Antitrust & Election Systems Collide: The Contested ES&S/Diebold Merger

In the 2000 Presidential election, Americans became painfully aware of the dirty secret of their democracy — that the integrity of our elections depends on a messy patchwork of voting machines that use disparate and often archaic systems.  Since then, efforts have been made to improve and standardize the system but the weaknesses of the system remain and are particularly apparent in contested close elections.  Now the integrity of our election systems is being raised in a surprising new context — antitrust merger enforcement. 

Our election systems and the conduct of the entities that provide them is front and center in a lawsuit filed by Hart Intercivic, Inc., a Texas company that provides election services, to challenge the merger of the two leading voting machine and servicing companies, Diebold and ES&S.  On September 2, 2009, Diebold and ES&S reached an agreement in which ES&S purchased Diebold’s election systems business.  The lawsuit alleges that a combined ES&S and Diebold would possess over 68% of the voting machine and election services market and that ES&S, post-merger, would have the power to raise price and reduce competition in the market.  Hart’s complaint includes a litany of examples of ES&S and Diebold exerting power over local jurisdictions, particularly after a jurisdiction is “locked-in” to their touch screen systems.  According to Hart, these tactics of gouging locked-in customers, raising rival costs, and pressuring government officials when election systems are up for bid will get worse if this merger is not stopped, and innovation and the quality of our election systems will suffer as a result.  Hart possess about 9% of the market and it is clearly concerned about its ability to compete against an industry goliath with over 2/3 of the market.  In addition to suing to block the merger under Section 7 of the Clayton Act, Hart also has asserted various claims against the defendants, and in particular ES&S, under Section 2 of the Sherman Act.

While we cannot assess the merits of this case, given the importance of the industry at issue, we hope that it proceeds expeditiously.  As Hart seeks a temporary order enjoining the merger, when it files a motion for a temporary restraining order to prevent the parties from completing the transaction, we should get an early indication of the merits of the case.

The case is Hart Intercivic, Inc. v. Diebold, Inc. and Election Systems & Software, Inc., No. 09-cv-678 (D. Del. filed Sept. 11, 2009).