IN THE CIRCUIT COURT OF THE STATE OF OREGON FOR THE COUNTY OF MULTNOMAH
Case No. 23CV-18274
Hon. Robert Castañeda
DEFENDANT HALCYON SEMICONDUCTOR AMERICAS INC.'S MEMORANDUM OF LAW IN OPPOSITION TO PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
Filed: September 8, 2023
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PRELIMINARY STATEMENT
Defendant Halcyon Semiconductor Americas Inc. ("Halcyon" or "Defendant"), a Delaware corporation and wholly owned subsidiary of Halcyon Semiconductor AG (FSE: HLC), respectfully submits this memorandum of law in opposition to the State of Oregon's motion for a preliminary injunction, filed on August 15, 2023. The State's motion should be denied in its entirety because the State has failed to carry its burden on every element required for the extraordinary remedy of preliminary injunctive relief under Oregon law.
The State seeks extraordinary preliminary relief — behavioral restrictions on a completed, lawful acquisition — more than seven months after the transaction closed on January 31, 2023, and nearly ten months after the federal government cleared the deal through early termination of the Hart-Scott-Rodino ("HSR") Act waiting period on November 14, 2022 (HSR File No. 20221003-1847). No second request was issued. No conditions were imposed. The federal antitrust agencies reviewed the competitive implications of this transaction and concluded that it did not warrant further investigation or challenge.
The acquisition of Meridian Photonics Inc. ("Meridian") for $2.15 billion in an all-cash transaction represents a procompetitive vertical combination of Halcyon's analog and mixed-signal semiconductor expertise with Meridian's leading silicon photonics capabilities and portfolio of 47 United States patents related to co-packaged optics ("CPO") technology. Far from diminishing competition in any properly defined market, this combination enables Halcyon and Meridian to develop and deliver integrated, lower-cost, and higher-performance CPO solutions for the benefit of data-center operators — including the Oregon-based customers that the State purports to protect.
The State cannot satisfy any of the requirements for preliminary injunctive relief under Oregon law. The State is unlikely to succeed on the merits of its antitrust claims because its relevant product market definition is artificially narrow, the CPO market is rapidly growing and dynamic, the acquisition generates substantial and verifiable procompetitive efficiencies, and the State's vertical foreclosure theory is speculative and unsupported by evidence. The balance of equities tips decisively in Halcyon's favor because the behavioral restrictions sought by the State would disrupt a seven-month-old integration, destroy already-realized efficiencies, impose significant compliance costs, and effectively unwind portions of a completed and lawful business combination — all to address speculative harm that has not materialized and that the State has not demonstrated is likely to materialize. The public interest is served by allowing the integration to proceed, delivering innovation and cost-saving benefits to Oregon's data-center operators and the broader marketplace, rather than by imposing premature judicial constraints on a combination that the State's own moving papers acknowledge has not yet resulted in any actual anticompetitive conduct.
This opposition is supported by the Declaration of Dr. Franklin Morrow, Principal of Stonebridge Analytics LLC, an independent economic expert who has analyzed the competitive dynamics of the United States CPO transceiver market. Dr. Morrow's analysis — which accounts for market growth trends, competitive entry and expansion, the constraining effect of open interoperability standards, and the merger-specific efficiencies generated by this combination — demonstrates that the State's theory of harm is inconsistent with market realities.
For the reasons set forth below, the Court should deny the State's motion for preliminary injunction in its entirety.
STATEMENT OF FACTS
A. The Parties
1. Halcyon Semiconductor AG and Halcyon Semiconductor Americas Inc. Halcyon Semiconductor AG is a publicly traded Aktiengesellschaft organized under the laws of the Federal Republic of Germany, with shares listed on the Frankfurt Stock Exchange under the ticker symbol "HLC." Its global headquarters are located at Ludwigstraße 27, 80539 Munich, Bavaria, Germany. The company was founded in 1981 and has grown into one of Europe's leading semiconductor enterprises, with approximately 28,500 employees worldwide across design centers, fabrication facilities, and sales offices in 23 countries. Dr. Tobias Wendt serves as Chief Executive Officer and Chairman of the Management Board, and Katrin Schreiber serves as General Counsel and Head of the Legal Department.
Halcyon Semiconductor AG reported consolidated revenue of €9.3 billion for its fiscal year ended December 31, 2022. The company designs and manufactures a broad portfolio of analog and mixed-signal semiconductors, power management integrated circuits ("ICs"), sensor technologies, and — following the acquisition of Meridian Photonics Inc. — silicon photonics components for high-speed optical interconnects. Halcyon's products are used across a range of applications, including automotive electronics, industrial automation, telecommunications infrastructure, and data-center equipment.
Halcyon operates in the United States through its wholly owned subsidiary, Halcyon Semiconductor Americas Inc., a corporation organized under the laws of the State of Delaware with its principal office located at 4500 Great America Parkway, Suite 300, Santa Clara, California 95054. Halcyon Americas serves as the primary operating and sales entity for Halcyon's North American business operations, employing approximately 3,200 people across facilities in Santa Clara, California; Austin, Texas; Beaverton, Oregon; and Chandler, Arizona. Priya Nagarajan serves as Deputy General Counsel for the Americas and is the senior in-house legal officer for Halcyon Americas' operations in the United States and Canada.
Prior to the acquisition of Meridian, Halcyon Americas had a nascent but growing presence in the co-packaged optics market through its own legacy CPO product line. That product line, developed internally over the preceding three years, generated approximately $122.5 million in U.S. revenue in FY 2022, representing an estimated 14% share of the U.S. CPO transceiver market. Halcyon's legacy CPO line was focused primarily on lower-bandwidth applications and lacked the advanced silicon photonics integration capabilities that Meridian's patented technology offered.
