Fed. Trade Comm'n v. Wilh. Wilhelmsen Holding Asa (341 F. Supp. 3d 27, 2018)

Tanya S. Chutkan, District Judge

The Federal Trade Commission ("FTC") has moved for a preliminary injunction to block a proposed merger between defendants Wilhelmsen Maritime Services AS ("WMS"), Wilhelmsen Ship Services ("WSS") (collectively "Wilhelmsen"), and The Resolute Fund II, L.P., Drew Marine Intermediate II B.V., and Drew Marine Group, Inc. (collectively "Drew"), two large providers of marine water treatment chemicals and related services. The FTC objects to the merger on the grounds that Defendants are each other's closest and only realistic competition for supplying these chemicals and services on a global scale, and the merger threatens to reduce or eliminate tangible consumer benefits resulting from market competition. Having considered the evidence presented through live testimony, as well as extensive pleadings, exhibits, and other submissions, the court hereby GRANTS the motion for preliminary injunction.

I. BACKGROUND

This case is about the likely impact of a proposed merger in the international maritime industry-an industry on which much of the global economy, including intercontinental trade, large-scale transport of raw materials, and the import/export of foodstuffs and manufactured goods, depends. See PX90033 at 001; PX90034 at 001 (noting that "[i]nternational shipping transports more than 80 percent of global trade to peoples and communities all over the world," and that "[s]hipping is the most efficient and cost-effective method of international transportation for most goods"). By at least one estimate, the worldwide shipping industry includes 50,000 merchant ships registered in over 150 nations. PX90033 at 001. The following map, originally sourced from the National Center for Ecological Analysis and Synthesis, depicts common global shipping routes and underscores the breadth and density of maritime industry activities:

PX10126 at 023. While international merchant ships includes many types of vessels, all of them-and especially large ones-require regular maintenance to ensure continuous performance at operational levels. Companies like Wilhelmsen and Drew provide an array of products and services designed to ensure the continued operational performance of all types of maritime vessels. See PX10126 at 008-009 (noting that "VPP [vessel performance products] applications are necessary to maintain financial and operational efficiency of vessels," and that such products "are required by all commercial shipping vessel classes," which include container ships, bulk ships, cruise ships, military ships, tankers, cargo ships, and even offshore oil and gas rigs). Defendants sell maritime customers several categories of products, including cleaning chemicals, fuel treatment chemicals, welding gases, refrigerants, and, critically, water treatment chemicals. Am. Compl. ¶ 29; Ans. ¶ 29. The products at issue in this case are consumable water treatment products and related services, a category that includes products and services for the chemical treatment of boiler water, cooling water, water production, waste water, ballast water, and potable water. DX-1161 at 0019.

Marine vessels use water resources for a number of applications, including drinking, showering, cleaning, pools, spas, and-critically-for boiler and cooling systems. JX-0149 at 003. Depending on the type of ship, a boiler is necessary either as a constituent part of the main propulsion system or as part of an auxiliary system on which the propulsion system relies. PX90030 at 001. In auxiliary systems, the boiler primarily serves to generate steam to support ship functions in vessels running on marine diesel engines or diesel electric propulsion. PX90030 at 001. Examples include preventing Heavy Fuel Oil ("HFO")-a highly viscous substance-from falling below the temperature at which it is useable, heating HFO to ensure fluidity immediately before use in the engine, and for use in purifiers, booster modules, and other applications. PX90030 at 002-005. Cooling water systems reduce excess heat produced by the working machinery of a vessel's engine. PX90032 at 001. Essentially, cooling water systems circulate water through the engine to remove heat and reduce the likelihood of engine failure. Fry Hrg. Tr. at 943: 17-24 ("If you don't maintain the cooling water side, then you're relying on the oil side of the house to take up and remove that heat from the engine. And what happens is, if you don't cool the cylinders down, the oil starts breaking down. When the oil starts breaking down, then you get metal-to-metal contact inside the piston and the rings, and then you have an engine failure, and usually ... under those circumstances you have a crank case explosion as well.").

Marine water treatment chemicals "are all the chemicals associated with the maritime operation of ships"-including boiler chemistry, diesel chemistry, central cooling water, and evaporators. Fry Hrg. Tr. at 936: 11-12. After measuring the pH, conductivity, temperature, and oxidation-reduction potential of the water with specialized testing equipment, ship engineers inject these chemicals into the boiler and engine cooling systems through specialized dosing equipment optimized for high-pressure/low-volume or low-pressure/high-volume applications. Fry Hrg. Tr. at 945: 10-12; JX-0135 at 005; PX90014 at 003-004. Once injected, water treatment chemicals ensure the performance and reliability of marine boiler and engine cooling systems by: (1) removing excess oxygen from the systems, (2) allowing fine-tuned control of boiler water, cooling water, and feedwater pH; and (3) preventing the leaching and circulation of harmful metals. See Fry Hrg. Tr. at 937: 1-21; see also JX-0135 at 002. In each of these applications, the chemicals operate to reduce or eliminate the incidence of scale, corrosion, and oxygen formation within boiler, feedwater, and engine cooling systems, as well as the risk of engine overheating with respect to cooling systems specifically. Fry Hrg. Tr. at 937: 1-6; JX-0135 at 003; Fry Hrg. Tr. at 943: 12-14 ("Q. And why do vessels use engine cooling water chemicals? A. To control the amount of corrosion and erosion within the cooling channels of the engine itself.").

Although marine water treatment chemicals "only account for a small fraction of the cost of managing a ship," PX80014 ¶ 3, failure to treat the water resources in boiler and engine cooling systems comes with significant consequences, including breakdown or catastrophic failure. See, e.g. , Thompson Hrg. Tr. at 259: 18-24 ("Q. What happens if a boiler develops corrosion? A. [I]t could potentially damage the boiler. It may require significant servicing or even replacement"); JX-0135 at 002 ("Deviating from recommended pH and phosphate control limits can lead to caustic corrosion and result in catastrophic failure of the boiler system."); Fry Hrg. Tr. at 942: 24-25-943:4, 17-24 (describing how failure to treat high pressure boiler water could cause a ruptured pipe and boiler explosion, and how failure to treat cooling water could cause engine failure or explosion). System failure requires costly repairs and unscheduled downtime that translates to lost business and profits for shipping companies. JX-0149 at 003 ("Water treatment is as much about asset protection as it is about maintaining efficiency. The consequences of not using the right treatments can be costly, resulting in unscheduled downtime, or in the worst cases catastrophic, leading to total breakdown of equipment"); PX90014 at 003; Thompson Hrg. Tr. at 259:21-24 (noting that due to the size of the boilers involved, replacement would likely require cutting a hole in the hull and removing the boiler in pieces). Maritime companies therefore regard a consistent and effective marine water treatment program as critical to maintaining an operational fleet of ships. See, e.g. , PX80014 ¶¶ 3, 5, 7 (describing the importance of water treatment chemicals to ship operations, the need for consistency and dependability in chemical products, and the preference for companies offering total packages of chemical products and related services); Medina Hrg. Tr. at 167: 8-10 ("[C]onstancy in the chemical makeup of [marine water treatment chemical] products is crucial to the maintenance of our equipment.").

