ES&S Diebold Purchase: Groups Endorse Remedies for Unlawful Concentration of Market Power

Groups endorse and recommend remedies to the merger of ES&S and Dieblod/Premier <read>

RE: ES&S Purchase of Diebold/Premier: Remedies for Unlawful Concentration of Market Power and Other Public Injuries Within DOJ Jurisdiction

Dear Attorney General Holder, Assistant Attorney General Varney, and Assistant Attorney General Perez:

The undersigned organizations and individuals possess nationally recognized expertise in voting systems technologies, local and State election administration, and in removal of barriers to voting participation. We have cooperated in the preparation of this letter thatseeks to address appropriate remedies for ES&S’s anticompetitive disruption of the relevantmarkets and the threats thereby posed to American election integrity.

We are deeply concerned about the public impact of ES&S’s purchase of Diebold’s Premier Election Solutions, Inc. (“PESI”), referenced here as the “merger.” Fortunately, the Federal Government has expedited its research into purchaser ES&S’s accelerated absorption of PESI assets into ES&S and the business goliath’s concerted attempt to achieve a de facto dissolution of PESI before the DOJ can act.

This purchase represents a dangerous concentration of election equipment, maintenance, and management in one company.  To understand the extent to which companies can control elections and hold election officials and government hostage, we recommend the VotersUnite report and our comments on the risks to Connecticut.

We are very much impacted by this purchase.  It seems that it is now highly unlikely that there will ever be significant software upgrades to our Diebold AccVote-OS optical scanners, and even less chance that there will be a hardware upgrade to fix their(our?) ancient failure prone memory cards.

We have only one other company supplying ballots in Connecticut in addition to Diebold.  Only one company programming all the memory cards in five New England states, including Connecticut.

ES&S has a track record that adds to our concerns. From the letter:

C. History of ES&S Anticompetitive Market Conduct:

Buyer ES&S’s record of anticompetitive market conduct includes:

1. Legally proscribed tying arrangements to achieve vertical integration and marketdominance;

2. Predatory pricing of goods and services; and

3. Threatened breaches of contracts on the eve of elections, unless the election jurisdiction agreed to ES&S’s unilaterally determined price increases for essential goods (e.g. ballots) and services (e.g., technical maintenance and testing of voting equipment) that had been previously negotiated and approved for local or State fiscal planning.

D. ES&S Conduct Post-Merger Designed to Obstruct DOJ Remedial Options

ES&S engaged in conduct which appears to have been deliberately designed to vitiate the Antitrust Division’s (AD) scope of available remedies, and specifically the Government’s ability to unwind the sale as by a divestiture of PESI. Given the market share of theresulting corporate entity and other factors that justify DOJ review, buyer ES&S should reasonably have known that DOJ-AD would examine the merger. ES&S conduct that soughtto obstruct DOJ’s vindication of the antitrust laws and larger public interest includes:

1. Taking physical possession and control of all PESI intellectual property and business records within a few days of the sale/merger;

2. Rapidly renegotiating contracts with local election jurisdictions, to transfer them to ES&S products and services at steep discounts if the contracts were executed quickly, thus eviscerating the PESI business relationships;

3. Discharging PESI employees, so that virtually no qualified workforce would remain to manage and execute PESI’s business if DOJ required ES&S to divest PESI; and,

4. Undertaking an arguably deceptive sales effort to excise some low-value PESI assets in order to unilaterally and superficially restructure the voting products and services markets, with the objective of superficially restoring competitive market conditions while also not actually reducing or endangering the ES&S dominant market share.

In sum, ES&S’s restrictive contractual provisions intensify the dependence of local and State governments on one privately held firm for their mission-critical election operations. ES&S’s vertically integrated business model and standard terms greatly reduce the opportunities for smaller vendors to offer goods and services to governmental units. The terms also augment the opportunities for ES&S vendor intimidation of governmental customers in ways that threaten the integrity of elections. ES&S’s oligopolistic control over the market (an estimated 70% share) and the injuries inflicted by this degree of market power will likely escalate unless DOJ-AD redresses ES&S’s problematic contractual provisions as part of the remedies ordered.

With the discharge of employees etc. the purchase cannot be undone to leave Diebold/Premier viable. Yet there are remedies that can mitigate and reverse the damage. From the letter (read the full letter for the details):

A. Prohibit ES&S From Conducting Business Under Contractual Provisions that Undermine Competitive Market Conditions and Unfairly Perpetuate Oligopolistic Market Share

B. Require Continuation of PESI’s Efforts to Achieve Increased Electoral Transparency

C. Require ES&S to Continue PESI’s Effort to Serve Voters With Disabilities By Identifying Alternatives to the AutoMark Voting Machine

D. Require Buyers of PESI Assets to be Qualified to Compete in Jurisdictions that Mandate Paper Ballots

F. To mitigate the increased threat to national security generated by this merger, require ES&S to divest sufficient assets, reduce its contractual control over election jurisdictions, and take other appropriate actions.

We are pleased to join the other signatories in urging strong action.

Update: 2/18/2010:  From Bo Lipari’s blog: Dominion [Voting Systems] Sues to Stop New York City Contract with ES&S <read>

A current example of the hardball we may face with possible questionable/illegal tactics by a single company driving further to monopolize election equipment and maintenance:

In court papers, Dominion argues that the New York City Board of Elections failed to comply with New York State and New York City Procurement Laws, Rules and Regulations, and awarded the contract on the basis of illegal criteria. Further, the lawsuit argues that the New York City Board of Elections:

1) Did not conduct a lawful bidding and procurement process;

2) Did not disclose the method and criteria used in evaluating bidders;

3) Did not award the contract to the lowest responsible bidder.

The city used a point system to evaluate the two companies. In the final evaluation, ES&S received 3,417 points, while Dominion received 3,395, a difference of only 22 points. Dominion claims that the slightly higher overall score for ES&S in the city’s evaluation is due to extra points given to the ES&S DS200 scanners for an option called “Easy Startup”. This option is said to include electronic machines pre-programmed in the warehouse prior to delivery to poll sites, and the ability for poll workers to open the machines without a password (such a configuration is not only an obvious security risk, but disallowed under New York election law). The lawsuit claims that the State Board of Elections explicitly ruled that the DS200 Easy Startup option does not comply with state law, and informed the New York City Board that it would reject any contracts that included it.

Bo also points to an article on a lobbiest for ES&S <read>

While a Republican lawyer was under federal investigation in a Yonkers corruption case, he was paid nearly $50,000 last year to help a Nebraska company win a contract to provide New York City with new voting machines.

Anthony Mangone was indicted this month with Yonkers Councilwoman Sandy Annabi and former city GOP Chairman Zehy Jereis on extortion, bribery and other federal charges related to payments made to Annabi for her to change votes on city projects.

Coincidentally that same day, the New York City Board of Elections voted to buy thousands of new electronic voting machines — a contract expected to be worth more than $40 million — from Mangone’s client, Election Systems & Software

Is this what Connecticut look forward to, totally dependent with most other jurisdictions on one company?

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