2. Meridian Photonics Inc. Meridian Photonics Inc. is a corporation organized under the laws of the State of Delaware, with its principal place of business at 1820 NW Everett Street, Suite 400, Portland, Oregon 97209. Meridian was founded in 2014 by Dr. Samuel Ashford, a former professor of electrical engineering at Oregon Health & Science University, who served as the company's Chief Executive Officer and Chief Technology Officer from inception through the closing of the acquisition. Linnea Johansson served as Meridian's Chief Financial Officer.
Meridian specializes in the design and manufacture of silicon photonics transceivers and co-packaged optics modules for data-center and telecommunications applications. The company's products are used in high-speed optical interconnects that enable data transfer within and between data centers at speeds of 400 gigabits per second ("Gbps") and above. Meridian has developed a substantial intellectual property portfolio, holding 47 United States patents related to CPO technology, including patents covering advanced waveguide designs, monolithic integration of photonic and electronic components, and proprietary packaging techniques for co-packaged optics modules.
For its fiscal year ended December 31, 2022, Meridian reported revenue of approximately $385 million, representing an estimated 44% share of the U.S. CPO transceiver market. The company employed approximately 1,200 people at the time of the acquisition, with its principal engineering and design operations headquartered in Portland, Oregon, and additional fabrication and testing facilities in Hillsboro, Oregon, and San Jose, California.
Since the closing of the acquisition on January 31, 2023, Meridian has operated as a wholly owned subsidiary of Halcyon Semiconductor Americas Inc. Dr. Ashford departed the company following the closing in accordance with the terms of the Merger Agreement, and Meridian's day-to-day operations are now managed by an executive team reporting to Halcyon Americas' Chief Operating Officer.
3. The State of Oregon. Plaintiff is the State of Oregon, acting by and through Attorney General Diane Calloway, pursuant to the Attorney General's enforcement authority under Oregon's antitrust statutes. The State is represented in this action by Senior Assistant Attorney General Marcus Trujillo of the Antitrust Division of the Oregon Department of Justice, located at 100 SW Market Street, Portland, Oregon 97201, and by outside counsel from Ashworth & Pendleton LLP, with lead partner Constance Yee and associate Derek Holmgren, located at 1120 SW Third Avenue, Suite 1500, Portland, Oregon 97204.
The State has retained Dr. Evelyn Ng as its expert economist in this matter. Dr. Ng is affiliated with Ridgeline Economic Consulting LLC, located at 1501 Fourth Avenue, Suite 900, Seattle, Washington 98101. Dr. Ng submitted a preliminary expert declaration in support of the State's motion for preliminary injunction, in which she opined on market definition, concentration, and the potential for vertical foreclosure. As discussed at length below, Dr. Ng's analysis suffers from several significant methodological deficiencies that undermine its probative value.
B. The Acquisition and Federal Regulatory Review
On September 8, 2022, Halcyon Semiconductor AG, acting through its U.S. subsidiary Halcyon Semiconductor Americas Inc., entered into an Agreement and Plan of Merger (the "Merger Agreement") with Meridian Photonics Inc. to acquire 100% of the outstanding shares of Meridian's common stock for $2.15 billion in cash. The per-share consideration represented a premium of approximately 37% over Meridian's implied private-market valuation based on the most recent Series F preferred stock financing round, which had been completed in March 2022. The Merger Agreement contained customary representations, warranties, covenants, and closing conditions, including conditions relating to the receipt of applicable regulatory clearances.
The acquisition was financed through a $2.2 billion senior secured term loan facility (Term Loan B) arranged by Vereinigte Kreditbank AG ("VKB") as the administrative agent and lead arranger. The lending syndicate included Nordmark Capital Group and Pacific Rim Commercial Bank as co-lenders. A total of $2.15 billion was drawn at closing to fund the acquisition consideration, with an additional $50 million of Halcyon cash on hand deployed to cover transaction-related fees, expenses, and other costs associated with the closing. Callister Blackwood & Co., an international investment banking firm, served as Halcyon's financial advisor in connection with the transaction, with Managing Director Jonathan Reiss leading the advisory team.
The parties timely submitted their premerger notification filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), 15 U.S.C. § 18a, on October 3, 2022 (HSR File No. 20221003-1847). The filing was reviewed by the Antitrust Division of the United States Department of Justice. On November 14, 2022, the reviewing agency granted early termination of the statutory waiting period. No second request for additional information or documentary material was issued at any point during the HSR review process. The grant of early termination — which the agencies reserve for transactions that do not present competitive concerns warranting extended investigation — reflected the federal government's assessment that the Halcyon-Meridian combination did not raise issues sufficient to justify further scrutiny.
No state-level antitrust pre-notification was required or filed in connection with the acquisition. Oregon does not maintain a state-level premerger notification regime, and no state attorney general's office raised competitive concerns or initiated an investigation prior to the closing of the transaction.
All conditions to closing were satisfied on or before January 31, 2023, and the acquisition was consummated on that date. On closing, Meridian became a wholly owned subsidiary of Halcyon Semiconductor Americas Inc. The transaction was announced publicly via press release and a filing on the Frankfurt Stock Exchange on January 31, 2023.
C. The State's Post-Closing Challenge
Approximately two and a half months after the acquisition closed, on April 10, 2023, the Oregon Attorney General's Office issued a Civil Investigative Demand ("CID") to Halcyon Semiconductor Americas Inc. pursuant to ORS 646.760. The CID sought documents and information relating to the acquisition, Meridian's competitive position in the CPO market, and Halcyon's post-acquisition business plans and integration strategies. Halcyon cooperated with the CID and produced responsive documents on a rolling basis.
One week after issuing the CID — and before Halcyon had completed its production of responsive materials — the Attorney General filed this civil complaint on April 17, 2023. The complaint alleges that the acquisition of Meridian by Halcyon substantially lessened competition in what the State defines as the "co-packaged optics transceiver module market" in violation of ORS 646.730 and ORS 646.775, Oregon's state antitrust statutes. The complaint seeks injunctive relief, including behavioral restrictions on Halcyon's conduct and potentially structural relief in the form of divestiture of some or all of the acquired Meridian assets.
