UNITED STATES OF AMERICA v. H&R BLOCK, INC. et al

Filing 119

REDACTED DOCUMENT- Joint Pre-Hearing Statement to 88 Sealed Document by UNITED STATES OF AMERICA. (Buterman, Lawrence)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,

Plaintiff,
v.

Civil Action No. 11-00948 (BAH)
Judge Beryl A. Howell

H&R BLOCK, INC.;
2SS HOLDINGS, INC.; and
TA IX L.P.,

Defendants.

REDACTED VERSION
FOR PUBLIC FILING

JOINT PRE-HEARING STATEMENT
In accordance with Rule 16.5(b) of the Local Rules of the United States District Court for
the District of Columbia, this Court's Standing Order for Civil Cases, and this Court's July 6,
2011 Joint Scheduling and Case Management Order, the Parties herein provide their Joint Prehearing Statement.

I.

Statement of the Case
This action has been brought by the United States in order to both preliminarily and

permanently enjoin H&R Block, Inc., ("HRB") from acquiring 2SS Holdings, Inc. ("TaxACT").
HRB is a corporation organized and existing under the laws of Missouri, with its headquarters in
Kansas City, Missouri. TaxACT, an entity partially owned by TA IX L.P. ("TA"), is a
corporation organized and existing under the laws of Delaware and headquartered in Cedar
Rapids, Iowa. T A is a limited partnership organized and existing under the laws of Delaware
and headquartered in Boston, Massachusetts. The United States contends that the proposed
acquisition would substantially lessen competition in the alleged market for digital do-it-yourself
preparation products in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. Defendants
disagree with the United States' contention and alternatively contend that the proposed

transaction would be good for competition and consumers. This Court has subject matter
jurisdiction to hear this suit under 15 U.S.C. § 25, and 28 U.S.C. §§ 1331,1337, and 1345.

II.

Statement of Claims
The United States will prove at the hearing that there is a reasonable probability that

HRB's proposed acquisition of TaxACT will substantially lessen competition, and thus violates
Section 7 of the Clayton Act, 15 U.S.C. § 18. FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34,
45 (D.D.C. 1998). HRB and TaxACT are the second- and third-largest digital do-it-yourself tax
preparation ("Digital DIY") firms, respectively. The Digital DIY market is already highly
concentrated, with the three largest firms-HRB, Intuit, and TaxACT--controlling over 90% of
the market, resulting in an HHI of 4,291. I If the acquisition is approved, the HHI will increase
by approximately 400. Thus, the acquisition is presumptively unlawful. FTC v. HJ Heinz

Corp., 246 F.3d 706, 716 (D.C. Cir. 2001) (3 to 2 merger with HHI increase of 510 from 4,775
created presumption of anticompetitive effects by "wide margin"). HRB' s acquisition of one of
its "primary competitors," TaxACT, would further lessen competition in the Digital DIY market,
resulting in higher prices, lower quality, and reduced innovation for consumers.
The United States will show HRB's acquisition of TaxACT has a reasonable probability
of substantially lessening competition in the Digital DIY market in the following ways:

Unilateral Effects. The proposed acquisition is likely to result in anticompetitive
unilateral price increases and quality reductions. Defendants are close competitors who have
similar advertising messages and target similar customers. Both HRB and TaxACT aggressively
compete for free and low-cost customers. Post-acquisition, HRB acknowledges that it intends to
I The HHI for a market is calculated by summing the squares of the individual market shares of all finns
participating in the market. Under the Merger Guidelines, markets with an HHI above 2,500 are considered "highly
concentrated." Merger Guidelines at ~ 5.3. In cases where the post-merger market is "highly concentrated" and the
acquisition would result in an increase of more than 200 points in the HHI, the transaction is "presumed to be likely
to enhance market power." Id. ~ 5.3.

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stop competing on price and withdraw its own low-cost offerings from the Digital DIY market.

Coordinated Effects and Elimination of a Maverick. A central concern of antitrust law is
that "increased concentration raises a likelihood of interdependent anticompetitive conduct."

