80 FR 30726 - United States v. Verso Paper Corp. and NewPage Holdings Inc.; Public Comments and Response on Proposed Final Judgment

DEPARTMENT OF JUSTICE
Antitrust Division

Federal Register Volume 80, Issue 103 (May 29, 2015)

[Federal Register Volume 80, Number 103 (Friday, May 29, 2015)]
[Notices]
[Pages 30726-30736]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-13025]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Verso Paper Corp. and NewPage Holdings Inc.; 
Public Comments and Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the comments 
received on the proposed Final Judgment in United States v. Verso Paper 
Corp., et al., Civil Action No. 1:14-CV-2216-TSC (D.D.C. 2014), 
together with the Response of the United States to Public Comments.
    Copies of the comments, attachments to these comments, and the 
United States' Response are available for inspection at the Department 
of Justice Antitrust Division, 450 Fifth Street NW., Suite 1010, 
Washington, DC 20530 (telephone: 202-514-2481), on the Department of 
Justice's Web site at http://www.justice.gov/atr/cases/verso.html, and 
at the Office of the Clerk of the United States District Court for the 
District of Columbia, 333 Constitution Avenue NW., Washington, DC 
20001. Copies of any of these materials may also be obtained upon 
request and payment of a copying fee.

 Patricia A. Brink,
Director of Civil Enforcement.

United States District Court for the District of Columbia

    UNITED STATES OF AMERICA, Plaintiff, v. VERSO PAPER CORP., and 
NEWPAGE HOLDINGS INC., Defendants.

Case No. 1:14-cv-2216 (TSC)

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

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec.  16(b)-(h) (``APPA'' or ``Tunney Act''), 
the United States hereby responds to the public comments received 
regarding the proposed Final Judgment in this case. After careful 
consideration of the submitted comments, the United States continues to 
believe that the proposed Final Judgment will provide an effective and 
appropriate remedy for the antitrust violations alleged in the 
Complaint. The United States will move the Court for entry of the 
proposed Final Judgment after the public comments and this response 
have been published in the Federal Register pursuant to 15 U.S.C. Sec.  
16(d).\1\
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    \1\ On May 7, 2015, the United States submitted its Unopposed 
Motion and Supporting Memorandum to Excuse Federal Register 
Publication of Attachments to Public Comments requesting that this 
Court authorize an alternative means for publishing the attachments 
to the public comments received in this action. (Docket No. 11.)

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I. Procedural History

    On January 3, 2014, Verso Paper Corp. (``Verso'') entered into an 
agreement to acquire NewPage Holdings Inc. (``NewPage'') in a 
transaction valued at approximately $1.4 billion.\2\ The United States 
filed a civil antitrust Complaint on December 31, 2014, seeking to 
enjoin Verso from acquiring NewPage. The United States alleged in its 
Complaint that the acquisition likely would substantially lessen 
competition in the sale of coated freesheet web paper, coated 
groundwood paper, and label papers to customers in North America in 
violation of Section 7 of the Clayton Act, 15 U.S.C. Sec.  18. At the 
time the Complaint was filed, Verso and NewPage were vigorous 
competitors in these coated paper markets.
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    \2\ After the United States initiated this action on December 
31, 2014, Verso Paper Corp. changed its name to Verso Corporation.
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    Simultaneously with the filing of the Complaint, the United States 
filed a proposed Final Judgment and a Stipulation signed by Plaintiff 
and Defendants consenting to entry of the proposed Final Judgment after 
compliance with the requirements of the Tunney Act, 15 U.S.C. Sec.  16, 
and a Competitive Impact Statement (``CIS'') describing the transaction 
and the proposed Final Judgment. The United States published the 
proposed Final Judgment and CIS in the Federal Register on January 14, 
2015, see 80 FR 1957, and caused summaries of the proposed Final 
Judgment and CIS, together with directions for the submission of 
written comments relating to the proposed Final Judgment, to be 
published in The Washington Post on January 14, 15, 16, 19, 20, 21, and 
22, 2015. The 60[hyphen]day period for public comment ended on March 
24, 2015. The United States received two comments, as described below 
and attached hereto as Exhibits 1 and 2.

