PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Priya Nagarajan, U.S. Deputy General Counsel, Halcyon Semiconductor Americas Inc. Katrin Schreiber, General Counsel, Halcyon Semiconductor AG
FROM: Elaine Forsythe, Partner, and Aaron Liu, Associate, Calderwood & Harkness LLP, Antitrust & Competition Practice Group
DATE: April 24, 2023
RE: Preliminary Case Assessment — State of Oregon v. Halcyon Semiconductor Americas Inc., Case No. 23CV-18274, Circuit Court of the State of Oregon for the County of Multnomah
MATTER NO.: 1032-00001
I. Purpose and Executive Summary
This memorandum provides our initial assessment of the civil enforcement action filed by the State of Oregon, acting through Attorney General Diane Calloway, against Halcyon Semiconductor Americas Inc. ("Halcyon Americas" or the "Company") on April 17, 2023. The purpose of this memorandum is to orient in-house counsel to the claims asserted, evaluate the relative strengths and weaknesses of the State's legal theories, outline available defenses, and recommend immediate next steps. We anticipate supplementing this assessment with additional analysis as we obtain further information through review of the Company's internal documents, consultation with our recommended economic expert, and further study of the AG's pleadings and investigative materials.
The complaint, filed in the Circuit Court of the State of Oregon for the County of Multnomah (Case No. 23CV-18274) and assigned to the Honorable Robert Castañeda, challenges the completed acquisition by Halcyon Semiconductor AG ("Halcyon AG") of Meridian Photonics Inc. ("Meridian") under the Oregon Antitrust Act. Specifically, the AG invokes ORS 646.730, which prohibits restraints of trade and monopolization, and ORS 646.775, which grants the Attorney General enforcement authority to seek injunctive relief and civil penalties for violations of the Oregon antitrust statutes. The AG seeks injunctive relief that could include mandatory divestiture of Meridian — a remedy that, if granted, would unwind a $2.15 billion transaction that closed nearly three months ago and that received early termination of the Hart-Scott-Rodino Act waiting period from the federal antitrust agencies.
The complaint was preceded by a Civil Investigative Demand ("CID") issued on April 10, 2023 to Halcyon Semiconductor Americas Inc. We address the CID and its implications in Section VI.B below, but note at the outset that the extremely short interval between the CID's issuance and the filing of the complaint — only seven calendar days — raises questions about the AG's investigative process and the extent to which the complaint rests on publicly available information and customer complaints rather than a thorough investigative record.
Executive Summary of Our Assessment: While the AG's complaint raises facially serious concentration concerns based on market-share data in the co-packaged optics ("CPO") transceiver segment, we have identified multiple strong defenses. These include: (1) federal preemption based on the completed Hart-Scott-Rodino Act review and early termination of the waiting period; (2) an overly narrow product market definition that excludes functionally substitutable high-end pluggable optical transceivers; (3) significant procompetitive efficiencies arising from the vertical integration of Halcyon's analog IC design capabilities with Meridian's photonics technology; and (4) the dynamic and rapidly evolving nature of the relevant technology market, which undermines static structural presumptions based on current market shares. We estimate the AG's likelihood of prevailing on the merits at trial at approximately 30–40%, but caution that the risk of adverse interlocutory relief — particularly behavioral restrictions imposed by preliminary injunction — is somewhat higher, in the range of 45–50%, given the court's broad equitable discretion and the AG's striking concentration numbers.
We recommend filing a motion to dismiss as an initial defensive measure, raising both federal preemption and failure to state a claim, while simultaneously preparing a substantive defense on the merits. This dual-track approach will position the Company for maximum flexibility and leverage as the case develops.
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. It should not be shared outside of Halcyon's legal department, and should not be forwarded, copied, or distributed to any third party, without prior consultation with Calderwood & Harkness LLP.
II. Background — The Acquisition
A. Transaction Overview
On September 8, 2022, Halcyon Semiconductor AG, acting through its wholly owned U.S. subsidiary Halcyon Semiconductor Americas Inc. — a Delaware corporation (EIN 84-3921057) headquartered at 4500 Great America Parkway, Suite 300, Santa Clara, California 95054 — entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire one hundred percent of the outstanding shares of Meridian Photonics Inc. — a Delaware corporation (EIN 93-1284563) headquartered at 1820 NW Everett Street, Suite 400, Portland, Oregon 97209. Pursuant to the Merger Agreement, Meridian was to be merged with and into a transitory merger subsidiary of Halcyon Americas, with Meridian surviving the merger as a wholly owned subsidiary of Halcyon Americas.
The aggregate purchase price for the acquisition was $2.15 billion, payable in cash at closing. The transaction was structured as a reverse triangular merger in which all outstanding shares of Meridian common stock were cancelled and converted into the right to receive the merger consideration, subject to customary adjustments and escrow holdbacks for indemnification obligations.
The acquisition was funded through a $2.2 billion senior secured term loan facility (Term Loan B) arranged and led by Vereinigte Kreditbank AG ("VKB"), headquartered in Frankfurt am Main, Germany, which served as lead arranger and administrative agent for the facility. The lending syndicate included Nordmark Capital Group (Glenrock Assurance, Switzerland) and Pacific Rim Commercial Bank (Singapore) as co-lenders. At closing, $2.15 billion of the facility was drawn to fund the merger consideration and related transaction expenses; $50 million remained undrawn and available under the facility for working capital and integration purposes.
Callister Blackwood & Co. served as exclusive investment banking advisor to Halcyon AG and Halcyon Americas on the transaction. The engagement was led by Managing Director Jonathan Reiss. Callister Blackwood prepared a fairness opinion that was delivered to the Halcyon AG Vorstand (Management Board) on September 5, 2022, and subsequently presented to the Aufsichtsrat (Supervisory Board) on September 7, 2022, one day prior to execution of the Merger Agreement. The Callister Blackwood materials — including the fairness opinion, financial projections, and comparable-transactions analysis — will be relevant to the AG's claims and may be subject to discovery. We discuss the discovery implications of these materials in Section VI.B below.
