explains how the remedy is appropriate.

A. Summary of Comment Submitted by the NAA

The NAA is an association whose members include daily and Sunday newspapers in the United States who purchase a significant proportion of North America's newsprint production. In its Comment of January 2, 2008, the NAA expressed concerns relating to whether the proposed Final Judgment adequately remedies the alleged harms. The NAA argued in its Comment that the Court should not enter the proposed Final Judgment without a hearing for two reasons: (1) the newly merged AbitibiBowater, despite its agreement to divest the Snowflake mill, ``has already begun to exercise the market power created by the merger to anticompetitively raise newsprint prices to North American newsprint customers''; and (2) the United States ``has not provided the Court with any factual or economic analysis to demonstrate that the proposed remedy will eliminate the incentive for AbitibiBowater to reduce industry capacity and raise prices to North American newsprint customers.'' (NAA Comment at 2.)
1. The NAA's Argument That AbitibiBowater Has Already Begun To Exercise Market Power and Anticompetitively Raise Newsprint Prices

The NAA notes that a little more than five weeks following the merger that created AbitibiBowater, the combined firm announced that it would remove 600,000 metric tonnes of newsprint capacity from the North American market and would raise newsprint prices by $60 per metric tonne, to be implemented in three $20 price increases. The NAA further notes that ``[m]ost'' North American newsprint manufacturers not only joined AbitibiBowater's price increase but also implemented a ``previously stalled'' price increase of $25 per metric tonne. The NAA estimated that, taken together, these two price increases constitute a 15 percent price increase as compared to the premerger, October 2007, price for newsprint. The NAA also noted that, at the time
AbitibiBowater announced the removal of 600,000 metric tonnes of newsprint capacity from the North American market, it also announced that ``more mills could close in Canada later [in 2008].'' (Comment at 7.)

The NAA claims that these postmerger actions by AbitibiBowater demonstrate that the United States ``severely underestimated the risk that the merger posed to competition in the North American newsprint market and severely underestimated the incentive and ability of the merged firm to remove capacity from the market to raise the price of newsprint well above competitive levels.'' (Comment at 7.) Accordingly, the NAA contends that a ``significantly larger divestiture'' than the Snowflake mill is required to prevent ``the substantial anticompetitive price increases that are already occurring and will continue to occur as a result of the merger.'' (Comment at 7.)
2. The NAA's Argument That the United States Has Not Provided Adequate Factual or Legal Analysis Upon Which To Base a Public Interest Determination

The NAA concedes that in the Complaint, the United States ``correctly identifies the competitive harm produced by the merger.'' (Comment at 9.) The NAA argues, however, that the United States has not provided the Court with a factual or legal analysis to demonstrate that the divestiture of the Snowflake mill will ``eliminate the incentive to reduce industry capacity and raise prices to North American newsprint customers,'' and thus has provided the Court with no basis by which to determine if the proposed remedy is in the public interest. (Comment at 9.) Specifically, the NAA argues that, other than noting that Snowflake is ``among the largest and most profitable mills in the United States,'' the United States ``provided no further explanation for its decision that Snowflake was both a sufficient remedy and the best solution, no detail regarding under what `circumstances' this conclusion was reached, and no scale against which it measured Snowflake as the best alternative.'' (Comment at 17.)

The NAA contends that the proposed Final Judgment should not be entered because the United States has not explained to the Court ``why the remedy it proposes restores or preserves competition.'' (Comment at 19.) In particular, the NAA criticizes the United States for failing to reference in the Complaint or CIS what the NAA describes as historical anticompetitive behavior of Abitibi and Bowater, and it contends that absent such references, it is impossible for the Court to determine if and how much of a factor such conduct played in the United States' evaluation and settlement of the merger. The NAA also criticizes the United States for failing to discuss the anticipated effects of alternative remedies actually considered.

B. Response of the United States to the NAA's Comment

The divestiture of the Snowflake mill adequately remedies the harm alleged in the Complaint. In negotiating this remedy, the United States carefully considered the capabilities and economic viability of the Snowflake mill as well as other assets of the merging parties; the extent of industry excess capacity; the history of declining demand for newsprint, and the forecasts for that decline to continue; the costs of [[Page 32837]]
production of all newsprint mills in North America; and the financial viability of the merging parties and their competitors. After considering these issues, the United States analyzed the merger using a comprehensive data set of prices, sales, production volumes and costs, capacities and forecasts of North American newsprint demand. In its analysis, which drew upon nonpublic information unavailable to the NAA, the United States concluded that the divestiture of the Snowflake mill to a viable qualified purchaser will adequately redress the competitive harm alleged in the Complaint and restore competition to the market for the sale of newsprint in North America.

