United States District Court, District of Columbia
MEMORANDUM OPINION [*]
N. MCFADDEN, U.S.D.J.
year, two of the world's largest titanium dioxide
(“TiO2”) producers announced their intent to
merge. Tronox Limited agreed to acquire the National Titanium
Dioxide Company's TiO2 business, known as “Cristal,
” for $1.67 billion in cash and a 24% equity stake in
the combined firm. Believing that the acquisition would
likely violate federal antitrust laws, the Federal Trade
Commission issued an administrative complaint challenging the
a pigment used to add whiteness, brightness, and opacity to
products like paints, plastics, and paper. It is manufactured
by subjecting raw titanium ores to either a chloride or a
sulfate production process. Chloride-process TiO2 comprises
nearly all the pigment sold in the United States and Canada.
The FTC believes that the Tronox-Cristal merger will
significantly reduce competition for chloride TiO2 in these
two countries, a combined market referred to herein and by
the parties as “North America.”
discovery and briefing by the parties, the FTC's
Administrative Law Judge (“ALJ”) held a
month-long trial to determine the legality of the proposed
transaction. The trial recently concluded, and the ALJ will
soon issue an initial decision. That ruling is reviewable by
the FTC's Commissioners, and a federal appeals court may
in turn review the agency's final decision.
transaction has now received conditional or final approval
from the FTC's counterparts in the European Union, China,
Saudi Arabia, and elsewhere. The Commission therefore seeks a
preliminary injunction under Section 13(b) of the Federal
Trade Commission Act to prevent Tronox and Cristal from
consummating the merger until the agency's review process
and any later judicial proceedings have concluded.
Court finds that the FTC has met its burden under Section
13(b). It has shown a likelihood that the proposed
transaction will substantially lessen competition for
chloride-process TiO2 in North America, and it has shown that
issuing a preliminary injunction is in the public interest.
The Court will therefore grant the Commission's motion
for preliminary injunctive relief.
The Titanium Dioxide Industry
dioxide is commercially available in two crystalline
structures: anatase and rutile. Anatase is used in textiles,
cosmetics, pharmaceuticals, and food, while rutile is
typically used in architectural and industrial paints and
plastics. PX5000-013. Cristal estimates that roughly 60% of all
titanium dioxide produced worldwide is used in paints and
coatings, while the rest is used in plastics, paper, and
various other applications. Id. at 018. Rutile is
thus the predominant form of TiO2; anatase accounts for only
10% of global production. Id. at 013.
sulfate production process can create either anatase or
rutile TiO2. PX5000-016. It involves dissolving naturally
occurring titanium ores (the “feedstock”) into
sulfuric acid to separate the titanium from other impurities
in the ore. Id. The sulfate process relies on
simpler technology than the chloride process, requires less
skilled labor, and, because it produces TiO2 in batches, does
not require an uninterrupted power supply. Id.
Roughly half of all TiO2 made globally is produced using the
sulfate process. PX5000-017. China accounts for the largest
single-nation share of sulfate-process TiO2, producing 1.67
million metric tons in 2016. Id.
chloride production process can only create rutile TiO2, and
it involves using chlorine gas to produce titanium
tetrachloride, which is then oxidized to produce TiO2.
PX5000-015. The chloride process is continuous, so it
requires an uninterrupted power supply. PX3011-013. Compared
to sulfate, chloride tends to produce a higher grade TiO2
pigment, features lower conversion and labor costs, and
results in less waste. Id. The process requires a
highly skilled labor force, and its “superior
technology” is “closely guarded by Western
producers.” PX3011-019. In 2016, 99% of the TiO2
produced in the United States and Canada was made using the
chloride process. PX5000-016. By contrast, in Europe, only
39% of all TiO2 manufactured was produced using chloride.
and suppliers generally agree that there are noticeable
differences between chloride- and sulfate-process TiO2. A
2015 Tronox presentation notes, for example, that the
chloride pigment is “bluer in tone than sulfate
pigment, ” which has a “more yellow tone of
white.” PX1322-003. Dr. Paul Malichky, the Director of
Raw Material Sourcing at PPG, a major multinational paints
and coatings company, explained that while “both would
appear white if you physically looked at them, ” in a
final product (like a can of white paint) with “two
colors, one with a chloride and one with a sulfate, the color
would be different.” Hr'g Tr. 100:6-13. See
also PX7020-013 (George Young, a senior executive at
Sherwin-Williams, another major paint company, stating that
“sulfate grade is not as bright a white as a chloride.
