United States, 58559-58566 [2013-23199]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 78, Number 185 (Tuesday, September 24, 2013)]
[Notices]
[Pages 58559-58566]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23199]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v.Anheuser-Busch Inbev SA/NV, et al. 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 United States's 
Response to Public Comments on the proposed Final Judgment in United 
States v. Anheuser-Busch InBev SA/NV, et al., Civil Action No. 1:13-cv-
00127-RWR, which was filed in the United States District Court for the 
District of Columbia on September 13, 2013. Copies of the five comments 
received by the United States from the public were also filed with the 
court.
    Copies of the comments and the response are available for 
inspection at the Department of Justice, Antitrust Division, Antitrust 
Documents Group, 450 Fifth Street NW., Suite 1010, Washington, DC 20530 
(telephone: (202) 514-2481), on the Department of Justice's Web site at 
https://www.justice.gov/atr/cases/abimodelo.html, and at the Office of 
the Clerk of the United States District Court for the District of 
Columbia. 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. Anheuser-Busch InBev SA/
NV, et al., Defendants.
Civil Action No. 13-127 (RWR)

Plaintiff United States's Response To Public Comments

    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 files the public comments concerning the proposed 
Final Judgment in this case and the United States's response to those 
comments. After careful consideration of the 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, pursuant to 15 U.S.C. 16(b)-(h), to enter the proposed Final 
Judgment after the United States has posted all public comments and 
this response on the Antitrust Division Web site and published in the 
Federal Register this response and the Web site address at which the 
public comments may be viewed and downloaded, as set forth in the 
Court's order dated August 2, 2013.\1\ (Doc. 42).
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    \1\ Commenter Steven Uhr has submitted 18 exhibits in support of 
his Tunney Act comment. Two of those exhibits are videos for which 
he provided only written internet links. Another two are videos 
which he provided on a DVD and for which he also provided internet 
links. The Tunney Act requires the Department to ``receive and 
consider any written comments relating to the proposal for the 
consent judgment,'' 15 U.S.C 16(d) (emphasis added). However, the 
Department considered the entirety of Mr. Uhr's submission and will 
publish the written links he provided. It has informed Mr. Uhr that 
it does not intend to post the videos themselves on the Department's 
public Web site, and publication in the Federal Register would be 
impossible.

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[[Page 58560]]

I. Procedural History

    On January 31, 2013, the United States filed a Complaint in this 
matter, alleging that Defendant Anheuser-Busch InBev SA/NV's (``ABI'') 
proposed purchase of the remaining equity interest in Defendant Grupo 
Modelo, S.A.B. de C.V. (``Modelo'') would lessen competition 
substantially for the sale of beer in the United States and 
specifically in 26 local markets in violation of Section 7 of the 
Clayton Act, 15 U.S.C. 18.
    On April 19, 2013, the United States filed a Competitive Impact 
Statement (``CIS''), a proposed Final Judgment, and a Stipulation and 
Order signed by the parties consenting to entry of the proposed Final 
Judgment after compliance with the requirements of the APPA. Under the 
terms of the Stipulation and Order, Constellation Brands, Inc. 
(``Constellation'') was added as a Defendant for purposes of 
settlement. Pursuant to the requirements of the APPA, the United States 
published the proposed Final Judgment and CIS in the Federal Register 
on May 22, 2013, see 78 FR 30399-30660, and had 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, published in The Washington Post for seven days beginning on 
April 28, 2013, and ending on May 4, 2013. The Defendants filed the 
statement required by 15 U.S.C. 16(g) on May 3, 2013. The 60-day period 
for public comments ended on July 22, 2013. The United States received 
five comments, as described below and attached hereto.