The United States and the NAA employed the same general economic model to examine the competitive effects of the merger. Accurate data about prices, manufacturing costs, the elasticity of demand and other factors can allow economists to model whether merging firms have an added incentive to exercise market power by reducing capacity after a merger. The United States and the NAA both attempted to determine whether the merger will cause the combined AbitibiBowater to eliminate newsprint capacity earlier than Abitibi and Bowater would have if they had remained independent competitors.

Although the United States and the NAA used a similar framework to model competition, the results differed significantly because of several important differences in the data. First, the United States had more complete and accurate data. Unlike the NAA, the United States was able to use a compulsory process to gather information. See, e.g., 15 U.S.C. 131114 (empowering the Antitrust Division to subpoena documents and take oral testimony). In this case, the United States had access to extensive and millbymill data on sales (including exports), production volumes, capacities and costs. The NAA, on the other hand, had to rely on less accurate and publicly available information relating to mill capacities, prices and costs in assessing the profitability of and competitors' likely response to a postmerger price increase. Second, the United States conducted its own analysis of the effect of price changes on the demand for newsprint, using confidential information, in addition to considering estimates provided by others. Based upon its analysis, the United States believes that the estimate used by NAA understates the sensitivity of newsprint consumption to changes in price. In other words, the United States believes that if the price for newsprint rose, customers would purchase less newsprint than the NAA estimates. Third, the United States and the NAA viewed 2007 differently. While the NAA assumed that the newsprint market in 2007 was in equilibriumwhich would allow that year's prices to be used as a reference point from which to measure future changes the United States' investigation revealed that much of 2007 was a period of instability. Unexpectedly large declines in demand for newsprint created excess capacity and caused prices to fall dramatically. The fact that AbitibiBowater and other firms responded to declining demand for newsprint by closing mills that were consistently losing money is discussed in further detail in the following section.

The United States is confident that at the time it negotiated the proposed Final Judgment the divestiture of the Snowflake mill was in the public interest, based upon the best information available at that time. The United States remains confident that the divestiture of the Snowflake mill is in the public interest and adequately remedies the harms alleged in the Complaint.
1. AbitibiBowater's Recently Announced Decision To Reduce Excess Newsprint Capacity, and IndustryWide Price Increases, Do Not Mean That the Parties Have Exercised Market Power

The NAA's argument, that the Snowflake mill divestiture is insufficient to prevent the combined firm from exercising market power by shutting additional capacity in order to raise prices, assumes that the combined firm's postmerger capacity reductions are the result of the merger. The NAA's suggestions to the contrary events since the filing of the proposed Final Judgment appear to be unrelated to any exercise of market power. The ongoing sharp decline in demand for newsprint in North America, increases in the prices of key inputs into the production of newsprint, and the continued decline in the value of the United States dollar all have disrupted the supply and demand equilibrium for newsprint. Industry observers expect disruptions to continue as North American demand for newsprint declines. Manufacturers will respond by intermittently closing capacity, which will cause the market price to lurch from one equilibrium to another as it adjusts to these shocks to supply. Thus, in a market with declining demand, prices can be expected to fall when the decline in demand creates excess supply and increase when unprofitable capacity is closed in response to that decline in demand. In the remainder of this section, we will discuss the effects of these trends on the newsprint market and show that a careful analysis suggests that the NAA's claims are unfounded.

Demand for newsprint in the North American market ``has declined over the last several years at a rate of approximately 5 to 10 percent per year because of a significant decline in demand for newspapers. * * * This decline in the demand for newsprint is projected to continue, and the resulting excess newsprint capacity will likely lead Defendants and their competitors to close, idle or convert more newsprint mills.'' (Complaint at ] 17; see also CIS at 5.) As North American demand continues to decline, notwithstanding the merger, all firms, including AbitibiBowater, will eventually have to close inefficient newsprint capacity. In its Comment, the NAA ignores the possibility that AbitibiBowater's postmerger decision to close some of its inefficient capacity was a natural reaction to the continued decline in demand for newsprint and may in fact be perfectly consistent with a competitive market.

The pressure to close inefficient capacity also intensified in 2007 because the prices of key production inputsspecifically, recycled fiber, wood pulp and energyrose sharply. This increase in input costs has raised the costs of all producers and put upward pressure on the price of newsprint. Further, the United States dollar has lost value relative to the Canadian dollar, which has the effect of raising the costs of Canadian producers of newsprintthe bulk of North American newsprint capacity is located in Canadaand hence the price of newsprint.

Finally, the adjustment of the newsprint market to these disruptive market conditions will not be instantaneous or smooth. Because newsprint mills have very significant fixed costs and relatively smaller incremental costs, newsprint manufacturers may not be able to respond to declining demand by gradually withdrawing capacity. The market therefore can be expected to swing between periods of overcapacity and shortage as companies retire paper machines or entire paper mills. As these swings occur, there will not be smooth changes to the industry's overall capacity or its price levels. For example, while the price of newsprint has risen in the past six months, it is at the time of this filing at or below its lowest level in 2006 when input prices were lower. Further, the United States' investigation [[Page 32838]]
has found that the price is so low that many newsprint producers' mills do not cover their costs. Indeed, the three mills that AbitibiBowater closed after the merger were unprofitable.