Consistent with customer demand for reliable water treatment chemical programs, suppliers of water treatment chemicals focus their business strategy on providing more than the chemicals themselves. They supply a "total solution"-a program that includes chemical products, test kits, technical expertise and support, and access to a global network with the ability to quickly and reliably provide product on demand, wherever a vessel is located, and whatever its specific needs may be. JX-0231 at 154 ("Manufacturer/supplier should be able to ... [s]upply a total solution rather than just the product"); [redacted] uses the phrase 'total solution' here, can you explain what that phrase means. A. It typically means the service that would come with the product, or even identifying what would be the best product for that application. So the total package would be not just a product but the service associated with the use, or identifying the right use of the right product for that application."); [redacted] (noting that when Drew enrolls a new customer in its water treatment program it offers recommendations on how to use specific water treatment chemicals, how to test water in boiler and cooling systems, and how to properly dose the chemicals); Medina Hrg. Tr. at 170:7-171:25 (discussing various services provided by marine chemical suppliers); see also, e.g. , Thompson Hrg. Tr. at 279:9-281:22 (describing the specific products and services covered under contract with marine chemical supplier). Defendants-whose business is described in more detail below-provide such programs.

Defendant Drew Marine Group, Inc. is a subsidiary of defendant Drew Marine Intermediate II B.V., which is owned by defendant The Resolute Fund II, L.P., a private equity fund managed by The Jordan Company. Am. Compl. ¶ 24. Drew was originally established in 1928, and has grown over the ensuing years into a company with a global infrastructure. Am. Compl. ¶ 24; DX-1161 at 0006, 0010. As Drew Marine representatives put it at a management presentation on February 15, 2017, "Drew Marine's strength is in delivering technical support in specialty chemicals." DX-1161 at 0019. Accordingly, roughly [redacted]% of Drew's revenue is traceable to "Water Treatment Solutions," a category that includes an array of products and services related to the chemical treatment of boiler water, cooling water, water production, waste water, ballast water, and potable water. DX-1161 at 0019. Drew maintains a "sales, service and logistics network that spans 47 countries, with stocking locations in nearly 100 distribution facilities that in turn supply [an estimated] 1000 ports and customers worldwide." PX10126 at 017.

Defendant Wilhelmsen Maritime Services AS is a wholly owned subsidiary of defendant Wilh. Wilhelmsen Holding ASA, a publicly traded corporation headquartered in Norway. Am. Compl. ¶ 23. Wilhelmsen Ship Services (WSS) is a division of WMS that focuses on supplying marine customers with a number of products and services, including water treatment chemicals and associated equipment for boiler water, cooling water, water production, and pool water. PX61000 ¶¶ 51, 53; PX90046; PX90047; PX90050; PX90063. Wilhelmsen-the parent company-was founded as a shipping business in 1861. PX61000 ¶ 51. WSS was founded in 1968. Since then, WSS has developed into "the largest maritime services network in the world," capable of delivering "in 125 countries ... [and] supporting [its] non-stop operations in 2,200 port locations across the globe." PX20172 at 006. Marine chemicals account for [redacted]% of WSS's total revenues. PX20137 at 0010.

Pursuant to a Share Purchase Agreement dated April 27, 2017, WMS proposed to acquire 100% of Drew's voting securities for approximately $400 million. Am. Compl. ¶ 25. The FTC then conducted a ten-month investigation, after which it "found reason to believe that the proposed Acquisition violates Section 7 of the Clayton Act and Section 5 of the FTC Act." Mem. Supp. Prelim. Inj. 12 ("Mot."). The FTC initiated an administrative action alleging a violation of the above statutes, and the merits trial in that action is scheduled to begin on July 24, 2018. Mot. at 2. The FTC also filed the instant motion for a preliminary injunction under Section 13(b) of the FTC Act, to preserve the status quo pre-merger during the pendency of the administrative proceeding. Mot. at 12-13.

An evidentiary hearing on the motion for preliminary injunction began on May 29, 2018 and concluded on June 19, 2018. The court heard testimony from fifteen fact witnesses-either live or via video deposition-and three expert witnesses. Plaintiff and Defendants each submitted proposed findings of fact and conclusions of law on June 25, 2018, along with a combined 4,186 exhibits.

II. LEGAL STANDARDS

A. Section 7 of the Clayton Act

Section 7 of the Clayton Act prevents mergers or acquisitions where "the effect ... may be substantially to lessen competition, or to tend to create a monopoly" in "any line of commerce or in any activity affecting commerce in any section of the country." 15 U.S.C. § 18. As the Supreme Court has noted, Section 7 concerns "probabilities, not certainties," Brown Shoe Co. v. United States , 370 U.S. 294, 323, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962), and thus the FTC need not demonstrate certainty that a proposed merger will produce anticompetitive effects-only that a "substantial lessening of competition will be 'sufficiently probable and imminent' to warrant relief." FTC v. Arch Coal, Inc. , 329 F.Supp.2d 109, 115 (D.D.C. 2004) (citing United States v. Marine Bancorporation , 418 U.S. 602, 618, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974) ).

B. Section 13(b) Standard for Preliminary Injunction

Section 13(b) of the Federal Trade Commission Act empowers the Federal Trade Commission to seek preliminary injunctive relief in order to prevent a merger until it can adjudicate the merger's legality in an administrative proceeding, provided the agency has "reason to believe" that the merger will violate the antitrust laws. 15 U.S.C. § 53(b) ; see also FTC v. CCC Holdings Inc. , 605 F.Supp.2d 26, 35 (D.D.C. 2009) ; FTC v. H.J. Heinz Co. , 246 F.3d 708, 714 (D.C. Cir. 2001). Section 13(b) provides that an injunction may issue "[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest." 15 U.S.C. § 53(b). As the D.C. Circuit noted in Heinz , the omission of any irreparable harm element evinces Congress's intention "to depart from what it regarded as the ... traditional equity standard" that applies to traditional requests for preliminary relief. Heinz , 246 F.3d at 714 ; see also FTC v. Exxon Corp. , 636 F.2d 1336, 1343 (1980) ("In enacting [ 15 U.S.C. § 53(b) ], Congress ... demonstrated its concern that injunctive relief be broadly available to the FTC by incorporating a unique 'public interest' standard ... rather than the more stringent, traditional 'equity' standard for injunctive relief.").