Halcyon filed its Answer to the complaint on May 5, 2023, denying the State's allegations and asserting affirmative defenses. On May 19, 2023, Halcyon filed a motion to dismiss, arguing, among other grounds, that the State's claims were preempted by federal antitrust law and that the complaint failed to state a plausible claim for relief. The Court heard oral argument on the motion to dismiss on June 29, 2023, and issued its order denying the motion on July 7, 2023. The Court held that ORS Chapter 646 provides independent state enforcement authority that is not preempted by federal antitrust law and that the complaint, taken as true at the pleading stage, stated a plausible claim for relief. The Court's ruling was limited to the pleading standard and did not address the merits of the State's substantive antitrust claims.
Following the denial of the motion to dismiss, the parties held a case management conference on July 14, 2023, and discovery commenced on July 21, 2023. The discovery period is ongoing, and no depositions of fact witnesses have yet been taken.
On August 15, 2023 — less than four weeks after the commencement of discovery — the State filed the instant motion for preliminary injunction. The State seeks an order imposing behavioral restrictions on Halcyon during the pendency of this action, including, as described in the State's proposed order: (1) requirements that Halcyon maintain Meridian as a separate operating entity with independent pricing and sales authority; (2) prohibitions on Halcyon's ability to jointly develop integrated CPO products using Meridian's patented technology and Halcyon's IC design capabilities; and (3) mandatory reporting obligations regarding Halcyon's interactions with Meridian's customers. In substance, the State's proposed behavioral restrictions would effectively prevent Halcyon from realizing the very efficiencies that motivated and justify the acquisition.
D. The Competitive Landscape of the U.S. CPO Market
A proper understanding of the competitive landscape of the United States co-packaged optics transceiver market is essential to evaluating the merits of the State's claims and the appropriateness of the extraordinary relief the State seeks. The following summary draws on the analysis set forth in the Declaration of Dr. Franklin Morrow, submitted concurrently herewith.
The U.S. CPO transceiver market generated estimated total revenues of approximately $875 million in fiscal year 2022. Co-packaged optics technology integrates optical transceivers directly with networking switch ASICs (application-specific integrated circuits) on the same package substrate, eliminating the need for separate pluggable optical modules. CPO solutions are deployed primarily in hyperscale data-center environments, where the technology offers advantages in bandwidth density, power consumption, and latency compared to traditional pluggable transceiver architectures.
The market is characterized by rapid technological evolution, significant ongoing research and development investment, and robust growth driven by the expanding capacity requirements of hyperscale data-center operators. According to Sundial Enterprises's Co-Packaged Optics Market Forecast 2023-2027, published in April 2023, the U.S. CPO market is projected to grow at a compound annual growth rate of approximately 28% through 2027, reaching an estimated $2.9 billion in annual revenue by that date. This rapid growth is fueled by the accelerating adoption of artificial intelligence and machine learning workloads, which demand dramatically higher interconnect bandwidth within and between data-center clusters.
Prior to the merger, the U.S. CPO transceiver market was served by several competitors. Based on estimated FY 2022 revenue data compiled by Dr. Morrow, the pre-merger market shares were as follows:
On a post-merger combined basis, Halcyon and Meridian hold an estimated 58% share of the U.S. CPO transceiver market by revenue (approximately $507.5 million). However, as Dr. Morrow explains in his Declaration, this static market share snapshot is a poor indicator of competitive conditions in a market growing at 28% annually, where competitive positions shift rapidly and new entry is facilitated by open interoperability standards.
The key Oregon-based customers identified in the State's complaint are Cascadia Cloud Services Inc. and Northstar Digital Infrastructure LLC. Cascadia Cloud Services Inc. operates three hyperscale data centers in Prineville and The Dalles, Oregon, and purchased approximately $62 million in Meridian CPO modules in FY 2022. Northstar Digital Infrastructure LLC is a colocation and wholesale data-center operator based in Hillsboro, Oregon, which purchased approximately $28 million in Meridian CPO modules in FY 2022. Together, these two Oregon-based customers accounted for approximately $90 million in Meridian CPO module sales, representing approximately 23% of Meridian's total FY 2022 revenue. Both companies are sophisticated purchasers with substantial bargaining power and the ability to qualify and switch to alternative CPO suppliers.
LEGAL STANDARD FOR PRELIMINARY INJUNCTION
Under Oregon law, a party seeking a preliminary injunction bears the burden of demonstrating that the extraordinary remedy of injunctive relief is warranted. Oregon Rule of Civil Procedure 79 governs the issuance of preliminary injunctions, and the Oregon Supreme Court has identified four factors that a court must evaluate in determining whether to grant such relief. See State ex rel. Redden v. Discount Fabrics, Inc., 289 Or. 375, 382 (1980); Harris v. Suniga, 344 Or. 301, 311 (2008). The movant must establish:
(1) A likelihood of success on the merits of the underlying claim;
(2) That the movant will suffer irreparable harm if the injunction is not granted;
(3) That the balance of equities — the relative hardships to the parties — tips in the movant's favor; and
(4) That the issuance of the injunction serves the public interest.
The Oregon Supreme Court has emphasized that "[a] preliminary injunction is an extraordinary remedy that should not be granted as a matter of course." Harris, 344 Or. at 311. Rather, it is reserved for situations in which the movant has demonstrated that the circumstances are sufficiently compelling to justify the exercise of the court's equitable powers before the case has been fully adjudicated on the merits. Id.; see also Lobdell v. Heurlin, 252 Or. 245, 251 (1969) ("Injunctive relief is never a matter of right, but is addressed to the sound discretion of the court.").