In summary, the NAA's conclusion that recent newsprint capacity closures and price increases necessarily are anticompetitive actions driven by the merger is misguided and fails to account for significant market facts affecting the supply and demand equilibrium of the North American newsprint market.
2. The United States Has Provided Sufficient Explanation of Why the Proposed Divestiture Is an Adequate Remedy to the Harm Alleged in the Complaint, and Entry of the Proposed Final Judgment Will Be in the Public Interest

The proposed Final Judgment provides an effective and appropriate remedy for the antitrust violation alleged in the Complaint, and its entry, therefore, will be in the public interest. The purpose of Tunney Act review is not for the Court to engage in an ``unrestricted evaluation of what relief would best serve the public,'' BNS, 858 F.2d at 462 (citing Bechtel Corp., 648 F.2d at 666) or to determine the relief ``that will best serve society,'' Bechtel Corp., 648 F.2d at 666. Instead, the purpose of Tunney Act review is simply to determine whether the divestiture of the Snowflake mill is within the reaches of the public interest, ``even if it falls short of the remedy the court would impose on its own.'' AT&T, 552 F. Supp. at 151. In other words, the purpose of Tunney Act review is to determine whether the divestiture is a ``reasonably adequate'' remedy for the harms alleged in the Complaint. SBC Commc'ns, 489 F. Supp. 2d at 17.

Subsections (A) and (B) of 15 U.S.C. 16(e)(1) set forth a number of factors for courts to consider when assessing the competitive impact of proposed final judgments. Many of those factors are not at issue here.\4\ Instead, the second argument in the NAA's Comment focuses on the competitive considerations relevant to the proposed Final Judgment, the divestiture it requires and the alternatives the United States considered.
\4\ The NAA does not contest several factors listed for courts to consider under subsection (A). For instance, with respect to ``provisions for enforcement and modification,'' 15 U.S.C. 16(e)(1)(A), the proposed Final Judgment contains the standard provisions that have been effective in numerous other cases brought by the United States. In particular, the proposed Final Judgment provides that the Court retains jurisdiction over this action, and the parties may apply to the Court for any order necessary or appropriate for the modification, interpretation, or enforcement of the Final Judgment. With respect to ``duration of relief sought,'' id., the proposed divestiture is permanent. Finally, with respect to ``whether its terms are ambiguous,'' id., no term in the proposed Final Judgment is ambiguous.

The NAA questions whether the United States has adequately demonstrated to this Court that the divestiture eliminates AbitibiBowater's postmerger incentive to reduce capacity and raise prices to North American newsprint customers. It has. As explained previously, the United States conducted an extensive investigation and compiled comprehensive data on market shares, costs of production, estimations of restofindustry newsprint capacity and future reductions in newsprint demand gathered from public and nonpublic sources. This data was used in an economic model to determine if the merger would cause an anticompetitive increase in newsprint prices.\5\ The United States concluded that a merger between Abitibi and Bowater, without a divestiture, would allow the merged firm to ``close its capacity strategically, allowing the merged firm to raise newsprint prices and recoup its lost profits on the combined output.'' (CIS at 8.) But, as the United States concluded in the CIS, ``[d]ivesting Snowflake * * * will reduce the capacity over which the merged firm could profit to a level at which it would not have the ability to close capacity strategically.'' (Id.) In other words, the United States' investigation found that without Snowflake, AbitibiBowater did not have enough newsprint capacity to benefit sufficiently from the postmerger price increase to offset the costs associated with shutting down profitable newsprint capacity.
\5\ To raise prices above competitive levels, the merged firm must create an artificial shortage by shutting down profitable newsprint mills. The merged firm has the incentive to follow this strategy when the costs of this strategy, which are the profits the merged firm forgoes by prematurely shutting down profitable newsprint mills, are less than its benefits, which are the increased prices the merged firm can expect to recoup across its remaining newsprint capacity. After completing its investigation, the United States concluded that without a divestiture AbitibiBowater would have the incentive to follow this strategy, that is, to create an artificial shortage by shutting down otherwiseprofitable newsprint mills.

The NAA further contends that the United States ``has left the Court entirely in the dark with absolutely no basis for making a meaningful comparison between a Snowflakeonly divestiture and any alternative course of action, including a full trial on the merits.'' (Comment at 18.) This is incorrect; in the CIS the United States addressed both alternatives. (CIS at 1011.) As the United States noted in the CIS, a full trial on the merits would require significant time and expense, and the outcome would be uncertain. In light of such uncertainty, the United States' decision to take an adequate and available remedy and forgo the risk of trial is well within ``the reaches of the public interest.'' See SBC Commc'ns, 489 F. Supp. 2d at 23 (``Success at trial was surely not assured, so pursuit of that alternative may have resulted in no remedy at all. While a trial may have created an even greater evidentiary record, that benefit may not outweigh the possible loss of the settlement remedies. * * *'').