II. The Investigation and the Proposed Resolution

    The proposed Final Judgment is the culmination of a nearly year-
long investigation by the Antitrust Division of the United States 
Department of Justice (``Department'') of the proposed transaction. As 
part of its investigation, the Department issued 19 Civil Investigative 
Demands for documents and information to third parties, collected 
almost one million documents from the Defendants and third parties, 
interviewed more than 100 customers, brokers, and competitors in the 
relevant coated paper markets, deposed 12 Verso and NewPage employees, 
and consulted with industry experts. The Department carefully analyzed 
the information it obtained from these sources and thoroughly 
considered all of the issues presented.
    The Department found that the proposed acquisition would likely 
have eliminated substantial head-to-head competition in the relevant 
markets between Verso and NewPage, providing the combined firm with an 
incentive to raise prices and reduce output. The Department also found 
in the coated freesheet web paper and coated groundwood paper markets 
that the transaction would have likely caused the remaining players to 
accommodate one another's price increases and output reductions. 
Overall, the Department concluded that if Verso and NewPage had 
completed the proposed transaction as structured, the loss of 
competition likely would have resulted in higher prices to consumers. 
For these reasons, the Department filed a civil antitrust lawsuit to 
block the merger and alleged that the proposed transaction violated 
Section 7 of the Clayton Act, 15 U.S.C. Sec.  18.
    The proposed Final Judgment eliminates the anticompetitive effects 
identified in the Complaint by requiring Defendants to divest NewPage's 
Rumford, Maine and Biron, Wisconsin paper mills and related assets 
(collectively, ``the Divestiture Assets'') to Catalyst Paper 
Corporation (``Catalyst'') on terms acceptable to the United States. 
The divestitures eliminate the anticompetitive effects of the 
transaction by transferring the Rumford and Biron paper mills to a 
vigorous and independent competitor and preserving the pre-merger 
market structure in the coated freesheet web paper, coated groundwood 
paper, and label paper markets.
    Since the United States submitted the proposed Final Judgment on 
December 31, 2014, Verso has acquired NewPage, and Catalyst has 
acquired and is operating the Divestiture Assets.

III. Standard of Judicial Review

    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States be subject to a 60-day public 
comment period, after which the court shall determine whether entry of 
the proposed Final Judgment ``is in the public interest.'' 15 U.S.C. 
Sec.  16(e)(1). In making that determination, the court, in accordance 
with the statute as amended in 2004, is required to 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. Sec.  16(e)(1). In considering these statutory factors, the 
court's inquiry is necessarily a limited one as the government is 
entitled to ``broad discretion to settle with the defendant within the 
reaches of the public interest.'' United States v. Microsoft Corp., 56 
F.3d 1448, 1461 (D.C. Cir. 1995); see also United States v. SBC 
Commc'ns, Inc., 489 F. Supp. 2d 1, 10-11 (D.D.C. 2007) (assessing 
public interest standard under the Tunney Act); United States v. InBev 
N.V./S.A., No. 08-cv-1965 (JR), 2009 U.S. Dist. LEXIS 84787, at *3 
(D.D.C. Aug. 11, 2009) (discussing nature of review of consent judgment 
under the Tunney Act; inquiry is limited to ``whether the government's 
determination that the proposed remedies will cure the antitrust 
violations alleged in the complaint was reasonable, and whether the 
mechanisms to enforce the final judgment are clear and manageable'').
    Under the APPA, a court considers, among other things, the 
relationship between the remedy secured and the specific allegations 
set forth in the Complaint, whether the decree is sufficiently clear, 
whether the enforcement mechanisms are sufficient, and whether the 
decree may positively harm third parties. See Microsoft, 56 F.3d at 
1458-62. 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)). Instead, 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