The Oregon Court of Appeals has likewise observed that the movant's burden at the preliminary injunction stage is substantial, particularly when the relief sought would alter the status quo of an existing business arrangement or impose affirmative obligations on the defendant. See PNW Envtl. Advocates v. Portland Gen. Elec. Co., 268 Or. App. 483, 498 (2015). A preliminary injunction is not intended to serve as a mechanism for obtaining the ultimate relief sought in the litigation before the parties have had the opportunity to present their full evidentiary cases. See State of Oregon v. Monitronics Int'l, Inc., 321 Or. App. 516, 528 (2022).
Although the Oregon preliminary injunction standard is articulated under state law, federal courts applying analogous standards — which Oregon courts have recognized as persuasive authority — have likewise emphasized the extraordinary nature of preliminary injunctive relief. See Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 24 (2008) ("A preliminary injunction is an extraordinary remedy never awarded as of right."). The movant must make a "clear showing" of each element. Id. at 22.
In the antitrust context specifically, the standard for preliminary relief takes on particular significance when the transaction at issue has already been consummated and received federal regulatory clearance. Courts have recognized that imposing preliminary behavioral restrictions on a completed transaction creates severe risks of disruption to ongoing business operations, destruction of already-realized integration benefits, and uncertainty for customers and employees. See, e.g., University Emergency Medicine Foundation v. Rapier Investments, Ltd., 197 F.3d 18, 27 (1st Cir. 1999) (recognizing the "difficult problems" that arise when courts are asked to fashion preliminary relief in the context of a completed merger). Where the transaction has been consummated and integration is underway, the movant faces a heightened burden to demonstrate both the likelihood of success on the merits and that the balance of equities favors the imposition of interim relief that would, in practical effect, reverse or significantly constrain a completed business combination.
Furthermore, Oregon courts have recognized that preliminary injunctive relief in the antitrust context must be evaluated with particular care, given the complexity of the economic analysis involved and the risk of erroneous intervention in competitive markets. See State ex rel. Redden, 289 Or. at 384 (cautioning against the issuance of preliminary injunctions where "the factual showing is incomplete and the legal issues are complex"). The State's burden is not merely to raise questions about the competitive effects of the acquisition; it must demonstrate, at this preliminary stage, that it is likely to prevail on the merits and that the equitable considerations justify the imposition of behavioral constraints on a completed business combination.
The State has not carried this burden, and its motion should be denied.
ARGUMENT
I. THE STATE IS UNLIKELY TO SUCCEED ON THE MERITS
The State's antitrust claims rest on a series of analytical errors and unsupported assumptions that collectively undermine any likelihood of success on the merits. The State has defined the relevant product market too narrowly, relied on static market share data that is misleading in the context of a rapidly growing technology market, ignored substantial procompetitive efficiencies, advanced a speculative vertical foreclosure theory that is contradicted by market realities and the absence of any supporting evidence, and disregarded the significance of federal regulatory clearance. Halcyon addresses each of these deficiencies in turn.
A. The State's Relevant Product Market Definition Is Overly Narrow. The proper definition of the relevant product market is a threshold issue in any antitrust case. See Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962) ("[D]etermination of the relevant market is a necessary predicate to a finding of a violation of the Clayton Act."). The market must be defined to include "all products that are reasonably interchangeable by consumers for the same purposes." Id. at 325; see also FTC v. Whole Foods Mkt., Inc., 548 F.3d 1028, 1037 (D.C. Cir. 2008). As the Horizontal Merger Guidelines recognize, the relevant market should encompass all products to which customers would switch in response to a small but significant and non-transitory increase in price ("SSNIP test"). U.S. Dep't of Justice & FTC, Horizontal Merger Guidelines § 4.1 (2010).
The Attorney General defines the relevant product market as "co-packaged optics transceiver modules for data-center applications." This definition is artificially narrow and does not reflect the competitive realities of the marketplace in which these products compete. By drawing the market boundary tightly around CPO modules, the State excludes several categories of substitute products that data-center operators routinely evaluate and deploy as alternatives to CPO solutions.
First, the State's market definition excludes pluggable optical transceivers, including next-generation 400G and 800G pluggable modules. Pluggable transceivers are the incumbent technology in high-speed data-center interconnects and remain the dominant solution deployed in the vast majority of data-center environments today. While CPO technology offers certain advantages in bandwidth density and power efficiency, pluggable transceivers offer competing advantages in deployment flexibility, ease of maintenance, and lower upfront integration costs. Data-center operators — including sophisticated hyperscale operators like Cascadia Cloud Services Inc. and Northstar Digital Infrastructure LLC — routinely evaluate the total cost of ownership and performance tradeoffs between CPO modules and pluggable transceivers when making procurement decisions. See Morrow Declaration ¶¶ 28-35.
Second, the State's market definition excludes traditional discrete optical modules, which continue to serve a significant portion of the high-speed interconnect market. While these modules are generally deployed at lower bandwidth tiers, technological advances are steadily closing the performance gap, and many data-center operators maintain hybrid architectures that combine discrete modules, pluggable transceivers, and CPO solutions within the same facility. Id. ¶¶ 36-39.
Third, the State ignores emerging integrated photonics solutions being developed by companies outside the State's narrowly defined market. Several major semiconductor firms, including companies that the State does not even mention in its moving papers, are actively developing next-generation integrated photonics platforms that will compete directly with CPO modules for the same data-center interconnect applications. These emerging solutions represent a significant competitive constraint on CPO pricing and innovation. Id. ¶¶ 40-44.
The economic evidence demonstrates significant cross-elasticity of demand between CPO modules and these alternative interconnect solutions. Dr. Morrow's analysis, based on publicly available pricing data, customer procurement records produced in discovery, and interviews with industry participants, shows that a hypothetical 5-10% price increase in CPO modules would cause a substantial proportion of data-center customers to shift purchases to next-generation pluggable transceivers. Morrow Declaration ¶¶ 45-52. This substitution pattern is inconsistent with the State's assertion that CPO modules constitute a distinct relevant product market.