It doesn't deliver the same physical performance as a
TiO2 can also be more durable than its sulfate counterpart.
Sulfate has “impurities that come as part of the
process; most specifically, iron . . . [which] decreases the
durability.” Hr'g Tr. 100:14-19. Chloride-process
TiO2 products feature “better durability, scrubability,
and various other performance characteristics.”
Hr'g Tr. 169:19. And, because of “the [consumer]
preference for whiteness and durability, sulfate grades are
not widely preferred for applications that have prolonged
outdoor exposure.” PX8005-002.
dioxide is generally sold to customers in two formulations:
“dry” and “slurry.” PX5000-017. Dry
TiO2 is sold in a powdered form typically packaged in bags;
slurry TiO2 is dry titanium dioxide combined with an aqueous
solution. Id. While most TiO2 sold globally is dry,
large North American paint companies prefer slurry.
The Competitive Landscape
titanium dioxide market has been described as an
“oligopoly, ” as TiO2 is a “commodity-like
product with no substitutes, the market is dominated by a
handful of firms, and there are substantial barriers to
entry.” Valspar Corp. v. E.I. Du Pont De Nemours
and Co., 873 F.3d 185, 190 (3d Cir. 2017). Jeffry Quinn,
the CEO of Tronox, explained that there are “dozens and
dozens of competitors worldwide, but there are really six
companies that often are referred to as sort of the global
TiO2 producers or the global companies.” Hr'g Tr.
585:9-11. These firms are Chemours, Tronox, Cristal, Kronos,
Venator, and Lomon Billions. Id. at 585:13-586:2.
six, the first five dominate the production of chloride TiO2.
PX1532-051. In 2016, roughly 2.77 million metric tons of the
pigment was produced globally. Id. Chemours, the
world's largest TiO2 firm, accounted for about 37% of
2016 chloride production capacity. PX5000-021. With Chemours,
Cristal (21%), Tronox (15%), Kronos (13%), and Venator (7%),
together accounted for 93% of total chloride production
capacity. Id. Based on this data, the proposed
transaction would result in two firms, Chemours and the
Tronox-Cristal entity, that control nearly three-quarters of
the global chloride TiO2 supply.
manufacturers control around 51% of global sulfate production
capacity. Id. Sulfate production is more dispersed
than chloride. Lomon Billions is China's largest TiO2
firm, and in 2016 it accounted for 13% of global supply.
Id. A smattering of other Chinese firms had roughly
38%, while domestically, Venator (12%) and Kronos (4%) are
also significant producers of sulfate TiO2. Id.
paint and coatings industry is the largest overall consumer
of titanium dioxide, and PPG, Sherwin-Williams, RPM, and
Masco (Behr) are among the largest paint producers.
See PX9020-009; PX5000 at 18, 044-045.
Representatives from these firms, other paint and plastics
manufacturers, and Chemours, Tronox, Cristal, Kronos, and
Venator provided testimonial and documentary evidence about
the TiO2 market during the administrative proceedings before
the Commission. Additionally, Dr. Malichky (PPG), Mr.
Christian (Kronos), Mr. Quinn (Tronox), and the parties'
economic experts (Dr. Nicholas Hill for the Commission and
Dr. Ramsey Shehadeh for the Defendants) testified about the
market and the proposed merger during a three-day evidentiary
History of Proceedings in This Case
December 5, 2017, the Commissioners of the FTC voted 2-0 to
authorize the filing of an administrative complaint to block
the Tronox-Cristal transaction, as they found reason to
believe that it would violate Section 7 of the Clayton Act,
15 U.S.C. § 18. The Commissioners' vote also
authorized the FTC to seek a temporary restraining order
(“TRO”) and preliminary injunction against the
merger in federal district court.
several months of discovery, the ALJ held an administrative
trial from May 18 to June 22, 2018. The parties filed
post-trial briefs, proposed findings of fact, and proposed
conclusions of law with the ALJ last month. They will offer
closing statements to him once briefing has concluded. His
resulting decision may be reviewed by the Commission and
potentially, an appellate court.
10, 2018, the FTC petitioned this Court for a TRO and a
preliminary injunction to halt a potential closing of the
deal. The Commission explained that “[a]bsent such
provisional relief, Tronox and Cristal . . . will likely be
free to consummate the merger as soon as July 16, 2018, the
earliest date it appears the European Commission
(“EC”) is likely to complete its [antitrust
regulatory review] process by approving” remedies to
mitigate the deal's anticompetitive effects in Europe.