Similarly, the United States need not rehearse every permutation of possible divestiture in order to demonstrate to this Court that the divestiture of Snowflake would adequately address the competitive harm alleged in the Complaint. The competitive harm that the United States allegedand that the NAA acknowledgesis AbitibiBowater's incentive and ability to raise newsprint prices above competitive levels in the North American market. Any divestiture that removes either the combined firm's incentive or its ability to raise prices above competitive levels would therefore be an adequate remedy. Given AbitibiBowater's ownership of all or part of 19 paper mills in the United States and Canada (see Complaint ]] 7 & 8), the United States could have selected different mills, individually or in combination, to remove the merged firm's ability and incentive to raise prices anticompetitively. In this instance, considering all the factorsincluding the inherent advantages of settlement and avoidance of the risk and uncertainty of litigation \6\the United States reasonably chose to require the divestiture of one of ``the largest and most profitable newsprint mills in the United States,'' which its analysis determined would deprive the merged firm of the scale needed to recoup its lost profits. (See CIS at 6, 11.) As discussed above, given the continuing decline in demand for newsprint, the United States anticipated that AbitibiBowater would continue to close inefficient newsprint capacity. (See Complaint at ] 17, CIS at 5.) The United States determined that, coupled with the exit from the market of such inefficient capacity, the divestiture of [[Page 32839]]
the Snowflake mill will be sufficient to prevent AbitibiBowater from engaging in an anticompetitive closure of efficient capacity. Abitibi and Bowater, even before the merger, had the incentive to close money losing mills. The question therefore is whether the merger somehow gave them the incentive to close profitable mills in order to raise prices above competitive levels. The United States determined that AbitibiBowater was not likely to have that incentive once it divested Snowflake.
\6\ As noted previously, when making its public interest determination, this Court ``must accord deference to the
government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations because this may only reflect underlying weakness in the
government's case or concessions made during negotiation.'' SBC Commc'ns, 489 F. Supp. 2d at 17.

Finally, the NAA suggests that the proposed Final Judgment should not be entered because Abitibi and Bowater previously had engaged in anticompetitive conduct of the sort alleged in the Complaint, which it alleges the United States did not properly account for in negotiating the proposed Final Judgment. This suggestion is misplaced for two reasons. First, as mentioned earlier, the United States spoke with a number of market participants, including the NAA, and examined historical data on prices and costs in the course of its investigation. The evidence does not support the NAA's claims that the parties' prior behavior was in fact anticompetitive. Second, the NAA's allegations about the parties' prior behavior are irrelevant because the prior behavior does not address whether, after Snowflake is divested, AbitibiBowater will have the incentive and ability to unilaterally raise price above competitive levels. (And as the United States has already explained, the answer to this question is likely to be ``no.'')

Ultimately, in making its public interest determination, the district court ``must accord deference to the government's predictions about the efficacy of its remedies.'' See SBC Commc'ns, 489 F. Supp. 2d at 17. As already has been demonstrated, the United States' analysis supports the conclusion that divestiture of the Snowflake mill is an appropriate remedy to the harms alleged in the Complaint.

IV. Conclusion

The issues raised in the NAA's public Comment were among the many considered during the United States' extensive and thorough investigation. 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 Response are published.
Respectfully Submitted,
Dated: April 18, 2008,
Karl D. Knutsen,
Ryan Danks,
Rebecca Perlmutter,
Michelle Seltzer (D.C. Bar No. 475482).
Trial Attorneys. United States Department of Justice, Antitrust Division, Litigation I Section, 1401 H St., N.W., Suite 4000, Washington, DC 20530, Telephone: (202) 5140976, Facsimile: (202) 3075802.

Certificate of Service

I hereby certify that on April 18, 2008, I caused a copy of the foregoing Response of Plaintiff United States to Public Comments on The Proposed Final Judgment in this matter to the following individuals by electronic mail:
Counsel for Defendant AbitibiConsolidated Inc.
Joseph J. Simons, Esq., Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1615 L Street, NW., Suite 1300, Washington, DC 200365694, Telephone: (202) 2237370, Facsimile: (202) 2237470, Email: jsimons@paulweiss.com. Counsel for Defendant Bowater Incorporated
R. Hewitt Pate, Esq., Hunton & Williams, 1900 K Street, NW., Washington, DC 20006, Telephone: (202) 9551921, Facsimile: (202) 8573894, Email: hpate@hunton.com. Counsel for the Newspaper Association of America
Alan L. Marx, Esq., King and Ballow, 1100 Union Street Plaza, 315 Union Street, Nashville, TN 37201, Telephone: (615) 7265455, Facsimile: (615) 7265413, Email: amarx@kingballow.com. Karl D. Knutsen.
Comments of the Newspaper Association of America Regarding Proposed Final Judgment in United States of America v. AbitibiConsolidated, Inc. and Bowater, Incorporated

