United States v. Graftech International Ltd. and Seadrift Coke, L.P.; Public Comments and Response on Proposed Final Judgment, 14987-14993 [2011-6182]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 76, Number 53 (Friday, March 18, 2011)]
[Notices]
[Pages 14987-14993]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6182]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE

Antitrust Division


United States v. Graftech International Ltd. and Seadrift Coke, 
L.P.; 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 comment 
received on the proposed Final Judgment in United States v. GrafTech 
International Ltd. and Seadrift Coke, L.P., Civil Action No. 1:10-CV-
02039, which was filed in the United States District Court for the 
District of Columbia on March 3, 2011, together with the response of 
the United States to the comment.
    Copies of the comments and the 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 https://www.usdoj.gov/atr, 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 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.

GRAFTECH INTERNATIONAL LTD.

and

SEADRIFT COKE L.P.

Defendants.

CASE NO.: 1:10-cv-02039

JUDGE: Collyer, Rosemary M.

DECK TYPE: Antitrust

DATE STAMP: March 3, 2011

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

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``APPA'' or ``Tunney Act''), the 
United States hereby responds to the public comment received regarding 
the proposed Final Judgment in this case. After careful consideration 
of the comment submitted, 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 comment and this response have been published 
in the Federal Register, pursuant to 15 U.S.C. 16(d).
    The United States filed a civil antitrust complaint on November 29, 
2010, seeking to enjoin GrafTech International Ltd.'s (``GrafTech'') 
proposed acquisition of Seadrift Coke L.P. (``Seadrift''). The 
Complaint alleged that the acquisition likely would substantially 
lessen competition in the worldwide sale of petroleum needle coke used 
to manufacture graphite electrodes, in violation of Section 7 of the 
Clayton Act, 15 U.S.C. 18. That loss of competition likely would result 
in higher prices, reduced output and less favorable terms of sale in 
the global petroleum needle coke market.
    Simultaneously with the filing of the Complaint, the United States 
filed a proposed Final Judgment, which is designed to remedy the 
expected anticompetitive effects of the acquisition, and a Stipulation 
signed by the plaintiffs and the defendants, consenting to the entry of 
the proposed Final Judgment after compliance with the requirements of 
the Tunney Act, 15 U.S.C. 16. Pursuant to those

[[Page 14988]]

requirements, the United States filed its Competitive Impact Statement 
(``CIS'') with the Court on November 29, 2010; the proposed Final 
Judgment and CIS were published in the Federal Register on December 7, 
2010, see United States v. Graftech international Ltd. and Seadrift 
L.P., 75 FR 76026; and summaries of the terms of the proposed Final 
Judgment and CIS, together with directions for the submission of 
written comments relating to the proposed Final Judgment, were 
published in The Washington Post for seven (days beginning on December 
3, 2010 and ending on December 9, 2010. The sixty-day period for public 
comment ended on February 7, 2011; one comment was received as 
described below and attached hereto.