Under Section 13(b), the district court balances the FTC's likelihood of success against the equities on a sliding scale. FTC v. Whole Foods Mkt., Inc. , 548 F.3d 1028, 1035 (D.C. Cir. 2008) (Brown, J.) (citing H.J. Heinz Co. , 246 F.3d at 727 ). Since Congress's particular "public equity consideration in enacting Section 13(b) was 'the public interest in effective enforcement of the antitrust laws,' " a showing of "private equities" alone will not suffice to overcome a showing of likelihood of success, and the equities often favor the FTC. Id. Moreover, "[t]he FTC is not required to establish that the proposed merger would in fact violate section 7 of the Clayton Act" in a Section 13(b) proceeding. FTC v. Sysco Corp. , 113 F.Supp.3d 1, 22 (D.D.C. 2015) (quoting Heinz , 246 F.3d at 714 ). Instead, "to demonstrate the likelihood of success on the merits, 'the government need only show that there is a reasonable probability that the challenged transaction will substantially impair competition." Id. (quoting FTC v. Staples , 970 F.Supp. 1066, 1072 (D.D.C. 1997) ). Thus, the trial court's role in a Section 13(b) proceeding is to "measure the probability that, after an administrative hearing on the merits, the Commission will succeed in proving that the effect of the [proposed] merger 'may be substantially to lessen competition, or to tend to create a monopoly in violation of section 7 of the Clayton Act.' " Id. (quoting Heinz , 246 F.3d at 714 ). The FTC satisfies this standard where it "rais[es] questions going to the merits so serious, substantial, difficult[,] and doubtful as to make them fair ground for thorough investigation." Whole Foods , 548 F.3d at 1035 (Brown, J.) (quoting Heinz , 246 F.3d at 714-15 ); see also Sysco , 113 F.Supp.3d at 22. Nevertheless, a preliminary injunction in this context remains "an extraordinarily drastic remedy," Exxon , 636 F.2d at 1343 (quoting Medical Society v. Toia , 560 F.2d 535, 538 (2d Cir. 1977) ), especially since "as a result of the short life-span of most tender offers, the issuance of a preliminary injunction blocking an acquisition or merger may prevent the transaction from ever being consummated." Id.

C. Baker Hughes Burden-Shifting Framework

Courts in this Circuit apply the burden-shifting framework set out in United States v. Baker Hughes Inc. , 908 F.2d 981, 991 (D.C. Cir. 1990), to assess whether a proposed merger violates Section 7 of the Clayton Act. Under that framework, the FTC bears the initial burden to prove that a proposed merger would result in "undue concentration in the market for a particular product in a particular geographic area." Id. at 982 ; see also Heinz , 246 F.3d at 715 (quoting United States v. Phila. Nat'l Bank , 374 U.S. 321, 363, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963) ); United States v. Anthem, Inc. , 236 F.Supp.3d 171, 192 (D.D.C. 2017). Such a showing entitles the FTC to a presumption that the merger will substantially lessen competition. Baker Hughes , 908 F.2d at 982 (citing United States v. Citizens & Southern Nat'l Bank , 422 U.S. 86, 120-22, 95 S.Ct. 2099, 45 L.Ed.2d 41 (1975) ); Arch Coal , 329 F.Supp.2d at 115-17, appeal dismissed , No. 04-5291, 2004 WL 2066879 (D.C. Cir. Sept. 15, 2004). Defendants are then entitled to rebut the presumption by presenting evidence that " 'show[s] that the market-share statistics [give] an inaccurate account of the [merger's] probable effects' on competition in the relevant market." Heinz , 246 F.3d at 715 (quoting Citizens & Southern Nat'l Bank , 422 U.S. at 120, 95 S.Ct. 2099 ). Where defendants successfully rebut the presumption of illegality, "the burden of producing additional evidence of anticompetitive effect shifts to the government, and merges with the ultimate burden of persuasion, which remains with the government at all times." Baker Hughes , 908 F.2d at 983 ; see also Heinz, 246 F.3d at 715.

III. DISCUSSION

A. Likelihood of Success on the Merits

1. Prima Facie Case

Given that "the ultimate determination of the legality of a merger involves an assessment of the new firm's market power ... and the prima facie case concerns market concentration," Anthem , 236 F.Supp.3d at 193 (D.D.C. 2017), it is appropriate to begin a merger analysis by defining the "relevant product and geographic boundaries of the market[ ] in question." FTC v. Cardinal Health, Inc. , 12 F.Supp.2d 34, 45 (D.D.C. 1998) ; see also id. ("[d]efining the relevant market is critical in an antitrust case because the legality of the proposed mergers in question almost always depends upon the market power of the parties involved."); Marine Bancorporation , 418 U.S. at 618, 94 S.Ct. 2856 (describing market definition as a "necessary predicate" to evaluating the legality of a merger under Section 7). The "relevant market has two components: (1) the relevant product market and (2) the relevant geographic market." CCC Holdings Inc. , 605 F.Supp.2d at 37 ; see also Arch Coal , 329 F.Supp.2d at 117. In this case, there is no dispute regarding the relevant geographic market-the parties agree it is global. Nevo Hrg. Tr. at 564:18-565:8; Israel Hrg. Tr. at 1456:21-23. Thus, the court now turns to determining the bounds of the relevant product market.

a. Relevant Product Market

1. LEGAL STANDARD

The Supreme Court has long maintained that "[t]he outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and the substitutes for it." Brown Shoe Co. , 370 U.S. at 325, 82 S.Ct. 1502. Accordingly, the touchstone is demand substitution-"[m]arket definition focuses ... on customers' ability and willingness to substitute away from one product to another in response to a price increase or a corresponding non-price change such as reduction in product quality or service." 2010 Merger Guidelines § 4. The key question is "whether there are other products offered to consumers which are similar in character or use to the product or products in question, as well as how far buyers will go to substitute one commodity for another." Staples , 970 F.Supp. at 1074 (citing United States v. E.I. du Pont de Nemours and Co. , 351 U.S. 377, 393, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) ); see also United States v. H & R Block , 833 F.Supp.2d 36, 51 (D.D.C. 2011). Where "one product is a reasonable substitute for the other, it is to be included in the same relevant product market even though the products themselves are not the same." Cardinal Health , 12 F.Supp.2d at 46.

