[Federal Register: March 29, 2005 (Volume 70, Number 59)]
[Notices]               
[Page 15886-15892]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29mr05-94]                         

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DEPARTMENT OF JUSTICE

Antitrust Division

[Civil No. 1:04-CV-01494]

 
Public Comments and Response on Proposed Final Judgment United 
States v. Connors Bros. Income Fund and Bumble Bee Seafoods, LLC

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
Sec.  16(b)-(h), the United States of America hereby publishes below 
the comments received on the proposed Final Judgment in United States 
v. Connors Bros. Income Fund, et al., Civil Action No. 1:04-CV-01494 
(JDB), filed in the United States District Court for the District of 
Columbia, together with the United States' response to the comments.
    Copies of the comments and response are available for inspection in 
Room 215 of the U.S. Department of Justice, Antitrust Division, 325 7th 
Street, NW., Washington, DC 20530, telephone: (202) 514-2481, and at 
the office of the Clerk of the United States District Court for the 
District of Columbia, United States Courthouse, Third Street and 
Constitution Avenue, 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.

United States District Court, District of Columbia

    Civil Action No.: 1:04CV01494.
    Before: Judge John D. Bates.
    Filed: January 7, 2005.
    United States of America, Plaintiff, v. Connors Bros. Income 
Fund, and Bumble Bee Seafoods, LLC, Defendants.

Comments of Citizens for Voluntary Trade in Opposition to the Proposed 
Final Judgment, Statement of Interest

    Citizens for Voluntary Trade (CVT) is a nonprofit, nonpartisan 
educational organization that applies free market principles and 
rational ethics to contemporary antitrust issues through filings with 
federal courts and agencies, policy papers, public commentaries, and a 
Web site.\1\ Since its establishment in 2002, CVT has filed dozens of 
public comments and briefs in response to government antitrust cases.
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    \1\ http://www.voluntarytrade.org.

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    CVT and its supporters have an interest in the consistent 
enforcement of the principles of the Deceleration of Independence as 
applied by the United States Constitution. Expansion of the federal 
antitrust laws--including Section 7 of the Clayton Act--to authorize 
the government's violation of private property rights creates a 
substantial threat to the rights of all citizens of the United States.
    Here, CVT presents a philosophical framework for analyzing and 
rejecting the Proposed Final Judgment. CVT seeks to prompt a 
philosophically informed analysis of the key facts and arguments of the 
case according to the principles set forth in the Constitution, as well 
as the concurrent ideas of free-market

[[Page 15887]]

economics and rational ethics. The United States has not engaged in 
such rigorous and philosophically consistent thinking. CVT's comments 
explore the tenuous arguments offered by the United States and the 
insubstantial ethical premises which underlie its arguments.
    Accordingly, CVT files the following comments in opposition to the 
Proposed Final Judgment in this matter.\2\
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    \2\ CVT thanks Douglas Messenger for his assistance in preparing 
these comments.
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Introduction

    On April 30, 2004, Connors Bros. Income Fund (Connors) acquired 
Bumble Bee Seafoods, LLC (Bumble Bee). Both companies market canned 
sardines within the United States. Prior to the transactions, Connors 
held the first, second, and fourth largest selling brands of sardine 
snacks in the United States (Brunswick, Beach Cliff, and Port Clyde, 
respectively) earning revenues of $43 million. Bumble Bee, which held 
the third largest sardine brand, accounted for 13% of sales, earning $9 
million in revenue.\3\
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    \3\ Revenue figures are for 2003.
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    The United States filed a complaint alleging that the proposed 
combination of Connors and Bumble Bee would create a ``near monopoly'' 
in the market for ``sardine snacks.'' The merger would, according to 
the government, significantly lessen competition for the sale of 
sardine snacks in the United States, in violation of Section 7 of the 
Clayton Act, 15 U.S.C. 18. The government further claimed that the 
concomitant decrease in competition following the acquisition of Bumble 
Bee would result in higher consumer prices for sardine snacks.
    The Proposed Final Judgment permits the merger to proceed, but 
requires Connors to divest its Port Clyde brand, five smaller brands--
Commander, Possum, Bulldog, Admiral, and Neptune--along with ``related 
assets that an acquirer of those brands might need in order to become a 
viable and active competitor in the sale of sardine snacks throughout 
the United States.''

Comments

    The government's case rests on four spurious arguments: (1) That 
``canned sardine snacks'' are a distinct product market, 
distinguishable from the rest of the sardine industry; (2) that the 
pre- and post-merger market for canned sardine snacks are too highly 
concentrated, as measured by the Herfindahl-Hirschman Indices; (3) that 
the price of sardine snacks will increase once Connors ``monopolizes'' 
the market; and (4) that entry into the market for sardine snacks 
``would not be timely, likely, or sufficient'' to deter any exercise of 
market power by the combined Connors/Bumble Bee entity. All of these 
arguments rest upon a tenuous definition of ``monopoly power'' and a 
profound ignorance of free-market principles.