II. The Investigation and the Proposed Resolution

A. Investigation
    As of June 28, 2012, ABI held a 35.3% direct interest in Modelo, 
and a 23.3% direct interest in Modelo's operating subsidiary Diblo S.A. 
de C.V. That ownership interest gave ABI certain minority voting rights 
and the right to appoint nine members of Modelo's 19-member Board of 
Directors. On June 28, 2012, ABI agreed to purchase the remaining 
equity interest from Modelo's owners, thereby obtaining full ownership 
and control of Modelo, for approximately $20.1 billion (the ``ABI/
Modelo transaction''). At the time, Defendants ABI and Modelo also 
proposed to sell Modelo's stake in Crown Imports, LLC (``Crown'') to 
Constellation. Crown was the joint venture established by Modelo and 
Constellation to import, market, and sell certain Modelo beers into the 
United States. In an attempt to address harm to competition that the 
ABI/Modelo transaction likely would cause, ABI also proposed to enter 
into a ten-year supply agreement to provide Constellation with Modelo 
beer to import into the United States.
    The Antitrust Division of the United States Department of Justice 
(``Department'') investigated the likely effect of the ABI/Modelo 
transaction and the vertical ``fix'' proposed by the parties. As part 
of its investigation, the Department conducted dozens of interviews 
with the parties' distributor customers, beer brewer competitors, and 
other interested third parties. The Department obtained testimony from 
the Defendants' officers and employees and required the Defendants to 
respond to interrogatories and produce large quantities of documents. 
The Department carefully analyzed the information obtained and 
thoroughly considered all of the relevant issues.
    As a result of the investigation, the Department filed a Complaint 
on January 31, 2013, alleging that ABI's acquisition of the remainder 
of Modelo likely would substantially lessen competition for the sale of 
beer in the United States market as a whole and specifically in 26 
local markets in violation of Section 7 of Clayton Act, 15 U.S.C. 18. 
This loss of competition would likely result in higher beer prices and 
less innovation. Defendants' proposed sale of Modelo's interest in 
Crown and ten-year supply agreement would not have alleviated the 
potential harm to competition that the proposed ABI/Modelo transaction 
created: it did not create an independent, fully-integrated brewer with 
permanent control of Modelo brand beer in the United States. On April 
19, 2013, the Department filed a proposed Final Judgment that, if 
entered by the Court, would resolve the litigation by remedying the 
violation alleged in the Complaint.
B. The Proposed Final Judgment
    The proposed Final Judgment is designed to preserve competition in 
the United States and 26 local beer markets. As explained more fully in 
the CIS, the beer industry in the United States is highly concentrated 
and would become more so if ABI acquired all of the remaining Modelo 
assets, as the ABI/Modelo transaction originally proposed.
    The Department determined through its investigation that large 
brewers engage in significant levels of tacit coordination, and that 
coordination has reduced competition and increased prices. In most 
regions of the United States, ABI and MillerCoors LLC, the second 
largest beer brewer in the United States, do not substantially 
constrain each other's annual price increases. The third largest 
brewer, Modelo, had increasingly constrained ABI's and MillerCoors's 
ability to raise prices. Therefore, ABI's acquisition of Modelo, as 
originally proposed, likely would have led to higher beer prices in the 
United States by eliminating a competitor that resisted coordinated 
price increases initiated by the market share leader, ABI.
    Further, competition from Modelo had spurred significant product 
innovation and price concessions from ABI. The merger of the two firms, 
as originally proposed, likely would have reduced ABI's incentive to 
innovate, bring new products to market, make price concessions, and 
otherwise invest in attracting consumers away from the unique Modelo 
brands.
    The proposed Final Judgment will accomplish the complete 
divestiture of Modelo's U.S. business to Constellation.\2\ This 
structural fix will maintain Modelo Brand Beers \3\ as independent 
competitors to ABI's flagship brands in the United States. 
Specifically, the proposed Final Judgment required ABI and Modelo \4\ 
to divest and/or license to Constellation certain tangible and 
intangible assets, including: a perpetual and exclusive license to ten 
Modelo Brand Beers, including Corona Extra, this country's bestselling 
imported beer and fifth-bestselling brand overall; Modelo's newest, 
most technologically advanced brewery (the ``Piedras Negras Brewery''), 
which is located in Mexico near the Texas border, and the assets and 
companies associated with it; Modelo's limited liability membership 
interest in Crown; and other assets, rights, and interests necessary to 
ensure that Constellation is able to compete in the beer market in the 
United States using the Modelo Brand Beers, independent of a 
relationship with ABI.
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    \2\ The proposed Final Judgment required ABI, if the divestiture 
to Constellation failed to close, to divest Modelo's U.S. business 
to another acquirer capable of replacing the competition that Modelo 
brought to the United States market. But the divestiture to 
Constellation closed on June 7, 2013. Accordingly, this response 
refers only to Constellation, not to another potential acquirer.
    \3\ Capitalized terms not defined in this response are defined 
in the proposed Final Judgment.
    \4\ On June 4, 2013, ABI completed its acquisition of Modelo. 
Accordingly, this response refers to ABI's and Modelo's obligations 
under the proposed Final Judgment as ABI's obligations.
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    To guarantee that Constellation will be able to supply Modelo Brand 
Beer to the United States market independent of ABI, Section V.A of the 
proposed Final Judgment requires Constellation to

[[Page 58561]]