Whether a product is a reasonable substitute for another depends on two factors: (a) the extent to which "buyers view similar products as substitutes" and thus "can substitute the use of one for the other" (i.e., functional interchangeability), Sysco , 113 F.Supp.3d at 25 ; Arch Coal , 329 F.Supp.2d at 119 ; and (b) the extent to which variations in the price of one product-an increase, for example-affects demand for another (i.e., cross-elasticity of demand). See, e.g., Cardinal Health , 12 F.Supp.2d at 46 ("a product is construed to be a 'reasonable substitute' for another when the demand for it increases in response to an increase in the price for the other."). Thus, the boundaries of the relevant market lie where the reasonable alternatives for substitution-based on use or price-end. "The relevant market consists of all the products that the Defendants' customers view as substitutes to those supplied by the Defendants" id. ,"even though the products themselves are not entirely the same." Sysco , 113 F.Supp.3d at 25.

Broad markets sometimes include relevant submarkets that themselves may "constitute product markets for antitrust purposes." Whole Foods , 548 F.3d at 1037-38 (Brown, J.) (quoting Brown Shoe , 370 U.S. at 325, 82 S.Ct. 1502 ). A firm need not "be included in the relevant product market for antitrust purposes" just because "it may be termed a competitor in the overall marketplace." H & R Block , 833 F.Supp.2d at 51 (quoting Staples , 970 F.Supp. at 1075 ); see also Sysco , 113 F.Supp.3d at 26 ("[F]or example, fruit can be bought from both a grocery store and a fruit stand, but no one would reasonably assert that buying all of one's groceries from a fruit stand is a reasonable substitute for buying from a grocery store"). Moreover, "the 'product' that comprises the market need not be a discrete good for sale," Sysco , 113 F.Supp.3d at 26, but can be a "cluster of products ... and services," Phila. Nat'l Bank , 374 U.S. at 356, 83 S.Ct. 1715, as long as the combination of "a number of different products or services" into "a single market ... reflects commercial realities." United States v. Grinnell Corp. , 384 U.S. 563, 572, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966) ; Sysco , 113 F.Supp.3d at 26 ("[W]hat is relevant for consideration here is not any particular food item sold or delivered by Defendants, but the full panoply of products and services offered by them that customers recognize as 'broadline distribution.' "). Such a "cluster market" can even "allow items that are not substitutes for each other to be clustered together in one antitrust market for analytical convenience." FTC v. Staples , Inc. (Staples II) , 190 F.Supp.3d 100, 117 (D.D.C. 2016) (finding a cluster market of consumable office supplies justified because "market shares and competitive conditions are likely to be similar for the distribution of pens to large customers and the distribution of binder clips to large customers."); see also ProMedica Health Sys., Inc. v. FTC , 749 F.3d 559, 565-68 (6th Cir. 2014) (describing the appropriateness of clustering multiple types of hospital services for the purposes of analytical convenience where competitive conditions were similar).

Lastly, antitrust markets can be based on targeted customers. Section 4.1.4 of the Merger Guidelines-described by the court in Sysco as providing "[t]he clearest articulation of [a targeted customer] approach to product market definition"-states that "[i]f a hypothetical monopolist could profitably target a subset of customers for price increases, the Agencies may identify relevant markets defined around those targeted customers, to whom a hypothetical monopolist would profitably and separately impose at least a [small but significant and non-transitory increase in price]." Merger Guidelines § 4.1.4; Sysco , 113 F.Supp.3d at 27. In other words, a targeted customer market may exist when "[a] price increase for targeted customers may be profitable even if a price increase for all customers would not be profitable because too many other customers would substitute away." Merger Guidelines § 3. Thus, "[d]efining a market around a targeted consumer ... requires finding that sellers could 'profitably target a subset of customers for price increases,' " which in turn demands that there be "differentiated pricing and limited arbitrage." Staples II , 190 F.Supp.3d at 117-18.

Courts employ two main analytical approaches in order to determine whether the boundaries of a relevant product market are "drawn narrowly to exclude any other product to which, within reasonable variations in price, only a limited number of buyers will turn." United States v. Aetna, Inc. , 240 F.Supp.3d 1, 20 (D.D.C. 2017) (quoting Times-Picayune Publ'g Co. v. United States , 345 U.S. 594, 612 n.31, 73 S.Ct. 872, 97 L.Ed. 1277 (1953) ). These include the hypothetical monopolist test, the application of which is frequently the subject of "testimony from experts in the field of economics," and the "practical indicia" described by the Supreme Court in Brown Shoe. Sysco , 113 F.Supp.3d at 27.

Hypothetical Monopolist Test

In determining the bounds of a relevant market, courts often opt "to ask hypothetically whether it would be profitable to have a monopoly over a given set of substitutable products .... If so, those products may constitute a relevant market." H & R Block , 833 F.Supp.2d at 51-52 ; see also 5C PHILLIP E. AREEDA & HERBERT HOVENKAMP , ANTITRUST LAW (hereinafter, "Areeda & Hovenkamp"), ¶ 530a, at 237 (4th ed. 2014) ("[A] market can be seen as the array of producers of substitute products that could control price if united in a hypothetical cartel or as a hypothetical monopoly."). This hypothetical inquiry is referred to by courts and in the merger guidelines as the hypothetical monopolist test. See Sysco , 113 F.Supp.3d at 27 ; Merger Guidelines § 4.1.1. The test essentially asks whether a "hypothetical profit-maximizing firm, not subject to price regulation, that was the only present and future seller of those products ... likely would impose at least a small but significant and non-transitory increase in price ("SSNIP") on at least one product in the market, including at least one product sold by one of the merging firms." Merger Guidelines § 4.1.1. A SSNIP is usually defined as five percent or more. Id.

The Brown Shoe Practical Indicia

Courts also determine the boundaries of a relevant product market by examining "such practical indicia as industry or public recognition of the [relevant market] as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors." Whole Foods , 548 F.3d at 1037-38 (Brown, J.) (quoting Brown Shoe , 370 U.S. at 325, 82 S.Ct. 1502 ). The Brown Shoe " 'practical indicia' of market boundaries may be viewed as evidentiary proxies for proof of substitutability and cross-elasticities of supply and demand." H & R Block , 833 F.Supp.2d at 51 (quoting Rothery Storage & Van Co. v. Atlas Van Lines, Inc. , 792 F.2d 210, 218 (D.C. Cir. 1986) ).