Compl. 2. Approval from the EC was “the only remaining
hurdle preventing Defendants from consummating the
days later, the Court held a hearing on the Commission's
TRO motion. Following that hearing, the parties stipulated
that Tronox and Cristal would not seek to consummate the
proposed transaction until four business days after the Court
decided the Commission's request for a preliminary
injunction. See Ex. A (Agreement Not to Close
Transaction) 2, ECF No. 44-1.
August 7, 2018, the Court began a three-day evidentiary
hearing on the FTC's motion for injunctive relief. The
Commission proposed that the hearing proceed with oral
arguments based solely on the closed evidentiary record
before the ALJ. See Pl.'s Proposed Hr'g
Schedule 2, ECF No. 45. The Defendants objected, ultimately
proposing that each side be allowed to present live testimony
from two expert witnesses and a fact witness. See
Defs.' Proposed Hr'g Schedule 4, ECF No. 47. The
Court allowed each side to present live testimony from three
witnesses of their choosing, and to present opening and
closing arguments. The parties also submitted briefs
outlining their positions and the complete administrative
record before the ALJ.
7 of the Clayton Act prohibits acquisitions “the effect
of [which] 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. If the FTC has
reason to believe “that a corporation is violating, or
is about to violate, Section 7 of the Clayton Act, [it] may
seek a preliminary injunction to prevent a merger pending the
Commission's administrative adjudication of the
merger's legality.” F.T.C. v. H.J. Heinz
Co., 246 F.3d 708, 714 (D.C. Cir. 2001). Section 13(b)
of the Federal Trade Commission Act authorizes district
courts to grant a preliminary injunction where “such
action would be in the public interest-as determined by a
weighing of the equities and a consideration of the
Commission's likelihood of success on the merits.”
Id.; see 15 U.S.C. § 53(b).
relief under Section 13(b), the Commission must establish
that “there is a reasonable probability that the
challenged transaction will substantially impair
competition.” F.T.C. v. Staples Inc., 190
F.Supp.3d 100, 114 (D.D.C. 2016). Congress “intended
this standard to depart from what it regarded as the
then-traditional equity standard, which it characterized as
requiring the plaintiff to show: (1) irreparable damage, (2)
probability of success on the merits and (3) a balance of
equities favoring the plaintiff.” Heinz, 246
F.3d at 714. The FTC is “not held to the high
thresholds applicable where private parties seek interim
restraining orders, ” and Section 13(b) instead creates
a “unique public interest standard . . . rather than
the more stringent, traditional equity standard for
injunctive relief.” Id. (cleaned up).
public interest standard requires courts to “measure
the probability that, after an administrative hearing on the
merits, the Commission will succeed in proving that the
effect of the [proposed transaction] may be substantially to
lessen competition” in violation of the Clayton Act.
F.T.C. v. Sysco Corp., 113 F.Supp.3d 1, 22 (D.D.C.
2015). The Commission meets this standard if it “has
raised questions going to the merits so serious, substantial,
difficult and doubtful as to make them fair ground for
thorough investigation, study, deliberation and determination
by the FTC in the first instance and ultimately by the Court
of Appeals.” Id. at 23 (citing Heinz,
246 F.3d at 714-15).
determine the Commission's likelihood of success on the
merits, the Court applies the burden-shifting framework
established by United States v. Baker Hughes, Inc.,
908 F.2d 981, 982-93 (D.C. Cir. 1990). First, the FTC must
show that the Tronox-Cristal merger will lead to “undue
concentration in the market for a particular product in a
particular geographic area.” Id. at 982. The
Commission thus bears the initial burden of (1) defining the
appropriate product market, (2) defining the appropriate
geographic market, and (3) showing that the merger will lead
to undue concentration in the relevant product and geographic
market. See F.T.C. v. Arch Coal, Inc., 329 F.Supp.2d
109, 117 (D.D.C. 2004). Such a showing establishes a
presumption that the merger will substantially lessen
competition. Baker Hughes, 908 F.2d at 982.
Defendants can rebut this presumption by showing that the
Commission's “prima facie case inaccurately
predicts the [merger's] probable effect on future
competition.” Id. at 991. If the Defendants
make this showing, the burden of producing further evidence
of anticompetitive effects shifts back to the government.
Id. at 983. The “ultimate burden of persuasion
. . . remains with the government at all times.”