expand the Piedras Negras Brewery to be able to produce 20 million 
hectoliters of packaged beer annually by December 31, 2016. Such 
expansion will allow Constellation to produce, independently from ABI, 
enough Modelo Brand Beer to replicate Modelo's competitive role in the 
United States. This expansion assures Constellation's future 
independence as a self-supplied brewer and seller in the United States 
beer market.
    Sections IV.G-I of the proposed Final Judgment also require ABI and 
Constellation to enter into transition services and interim supply 
agreements. The Transition Services Agreement (Section IV.G) requires 
ABI to provide consulting services with respect to topics such as the 
management of the Piedras Negras Brewery, logistics, material resource 
planning, and other general administrative services that Modelo had 
provided to the Piedras Negras Brewery. It also requires ABI to supply 
certain key inputs (such as aluminum cans, glass, malt, yeast, and corn 
starch) to Constellation for a limited time. The Interim Supply 
Agreement (Section IV.H-I) requires ABI to supply Constellation with 
sufficient Modelo Brand Beer each year to make up for any difference 
between the demand for such beers in the United States and the Piedras 
Negras Brewery's capacity to fulfill that demand. The transition 
services and interim supply agreements are necessary to allow 
Constellation to continue to compete in the United States during the 
time it takes to expand the Piedras Negras Brewery's capacity to brew 
and bottle beer, but are time-limited to assure that Constellation will 
become a fully independent competitor to ABI as soon as practicable.
    The proposed Final Judgment imposes two requirements on ABI 
regarding its distribution network that are designed to limit ABI's 
ability to interfere with Constellation's effective distribution of 
Modelo Brand Beer. First, Section V.C of the proposed Final Judgment 
provides that, for ABI's majority-owned distributors (``ABI-Owned 
Distributors'') that distribute Modelo Brand Beer, Constellation will 
have a window of opportunity to terminate that distribution 
relationship and direct the ABI-Owned Distributor to sell the 
distribution rights to another distributor. Similarly, should ABI 
subsequently acquire any distributors that have contractual rights to 
distribute Modelo Brand Beer, Constellation may require ABI to sell 
those rights. Second, Section V.B of the proposed Final Judgment 
prevents ABI for 36 months from downgrading a distributor's ranking in 
any ABI distributor incentive program by virtue of the distributor's 
decision to carry Modelo Brand Beer. The 36-month time period tracks 
the initial term of the transition service and interim supply 
agreements, and thus allows Constellation to maintain a status quo 
position for the Modelo Brand Beer in ABI's distribution incentive 
programs until Constellation can operate independently of ABI.
    Finally, Section XIII of the proposed Final Judgment requires ABI 
to implement firewall procedures to prevent Constellation's 
confidential business information from being used within ABI for any 
purpose that could harm competition or provide an unfair competitive 
advantage to ABI based on its role as a temporary supplier to 
Constellation under either the transition services or interim supply 
agreements.

III. 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)(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. 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 (D.C. Cir. 1995); see also United 
States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) 
(assessing public-interest standard under the Tunney Act); United 
States v. InBev N.V./S.A., 2009-2 Trade Cas. (CCH) ] 76,736, 2009 U.S. 
Dist. LEXIS 84787, No. 08-1965 (JR), at *3 (D.D.C. 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 
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 United States'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; InBev, 2009 U.S. Dist. LEXIS 84787, at *3; United States v. 
Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001). 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).\5\ 
In determining whether a proposed settlement is in the public interest, 
a district 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

[[Page 58562]]

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.D.C. 2003) 
(noting that the court should grant due respect to the United States's 
``prediction as to the effect of proposed remedies, its perception of 
the market structure, and its views of the nature of the case'').
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    \5\ 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''').
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    As courts have noted, ``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.D.C. 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). To meet this standard, 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.
    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, and does not authorize the court to 
``construct [its] own hypothetical case and then evaluate the decree 
against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009 
U.S. Dist. LEXIS 84787, at *20 (``the `public interest' is not to be 
measured by comparing the violations alleged in the complaint against 
those the court believes could have, or even should have, been 
alleged''). 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. Microsoft, 56 F.3d at 1459-60. 
As the United States District Court for the District of Columbia 
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,\6\ 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. 16(e)(2). This language effectuates 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.\7\
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    \6\ 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. 
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).
    \7\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 
(D.D.C. 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 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.'').
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IV. Summary of Public Comments and the United States's Response

    During the 60-day public comment period, the United States received 
comments from the following individuals and entities:
     Steven Uhr, a Minnesota resident;
     Joseph M. Alioto, an attorney practicing in California who 
represents a group of private plaintiffs challenging the ABI/Modelo 
transaction;
     National Beer Wholesalers Association, a trade association 
representing more than 3,300 licensed, independent U.S. beer 
distributors;
     Food & Water Watch, a non-profit consumer advocacy 
organization; and
     Alcohol Justice, a self-described alcohol ``industry 
watchdog.''
    This section summarizes the issues raised by the commenters and 
provides the United States's responses to those issues. Part A 
addresses issues raised by more than one commenter; Part B addresses 
issues raised by individual commenters.
A. Response to Issues Raised by Multiple Commenters
1. Comments Concerning the Effectiveness of Constellation as a 
Competitor
a. Summary of Comments
    Two commenters argue that Constellation will not be an effective 
competitor. Commenter Food & Water Watch argues that it ``has little 
confidence'' that requiring ABI to grant a perpetual license to Modelo 
Brand Beer and divest the Piedras Negras Brewery and Modelo's interest 
in Crown to Constellation will maintain Modelo's role as a price 
competitor with ABI and MillerCoors LLC. Food & Water Watch Comment at 
1. Specifically, Food & Water Watch argues that Constellation lacks 
experience in the brewery industry and will depend on ABI for essential 
inputs and 40 percent of its beer production until Constellation 
expands the Piedras Negras Brewery, and that Constellation likely will 
not be a dynamic price competitor because it is a ``novice market 
entrant'' that ``depends on the benevolence'' of ABI. Id. at 2. 
Similarly, commenter Joseph M. Alioto argues that Constellation will 
source its total supply of beer products from ABI, and that ``it is 
na[iuml]ve to believe that Crown will not be controlled by ABI'' 
because ``Constellation has neither the experience, the money nor the 
will to compete vigorously against ABI.'' Alioto Comment at 2.
b. Response: The Proposed Final Judgment and Constellation's Experience 
and Assets Will Enable Constellation to Compete Effectively
    As described in section II.B of this response and in the CIS, the 
proposed Final Judgment contains multiple provisions that will enable 
Constellation to compete effectively with Modelo Brand Beer in the 
United States. Most significantly, the proposed Final Judgment required 
ABI to divest Modelo's entire U.S. business. Furthermore, the proposed 
Final Judgment has provided Constellation with Modelo's newest and most 
advanced brewery, the Piedras Negras Brewery. With the required 
expansion of this facility, Constellation will