I

    With its quiver full of feeble intellectual arrows, the United 
States first opposes Connors' acquisition of Bumble Bee by defining 
``canned sardine snacks'' as a distinct product market. This definition 
purposely narrows the scope of the market in order to create artificial 
``monopolies.'' Here, the government has constructed an artificial 
typology that purports to distinguish between various types of sardine 
products available in the United States. Unbeknownst to the consumer, 
the United States has legally defined three sardine categories: The 
sardine snack, the premium sardine and the ethnic sardine.
    The United States contends that the sardine snack is distinguished 
from premium and ethnic sardines because it consists of herring and 
other small fish caught and processed in the U.S., Canada, Poland, 
Morocco, South America, and Thailand, then sold in small snack-size 
containers. Sardine snacks cost U.S. consumers approximately $0.21/oz. 
The premium sardine usually consists of brisling species of fish that 
originates in Norway or Scotland and sold at retail in the U.S. for 
approximately $0.52/oz. Ethnic sardines, the United States claims, are 
not in the same product market as sardine snacks because the former are 
marketed primarily to ethnic groups, consumed as meals rather than 
snacks, and packaged in larger cans. The government further claims that 
ethnic sardines consist of larger herring and other species that are 
believed to be of a lesser quality than the herring used in sardine 
snacks. In addition, ethnic sardines cost less than sardine snacks, 
retailing for approximately $0.08/oz. Most importantly, according to 
the United States, grocery stores do not display ethnic sardines beside 
other sardine products, but rather in the separate ``ethnic'' food 
sections.
    The government's claim that sardine snacks, premium sardines, and 
ethnic sardines constitute three distinct product markets is patently 
absurd. To illustrate the absurdity, consider how the government's 
reasoning could be applied to the market for tuna. Most grocery stores 
in the U.S. offer customers a variety of tuna products: Tuna packed in 
oil, tuna packed in water, tuna packed without liquid, white tuna, tuna 
that is caught without causing harm to dolphins, etc. Prices vary among 
different tuna varieties, but tuna in water is not a distinct product 
market from tuna in oil. Consumers express their preferences through 
selecting a particular variety of product and, within that variety, a 
particular brand.
    Classifying sardines as three separate markets is nothing more than 
a pretext for the Department of Justice to expand regulation of each 
``market'' under the antitrust laws. As distinct product markets within 
the sardine industry become more narrowly defined, obviously the number 
of competitors will decrease, and this in turn opens the door for the 
government to complain that, for example, once Connors acquires Bumble 
Bee, they'll have ``cornered'' the market for sardine snacks. 
Ultimately, however, sardines are sardines and consumers respond 
according to market conditions and individual preferences rather than 
bureaucratic models of consumer behavior.

II

    After narrowly constraining the sardine market to include only 
``sardine snacks,'' the United States next asserts that competition 
will be illegally lessened based on the Herfindahl-Hirschman Indices 
(HHI). The HHI purports to measure market concentration by adding the 
squares of the market shares of the existing competitors. For example, 
if a market has four competitors with market shares of 30%, 30%, 20%, 
and 20%, the HHI is (900+900+400+400) 
or 2,600. The United States would consider this hypothetical market to 
be ``highly concentrated,'' because the HHI exceeds 1,800. If two of 
the four competitors--say the two firms with 30% shares--were to merge, 
the United States would likely object because this would increase the 
index number from 1,800 to 4,400. Any post-merger increase in the index 
of more than 100 in a ``highly concentrated'' market is deemed suspect 
because the merger is considered ``likely to create or enhance market 
power or facilitate its exercise.'' \4\
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    \4\ U.S. Department of Justice and Federal Trade Commission, 
Horizontal Merger Guidelines Sec.  1.5 (available at 
http:http://www.usdoj.gov/atr/public/guideline/horiz_book/15.html).