FTC v. PPG Indus., 798 F.2d 1500, 1503 (D.C. Cir. 1986). The Digital DIY market is already
vulnerable to coordination because: pricing can easily be monitored; transactions in the market
are small and numerous; there are regular opportunities for communications between HRB and
Intuit; and there is a history of prior attempts by HRB at coordination. Nonetheless, TaxACT
has transformed the Digital DIY market through its innovative marketing strategies, low prices,
improved quality, and introduction of an entirely free Digital DIY product. The Digital DIY
market will become more conducive to coordination if TaxACT is no longer a market participant
because the acquisition will "result in the elimination of a particularly aggressive competitor in a
highly concentrated market." FTC v. Libbey, Inc., 211 F. Supp. 2d 34, 47 (D.D.C. 2002).
Defendants maintain that these competitive harms should be tolerated because it has
offered to fix TaxACT's prices and offerings for three years. This "defense" is irrelevant to the
issue of liability under Section 7 of the Clayton Act. Cardinal Health, Inc., 12 F. Supp. 2d at 65.
Moreover, this offer fails as a potential remedy. Customers would still lose the improved quality
and greater innovation that they received from an aggressive, independent TaxACT. Further, it
appears HRB intends to raise its prices post-acquisition, which is not addressed by the offer.
Entry and expansion is unlikely to replace TaxACT's competitive presence in the Digital
DIY market. Significant marketing expenditures, brand awareness, and a strong reputation are
needed to become a meaningful competitor. Several industry participants have testified that
building the brand recognition and consumer trust necessary to grow in the market requires tens
of millions in dollars in advertising annually, and would take several years, if possible at all. The

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proposed acquisition will only serve to make entry or expansion more challenging.
Nor is this anticompetitive transaction saved by Defendants' purported efficiencies.
Defendants' efficiencies claims fail to meet the well-settled legal standard under Section 7,
which requires Defendants to prove efficiencies that are "extraordinary" and "verifiable" after
"rigorous analysis." Heinz, 246 F.3d at 721. Further, Defendants have not even attempted to
show, as they must, that their purported efficiencies would be passed on to consumers. FTC v.

CCC Holdings Inc., 605 F. Supp. 2d 26, 74 (D.D.C. 2009).

III.

Statement of Defenses
As detailed in the Answer filed on July 7, 2011, Defendants deny the allegations set forth

by Plaintiff. Specifically, Defendants state that the transaction will benefit consumers (rather
than harm them as alleged) by resulting in lower prices and/or better services. Defendants
further aver that Plaintiff s alleged market definition is incorrect and inconsistent with Plaintiff s
own Merger Guidelines. Defendants aver that the properly defined relevant antitrust product
market is all methods of tax preparation because other forms of tax preparation, such as assisted
tax preparation and pen-and-paper, compete more closely with the digital products at issue than
do other products within Plaintiffs proposed relevant market. Moreover, Defendants deny that
the transaction would result in any anticompetitive unilateral effects (even assuming Plaintiffs
alleged market) because H&R Block and TaxACT are not close substitutes and the merger is
likely to lead to substantial, incremental, merger-specific efficiencies. Defendants deny that the
transaction would result in any anti competitive coordinated effects because TaxACT is not a
unique "maverick" in the antitrust sense of the term and the industry exhibits significant
structural barriers to coordination. Finally, Defendants aver that in the unlikely event that the
transaction were to result in an anticompetitive price increase, several competing firms are

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poised to expand and/or reposition to take advantage of such a profit opportunity and render that
price increase unprofitable. Defendants further note that the Complaint fails to state a claim on
which relief can be granted particularly because it asserts a market definition that includes
federal and state filings, but does not allege market shares that take into account state filings.
Defendants further assert that the contemplated relief would harm consumers by denying them
the benefits of the transaction and the relief is thereby not in the public interest. Defendants
further assert that the efficiencies resulting from this transaction, which could not be achieved
absent this transaction, outweigh any and all claimed anti competitive effects.
IV.

Witnesses to Be Called at Hearing

A.