The practical significance of the market definition error is substantial. Under the State's artificially narrow market definition, the combined Halcyon/Meridian entity holds an estimated 58% share of the "CPO transceiver module" market. But under a properly defined market encompassing all high-speed optical interconnect solutions for data-center applications — a market that Dr. Morrow estimates generated total U.S. revenues of approximately $6.8 billion in FY 2022 — the combined entity's share would be approximately 7.5%. Morrow Declaration ¶¶ 53-56. The post-merger HHI in the properly defined market would be well below the thresholds at which competitive concerns typically arise under the Horizontal Merger Guidelines.
The distinction between these market definitions is not merely academic. As the court recognized in United States v. Ostrander Corporation., 331 F. Supp. 2d 1098, 1118 (N.D. Cal. 2004), "[t]he government's failure to prove a relevant product market is fatal to its Section 7 claim." Similarly, in FTC v. Sysco Corp., 113 F. Supp. 3d 1, 24 (D.D.C. 2015), the court emphasized that the government must prove its market definition with evidence, not merely by asserting distinctions between products. The State has not done so here.
The Supreme Court's decision in Ohio v. Halcyon Corporation, 138 S. Ct. 2274, 2285 (2018), further underscores the importance of properly defining the relevant market. In Amex, the Court held that the government must define the market in a way that accounts for the full competitive dynamics at play, including the competitive constraints imposed by products and services that may not be identical to the product at issue but that nonetheless discipline pricing and innovation. See also Herbert Hovenkamp, Federal Antitrust Policy § 3.2, at 118-19 (6th ed. 2020) (explaining that market definitions that ignore close substitutes will "overstate the defendant's market power" and lead to erroneous competitive assessments).
Because the State's market definition is overly narrow and fails to account for the competitive constraints imposed by pluggable transceivers, discrete optical modules, and emerging integrated photonics solutions, the State's market share and concentration analysis is fundamentally unreliable. This deficiency alone is sufficient to demonstrate that the State is unlikely to succeed on the merits.
B. The CPO Market Is Rapidly Growing and Dynamic, Undermining the State's Structural Presumption. Even accepting the State's narrow market definition solely for purposes of argument, the State's reliance on static market share data and HHI calculations is misplaced in the context of the rapidly growing and technologically dynamic CPO transceiver market. The State's structural presumption — based on a post-merger HHI of 4,050 and an HHI increase (delta) of 1,232 — is a snapshot that fails to capture the competitive dynamics that matter most for assessing the likely competitive effects of this transaction.
The United States CPO market is projected to grow at a compound annual growth rate of approximately 28% through 2027, expanding from approximately $875 million in FY 2022 to an estimated $2.9 billion in FY 2027. Morrow Declaration ¶¶ 57-62; Sundial Enterprises, Co-Packaged Optics Market Forecast 2023-2027 at 14-18 (Apr. 2023). In markets experiencing this level of growth, current market shares are inherently unstable and provide a poor basis for predicting future competitive conditions.
The D.C. Circuit's decision in United States v. Tarvick Hughes Inc., 908 F.2d 981, 992 (D.C. Cir. 1990), is directly on point. In Tarvick Hughes, the court recognized that "[i]n a market experiencing rapid technological change, market share data is inherently unreliable as a predictor of future competitive conditions," and that "the structural presumption must give way to evidence that the merger is not likely to have anticompetitive effects." Id. at 991-92. The court held that the government's structural case — even when supported by high concentration figures — can be rebutted by evidence of market dynamics, including rapid growth, technological change, and the availability of alternative competitive constraints. Id.
The Supreme Court reached a similar conclusion in United States v. Fenmore Industries, 415 U.S. 486, 501-04 (1974), holding that the government's prima facie case based on market shares can be rebutted by evidence that those shares do not accurately reflect competitive significance in the particular market at issue. See also Horizontal Merger Guidelines § 5.3 (recognizing that "market shares may not fully reflect the competitive significance of each firm" and that "recent or ongoing changes in market conditions may indicate that the current market share of a particular firm either understates or overstates the firm's future competitive significance").
Several features of the CPO market demonstrate that the State's structural analysis is unreliable:
Existing competitors are well-capitalized and actively expanding. Luminos Systems Corp., based in Austin, Texas, holds approximately 22% of the U.S. CPO market by revenue and has announced plans to invest more than $300 million in next-generation CPO development over the next three years. Morrow Declaration ¶ 65. Luminos recently secured a $175 million strategic investment from Apex Ventures to fund its expansion into the 800G and 1.6T CPO segments. Id. ¶ 66. Crestwave Optical Technologies Ltd., based in Shenzhen, China, holds approximately 11% of the U.S. market and is actively expanding its U.S. sales and technical support presence, including the opening of a new U.S. design center in Fremont, California, in March 2023. Id. ¶ 67. These are not marginal competitors; they are well-resourced firms with demonstrated capabilities and aggressive growth plans.
Barriers to entry are low. The CPO transceiver market operates on the basis of open interoperability standards established by the Optical Internetworking Forum ("OIF"), specifically the OIF 400ZR Implementation Agreement (finalized in March 2020) and the emerging OIF 800ZR Framework Document (draft released in January 2023). These open standards define the technical specifications for interoperable CPO solutions, enabling any qualified manufacturer to design, produce, and sell CPO modules that are interoperable with switch ASICs from any vendor. Morrow Declaration ¶¶ 68-74. The availability of these standards significantly reduces the barriers to entry that a new competitor would face, as new entrants need not develop proprietary interface specifications or negotiate bilateral compatibility agreements with switch ASIC vendors. Dennis W. Carlton, Why Barriers to Entry Are Barriers to Understanding, 94 Am. Econ. Rev. 466, 468 (2004) (explaining that open standards reduce entry barriers by lowering the cost of developing interoperable products).