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    Here, the government's complaint alleges that the unconditional 
merger of Connors and Bumble Bee would raise the HHI from 4,200 to 
5,800, ``well in excess of levels that raise significant

[[Page 15888]]

antitrust concerns.'' But assuming, arguendo, that the HHI figures are 
valid, this alone does not constitute proof of any ``market power'' or 
justify the government's intervention. The HHI is nothing more than a 
predictor of whether the Department of Justice (or the Federal Trade 
Commission) will pursue legal action. As economics professor Dominick 
Armentano has explained, the HHI has no objective merit as a tool of 
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economic analysis:

    Although the general public has the impression that there must 
be some good reason for the antitrust authorities' choice of 
particular limits in the Herfindahl Index of market concentration, 
those limits are completely arbitrary. No one--and certainly not the 
antitrust authorities--can ever know whether a merger of firms that 
creates, say, a 36-percent market share, or one that raises the 
Herfindahl Index by 150 points, can create sufficient economic power 
to reduce market output and raise market price. No one knows, or can 
know, whether monopoly power begins at a 36-percent market share or 
a 36.74-percent market share. Neither economic theory nor empirical 
evidence can justify any merger guideline or prohibition.\5\

    \5\ Dominic T. Armentano, Antitrust: The Case for Repeal 85-86 
(1999).
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    Property rights have no meaning if they are subject to arbitrary 
and capricious violation by the state. The United States cannot, 
consistent with the Constitution and free-market economic principles, 
condition a combination of privately-held properties based on whether 
the parties will own ``too much'' property according to an arbitrary 
statistic. Under such a standard, no property would be safe from 
government seizure on the grounds that ownership is ``highly 
concentrated.'' The federal government, for example, could seize 
private homes by claiming the homeowners possess ``too much'' property 
according to some index that purports to measure the market 
concentration of real estate.
    Indeed, the government's exclusive reliance on the HHI in merger 
review cases raises a curious question. If the pre-merger index in this 
case is 4,200--more than double the threshold for labeling a market 
``highly concentrated''--then why couldn't the United States, 
consistent with its self-imposed mandate, have forced Connors and 
Bumble Bee to divest assets before their merger? In other words, what 
is to stop the government from breaking up companies, without the 
pretext of merger review, to ensure the HHI stays below the ``highly 
concentrated'' threshold at all times? The practical answer is that 
were the United States to begin seizing and redistributing private 
property at-will, the government's antitrust policy would likely lose 
congressional and popular support. Without the facade of merger review, 
the government's actions would be seen by the public for what they 
are--ad hoc economic planning by the state.

III

    In the context of its artificially constructed sardine snack 
market, the United States claims that the acquisition of Bumble Bee 
results in a ``near monopoly.'' Under this line of reasoning, the 
government presumes that Connors will significantly increase the price 
of sardine snacks--which would be perfectly legal. Connors ``near 
monopoly,'' however, will not undermine the sovereignty of the consumer 
one iota. In response to a price increase, consumers can abstain or 
purchase premium or ethnic sardines. Markets are not static entities. 
Even a dominant seller owes its continued existence to the continued 
support of its customers.
    Contrary to the government's monopoly paranoia, the dominance of a 
single seller is never permanent and continually depends on the 
seller's ability to satisfy the demands imposed by consumers within the 
market. Nobel Memorial Prize-winning economist F.A. Hayek said, ``The 
force which in a competitive society beings about the reduction in 
price to the lowest cost at which the quantity salable at the cost can 
be produced is the opportunity for anybody who knows a cheaper method 
to come into at this own risk and to attract consumers by underbidding 
the other producers.'' \6\ Consumer abstention and underbidding holds 
the power of a single seller at bay and forces that seller to 
constantly reassess and readjust to satisfy changing demands. The 
United States has offered no evidence that the force Hayek describes 
would cease to exist in a world where Connors holds a ``near monopoly'' 
in a single sub-category within the sardine market (and indeed the 
substantially larger market for food).
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    \6\ David Osterfeld, Prosperity Versus Planning: How Government 
Stifles Economic Growth 28.
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    Furthermore, the argument that the combination of Connors and 
Bumble Bee would constitute a monopoly, ``near'' or otherwise, is 
erroneous. The famed English jurist Lord Coke offered the classic--and 
correct--definition of a monopoly:

    An institution or allowance by the king, by his grant, 
commission, or otherwise * * * to any persons, bodies politic or 
corporate, for the sole buying, selling, making, working, or using 
of anything, whereby any person or persons, bodies politic or 
corporate, are sought to be restrained of any freedom or liberty 
that they had before, or hindered in their lawful trade.\7\
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    \7\ Murray N. Rothbard, Man, Economy & State 591 (2001).