I. The Investigation and Proposed Resolution

A. The Investigation

    On April 1, 2010, Defendants GrafTech and Seadrift entered into an 
Agreement and Plan of Merger, pursuant to which GrafTech agreed to 
acquire the 81.1 percent of Seadrift stock it does not already own for 
about $308.1 million. Immediately following the announcement of the 
merger, the United States Department of Justice (``Department'') opened 
an investigation into the likely competitive effects of the transaction 
that spanned more than seven months. As part of this detailed 
investigation, the Department issued Second Requests to the merging 
parties and several Civil Investigative Demands (``CIDs'') to third 
parties. The Department considered more than a million documents 
submitted by the merging parties in response the Second Requests and by 
third parties in response to CIDs. The Department also took oral 
testimony from eight executives from the merging parties, and conducted 
over 100 interviews with customers, competitors and other market 
participants. The investigative staff carefully analyzed the 
information provided and thoroughly considered all of the issues 
presented. The Department considered the potential competitive effects 
of the transaction on the production and sale of petroleum needle coke 
used to manufacture graphite electrodes, and concluded that the merger 
likely would result in higher prices, reduced output and less favorable 
terms of sale in the global petroleum needle coke market.
    As part of its investigation, the Department considered the 
potential competitive effects of the merger on the markets for numerous 
products and services and on a variety of customer groups. The 
Department concluded, as explained more fully in the Complaint and CIS, 
the acquisition of Seadrift by GrafTech could substantially lessen 
competition in the international petroleum needle coke market. Seadrift 
is a producer of petroleum needle coke, a product purchased by GrafTech 
and its competitors to make graphite electrodes which are, in turn, 
sold to steel producers to melt scrap in electric arc furnaces. 
Petroleum needle coke is a key input in large-diameter (18- to 32-inch) 
electrodes, in particular, because they are often used in high 
intensity applications, where petroleum needle coke's needle-like 
structure, low coefficient of thermal expansion, and low impurity rate 
are critical to efficient conduction of strong current without costly 
shutdowns to replace broken or exhausted graphite electrodes. Petroleum 
needle coke is available from four producers: ConocoPhillips Company 
(``Conoco''), Seadrift and two other competitors located in Japan. 
Sales typically are negotiated annually, with price terms and volume 
targets memorialized in formal contracts.
    At the time of the proposed merger, GrafTech received a substantial 
portion of its petroleum needle coke supply from Conoco, pursuant to a 
multi-year agreement (``Supply Agreement''), which also included a 
provision that either GrafTech or Conoco could ``audit'' the books and 
records of the other. On September 27, 2010, in response to the 
proposed merger, Conoco activated the ``termination clause'' of that 
agreement, which effectively locked in volume targets and imposed most-
favored-nation (``MFN'') pricing for three years, while leaving the 
audit right intact. By operation of the merger, the audit clause would 
extend to Seadrift the information provided to GrafTech from Conoco. 
Should the audit clause be used in conjunction with the MFN, for 
example, to verify that GrafTech was, in fact, receiving the lowest 
price, Seadrift potentially would have access to its largest 
competitor's production and pricing to all other customers. By 
facilitating the exchange of customer-specific, real-time, competitor 
pricing information, the merger was likely to facilitate coordination.
    Therefore, the Department concluded, as a result of its 
investigation, that GrafTech's acquisition of Seadrift likely would 
substantially lessen competition in the development, production and 
sale of petroleum needle coke in the United States, leading to higher 
prices, reduced output and less favorable terms of sale in the 
worldwide petroleum needle coke market, in violation of Section 7 of 
the Clayton Act. The proposed Final Judgment is designed to address the 
threat of information exchange created by the merger, by removing the 
opportunity and means for Seadrift and Conoco to engage in 
anticompetitive activity under cover of the Supply Agreement, and 
possibly future supply arrangements.

B. Proposed Final Judgment

    The proposed Final Judgment contains several layers of prohibited 
and required conduct to eliminate the anticompetitive effects that 
otherwise would result from GrafTech's acquisition of Seadrift. First, 
the terms of the proposed Final Judgment require GrafTech and Seadrift 
immediately to abrogate, amend or otherwise alter the current petroleum 
needle coke Supply Agreement between GrafTech and Conoco to remove the 
terms related to the ongoing audit rights, sharing of non-public or 
proprietary information, and MFN pricing. Had these clauses persisted, 
they might have allowed GrafTech and Seadrift access to Conoco's 
customer-specific pricing, production and other commercial terms. 
GrafTech also is prohibited from adding similar terms to future 
contracts with Conoco for the ten-year period term of the proposed 
Final Judgment. Second, to enforce this prohibition, GrafTech must 
produce copies of each petroleum needle coke supply agreement to the 
United States on an annual basis. As an additional safeguard against 
any informal exchange of pricing or output information between 
GrafTech, Seadrift and Conoco, the proposed Final Judgment also 
mandates that GrafTech strictly segregate employees who negotiate terms 
with Conoco from those who make decisions about pricing and production 
at Seadrift, and vice versa. Finally, so that the United States can 
detect any changes in capacity, production or sales that might suggest 
coordination, GrafTech must report capacity, sales and production 
information on a quarterly basis.
    These layers of protection prevent harm without imperiling the 
efficiencies that GrafTech expects from the merger. GrafTech 
anticipates substantial, merger-specific efficiencies by internal 
consumption of Seadrift petroleum needle coke, which would allow the 
elimination of double margins. Should this result in lower GrafTech 
prices for graphite electrode customers, it not only would benefit 
those customers directly, but it also likely would incentivize other 
graphite electrode competitors to reduce prices in response to that 
competition. Verified plans to improve the quality of Seadrift 
petroleum needle coke likely will benefit Seadrift's

[[Page 14989]]

graphite electrode customers, as well as the downstream consumers of 
finished graphite electrodes, in the future. Thus, the source of 
potential harm is eliminated without depriving consumers of the 
procompetitive efficiencies that GrafTech and Seadrift expect their 
merger to generate.

