Coalition Letter to Dept. of Justice regarding the ES&S Purchase of Diebold/Premier

February 12, 2010



The Honorable Eric Holder

Attorney General

United States Department of Justice

950 Pennsylvania Ave. NW

Washington, DC 20530-0001

Christine A. Varney, Assistant Attorney General

Antitrust Division

U.S. Department of Justice

950 Pennsylvania Avenue, NW

Washington, DC 20530-0001

Thomas E. Perez, Assistant Attorney General

Civil Rights Division

U.S. Department of Justice

950 Pennsylvania Avenue, NW

Washington, DC 20530-0001

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 that seeks to address appropriate remedies for ES&S's anticompetitive disruption of the relevant markets 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.

We commend the DOJ's Antitrust Division ("AD"), the U.S. Senate Rules Committee, and the Congressional Research Service for their swift research to document and assess this merger's legal, economic, and fiscal impact on voters, election administration, taxpayers, local and State governments budgets, and other public interests.

Based on our extensive experience in the voting systems equipment, procurement and services arena, we would like to bring forward an outline of antitrust remedies that we believe would redress the major market injuries and the merger's broad-based detrimental public impact. We additionally would like to request that the Department of Justice utilize other statutory authority, pursuant to U.S. voting and civil rights laws, to rectify public injuries that have been sustained or that are threatened by this merger.

As you know, we do not have access to the evidence the Government has gathered and evaluated. Our expertise in the voting systems and services markets, however, and our review of public domain information, lead us to conclude that the Government will likely have documented substantial current and threatened antitrust injuries that warrant DOJ's intervention. For purposes of setting forth important remedies that are needed to protect the larger public interest in legitimate elections with accurate vote counts and correctly reported election winners, we set forth the following propositions as our working assumptions.

I. Anticipated Factual & Legal Conclusions

A. Discrete Markets Have Suffered Harms Cognizable as Antitrust Injuries

ES&S's business conduct, and particularly its purchase of PESI, impacts a number of separate markets that collectively constitute the election administrative goods and services marketplace. In addition to the high expenditure/capital goods voting equipment market, other discrete election products and services markets have been and continue to suffer injuries traceable to this sale/merger. These discrete markets, which previously were largely comprised of smaller local or regional companies, include:

� Ballot design

� Paper ballot printing (which may include absentee ballot mailings)

� Election Day precinct supplies & support

� Programming of e-voting machines, other technical equipment

� On-site election office support services

� Maintenance services for technical equipment (voting and registration devices and

servers)

� Election readiness testing of technical equipment (voting and registration devices and

servers)

Some vendors operate in only one of these markets while others are market participants in

several of these areas.

B. Unlawful Anticompetitive Impact

The merger has generated anticompetitive impact on election equipment and services

markets, including excessive control over the relevant markets. This market power in turn

has produced or will produce:1. High barriers to market entry for prospective new vendors, and high barriers to other

vendors in their attempts to negotiate continuation of their contractual relationships;

2. Fewer governmental-customer choices in voting system products, support services,

packaged combinations, and contractual-pricing terms; and,

3. Artificially inflated prices and other coerced contractual terms.

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 market

dominance;

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 the

resulting 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 sought

to 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.

II. Recommended Remedies

The undersigned submit that the history of ES&S's market conduct, its degree of market

share, and its current business practices present substantial and ongoing threats to critical

markets whose goods and services are currently required to conduct American elections.

We believe DOJ-AD should structure remedies that will restore and improve competition in

the relevant markets and also protect the American people's larger interests in verifiably

accurate elections that a legitimate, trustworthy democracy demands. No simple divestiture

of some few previously PESI-owned assets will suffice to redress existing injuries and

prevent imminent, foreseeable harms. Therefore, we urge you to consider imposing the

following remedies to protect the democratic system that preserves our Republic.

A. Prohibit ES&S From Conducting Business Under Contractual Provisions that

Undermine Competitive Market Conditions and Unfairly Perpetuate Oligopolistic

Market Share

Background and Rationale: Standard form ES&S election equipment contracts bar their

governmental customers from permitting third parties - which includes smaller vendors -

from (a) servicing ES&S-marketed equipment and from (b) modifying such equipment to

render it interoperable with hardware and software developed by other vendors or by the

governmental unit.