The acquisition closed on January 31, 2023, following satisfaction of all closing conditions, including the expiration of the Hart-Scott-Rodino Act waiting period (discussed in Section II.C below), receipt of customary regulatory approvals, and satisfaction of other conditions precedent set forth in the Merger Agreement. Since closing, Meridian has operated as a wholly owned subsidiary of Halcyon Semiconductor Americas Inc., maintaining its Portland, Oregon headquarters and its existing brand and customer relationships, while integration planning has proceeded on a phased basis.
B. The Parties' Businesses
Halcyon Semiconductor AG. Halcyon Semiconductor AG is a publicly traded German Aktiengesellschaft listed on the Frankfurt Stock Exchange (ticker: HLC), headquartered at Ludwigstraße 27, 80539 Munich, Bavaria, Germany. The company is led by Chief Executive Officer Dr. Tobias Wendt, who has served as Vorstandsvorsitzender since 2018. For fiscal year 2022, Halcyon AG reported consolidated annual revenue of approximately €9.3 billion and employed approximately 28,500 people worldwide across design centers, fabrication facilities, and sales offices in Germany, the United States, the United Kingdom, Japan, South Korea, Taiwan, and Singapore.
Halcyon AG's core business comprises the design and manufacture of analog and mixed-signal semiconductors, including power management integrated circuits ("PMICs"), precision data converters, amplifiers, and interface solutions. These products serve a wide range of end markets including automotive, industrial, communications infrastructure, and data-center computing. Halcyon is regarded as one of the world's leading analog semiconductor companies and competes directly with firms such as Sterling Reach Partners LLC, Westmark Enterprises, Aldermere Corporation, and Westvale Corporation in its core product categories.
Prior to the Meridian acquisition, Halcyon maintained a legacy product line of co-packaged optics ("CPO") components, primarily developed through its Halcyon Optics Solutions division, which was established in 2019 through a small tuck-in acquisition of a Munich-based photonics startup. This legacy CPO line represented approximately 14% of U.S. CPO transceiver market revenue as measured by the AG's complaint, corresponding to approximately $122.5 million in revenue for fiscal year 2022. Halcyon's CPO products were generally positioned at lower bandwidth tiers and were not considered direct competitors to Meridian's higher-performance silicon photonics offerings, a distinction that is relevant to the AG's horizontal theory and that we discuss further in Section IV.B.
Meridian Photonics Inc. Meridian Photonics Inc. was a privately held Delaware corporation founded in 2014 by Dr. Samuel Ashford, a former professor of electrical engineering at the Oregon Health & Science University, who served as Chief Executive Officer from the company's founding through the close of the acquisition. Linnea Johansson served as Chief Financial Officer. At the time of the acquisition, Meridian had approximately 1,200 employees across its Portland headquarters, a design center in Beaverton, Oregon, and a fabrication partnership with a third-party foundry in Hillsboro, Oregon.
Meridian designs and manufactures silicon photonics transceivers and co-packaged optics modules for data-center and telecommunications applications. The company's CPO technology enables optical interconnects to be co-packaged directly with switch application-specific integrated circuits ("ASICs"), reducing power consumption and increasing bandwidth density relative to traditional pluggable optical transceiver modules. Meridian holds 47 issued U.S. patents related to CPO technology, including patents covering proprietary waveguide designs, laser integration techniques, and thermal management solutions.
For fiscal year 2022, Meridian reported annual revenue of approximately $385 million. According to the AG's complaint, Meridian represented approximately 44% of U.S. CPO transceiver market revenue — a market-leading position. Meridian's customer base included major hyperscale cloud providers and data-center operators, including the two Oregon-based customers specifically identified in the AG's complaint (discussed in Section III.C below). Meridian had experienced rapid revenue growth in recent years, consistent with the overall expansion of the CPO market driven by increasing demand for high-bandwidth, low-power optical interconnects in next-generation data centers.
C. Federal Antitrust Review
Hart-Scott-Rodino Act premerger notification filings were submitted by both Halcyon AG and Meridian Photonics Inc. on October 3, 2022, and assigned HSR File No. 20221003-1847 by the Federal Trade Commission Premerger Notification Office. The filing was made pursuant to the mandatory notification requirements of 15 U.S.C. § 18a, as the transaction exceeded the applicable HSR Act size-of-transaction threshold then in effect.
On November 14, 2022, the FTC granted early termination of the initial 30-day waiting period. Early termination is an affirmative determination by the reviewing federal agency (in this case, the FTC, which had clearance over the transaction) that no further investigation was warranted and that no challenge to the transaction would be pursued. The grant of early termination is discretionary and is not required; the agency may simply allow the waiting period to expire without action. The decision to affirmatively grant early termination is, in our view, a significant indicator that the federal agencies concluded the transaction did not present competitive concerns warranting a challenge.
Importantly, no second request for additional information or documentary material was issued by either the FTC or the Department of Justice Antitrust Division during the HSR review process. The absence of a second request is a meaningful fact: second requests are the standard mechanism through which the federal agencies conduct in-depth investigation of mergers that present potential competitive concerns. The fact that neither agency elected to issue a second request suggests that both agencies — including their staff economists and attorneys who reviewed the same market data now cited by the AG — concluded that the transaction did not merit further scrutiny.
No state-level antitrust pre-notification was required or made in connection with the transaction. Oregon does not maintain a state-level premerger notification program, and neither the Oregon Attorney General's office nor any other state antitrust authority communicated any objection, concern, or request for information prior to the closing of the transaction on January 31, 2023.
The HSR clearance and the absence of any federal challenge is a significant fact for the defense and underpins our federal preemption argument, which we discuss in detail in Section V.A below. It also provides a persuasive narrative point: the federal agencies, with their specialized expertise in merger review and access to extensive investigative tools, reviewed this transaction and determined that it did not warrant a challenge — and the State of Oregon now seeks to second-guess that determination in a state-court proceeding.