II. Standard of Judicial Review

    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States be subject to a sixty-day comment 
period, after which the court shall determine whether entry of the 
proposed Final Judgment ``is in the public interest.'' 15 U.S.C. 
16(e)(l). In making that determination in accordance with the statute, 
the court 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. 16(e)(1)(A)-(B). 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 (DC Cir. 1995); see generally United States v. SBC 
Commc'ns, Inc., 489 F. Supp. 2d 1 (D.DC 2007) (assessing public 
interest standard under the Tunney Act); United States v. InBev N. V./
S.A., 2009-2 Trade Cas. (CCH) ]76,736, No. 08-1965 (JR), 2009 U.S. 
Dist. LEXIS 84787, at *3 (D.DC Aug. 11, 2009) (noting that the court's 
review of a consent judgment is limited and only inquires ``into 
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'').
    As the United States Court of Appeals for the District of Columbia 
Circuit has held, under the APPA, a court considers, among other 
things, the relationship between the remedy secured and the specific 
allegations set forth in the government's complaint, whether the decree 
is sufficiently clear, whether 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)); see 
also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152 
F. Supp. 2d 37, 40 (D.DC 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at 
*3 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 the one that will best serve society, but whether the 
settlement is ``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).\1\ 
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, and may not require that the remedies 
perfectly match the alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d 
at 17; see also Microsoft, 56 F.3d at 1461 (noting the need for courts 
to be ``deferential to the government's predictions as to the effect of 
the proposed remedies''); United States v. Archer-Daniels-Midland Co., 
272 F. Supp. 2d 1, 6 (D.DC 2003) (noting that the court should grant 
due respect to the United States' prediction as to the effect of 
proposed remedies, its perception of the market structure, and its 
views of the nature of the case).
---------------------------------------------------------------------------

    \1\ Cf BNS, 858 F.2d at 464 (holding that the court's ``ultimate 
authority under the [APPA] is limited to approving or disapproving 
the consent decree''); United States v. Gillette Co., 406 F. Supp. 
713, 716 (D. Mass. 1975) (noting that, in this way, the court is 
constrained to ``look at the overall picture not hypercritically, 
nor with a microscope, but with an artist's reducing glass''). See 
generally Microsoft, 56 F.3d at 1461 (discussing 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' '').
---------------------------------------------------------------------------

    Courts have greater flexibility in approving proposed consent 
decrees than in crafting their own decrees following a finding of 
liability in a litigated matter. ``[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 public interest.' '' United States v. Am. Tel. & Tel. Co., 
552 F. Supp. 131, 151 (D.DC 1982) (citations omitted) (quoting United 
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd 
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); 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). As this Court has previously recognized, to 
meet this standard ``[t]he government need not prove that the 
settlements will perfectly remedy the alleged antitrust harms, it need 
only provide a factual basis for concluding that the settlements are 
reasonably adequate remedies for the alleged harms.'' United States v. 
Abitibi-Consolidated Inc., 584 F. Supp. 2d 162, 165 (D.DC 2008) (citing 
SBC Commc'ns, 489 F. Supp. 2d at 17).
    Moreover, the Court's role under the APPA is limited to reviewing 
the remedy in relationship to the violations that the United States has 
alleged in its complaint, rather than to ``construct [its] own 
hypothetical case and then evaluate the decree against that case.'' 
Microsoft, 56 F.3d at 1459. Because the ``court's authority to review 
the decree depends entirely on the government's exercising its 
prosecutorial discretion by bringing a case in the first place,'' it 
follows that ``the court is only authorized to review the decree 
itself,'' and not to ``effectively redraft the complaint'' to inquire 
into other matters that the United States did not pursue. Id. at 1459-
60. As this Court recently confirmed in SBC Communications, courts 
``cannot look beyond the complaint in making the public interest 
determination unless the complaint is drafted so narrowly as to make a 
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
    In its 2004 amendments to the Tunney Act,\2\ Congress made clear 
its

[[Page 14990]]

intent to preserve the practical benefits of utilizing consent decrees 
in antitrust enforcement, stating ``[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. 16(e)(2). 
The language wrote into the statute what Congress intended when it 
enacted the Tunney Act in 1974, as Senator Tunney explained: ``[t]he 
court is nowhere compelled to go to trial or to engage in extended 
proceedings which might have the effect of vitiating the benefits of 
prompt and less costly settlement through the consent decree process.'' 
119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney). Rather, 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 
Tunney Act proceedings.'' SBC Commc'ns, 489 F. Supp. 2d at 11.\3\
---------------------------------------------------------------------------

    \2\ The 2004 amendments substituted the word ``shall'' for 
``may'' when directing the courts to consider the enumerated factors 
and amended the list of factors to focus on competitive 
considerations and address potentially ambiguous judgment terms. 
Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 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).
    \3\See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 
(D.DC 2000) (noting that the ``Tunney Act expressly allows the court 
to make its public interest determination on the basis of the 
competitive impact statement and response to comments alone''); 
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) 
]61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt 
failure of the government to discharge its duty, the Court, in 
making its public interest finding, should.. carefully consider the 
explanations of the government in the competitive impact statement 
and its responses to comments in order to determine whether those 
explanations are reasonable under the circumstances.''); S. Rep. No. 
93-298, 93d Cong., 1st Sess., at 6 (1973) (``Where the public 
interest can be meaningfully evaluated simply on the basis of briefs 
and oral arguments, that is the approach that should be 
utilized.'').
---------------------------------------------------------------------------

III. Summary of Public Comment and The United States's Response

    During the sixty-day comment period, the United States received 
only one comment, from a Russian graphite electrode competitor, 
Energoprom. Energoprom's comment, which objected to the scope of the 
remedy described in the proposed Final Judgment, is attached hereto. As 
explained in detail below, after careful review, the United States 
continues to believe that the proposed Final Judgment is in the public 
interest.