Plaintifi's Witnesses
1. Mark Ernst

Mr. Ernst is the former Chairman and Chief Executive Officer of HRB. He became CEO
in January 2001 and Chairman ofHRB's Board of Directors in September 2002 - positions he
served in until December 2007. Mr. Ernst also is a former Deputy Commissioner ofthe IRS.
Mr. Ernst is expected to testify at the hearing that:
•

While he was CEO at HRB, HRB viewed TaxACT as a serious digital competitor,
and a threat to HRB's digital business;

•

HRB was concerned that countering TaxACT's free online product with its own
would cannibalize HRB's paid Digital DIY tax preparation product;

•

Within HRB, the company never viewed its Digital DIY business as competing
with forms of manual tax preparation, and never set its prices or adjusted its
quality based on competition with manual tax preparation;

•

Fillable forms are small, niche program that are not a constraint on Digital DIY;

•

Digital DIY and assisted tax preparation are not in direct competition, but rather
are complementary-with switching largely resulting from changes in a filers' tax
complexity; and

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•

HRB and Intuit lobbied for restrictions to be placed on FF A offers after the FF A
went free-for-all.
2. Alan Bennett

Mr. Bennett was President and Chief Executive Officer ofHRB from July 2010 to May
2011. Mr. Bennett also served as HRB's Interim Chief Executive Officer from November 2007
to August 2008. As HRB's CEO, Mr. Bennett negotiated the TaxACT acquisition. Mr. Bennett
is expected to testify as to competition in the Digital DIY market during his tenure at HRB, as
well as his rationale for attempting to acquire TaxACT. Mr. Bennett also is expected to testify as
to the relationship between Digital DIY and assisted tax preparation.
3. Adam Newkirk

Mr. Newkirk is the Director of Reporting and Corporate Analytics for HRB's Digital Tax
business. Mr. Newkirk created a number of analyses in connection with this acquisition, and
helped prepare analyses that were presented to the Department of Justice in connection with
Plaintiff's investigation. As head of HRB' s Corporate Analytics for its Digital business, Mr.
Newkirk authored a number of documents that discuss and analyze TaxACT as a digital
competitor, as well as documents that note that post-acquisition, HRB will have an increased
ability to coordinate with Intuit. Those same documents discuss that a rationale for purchasing
TaxACT was preventing another company from acquiring TaxACT and further lowering Digital
DIY prices.
4. Lance Dunn

Mr. Dunn is President and Founder of TaxACT. Mr. Dunn is expected to testify as to
TaxACT's formation, product offerings, marketing and history of competition in the Digital DIY
market. Mr. Dunn also is expected to testify as to TaxACT's plans regarding managing both

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HRB's and TaxACT's digital businesses should this acquisition not be enjoined, as well as how
TaxACT contributed to the efficiencies calculations for this transaction.
5. Phyllis Gattos
Ms. Gattos is the Chief of Strategy and Innovation for the Electronic Tax Administration
and Refundable Credits Office, within the Wage and Investment Division of the Internal
Revenue Service. Ms. Gattos is expected to provide background testimony into the history and
growth of e-filing, and the qualifications companies such as HRB and TaxACT must meet in
order to become an authorized e-file provider.
Defendants object to Plaintiff's planned use of Ms. Gattos as a witness at the hearing. In
her deposition, Ms. Gattos confirmed that she has "no information that [she] believers] is
relevant to the DOJ's case apart from what counsel has told [her)." (Gattos Dep. at 45:18-22).
That fact alone is sufficient to exclude Ms. Gattos from serving as a witness at the hearing.
Nevertheless, Ms. Gattos also confirmed that she has no personal knowledge of any of the
relevant facts alleged by Plaintiff involving the IRS where she is employed; no personal
knowledge regarding the Free File Alliance (FFA) or the Electronic Tax Administration (ETA)
during the time period relevant to Plaintiff's allegations (Gattos Dep. at 89: 11-90: 13); and no
personal knowledge of the current FFA competitors' offerings (or even their identities) or the
IRS' current requirements for FFA participants (Gattos Dep. at 88:17-89:3; 111:8-14).

