Apparently we do have antitrust laws left in this country – when the mood strikes us, that is.
The Department of Justice announced today that it has filed an antitrust lawsuit to stop H&R Block from buying 2nd Story Software, the company that makes TaxACT. Last year, H&R Block had annual revenues of $3.9 billion and prepared more than 23 million tax returns worldwide, making it one of the largest retail tax preparers in the world.
In prepared remarks from the Department of Justice, Assistant Attorney General Christine Varney said about the suit:
We are blocking this transaction because the proposed merger would substantially lessen competition in the tax preparation software market, resulting in higher prices, lower quality and reduced innovation.
Tax prep software has become an increasingly significant factor in the tax market. More than a quarter of taxpayers used do-it-yourself type software products to file their federal and state income taxes during the most recent tax season. This is likely attributable to the IRS’ emphasis on the advantages of e-filing since most tax prep software packages offer an easy e-filing option. TaxACT, in particular, made its mark in the industry several years ago by offering free e-filing opportunities with the purchase of their products.
Despite the opportunity for products in the marketplace, the Department of Justice noted that 90% of all of those do-it-yourself tax returns are prepared using the top three software providers: H&R Block, TaxAct and Intuit (which issues TurboTax). Putting two of the three together would clearly lessen competition, a fact noted by H&R Block which, according to the DOJ, stated that acquiring TaxACT was motivated by “elimination of competitor.”
Last year, Block offered to purchase 2nd Story Software for $287.5 million. At the time of the announcement, Block President and CEO Alan Bennett said:
This transaction is a significant step for H&R Block in a segment that is strategically important. This will provide us with innovative growth-oriented leadership to accelerate our digital tax offerings and results.
2nd Story Software has been around for just over ten years, opening for business in 1998. TaxACT is its clear flagship product.
TaxACT has pushed the envelope in the industry since it came onto the scene, forcing competitors to match its free e-filing options and lower software products. It is, for these reasons, that the Department of Justice feels that TaxACT should remain as an independent competitor in the industry. Varney has noted that the proposed acquisition “would destroy the head-to-head competition between these two companies, leaving only one other major competitor. That is not enough competition in this important and valuable industry.”
On the surface, that reasoning seems to fall within the intended purpose of antitrust laws in the U.S., which is to discourage anti-competitive behavior and unfair business practices. The idea behind antitrust laws isn’t so much to stop monopolies (as we tend to think) but to dissuade monopolies that are formed as a result of prohibited conduct. A subtle distinction to be sure, but an important one.
The federal government, through the Antitrust Division of the Department of Justice and the Federal Trade Commission, can bring federal civil antitrust lawsuits; the Department of Justice alone can bring federal criminal antitrust suits. This most recent suit filed against H&R Block by the Department of Justice is a federal civil antitrust lawsuit.
Not everyone is a fan of the antitrust laws, believing that they discourage innovation and create an anti-business atmosphere. There have been few high profile antitrust cases in recent years, prompting some to believe that the Department of Justice has been slow to criticize big business. One has to wonder what prompted the Department of Justice to call out H&R Block as opposed to say, AT&T (over its acquisition of T-Mobile) and Comcast (over its acquisition of NBC). Any thoughts?
