Spies and Monopolies

In a closely watched antitrust trial, NSA officials testify on behalf of Booz Allen's monopolization of surveillance contracting.

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The shooting war in the antitrust world continues. Yesterday, the Antitrust Division lost yet another hearing in district court. It’s not a full trial, but enforcers lost on an attempt to stop contractors for the National Security Agency from gaining a monopoly in a certain area of procurement. Here’s the story.

A federal judge in Maryland on Tuesday ruled against the Justice Department's effort to block Booz Allen Hamilton's planned $440 million acquisition of fellow government technology services company EverWatch on antitrust grounds.

Justice had sought a preliminary motion to stop the transaction from proceeding, but Judge Catherine Blake declined to do so in a ruling that will remain under seal until Oct. 18. That date is when the U.S. District Court for Maryland intends to release a redacted version of its memorandum to all parties involved, according to a court filing.

The case in part centers around the recompete for a signals intelligence contract with the National Security Agency that Booz Allen has held for two decades.

I’m going through the post-hearing briefs, and what seems to have happened is that National Security Agency employees would not testify against the merger. It’s a pretty simple case. The NSA is a government agency, and it needed a contractor to do something called signals intelligence modeling and simulation, which is a way of improving surveillance. For 20 years, Booz Allen was a monopolist over this area, because it had the requisite top secret SCI clearance and a deep understanding of how the NSA operates through its workers. This time, however, a new firm called EverWatch, which had been assembled to be able to get this contract, sought to compete in the bid.

Before the bidding process, Booz Allen decided to simply buy EverWatch to take it out of the contest for procurement dollars. The Antitrust Division noted this transaction is known as a merger-to-monopoly, and is unlawful. They found a number of internal conversations, particularly among low level employees who would be doing the work, indicating that the bidding would be much less intense as a result of the merger.

Booz Allen argued in response that the merger is fine for a few reasons. The most important reason is simply that the NSA itself wasn’t concerned over the merger. A lot of the briefs are redacted, but the gist is that one NSA witness, a “a 40-year agency veteran” known as “Dr. S,” alleged the Antitrust Division’s case was mere ‘rhetoric.’ This neutral to pro-monopoly testimony from the procurement arm of a government agency is similar to how the Department of Agriculture a few months ago supported a sugar merger to monopoly, fighting against the Antitrust Division. It is often hard to find government employees willing to risk angering a powerful industry, and much easier to find officials eager to help them. The NSA is no different than the Agriculture Department in this sense.

The other main argument Booz Allen made is that the firm would never take advantage of the government, because doing so would, and once again I’m not kidding, threaten the firm’s reputation. As they put it in their post-hearing brief, their employees support “the NSA’s mission and understand the work they perform supporting that mission is ‘a privilege.’” As with UnitedHealth Group, the notion Booz Allen is reliant on its reputation for its business is a bad joke. Here’s just one headline, but I could list many more.

So is it over? Not exactly. The Antitrust Division brought two different claims, a Sherman Act claim against the merger agreement and a Clayton Act claim against the merger itself. And it also sought to have a speedy resolution so the bidding process could happen in a competitive manner. The judge didn’t say the merger was lawful, but merely ruled against the request for a preliminary injunction. She denied the government in its bid to stop the merger agreement, but allowed for a full trial on the merger itself. The Antitrust Division can still move forward, and we’ll know more next week when the full decision is unsealed.