    Connors and Bumble Bee do not qualify as a monopoly, either under 
Lord Coke's 17th century explanation or the more contemporary, yet 
equally accurate, definition offered by economist Murray Rothbard \8\: 
``[It is] a grant of special privilege by the State, reserving a 
certain area of production to one particular individual or group. Entry 
into the field is prohibited to others and this prohibition is enforced 
by the gendarmes of the State.'' \9\ Here the state has not reserved a 
certain area of production for Connors and Bumble Bee; rather, it is 
individual consumers who have rewarded the two companies for their 
efficiency in marketing sardines. No monopoly could ever exist, for 
sardines or any other product, unless by state action, as Professor 
Rothbard explained: ``It is obvious that this type of monopoly can 
never arise on a free market, unhampered by State interference. In the 
free economy, then according to this definition, there can be no 
`monopoly problem' '' \10\
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    \8\ Coincidentally, this comment is filed on the tenth 
anniversary of Professor Rothbard's death.
    \9\ Id. at 591.
    \10\ Id. at 592.
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    Finally, the United States claims entrance into the sardine snack 
market would not be ``timely, likely or sufficient'' to curb the market 
power of the combined Connors-Bumble Bee sardine operation. The 
irrationality of this argument is overwhelming. Once again, Professor 
Rothbard explains how free markets actually work:

    If consumer demand had really justified more competitors or more 
of the product or a greater variety of products, then entrepreneurs 
would have seized the opportunity to profit by satisfying this 
demand. The fact that it is not being done in any given case 
demonstrates that no such unsatisfied consumer demand exists. But if 
this is true, then it follows that no man-made actions can improve 
the satisfaction of consumer demand more than is being done on the 
unhampered market.\11\ (Italics added.)
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    \11\ Id. at 581.

    The Proposed Final Judgment is predicated on the government's 
arrogant belief that it can accurately project market activities 
indefinitely into the future. Such beliefs are reminiscent of the 
``five-year plans'' enacted by the former Soviet Union. Here, the 
United States is substituting its own judgment for that of consumers 
through the ad hoc industrial planning of antitrust. The United States 
seeks to forcibly redistribute private property in an effort

[[Page 15889]]

to satisfy a consumer ``demand'' that may never exist. Ostensibly, the 
government's argument is that consumers require protection from the 
consequences of their own market decisions: The state, not producers or 
consumers, know how many firms and what price levels will produce the 
ideal amount of ``competition''. More than two centuries of experience, 
however, tell us that such thinking is a recipe for economic 
stagnation. No government bureaucrat has ever been able to outperform 
the free market in fulfilling consumer needs.
    And while sound economic principles demonstrate the folly of the 
government's case against Connors and Bumble Bee, the political 
principles of individual rights--specifically, property rights--trump 
even the economic objections discussed above. The United States 
Constitution was conceived by framers who held property rights 
sacrosanct: We own ourselves, our time, and those goods that we produce 
and voluntarily trade for. Yet now the very government that derives its 
authority from the Constitution is attempting to dictate economic 
outcomes rather than adhere to the classical American view that 
government should concern itself exclusively with the protection of 
life, liberty, and property. As John Locke wrote in his Second Treatise 
on Government, ``the end of the law is not to abolish or restrain, but 
to preserve and enlarge freedom.'' \12\ The Proposed Final Judgment, 
with its ``divestiture'' mandate, demonstrates the converse of Locke's 
position, as it abolishes and restrains the liberties of Connors and 
Bumble Bee, its shareholders, and ultimately its customers.
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    \12\ John Locke, Two Treaties of Government 306 (Peter Laslett, 
ed., 1988).
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    The Proposed Final Judgment, therefore, does not represent an 
action taken in the public interest--under the Constitution, there is 
no ``public'' interest but the protection of individual rights--but 
rather it is what Frederick Bastiat would describe as an act of ``legal 
plunder.'' Bastiat identified legal plunder as ``the law tak[king] from 
some persons what belongs to them, and giv[ing] it to other persons to 
whom it does not belong.'' \13\ Legal plunder occurs ``when a portion 
of wealth is transferred from the person who owns it--without his 
consent and without compensation, and whether by force or by fraud--to 
anyone who does not own it, then I say that property is violated.'' 
\14\ In a free society purportedly dedicated to limited government and 
individual rights, the legal plunder of Connors and Bumble Bee's 
property is neither permissible nor defensible.
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    \13\ Frederic Bastiat, The Law 17 (1972).
    \14\ Id. at 22.
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Conclusion

    The government's case rests on the presumption that consumers have 
no impact on the actions of producers, and that a free market cannot 
prevent monopolies from arising. The United States has proposed 
intervening in the market for ``sardine snacks'' in order to protect 
consumers, yet there is no evidence or economic reasoning that can 
support the government's complaint or the Proposed Final Judgment. 
Instead of making excuses for a meritless intervention, the government 
should heed the words of economist Ludwig von Mises, who cautioned that 
the public interest can only be served through the existence of a free 
market:

    The unhampered market economy is not a system which would seem 
commendable from the standpoint of selfish group interests of the 
entrepreneurs and capitalists. It is not the particular interests of 
a group or of individual persons that require the market economy, 
but regard for the common welfare. It is not true that the advocates 
of the free-market economy are defenders of the selfish interests of 
the rich. The particular interests of the entrepreneurs and 
capitalists also demand intervention to protect them against the 
competition of more efficient and active men. The free development 
of the market economy is to be recommended, not in the interests of 
the rich, but in the interest of the masses of people.\15\

    \15\ Ludwig von Mises, Interventionism: An Economic Analysis 79 
(Bettina Bien Greaves, ed., 1998).
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    Accordingly, the government should withdraw the Proposed Final 
Judgment and voluntarily dismiss the complaint against Connors and 
Bumble Bee. In the alternative, the District Court should reject the 
Proposed Final Judgment as inconsistent with the public interest.