In its Explanation of Consent Decree Procedures, the Justice Department requests the Court to enter the proposed Final Judgment settling United States of America v. AbitibiConsolidated, Inc. and Bowater, Incorporated without a hearing ``provided that the Court concludes that the Final Judgment is in the public interest.'' \1\ The main provision of the proposed Final Judgment is the requirement that the defendants divest AbitibiConsolidated's Snowflake, Arizona newsprint mill in order to settle the Justice Department's Complaint \2\ enjoining the proposed merger of AbitibiConsolidated, Inc. (``Abitibi'') and Bowater, Incorporated (``Bowater'').\3\ Shortly after the settlement agreement, Abitibi and Bowater completed their merger. The merged firm is named AbitibiBowater.\4\
\1\ Plaintiff United States' Explanation of Consent Decree Procedures filed with the Court on October 23, 2007 at ] 6. \2\ The Complaint and proposed Final Judgment were filed with the Court on October 23, 2007.
\3\ Proposed Final Judgment at pages 58.
\4\ Abitibi and Bowater completed their merger on October 29, 2007. AbitibiBowater press release, October 29, 2007.

The Newspaper Association of America (``NAA'') is an association whose membership includes most of the daily and Sunday newspaper publishers in the United States. NAA represents the newsprint customers most significantly affected by the merger of Abitibi and Bowater and the provisions of the proposed Final Judgment.

In its Competitive Impact Statement, the Justice Department asserts that the divestiture of the Snowflake mill ``would adequately address the likelihood that the proposed merger substantially would reduce competition for newsprint in the United States.'' \5\ In its filings on this matter, including the Competitive Impact Statement and proposed Final Judgment, the Justice Department provides no information or analysis to the Court to support or justify this assertion. \5\ Competitive Impact Statement at page 6. The Competitive Impact statement was also filed with the Court on October 23, 2007.

In these Comments, the NAA makes two separate but related arguments explaining why it believes the Court should reject the Justice Department's request to approve the proposed Final Judgment without a hearing. (1) The newly merged AbitibiBowater, despite its agreement to divest the Snowflake mill, has already begun to exercise the market power created by the merger to anticompetitively raise newsprint prices to North American newsprint customers. This postsettlement exercise of market power by AbitibiBowater shows that the proposed Final Judgment is not in the public interest. (2) Even without the postsettlement evidence of anticompetitive conduct by AbitibiBowater, there would still be ample grounds to reject the proposed remedy. The Justice Department has not provided the Court with any factual or economic analysis to demonstrate that the proposed remedy will eliminate the incentive for AbitibiBowater to reduce industry capacity and raise prices to North American newsprint customers (the injury charged in the Complaint). Each argument, standing on its own, provides sufficient grounds for the
[[Page 32840]]
rejection by the Court of the Justice Department's request to enter the proposed Final Judgment without a hearing.

If the proposed Final Judgment is entered without modification, the newly merged AbitibiBowater will have the ability and incentive to unilaterally engage in anticompetitive conduct to raise newsprint prices above competitive levels to U.S. daily newspapers and other North American newsprint customers. The Court should reject the Justice Department's request to enter the proposed Final Judgment and conduct a hearing into this matter to determine a remedy sufficient to prevent the harm to competition and the economic harm to U.S. daily newspapers and other North American newsprint customers that will otherwise result from the merger and from the inadequate divestiture remedy as contained in the proposed Final Judgment.
Analysis of the Competitive Impact of the Merger and the Adequacy of the Divestiture of the Snowflake Mill

On November 8, 2007, the Justice Department published in the Federal Register the Proposed Final Judgment resolving a Complaint filed by the United States to enjoin the merger of Abitibi and Bowater. The Complaint describes the acquisition as creating a newsprint producer ``three times larger than the next North American newsprint producer'' that ``will have the incentive and ability to withdraw capacity and raise newsprint prices in the North American newsprint market.'' \6\ Prior to the merger, Abitibi was the largest producer with 25 percent of the North American newsprint capacity.\7\ With Bowater's second place share of 16 percent, the combined firm would own ``over 40'' percent of the North American newsprint capacity.\8\ The Complaint seeks to enjoin the transaction because it will ``provide the merged firm with an incentive to close capacity sooner than it otherwise would to raise prices and profit from the higher margins on its remaining capacity.'' \9\
\6\ Complaint at ] 2.
\7\ Complaint at ] 7, 16.
\8\ Complaint at ] 8, 16.

\9\ Complaint at ] 19.