A. Summary of the Public Comment

    Energoprom, a competitor of GrafTech's, is the largest producer of 
graphite electrodes in the Russian Federation, with facilities in the 
Rostov and Novosibirsk regions of Russia. Energoprom argues first that 
the proposed Final Judgment should be expanded to require more thorough 
monitoring to protect competition in the petroleum needle coke market 
and, in the alternative, asserts that no settlement could be crafted 
that would prevent anticompetitive effects from the merger of GrafTech 
and Seadrift.\4\
---------------------------------------------------------------------------

    \4\ Energoprom also argues that GrafTech has failed to abide by 
Russian competition agency reporting requirements, a complaint that 
is beyond the scope of this review.
---------------------------------------------------------------------------

    Energoprom first argues that the proposed Final Judgment does not 
require sufficient monitoring to prevent anticompetitive effects 
arising from coordination. The company contends that GrafTech's 
acquisition of Seadrift, in combination with GrafTech's supply 
agreement with Conoco, increases the likelihood of price fixing, output 
coordination, and other anticompetitive agreements between Seadrift and 
Conoco.\5\ To prevent such coordination, Energoprom submits that it is 
necessary to collect and analyze basic economic indicators regarding 
these companies and the market as a whole.\6\ Energoprom further 
objects to the ten-year duration of the proposed Final Judgment, and 
questions whether competition will continue after its expiration.\7\
---------------------------------------------------------------------------

    \5\ Energoprom Comment at 2.
    \6\ Id.
    \7\ Id.
---------------------------------------------------------------------------

    Second, Energoprom argues that neither the Complaint nor the 
proposed Final Judgment addresses the possibility that unilateral 
effects may result from the acquisition of Seadrift by Graftech. 
Energoprom argues that Seadrift has ``a dominant market position'' in 
the petroleum needle coke industry.\8\ Acquiring Seadrift, in the 
company's view, would allow GrafTech to determine the production volume 
and terms of sale to GrafTech's competitors in the sale of graphite 
electrodes, creating the potential for abuse.\9\ Energoprom argues that 
unilateral anticompetitive effects may include a reduction of 
Seadrift's output to GrafTech's competitors and less favorable terms of 
sale to GrafTech's competitors, either of which may cause Energoprom 
and other graphite electrode competitors to lose customers because of 
reduced Seadrift output or because competitors ``couldn't provide 
consumers as low [a] price for electrodes as GrafTech did.'' \10\
---------------------------------------------------------------------------

    \8\ Id. at 3.
    \9\ Id. at 4
    \10\ Id.
---------------------------------------------------------------------------

B. The United States's Response

    Energoprom's allegations are not new; in fact, the company 
expressed its concerns to the United States on several occasions during 
the investigation of the proposed acquisition. The United States is 
confident that Energoprom's suggestions for additional remedial 
measures are unnecessary to serve the public interest. Further, the 
United States's exercise of its discretion not to allege in the 
complaint potential unilateral effects from the acquisition is beyond 
the scope of Tunney Act review.
1. Additional Monitoring Requirements
    Energoprom asserts that, to prevent anticompetitive effects from 
potential coordination between GrafTech, Seadrift and Conoco, the Final 
Judgment must compel the ``systematic'' production of more information 
than the proposed Final Judgment currently requires, including ``the 
conditions of contracts entered into by each producer with consumers,'' 
each company's price lists, and ``other documents'' that reveal ``basic 
economic indicators.'' \11\ Energoprom suggests this information should 
be compared with similar information from the ``market on the whole.''
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

    The additional documents and information that Energoprom suggests 
should be required, at best, would be unnecessary supplements to the 
comprehensive remedy included in the proposed Final Judgment and, at 
worst, would impose a significant burden on GrafTech as well as other 
competitors and customers in this industry. The proposed Final Judgment 
already provides several layers of protection against potential 
anticompetitive effects, whether they manifest as price increases or 
output reductions, including significant reporting requirements. First, 
the proposed Final Judgment removes the mechanism likely to facilitate 
coordination on price and input by requiring that GrafTech amend its 
supply agreement with Conoco to remove the audit and MFN provisions 
prior to consummating the merger.\12\ The proposed Final Judgment 
likewise prohibits GrafTech from adding similar provisions for ten 
years. Second, the proposed Final Judgment requires that GrafTech 
produce copies of all of its contracts with Conoco, so the United 
States may monitor compliance with this prohibition and detect any 
variation of the audit and MFN provisions that might suggest a price-
fixing or output restriction arrangement. Third, the proposed Final 
Judgment requires that GrafTech erect a firewall that separates those 
GrafTech employees negotiating prices and terms with Conoco from those 
making decisions about price and output for Seadrifi. Finally, GrafTech 
must produce information revealing

