Schumer Wants DOJ To Probe Diebold Sale

By Jocelyn Allison

Law360, New York (September 15, 2009) -- Already facing an antitrust lawsuit from a competitor, Diebold Inc. and Election Systems & Software Inc. are now facing a call for a federal antitrust probe over the sale of Diebold's voting machine business to ES&S earlier this month.

Sen. Charles E. Schumer, D-N.Y., asked the U.S. Department of Justice on Monday to conduct an antitrust review of the sale, which he said would give market leader ES&S control of the vast majority of the U.S. market for voting systems.

“Given other factors, including high barriers to entering the market, I am deeply concerned that local governments and taxpayers will not be getting a fair deal because too much market power will be held in too few hands,” Schumer wrote in a letter to U.S. Attorney General Eric Holder.

The call for an investigation comes three days after rival election systems company Hart Intercivic Inc. filed suit in the U.S. District Court for the District of Delaware seeking to stop the acquisition, claiming it was an attempt to monopolize the market.

Diebold sold its election systems business to Nebraska-based ES&S on Sept. 2 for $5 million in cash in addition to a percentage of future cash collected on outstanding accounts receivables. The deal gives ES&S control of about 68 percent of the U.S. market for voting systems, according to the complaint.

Hart claimed the transaction violates the Clayton Act. It said unless the deal is unwound, the prices of voting machine equipment and services are likely to increase, quality and innovation are likely to suffer, and rival manufacturers are likely to exit the market, according to the complaint.

“As a result, competition in the market for voting machines and election systems; jurisdictions that purchase voting machines and election systems, and the taxpayers that support them; and smaller rivals to ES&S, including plaintiff, are threatened with irreparable harm,” the company said in the complaint.

Hart, which serves about 9 percent of the market, said ES&S had gained a monopoly in the voting machine industry through a pattern of anti-competitive behavior that violates the Sherman Act, and that both ES&S and Diebold have conspired to monopolize.

The complaint said the companies had won business from various voting jurisdictions by submitting low bids and then hitting “locked-in” customers with high prices for aftermarket service and equipment.

The suit also claimed that Diebold and ES&S had exaggerated the capabilities of their systems and falsely disparaged rival systems. It said the parties had exerted improper influence on government officials to win business and brought lawsuits when their competitors ended up winning the bids.

Schumer, chairman of the Senate Committee on Rules and Administration, echoed the concerns of Hart in his letter to Holder on Monday, citing a 2003 Congressional Research Service report that raised concerns over the consolidation of voting systems in the U.S.

“The report indicates that having a diversity of voting systems in our country may decrease the likelihood of widespread election fraud,” he wrote. “We need to do everything possible to make our elections reliable and secure.”

The Diebold sale brings the number of companies operating in the market for U.S. voting systems from five to four, with Sequoia Voting Systems holding the No. 2 spot in the market with a 17.7 percent share, according to the complaint.

Representatives from neither Diebold nor ES&S could immediately be reached for comment Tuesday. A DOJ spokeswoman declined to comment.

Hart is represented in this matter by attorneys from Proctor Heyman LLP and Patton Boggs LLP. Counsel information for the defendants was not immediately available.

The suit is Hart Intercivic Inc. v. Diebold Inc. et al., case number 09-cv-00678, in the U.S. District Court for the District of Delaware.