2. ANALYSIS

The FTC defines the relevant product market here as "the supply of marine water treatment ("MWT") products and services to Global Fleet customers," where MWT products and services include "[t]he supply of BWT chemicals, CWT chemicals, and associated products and services." Plaintiff's Proposed Findings of Fact and Conclusions of Law ("PFF") ¶¶ 7, 17, ECF No. 81-2. This definition depends on at least three premises: (1) that there are no functional substitutes for the supply of boiler water treatment ("BWT") products and services or cooling water treatment ("CWT") products and services, (2) that it is appropriate to cluster BWT products and services and CWT products and services into one antitrust market for analytical convenience (while excluding other water treatment products), and (3) that it is appropriate to define the relevant market around "Global Fleets" as a distinct set of targeted customers. See PFF ¶¶ 17-44.

As an initial matter, the court finds that there are no reasonable substitutes for BWT or CWT products and services. These products and services have unique purposes-preserving the functionality of boilers and engines-and no party has pointed to any chemical or group of chemicals, or associated services, that could replace the critical functions that such products perform. In other words, it is possible to regard BWT products and services and CWT products and services as two separate product markets (e.g., the market for BWT and the market for CWT), insofar as none of the products grouped in either category have any reasonable substitutes that can perform the same functions. Thus, the disputed threshold issues are (1) whether the markets for BWT and CWT can be clustered together in the manner proposed by the FTC, and (2) whether that cluster market can be further defined around the FTC's preferred set of targeted customers.

i. BWT and CWT as a Cluster Market

Defendants, supported by their expert, Dr. Mark A. Israel, advance two primary arguments against the FTC's proposed cluster market: that the market is overinclusive and underinclusive. Mem. Supp. Opp'n to Mot. at 23, ECF No. 50-2. They argue that the market is overinclusive insofar as it combines two categories of product-BWT and CWT-that are not reasonably interchangeable, meaning that combining them does not accurately reflect commercial realities and conflicts with the notion that product market definition depends on substitutability. ECF No. 50-2 at 24; DX-0060 ¶¶ 66-67. Defendants also argue that the proposed market is underinclusive because it is inappropriate for the FTC to consider BWT and CWT in the same market without also including the other water treatment and marine products typically sold alongside BWT and CWT, frequently in the same contract. ECF No. 50-2 at 25; DX-0060 ¶¶ 68-70. While Defendants acknowledge that these other products are not reasonable substitutes for BWT or CWT, they assert that neither are BWT and CWT reasonable substitutes for one another, such that with respect to products typically sold together, the FTC cannot include one product category that is not a reasonable substitute and then exclude others on that same ground. In other words, "the FTC cannot both lump BWTC and CWTC because they are part of the same sales and purchase process, but then also exclude all other products that are also part of that process." ECF No. 50-2 at 25-26.

The FTC responds first that Defendants' argument regarding overinclusiveness-based on the absence of interchangeability between BWT and CWT-fundamentally misapprehends the nature of a cluster market. According to the FTC, a cluster market does not aim to group together substitutable products, but rather groups non-substitutable products that face similar competitive conditions. Reply to Opp'n. to Mot. 5, ECF No. 56-2. The FTC argues that since both BWT and CWT products function to maintain operational equipment on marine vessels, both involve the same customers with the same need for global consistency, and both are distinguishable from products like cleaning chemicals, which do not require the same level of consistency. ECF No. 56-2 at 5-6. Moreover, the FTC argues that Defendants face the same set of competitors for both products, and therefore BWT and CWT face similar competitive conditions and can be appropriately clustered. ECF No. 56-2 at 5-6. As for Defendants' underinclusiveness argument, the FTC notes that clustering BWT and CWT with other marine products is inappropriate because those products do not share similar competitive conditions, despite the fact that customers negotiate for them at the same time as they negotiate for BWT and CWT. ECF No. 56-2 at 9-10.

The court concludes that the FTC's use of the cluster market approach is appropriate in this case. Although BWT and CWT products are distinct products intended for distinct uses, they are also indisputably similar. Both are specially blended chemicals that are injected into water systems using special equipment, in order to prevent corrosion and erosion in critical systems. Thompson Hrg. Tr. at 259:18-24; Fry Hrg. Tr. at 943:13-14. While both products make up a "small fraction of the cost of managing a ship," PX80014 ¶ 3, the cost of system failure in the absence of these products is high. JX-0135 at 002. The fact that these products are low cost, highly critical, and heavily dependent on precise chemistry means that maritime companies strongly prefer consistency in their use, so as to avoid the risk of adverse chemical reaction and the resulting temporary or catastrophic system failure. Moreover, BWT and CWT products are frequently sold together as part of an overall management program that includes a number of additional product-related services. Deckman Hrg. Tr. at 475: 4-14. These similar characteristics matter because they factor into customers' decisions regarding the quantity of products they purchase, the timing of those purchases, as well as where they make their purchases. In other words, similar product characteristics-including function and risk-produce similar needs and constraints for shipping companies, which in turn affects supplier strategies and, accordingly, promotes similar competitive conditions across these product categories.

It follows from this point that products that do not share key characteristics do not produce similar needs or constraints for shipping companies, meaning that they give rise to different competitive conditions. The court finds that the FTC has carried its burden to demonstrate those differences. While BWT and CWT chemicals are both "water treatment chemicals"-a category that includes "chemicals for the treatment of evaporator water, ballast water, potable water, and pool/spa water or their related equipment," DFF ¶ 85-the evidence is clear that (1) sales of BWT and CWT are the driving force behind sales in the "water treatment chemicals" category, and (2) other chemicals in that category, such as pool and spa chemicals, are easier to obtain from multiple suppliers. PX80006 ¶¶ 10, 27; Thompson Hrg. Tr. at 326:24-327:10. They also do not pose the same risks to a ship's critical systems, because they have no function related to those systems.