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the one that will best serve society, but whether the settlement in 
``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).
    In determining whether a proposed settlement is in the public 
interest, ``the court `must accord deference to the government's 
predictions about the efficacy of its remedies.''' United States v. 
U.S. Airways Grp., Inc., 38 F. Supp. 3d 69, 76 (D.D.C. 2014) (quoting 
SBC Commc'ns, 489 F. Supp. at 17). See also Microsoft, 56 F.3d at 1461 
(noting that the government is entitled to deference as to its 
``predictions as to the effect of the proposed remedies''); United 
States v. Archer-Daniels-Midland 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 the proposed remedies, its 
perception of the market structure, and its views of the nature of the 
case''); United States v. Morgan Stanley, 881 F. Supp. 2d 563, 567-68 
(S.D.N.Y. 2012) (explaining that the government is entitled to 
deference in choice of remedies).
    Courts ``may not require that the remedies perfectly match the 
alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17. Rather, the 
ultimate question is 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.' '' Microsoft, 56 F.3d at 1461. 
Accordingly, 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. And, 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 the public interest.'' 
United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 
1982) (citations and internal quotations omitted); 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).
    In its 2004 amendments to the Tunney Act,\3\ Congress made clear 
its intent to preserve the practical benefits of using consent decrees 
in antitrust enforcement, adding the unambiguous instruction that 
``[n]othing 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. Sec.  16(e)(2). 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 the Tunney Act proceedings.'' 
SBC Commc'ns, 489 F. Supp. 2d at 11; see also United States v. Enova 
Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (``[T]he Tunney Act 
expressly allows the court to make its public interest determination on 
the basis of the competitive impact statement and response to public 
comments alone.'').
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    \3\ The 2004 amendments substituted ``shall'' for ``may'' in 
directing relevant factors for courts 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. 
Sec.  16(e) (2004), with 15 U.S.C. Sec.  16(e)(1) (2006); see also 
SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004 
amendments ``effected minimal changes'' to Tunney Act review).
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IV. Summary of Public Comments and the United States' Response

A. Summary of the Public Comments

    During the 60-day comment period, the United States received two 
comments regarding the proposed Final Judgment, although no comments 
were received from any printer, publisher, or other paper customer. The 
only comments were made by former employees of the now closed 
Bucksport, Maine paper mill. Verso produced coated groundwood and 
specialty paper products at the Bucksport mill until closing the mill 
in December 2014 and selling it to AIM Development (USA) LLC (``AIM''). 
AIM is the U.S. subsidiary of American Iron & Metal, Inc., a company 
that purchases discontinued manufacturing facilities and salvages the 
metal. Both comments focus upon competition in the coated groundwood 
paper market and the closure of the Bucksport mill.
    Local 1821 of the International Association of Machinists and 
Aerospace Workers (``Local 1821''), consisting of 58 former employees 
of the Bucksport mill, submitted a comment arguing that: (1) The 
divestitures provided by the proposed Final Judgment are inadequate to 
redress the merger's anticompetitive effects and should have included 
the Bucksport mill; (2) Catalyst is an insufficiently independent and 
vigorous competitor and should not have been selected as the buyer of 
the Divestiture Assets; (3) recent price increases by Verso and 
Catalyst demonstrate the failure of the proposed Final Judgment to 
remedy the transaction's anticompetitive effects; and (4) the United 
States should have investigated alleged anticompetitive conduct that 
Verso's parent company, Apollo Capital Management (``Apollo''), has 
engaged in since at least 2011, including efforts to buy NewPage, 
acquiring NewPage's debt to influence its business operations, and 
causing Verso and NewPage to shut down mills in order to reduce output 
and raise prices. Local 1821 further argues that the Department should 
open an investigation into whether the sale of the Bucksport mill to 
AIM violated Section 1 of the Sherman Act.
    Herbert R. Gilley also submitted a comment. Mr. Gilley, who is not 
a member of Local 1821, worked at the Bucksport mill for more than 38 
years before losing his job when the mill closed. In his comment, Mr. 
Gilley similarly contests the closure and sale of the Bucksport mill 
and argues that the closure was anticompetive and will result in 
reduced output and higher prices.