III. Summary of the AG's Complaint
A. Parties and Procedural Posture
The complaint was filed on April 17, 2023 by the State of Oregon, by and through Attorney General Diane Calloway, in the Circuit Court of the State of Oregon for the County of Multnomah. The case was assigned Case No. 23CV-18274 and is before the Honorable Robert Castañeda. We are not yet aware of Judge Castañeda's prior experience with antitrust matters or his general approach to dispositive motions; local counsel at Grantham Davis & Kowalski LLP is conducting research on the judge's background and rulings, and we will supplement this memorandum with a judicial profile as soon as that research is complete.
Lead counsel for the AG is Senior Assistant Attorney General Marcus Trujillo, who heads the Antitrust Division of the Oregon Department of Justice. We understand from public records that Mr. Trujillo has been with the Oregon DOJ for approximately twelve years and has handled several consumer-protection matters, though we are not aware of any prior state antitrust challenge to a completed merger under his supervision. This appears to be the first attempt by the Oregon AG to challenge a completed merger under the Oregon Antitrust Act in at least a decade, which may account for the AG's decision to retain outside counsel.
The AG has retained the law firm of Ashworth & Pendleton LLP, based in Portland, Oregon, as special outside counsel to assist in the prosecution of the case. The lead partner on the Ashworth & Pendleton team is Constance Yee, who specializes in antitrust and competition law and has experience in both private antitrust litigation and government enforcement matters. Derek Holmgren, an associate at the firm, is also listed on the complaint. Our team has previously encountered Ms. Yee in an unrelated matter; she is a capable and experienced antitrust litigator, and her involvement suggests that the AG intends to pursue this case with considerable resources and sophistication.
The AG has also retained Dr. Evelyn Ng as an expert economic consultant. Dr. Ng is affiliated with Ridgeline Economic Consulting LLC, an economic consulting firm based in Seattle, Washington. While no expert report has yet been filed or disclosed — and none would be expected at this preliminary stage — Dr. Ng's retention signals that the AG intends to support its market-definition and competitive-effects allegations with formal economic analysis. We understand from public information that Dr. Ng has expertise in technology markets and has previously submitted expert testimony in antitrust matters in the Ninth Circuit. Her involvement reinforces our recommendation, discussed in Section VI.C below, that Halcyon retain its own economic expert immediately.
As noted above, the complaint was preceded by a Civil Investigative Demand issued to Halcyon Semiconductor Americas Inc. on April 10, 2023 — only seven calendar days before the complaint was filed. The CID requested extensive categories of documents related to the Meridian acquisition, including internal strategy documents, board presentations, competitive analyses, pricing data, and customer correspondence. The extremely short interval between the CID and the complaint filing is notable and suggests one of two possibilities: (1) the AG's investigation was substantially completed before the CID was issued, with the CID serving primarily as a statutory prerequisite to enforcement action or as a tool to gather supplemental documentation; or (2) the AG relied primarily on publicly available materials — such as SEC filings by Halcyon AG, industry analyst reports, and customer complaints — to draft the complaint, and the CID was issued as an afterthought or for use in the litigation phase rather than the investigative phase. Either interpretation suggests a degree of haste in the AG's approach, which may provide fodder for a laches defense and may affect the court's perception of the thoroughness of the AG's investigation.
B. Relevant Product Market Alleged
The AG defines the relevant product market as "co-packaged optics (CPO) transceiver modules for data-center applications." The complaint devotes approximately four pages to explaining why CPO transceivers constitute a distinct relevant product market separate from traditional pluggable optical transceivers. The AG's principal arguments are as follows:
First, the AG contends that CPO modules differ from pluggable transceivers in their physical form factor and method of integration. CPO modules are designed to be co-packaged directly with switch ASICs on the same substrate or interposer, eliminating the need for separate pluggable transceiver cages and front-panel fiber connections. This architectural distinction, the AG argues, means that CPO modules are not interchangeable with pluggable transceivers from either a design or a procurement perspective.
Second, the AG argues that CPO modules offer significant performance advantages over pluggable transceivers in terms of power consumption (measured in picojoules per bit), bandwidth density (measured in terabits per second square millimeter of board area), and thermal efficiency. According to the complaint, these performance characteristics make CPO modules the preferred solution for next-generation hyperscale data centers operating at 51.2 Tbps and above, applications for which pluggable transceivers are either inadequate or sub-optimal.
Third, the AG contends that data-center operators who have committed to CPO-based architectures face substantial switching costs if they were forced to revert to pluggable transceiver technology, including costs of redesigning switch platforms, modifying rack layouts, and requalifying optical interconnect solutions. These switching costs, the AG argues, demonstrate that CPO and pluggable transceivers are not reasonably interchangeable from a demand-side perspective.
Our initial assessment: The AG's product market definition is plausibly but not necessarily correctly drawn. While CPO modules do possess distinct performance characteristics and architectural features, there are strong arguments that the relevant market should be defined more broadly to include high-end pluggable transceivers — particularly 400G and 800G pluggable modules employing coherent detection technology — that serve the same fundamental end-use function (optical interconnection within data centers) and that are actively used by many of the same customers and in many of the same applications. Industry evidence suggests that many data-center operators maintain dual-source procurement strategies that encompass both CPO and pluggable solutions, and that purchasing decisions are influenced by total cost of ownership, deployment timeline, and vendor ecosystem considerations rather than by an absolute preference for one technology over the other.
The degree of demand-side substitutability between CPO and high-end pluggable transceivers will be a central battleground in this case. If the court accepts the AG's narrow market definition, the concentration figures are formidable. If the market is defined more broadly to include pluggable transceivers — a market with estimated U.S. revenue exceeding $4 billion annually and numerous additional competitors including firms such as Drayton Group, Penmark Group (now Ridgeline & Co.), Calderon Partners LLC, Tidewater Partners LLC, and Dunmore Industries — the combined Halcyon/Meridian share drops substantially and the structural presumption is significantly weakened. We discuss our recommended approach to contesting the AG's market definition in Section IV.A below.