Newspaper publishers do not have alternatives to newsprint to turn to when newsprint prices rise. The Complaint states that ``newspaper publishers have no close substitutes to use for printing newspapers,'' \10\ and that ``demand for newsprint is highly inelastic to changes in price.'' \11\ Consequently, if North American newsprint manufacturers attempted to exercise market power by raising newsprint prices above competitive levels, U.S. newspaper publishers and other North American newsprint buyers could not successfully resist that exercise of market power.\12\ Furthermore, U.S. newspaper publishers and other North American newsprint buyers would not be able to count on other suppliers to produce more newsprint or entry by new suppliers to roll back the price increase. According to the Complaint, ``neither supply responses nor entry will defeat the exercise of market power.'' \13\
\10\ Complaint at ] 10.
\11\ Complaint at ] 1112.
\12\ In Section 0.1 of the Horizontal Merger Guidelines, the Justice Department defines the exercise of market power by a seller or sellers as ``the ability profitably to maintain prices above competitive levels for a significant period of time.'' 1992 Horizontal Merger Guidelines, U.S. Department of Justice and Federal Trade Commission, Issued April 2, 1992 and revised April 8, 1997 (``Horizontal Merger Guidelines'' or ``Guidelines''). Available at http://www.usdoj.gov/atr/public/guidelines/hmg.htm. \13\ Complaint at ] 2026.

In recent years, the U.S. newspaper industry has experienced declining circulation and advertising revenue. As a result, North American demand for newsprint has also declined, leading to excess newsprint capacity. The decline in newsprint demand is projected to continue.\14\ In such circumstances, newsprint prices would ordinarily be expected to also decline. According to the Complaint, however, the merger will give the merged firm both the incentive and ability to strategically close enough capacity to raise newsprint prices above competitive levels.\15\ The Complaint also concludes that absent the merger, neither Abitibi nor Bowater as separate firms would have the incentive or ability to strategically close capacity to raise newsprint prices.\16\ In the words of the Justice Department, the ``merger will substantially lessen competition in the production and sales of newsprint,'' with the result that ``prices charged for newsprint in North America likely will increase.'' \17\
\14\ Complaint at ] 17.
\15\ Complaint at ] 23, 16.
\16\ Complaint at ] 18.

\17\ Complaint at ] 3, 16, 28(c).

In order to remedy the anticompetitive effects that the Justice Department concluded would otherwise result from the merger, the Department obtained the agreement of Abitibi and Bowater to divest Abitibi's Snowflake, Arizona newsprint mill.\18\ In the Competitive Impact Statement, the Justice Department asserts that ``[w]ithout Snowflake's capacity, the merged firm would not be of sufficient size to be able to recoup the losses from such strategic closures through increases in prices on its remaining newsprint production. The divestiture of Snowflake would adequately address the likelihood that the proposed merger substantially would reduce competition for newsprint in the United States.'' \19\ The Snowflake mill accounts for about 3 percent of North American newsprint capacity.\20\ Thus, the Justice Department is claiming that with a newsprint capacity share of about 40 percent, the merged firm would have the incentive and ability to unilaterally exercise market power to raise newsprint prices above competitive levels but that with a slightly smaller capacity share of 37 percent the merged firm would not have the incentive and ability to unilaterally exercise market power. The Justice Department provides the Court with no data or analysis in support of these assertions. \18\ Proposed Final Judgment at pp. 58, Competitive Impact Statement at pp. 811.
\19\ Competitive Impact Statement at p. 6.
\20\ Neither the Proposed Final Judgment nor the Competitive Impact Statement provides the North American newsprint capacity share of the Snowflake mill. At page 2, the Competitive Impact Statement states that the annual newsprint capacity of the Snowflake mill is 375,000 metric tonnes, which would be about 3 percent of current annual North American newsprint capacity of about 11.7 million metric tonnes based on November 2007 newsprint statistics provided by the Pulp and Paper Products Council.