[[Page 58563]]

become a fully independent and self-supplied beer brewer.
    The proposed Final Judgment also gives Constellation the incentive 
and ability to price Modelo Brand Beer independently of ABI. Prior to 
acquiring Modelo's U.S. business, Constellation, through its 50-percent 
interest in Crown, shared with Modelo the responsibility for importing, 
marketing, and selling Modelo-brand beers in the United States. The 
divestiture of Modelo's U.S. business has given Constellation full and 
permanent control of Modelo Brand Beer in the United States and made 
Constellation an independent beer brewer. These changes give 
Constellation an incentive to resist following ABI's price leadership 
in order to expand Constellation's market share.
    Before approving Constellation as the purchaser of Modelo's U.S. 
beer business, the Department conducted an extensive two-month 
investigation into the proposed transaction and Constellation's 
suitability as the buyer. As part of this investigation, the Department 
considered Constellation's financial resources and business plans to 
ensure that Constellation will maintain Modelo's U.S. beer business as 
a long-term independent competitive force in the U.S. beer market. The 
Department carefully reviewed the proposed transactional and 
transitional agreements between ABI and Constellation, which agreements 
have been incorporated into the proposed Final Judgment,\8\ and 
interviewed representatives of the Defendants to ensure that 
Constellation would receive what it needed to be an effective 
competitor with Modelo Brand Beer in the United States.
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    \8\ Section IV.G of the proposed Final Judgment requires the 
Department to approve any amendments or modifications to the 
agreements incorporated into the proposed Final Judgment. The 
proposed Final Judgment subjects these agreements, including any 
extensions, to monitoring by a Monitoring Trustee, whose appointment 
by the Department was approved by the Court on June 24, 2013. (Doc. 
40).
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    Furthermore, the proposed Final Judgment ensures that Constellation 
will have a reliable source of beer supply that does not depend on 
ABI's ``benevolence'' and that is not subject to ABI's control. The 
proposed Final Judgment has already resulted in Constellation's owning 
the Piedras Negras Brewery, which produces 60 percent of Modelo Brand 
Beer's U.S. sales. Furthermore, while Constellation expands the Piedras 
Negras Brewery, the proposed Final Judgment requires ABI to meet 
Constellation's remaining beer demands on pre-established terms that 
ABI may not change. These agreements are time-limited, however, to 
assure that Constellation will become a fully independent brewer as 
soon as practicable.\9\
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    \9\ ABI and Constellation have informed the Department that 
Constellation already has ceased purchasing certain transitional 
services from ABI under the Transitional Services Agreement.
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    The proposed Final Judgment also seeks to minimize the potential 
competitive risks of Constellation's interactions with ABI by including 
time limits on the expansion of the Piedras Negras Brewery (Section V) 
and by requiring ABI to implement firewall procedures to prevent 
Constellation's confidential business information from being used 
within ABI for any purpose that could harm competition or provide an 
unfair competitive advantage to ABI (Section XIII).
    Finally, the proposed Final Judgment provides Constellation with 
the assets necessary to be a successful beer brewer. In addition to 
acquiring the Piedras Negras Brewery, Constellation has acquired 
Servicios Modelo de Coahuila, S.A. de C.V. (``Servicios Modelo''), a 
Modelo entity that employed Piedras Negras Brewery employees. 
Constellation's counsel has informed the Department that all 
individuals employed by Servicios Modelo on the closing date of the 
ABI/Constellation transaction remain Constellation employees as of the 