ES&S contracts often also require customer governments that choose ballot scanning

equipment to (c) order their paper ballots exclusively from ES&S. In some cases, ES&S's

initial pricing for ballots can be described as "loss leaders" that are designed to entice

customers from their current vendors, whose business will experience severe losses. ES&S

has also mandated exclusivity in providing other election goods and services in a

prototypical tying arrangement.

The classic models obtain here, for after forcing other vendors out of business, the market

predator can raise prices, even to recover its income losses from earlier loss-leader pricing.

The predator's normal ability to raise prices significantly can be augmented by restrictive

tying arrangements, like those of ES&S, that bar customers from access to other vendors for

the needed goods and services. ES&S contractually requires customers to waive access to

other vendors for substitute or alternative goods and services, thus producing a captive

customer base subject to duress and extortionist pricing after ES&S has forced the other

market participants to abandon their election products and services business lines.

DOJ Actions Recommended: With DOJ-AD retaining monitoring power over the next 36

months:1. Void all contracts ES&S has negotiated with former PESI jurisdictions in the post-merger

period to the present, as they were products of oligopolistic market-share control and threats

(to deprecate-- no longer support--PESI GEMS software and other products). Unless these

agreements are voided, ES&S will reap the fruit of its anticompetitive conduct and

perpetuate the markets' anticompetitive conditions.

2. Invalidate and prohibit the enforcement of ES&S contractual provisions that vertically

integrate in exclusive tying arrangements goods and services that can be separated; apply

these prohibitions to all ES&S's existing contracts with election jurisdictions and forbid these

clauses in future contracts.

3. Ensure that election jurisdictions possess the legal authority to use their ES&S and PESI

voting, registration, and other hardware without being required to use ES&S software.

4. Require ES&S and/or the successor owner(s) of PESI assets to withdraw the plan to

deprecate GEMS and other Diebold-Premier equipment and software, and instead to service

and support these PESI products for at least 5 years.

5. Require ES&S to divest itself of a specified percentage of the election equipment and

services contracts in each State for a minimum of three years. Or, restrict ES&S to supplying

goods within only one market - such as the voting systems equipment market -- and then

bar ES&S from also providing technical services, ballot design and printing, election

support, and equipment maintenance services to the same jurisdiction. In other words,

prohibit ES&S from seeking and signing vertically integrated product and services contracts.

6. Require of ES&S, and of any successor entity that purchases PESI assets, to provide to

other vendors and service providers who desire to become ES&S product resellers and

suppliers: (a) reasonable terms and authority to sell, lease, and service ES&S voting system

equipment and other election products; (b) ample supplies of voting system and ancillary

products at fair wholesale prices; and (3) inclusion of these resellers and service vendors'

personnel in ES&S training programs.

7. Require ES&S to post on a publicly accessible website, human-readable, search-engine

usable copies of goods and/or services contracts the firm executes with any government or

election jurisdiction, including all appendices, addenda and amendments; also require ES&S

to post every contract it currently holds with a government or election jurisdiction to

provide election services or products.

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

Transparency

Background and Rationale: In response to a growing demand for more transparent voting

equipment that permits greater public accountability, PESI was reportedly taking steps to

release some or all of its software code into the public domain. An open system would

enable customers and the public to independently assess the reliability, accuracy, and

integrity of the electronic balloting and tabulation systems used in their elections.

In a New York Times Magazine article on electronic voting equipment failures, a PESI

representative reported his company's stance open source software in technical election

equipment. He underscored PESI's desire to increase voter trust and satisfy the growing

demand from customers for more accountable, transparent elections systems:

[T]he Diebold [PESI] spokesman, Chris Riggall, admitted. that the company is

considering making the software open source on its next generation of touch-screen

machines, so that anyone could download, inspect or repair the code. The pressure

from states is growing, he added, and "if the expectations of our customers change,

we'll have to respond to that reality." 1

PESI undoubtedly recognized that open source software not only provides public access to

the election tabulation code but that impartial computer scientists can both participate in

upgrading the code and scrutinize it closely to identify bugs and other flaws that impede the

capacity to produce accurate vote counts.

These PESI's plans to improve electoral transparency and accountability, however,

threatened the competitive status quo. If PESI had remained independent, such a move

would have radically changed voting system industry practices by increasing the

competitive pressure on ES&S to provide its customers publicly accountable voting systems.