6. PaulMamo
Mr. Mamo is Deputy Director of Submission Processing in the Wage and Investment
Division of the Internal Revenue Service. In 2002, Mr. Mamo was one of the IRS individuals
who worked to help create the Free File Alliance ("FF A"). Mr. Mamo is expected to provide

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testimony regarding the formation of, and early history of, the FF A, including TaxACT's
maverick behavior within the FF A.
7. Dr. Rick Warren-Boulton (Expert)
Dr. Warren-Boulton is a Principal at Microeconomic Consulting & Research Associates,
Inc., and is the Plaintiff's primary economic expert. Dr. Warren-Boulton is expected to testify
that Digital DIY tax preparation is the appropriate market definition in this case, and that manual
filing and assisted tax preparation are not within the product market. Dr. Warren-Boulton also is
expected to testify that the transaction, by eliminating a maverick in the Digital DIY market, will
lead to both unilateral and coordinated anticompetitive effects.
8. Dr. Mark Zmijewski (Expert)
Dr Zmijewski is the Leon Carroll Marshall Professor of Accounting and Deputy Dean at
The University of Chicago Booth School of Business; and Founder and Principal, Navigant
Economics. Dr. Zmijewski is expected to testify that the vast majority of Defendants' claimed
efficiencies are insufficiently verifiable and that Defendants have not shown that they can only
be achieved through the proposed acquisition. Dr. Zmijewski is also expected to testify that
HRB's history of failing to achieve efficiencies does not support its ability to realize its claimed
efficiencies with the current transaction.
9. Dr. Ravi Dhar (Expert)2
Dr. Dhar is the George Rogers Clark Professor of Management and Marketing at the Yale
School of Management; and Director of the Yale Center for Customer Insights. Dr. Dhar
examined the 2011 litigation survey that Defendant's expert, Dr. Meyer, relied upon in her report
for purposes of market definition. Dr. Dhar is expected to testify that the survey is

In accordance with Paragraph 5 of the Joint Scheduling and Case Management Order, Plaintiff also may call fact
rebuttal witnesses at the hearing.

2

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fundamentally flawed because it both fails to ask a question relevant to any issue in this
proceeding, and never gives survey recipients the opportunity to respond "don't know/no
opinion." Additionally, Dr. Dhar is expected to testify that the survey's response rate is
astonishingly low (never more than 2.5%), causing bias and further calling into question its
reliability. Moreover, because it asks only closed-ended, leading questions, Dr. Dhar is expected
to testify that the survey is not credible. Dr. Dhar also examined a 2009 HRB pricing simulator
that Dr. Meyer relies upon in her report in analyzing customer switching and diversion. Dr. Dhar
is unable to analyze, based on the information Defendants have provided, whether the survey
methodology underlying the price simulator was properly designed and implemented and
whether survey results are accurate, reliable and valid.

B.

Defendants' Witnesses
1.

Alan Bennett, former CEO and President, H&R Block Management LLC,

will provide testimony regarding his reasons as CEO for pursuing the acquisition of TaxACT,
including but not limited to his belief that TaxACT would make H&R Block a stronger
competitor and that the anticipated efficiencies will allow H&R Block to achieve significant cost
savings. Mr. Bennett will also testify that his intent in pursuing the transaction was (a) to have
the TaxACT brand remain separate from the H&R Block brand, (b) to
, and (c) to have Lance Dunn, current President of
TaxACT, run all ofH&R Block's Digital Business.

2.

Tony Gene Bowen, Vice President and Chief Financial Officer, Digital

Tax Solutions, HRB Tax & Tech Leadership LLC, will testify that TaxACT is being acquired so
that H&R Block will have a tax preparation product in the low-end/value segment and in order to
generate merger-specific efficiencies. He will also testify about the history of the transaction,

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including when H&R Block considered purchasing TaxACT in 2009. He will further testify
about his changing views over the course of due diligence about the TaxACT platform and the
fact that he now believes (and believed as early as July 2010) that H&R Block will be able
successfully to

and to thereby

gain significant efficiencies. Mr. Bowen will also provide testimony regarding the details of the
expected efficiencies and will explain why those efficiencies are transaction-specific.