The Justice Department's prediction that the Snowflake divestiture would be sufficient to eliminate the incentive and ability of the merged firm to exercise market power by strategically removing newsprint capacity from the market to raise the price of newsprint has already been proven wrong. North American newsprint producers, including Abitibi and Bowater, had been trying to implement a $25 per tonne price increase since September of this year. Until November, newspaper publishers were successful in resisting the price increase.\21\ On November 29, a little more than five weeks after the agreement to divest the Snowflake mill, the newly combined AbitibiBowater announced that it would remove about 600,000 metric tonnes of newsprint capacity from the North American market, representing about 5 percent of North American newsprint capacity.\22\ [[Page 32841]]
In conjunction with the capacity closures, AbitibiBowater initiated a newsprint price increase of $60 per metric tonne to be implemented in three $20 per metric tonne monthly increments beginning in January 2008. Most North American newsprint manufacturers quickly joined the $60 per metric tonne price initiated by AbitibiBowater.\23\ Also, as a result of AbitibiBowater' s announced newsprint capacity closures of 600,000 metric tonnes, the previously stalled $25 per metric tonne price hike has been successfully implemented by North American newsprint manufacturers. As described in the trade press, ``[p]ublisher resistance to $25/tonne North American newsprint increase collapse[d]'' and the price hike went in ``like a hot knife through butter,'' \24\ Combined, these two price increases will raise the price of newsprint by $85 per metric tonne or about 15 percent over the October 2007 price of $560 per metric tonne.\25\ As RISI economist Kevin Conley concluded, ``AbitibiBowater's capacity closures will obviously provide the upward pressure for an extended price recovery in 2008, as operating rates soar past the magic 95% threshold generally needed for prices to rise.'' \26\
\21\ Publisher resistance to $25/tonne North American newsprint increase collapses; producers looking to fast track recovery, 29 Pulp & Paper Week 48 (Dec. 17, 2007) at 1.
\22\ AbitibiBowater plans to shut down one million tonnes/yr of capacity in 1Q; expects more closures could follow in 2Q, 29 Pulp & Paper Week 46 (Dec. 3, 2007) at 1. A capacity closure of 600,000 metric tonnes would be about 5 percent of current annual North American newsprint capacity of about 11.7 million metric tonnes based on November 2007 newsprint statistics provided by the Pulp and Paper Products Council. In addition to announcing the removal of 600,000 metric tonnes of newsprint capacity from the market, AbitibiBowater also announced the closure of about 400,000 metric tonnes of commercial printing paper capacity.
\23\ Most North American newsprint makers join $60/tonne 1Q 2008 hike, 29 Pulp & Paper Week 46 at 2.
\24\ 29 Pulp & Paper Week 48 at 1.
\25\ Generally, if a merger creates market power resulting in a price increase of 5 percent or more, that price increase is considered to be ``significant.'' In Section 1.11 of its Merger Guidelines, the Justice Department states that in defining the relevant markets affected by a merger in most contexts it ``will use a price increase of five percent lasting for the foreseeable future.'' Horizontal Merger Guidelines at Sec. 1.11. The October 2007 North American newsprint price is from 29 Pulp & Paper Week 45 (Nov. 19, 2007) at 3.
\26\ Newsprint giant AbitibiBowater embraces industry
leadership, eyes $200/tonne North American newsprint price increase, 29 Pulp & Paper Week 47 at 5.

The combined AbitibiBowater is seeking to ``leverage the North American (newsprint) price up to the price in Europe and not the other way around,'' according to AbitibiBowater President and CEO David Paterson.\27\ If AbitibiBowater is successful in ``leveraging'' the North American newsprint price up to the price of newsprint in Europe, that will result in a $200 per metric tonne price increase or about 36 percent over the North American price of $560 per metric tonne in October 2007.\28\ At the time AbitibiBowater announced the removal of 600,000 metric tonnes of newsprint capacity from the market, it also announced that ``more mills could close in Canada later [in 2008].'' \29\ Based on these statements and other statements by AbitibiBowater executives and past and current actions by AbitibiBowater and its predecessor companies, it is very likely that AbitibiBowater will close additional capacity in 2008 to ``leverage'' the North American newsprint price up to the newsprint price in Europe.
\27\ 29 Pulp & Paper Week 47 at 1.
\28\ Id. at 1, ``Newsprint prices in Europe were close to $200/ tonne higher than in the USA in November.''

\29\ 29 Pulp & Paper Week 46 at 1.

These postsettlement actions by AbitibiBowater show that the Justice Department severely underestimated the risk that the merger posed to competition in the North American newsprint market and severely underestimated the incentive and ability of the merged firm to remove capacity from the market to raise the price of newsprint well above competitive levels. It is evident that a significantly larger divestiture is required to prevent the substantial anticompetitive price increases that are already occurring and will continue to occur as a result of the merger.
NAA Represents the Newsprint Customers Most Significantly Affected by AbitibiBowater's Exercise of Market Power

These comments are timely submitted pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)(e) (known as the ``Tunney Act''), on behalf of the Newspaper Association of America (``NAA''). NAA members are the primary purchasers of newsprint. NAA has approximately 2,000 members, representing a broad range of newspaper related companies ranging from independent, small market, and family owned publishers to the large newspaper chains. These members account for approximately 90 percent of the paid daily and Sunday newspaper circulation in the United States. U.S. daily newspapers are the primary purchasers of newsprint produced by North American newsprint mills and account for about 80 percent of the newsprint consumed in the U.S. and about 70 percent of the newsprint consumed in North America.