The same is true for the larger grouping of marine products. While Defendants correctly note that agreements for the sale of marine products to global fleets often include products in addition to BWT and CWT-such as tank cleaning chemicals, gases, or refrigerants, see Sarro Hrg. Tr. at 113 (noting that Teekay purchase agreements often include many different marine products, and that Teekay also purchases many products from WSS in addition to BWT and CWT); DX-1297 at 0013-0015 (listing products covered by purchase agreement)-the differences between these products and BWT/CWT are material. For example, tank cleaning products are less technically complex, do not pose the same operational risks, and are ordered on a short term, cleaning-by-cleaning basis, which makes it easier for shippers to switch suppliers. See Franzo Hrg. Tr. at 348:22-350:1-22 (describing the differences between tank cleaning and water treatment business and the difference in competitive conditions based on the characteristics of each product); JX-0254 ¶ 7 ("Different categories of chemicals require different levels of sophistication in chemistry. Water treatment chemicals are generally more sophisticated and harder to develop than other categories of marine chemicals."). Accordingly, tank cleaning presents a more lucrative business opportunity for smaller suppliers than does water treatment, where ships "really [do not] want to upset the apple cart by changing their products." Franzo Hrg. Tr. at 349:7-11; JX-0254 ¶ 3 (noting that tank cleaning is roughly 60% of [redacted] business, and that water treatment business is small in comparison); PX-80028 at ¶ 3 (describing water treatment chemicals as [redacted] "smallest product category" and tank cleaning chemicals as the largest). In other words, differences in product characteristics between BWT/CWT and other water treatment products lead to differences in maritime companies' sourcing decisions and are therefore connected to differences in competitive conditions.

Moreover, while the evidence suggests that companies tend to negotiate prices for multiple products at the same time, it also cuts against the notion that customers engage in one-stop shopping for all their marine products. See PX00004 at 010, 015 (noting that WSS and Drew customers do not typically "one-stop shop" and often "mix and match across suppliers"). In other words, framework agreements may set the price for several products from a particular supplier, but such agreements tend to be non-exclusive, leaving the door open to other, specific product purchases at individual ports. See PX-61002 at 041-042. Thus, an analytical approach that focuses on BWT and CWT to the exclusion of other marine products does not appear to fundamentally conflict with commercial reality, given that customers are empowered to make individualized product choices in different places and at different times.

For these reasons, the court concludes that FTC has appropriately clustered BWT and CWT products and services into one antitrust market for analytical convenience.

ii. "Global Fleets" as Targeted Customers

As defined by the FTC, "Global Fleets are fleets of 10 or more globally trading vessels-vessels above 1,000 gross tons in size that have traded at two ports that are at least 2,000 nautical miles apart in the preceding 12 months." Mot. Prelim. Inj. at 18, ECF No. 45-3. The FTC argues that it is appropriate to define the relevant product market around this group because "Global Fleets have distinct characteristics and requirements that limit customer choice, as compared to local or regional fleets," thus making them susceptible to price discrimination as a distinct customer group. ECF No. 45-3 at 19. In particular, the FTC points out that Global Fleet customers have "particular needs as it relates to centralized negotiation of contracts for delivery to geographically dispersed locations, product consistency, and product availability." ECF No. 45-3 at 19. The FTC also argues that Defendants have the ability to price discriminate because they "individually negotiate prices with each customer[,] and customers have a limited ability to arbitrage." ECF No. 45-3 at 19.

Defendants proffer several reasons why the "Global Fleets" distinction is not a meaningful way of segmenting customer groups. First, they contend that the definition of Global Fleets does not accord with commercial reality, given that neither WSS nor Drew use the FTC's definition of that term and less than half of WSS customers meet the Global Fleet criteria. ECF No. 50-2 at 26; DX-0060 ¶¶ 82, 85, 86. Defendants further argue that the Global Fleets construct is premised on arbitrary thresholds and accordingly produces variable and underinclusive results. Specifically, they allege that: (1) 43% of the vessels that WSS and Drew supply had trading patterns fitting the FTC's criteria in some fiscal quarters, but not in others, indicating that the boundaries of the Global Fleets construct are too permeable to be analytically helpful; and (2) the FTC's numerical cutoff-10 or more globally trading vessels-is arbitrary, and produces the following anomalous mismatches: (a) a quarter of the vessels in 23% of Global Fleets were not globally trading vessels, (b) 31% of the vessels in non-Global Fleets count as globally trading vessels, and (c) 20% of non-Global Fleets are comprised completely of globally trading vessels. ECF No. 50-2 at 27; see also DX-0060 ¶¶ 83-84 & Table 4. Defendants contend that including all vessels weighing 1,000 gross tons or more in the antitrust market would better accord with commercial realities.

The "Global Fleets" construct is meant to capture key aspects of the economic reality facing fleets with a significant number of globally trading vessels and which need access to the products and services that defendants provide. The construct purports to isolate a relevant subset of the market and measure how the result of a merger would affect customers within that subset. It follows that the construct is a useful way to discuss and predict economic conditions only if its key aspects correspond to elements of the existing marketplace that would make it possible to "profitably target a subset of customers for price increases" post-merger. Sysco , 113 F.Supp.3d at 38. The FTC, relying on the analysis of its economic expert, Dr. Aviv Nevo, has carried its burden to show that the construct is useful here.

a. Global Fleets Constitute a Distinct Customer Group with Distinct Needs

The FTC has adequately demonstrated that Global Fleets are a distinct group with distinct needs, as compared to the entire group of MWT customers. The distinction matters primarily because vessel trading patterns differ. Some vessels trade more globally than regionally or locally, meaning they travel further, visit more countries and ports in more varied locations, and spend less time in port. PX-61000 ¶ 103. Within the FTC's definition of Global Fleets as fleets including ten or more globally trading vessels, a vessel trading pattern that includes distances of more than 2,000 nautical miles is global, while regional patterns include distances of 500 and 2,000 nautical miles and local patterns include distances of less than 500 nautical miles. PX-61000 ¶ 105. The following data, reproduced from PX-61000 ¶ 110, illustrates the distinct travel patterns of local, regional, and globally trading vessels.