3.

William Cobb, CEO and President, H&R Block Management LLC, will

provide testimony regarding his rationale as current CEO for continuing to pursue this
transaction, including but not limited to his belief that TaxACT will make H&R Block a stronger
competitor and that the anticipated efficiencies will allow H&R Block to achieve significant cost
savings. He will also testifY that his intent post-transaction is (a) to have the TaxACT brand
remain separate from the H&R Block brand, (b) to
, and (c) to have Lance Dunn, current President of TaxACT, run all of
H&R Block's Digital Business. He will further testifY that he believes that H&R Block
competes against all forms of tax preparation in trying to obtain and retain customers.

4.

Lance Dunn, President, 2nd Story Software, Inc., will testifY that he

understands that he is to head the Digital business ofH&R Block post-transaction. He will
explain his intentions in running that business, including his intent to maintain and even lower
prices and his intent to innovate all products for which he has responsibility. Mr. Dunn will also
testifY about the merger-specific efficiencies and how he plans to make sure that those
efficiencies are achieved. He will also provide background and details regarding TaxACT,
including details about TaxACT's growth and expansion in the industry and about the fact that
he perceives that TaxACT primarily competes against companies offering similarly priced

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products and against the "Free" offers made by almost all online providers (regardless of the
ultimate cost of their products). Mr. Dunn will also explain that he does not believe that
TaxACT currently services as a maverick in the industry or that the "Free" offers made by
TaxACT five and six years ago were particularly unique or game-changing for the industry. He
will also testify regarding the growth of "Free" in the industry, its current prevalence, and his
perception of its future. Mr. Dunn will also testify

5.

Cammie Greif, Chief Marketing Officer, 2nd Story Software, Inc., will

provide testimony regarding the companies against whom TaxACT has traditionally competed
both for customers and marketing space. She will also testify generally about marketing in this
industry as well as about the use of "Free" offers as a marketing technique, the prevalence of
such offers, and their likely future.

6.

Jason Houseworth, Senior Vice President, Digital Tax Solutions, HRB

Tax & Tech Leadership LLC, will testify that post-transaction he understands that Lance Dunn
will take over Mr. Houseworth's position and that Mr. Houseworth will transition to a different
part of H&R Block or will work with Mr. Dunn to ensure that the transaction is a success. Mr.
Houseworth will also testify that the transaction will make H&R Block a stronger competitor in
that it will give H&R Block a "fighter" brand and will allow H&R Block to
. He will
also testify about his belief that those cost savings will be passed on to consumers in the form of
cheaper and/or better products and services. He will also provide testimony about past pricing
and how cost savings in the Digital business were passed on to consumers. Mr. Houseworth will
further testify about the history of the transaction, including when H&R Block considered
purchasing TaxACT in 2009.

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7.

Dane Kimber, Co-founder and Vice President, TaxHawk, Inc., will

provide testimony regarding the history and business of his company TaxHawk, which operates
several websites offering tax preparation products, including one called FreeTaxUSA. Mr.
Kimber will testifY that FreeTaxUSA offers customers the ability to prepare their federal taxes
for no charge, and can service over 95% of e-filing taxpayers with its free federal product. Mr.
Kimber will explain that if H&R Block decided to raise the price of TaxACT' s product postmerger, or reduce the scope of TaxACT's free offering, FreeTaxUSA would be able to expand to
serve dissatisfied customers. He will further testify that TaxHawk maintains a technology
infrastructure that would allow it to expand its customer base
without any significant expenditures. Mr. Kimber will also testify about the robustness of the
TaxHawk/FreeTaxUSA product, and the innovativeness of his company and its products. Mr.
Kimber will testifY regarding his marketing practices, his use of Internet search and related
marketing techniques, and his experience in advertising "Free" tax return preparation. Mr.
Kimber will also testify about his views on TaxHawk's competition, particularly with respect to
less expensive digital tax preparation products.

8.