C. Relevant Geographic Market Alleged
The AG defines the relevant geographic market as the United States. This is a conventional geographic market definition for semiconductor and optical components, which are sold on a national basis and shipped from centralized manufacturing facilities to customers throughout the country. We do not anticipate contesting the national geographic market definition as a general matter.
However, the AG's complaint places particular emphasis on Oregon-based data-center customers who allegedly face disproportionate competitive harm as a result of the acquisition. The complaint specifically identifies two such customers:
Cascadia Cloud Services Inc. Cascadia Cloud Services is a hyperscale cloud computing provider headquartered at 500 NW Greenwood Avenue, Prineville, Oregon 97754. Cascadia operates three hyperscale data centers in Central and Northern Oregon — two in Prineville and one in The Dalles — and is a significant purchaser of CPO transceiver modules. According to the complaint, Cascadia spent approximately $62 million on Meridian CPO modules in fiscal year 2022 and had committed to a multi-year procurement roadmap based on Meridian's CPO technology platform.
Northstar Digital Infrastructure LLC. Northstar Digital Infrastructure is a colocation and wholesale data-center operator headquartered at 3300 NE Shute Road, Hillsboro, Oregon 97124. Northstar operates data-center facilities in Hillsboro, Oregon and serves enterprise and cloud customers. According to the complaint, Northstar spent approximately $28 million on Meridian CPO modules in fiscal year 2022.
Our initial assessment: The AG's emphasis on Oregon-based customers appears designed primarily to establish standing and jurisdictional nexus under the Oregon Antitrust Act — demonstrating that the alleged anticompetitive effects are felt by Oregon businesses and consumers — rather than to define a separate sub-national geographic market. We do not believe the AG is seriously contending that Oregon constitutes a distinct geographic market for CPO transceivers; rather, the Oregon customer evidence is being used to satisfy the AG's burden of showing that the State of Oregon has a cognizable interest in bringing this enforcement action. A national geographic market is likely correct for this product category, and we should not spend significant resources contesting this aspect of the complaint.
That said, Cascadia and Northstar will likely serve as important fact witnesses and potential sources of third-party discovery for the AG. Their purchasing data, negotiation history with Meridian, and views on competitive alternatives will be material to both the market-definition and competitive-effects analyses. We should anticipate that the AG will seek declarations or testimony from procurement executives at these companies, and we should develop our own outreach strategy to understand these customers' perspectives.
D. Market-Share and Concentration Allegations
The AG's complaint contains detailed allegations regarding market size, market shares, and market concentration in the alleged relevant product market. The key figures alleged are as follows:
The AG alleges that the total U.S. CPO transceiver market was approximately $875 million in revenue in fiscal year 2022. This figure appears to be derived from industry analyst reports and is roughly consistent with publicly available market-sizing estimates from firms such as Granite Harbor Management Consulting and Meridian Enterprises, though we will need our economic expert to verify the underlying methodology and data sources.
Pre-merger market shares, as alleged by revenue, were as follows:
The AG alleges that the post-merger combined Halcyon/Meridian market share is approximately 58% (44% + 14%), representing approximately $507.5 million in combined CPO transceiver revenue.
The complaint further presents concentration analysis using the Herfindahl-Hirschman Index ("HHI"), the standard metric employed by the federal antitrust agencies and courts to measure market concentration. The AG's HHI calculations are as follows:
Pre-merger HHI: 44² + 22² + 14² + 11² + 9² = 1,936 + 484 + 196 + 121 + 81 = 2,818
Post-merger HHI: 58² + 22² + 11² + 9² = 3,364 + 484 + 121 + 81 = 4,050
Delta (change in) HHI: 4,050 − 2,818 = 1,232
Under the federal Horizontal Merger Guidelines — both the 2010 version and the revised 2023 version recently issued by the DOJ and FTC — a post-merger HHI above 2,500 and a delta above 200 are presumed to create or enhance market power, triggering a structural presumption that the merger is anticompetitive. The AG's figures exceed both thresholds by substantial margins: the post-merger HHI of 4,050 is more than 60% above the 2,500 threshold, and the delta of 1,232 is more than six times the 200 threshold.
Our initial assessment: These concentration figures present a significant analytical challenge if the AG's market definition is accepted by the court. Courts routinely rely on HHI analysis as a starting point for evaluating merger challenges, and the structural presumption created by these numbers would place a substantial burden on Halcyon to demonstrate that the merger is nonetheless procompetitive. Our primary strategic approach must therefore focus on two interrelated objectives: (a) broadening the relevant product market to include pluggable transceivers, which would materially reduce the calculated concentration levels and potentially eliminate the structural presumption; and (b) demonstrating procompetitive efficiencies, market dynamism, and ease of entry/expansion that rebut the structural presumption even under the AG's narrower market definition. We discuss both approaches in detail in Section IV below.
E. Theory of Anticompetitive Harm
The AG's complaint advances two distinct but complementary theories of anticompetitive harm: a horizontal theory based on the elimination of head-to-head competition between Halcyon and Meridian, and a vertical foreclosure theory based on Halcyon's integrated position across multiple layers of the data-center supply chain.
Horizontal Theory. The AG alleges that the acquisition eliminates Meridian as an independent, disruptive innovator in CPO technology. According to the complaint, Meridian was the market-leading pure-play CPO company and its independence drove price competition and innovation that benefited Oregon and national data-center customers. The AG argues that by absorbing Meridian, Halcyon has eliminated a competitively significant independent firm and created a dominant entity controlling nearly 60% of the CPO transceiver market. The AG contends that this level of concentration will enable Halcyon to raise CPO module prices, reduce output, and slow the pace of innovation — all to the detriment of data-center customers who depend on competitive CPO transceiver markets for their infrastructure procurement.