filing of this response. Together with the transition services provided 
by ABI and monitored by the Monitoring Trustee, these employees provide 
Constellation with the specific knowledge necessary to operate the 
Piedras Negras Brewery.
    In addition, from 1993 to 2002, Constellation owned and operated a 
beer brewery in Stevens Point, Wisconsin.\10\ While it owned the 
brewery, Constellation expanded brewing and warehousing capacity, added 
new beer products to its portfolio, and acted as a contract brewer for 
third parties.\11\ Thus, Constellation has experience owning and 
expanding a brewery in the U.S. beer market, and creating innovative 
beer products. Constellation additionally has significant experience in 
the production of alcoholic beverages through its past and present 
ownership of cider breweries, wineries, and spirits distilleries around 
the world.\12\
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    \10\ See Constellation Brands, Inc., Annual Report (Form 10-K) 
at 15 (Nov. 29, 1994) (Barton acquired the Stevens Point Brewery in 
September 1992); Constellation Brands, Inc., Annual Report (Form 10-
K) at 47 (May 21, 2002) (Constellation sold the Stevens Point 
Brewery in March 2002).
    \11\ See Constellation Brands, Inc., Annual Report (Form 10-K) 
at 16 (May 29, 1997) (at the Stevens Point Brewery, Constellation 
brews and packages beer on a contract basis for third parties); Eric 
Decker, Point Beverage sale part of brand strategy, BizTimes.com 
(Mar. 15, 2002), https://www.biztimes.com/article/20020315/MAGAZINE03/303159984/0/SEARCH (describing introduction of Point 
Classic Amber in 1994, Point Pale Ale in 1995, a Maple Wheat brew in 
1996, and a light beer in 1997); Stevens Point Brewery, https://www.pointbeer.com/history/ (describing 40 percent expansion of 
Steven Point Brewery in 1994 and construction of a 15,000 square 
foot warehouse for finished goods in 1997).
    \12\ According to its 2013 Annual Report, Constellation operates 
18 wineries in the United States, nine in Canada, four in New 
Zealand, and five in Italy. It also operates a whisky distillery in 
Canada. See Constellation Brands, Inc., Annual Report (Form 10-K) at 
6 (Apr. 29, 2013). According to earlier SE.C. filings, Constellation 
previously owned and operated the second-largest cider brewery in 
the United Kingdom. See Constellation Brands, Inc., Annual Report 
(Form 10-K) at 5 (Apr. 29, 2009). Constellation sold its U.K. cider 
business in January 2010. See Constellation Brands, Inc., Annual 
Report (Form 10-K) at 2 (Apr. 29, 2010).
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2. Arguments Concerning ABI's Market Power
a. Summary of Comments
    Two commenters argue that the proposed Final Judgment does not 
adequately address ABI's market power in the beer industry. Commenter 
Food & Water Watch argues that the proposed settlement is inadequate to 
``address the increased and overwhelming market power'' of ABI and ``to 
prevent the growing consolidation and increased market power inside the 
supermarket.'' Similarly, Commenter Alcohol Justice argues that the 
proposed settlement increases ABI's market share and profits in the 
United States, thus increasing ABI's political and marketing influence 
in the United States.
b. Response: The Proposed Final Judgment Prevents ABI From Obtaining 
Additional Market Power in the United States
    The proposed Final Judgment requires ABI to divest Modelo's entire 
U.S. beer business, which ABI did on June 7, 2013. Accordingly, the 
proposed Final Judgment prevents ABI from obtaining any additional 
market power or market share in the United States, and prevents the 
U.S. beer market from becoming further consolidated, as a result of the 
ABI/Modelo transaction.
B. Responses to Comments Made by Individual Commenters
1. Comments from Joseph M. Alioto
a. Summary of Comments
    Commenter Joseph M. Alioto argues that the Court should reject the 
proposed Final Judgment because it embodies a ``sham,'' and that the 
effect of the ABI/Modelo transaction ``will be the very same as what it 
would have been'' absent the remedies contained therein. Specifically, 
Mr. Alioto argues