B. The United States' Response to the Public Comments

1. The Divestiture Assets Are Sufficient To Remedy the Harm Alleged in 
the Complaint
    Local 1821 and Mr. Gilley argue that the required divestitures are 
not sufficient to prevent the merger's anticompetitive effects and 
assert that additional paper mills, including Verso's Bucksport mill, 
should have been included in the divestiture package. But the required 
divestitures essentially preserve the preexisting competitive structure 
of the affected coated paper markets by providing Catalyst with 
approximately the same capacity as Verso had prior to the merger. The 
divested Rumford and Biron mills produced approximately 940,000 tons 
per year of coated publication papers, label paper, and other papers, 
which is approximately the same amount of production capacity that 
Verso had after closing the Bucksport mill but before acquiring 
NewPage. In the coated groundwood market in which the Bucksport mill 
competed, the output of the divested mills actually exceeds the output 
of the assets Verso held after it closed the Bucksport mill and before 
it completed the merger. In fact, the Biron mill alone produces more 
coated groundwood than Verso's remaining coated groundwood production 
assets. Furthermore, both the Rumford and Biron mills have a strong 
track record of competitively producing a range of coated publication 
papers and label paper, and Catalyst's ownership of the mills will give 
it a

[[Page 30729]]

market presence comparable to Verso's pre-merger market presence in the 
relevant markets. See also Competitive Impact Statement at 11. For 
these reasons, the Department concluded that Verso's divestiture of the 
Rumford and Biron mills sufficiently redressed the merger's competitive 
harm.
    Local 1821 and Mr. Gilley assert that the Department should have 
required Verso to divest the Bucksport mill. But, as discussed above, 
the Department concluded that the required divestitures would 
sufficiently preserve competition, making the divestiture of the 
Bucksport mill unnecessary. See US Airways, 38 F. Supp. 3d at 75-76 
(explaining that the government is entitled to deference in choice of 
remedies); United States v. Abitibi Consol. Inc., 584 F. Supp. 2d 162, 
166 (D.D.C. 2008) (rejecting claim that paper mill divestiture was too 
small because the government had factual basis for concluding that a 
single mill divestiture was adequate).
    The Bucksport mill, moreover, was less viable than the mills 
included in the Divestiture Assets. The Department carefully reviewed 
evidence related to the Verso mills, including Verso's plans relating 
to the Bucksport mill that pre-dated the merger and deposition 
testimony of senior Verso executives about the future of the Bucksport 
mill. Based on this evidence, the Department concluded that Verso 
closed the Bucksport mill because the mill was not profitable and that 
the merger did not cause the mill's closure.\4\
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    \4\ Consequently, the closure of the Bucksport mill is not an 
anticompetitive effect of Verso's acquisition of NewPage. See also 
Competitive Impact Statement at 3 n.1.
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    Notably, Local 1821 made many of the same antitrust arguments about 
the Bucksport mill in a recent--and unsuccessful--lawsuit it brought to 
enjoin Verso's sale of the Bucksport mill to AIM. On December 15, 2014, 
Local 1821 filed a civil action in the United States District Court for 
the District of Maine alleging that the pending sale violated federal 
and state antitrust laws. See Int'l Ass'n of Machinists and Aerospace 
Workers v. Verso Paper Corp., No. 1:14-cv-00530 (JAW), ___F. Supp. 3d 
___, 2015 WL 248819, at *8-*34 (D. Me. Jan. 20, 2015) (attached as 
Exhibit 3). After extensive briefing and oral argument, the Court 
rejected Local 1821's motion for a preliminary injunction and temporary 
restraining order, concluding in a 73-page opinion that Local 1821 had 
not ``met its burden to prove a strong likelihood of success on the 
merits of their claims under federal antitrust law.'' Verso Paper, 2015 
WL 248819, at *73.
2. Catalyst Is an Appropriate Buyer for the Divested Assets
    Local 1821 asserts that Catalyst is not an appropriate buyer for 
the Divestiture Assets because it is insufficiently vigorous and 
independent to compete with Verso. However, Catalyst operated three 
paper mills in British Columbia, Canada, before it acquired the 
Divestiture Assets and the Department thoroughly examined Catalyst 
before approving it as the purchaser of the Divestiture Assets. The 
Department carefully reviewed the proposed transaction, Catalyst's 
plans to compete in the relevant markets, and the transitional 
agreements between Verso and Catalyst.\5\ Based upon this review, the 
Department concluded that Catalyst would be a vigorous and independent 
competitor.