The horizontal theory is framed in part as a "loss of maverick" or "loss of innovator" theory, analogous to theories that have been advanced with varying degrees of success in federal merger challenges. The AG emphasizes Meridian's portfolio of 47 U.S. patents, its role in driving CPO technology adoption through participation in industry standards bodies, and its history of aggressive pricing to gain market share. The implicit narrative is that Meridian, as an independent company, would have continued to disrupt the CPO market with new products and competitive pricing, and that the acquisition extinguishes this competitive dynamic by placing Meridian under the control of a large incumbent.
Vertical Foreclosure Theory. In addition to the horizontal theory, the AG advances a vertical foreclosure theory based on Halcyon's position as a vertically integrated supplier of both upstream components (analog and mixed-signal controlling ICs, power management ICs) and downstream products (CPO transceiver modules, through the acquired Meridian business). The AG alleges that this vertically integrated position gives Halcyon the ability and incentive to engage in several anticompetitive strategies:
(a) Degradation of interoperability. The AG alleges that Halcyon could degrade the interoperability between Meridian CPO modules and competitors' switch ASICs, effectively raising rivals' costs by making it more difficult or expensive for competing switch ASIC vendors to integrate their products with Meridian's market-leading CPO technology. This strategy, the AG contends, would leverage Halcyon's CPO market position to disadvantage competitors in adjacent markets.
(b) Tying and bundling. The AG alleges that Halcyon could bundle Meridian CPO modules with Halcyon's proprietary power-management ICs, coercing data-center customers to purchase across product lines and foreclosing rival PMIC suppliers. The AG characterizes this as a potential tying arrangement in which the tying product (Meridian CPO modules, in which Halcyon has market power) is used to compel purchases of the tied product (Halcyon PMICs, in which Halcyon faces more robust competition).
(c) Withdrawal from open standards. The AG alleges that Halcyon could withhold or delay Meridian's participation in open-standard interoperability efforts — specifically the Optical Internetworking Forum's ("OIF") 400ZR and 800ZR standards — in order to advantage proprietary Halcyon solutions at the expense of industry-wide interoperability. The complaint suggests that Meridian's historical commitment to open standards was a product of its independence, and that Halcyon's incentives as a larger, vertically integrated firm may differ.
The AG characterizes the overall competitive harm as arising from both unilateral effects (a dominant firm with enhanced market power raising prices and reducing innovation) and vertical foreclosure (a vertically integrated firm leveraging its position across the supply chain to disadvantage rivals and coerce customers). The complaint does not clearly distinguish between these theories in terms of the relief sought, but rather presents them as complementary grounds for the same injunctive and penalty relief.
F. Relief Sought
The AG seeks the following categories of relief:
1. Injunctive relief under ORS 646.775, including, in the first instance, a mandatory divestiture of Meridian Photonics Inc. — that is, requiring Halcyon Americas to sell Meridian to an independent third-party purchaser approved by the AG's office. The complaint characterizes divestiture as the "most effective" remedy and the preferred form of relief.
2. Alternatively, behavioral injunctive relief, in the event the court determines that structural relief (divestiture) is not warranted or practicable. The AG's proposed behavioral remedies include: mandatory open licensing of Meridian's CPO-related patents on fair, reasonable, and non-discriminatory ("FRAND") terms; interoperability mandates requiring Halcyon to maintain Meridian's participation in OIF standards processes and to ensure continued interoperability between Meridian CPO modules and third-party switch ASICs; and supply non-discrimination provisions requiring Halcyon to offer Meridian CPO modules to all customers on non-discriminatory terms.
3. Civil penalties under ORS 646.990, which authorizes penalties of up to $25,000 per violation of the Oregon Antitrust Act. The AG's complaint does not specify the number of alleged violations or the total penalty amount sought, but the statute's per-violation penalty structure, if applied broadly, could result in substantial aggregate penalties.
4. Costs of investigation and litigation, including the AG's attorney fees, expert fees, and other expenses incurred in connection with the investigation and prosecution of the case.
The scope of the requested relief — particularly the divestiture remedy — underscores the high stakes of this litigation. A court-ordered divestiture of Meridian would require Halcyon to unwind a $2.15 billion transaction, find a suitable buyer for Meridian (subject to AG approval), negotiate and close a divestiture transaction, and potentially absorb significant financial losses including transaction costs, financing costs, and the diminution in value of Meridian during the pendency of litigation and divestiture. The behavioral remedies, while less drastic, would impose ongoing regulatory oversight on Halcyon's business operations and could constrain the Company's ability to realize the integration synergies that motivated the acquisition.
IV. Assessment of the AG's Claims — Likelihood of Success on the Merits
In this section, we assess the relative strengths and weaknesses of the AG's claims on each of the principal legal and economic issues. Our assessment is necessarily preliminary and will be refined as we develop our factual record and consult with our economic expert.
A. Strength of the AG's Product Market Definition
The AG's case rises or falls in significant part on the question of product market definition. If the court accepts the AG's proposed market of "co-packaged optics (CPO) transceiver modules for data-center applications," the concentration figures are formidable and the structural presumption will be difficult — though not impossible — to rebut. If the market is defined more broadly to include functionally substitutable pluggable optical transceivers, the concentration figures drop substantially and the AG's case is significantly weakened.
Under established antitrust principles — articulated by the U.S. Supreme Court in Brown Shoe Co. v. United States, 370 U.S. 294 (1962), and consistently applied in both federal and state antitrust cases — the relevant product market comprises all products that are "reasonably interchangeable" by consumers for the same purposes. The standard analytical framework is the hypothetical monopolist test (also known as the SSNIP test): would a hypothetical monopolist controlling all CPO transceiver production be able to profitably impose a small but significant non-transitory increase in price (typically 5–10%) without losing sufficient sales to substitute products (i.e., pluggable transceivers) to render the price increase unprofitable?