[[Page 58564]]

that the proposed Final Judgment ``is not sufficient to prevent 
Constellation from opening the floodgates and allowing ABI to collect 
profits that it would not otherwise receive because of the former 
competition on Crown.'' Alioto Comment at 2.
b. Response: The Proposed Final Judgment Is Not a Sham But Rather 
Requires ABI to Divest Modelo's Entire U.S. Beer Business
    The proposed Final Judgment is not a sham because it creates an 
independent competitor to ABI. Constellation has paid approximately 
$4.75 billion to purchase Modelo's entire U.S. beer business, and it 
has announced plans to invest an additional $500-$600 million during 
the next three years to expand the Piedras Negras Brewery.\13\ Pursuant 
to the proposed Final Judgment, Constellation will become an 
independent and economically viable brewer that replaces Modelo as a 
competitor in the United States.
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    \13\ See June 7, 2013, Constellation press release, available at 
https://www.cbrands.com/news-media/constellation-brands-completes-acquisition-grupo-modelos-us-beer-business.
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    ABI's divestiture to Constellation of the Piedras Negras Brewery, 
Modelo's interest in Crown, and the perpetual brand licenses required 
by the proposed Final Judgment, have vested in Constellation the 
brewing capacity, assets, and other rights needed to produce, market, 
and sell Modelo Brand Beer in a manner similar to that of Modelo before 
ABI acquired Modelo.
2. Comments from Food & Water Watch
a. Comments Regarding Markets Outside of the United States
    Commenter Food & Water Watch argues that the proposed settlement 
should be rejected because it does not prevent ABI from acquiring 
Modelo's business outside of the United States. Food & Water Watch 
argues that the proposed settlement effectively gives ABI greater 
control over the world's beer markets, especially the Latin American 
marketplace, and ensures that ABI ``keeps the Modelo brands outside of 
the U.S. market.''
b. Response: The Harms Alleged in the Complaint Do Not Justify Food & 
Water Watch's Desired Remedies Outside of the United States
    Food & Water Watch's desire for remedies outside of the United 
States is not a valid basis for the Court to reject a proposed remedy 
during a Tunney Act review. As discussed above, in a Tunney Act 
proceeding, the task before the court ``is to compare the complaint 
filed by the United States with the proposed consent decree and 
determine whether the proposed decree clearly and effectively addresses 
the anticompetitive harms initially identified.'' United States v. 
Thomson Corp., 949 F. Supp. 907, 913 (D.D.C. 1996); accord Microsoft, 
56 F.3d at 1459 (in APPA proceeding, ``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''); BNS, 858 F.2d 
at 462-63 (``the APPA does not authorize a district court to base its 
public interest determination on antitrust concerns in markets other 
than those alleged in the government's complaint.'') This Court has 
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); see also InBev, 2009 U.S. 
Dist. LEXIS 84787, at *20 (``the `public interest' is not to be 
measured by comparing the violations alleged in the complaint against 
those the court believes could have, or even should have, been 
alleged'').
    In this case, the Department did not allege that ABI's acquisition 
of the remainder of Modelo would result in anticompetitive harm outside 
of the United States. Absent such allegation, there is no justification 
for a remedy relating to non-U.S. beer markets. Furthermore, if the 
ABI-Modelo transaction were to result in anticompetitive harm outside 
of the United States, it would be up to the competition authority in 
the relevant jurisdiction--not the Department--to remedy such harm.
c. Comments Regarding Distribution and Retail Issues
    Commenter Food & Water Watch also argues that the proposed 
settlement should be rejected because (1) it ``does nothing to 
constrain the collusive vertical control'' that ABI exerts through its 
beer distribution networks, and (2) ABI prevents new market entrants 
from obtaining retail space and constrains consumer choice.
d. Response: Additional Remedies Concerning Distribution and Retail 
Issues Are Not Justified Based on the Harms Alleged in the Complaint
    The Department alleged in the Complaint that the proposed ABI/
Modelo transaction would likely substantially lessen competition in the 
relevant markets, in violation of Section 7 of the Clayton Act, 15 
U.S.C. 18, and that it would have the following anticompetitive 
effects:
    (a) eliminate Modelo as a substantial, independent, and 
competitive force in the relevant markets;
    (b) raise beer prices to levels above those that would prevail 
absent the transaction;
    (c) lower quality and innovation to less than levels that would 
prevail absent the transaction;
    (d) promote and facilitate pricing coordination in the relevant 
markets; and
    (e) provide ABI with a greater incentive and ability to increase 
its pricing unilaterally.

    See Complaint ]86.
    As described in Section II.B above, the proposed Final Judgment 
requires ABI to divest Modelo's entire U.S. business. ABI must divest 
and/or license to Constellation tangible and intangible assets, 
including: a perpetual and exclusive license to ten Modelo Brand Beers, 
the Piedras Negras Brewery and the assets and companies associated with 
it; Modelo's limited liability membership interest in Crown; and other 
assets, rights, and interests necessary to ensure that Constellation is 
able to compete in the beer market in the United States using the 
Modelo Brand Beers, independent of a relationship with ABI. The 
proposed Final Judgment thus eliminates the anticompetitive effects of 
the ABI/Modelo transaction and positions Constellation to compete 
vigorously as a brewer of beer sold in the United States.
    In addition, Sections V.B and V.C of the proposed Final Judgment 
limit ABI's ability to interfere with Constellation's distribution of 
Modelo Brand Beer to improve Constellation's ability to compete with 
ABI and other brewers. Section V.C provides that, for ABI-Owned 
Distributors that distribute Modelo Brand Beer, Constellation will have 
a window of opportunity to terminate that distribution relationship and 
direct the ABI-Owned Distributor to sell the distribution rights to 
another distributor. Similarly, should ABI subsequently acquire any 
distributors that have contractual rights to distribute Modelo Brand 
Beer, Constellation may require ABI to sell those rights. Section V.B 
of the proposed Final Judgment prevents ABI for 36 months from 
downgrading a distributor's ranking in any ABI distributor incentive 
program by virtue of the distributor's decision to carry Modelo Brand 
Beer. The 36-month time period allows Constellation to maintain a 
status quo position for the Modelo Brand Beer in ABI's distribution 
incentive programs until Constellation can operate independently of 
ABI.
    Commenter Food & Water Watch's desire for additional remedies 
relating to beer distribution and retail sales is

[[Page 58565]]