[[Page 14991]]

Seadrift's projected output and external sales on a quarterly basis. 
Any significant change in production or sales levels immediately would 
reveal changes in production volume that might suggest output 
coordination, but also likely would provide a clear signal of the 
attendant output effects of an anticompetitive price-fixing agreement.
---------------------------------------------------------------------------

    \12\ In fact, GrafTech has already complied with this provision 
in the proposed Final Judgment.
---------------------------------------------------------------------------

    In addition, Energoprom's proposal that the proposed Final Judgment 
should require the ``systematic collection, storage and processing'' of 
information regarding customer contracts, price lists and other 
``economic indicators'' ignores the significant administrative burden 
such a requirement would impose on the Defendants, without any 
attendant enforcement benefit. Moreover, Energoprom suggests this 
comprehensive collection of data would be useful only in an effort to 
measure ``divergence'' of Seadrift sales from ``the market as a 
whole,'' \13\ which suggests a similar collection effort would have to 
be made of third parties; such a requirement not only would be 
burdensome, but also is beyond the scope of a settlement to a Clayton 
Act action brought by the United States.
---------------------------------------------------------------------------

    \13\ Energoprom Comment at 2.
---------------------------------------------------------------------------

    Energoprom also objects to the ten-year duration of the 
requirements in the proposed Final Judgment, arguing that ``[i]t is not 
clear'' what the competitive environment will be like in ten years.\14\ 
However, it is precisely because it is difficult to foresee competitive 
conditions more than ten years into the future that the proposed Final 
Judgment is limited in duration. Ten years is the standard term of most 
Department consent decrees, and reflects Department experience about 
the most appropriate period for ensuring the prevention of harm posed 
by most mergers. Upon expiration of the Final Judgment, the Defendants 
will remain fully subject to the Sherman Act and the Division will 
remain able to investigate any potential anticompetitive conduct.
---------------------------------------------------------------------------

    \14\ Id.
---------------------------------------------------------------------------

    In sum, the carefully constructed layers of requirements and 
prohibitions included in the proposed Final Judgment are more than 
sufficient to remedy the harm alleged in the Complaint, and 
Energoprom's suggested additions merely would impose an unnecessary 
burden without providing any commensurate benefit to consumers.
2. Expansion of the Complaint To Allege Unilateral Effects
    Energoprom also argues that the United States should have alleged 
that the merger likely would lead to unilateral anticompetitive 
effects. Energoprom asserts that, even absent coordination with Conoco, 
the acquisition of Seadrift would be sufficient to allow GrafTech the 
ability to impose anticompetitive price increases or output 
restrictions on downstream customers of graphite electrodes. This 
argument, however, is not a valid basis for the Court to reject a 
proposed remedy during Tunney Act review. As discussed above, in a 
Tunney Act proceeding the Court must evaluate the adequacy of the 
remedy only for the antitrust violations alleged in the complaint. See 
United States v. Microsoft Corp., 56 F.3d 1448, 1459 (DC Cir. 1995). 
The Tunney Act does not usurp the United States's prosecutorial 
discretion to choose the type of case to bring; courts ``cannot look 
beyond the complaint. . . unless the complaint is drafted so narrowly 
as to make a mockery of judicial power.'' SBC Commc 'ns, 489 F. Supp. 
2d at 15. Energoprom, however, seeks to ``construct fits] own 
hypothetical case and then evaluate the decree against that case''--
precisely the approach specifically forbidden in Tunney Act proceedings 
by the DC Circuit. See Microsoft, 56 F.3d at 1459. In this case, the 
United States did not allege that the acquisition of Seadrift was 
likely to generate a unilateral anticompetitive effect, and it is 
improper for Energoprom to measure the sufficiency of the remedy 
against such a hypothetical case.
    Accordingly, the United States continues to believe that the 
proposed Final Judgment will remedy the competitive harm likely to 
result from GrafTech's acquisition of Seadrift and that entry of the 
proposed Final Judgment is in the public interest.

IV. Conclusion

    The issues raised in the public comment were among the many 
considered by the United States when it evaluated the sufficiency of 
the proposed remedy. The United States has determined 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 comment and this 
response are published in the Federal Register.