Newsprint is an essential and irreplaceable input for newspapers. Because newsprint is second only to labor as a cost for newspapers, higher newsprint prices have a direct impact on the ability of newspaper companies to serve their customers, newspaper readers and newspaper advertisers. When confronted with newsprint price increases, newspapers are forced to restrict their use of newsprint by reducing their circulation, withdrawing from more distant geographic areas, ending editions, and reducing the size and number of pages published. The impact of these changes adversely impacts the interest of the public, with less news available in print to the millions of newspaper readers and less information available in print for the electorate. At price levels equal to the prevailing prices in Europe, $200 per tonne above the presettlement October 2007 price, some newspapers will be unprofitable and at risk of failure.

This memorandum and the attached Economic Analysis \30\ are submitted as a comment on the Justice Department's Competitive Impact Statement and proposed Final Judgment settling the proposed merger of Abitibi and Bowater. The Economic Analysis addresses, in particular, the inadequacy of the Snowflake divestiture to prevent the competitive harm from the merger that is identified in both the Complaint and Competitive Impact Statement. The attached Economic Analysis references ``An Economic Analysis of Competitive Effects of the Proposed Abitibi Bowater Merger'' (``White Paper'') and two Supplements to the White Paper, which were provided to the Justice Department during its investigation of the merger. The White Paper and two Supplements, which are attached to the Economic Analysis, address the recent history of anticompetitive conduct by Abitibi and Bowater and explain why a merger of Abitibi and Bowater, if permitted, would lead to a continuation of that anticompetitive conduct. Also cited throughout the Comment are trade press articles relating to postsettlement newsprint capacity removals announced by AbitibiBowater and resulting price increases, which are attached to this Comment.\31\
\30\ See ``An Economic Analysis of the Adequacy of the Snowflake Divestiture in the Settlement of United States of America v. AbitibiConsolidated, Inc. and Bowater, Incorporated.''
\31\ See Attachment A: Trade Press Articles Relating to Post Settlement Newsprint Capacity Removals Announced by AbitibiBowater and Resulting Newsprint Price Increases.

NAA members are the primary victims that the Complaint identifies as suffering competitive injury from the transaction and on whose behalf the Government seeks relief. NAA agrees with the Justice Department that the alleged harm to competition identified in the Complaint is accurate,
[[Page 32842]]
demonstrable, and unless adequately remedied, will cause significant economic harm to the U.S. newspaper industry. Indeed, NAA and its members produced documents, economic analyses, and other information to the Justice Department demonstrating the recent anticompetitive pricing and output history of the North American newsprint industry resulting from the joint dominant firm behavior of Abitibi and Bowater and showing how the proposed transaction would permit a merged AbitibiBowater to continue to strategically close capacity to raise newsprint prices well above competitive levels.

But while the Complaint correctly identifies the competitive harm produced by the merger, the remedy in the proposed Final Judgment fails to satisfy even the most deferential standard for Tunney Act review. The Justice Department has not provided the Court with any factual or economic analysis to demonstrate that the proposed remedy will eliminate the incentive to reduce industry capacity and raise prices to North American newsprint customers (the injury charged in the Complaint). Recent events have already proven that the remedy set forth in the proposed Final Judgment is woefully inadequate to prevent the injury charged in the Complaint. Hence, reviewing the remedy ``in relationship to the violations that the United States has alleged in its Complaint,'' \32\ and deferring to the Justice Department to whatever extent is required by law, the remedy does not provide any basis to allow the Court to find that it will ameliorate the harm alleged in the Complaint. This is not a case in which there is a debate as to whether the Justice Department inappropriately narrowed the alleged harm. Rather, this is the case in which the economics and recent history of the newsprint industry, along with the Justice Department's conclusions regarding the competitive harm created by the consolidation, compel the conclusion that the remedy is not a ``reasonably adequate remed[y] for the alleged harms.'' \33\ \32\ This is the standard the Justice Department claims is ``the Court's role under the APPA.'' Competitive Impact Statement, at Section VII.
\33\ This is the standard that the Justice Department contends it must meet for approval of the decree: ``the United States `need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.' '' id., citing SBC Commc'ns, 489 F. Supp. 2d at 17.
The Proper Standard of Review for the Justice Department's Proposed Remedy for This Merger
``The antitrust laws [* * *] were enacted for the protection of competition, not competitors.'' \34\ This means that antitrust remedies are designed to restore competition to the market, not to ensure profits to the competitors in that industry.\35\ Since the Supreme Court accepted this notion first proposed by Congress, antitrust law enforcement has been guided by this principle. Since these Supreme Court decisions and Congres

SUMMARY: Justice Department, Antitrust Division,

DOCUMENT BODY 2:

Director of Operations, Antitrust Division.

In the matter of: United States of America, Plaintiff, v. Abitibi Consolidated Inc. and Bowater Inc., Defendants.

Case No: [1:07cv01912]

Judge: Collyer, Rosemary M.; Deck type: Antitrust. Response of Plaintiff United States to Public Comments on the Proposed Final Judgment