Importantly, neither the emphasis on vessels with global trading patterns nor the 2,000 nautical mile cutoff for defining a globally trading vessel are arbitrary parameters. Different trading patterns create different product needs that affect how customers weigh the value of consistent worldwide service potential at high levels of product quality. PX-61000 ¶ 111 ("Globally trading vessels tend to be larger, travel much greater distances, and visit more countries and multiple continents during the course of a year. Therefore, it should be expected that their preferences over the importance of high quality water treatment products and services that are consistently available differs from vessels with regional and local trading patterns); see Sarro Hrg. Tr. at 77:15-25 ("Q. When Teekay's vessels are operating on a spot charter, how predictable is where they're traveling to? A. Well, it's quite unpredictable, actually, because it's subject to market conditions. So whatever charter we pick up at the time-you know, that's what ends up happening. And it's on a per-voyage basis, is whatever it is ... would be where we're loading, and then we have to discharge.... Q. Do you know necessarily which port a spot charter will call in from month to month? A. No."); PX80002 at 003 ("Because we conduct much of our business as spot charters, we have limited ability to predict our vessels' trade routes, including what ports they will visit or when."). The industry itself recognizes that vessel trading patterns have commercial significance, as shown by the parties' own statements and internal documents. See e.g. , PX70006 (Grimholt IH Vol. 1 Tr.) at 164:23-167:15 (describing how WSS categorizes vessels as global when they "have traveled in excess of 2,000 nautical miles between the furthest points in a given twelve months," noting that such categorization "makes a difference [in] how [WSS] sell[s] and deliver[s]," and explaining how globally trading vessels "have different needs because they have vessels trading globally or further from their home ports, which means that our capability to serve them will be of more interest in a sales meeting than their local needs would be");

PX20388 at 005 (explaining that a potential sales model distinguishes between local, regional, and global trading patterns, and noting that the former two "don't necessarily correspond as well with our main competitive advantage which is our ability to provide standard products and services in virtually every port worldwide"). Notably, WSS collects data on which vessels traveled 2,000 nautical miles between furthest points in the last 12 months in order guide its sales strategy. See JX-0188 at 044-45.

The FTC's vessel size cutoff of 1,000 gross tons is also non-arbitrary and based on the parties' own conceptions of the market. The evidence shows that vessel size correlates with global trading pattern and, accordingly, with distinct product needs. See PX61000 ¶¶ 109, 111. In general, the larger the vessel, the more likely it is to trade globally. PX61000 ¶ 109. In keeping with this trend, internal documents show that Defendants focus their sales efforts on larger vessels and frame their business and competitive potential in terms of vessel size. See PX61000 ¶ 93; DX-1247_WSSFTC-0018878 at 11 (discussing categorization of vessels by weight for purposes of segmenting market and estimating market size); Grimholt Hrg. Tr. at 1236:10-16 (describing the total market in terms of sailing ships above 1,000 gross tons). Thus, combining the court's findings regarding trading pattern and vessel size, it follows that the FTC's definition of a globally trading vessel-vessels larger than 1,000 gross tons that have traveled 2,000 nautical miles between furthest points in the last 12 months-is both non-arbitrary and grounded in the ordinary course of business.

The evidence also shows that vessels are typically organized into fleets, containing varying numbers of globally trading vessels. See PX61000 ¶ 91. In order to measure the effect that a significant number of globally trading vessels would have on the water treatment needs of a fleet as a whole, Dr. Nevo organized the vessel-level raw data into fleets according to affiliation with unique owners or separate technical managers ("operators"). PX61000 ¶ 113. Dr. Nevo grouped vessels with the same operator into the same fleet, producing 9,407 unique "fleets" made up of varying numbers of vessels. PX61000 ¶¶ 113, 114; Nevo Hrg. Tr. at 586:6-20. He then defined "Global Fleets" as those having ten or more globally trading vessels, Nevo Hrg. Tr. at 586:21-587:6, and on the basis of that definition, identified 532 Global Fleets and calculated Defendants' market shares within the Global Fleets category. PX61000 ¶¶ 118, 123.

As noted above, Defendants objected to Dr. Nevo's definition of "ten or more globally trading vessels," on the grounds that ten vessels is arbitrary and incongruent with commercial reality. While the court agrees that Dr. Nevo's choice of ten globally trading vessels was arbitrary in the sense that the number ten is not compelled by any specific market reality, the court disagrees that Dr. Nevo's construction is therefore meaningless. As the court understands it, Dr. Nevo's choice of ten globally trading vessels was not intended as an exact statement of the threshold number of globally trading vessels a fleet must have in order to manifest distinct product-related needs and preferences. Rather, Dr. Nevo chose ten as a starting point for developing a series of statistical estimates, the non-statistical implications of which support the appropriateness of regarding Global Fleets as a distinct customer group.

Dr. Nevo's fleet-level analysis took the following course: first, he inferred-after analyzing data and documentation used or created in the ordinary course of Defendants' business-that fleets with a significant number of globally trading vessels were likely to have distinct preferences that uniquely suit global suppliers. Nevo Hrg. Tr. at 587:7-19. Then, using the fleet data he compiled, Dr. Nevo sought to approximate what share of the fleet-level market would have those preferences. Because he did not know what threshold number of vessels would separate fleets with distinct preferences from those without, Dr. Nevo chose the number ten because of its roundness and simplicity. Nevo Hrg. Tr. at 587:20-22 ("So then, the question is, where's the cutoff. And I started with ten. Ten is a starting point.... [I]t's a round number. That's literally why we chose [it]."), 589:3-4 ("[I]'ll be the first to admit ... there's no hard rule as to why it was ten); see also Staples II , 190 F.Supp.3d at 118 n.10 (acknowledging and accepting expert's need to establish threshold cutoff for "practical analytical purposes"). After obtaining the results of that analysis, he ran trials to test the robustness of the results-that is, to measure how dependent his initial results were on his initial assumption of ten vessels. Nevo Hrg. Tr. at 589:1-590:11. Less dependency-i.e., more stability in the result-indicates the presence of a stable market reality that produces similar results despite variation in threshold numbers. See Nevo Hrg. Tr. at 596:20-597:19. Based on the initial trial, Dr. Nevo found that (1) Global Fleets accounted for most of all globally trading vessels-84% of vessels by tonnage and 71% by vessel count; (2) Global Fleets were mostly made up of globally trading vessels: 81.8% and 92.2% by count and tonnage; and (3) Global Fleets accounted for [redacted] and [redacted] of WSS's and Drew's respective MWT revenue. See Nevo Hrg. Tr. at 595:16-596:13; PX61000 ¶¶ 118, 161, 123. He also found that similar market share calculations held across four subsequent trials, two substituting five and then fifteen as the threshold numbers, one using ten but omitting any attempt to standardize the names of "operators" as they appeared in the raw data, and one only measuring sales to all globally trading vessels, without sorting those vessels into fleets (thus eliminating the need for any threshold number at all). PX61000 ¶ 123 n.234; Nevo Hrg. Tr. at 589:14-590:11. Notably, the specific percentages differ between each of these trials. PX61000 ¶ 123 n.234. That is because the point of the trials is not to establish that any particular set of percentages is the most accurate one, but rather to rely on the consistency across the range of percentages to illustrate that (1) there is a significant segment of the market-whatever the exact numbers-that focuses on global trading and therefore has needs and preferences that distinguish it from other customers; and (2) that segment accounts for a majority of Defendants' business. See PX61000 ¶¶ 119-21. In other words, the qualitative implications of the percentages do not change even if the percentages themselves shift somewhat across trials. See PX61000 ¶ 123 n.234 (noting that market share percentages "are not qualitatively sensitive to alternative definitions of 'global fleets' "); Nevo Hrg. Tr. at 589:10-13 ("So ... I really tried to say, well, what happens if I define it as 5 and 15, or various other measures, to make sure that the end result, at least qualitatively, doesn't actually change."). The court considers these factual observations to be accurate and well supported, and therefore finds that the FTC has carried its burden to demonstrate that it is appropriate to consider Global Fleets a distinct customer group within the market for MWT products.