Product cycles are short. The CPO market is characterized by rapid product iteration, with new generations of CPO modules typically introduced every 18 to 24 months. Morrow Declaration ¶ 75. In such an environment, today's market leader can quickly lose share to a competitor that delivers a superior next-generation product. Id. Static market shares are therefore particularly poor predictors of competitive conditions in this market.
Customer sophistication constrains pricing power. The primary customers for CPO transceiver modules are hyperscale data-center operators — companies like Ridgeway Industries, Northgate Corporation, Crestline Systems, and Adriatic Enterprises — that are among the most sophisticated technology purchasers in the world. These customers have substantial engineering resources, the ability to qualify multiple suppliers, and significant bargaining power that constrains the pricing of CPO vendors regardless of market concentration. Morrow Declaration ¶¶ 76-80. Oregon-based customers Cascadia Cloud Services Inc. and Northstar Digital Infrastructure LLC, while smaller than the global hyperscalers, are likewise sophisticated purchasers with the ability and incentive to multi-source their CPO requirements. Id. ¶¶ 81-83.
In light of these market dynamics, the State's structural presumption based on static HHI calculations cannot support a finding that the State is likely to succeed on the merits. As the Ninth Circuit has observed, "antitrust theory and speculation cannot substitute for proof" that a merger is likely to substantially lessen competition. Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 896 (9th Cir. 2008). The State's static concentration analysis, untethered from the dynamic competitive realities of the CPO market, does not carry its burden.
C. The Acquisition Generates Substantial Procompetitive Efficiencies. The Halcyon-Meridian acquisition generates substantial procompetitive efficiencies that further undermine the State's likelihood of success on the merits. These efficiencies are verifiable, merger-specific, and directly benefit consumers by enabling the development and production of lower-cost, higher-performance CPO solutions.
The combination of Halcyon's analog and mixed-signal IC design capabilities — including its industry-leading power management IC technology — with Meridian's portfolio of 47 CPO-related U.S. patents and its advanced silicon photonics manufacturing expertise creates integration benefits that neither company could achieve independently. These efficiencies flow directly from the vertical nature of the combination: Halcyon's ICs are key input components for Meridian's CPO modules, and the integration of these complementary capabilities under a single corporate umbrella eliminates transaction costs, reduces design cycle times, and enables the co-optimization of electronic and photonic components.
Dr. Morrow's economic analysis estimates approximately $90 million in annual cost savings from the vertical integration of Halcyon's and Meridian's operations. Morrow Declaration ¶¶ 84-96. These savings derive from three principal sources:
First, the elimination of duplicative R&D spending on CPO driver and transimpedance amplifier IC development. Prior to the acquisition, both Halcyon and Meridian independently invested in the design and development of driver ICs and transimpedance amplifier ICs — key electronic components used in CPO modules. By consolidating these R&D programs, Halcyon eliminates redundant investment and can allocate the freed resources to accelerating the development of next-generation integrated solutions. Dr. Morrow estimates that these R&D savings account for approximately $35 million of the $90 million in annual cost savings. Id. ¶¶ 87-89.
Second, the integration of Halcyon's proprietary power management technology directly into Meridian's CPO module designs. Power management ICs are critical components in CPO modules, controlling the voltage and current supplied to the optical transmitter and receiver elements. By designing Halcyon's power management ICs to be co-optimized with Meridian's photonic circuits from the ground up — rather than relying on off-the-shelf power management solutions, as Meridian did pre-acquisition — the combined entity can reduce component count, shrink module footprint, and significantly improve energy efficiency. These improvements are particularly valuable in data-center applications, where power consumption is a primary cost driver. Dr. Morrow estimates that power management integration accounts for approximately $30 million in annual savings. Id. ¶¶ 90-92.
Third, manufacturing synergies from co-locating IC fabrication and photonics fabrication processes. Halcyon's fabrication facilities in Chandler, Arizona, and Meridian's fabrication and testing facilities in Hillsboro, Oregon, can be rationalized and integrated to reduce manufacturing costs, improve yield, and shorten lead times. Dr. Morrow estimates that these manufacturing synergies account for approximately $25 million in annual savings. Id. ¶¶ 93-95.
These efficiencies are merger-specific in that they could not be achieved through arm's-length contracts, licensing arrangements, or other means short of the acquisition. The tight integration of IC design and photonics design requires unified engineering teams, shared intellectual property, and coordinated product development roadmaps that are economically feasible only within a single corporate entity. See FTC v. Tronox Ltd., 332 F. Supp. 3d 187, 216 (D.D.C. 2018) (recognizing that merger-specific efficiencies are those that "cannot be achieved through alternatives to the merger"); see also Horizontal Merger Guidelines § 10 (efficiencies must be "merger-specific" and "verifiable").
These efficiencies are also procompetitive in that they will result in lower-cost, higher-performance CPO modules that directly benefit data-center operators, including Oregon-based customers such as Cascadia Cloud Services Inc. and Northstar Digital Infrastructure LLC. Lower costs and improved performance will enhance competitive rivalry in the CPO market by enabling the combined entity to compete more aggressively on price and product quality.
The State has not rebutted or even substantively addressed these efficiencies in its moving papers. The State's motion devotes a single paragraph to the efficiency defense, asserting without analysis that "claimed efficiencies are unlikely to be passed through to consumers." Pl.'s Mem. at 28. This conclusory assertion does not constitute an adequate response to the detailed, quantified efficiency analysis presented by Dr. Morrow. See Chicago Bridge & Iron Co. v. FTC, 534 F.3d 410, 435 (5th Cir. 2008) (recognizing that the government must rebut the defendant's efficiency showing with evidence, not mere assertions).