Id. In evaluating either party's evidence,
“antitrust theory and speculation cannot trump
facts.” Arch Coal, 329 F.Supp.2d at 116.
addition to evaluating the Commission's prima facie case
and any rebuttal evidence proffered by the Defendants, the
Court must also weigh the equities involved. The
“public interest in effective enforcement of the
antitrust laws is of primary importance, ” and “a
showing of likely success on the merits will presumptively
warrant an injunction.” Arch Coal, 329
F.Supp.2d at 116. If, on the other hand, the FTC cannot show
a likelihood of success on the merits, “equities alone
will not justify an injunction.” Id.
The FTC has Established a Presumption of Anticompetitive
Commission has shown a likelihood that Tronox's
acquisition of Cristal's titanium dioxide business will
substantially impair market competition. It has demonstrated
that the relevant market should be defined as the
chloride-process TiO2 sold in North America. The FTC's
evidence credibly suggests that the merger will greatly
increase concentration in an already concentrated market, and
that it will create incentives for the remaining industry
participants to engage in strategic withholding of TiO2
supplies to maintain higher prices.
Chloride-Process Titanium Dioxide is the Relevant Product
market's “outer boundaries” are determined by
the “reasonable interchangeability of use or the
cross-elasticity of demand between the product itself and
substitutes for it.” Brown Shoe Co. v. United
States, 370 U.S. 294, 325 (1962). Within this market,
however, “well-defined submarkets may exist which, in
themselves, constitute product markets for antitrust
purposes.” Id. The appropriate submarket can
be identified “by examining such practical indicia as
industry or public recognition of the submarket 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.” Id. “[E]vidence of
industry or public recognition of the submarket as a separate
economic unit matters because we assume that economic actors
usually have accurate perceptions of economic
realities.” United States v. H & R Block,
Inc., 833 F.Supp.2d 36, 53 (D.D.C. 2011).
Defendants contend that the market, properly defined,
includes both chloride- and sulfate-process TiO2, but the
Commission believes the correct market includes only the
former. Both the economic realities of the industry, as
described by TiO2 producers and consumers, and the evidence
presented by the expert economists show that the FTC has
carried its burden.
Producers and Consumers View Chloride TiO2 as a Separate
Product, and the Expert Evidence Supports this View
of titanium dioxide consistently recognize the existence of a
chloride TiO2 submarket in North America. In 2014, for
example, Tronox's Content Communications Manager emailed
then-CEO Tom Casey talking points ahead of a town hall
meeting. PX1427. The talking points convey that, unlike
sulfate, “[c]hloride process uses higher-quality
feedstocks and makes better-quality TiO2” and that
“[s]ubstitution in US/Europe not likely.”
Id. at 003. A 2015 Tronox presentation notes that
the “North American market is ~90% chloride. There is
no sulfate production (except a small plant in Canada,
Kronos). Limited imports.” PX1322-003. At the
evidentiary hearing, Tronox CEO Jeffry Quinn conceded that
“the way things have developed here in the U.S. is as a
chloride market.” Hr'g Tr. 641:17-19. He added that
chloride TiO2 uses a different manufacturing process, is
“viewed as more environmentally friendly, and it has -
so I think it's a different product.” Hr'g Tr.
Christian,  from the Defendants' competitor
Kronos, similarly testified that chloride TiO2's
“brighter, more reflective white” and its
“better durability, scrubability, and various other
performance characteristics” when compared to sulfate
TiO2 make it a “higher-quality product that [is]
preferred, all things being equal, by the customers.”
Hr'g Tr. 169:10-20. Kronos's chloride TiO2 products
“are more environmentally friendly . . . have a lower
cost structure, and . . . command higher prices in the
marketplace.” Hr'g Tr. 174:18-21. Consistent with
this view, other TiO2 suppliers distinguish between their
chloride- and sulfate-process TiO2 products.
suppliers, customers recognize a submarket for
chloride-process TiO2, reflecting the product's
particular traits and uses. Dr. Malichky testified that
chloride and sulfate TiO2 are “not substitutable on a
color basis” and that if “you don't want [a
paint product] to degrade or fade" the product would
"require chloride." Hr'g Tr. 100:12-19. Masco,
maker of Behr paints, adds that the "ultra pure white
feature" of its paints is "[e]xtrernely
important" for the firm's brand, and that "to
achieve that [feature], we need to use TiO2 produced based on
the chloride process." Adrnin. Trial Tr.
fact, customers do not substitute away from chloride TiO2
even when prices are "very high" or when sulfate
prices have "been as much as (XXXXX) cheaper than chloride TiO2."