    Dated: January 7, 2005.

    Respectfully Submitted,

S.M. ``Skip'' Oliva,

President.

Melinda A. Haring,

Senior Writer.

Citizens for Voluntary Trade, Post Office Box 100073, Arlington, 
Virginia 22210, Telephone/Fax: (703) 740-8309, E-mail: 
info@voluntarytrade.org.

    Case No. 1:04CV01494. Judge: JDB. Deck type: Antitrust.
    United States of America, U.S. Department of Justice, Antitrust 
Division, 325 7th Avenue, NW., Suite 500, Washington, DC 20530, 
Plaintiff, v. Connors Bros. Income Fund, 669 Main Street, Blacks 
Harbour, New Brunswick, Canada, E5h 1K1, and Bumble Bee Seafoods, 
LLC, 9655 Granite Ridge Drive, San Diego, CA 92123-2674, Defendants.

Response of the United States to Public Comments on the Proposed Final 
Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 
U.S.C. 16(b) (``Tunney Act''), Plaintiff, the United States of 
America, acting under the direction of the Attorney General hereby 
files comments received from members of the public concerning the 
proposed Final Judgment in this civil antitrust suit, and the 
Response of the United States to those comments.

I. Factual Background

A. The Parties to the Transaction

    Connors Bros. Income Fund (``Connors'') is an income trust fund 
organized under Canadian law. In 2003, it marketed the first, second 
and fourth best selling brands of sardine snacks in the United States 
(Brunswick, Beach Cliff and Port Clyde, respectively). At that time, 
Connors brands accounted for approximately 63% of the sardine snack 
sales in the United States; and it earned revenues of about $43 million 
from the sale of these products.
    Bumble Bee Seafoods, LLC (``Bumble Bee'') is a Delaware limited 
liability corporation with its headquarters in San Diego, California. 
It marketed the third largest selling brand of sardine snacks in the 
United States before it was acquired by Connors. In 2003, the Bumble 
Bee brand accounted for approximately 13% of U.S. sardine snack sales; 
and Bumble Bee earned revenues of about $9 million from the sale of 
these products.

B. The Transaction

    Connors entered into a Transaction Agreement, dated February 10, 
2004, in which it proposed to acquire Bumble Bee from Centre Capital 
Investors III, L.P. (the ``Transaction''). Connors partially financed 
its acquisition through a subscription agreement. The proceeds of that 
subscription were held in escrow pending final consummation of the 
Transaction. Under Canadian law, those funds had to be withdrawn to 
finance the acquisition before the escrow agreement expired on April 
30, 2004 (otherwise, the funds had to be returned to the subscribers).
    The United States' preliminary investigation into the likely 
competitive effects of the Transaction indicated that it was likely 
that combining the two companies selling the four largest selling 
brands of sardine snacks (with a combined U.S. market share of over 
75%) would lessen competition in violation of Section 7 of the Clayton 
Act (15 U.S.C. 18). The Defendants proposed a settlement by which they 
would divest one or more Connors or Bumble Bee brands and related 
assets in order to

[[Page 15890]]

restore the competition that otherwise would be lost by the combination 
of Connors and Bumble Bee.
    On April 30, 2004, the United States and Defendants finalized an 
agreement by which: the United States agreed not to file suit at that 
time to enjoin the Transaction; the Defendants signed a Hold Separate 
Stipulation and Order and a proposed Final Judgment, which included 
remedies designed to restore the competition that the United States' 
preliminary analysis indicated would be lost through the Connors/Bumble 
Bee combination; and the United States agreed to defer filing the 
executed Hold Separate Stipulation and Order and proposed Final 
Judgment until it completed a thorough investigation into the likely 
competitive effects of the Transaction. At the completion of this 
investigation, the United States confimred that it was likely that the 
Transaction, as originally proposed, would harm competition for the 
sale of sardine snacks in the United States, but decided to narrow the 
scope of the original Final Judgment to eliminate certain remedies that 
were not needed to restore competition in the relevant antitrust 
market.

