Conduct Allegedly Harms Competition in North American Markets for Battery Separators
The Federal Trade Commission has unanimously approved an administrative complaint challenging Polypore International Inc.’s (Polypore) consummated acquisition of rival battery separator manufacturer Microporous Products L.P. (Microporous), and other conduct by Polypore, as anticompetitive and in violation of the federal antitrust laws. Polypore competed with the former Microporous through its Daramic business unit.
Polypore acquired Microporous in February 2008. According to the complaint, the consummated transaction led to decreased competition and higher prices in several North American markets for battery separators, a key component in flooded lead-acid batteries. The four markets include: 1) deep-cycle separators for batteries used primarily in golf carts; 2) motive separators for batteries used primarily in forklifts; 3) automotive separators used in car batteries; and 4) uninterruptible power supply (UPS) separators used in batteries that provide backup power in the event of power outages.
The complaint also charges Polypore with engaging in an unfair method of competition by entering into an agreement in 2001 with a potential competitor in order to prevent the company from entering the market for polyethylene (PE) battery separators that Polypore manufactures and sells. In addition, the complaint alleges that Polypore attempted through various anticompetitive means to maintain monopoly power in multiple battery separator markets.
“The lawsuit filed today should send a clear message that consummation of a merger will not in any way slow or deter us from challenging transactions that raise serious antitrust issues,” said David P. Wales, Acting Director of the FTC’s Bureau of Competition. “Polypore’s actions deprived consumers of the benefits of competition in these markets, and we intend to aggressively pursue all available remedies to restore that competition and prevent further harm.”
In issuing the complaint, the Commission is seeking to remedy the alleged anticompetitive impact of the merger and other conduct by Polypore through various means. Among other actions, the FTC seeks the restoration of Microporous as a viable competitor, its divestiture by Polypore, the rescission of contracts that Polypore entered into after acquiring Microporous, the assignment or sale of all intellectual property and know-how associated with the relevant markets to a viable competitor, the prohibition of any integration activities between the two companies that have not already taken place, and an order requiring Polypore to cease its unlawful conduct, and preventing its recurrence.
Parties to the Transaction
Polypore makes a broad range of battery separator membranes, and today, markets, develops, and supplies more than half of the world’s demand for PE battery separators to the flooded lead-acid battery industry. The company operates several manufacturing facilities, that combined have a total annual capacity to make approximately 600 million square meters of battery separator products. Polypore has U.S. manufacturing plants in Owensboro, Kentucky, and Corydon, Indiana. It also has facilities in Selestat, France; Norderstedt, Germany; and Potenza, Italy; a controlling interest in a joint venture in China with Nippon Sheet Glass, and newly expanded operations in Thailand. Upon acquiring Microporous, Polypore added production lines in Piney Flats, Tennessee and Feistritz, Austria.
The former Microporous was headquartered in Piney Flats, Tennessee, and had manufacturing plants in both Tennessee and Austria. Before being acquired by Polypore, private-equity firm Industrial Growth Partners II L.P. owned the acquired company, and 170 employees worked for Microporous. Its products include rubber separators, PE-rubber separators, and PE separators.
The Relevant Product Markets
Each of the relevant product markets defined in the complaint are types of battery separators – membranes that are placed between the positive and negative plates of flooded lead-acid batteries. The separators are essentially porous electric insulators that prevent electrical short circuits while allowing ionic current to flow through the separators and between the positively and negatively charged lead plates of the battery.
Deep-cycle separators are made of either rubber or a blend of rubber and PE, and are a necessary component that enables the batteries to be frequently exhausted and then recharged. They are used primarily in golf carts and floor scrubber batteries. Motive separators are made of PE, a blend of rubber and PE, or sometimes polyvinylchloride (PVC), and are used mainly in forklift batteries. Automotive separators are made of PE and are used in cars for starter, lighter, and ignition (SLI) power. UPS separators are made of PE, as well as a blend of rubber and PE. They are used in batteries that supply uninterruptible power to critical data centers and buildings in the event of a power outage. The complaint also alleges an alternative market for all PE battery separators.
The complaint issued today states that Polypore’s acquisition of Microporous violated
Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, and that through its conduct and agreement with other firms, Polypore monopolized the North American market for deep-cycle, motive, and UPS battery separators, and otherwise restrained trade in the North American market for automotive separators. The complaint further states that Polypore and Microporous are the only deep-cycle battery manufacturers in the world. Each of the relevant markets is highly concentrated, according to the complaint, and entry is difficult, as producers outside North America cannot compete economically with Polypore.
Specifically, the complaint states that Polypore’s acquisition of Microporous left only two flooded-lead acid battery separator companies in North America, Polypore and Entek International, LLC (Entek) and that Entek operates only in the automotive separator market. In addition, before the acquisition Polypore and Microporous were competitors in each relevant market, and Microporous was uniquely situated to compete with Polypore for North American customers due to its location and the breadth of product offerings.
The complaint contends that Polypore and Microporous were direct competitors in the deep-cycle battery separator market and that the acquisition was a merger to monopoly in that market. Similarly, the companies were direct competitors in the motive separator market, and because they were the only firms in the North American market, the merger also led to a monopoly in that market. Polypore and Entek are direct competitors and the only companies selling SLI separators in North America, and competition between them continues. However, at the time of the acquisition, Microporous was preparing to enter the automotive separator market, a market in which Microporous had successfully manufactured and sold products in the past, and the merger eliminated this actual and potential competition.
The complaint also states that Polypore and Microporous were the only two firms competing in the North American UPS market, and that this competition was eliminated by Polypore’s acquisition of Microporous. Polypore, Entek, and Microporous also were the only manufacturers of PE separators in North America at the time of the acquisition.
Finally, the complaint states that by entering into a multi-year joint marketing agreement with Hollingsworth & Vose, a firm that makes absorbed-glass-mat battery separators, in 2001, Polypore engaged in an unfair method of competition by preventing its partner from entering the PE separator market. It also alleges that Polypore attempted through anticompetitive means to maintain monopoly power in multiple battery separator markets.
The Commission vote approving the issuance of the administrative complaint was 4-0. The complaint was issued on September 10, 2008.
NOTE: The Commission issues or files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law.
The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.
Copies of the administrative complaint are available from the FTC’s web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.
(FTC File No. 081-0131)