not a valid basis for rejecting the proposed Final Judgment because 
those additional remedies are not needed to remedy the antitrust 
violations alleged in the Complaint. Rather, the proposed Final 
Judgment is in the public interest because it is properly designed to 
eliminate the anticompetitive effects alleged in the Complaint. As 
discussed in Section III of this response, the government is entitled 
to ``broad discretion to settle with the defendant within the reaches 
of the public interest.'' Microsoft, 56 F.3d 1448, 1461 (D.C. Cir. 
1995); see also SBC Commc'ns, 489 F. Supp. 2d 1 (D.D.C. 2007) 
(assessing public-interest standard under the Tunney Act); InBev, 2009-
2 Trade Cas. (CCH) ] 76,736, 2009 U.S. Dist. LEXIS 84787, No. 08-1965 
(JR), at *3 (D.D.C. 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.'').
    In short, the additional remedies Food & Water Watch proposes 
concerning distribution and allocation of retail shelf space are not 
needed to remedy the violations alleged in the Complaint, and thus are 
not needed to preserve the public interest. The Department has 
determined that the remedies in the proposed Final Judgment are 
sufficient to allow Constellation to be an effective competitor and 
maintain competition in the U.S. beer market and the local markets 
alleged in the Complaint.
3. Comments from Steven Uhr
a. Summary of Comments
    Commenter Steven Uhr argues that ``there is an ongoing conspiracy 
to fix retail alcohol prices in scores of communities in North America 
and elsewhere,'' in which ABI and its beer distributors are ``active 
conspirators.'' Uhr Comment at 1. Mr. Uhr argues that the proposed 
Final Judgment is contrary to the interest of U.S. beer consumers 
because allowing ABI to acquire Modelo's beer business outside of the 
United States enhances the conspiracy's efficiency by substantially 
increasing concentration in the world beer market. Id. at 3. Finally, 
Mr. Uhr states that the impartiality of the Department is in 
question,\14\ and urges the Court to ``carefully scrutinize the 
[Department's] claims that the [U.S. beer] market presently is 
competitive, the proposed fix is in the public interest, and further 
litigation is a waste of resources.'' Id. In essence, Mr. Uhr asserts 
that the Department should have pleaded and remedied anticompetitive 
effects related to an alleged worldwide alcohol price-fixing 
conspiracy.
---------------------------------------------------------------------------

    \14\ The Department disagrees with Mr. Uhr's assertion that the 
Department ``contends that unambiguous per se price fixing 
agreements'' ``raise no antitrust issues.'' See Uhr Comment at 3.
---------------------------------------------------------------------------

b. Response: The Harms Alleged in the Complaint Do Not Justify Mr. 
Uhr's Desired Remedies Outside of the United States
    Mr. Uhr's assertion that the Department should have alleged a 
worldwide alcohol price-fixing conspiracy concerns matters that are 
outside the scope of this APPA proceeding because the harm that he 
claims--making the conspiracy more efficient--does not relate to the 
harms alleged in the Department's Complaint. Because the United States 
did not allege the existence of a worldwide alcohol price-fixing 
conspiracy, the Court need not and should not examine the effect of the 
proposed Final Judgment on such an alleged conspiracy. Moreover, the 
Department does not have evidence of a world-wide conspiracy to fix 
alcohol prices. If the Department had evidence that such a conspiracy 
existed and affected consumers in the United States, it would take 
appropriate action.
4. Comments from Alcohol Justice
a. Comment Concerning Lower Beer Prices
    Commenter Alcohol Justice acknowledges that the proposed Final 
Judgment is ``intended to protect consumers by maintaining 
competitiveness in the U.S. beer market and ensuring lower prices,'' 
but argues that low beer prices are ``contrary to the public interest'' 
because beer is a drug that is widely used and commonly abused. Alcohol 
Justice Comment at 1. Alcohol Justice argues that a ``deal to keep beer 
prices low may address anti-competitive concerns, but will likely make 
excessive consumption and related harm even worse.'' Id.
b. Response: The Effect of Lower Beer Prices on Beer Consumption Is Not 
A Valid Basis For Rejecting the Proposed Final Judgment
    Alcohol Justice's argument against lower beer prices is not a valid 
basis for rejecting the proposed Final Judgment. The Tunney Act 
requires the Court to evaluate the effect of the proposed Final 
Judgment ``upon competition'' as alleged in the Complaint. Alcohol 
Justice's argument does not criticize the efficacy of the relief 
contained in the proposed Final Judgment to remedy the competitive harm 
alleged in the Complaint. Accordingly, Alcohol Justice's comment does 
not provide an appropriate rationale for rejecting the proposed Final 
Judgment.
c. Comment Concerning the Distribution Tier
    Commenter Alcohol Justice also argues that ``the divestiture of the 
Piedras Negras brewery and Crown Imports eliminates Modelo and 
concentrates the distribution of Modelo brands solely in the hands of'' 
Constellation, that the proposed Final Judgment ``requires'' the 
elimination of the distribution tier, and that under the proposed Final 
Judgment, ``Constellation will produce and distribute Modelo brands.'' 
Alcohol Justice Comment at 2.
d. Response: The Proposed Final Judgment Does Not Eliminate the Beer 
Distribution Tier in the United States
    Contrary to Alcohol Justice's assertions, the proposed Final 
Judgment does not eliminate the beer distribution tier in the United 
States, and Constellation will not distribute Modelo Brand Beer 
directly to retailers. Constellation will sell Modelo Brand Beer to 
distributors in the U.S. beer market just as Crown, Constellation's 
prior joint venture with Modelo, sold Modelo brands of beer to U.S. 
distributors pre-divestiture.
5. National Beer Wholesalers Association's Request for Clarification
a. Summary of Request
    Commenter National Beer Wholesalers Association has requested 
clarification that the 60-day notification requirements of Section 
XII.A of the proposed Final Judgment apply when ABI acquires, directly 
or indirectly, a beer distributor (1) that is licensed to distribute a 
non-ABI beer brand from a brewer, importer, or brand owner--other than 
ABI--that derives more than $7.5 million in annual gross revenue from 
beer sales in the United States, and (2) whose license to distribute 
the non-ABI beer brand generates at least $3 million in actual gross 
revenue in the United States.
b. Response: The Notice Provision Contained in Section XII.A of the 
Proposed Final Judgment Applies to Certain Acquisitions by ABI of Beer 
Distributors
    The Department confirms Commenter National Beer Wholesalers 
Association's reading of Section XII.A, which is clear when Section 
XII.A is read in conjunction with the defined terms Covered Interest 
and Covered Entity.