C. The Complaint

    On August 31, 2004, the United States filed a Complaint alleging 
that the likely effect of the Transaction, as originally proposed, 
would be to lessen competition substantially for the sale of sardine 
snacks throughout the United States in violation of Section 7 of the 
Clayton Act. The Complaint further alleged that this loss of 
competition would result in U.S. consumers paying higher prices for 
sardine snacks.

D. The Proposed Settlement

    When the United States filed its Complaint, it also filed a Hold 
Separate Stipulation and Order and proposed Final Judgment. The 
proposed Final Judgment includes a divestiture package that is designed 
to eliminate the anticompetitive effects of the Transaction.
    The proposed Final Judgment provides that Connors must transfer its 
Port Clyde, Commander, Bulldog, Possum, Admiral and Neptune labels of 
sardine snacks to an acquirer that is acceptable to the United States 
(the ``Divestiture Assets''). In addition, the Divestiture Assets 
include a processing plant (if the acquirer wants it), inventories, and 
the other tangible and intangible assets that an acquirer might need to 
produce, distribute and sell sardine snacks under the divested labels 
in the United States. Moreover, the proposed Final Judgment provides 
that the acquirer may sell other canned seafood products under its 
brand names (as do Connors, Bumble Bee and other sellers of sardine 
snacks)--as Connors is required to transfer all of its rights to 
produce, distribute and sell seafood products under the divested brands 
(with the limited exception of clam products, which Connors may 
continue to sell under the Neptune brand).

E. Compliance With the Tunney Act

    To date, the United States and the parties to this transaction have 
complied with the provisions of the Tunney Act as follows:
    (1) The Complaint, Hold Separate Stipulation and Order, and 
proposed Final Judgment were filed on August 31, 2004.
    (2) The Competitive impact Statement (``CIS'') was filed on October 
19, 2004.
    (3) Defendants have filed the statements required by 15 U.S.C. 
16(g).
    (4) A summary of the terms of the proposed Final Judgment and CIS 
was published in the Washington Post, a newspaper of general 
circulation in the District of Columbia, for seven days during the 
period November 6, 2004 through November 12, 2004.
    (5) The Complaint, proposed Final Judgment and CIS were published 
in the Federal Register on November 9, 2004, 69 FR 64969 (2004).\1\
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    \1\ The United States also posted the Complaint, proposed Final 
Judgment and the CIS on its Web site, http://www.usdoj.gov /atr/

cases/205200/205283, 206800/206840 and 205900/ 205900.htm.
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    (6) The sixty-day public comment period specified in 15 U.S.C. 
16(b) commenced on November 9, 2004.
    (7) About November 15, 2004, the Defendants advised the United 
States of their intention to transfer the Divestiture Assets to Ocean 
Beauty Seafoods, Inc. (``Ocean Beauty''), in conjunction with a supply 
agreement of unlimited duration.
    (8) On December 15, 2004, the United States filed an amended 
proposed Final Judgment with the Court, which includes a new Section 
IV.K to resolve the United States' concerns that Ocean Beauty might not 
establish an independent supply of fish for its sardine snacks if it 
had a supply agreement of unlimited duration with the Defendants.
    (9) The Defendants consummated their transfer for the Divestiture 
Assets to Ocean Beauty on December 15, 2004 (after the amended proposed 
final Judgment had been field).
    (10) The 60 day comment period expired on January 10, 2005.
    (11) The United States received one comment from a member of the 
public (attached as Appendix A) and hereby files this Response pursuant 
to 15 U.S.C. 16(b).
    The United states will move this Court for entry of the proposed 
Final Judgment after the comments and the Response are published in the 
Federal Register. The proposed Final Judgment cannot be entered before 
that publication. 15 U.S.C. 16(d).

II. Legal Standard Governing the Court's Public Interest Determination

    Upon the publication of the public comments and this Response, the 
United States will have fully complied with the Tunney Act. After 
receiving the United States' motion for entry of the proposed Final 
Judgment, the Court must determine whether it ``is in the public 
interest.'' 15 U.S.C. 16(e), as amended. In doing so, the Court must 
apply a deferential standard and should withhold its approval only 
under very limited conditions. See, e.g., Mass. Sch. of Law at Andover, 
Inc. v. United States, 118 F.3d 776, 783 (D.C. Cir. 1997). 
Specifically, the Court should review the proposed Final Judgment in 
light of the violations charged in the complaint. Id. (quoting United 
States v. Microsoft Corp., 56 F.3d 1448, 1462 (D.C. Cir. 1995), 
hereinafter ``Microsoft'').
    Comments challenging the validity of the United States' case, or 
alleging that it should not have been brought, are challenges to the 
initial exercise of the United States' prosecutorial discretion, which 
are outside the scope of the Tunney Act. The purpose of the Court's 
public interest inquiry is not to evaluate the merits of the United 
States' case, or to conduct a de novo determination of facts and 
issues, because ``[t]he balancing of competing social and political 
interest affected by a proposed antitrust decree must be left, in the 
first instance, to the discretion of the Attorney general.'' United 
states v. Western Elec. Co., 993 F.2d 1572, 1577 (D.C. Cir. 1993) 
(citations omitted). Courts consistently have refused to consider 
``contentions going to the merits of the underlying claims and 
defenses.'' United States v. Bechtel, 648 F.2d 660, 666 (9th Cir. 
1981).
    With this standard in mind, the Court should consider the comment 
and the United States' Response. As this Response makes clear, entry of 
the proposed Final Judgment is in the public interest.