Dated: March 3, 2011

Respectfully submitted,

Stephanie A. Fleming, Esq., United States Department of Justice, 
Antitrust Division, Litigation II Section, 450 5th Street, NW., Suite 
8700, Washington, DC 20530, Phone: (202) 514-9228, Fax: (202) 514-9033, 
stephanie.fleming@usdoj.gov.
CERTIFICATE OF SERVICE
    I, Stephanie A. Fleming, hereby certify that on March 3, 2011, I 
caused a copy of the foregoing Response of Plaintiff United States to 
Public Comment on the Proposed Final Judgment to be served upon 
defendants GrafTech and Seadrift, mailing the documents electronically 
to their duly authorized legal representatives as follows:

Counsel for Defendant GrafTech: Jonathan Gleklen, Esq., Arnold & Porter 
LLP, 555 12111 Street, NW., Washington, DC 20004;

Counsel for Defendant Seadrift: Craig Seebald, Esq., Joel Grosberg, 
Esq., McDermott, Will & Emery, 600 13th Street, NW., Washington, DC 
20006;

/s/

Stephanie A. Fleming, Esq., United States Department of Justice, 
Antitrust Division, Litigation II Section, 450 Fifth Street, NW., Suite 
8700, Washington, DC 20530, Phone: (202) 514-9228, Fax: (202) 514-9033, 
stephanie.fleming@usdoj.gov;

To: 450 Fifth Street, NW., Suite 8700, Washington DC., 20530.
Letter No: 9091-TM-01-2011
Date: January 25, 2011.
Attn.: Maribeth Petrizzi, Chief, Litigation II Section, Antitrust 
Division United States Department of Justice

Fax:
Re: Comments to the proposed Final Judgment regarding acquisition of 
Seadrift Coke L.P. by GrafTech International Ltd.

Dear Ms Petrizzi:

    In connection with filing a Complaint on 29.11.2010 by the United 
States of America, represented by Antitrust Division of the U.S. 
Department of Justice to the U.S. District Court, District of Columbia 
vs. GrafTech International Ltd. company (``GrafTech'') and Seadrift 
Coke LP company (``Seadrift''), relating to the proposed acquisition of 
Seadrift by GrafTech, together with proposed Final Judgment and 
Competitive Impact Statement (published in the U.S. Federal Register 
dated December 7, 2010 Vol. 75 No. 234), being guided by Section 15 
U.S.C. 16(d), Closed Joint Stock Company ``ENERGOPROM MANAGEMENT'' 
(Moscow, Russia), hereinafter--the Company, being the management 
company of electrode plants--JSC ENERGOPROM--

[[Page 14992]]

Novocherkassk Electrode Plant'' (Rostov region, Russia), JSC 
``ENERGOPROM--Chelyabinsk Electrode Plant'' (Chelyabinsk, Russia), JSC 
``ENERGOPROM--Novosibirsk Electrode Plant'' (Novosibirsk region, 
Russia), all these companies together form ENERGOPROM Group, hereby 
presents commentary to Final Judgment.
    The above Complaint was filed by the United States of America in 
the announcement of GrafTech--the world's largest manufacturer of 
graphite electrode UHP, used in electric arc furnaces for electric 
steel smelting, about the proposed acquisition of Seadrift--the second 
largest world producer of petroleum needle coke--a key raw material 
used to produce graphite electrode UHP. The Complaint seeks to reduce 
the expected anticompetitive effect of the acquisition due to taking by 
the parties to the transaction a number of measures listed in the 
proposed Final Judgment.
    ENERGOPROM Group is Russia's largest producer of graphite 
electrodes UHP, supplies the goods to Europe and the USA and uses 
petroleum needle coke in the production. ENERGOPROM Group considers 
that the aforementioned transaction is contrary to the basic principles 
of antitrust laws, which might result in substantial harm to the 
competition not only on the world petroleum needle coke market, but 
also as a consequence--on the market of graphite electrodes UHP and 
electric steel market.
    According to subsection 2 of section II of the Competitive Impact 
Statement the alleged acquisition of Seadrift by GrafTech may 
substantially lessen competition in the worldwide sale of petroleum 
needle coke because it will allow Seadrift to be involved in the scope 
of the long-term petroleum needle coke supply agreements (``Supply 
Agreements'') between GrafTech and Conoco Philips Company 
(hereinafter--``Conoco'')--a competitor of Seadrift, the world's 
largest producer of needle coke, under which Conoco must provide 
petroleum needle coke to GrafTech with the most-favored-nation 
(``MFN'') basis meaning that prices to GrafTech may not exceed the 
lowest price charged by Conoco to its other customers; \1\ to ensure 
compliance with this MFN guarantee, GrafTech could demand to audit 
Conoco documents reflecting the company's costs, pricing to specific 
customers, volume of production to each customer and other commercially 
sensitive terms of sale. As a result of GrafTech and Seadrift merger 
Seadrift will be entitled to audit, which will allow it to monitor 
online prices charged by its direct competitor from the electrode 
producers and petroleum needle coke volume of sales to each customer.
---------------------------------------------------------------------------