D. The State's Vertical Foreclosure Theory Is Speculative. The State's core theory of competitive harm is that, following the acquisition, Halcyon will have the ability and incentive to degrade the interoperability between Meridian's CPO modules and competitors' switch ASICs, thereby raising rivals' costs and foreclosing competition in the CPO market. This theory is speculative, unsupported by evidence, and contradicted by the competitive realities of the marketplace.
As a threshold matter, vertical merger enforcement must be approached with particular care, as vertical combinations are generally less likely to raise competitive concerns than horizontal mergers. See United States v. Quillon Group, 310 F. Supp. 3d 161, 194 (D.D.C. 2018), aff'd, 916 F.3d 1029 (D.C. Cir. 2019) (noting that vertical mergers "are not presumptively unlawful" and that "the government must make a fact-specific showing that the effect of the proposed merger is 'likely to be to substantially lessen competition'"). The now-withdrawn Vertical Merger Guidelines (2020) similarly recognized that vertical mergers often generate procompetitive benefits, including the elimination of double marginalization, the reduction of transaction costs, and the facilitation of investment in complementary capabilities. See U.S. Dep't of Justice & FTC, Vertical Merger Guidelines § 1 (2020).
In Camberwell Enterprises, the district court — in a comprehensive opinion affirmed by the D.C. Circuit — rejected the government's theory that the combination of Camberwell Enterprises's distribution platform with Time Warner's content would enable the merged entity to foreclose rival distributors by withholding or degrading access to Time Warner programming. The court found that the government had failed to demonstrate that the merged entity would have the economic incentive to engage in foreclosure conduct, given the substantial costs that such conduct would impose on the merged entity itself. 310 F. Supp. 3d at 216-41.
The same logic applies here. Halcyon has a strong economic incentive to maintain the interoperability of Meridian's CPO modules with all major switch ASIC platforms. Meridian's customers — including Cascadia Cloud Services Inc. and Northstar Digital Infrastructure LLC — use switch ASICs from multiple vendors in their data-center deployments. If Halcyon were to degrade the interoperability of Meridian's CPO modules with any vendor's switch ASICs, those customers would have every reason and ability to shift their CPO purchases to competitors such as Luminos Systems Corp. and Crestwave Optical Technologies Ltd., both of which offer interoperable CPO modules. The result of a foreclosure strategy would therefore be a loss of Meridian's own sales — precisely the opposite of the profit-maximizing outcome. Morrow Declaration ¶¶ 97-108.
This economic logic is reinforced by the existence of the OIF 400ZR and 800ZR open standards, which establish industry-wide interoperability requirements for CPO transceiver modules. Adherence to these standards is not optional for any serious CPO vendor; it is a prerequisite for participation in virtually all major data-center procurement processes. Hyperscale data-center operators and enterprise customers alike require compliance with the OIF standards as a condition of purchase, and vendors that deviate from the standards risk disqualification from procurement opportunities worth hundreds of millions of dollars. See Optical Internetworking Forum, 400ZR Implementation Agreement § 2.1 (Mar. 2020); Optical Internetworking Forum, 800ZR Framework Document § 1.3 (draft, Jan. 2023). Halcyon has every incentive to adhere to these standards, and no rational economic actor in Halcyon's position would pursue a strategy of degrading interoperability in contravention of the open standards that govern the market.
The State's theory of harm is further undermined by the absence of any evidentiary support. The Attorney General has identified no contemporaneous documents, internal communications, business plans, board presentations, management memoranda, or other evidence suggesting that Halcyon intends to engage in foreclosure conduct. Despite the State's issuance of a Civil Investigative Demand and the commencement of formal discovery, the State has not pointed to a single document or witness statement indicating that Halcyon has planned, considered, or taken any steps to degrade the interoperability of Meridian's products, raise rivals' costs, or engage in any form of vertical foreclosure.
Moreover, there is no evidence that any such conduct has actually occurred in the seven months since the acquisition closed. The State's motion is premised entirely on a speculative theory of what Halcyon might do at some unspecified point in the future. But "[s]peculation about the future is insufficient to satisfy the Government's burden of showing that a merger is likely to substantially lessen competition." Camberwell Enterprises, 310 F. Supp. 3d at 194; see also Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692 (1978) (antitrust analysis requires assessment of actual or likely competitive effects, not speculation about theoretical possibilities).
The State's reliance on the expert opinion of Dr. Evelyn Ng does not cure this evidentiary void. Dr. Ng's preliminary declaration applies theoretical models of vertical foreclosure drawn from the industrial organization economics literature. While such models may have analytical value in the abstract, Dr. Ng's analysis suffers from several critical deficiencies. Dr. Ng's model does not account for the competitive constraints imposed by the OIF open standards, which effectively preclude the type of interoperability degradation that the State posits. Morrow Declaration ¶¶ 109-115. Dr. Ng's model does not account for the sophistication of Meridian's customers and their demonstrated ability to multi-source CPO modules from competing vendors. Id. ¶¶ 116-119. Dr. Ng's model does not account for the substantial costs that a foreclosure strategy would impose on Halcyon itself, in the form of lost Meridian sales to customers who would switch to competitors. Id. ¶¶ 120-125. And Dr. Ng's model does not account for the procompetitive efficiencies generated by the acquisition, which create incentives for the merged entity to compete more aggressively on price and quality rather than to restrict output or raise rivals' costs. Id. ¶¶ 126-130. In short, Dr. Ng's analysis is a theoretical exercise untethered from the factual and competitive realities of the CPO market, and it does not provide a reliable basis for concluding that the acquisition is likely to substantially lessen competition.
See Herbert Hovenkamp, Federal Antitrust Policy § 9.6, at 412 (6th ed. 2020) ("[V]ertical merger theory models generally predict that the merged firm will not find it profitable to engage in foreclosure when downstream rivals have access to alternative inputs or upstream rivals have access to alternative customers — conditions that are commonly present in real markets.").
For all of these reasons, the State's vertical foreclosure theory does not provide a basis for concluding that the State is likely to succeed on the merits of its antitrust claims.