James B. Rhodes ("Brian "), Manager of Online Applications, TaxSlayer,

LLC, will testify that if H&R Block decided post-transaction to eliminate the TaxACT brand,
raise TaxACT's prices, or diminish TaxACT's services TaxSlayer would seek to serve the
dissatisfied customers. He will also testify that TaxSlayer could

the number of customers

that it currently serves without any significant expenditures and could easily and inexpensively
further expand capacity if the demand arose. He will also testify about the robustness of the
TaxSlayer product, the innovative TaxSlayer advertising programs, and TaxSlayer's increased
success over the last several years. Mr. Rhodes will also testify about the power of "Free

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advertising," about his views on competition among companies providing inexpensive tax
preparation services, and about whether TaxACT has been a particularly innovative competitor.

9.

Dr. Christine Siegwarth Meyer, Vice President at National Economic

Research Associates, Inc., will testify that in her expert opinion that the proposed transaction is
unlikely to lead to harm to consumers in the form of higher prices or a decrease in quality or
innovation, and that these conclusions are consistent with HRB's stated rationale and strategy
regarding the transaction. She will testify that in her expert opinion the product market alleged
by Plaintiff is not a relevant antitrust product market because the test that Plaintiff s economic
expert relies upon is invalid, the data he relies upon do not answer the relevant question of how
consumers would react to a change in price, and he ignores relevant data. She will also testify
that in her expert opinion the data and documents indicate that the proper relevant antitrust
market is all methods of tax preparation because other forms of tax preparation, such as assisted
tax preparation and pen-and-paper, compete more closely with the digital products at issue than
do other products within Plaintiffs proposed relevant market. Further, she will testify that in her
expert opinion the parties' market shares are not high enough to trigger a presumption of
anticompetitive effect under the Herfindal-Hirchman Index (HHI). She will also testify that in
her expert opinion the transaction is unlikely to lead to unilateral increases in price on any of the
merging parties' products because the evidence demonstrates that the merging parties are not
particularly close competitors; the merger is likely to lead to substantial, incremental, mergerspecific efficiencies; and free products serve an important marketing role for the merging parties
and others in the industry. She will also testify that in her expert opinion the transaction is
unlikely to lead to an increase in coordination because the industry exhibits significant structural
barriers to coordination and TaxACT is not and did not act as a maverick in the economic sense.

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Finally, she will testify that in her expert opinion there are several companies that can and would
enter/expand ifH&R Block eliminated TaxACT, raised TaxACT's prices, and/or reduced
TaxACT's services post-transaction.
C.

Joint Agreement Regarding Witnesses

The Parties will each provide to the Court (and to one another) no later than September 1,
2011, declarations summarizing the direct testimony of their expert witnesses. Each declaration
for each expert witness will be no longer than 10 pages double-spaced. The Parties will each
endeavor to take no longer than an hour in putting on the direct testimony of their respective fact
witnesses and no longer than 1.5 hours in putting on their respective expert witnesses.

V.

Exhibits
Exhibits have been identified separately by the Parties pursuant to the Court's July 6,

2011 Joint Scheduling and Case Management Order.

VI.

Deposition Designations
Deposition designations have been identified separately by the Parties pursuant to the

Court's July 6,2011 Joint Scheduling and Case Management Order.

VII.

Damages
Not applicable in this case.

VIII. Requests for Other Relief
Not applicable at this stage in the case.

IX.

Undisputed/Stipulated Facts

A.

Parties to the Transaction

1.

H&R Block, Inc., 2SS Holdings, Inc. and the various shareholders of2SS

Holdings. Inc. entered into an Agreement and Plan of Merger on October 13,2010. Pursuant to

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that Agreement, H&R Block, Inc. has agreed to pay approximately $287.5 million to acquire 2SS
Holdings, Inc.
2.

H&R Block, Inc. is a corporation organized and existing under the laws of

Missouri; it is headquartered in Kansas City, Missouri. H&R Block, Inc., through its
subsidiaries, (collectively "H&R Block") provides various tax preparation products and services,
including products and services available in its and its franchisees' various offices as well as
online (over the Internet) and in retail boxed software.

3.