By purchasing PESI, ES&S eliminated the only major competitor that planned to transform

and heighten the public's expectations of voting system accountability.

DOJ Actions Recommended Because ES&S benefitted in legally proscribed ways from its

acquisition of PESI, DOJ should require ES&S to continue PESI's work toward increased

public transparency and auditability. Steps should include:1. Require ES&S contracts for goods and services sold for use in U.S. elections to include

authorization of election observers and independent computer science consultants (whether

local or State-authorized) to assess the system and data integrity, including the equipment's

capacity to produce accurate vote totals. DOJ should inter alia require ES&S to permit access

to the ballot definition files, to the underlying election database(s), and to other electronic

data that can be scientifically evaluated.

2. Require ES&S to cooperate fully in any election assessment or inquiry that in any manner

questions the performance or accuracy of ES&S products or services, and to permit

independent election investigators to have access to all relevant or material information,

including the source code, that the investigators consider necessary to the forensic inquiry.

3. Consider requiring ES&S to release into the public domain the Unity, GEMS, and Assure

source code and builds, and concomitantly revise these source codes from proprietary to

open source. Alternatively, DOJ could require ES&S to make its election equipment

software available for frequent auditing and inspection by a select group of experts, such as

1 Clive Thompson, New York Times Magazine, Can you Count on Voting Machines (Jan. 6, 2008), at 9.

computer professionals and election integrity advocates.

C. Require ES&S to Continue PESI's Effort to Serve Voters With Disabilities By

Identifying Alternatives to the AutoMark Voting Machine

Background and Rationale: HAVA requires States and counties to supply functioning,

accessible voting equipment. Compliance with HAVA is essential to ensuring every that

person, no matter their disability status, is extended the right to vote privately and

independently.

ES&S owns the AutoMARKT line of voting machines, which is the dominant HAVAcompliant

product for voters with disabilities. AutoMARK has become the de facto choice for

counties and states nationwide. Both ES&S and PESI distributed AutoMARK but PESI was

developing an alternative to AutoMARK. Such a move would have provided a muchneeded

spur to making more options available.

DOJ Action Recommended: Require ES&S to divest itself of the PESI assets related to

producing an alternative to the AutoMARK, including research notes and business planning

documentation, and transfer to the purchasing firms the PESI research personnel primarily

assigned to design and bring to market additional accessible ballot marking devices. See

FTC Divestiture Study, at 40-41.

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

Mandate Paper Ballots

Background and Rationale: A number of electoral jurisdictions require vendors to offer

paper-ballot voting systems. As important as this condition precedent is to transparent and

verifiable elections, some vendors do not include within their product lines an optical

scanner-paper ballot set of balloting and tabulation options.

DOJ Action Recommended: Require all prospective buyers and contractors of ES&S/PESI

election jurisdiction business opportunities (that are relinquished as a part of this DOJ

challenge) to qualify for the contract by demonstrating they are or would be qualified to

offer paper-ballot systems. A vendor's plan to purchase or lease the PESI optical scanning

assets and thereby support paper-ballot jurisdictions systems should be considered

acceptable satisfaction of the requirement.

E. Require ES&S to Modify Its Voting Systems Design Criteria and Marketing

Practices to Permit Interoperability with other Vendors' Components

Background and Rationale: ES&S utilizes proprietary components and unique software

data formats that undermine competitive markets and block the realization of the public's

interests in transparent and verifiable elections. These design choices thwart election

officials' ability to customize their voting system equipment by combining several vendors'

products into a functioning voting system. For instance, we understand that Kodak

manufactures several high speed, high volume scanner models with performance metrics

that exceed those of voting system vendors. Kodak's pricing is considerably lower than the

voting system vendors' pricing for their inferior scanners. But owing to current ES&S system

criteria (and to be fair, some jurisdictions' certification rules), election officials cannot choose

to combine a Kodak scanner with other ES&S components and save substantial funds.

If DOJ were to require ES&S to adopt strategies that foster interoperability, significant

benefits would accrue to the market, to potential market participants, and to taxpayers and

voters. Election officials could choose from a broader array of products and services; the

relevant markets would experience significantly more competition with many more vendors

able to participate; and the cumulative impact would be to exert a substantial downward

pressure on voting system pricing.