    \1\ Such provision was activated on September 27, 2010 and valid 
from 2011 until the end of 2013.
---------------------------------------------------------------------------

    However, even under the circumstances of absence of the MFN regime 
and rights to audit, acting between GrafTech and Conoco in respect of 
supply may provide GrafTech (and hence Seadrift) with inappropriate, in 
this situation, competitive information with respect to pricing, supply 
and production.
    This situation creates the possibility of price fixing plot, 
coordination of industrial production volume and other anticompetitive 
agreements of Seadrift with its competitor--Conoco.
    Sections IV and V of the proposed Final Judgment provide measures 
(the required conduct and prohibited conduct of parties to the 
transaction), which are designed to neutralize damage to the 
competition, which is applied by the acquisition in question.
    In accordance with these sections of the proposed Final Judgment 
GrafTech and Seadrift shall:

--Amend the Supply Agreement in order to remove the most favored-nation 
basis price clause and audit rights clause;
--Provide the Antitrust Division of the U.S. Department of Justice with 
a copy of any agreements relating to the supply of petroleum needle 
coke, formed between defendants and Conoco for the duration of the 
proposed Final Judgment (10 years), as well as ordinary course of 
business documents, which provide information on the quantity of output 
and sales of Seadrift;
--Separate employees who are negotiating terms with Conoco from those 
who make decisions about pricing and production at Seadrift. Similarly, 
employees of Seadrift, who are negotiating agreements with competitors 
of GrafTech, will be prevented from sharing any competitively sensitive 
information thus obtained.

    These provisions in the opinion of the Antitrust Division of the 
U.S. Department of Justice help to ensure that defendants comply with 
the proposed Final Judgment, as well as ensure that Conoco and Seadrift 
do not coordinate their actions in terms of production volumes and 
prices.
    In our opinion the measures referred to in the proposed Final 
Judgment are not sufficient and proportionate to damage caused to 
competition by the acquisition.
    In order to prevent coordination of the two largest producers of 
petroleum needle coke it is necessary to carry out systematic 
collection, storage and processing of information about functioning of 
these companies in the product market by analyzing the conditions of 
contracts entered into by each producer with consumers, price list of 
each company and other documents. In this case, the most important 
condition for determining coordination is fixed divergence by the 
dynamics of basic economic indicators of the activities of these 
companies with the average data of similar indicators for the market on 
the whole.
    The proposed Final Judgment does not stipulate the need to provide 
by companies such documents and information.
    In addition, the proposed Final Judgment is only valid for 10 
years. It is not clear how will competitive environment be ensured at 
the end of this period.
    Along with this, we would like to point out the following. The 
Complaint in question, Competitive Impact Statement, the proposed Final 
Judgment analyzes only one aspect of the anti-competitive 
acquisitions--possibility of action coordination of two competitors--
Seadrift and Conoco companies. Another important aspect of the 
transaction is not touched upon. Before point it out, it is necessary 
to give a brief description of the world petroleum needle coke market.
    World petroleum needle coke market is characterized by several 
features:
    (1) A limited number of producers.
    Only four companies work on the world petroleum needle coke market, 
including Conoco and Seadrift. The number and composition of producers 
did not change for a long time.
    (2) High barriers to entry the market.
    Specificity of petroleum needle coke market stipulates:
     Large capital-construction facility for the production of 
petroleum needle coke, and in case of the existing setup--a significant 
change in the organization of the refinery;
     High quality requirements for raw materials or need to 
prepare raw materials by its desulphurization.
     Use of the closed technologies that require long-term, 
debugging.
     Availability of skills and experience in technical and 
laboratory staff.
     Strict requirements for the quality of the original 
product.
     Limited sales market--only the electrode industry.
    Thus, the market for petroleum needle coke is capital intensive and 
niche, and barriers to entry are high.

[[Page 14993]]

    (3) Lack of substitute products to petroleum needle coke.
    Neither pitch needle coke nor anode coke can neither be mixed with 
the petroleum needle coke, nor less serve as a complete substitute for 
petroleum needle coke. It is fully described in paragraphs 12-14, 
Section IV of the Complaint.
    (4) Low-elasticity of demand for the goods, which means that 
increasing the price for the goods does not entail reducing the demand 
for it, which in turn is caused by the fact that the volume of demand 
exceeds the supply of goods on the market.\2\
---------------------------------------------------------------------------

    \2\ Reducing the price of petroleum needle coke, and 
consequently reducing the volume of its sales in 2009 is not 
indicative, because it is caused by the global financial crisis.
---------------------------------------------------------------------------

    All the above indicates that the world petroleum needle coke market 
is oligopolistic (market of collective dominance), so that each 
participant of the market, including the Seadrift company, occupies a 
dominant position and has a large market weight, regardless of the size 
of its market share.\3\
---------------------------------------------------------------------------