Demand-side substitutability. There is substantial evidence that next-generation pluggable transceivers — particularly 800G pluggable modules employing coherent detection and advanced digital signal processing — are viewed by many data-center operators as a functional substitute for CPO modules in a significant range of applications. Industry analyst reports from Granite Harbor Management Consulting and Dunmore Consulting Group indicate that several major hyperscale operators, including firms of the scale and sophistication of Cascadia Cloud Services, maintain technology-neutral procurement strategies that evaluate both CPO and pluggable solutions on a total-cost-of-ownership basis. The decision to deploy CPO versus pluggable technology is influenced by factors including deployment timeline (pluggable solutions are available today in high-volume production, while CPO solutions are still scaling), rack architecture constraints, existing fiber plant investments, and vendor ecosystem considerations. If even a meaningful fraction of CPO customers would switch to pluggable transceivers in response to a 5–10% CPO price increase, the AG's narrow market definition would fail the hypothetical monopolist test.
We recognize, however, that the AG will argue that certain performance characteristics of CPO modules — particularly their superior power efficiency and bandwidth density at the switch-ASIC interface — make them a distinct product for next-generation, highest-tier data-center applications. The AG will point to customer switching costs and architectural lock-in as evidence that CPO and pluggable are not interchangeable for customers who have already committed to CPO-based designs. This argument has some force, particularly with respect to Cascadia and other hyperscale operators who have publicly committed to CPO roadmaps. However, even if some customers face switching costs, the question under the hypothetical monopolist test is whether a sufficient number of marginal customers would switch to pluggable alternatives to defeat a price increase — and there is reason to believe that many customers at the margin retain optionality between the two technologies.
Supply-side substitutability. In addition to demand-side considerations, there is evidence of significant supply-side substitutability. Several firms with established capabilities in pluggable optical transceiver manufacturing — including Drayton Group (formerly Penmark Group), Calderon Partners LLC, and Dunmore Industries's optical division — have publicly announced CPO development programs and are expected to bring CPO products to market within the next 12–24 months. The underlying manufacturing processes for CPO and high-end pluggable transceivers share substantial commonalities, including silicon photonics fabrication, fiber-attach processes, and high-speed electronic IC design. A firm with existing capabilities in 800G pluggable transceivers could plausibly enter or expand into CPO production with modest incremental investment, particularly given that the same foundries and packaging houses serve both product categories. If supply-side entry and expansion are sufficiently rapid and likely, the market should be defined to include these potential competitors, further reducing concentration.
Our recommendation: The product market definition will be the most important economic question in this case. We must develop a rigorous, empirically grounded analysis demonstrating that the relevant market is broader than CPO transceivers alone. This analysis should include: (a) econometric evidence of cross-elasticity of demand between CPO and pluggable transceivers; (b) customer testimony and documentary evidence showing dual-sourcing and technology-neutral procurement strategies; (c) industry evidence of supply-side entry and expansion by pluggable transceiver manufacturers; and (d) analysis of historical pricing patterns showing competitive interaction between CPO and pluggable products. To develop this analysis, we strongly recommend the immediate retention of Dr. Franklin Morrow, Principal of Stonebridge Analytics LLC, 1700 K Street NW, Suite 850, Washington, DC 20006, who is a leading expert in semiconductor and photonics market economics and has extensive experience in antitrust matters involving technology markets. We discuss Dr. Morrow's qualifications and our retention recommendation in Section VI.C below.
B. Strength of the AG's Horizontal Theory
The AG's horizontal theory — that the acquisition eliminates Meridian as an independent competitive force and creates a dominant firm with nearly 60% market share — presents a moderate risk to Halcyon. The theory is facially plausible given the high concentration numbers, but it is susceptible to several strong counterarguments.
Strengths of the AG's theory. Meridian's position as the market-leading CPO supplier, combined with its portfolio of 47 U.S. patents and its historical role in driving CPO technology adoption, provides a compelling factual basis for the AG's narrative that Meridian was a "maverick" or disruptive innovator whose independence benefited competition. Courts have recognized the competitive significance of maverick firms, and the elimination of such a firm through merger can be a basis for finding anticompetitive effects even where the merging parties were not the closest head-to-head competitors. See, e.g., FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001); United States v. H&R Pinnacle Holdings, 833 F. Supp. 2d 36 (D.D.C. 2011). The AG's complaint paints a picture of a small, innovative company being absorbed by a large conglomerate — a narrative that tends to be sympathetic to judges and that can be difficult to counteract in the courtroom.
Weaknesses of the AG's theory. Notwithstanding the surface appeal of the AG's horizontal narrative, there are several significant weaknesses that we should be prepared to exploit.
First, Halcyon's pre-merger CPO line, representing approximately 14% of the market, was not closely competitive with Meridian's products. Halcyon's legacy CPO offerings were positioned at lower bandwidth tiers (primarily 400G and below) and were sold through different distribution channels to a largely non-overlapping customer base. The merger is more accurately characterized as a complementary vertical combination — bringing together Halcyon's analog IC design expertise and Meridian's silicon photonics capabilities — rather than a horizontal elimination of head-to-head rivals. Under diversion-ratio analysis, the percentage of Meridian sales that would have been captured by Halcyon's legacy CPO line in a competitive counterfactual (i.e., the degree of direct competitive interaction between the two firms) was likely quite low. This distinction is important because the structural presumption created by HHI analysis is most probative when the merging firms are close competitors, and significantly less probative when the merging firms serve different customer segments or compete at different performance tiers. See 2023 Merger Guidelines § 2.1.
Second, Luminos Systems Corp., with approximately 22% of the market, is a well-capitalized and growing competitor that will continue to constrain post-merger pricing. Luminos, based in Austin, Texas, has a strong product portfolio, an expanding customer base, and access to significant capital resources (it completed a $250 million Series E funding round in early 2023, according to publicly available information). Similarly, Crestwave Optical Technologies Ltd., with approximately 11% of the market, is a well-established Chinese manufacturer that has been expanding its U.S. sales and customer relationships. The presence of these credible competitors undermines the AG's theory that the merged entity will be able to exercise unilateral market power unchecked.