III. Summary of Public Comment

    The United States received one comment--from Citizens for Voluntary 
Trade (``CVT''), which describes itself as ``a nonprofit, nonpartisan 
educational organization that applies free market principles and 
rational ethics to

[[Page 15891]]

contemporary antitrust issues * * *'' CVT Comment at 1. CVT opposes any 
remedies to ameliorate the competitive harm that the United States 
alleges would otherwise occur as a result of Connors' acquisition of 
Bumble Bee, and urges the Court to reject the proposed Final Judgment 
as inconsistent with the public interest.
    It appears that CVT is philosophically opposed to the antitrust 
laws. CVT Comment at 1. Beyond that, CVT argues that the United States 
raised spurious arguments to support the Complaint's allegation that: 
(1) Sardine snacks is a relevant product market; (2) the sardine snack 
market is concentrated; (3) it is likely that the transaction would 
give Connors sufficient market power to increase the price of canned 
sardine snacks; and (4) entry into the sardine snack market would not 
be timely, likely or sufficient to deter the exercise of market power 
by the combined Connors/Bumble Bee entity. CVT Comment at 2.
    All of CVT's arguments are directed toward the United States' 
decision to file the Complaint, and to accept the Defendants' offer to 
avoid the need to litigate this matter by divesting Port Clyde and the 
other Connors' sardine snack brands. None of CVT's arguments are 
directed toward relevant Tunney Act issues, i.e., whether, in light of 
the violations charged in the complaint, the terms of the proposed 
Final Judgment are inconsistent with the public interest. Microsoft at 
1462 (emphasis added).

IV. The Department's Response To Specific Comments

    The Court should ignore CVT's comment. It second guesses the United 
States' decision to file the Complaint without raising any relevant 
arguments about the adequacy of the relief in light of the violations 
charged in the Complaint. Nevertheless, the United States will briefly 
respond to the issues CVT raises in its comment. Copies of this 
Response are being mailed to CVT.
    Contrary to CVT's assertion, sardine snacks are a relevant product 
market within the meaning of the antitrust laws. CVT appears to 
misunderstand the concept of a relevant product market. Certainly 
consumers could switch to premium or ethnic sardines if the combined 
Connors/Bumble Bee firm raised the prices of sardine snacks--they could 
even switch to canned tuna, salmon or sausages. The relevant issue, 
however, is whether sufficient numbers of sardine snack consumers would 
switch to other food products to make it unprofitable for a 
hypothetical monopolist of sardine snacks to raise prices.\2\
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    \2\ See, the Department of Justice/Federal Trade Commission's 
Horizontal Merger Guidelines (1992, revised 1997) (the 
``Guidelines'') at Sec.  1.11. The courts have recognized that the 
Guidelines provide a useful analytical tool for predicting the 
likely competitive consequences of mergers. FTC v. H.J. Heinz Co., 
246 F.3d 708, 716 n. 9 (D.C. Cir. 2001) (``Heinz''); FTC v. Cardinal 
Health, Inc., 12 F. Supp. 2d 34, 53 (D.D.C. 1998) (``cardinal 
Health''). Recent cases in which courts declined to add purported 
substitutes to the relevant product market include: Consolidated Gas 
Co. of Fla. v. City Gas Co. of Fla., 665 F. Supp. 1493, 1504, 1517 
(S.D. Fla. 1987) (Consumers would not shift to liquid petroleum 
based gas in response to a 5% increase in natural gas prices); aff'd 
880 F.2d 297 (11th Cir 1989); reh'g granted and opinion vacated (on 
non-antitrust grounds) 499 U.S. 915 (1991); and United States v. 
Archer-Daniels-Midland Co.,
---------------------------------------------------------------------------