    \3\ The Competitive Impact Statement states that the Seadrift 
world market share is 19%.
---------------------------------------------------------------------------

    This fact in itself is a cause for heightened attention to the 
behavior of each such entity on the market because abuse by such entity 
a dominant position leads to serious negative consequences for 
competition.
    In this situation Seadrift--a company with a dominant market 
position of the petroleum needle coke is acquired by the company, which 
is the world's largest producer of graphite electrode UHP.
    This acquisition creates a situation where the production volume of 
petroleum needle coke and sales policy of this raw material to the 
producers of graphite electrodes is determined by another producer of 
graphite electrodes--their direct competitor. This situation creates a 
wide field for abuse and may lead to a significant deterioration of 
competition not only in the petroleum needle coke, but also in the 
market of graphite electrode UHP.
    Section III of the Competitive Impact Statement states: ``GrafTech 
anticipates substantial, merger-specific efficiencies by internal 
consumption of Seadrift petroleum needle coke, which would allow the 
elimination of double margins. Should this result in lower GrafTech 
prices for graphite electrodes downstream, it likely would incentivize 
other graphite electrodes competitors to reduce prices in response of 
that competition''.
    We do not believe that these conclusions are correct and, on the 
contrary, we would like to indicate the following possible ways to 
abuse by GrafTech and Seadrift companies:
    (1) GrafTech may use the control over the supply of petroleum 
needle coke produced by Seadrift company to reduce the production of 
petroleum needle coke and higher prices for graphite electrodes.
    By limiting the supply of petroleum needle coke GrafTech may 
interfere other producers of graphite electrodes to deliver the 
required amount of graphite electrodes to maintain the same level of 
production in industry.
    (2) Prices for needle coke produced by Seadrift for other customers 
may be raised; so GrafTech may increase its market share at the expense 
of other producers of graphite electrodes because they couldn't provide 
consumers as low price for electrodes as GrafTech did.
    (3) GrafTech may use the methods of unfair competition, forcing 
Seadrift waive or deviate without good reason to conclude contracts 
with particular buyers, to set different prices for coke for different 
customers, to impose needle coke consumers contract terms not 
profitable for them. This creates a situation where market players will 
be in different conditions and products of some may become 
uncompetitive.
    In conclusion, we would like to draw attention to one point.
    The market of petroleum needle coke and graphite electrodes UHP 
market are global and the Russian market is its integral part.
    According to Russian law, if the transaction made outside the 
territory of the Russian Federation may have an impact on the state of 
competition in the Russian Federation it is subject to agreement with 
the Federal Antimonopoly Service of the Russian Federation. To our 
knowledge, Seadrift and GrafTech companies did not receive such 
approval, and therefore violated the laws of the Russian Federation.
    Summarizing up the above said in its Complaint, the United States 
represented by Antitrust Division of the U.S. Department of Justice do 
not cover all the negative effects of the acquisition in question, but 
analyze only one aspect of it. But even in this aspect the measures 
stipulated by the proposed Final Judgment are not adequate and 
sufficient to prevent damage by the competition.
    Public interests are to create maximum favorable conditions for the 
functioning of free market economy with there are separate, independent 
entities. The acquisition of Seadrift by GrafTech is inherently anti-
competitive--GrafTech--the largest consumer of petroleum needle coke 
acquires the largest producer of petroleum needle coke, which forms the 
basis for discrimination of all other customers of this raw material in 
the whole world, which will negatively affect not only producers of 
graphite electrodes, but also producers of electric steel. In this 
connection the proposed Final Judgment by definition does not and can 
not be in the public interest, since the transaction should not be 
performed and approved under any circumstances, and therefore any 
proposed measures do not compensate for the damage which will be caused 
to competition in the petroleum needle coke market as well as and 
graphite electrodes market UHP that will negatively impact the electric 
steel market.
    Based on the foregoing, ENERGOPROM Group requests Antitrust 
Division of the U.S. Department of Justice to withdraw its consent to 
the proposed Final Judgment.
    Attachments:

--Articles of Association of CJSC ``ENERGOPROM MANAGEMENT'';
--Certificate of state registration of CJSC ``ENERGOPROM MANAGEMENT'';
--Decision of the sole shareholder on the appointment of the General 
Director of the company.

    All documents are appostilled and translated into English.
    Contacts: Closed Joint Stock Company <> 
123001, Russia, Moscow, Sadovaya-Kudrinskaya, 32/1, Tel +7 495 789 96 
46, fax +7 495 789 96 47, Web-site: www.energoprom.ru, Contact e-mail: 
nproskurdina@energoprom.ru.

Sincerely yours,

General Director Nadtochy A.

[FR Doc. 2011-6182 Filed 3-17-11; 8:45 am]
BILLING CODE 4410-11-M