2SS Holdings, Inc. is a corporation organized and existing under the laws of

Delaware; it is headquartered in Cedar Rapids, Iowa. 2SS Holdings, Inc., through its
subsidiaries, (collectively "TaxACT") generally provides tax preparation products and services
online under the brand "TaxACT." In addition, in Tax Season 2010, a retail software product
bearing the brand name "TaxACT" was offered at Staples retail stores.
B.

The Industry

4.

"Tax Season" "("TS") refers to the period of time in which customers typically

file taxes for a given year. The most recent Tax Season was Tax Season was 2011.
5.

"Tax Year" ("TY") refers to the year for which taxpayers filed returns. The most

recent Tax Year was Tax Year 2010.
6.

In Tax Season 2011, taxpayers filed returns for Tax Year 2010.

7.

Approximately 140 million Americans filed tax returns with the Internal Revenue

Service ("IRS") in Tax Season 20ll/Tax Year 2010.
8.

Individuals can prepare and file their federal and state income taxes either on their

own or with assistance. Those who prepare and file their taxes on their own can do so manually
(without using any online or software products), or they can utilize an online or software

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product. Those who are assisted typically either hire an accountant or go to a retail tax office to
have their taxes prepared.
9.

Individuals who prepare their taxes manually can do so by hand (with pencil,

paper and a calculator) or can use online forms provided by the IRS. This method of preparation
is referred to by many names in this case, including unassisted, manual, pen-and-paper, and
pencil-and-paper.
10.

Individuals who utilize commercial online or software products can obtain those

products by buying software from retail stores, by downloading software, or by using online
programs. These products are collectively referred to as digital or "Digital DIY" products in this
case.
11.

Almost all providers of digital products offer some product for free with the hope

that the taxpayer will pay for additional products offered by that provider.
C.

Relevant Product Market

12.

The relevant geographic market is worldwide.

D.

Use of "Free" Marketing in this Industry

13.

The Free File Alliance ("FF A") was formed in late 2002 as a public-private

partnership between the IRS and participating tax preparers.
14.

Through the FF A, FF A members (providers of online tax preparation services)

offer free federal tax preparation services through an IRS-sponsored website.
15.

In Tax Season 2003/Tax Year 2002, the FFA's first tax season, its approximately

thirteen independent members were permitted to offer free federal products to whatever
taxpayers they wanted so long as the FF A eligibility criteria as a whole covered 60% of all
taxpayers.

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16.

In Tax Season 201l/Tax Year 2010, seventeen companies offered free federal tax

preparation products through the FF A.
The Parties continue to confer in hopes that they can reach agreement on additional
stipulated facts.

X.

Stipulations regarding Authenticity of Documents and Exhibits
Pursuant to Paragraph 30 of the Court's July 6, 2011 Joint Scheduling and Case

Management Order, the Parties have agreed that all documents not already challenged that were
produced by parties and non-parties are presumed to be authentic and business records within the
meaning of Fed. R. Evid. 901 and 803(6).

XI.

Description of Demonstrative Evidence, Physical Evidence or Videotape Evidence
Pursuant to Paragraph 26 of the Court's July 6,2011 Joint Scheduling and Case

Management Order, demonstrative exhibits will be served on all counsel at least two (2) business
days before any such use (unless good cause exists). At the hearing, the parties do not plan on
introducing portions of videotape testimony taken during discovery.

XII.

Motions in Limine
Pursuant to Paragraph 31 of the Court's July 6,2011 Joint Scheduling and Case

Management Order, non-expert pre-hearing motions, including pre-hearing motions in limine,
were due on August 12, 2011 and any Oppositions thereto are due no later than August 18, 2011.

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At this time, neither Party has any basis to reasonably anticipate that any motions in limine will
arise at the hearing.

ff:ROb::'on ~

Respectfully submitted,

lsi Lawrence E. Buterman
Joseph F Wayland
Lawrence E. Buterman
United States Department of Justice
Antitrust Division
450 5th Street, NW, Suite 7100
Washington, DC 20530
[phone]
[e-mail]

Corey W. Roush
Hogan Lovells US LLP
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004
[phone]
corey .roush0<ho ganl ovells. com

On behalf of Plaintiff

On behalf of Defendants

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