FTC Orders Polypore International to Divest Rival Manufacturer it Acquired in 2008

The Federal Trade Commission has ruled unanimously that Polypore International, Inc.’s 2008 acquisition of a rival manufacturer of battery components was anticompetitive, and ordered Polypore to divest the company to an FTC-approved buyer within six months. The Commission today made public its final Order and a provisional public version of the Commission Opinion. A final public version of the Commission Opinion will be released after the Commission resolves a motion filed by Polypore objecting to the disclosure of certain information in the opinion.

The FTC’s five Commissioners voted to uphold in large part a March 2010 Initial Decision by Chief Administrative Law Judge D. Michael Chappell. Judge Chappell found that Polypore’s February 2008 acquisition of Microporous Products L.P. violated the antitrust laws by reducing competition in four North American markets for flooded lead-acid battery separators - membranes that are placed between the positive and negative plates of flooded lead-acid batteries.

The Commission held that the acquisition harmed competition in three of the four relevant markets, and agreed with Judge Chappell that complete divestiture of the acquired assets was the appropriate remedy. The Commission reversed the Administrative Law Judge and ruled in favor of Polypore with regard to one market. The Commission found that the FTC staff who prosecuted the complaint, known as complaint counsel, did not prove that Microporous participated sufficiently in that market for the transaction to have reduced competition.

The FTC issued its Opinion and Final Order on November 5, 2010, meeting new self-imposed deadlines designed to expedite the agency’s administrative trial process. Under the new Rules, which were finalized in April 2009, and which the Commission applied retroactively to the issuance of its decision in this matter, the Commission must issue its ruling to the parties within 100 days after a case is argued before the Commission.

Case History. In September 2008, the FTC issued an administrative complaint alleging that the transaction, as well as some of Polypore’s business tactics, were anticompetitive and violated the federal antitrust laws. According to the complaint, Polypore had competed with Microporous, and the combination decreased competition and raised prices for four types of battery separators sold to customers in North America:

• Deep-cycle separators for batteries used primarily in golf carts;
• Motive separators for batteries used primarily in forklifts;
• Automotive separators used in car batteries for starters, lighting, and ignition; and
• Uninterruptible power supply separators used in batteries that provide backup power in the event of power outages.

The complaint also charged that Polypore’s 2001 joint marketing agreement with a potential competitor, Hollingsworth & Vose, unlawfully prevented Hollingsworth & Vose from selling polyethylene separators. Finally, the complaint alleged that Polypore maintained its monopoly power in several battery separator markets through anticompetitive means.

In an Initial Decision announced on March 8, 2010, Judge Chappell found that Polypore’s acquisition of Microporous was anticompetitive and ordered Polypore to divest Microporous to an FTC-approved buyer within six months after the divestiture provisions of the Order become final.

Judge Chappell also ruled that Polypore and Hollingsworth & Vose had illegally agreed to divide markets for certain types of battery separators in North America, and ordered Polypore to void a covenant not-to-compete that was contained in the agreement. Polypore did not appeal this ruling. Finally, Judge Chappell dismissed a separate count charging Polypore with monopolization in specific battery separator markets. FTC complaint counsel did not appeal that ruling.

The Commission Opinion. In its Opinion, the Commission ruled that Polypore’s acquisition of Microporous is illegal in three of the four North American markets identified in the complaint. The Commission found that the acquisition was not likely to harm competition in a fourth market for separators used to make batteries for backup power supply.

The Commission disagreed with Polypore’s argument that any anticompetitive effects of the deal would be offset by entry from Entek, another U.S. battery separator maker, or Asian suppliers. It also disagreed with Polypore’s contention that large, powerful buyers would prevent Polypore from exercising market power.

The Final Order. The Commission’s Final Order requires Polypore to divest assets including Microporous’s former plants in Piney Flats, Tennessee, and Feistritz, Austria; a “line in boxes” containing unassembled manufacturing equipment; and technology and intellectual property that Microporous owned at the time of the acquisition.

In addition to other ancillary relief necessary to support the divestiture, the Final Order requires Polypore to “take all reasonable actions necessary” to help the acquirer evaluate, recruit, and employ personnel that it needs to be successful, and prohibits Polypore from hiring any Microporous employee who is working for the acquirer for two years from the date of the divestiture. The Final Order also directs Polypore to grant the acquirer a license to any intellectual property Polypore chose to use or incorporate in Microporous’s products and to provide the acquirer with confidential business information relating to the Microporous business.

The Commission vote approving the Opinion and Final Order was 5-0, with Commissioner J. Thomas Rosch issuing a concurring opinion that can be found on the FTC’s website and as a link to this press release. Polypore may file a petition to review the Commission’s Final Order to a U.S. Court of Appeals within 60 days from November 29, the date the decision was served.

In his separate concurring opinion, Commissioner Rosch explained that even though it is essential to define the relevant market at some point in the process, there was no need in this case to follow the traditional Section 7 framework that begins with defining the relevant market and only then considers the transaction’s competitive effects. Rather, in a consummated merger, “it is generally preferable to determine whether a merger has had anticompetitive effects by reference to the parties’ motives for the transaction and the actual effects resulting from the merger instead of trying first to define with precision the dimensions of relevant market.” According to Commissioner Rosch, the key facts establishing the transaction’s effects and Polypore’s liability were the company’s pre-merger documents describing the transaction’s anticompetitive purposes and the company’s post-merger price increases.

Copies of the public version of the Commission’s Opinion and Final Order are available from the FTC’s website at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

(FTC Docket No. 9327)