b. Price Discrimination Against Global Fleet Customers is Possible Post-Merger

The court finds that the FTC has carried its burden to demonstrate that price discrimination is possible post-merger because: (1) Global Fleets are a distinct group of customers with distinct needs; (2) negotiation with Global Fleets typically occurs on an individualized basis; and (3) documentation reveals that Defendants have contemplated pricing differentials based on size and trading pattern. As the court has already discussed the first factor, the discussion in this section focuses on the remaining two.

Defendants typically negotiate framework agreements with Global Fleets for the whole fleet or for a significant proportion of vessels. See e.g. , PX80006 ¶ 21 (describing fleet-level negotiations for the entire [redacted] fleet); JX-0277 ¶ 23 (describing same for Teekay). These negotiations are customer specific, and result in customer-specific pricing at ports relevant to the particular customer. See JX-0248 at 014 ("In negotiations, customers often focus on specific ports that they consider to be key in light of their trading patterns. They then negotiate a customer specific net price for the ports relevant to them."). JX-0240 at 011-014 (showing course of negotiation between [redacted] and Drew Marine). While there are general pricing trends-for instance, low volume ports tend to have higher pricing than high volume ports-ultimate prices are determined on a customer-by-customer basis. PX70000 (Cassaras (Drew) IH Tr. at 84:8-85:3, 87:7-10). While customers retain the freedom to purchase outside of framework agreements, they typically choose not to do so with products for which consistency is valued. Sarro Hrg. Tr. at 106:9-107:11 (noting that he prefers not to purchase outside contract when "it's really important that you have that product on board from that supplier," including BWT). This individualization makes the pricing for each Global Fleet opaque to the next, which in turn facilitates differential pricing.

Moreover, WSS internal documents expressly contemplate market segmentation for the purpose of price discrimination. An internal pricing presentation dated November 2014 notes the benefits of "value-based pricing," which allows WSS to "segment customer[s] based upon preferences." PX20381 at 003. The presentation also distinguishes local and global customers by their preference for suppliers with global reach, and then considers a price discrimination exemplar that distinguishes local and global customers, noting that global customers are willing to pay more for global reach and describing how "[v]alue based pricing identifies differences in customers' preferences and valuation of attributes, then identifies ways to make them pay different prices for virtually the same product/service." PX20381 at 003. The presentation also describes how "[a]greement discount levels will be built bottom up by applying indexes to multiple price discrimination levels," which include "segment" and "trading pattern" indexes, among other factors. PX20381 at 011.

In sum, based on (a) the lack of pricing transparency in a marketplace characterized by individualized negotiations, combined with (b) evidence that Global Fleets constitute a distinct segment of the market with distinct preferences, (c) evidence that WSS recognizes the potential benefits of price discrimination, and (d) the lack of any evidence suggesting arbitrage, the court concludes that price discrimination is possible post-merger.

iii. Hypothetical Monopolist Test

Having determined in the foregoing discussion the validity of the cluster market and targeted customer approaches in defining the relevant product market in this case, the court also finds that the Brown Shoe practical indicia support the FTC's candidate market, with regard to (1) a product's peculiar characteristics and uses, for which there are no reasonable substitutes; (2) industry recognition of the product market as a separate entity, as shown by ordinary course documents demonstrating a business focus on globally trading vessels; and (3) distinct customers with distinct needs who require (4) specialized vendors who provide both the products and value-added services. Whole Foods , 548 F.3d at 1037-38 (Brown, J.); Brown Shoe , 370 U.S. at 325, 82 S.Ct. 1502. The court now turns to an examination of expert evidence concerning the Hypothetical Monopolist Test ("HMT").

To model the course of a hypothetical monopolist, Dr. Nevo-the only economist to have performed the HMT in this case-conducted a critical loss analysis, which essentially calculates "the largest amount of sales that a monopolist can lose before a price increase becomes unprofitable." FTC v. Swedish Match , 131 F.Supp.2d 151, 160 (D.D.C. 2000). The test has three steps. First, Dr. Nevo calculated the critical loss threshold-that is, the point at which a hypothetical monopolist would lose too many customers for a SSNIP to be profitable. This step is purely mathematical-the critical loss threshold is the point at which increased profit margins resulting from an increase in price are offset by increased costs resulting from lost sales. Second, Dr. Nevo estimated the actual aggregate diversion ratio, which "represents the proportion of lost sales that are recaptured by all other firms in the proposed market as the result of a price increase ... [s]ince these lost sales are recaptured within the proposed market, they are not lost to the hypothetical monopolist." H & R Block , 833 F.Supp.2d at 63. The aggregate diversion is calculated with reference to suppliers to whom lost customers would potentially take their business. Sysco , 113 F.Supp.3d at 34. Third, Dr. Nevo compared aggregate diversion to critical loss, and if aggregate diversion exceeds critical loss, then a SSNIP would be profitable for a hypothetical monopolist. Id. (citing Swedish Match , 131 F.Supp.2d at 160 ).

Dr. Nevo used four kinds of data to calculate margins for different trials-estimates of gross margin for all water treatment products sold to all customers, WSS and Drew invoice data specific to BWT/CWT and Global Fleets, lowest gross margins by quarter, and variable cost margins based on accounting data specific to BWT/CWT and Global Fleets. For aggregate diversion, Dr. Nevo used three kinds of data-revenue information provided by marine suppliers, WSS salesforce data, and WSS and Drew win-loss data. PX61000 ¶ 227. After running multiple trials with varying inputs, including a SSNIP of 10% (in addition to the typical 5%), Dr. Nevo found that across all cases, the highest critical loss estimate was 17.5%, and the lowest aggregate diversion ratio estimate was 90%. PX61000 ¶¶ 232