Local and State governments have sustained dramatic increases in their election

administrative costs in large part owing to their being a captive market required to comply

with federal election law governing voting technologies. ES&S's refusal to participate in

standardizing data formats is one tool by which this vendor exerts excessive control over the

voting system market and preempts new competitors, third party suppliers, and service

providers.

The omission of standardized data formatting across vendors also imposes barriers between

vendors' goods and services, both inter-vendor and intra-vendor. Unable to contract with

third-party service and goods suppliers, election offices are thereby consigned to

dependence on the voting system vendor, chiefly ES&S, to provide the necessary interfaces

and other work that cumulatively permit the voting and tabulation system to function.

These same unique data formats impede public accountability efforts designed to determine

whether the machines are accurately counting and reporting votes, and producing useful

election records. This "Tower of Babel" result at best, adds expense and complexity to U.S.

elections. At worst, the practice opens our elections to the possibilities that particular

election results will have been manipulated by foreign interests, in undetectable and

untraceable ways. The American people deserve meaningful, honest elections, with

standardized data formats that allow larger windows into vote counting and reporting.

DOJ Actions Recommended:

1. Require ES&S to undertake a good faith effort, in conjunction with other election

equipment vendors, governmental election policymakers, voter advocates, and independent

voting systems scientists, to develop market-wide common data formats and greater

standardization of voting system and related election equipment components, and to then to

implement the collaborative conclusions into their own products and services.

2. Prohibit ES&S from including contract provisions that bar the copying or printing of

output from any ES&S components or software.2

3. Require ES&S to work with election accountability and voter advocacy organizations to

ensure that election tabulations, ballot definition files, and all other mission-critical software produced

election outputs can be fully audited.

2 For an example of the problematic uses of these contractual barriers, see the "prohibited uses" clause in this

contract: http://accurate-voting.org/contracts/IL/Bloomington/IL_bloomington_2003.pdf

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.

Background and Rationale: The consolidation of the voting system market resulting from

this merger creates a near monoculture. That is, a single vendor controls the vast majority of

election jurisdictions including those of several entire states. This monoculture creates new

risks of "wholesale" election failure, both intentional and unintentional. Since election

failure on a large scale has the potential to destabilize the Nation, DOJ should assess and

remedy these risks on the basis of their presentation of real threats to U.S. national security.

(See Exhibit A attached; Statement of Dr. David Jefferson).

DOJ Action Recommended: Require ES&S to divest sufficient assets, reduce the scope of

election jurisdictions subject to its software; and take other actions to mitigate the increased

threat to national security arising from this merger.

****************

The undersigned organizations and individuals appreciate the opportunity to recommend

for DOJ's consideration the foregoing remedies for ES&S's excessive market power and

anticompetitive conduct in the elections equipment and services markets. We thank the

Department of Justice for investigating this sale and for your sincere efforts to understand

and redress the complex public injuries it engendered.

Should you have any questions or desire any additional information, please contact

Professor Candice Hoke or Attorney John Bonifaz, who will transfer the requests. The

Appendix (Statement of Dr. David Jefferson on national security implications of the merger)

follows the signatory list.

Very truly yours,

Candice Hoke, Assoc. Professor of Law, Cleveland State University

216-798-4643

John Bonifaz, Legal Director, Voter Action

413-253-2700

Edward A. Hailes, Jr. General Counsel, Advancement Project

Bob Edgar, President, Common Cause

Rob Richie, Executive Director, FairVote

Pamela Smith, President, Verified Voting Foundation

Paul A. Lux, Supervisor of Elections, Okaloosa County, Florida

Harry Sawyer, Supervisor of Elections, Monroe County, Florida

Ion Sancho, CERA, Supervisor of Elections, Leon County, Florida

Barbara Simons, Ph.D., Member, U.S. EAC Board of Advisors

Dan McCrea, President, Florida Voters Foundation

Arlene Levy, Vice President, League of Women Voters of Greater Pittsburgh

Collin Lynch, Ph.D., Intelligent Systems Program, University of Pittsburgh

Marybeth Kuznik, President, VotePA

Bernie Ellis, Gathering To Save Our Democracy TN

Mary Ann Gould, Founder, Coalition for Voting Integrity PA

Luther Weeks, Executive Director, Connecticut Voters Count

Rebecca Wilson, Co-Director, SAVE our Votes MD

Kevin Zeese, Executive Director, TrueVote.US

Affiliations are for identification purposes only


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