Third, the CPO market is young, rapidly growing, and technologically dynamic. Market shares in fast-growing, innovation-driven markets are inherently unstable and less predictive of future competitive conditions than market shares in mature, commodity-like markets. The AG's snapshot of FY 2022 market shares may not accurately predict competitive conditions even two to three years hence, as new entrants (including several major pluggable transceiver manufacturers with announced CPO development programs) are expected to enter the market and as existing competitors expand capacity. Courts have recognized that market shares in dynamic technology markets warrant less weight in merger analysis. See, e.g., United States v. Ostrander Corporation., 331 F. Supp. 2d 1098 (N.D. Cal. 2004).
Assessment: The AG's horizontal theory presents moderate risk. The concentration numbers are a significant challenge, but the theory is weakened by the limited degree of pre-merger head-to-head competition between Halcyon and Meridian, the presence of credible competitors, and the dynamic nature of the CPO market. We estimate the AG's likelihood of prevailing on the horizontal theory alone, if the case proceeds to trial under the AG's narrow market definition, at approximately 35–45%. If we succeed in broadening the market definition, this probability drops substantially.
C. Strength of the AG's Vertical Foreclosure Theory
The AG's vertical foreclosure theory — that Halcyon will use its integrated position to degrade interoperability, engage in tying or bundling, and withdraw from open standards — is, in our assessment, the weaker of the AG's two theories. While the theory raises concerns that may resonate with the court on a sympathetic level, it faces significant analytical and evidentiary obstacles.
Ability to foreclose. For a vertical foreclosure theory to succeed, the plaintiff must demonstrate that the merged firm has the ability to engage in foreclosure — i.e., that it possesses sufficient market power or leverage in at least one relevant market to make foreclosure strategies feasible. While Halcyon's post-merger share of the CPO transceiver market is substantial (approximately 58% under the AG's definition), its position in the upstream analog IC and PMIC markets is considerably less dominant. Halcyon competes with numerous other analog IC suppliers, including Sterling Reach Partners LLC, Westmark Enterprises, Glenrock Group, and others, and data-center operators have well-established multi-vendor procurement practices for power management and signal-conditioning components. The ability to coerce customers into bundled purchases is therefore limited by the ready availability of alternative upstream suppliers.
Incentive to foreclose. Even if Halcyon had the ability to engage in vertical foreclosure, the AG must also demonstrate that it would have the incentive to do so — that the gains from foreclosure would outweigh the costs. Degrading interoperability between Meridian CPO modules and third-party switch ASICs, for example, would risk alienating Meridian's existing customers, many of whom are large, sophisticated enterprises with substantial bargaining power and the ability to shift procurement to competing CPO suppliers. Similarly, withdrawing from open standards processes would damage Halcyon's reputation in the industry and could provoke customer backlash, regulatory scrutiny, and potential exclusion from future standards-setting activities. The rational economic incentive for Halcyon is to expand Meridian's customer base and market reach, not to engage in strategies that would drive customers to competitors.
Industry standards as a constraint. The AG's theory that Halcyon could withdraw from or undermine OIF standards processes is further weakened by the nature of industry standards organizations. The OIF operates on a multi-stakeholder, consensus-based model, and its standards (including the 400ZR and 800ZR specifications) are developed through collaborative processes involving dozens of member companies. No single company can unilaterally control or derail a standards process, and any attempt by Halcyon to obstruct standards development would be visible to and checked by other OIF members. Moreover, compliance with OIF standards is often a customer requirement embedded in procurement specifications, giving Halcyon a strong commercial incentive to maintain full standards compliance.
Assessment: The vertical foreclosure theory is the weaker of the AG's two theories, and we assess the likelihood of the AG prevailing on this theory alone at approximately 20–30%. However, we should not dismiss it entirely, because the theory may generate sympathetic factual narratives — particularly from Oregon-based customers who may testify about concerns regarding post-merger supply terms, interoperability, or pricing. Even if the vertical theory does not independently support the AG's claims, it may color the court's perception of the overall case and influence the court's willingness to grant interlocutory relief.
D. Assessment of Procompetitive Efficiencies
A critical element of our defense will be the demonstration of merger-specific procompetitive efficiencies. Under the efficiency defense recognized by courts and the Merger Guidelines, a defendant can rebut the structural presumption of anticompetitive effects by showing that the merger generates substantial, verifiable, merger-specific efficiencies that benefit consumers through lower prices, improved products, or enhanced innovation.
The Halcyon-Meridian combination generates several categories of procompetitive efficiencies that are potentially cognizable:
Vertical integration synergies. Combining Halcyon's analog IC design expertise with Meridian's silicon photonics technology creates a vertically integrated platform that can co-design and co-optimize controlling ICs and photonics modules from the ground up. This eliminates interface inefficiencies, reduces design cycle times, and enables performance improvements that neither company could achieve independently. The elimination of double marginalization — the reduction in end-user prices that results from combining two vertically related firms that each add their own margins — is a well-recognized procompetitive efficiency.
Cost savings from integration. The merger is expected to generate significant cost savings through the consolidation of manufacturing operations, procurement synergies (including volume discounts on silicon wafers, packaging materials, and test equipment), and the elimination of redundant administrative functions. Internal estimates prepared during the merger planning process (which we will need to review and verify) projected annual run-rate cost synergies in the range of $75–$120 million within 24 months of closing.
Innovation acceleration. Halcyon's annual R&D budget of approximately €1.4 billion ($1.5 billion) dwarfs Meridian's pre-acquisition R&D spending. The merger provides Meridian with access to Halcyon's extensive R&D infrastructure, including advanced fabrication partnerships, design simulation tools, and a global team of semiconductor engineers. This infusion of R&D resources is expected to accelerate the development of next-generation CPO modules, including 1.6 Tbps and 3.2 Tbps products that are on Meridian's technology roadmap but that would take significantly longer to develop without Halcyon's resources and expertise.