    The United States' delineation of the relevant market is based on 
the specific facts of this case, which were developed in a thorough 
investigation that included numerous interviews of executives from 
retail outlets that buy sardine snacks, as well as other sellers of 
sardine products. In their business judgment, if the sellers of 
sardines raised their prices by a small but significant amount, 
insufficient numbers of sardine snack buyers would switch to premium or 
ethnic sardines in order to make that price increase unprofitable. 
Moreover, these executives' business judgment is consistent with the 
United States' independent quantitative analysis of the 
substitutability of sardine snacks, premium sardines and ethnic 
sardines.
    Contrary to CVT's second assertion, the sardine snack industry is 
highly concentrated. Even CVT recognizes that the Herfindahl-Hirschman 
Index (``HHI'') indicates that the Transaction would significantly 
raise concentration in an already concentrated market.\3\ And, as the 
courts recognize, the HHI test is a useful analytical tool for 
measuring market concentration. Heinz, 246 F.3d at 716 (``Sufficiently 
large HHI figures establish the FTC's prima facie case that a merger is 
anti-competitive''); United States v. Baker Hughes, Inc. 908 F.2d 981, 
982-83 (D.C. Cir. 1990); Cardinal Health, 12 F.Supp 2d at 53 
(``Accordingly, the courts turn to the Guidelines for assistance and 
over the years have come to accept the HHI as the most prominent and 
accurate method of measuring market concentration'').
---------------------------------------------------------------------------

    \3\ The Transaction, as originally proposed, would raise the HHI 
by over 1600 points to 5800 (approximately 4000 points over the 1800 
point indication of highly concentrated markets).
---------------------------------------------------------------------------

    Contrary to CVT's third assertion, it is likely that the 
Transaction would create market power for the combined Connors/Bumble 
Bee firm. In fact, the combined market share of over 75% is so high 
that the combined firm would likely acquire unilateral market power, 
i.e., they could profitably raise prices even if the remaining small 
sellers of sardine snacks kept prices at the original level in order to 
increase their market share.\4\
---------------------------------------------------------------------------

    \4\ As noted in the Guidelines, ``A merger between firms in a 
market for differentiated products may diminish competition by 
enabling the merged firm to profit by unilaterally raising the price 
of one or both products above the premerger level. Some of the sales 
loss due to the price rise merely will be diverted to the product of 
the merger partner and, depending on relative margins, capturing 
such sales loss through the merger may make the price increase 
profitable even though it would not have been profitable 
premerger.'' Guidelines at Sec.  2.21.
---------------------------------------------------------------------------

    Finally, contrary to CVT's last assertion, it is not likely that 
entry into the sardine snack market would be timely, likely or 
sufficient enough to deter the exercise of market power by the combined 
Connors/Bumble Bee firm. Our investigation determined that brand 
recognition is an important factor in the marketing and sale of sardine 
snacks in the United States, and consumers of these products generally 
restrict their purchases to brands they know and trust. New entry would 
require years of effort and the investment of substantial sunk costs, 
including promotion expenditures and slotting allowances (in many 
grocery chains), to create brand awareness among consumers.
    In short, none of CVT's comments are relevant to the issues before 
this court, because they are challenges to the Complaint itself, rather 
than challenges to the proposed Final Judgment in light of the 
violations charged in the Complaint. Moreover, its irrelevant criticism 
of the United States' decision to file the Complaint misconstrues the 
law and the facts of this case.

V. Conclusion

    The Competitive Impact Statement and this Response to Comments 
demonstrate that the proposed Final Judgment serves the public 
interest. Accordingly, after publication of the Response in the Federal 
Register pursuant to 15 U.S.C. 16(b), the United States will move this 
Court to enter the Final Judgment.

    Dated this 22nd day of February, 2005.

    Respectfully submitted,

Robert L. McGeorge, Michelle J. Livingston, Hillary L. Snyder.

Attorneys, U.S. Department of Justice, Antitrust Division, 
Transportation, Energy & Agriculture Section, 7th Street, NW.; Suite 
500, Washington, DC 20530.

Certificate of Service

    I hereby certify that on this 22nd day of February, 2005, I have 
caused a copy

[[Page 15892]]

of the foregoing Response of the United States to Public Comments on 
the Proposed Final Judgment and the attached Appendix to be served by 
first class mail, postage prepaid, and by facsimile on counsel for 
Defendants in this matter:

Michelle J. Livingston, Attorney, Antitrust Division, U.S. 
Department of Justice, 325 Seventh St., NW, Suite 500, Washington, 
DC 20530, Telephone: (202) 353-7328, Facsimile (202) 307-2784.

David T. Beddow.

O'Melveny & Meyers LLP, 1625 Eye Street, NW., Washington, DC 20006-
4001. Counsel for the Defendants.

[FR Doc. 05-5331 Filed 3-28-05; 8:45 am]

BILLING CODE 4410-11-M