[[Page 58566]]

Section XII.A of the proposed Final Judgment states:

    Unless such transaction is otherwise subject to the reporting 
and waiting period requirements of the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976, as amended, 15 U.S.C. 18a (the ``HSR 
Act''), ABI, without providing at least sixty (60) calendar days 
advance notification to the United States, shall not directly or 
indirectly acquire or license a Covered Interest in or from a 
Covered Entity; provided, however, that advance notification shall 
not be required for acquisitions of the type addressed in 16 CFR 
802.1 and 802.9.

    As defined in Section II.I of the proposed Final Judgment, a 
Covered Interest ``means any non-ABI Beer brewing assets or any non-ABI 
Beer brand assets of, or any interest in (including any financial, 
security, loan, equity, intellectual property, or management interest), 
a Covered Entity; except that a Covered Interest shall not include (i) 
a Beer brewery or Beer brand located outside the United States that 
does not generate at least $7.5 million in annual gross revenue from 
Beer sold for resale in the United States; or (ii) a license to 
distribute a non-ABI Beer brand where said distribution license does 
not generate at least $3 million in annual gross revenue in the United 
States.'' As defined in Section II.H of the proposed Final Judgment, a 
Covered Entity ``means any Beer brewer, importer, or brand owner (other 
than ABI) that derives more than $7.5 million in annual gross revenue 
from Beer sold for further resale in the United States, or from license 
fees generated by such Beer sales.''
    Accordingly, if by acquiring a beer distributor, (1) ABI were to 
acquire a license to distribute a non-ABI beer brand from a brewer, 
importer, or brand owner that derives more than $7.5 million in annual 
gross revenue from beer sales (sold for further resale) in the United 
States, and (2) the license to distribute the non-ABI beer brand 
generates at least $3 million in actual gross revenue in the United 
States, ABI will have acquired a Covered Interest in a Covered Entity, 
thus triggering the notice provisions of Section XII.
    The Department notes that Commenter National Beer Wholesalers 
Association has requested that the Department provide its requested 
clarification in this response to public comments and has not requested 
that the proposed Final Judgment be modified in any respect. The 
Department agrees that modification of the proposed Final Judgment is 
unnecessary.

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 
it has posted all public comments and this response on the Antitrust 
Division Web site and published in the Federal Register this response 
and the Web site address at which the public comments will be posted.

    Dated: September 13, 2013

Respectfully submitted,
/s/Michelle R. Seltzer
Michelle R. Seltzer (D.C. Bar No. 475482), U.S. Department of 
Justice, Antitrust Division, Litigation I Section, 450 Fifth Street, 
NW., Suite 4100, Washington, DC 20530, Telephone: (202) 353-3865, 
Facsimile: (202) 307-5802, Email: michelle.seltzer@usdoj.gov

Certificate of Service

    I, Michelle R. Seltzer, hereby certify that on September 13, 2013, 
I caused a copy of Plaintiff United States's Response to Public 
Comments to be filed and served upon all counsel of record by operation 
of the CM/ECF system for the United States District Court for the 
District of Columbia. Additionally, a copy of the foregoing was 
delivered via email to the duly authorized legal representatives of the 
defendants, as follows:
Counsel for Defendant Anheuser-Busch InBev SA/NV and Grupo Modelo, 
S.A.B. de C.V.:

Steven C. Sunshine, Esq.,
Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue NW., 
Washington, DC 20005, Telephone: 202-371-7860, Fax: 202-661-0560, 
Email: steve.sunshine@skadden.com.
Counsel for Defendant Constellation Brands, Inc.:

Raymond A. Jacobsen, Jr., Esq.,
McDermott Will & Emery, The McDermott Building, 500 North Capitol 
Street, NW., Washington, DC 20001, Telephone: 202-756-8028, Fax: 202-
756-8087, Email: rayjacobsen@mwe.com.

/s/Michelle R. Seltzer
Michelle R. Seltzer (D.C. Bar No. 475482), U.S. Department of 
Justice, Antitrust Division, Litigation I Section, 450 Fifth Street, 
NW., Suite 4100, Washington, DC 20530, Telephone: (202) 353-3865, 
Facsimile: (202) 307-5802, Email: michelle.seltzer@usdoj.gov.
[FR Doc. 2013-23199 Filed 9-23-13; 8:45 am]
BILLING CODE 4410-11-P