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    \5\ While Catalyst recently emerged from bankruptcy, bankruptcy 
reorganization is a fairly common occurrence in the paper industry 
and not a sign that Catalyst will not be an effective competitor. 
See, e.g., Judy Newman, NewPage Corp. Emerges from Chapter 11 
Bankruptcy, Wis. State J., Dec. 12, 2012, available at http://host.madison.com/business/newpage-corp-emerges-from-chapter-bankruptcy/article_d31c8f88-4bc8-11e2-9164-001a4bcf887a.html 
(discussing NewPage's emergence from bankruptcy); Press Release, 
AbitibiBowater, AbitibiBowater Emerges from Creditor Protection 
(Dec. 9, 2010), available at http://www.newswire.ca/en/story/586251/abitibibowater-emerges-from-creditor-protection.
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3. Verso's and Catalyst's Recent Announcements of Price Increases Do 
Not Show That the Department's Proposed Remedy Is Inadequate
    Local 1821 notes that Verso and Catalyst each announced price 
increases in January 2015 and argues that these announced price 
increases demonstrate that the divestiture is inadequate. But Local 
1821 has not offered any evidence that the price increases arise from 
or are connected to the merger. To the contrary, the price increases 
likely are related to a number of factors, including input costs, 
demand fluctuations, and recent and significant capacity reductions in 
the coated groundwood market that are unrelated to the merger. In 
addition to Verso's Bucksport mill closure, coated groundwood paper 
producer Futuremark also closed its Alsip, Illinois coated groundwood 
mill in August 2014. See Press Release, FutureMark Alsip, FutureMark 
Alsip to Idle Mill (Aug. 21, 2014), available at http://www.businesswire.com/news/home/20140821005972/en/#.VUjFcv-Jiig 
(``FutureMark Alsip [] today announced that, due to increasingly 
challenging market conditions in the North American coated paper 
market, it will indefinitely idle its mill in early September.'').
4. Local 1821's Allegations That Other Conduct by Apollo and Verso 
Violated the Antitrust Laws Are Outside the Scope of the Tunney Act
    Lastly, Local 1821 alleges that Apollo, Verso's parent company, has 
engaged in anticompetitive conduct since at least 2011 and argues that 
the Department should have investigated these earlier activities. Local 
1821 also asserts that the Department should investigate whether 
Verso's 2015 sale of the Bucksport mill to AIM violates Section 1 of 
the Sherman Act.
    Although the Department takes all allegations of anticompetitive 
conduct seriously, Local 1821's claim that the United States should 
bring or have brought an enforcement action relating to conduct not 
challenged in the Complaint is outside the scope of this Tunney Act 
proceeding. It is well-settled that the Department's decision to bring 
an action alleging harm is left to the Department's prosecutorial 
discretion and is not part of the court's Tunney Act review. See 
Microsoft, 56 F.3d at 1459 (explaining that in an APPA proceeding, the 
``district court is not empowered to review the actions or behavior of 
the Department of Justice; the court is only authorized to review the 
decree itself''). Indeed, this Court has squarely held that ``a 
district court is not permitted to `reach beyond the complaint to 
evaluate claims that the government did not make and to inquire as to 
why they were not made.' '' SBC Commc'ns, 489 F. Supp. 2d at 14 
(quoting Microsoft, 56 F.3d at 1459) (emphasis in original); see also 
US Airways, 38 F. Supp. 3d at 76. Consequently, Local 1821's 
allegations of anticompetitive conduct not challenged in the Complaint 
do not provide a basis for rejecting the proposed Final Judgment.

V. Conclusion

    After reviewing the public comments, the United States continues to 
believe 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 comments and this response are published in the Federal Register.
    Dated: May 18, 2015
    Respectfully submitted, /s/Karl D. Knutsen., Karl D. Knutsen, 
Richard Martin, Garrett M. Liskey (D.C. Bar No.

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1000937), Attorneys for the United States, Litigation I Section, 
Antitrust Division, U.S. Department of Justice, 450 Fifth Street NW., 
Suite 4100, Washington, DC 20530, Telephone: (202) 514-0976, Facsimile: 
(202) 305-1190, Email: [email protected].
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[FR Doc. 2015-13025 Filed 5-28-15; 8:45 am]
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