David D. Smith has extensive experience in analyzing the competitive effects of mergers both at EI and in his previous position at the Antitrust Division of the Department of Justice.

The CCC/Mitchell Decision and the Standards for Preliminary Injunctions Against Mergers

The U.S. District Court for the District of Columbia recently issued a Preliminary Injunction (PI) to enjoin the merger of CCC Information Services (CCC) and Mitchell International Inc. (Mitchell). Both companies provide specialized computer software to estimate the repair costs or replacement value of vehicles involved in crashes.

The FTC sought the PI, stating that the transaction amounted to a 3-to-2 merger in the “partial loss and total loss software markets.” The court found that the evidence was “more complicated and uncertain” than claimed by the FTC, but that the FTC had raised questions serious enough to warrant granting the PI. Two days after the PI was issued, the parties abandoned their deal.

One of the more interesting parts of the 85-page decision is the court’s description of the PI standard that the FTC must meet. The decision follows a recent D.C. Court of Appeals decision in using a standard that is lower than many had expected. Section 13(b) of the FTC Act says that a district court can grant a PI if “weighing the equities and considering the Commission’s likelihood of ultimate success, such action would be in the public interest.” In the recent Whole Foods case, the D.C. Court of Appeals ruled that a district court considering granting a PI must use a sliding scale in balancing the likelihood of FTC success on the merits against the equities. Judge Brown of the Appellate Court wrote that because the equities often favor the FTC, the FTC could be entitled to a PI unless it has “entirely failed to show a likelihood of success.”

In the CCC/Mitchell decision, the court repeatedly cited the Whole Foods decision when deciding to apply a sliding scale and issue the PI. Citing language from Whole Foods, the court stated, “‘A greater likelihood of the FTC’s success will militate for a preliminary injunction unless particularly strong equities favor the merging parties.’” Further, the court said, “If the FTC meets its burden of showing that it is likely to succeed on the merits, it ‘creates a presumption in favor of preliminary injunctive relief.’”

With two recent decisions favoring a sliding scale, it appears that this PI standard is gaining ground. Moreover, after these two favorable decisions, the FTC may find it easier to get PIs against mergers.

Additional Articles in Summer 2009 Issue of Economists Ink

Is a Relevant Market Irrelevant?

Investment Incentives and Merger-Specific Efficiencies

EI News and Notes