See PX8001-002; PX8003-003. (XXXXX) reported that, "[e]xcept for our
traffic marking pamt, we have not used sulfate TiO2 in our
products in North America even though sulfate grades
generally are less expensive than chloride grades."
PX8003-003. Switching from chloride to sulfate TiO2 involves
"[t]housands of horns" of labor due to the
complexities associated with color-matching and product
reformulation (i.e., ensuring that paint colors made
with chloride TiO2 are not visibly different from the colors
as made with sulfate TiO2). Hr'g Tr. 104:14-105:6.
Defendants suggest that the market is not so black and white.
"Chloride-process TiO2 can be used
interchangeably with sulfate-process TiO2 in the vast
majority of end-use applications," they argue, and
consumers "regularly try to leverage
sulfate-process TiO2 prices in negotiations with suppliers
about chloride-process TiO2." Defs.' Redacted Opp.
to Prelim. Inj. 11, ECF No. 70 (emphasis added). But the
relevant question concerns not just the hypothetical
possibility of substitution, but whether customers do in fact
exhibit a willingness to substitute chloride- and
sulfate-process TiO2. See Arch Coal, 329 F.Supp.2d
the market perspectives discussed above with those offered by
the consumers in Arch Coal. There, the court
considered how much utilities companies substitute between
two types of coal - 8800 Btu and 8400 Btu. It found that
“virtually all the utilities acknowledged that they can
and do purchase and consume both 8800 and 8400 Btu coal, and
that they actively solicit and consider both in their coal
bidding procedures.” Id. at 121. Customers
testified that their facilities “were designed to burn,
and have burned” both types of coal, that they
“purchased both 8400 and 8800 coal in the past five
years” and that managers “purchase 8400 to 8800
Btu coal depending on which coal has the best evaluated
price.” Id. at 121-22. The court thus
concluded that the “evidence of significant
interchangeability” between 8800 and 8400 Btu coal,
combined with a “reluctance of [the FTC's] own
expert to conclude that 8800 Btu coal is a separate relevant
market, ” meant that the Commission failed to carry its
burden of establishing its proffered product market.
Id. at 122-23.
the Commission has sufficiently shown a relevant product
market. The evidence from customers and suppliers suggests a
lack of significant interchangeability between chloride and
sulfate TiO2. And the report and testimony of the
Commission's expert economist, Dr. Hill, bolster this
producer invoices and data published by the International
Trade Commission and the United Nations, Dr. Hill evaluated
price trends for chloride and sulfate TiO2. He found that,
from 2012 to 2017, “chloride titanium dioxide was on
average $532 per ton, or 21 percent, more expensive than
sulfate titanium dioxide.” PX5000-046. Yet, despite
this price premium for chloride TiO2, “the proportion
of sales accounted for by chloride titanium dioxide has held
steady [in North America].” Id. The existence
of distinct prices and a consistent market share for chloride
TiO2 are “not what one would expect if North American
customers were willing and able to substitute one type of
titanium dioxide for another in response to a change in their
relative prices.” Id.
The Defendants' Product Market Counterarguments are
Shehadeh, the Defendants' expert, attacked Dr. Hill's
findings, countering that “[e]conomically significant
co-movement between prices for chloride-produced TiO2 and
prices for sulfate-produced TiO2 establishes a single
market” for the two products.
RX0170.0143.Using data from Cristal, Venator, and
Kronos, Dr. Shehadeh showed “the correlation between
and co-integration of monthly chloride and sulfate TiO2
prices for” the three firms from 2010 to 2017.
Id. at 0144-46. This price correlation, according to
Dr. Shehadeh, suggests that chloride and sulfate TiO2 are
mere fact that the prices of two goods move upward or
downward together need not mean that they are substitutes. As
Dr. Hill explained during the evidentiary hearing, “If
you think about the sale of hamburger buns and hot dog buns,
their prices will be highly correlated. Their demands are
both seasonal-high in the summer, low in other seasons-and
they're made with the same ingredients. So their prices
will be highly correlated. But they're not close
substitutes for each other.” Hr'g Tr. 407:24-408:4.
correlation between the two types of TiO2 may reflect changes
in feedstock prices, or a correlation in the demand for
different types of paints (like low-end traffic marking
paint, which tends to use sulfate TiO2, and high-end exterior
home paint, which uses the chloride pigment). In other words,
“rather than high cross-elasticity of demand,
correlated price movements might reflect the similar
responses of different markets to similar changes, as when
all prices move up in response to changes in common