Critical considerations. For efficiencies to be cognizable under antitrust law, they must be: (a) substantiated with reliable evidence rather than merely speculative; (b) merger-specific, meaning they could not be achieved through less anticompetitive means such as arm's-length contracts, licensing, or joint ventures; and (c) sufficient in magnitude to offset the anticompetitive effects of the merger. We will need to work closely with the Company's integration planning team to document these efficiencies with the specificity and rigor that courts require. Vague assertions of "synergies" will not suffice; we will need detailed, fact-specific evidence of cost savings, innovation acceleration, and consumer benefits.
E. Overall Assessment of Merits
Based on our preliminary analysis, we offer the following overall assessment:
The AG has a plausible but far from certain case. The concentration numbers are high under the AG's proposed market definition, and the structural presumption they create shifts a meaningful burden to Halcyon. However, the AG's case is vulnerable on multiple fronts: the product market definition is contestable and may be too narrow; the horizontal theory is weakened by the limited degree of pre-merger head-to-head competition between Halcyon and Meridian; the vertical foreclosure theory faces significant analytical obstacles; and procompetitive efficiencies from the merger are substantial and, if properly documented, could rebut the structural presumption.
Estimated likelihood of AG prevailing on the merits at trial (assuming the case proceeds that far): approximately 30–40%. This reflects the combination of the AG's strong concentration numbers, which create an initial advantage, with Halcyon's multiple viable defense theories, which collectively provide a more likely than not probability of success.
Estimated risk of adverse interlocutory relief (preliminary injunction imposing behavioral restrictions): approximately 45–50%. The risk of interlocutory relief is higher than the risk of ultimate trial success for several reasons. First, the court's standard for preliminary injunctive relief under Oregon law is less demanding than the standard for a final judgment on the merits; the court need only find that the AG has demonstrated a likelihood of success on the merits (not actual success), that the balance of equities favors injunctive relief, and that the public interest is served. Second, the AG's concentration numbers are sufficiently striking that a court may be inclined to impose interim restrictions while the case is pending, particularly behavioral restrictions (as opposed to the more drastic remedy of preliminary divestiture). Third, Judge Castañeda will have broad equitable discretion, and the AG's narrative — a large foreign conglomerate acquiring a small Oregon-based innovator — may carry persuasive force at the preliminary injunction stage.
We will continue to refine these assessments as we develop our factual record and economic analysis.
V. Defense Strategy — Federal Preemption and Motion to Dismiss
A. Federal Preemption Argument
Our lead argument on the motion to dismiss is that the AG's state-law antitrust challenge to the Meridian acquisition is preempted by the federal HSR Act review process. The legal and factual foundations for this argument are as follows.
The HSR Act framework. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a, establishes a comprehensive federal regime for the pre-merger review of transactions exceeding specified size thresholds. Under the HSR Act, the parties to a qualifying transaction must file premerger notification with the FTC and DOJ and observe a mandatory waiting period before the transaction may close. During the waiting period, the reviewing agency conducts an investigation of the transaction's likely competitive effects and determines whether to challenge the transaction, request additional information (a "second request"), or allow the waiting period to expire without action. The agency may also, in its discretion, grant early termination of the waiting period — an affirmative determination that the agency has completed its review and that no challenge will be pursued.
The facts of this transaction. In the present case, both Halcyon AG and Meridian filed HSR premerger notifications on October 3, 2022. The FTC, which had clearance over the transaction, reviewed the filing and granted early termination of the waiting period on November 14, 2022. No second request was issued by either the FTC or DOJ. The transaction closed on January 31, 2023, in full compliance with the HSR Act's procedural requirements. No state pre-notification was required or provided, and no state authority raised any objection or concern during the HSR review period or the approximately eleven weeks between closing and the issuance of the CID.
The preemption argument. We contend that the AG's post-closing challenge to a merger that received affirmative HSR clearance — through the grant of early termination, without a second request — is preempted under principles of federal preemption. The HSR Act establishes a uniform national regime for merger review, and permitting individual states to challenge mergers that have been cleared by the federal agencies would undermine the predictability, efficiency, and uniformity of the federal merger review process. A successful state challenge could result in the divestiture of a transaction that the federal government determined presented no competitive concerns — a result that is fundamentally inconsistent with the federal scheme.
Legal analysis and assessment. We acknowledge at the outset that this is an aggressive argument. The weight of existing authority is generally against express or implied preemption of state antitrust enforcement by the HSR Act. Federal courts have held that the HSR Act's premerger notification requirements do not expressly preempt state antitrust enforcement, and that Congress did not intend the HSR Act to occupy the entire field of merger regulation to the exclusion of state law. See, e.g., California v. American Stores Co., 495 U.S. 271, 284 (1990) (noting that Congress preserved state authority to enforce state antitrust laws with respect to mergers); New York v. Tidewater Corporation, 439 F. Supp. 3d 179 (S.D.N.Y. 2020) (adjudicating state challenge to Harborline & Co./Sprint merger on the merits without finding preemption).
However, the specific facts of this case present an unusually strong case for preemption, or at minimum for an implied-preemption-based comity argument. The distinguishing features include: (1) the FTC affirmatively granted early termination — an active exercise of agency discretion — rather than merely allowing the waiting period to expire; (2) no second request was issued, indicating that the agency concluded after substantive review that the transaction did not warrant further investigation; (3) Oregon does not maintain a state premerger notification program and did not seek to participate in or supplement the federal review process; and (4) the AG waited nearly eleven weeks after closing before even issuing a CID, suggesting that the AG's challenge is a post hoc attempt to relitigate a transaction that the federal system already addressed.
We draw an analogy to conflict preemption principles: the AG's action stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress in enacting the HSR Act, which was to create an efficient, predictable, and uniform national system for merger review. Permitting a state to unwind a merger that the federal agencies cleared, particularly where the state did not avail itself of the opportunity to participate in the federal review process, frustrates these objectives and creates intolerable uncertainty for merging parties who complied in good faith with the federal process.
Assessment. We estimate a 20–25% likelihood that the court accepts federal preemption as a basis for dismissal. The odds are not in our favor given the weight of contrary authority, but the argument is not frivolous, and the specific facts of this case — particularly the grant of early termin