E. Federal Clearance, While Not Dispositive, Is Relevant Context. Halcyon acknowledges that the Court's July 7, 2023 order denied Halcyon's argument that the State's claims are preempted by federal antitrust law. Halcyon does not seek to relitigate that issue here. However, the fact that the federal antitrust agencies — after reviewing the HSR filing (HSR File No. 20221003-1847) — granted early termination of the statutory waiting period on November 14, 2022, without issuing a second request for additional information, is probative evidence that the transaction is unlikely to substantially lessen competition and is relevant to the Court's assessment of the State's likelihood of success on the merits.
The HSR Act requires merging parties to notify the federal antitrust agencies and observe a statutory waiting period before consummating a transaction above the applicable size-of-transaction and size-of-person thresholds. 15 U.S.C. § 18a(a). During the waiting period, the reviewing agency — either the FTC or the Antitrust Division of the Department of Justice — evaluates the competitive effects of the proposed transaction. If the agency has concerns about the transaction's competitive effects, it may issue a second request for additional information and documentary material, which extends the waiting period and initiates an in-depth investigation that often takes six months or more to complete. If the agency does not issue a second request and grants early termination, it is an affirmative determination that the transaction does not present competitive concerns warranting further investigation.
In this case, the Antitrust Division reviewed the Halcyon-Meridian transaction and granted early termination less than six weeks after the HSR filing was submitted. The agencies were presented with the same market data, the same product descriptions, and the same competitive dynamics that the State now alleges give rise to an antitrust violation. The federal agencies concluded that further investigation was not warranted.
While ORS Chapter 646 provides independent state enforcement authority that is not preempted by federal law — a point that the Court has already decided — the federal agencies' assessment of the transaction's competitive effects is relevant evidence. The federal agencies have substantial expertise in evaluating the competitive effects of mergers and acquisitions, and their decision not to challenge a transaction, while not dispositive, is an indication that the transaction is unlikely to substantially lessen competition. See Chicago Bridge & Iron Co. v. FTC, 534 F.3d at 423 (noting that the weight of "the federal agency's prior decision not to challenge a transaction" is a factor courts may consider in assessing competitive effects). The State has offered no explanation for why the federal agencies reached a different conclusion than the State regarding the competitive effects of this transaction, and has not identified any Oregon-specific competitive concerns that would not have been apparent from the federal HSR review.
This Court should consider the federal clearance as relevant context in evaluating the State's likelihood of success on the merits.
II. THE BALANCE OF EQUITIES TIPS DECISIVELY IN HALCYON'S FAVOR
Even if the State could demonstrate some likelihood of success on the merits — which it cannot — the balance of equities tips decisively in Halcyon's favor and independently requires denial of the State's motion.
A. Halcyon Will Suffer Substantial Harm from Behavioral Restrictions. The acquisition of Meridian closed on January 31, 2023 — more than seven months before the Attorney General filed the instant motion for preliminary injunction. In the intervening seven months, Halcyon has invested significant financial and organizational resources in integrating Meridian's operations into the Halcyon corporate family. The integration is well underway and has already begun to yield the procompetitive efficiencies described above. Disrupting this integration through court-imposed behavioral restrictions would cause Halcyon substantial, concrete, and potentially irreversible harm.
Since the closing, Halcyon has undertaken the following integration activities, among others:
Joint R&D programs. Halcyon has initiated multiple joint research and development programs combining Halcyon's IC design teams with Meridian's photonics engineering staff. These programs include the development of a next-generation integrated CPO module that combines Halcyon's proprietary power management IC with Meridian's advanced silicon photonics transmitter and receiver elements on a single package substrate. The program has a projected development timeline of 18 months and a budget of approximately $45 million. Team members from both companies have been cross-assigned, co-located, and integrated into unified project management structures. Disrupting these programs through behavioral restrictions — including the State's proposed prohibition on joint product development — would waste the investments already made, scatter the integrated engineering teams, and delay the delivery of a product that would benefit consumers.
Capital expenditures on shared facilities. Halcyon has invested approximately $22 million in capital improvements to Meridian's fabrication and testing facilities in Hillsboro, Oregon, including the installation of Halcyon's proprietary IC testing equipment and the reconfiguration of manufacturing lines to enable integrated IC-photonics fabrication processes. These investments cannot be readily unwound, and the State's proposed restrictions would strand these assets and prevent them from being utilized for their intended purpose.
Sales and distribution channel realignment. Halcyon has begun the process of integrating Meridian's sales and distribution channels with Halcyon's existing North American distribution network. This integration has included the reassignment of customer account managers, the consolidation of customer relationship management systems, and the negotiation of modified supply agreements with key customers. Reversing this integration would create confusion and uncertainty for Meridian's customers, potentially damaging customer relationships and undermining Meridian's competitive position in the market.
Employee integration. Approximately 200 Meridian employees have been reassigned to roles within the combined organization, including transfers between Halcyon and Meridian facilities. Employment agreements, compensation structures, and benefit programs have been harmonized. Unscrambling these employee arrangements would be disruptive, demoralizing, and in some cases practically impossible.
The behavioral restrictions sought by the Attorney General — which include maintaining Meridian as a separate operating entity with independent pricing and sales authority, prohibiting joint product development, and imposing mandatory reporting obligations — would effectively unwind substantial portions of a completed, lawful transaction. The practical effect of these restrictions would be to impose what amounts to a hold-separate order on a transaction that has been consummated for more than seven months and that received federal regulatory clearance without conditions. Courts have recognized that the imposition of such restrictions on a completed transaction causes significant harm that must be weighed heavily in the equitable balance. See University Emergency Medicine Foundation, 197 F.3d at 27.
B. The State's Claimed Harm Is Speculative and Not Irreparable. In contrast to the concrete and substantial harm that behavioral restrictions would impose on Halcyon, the State's claimed harm is entirely speculative. The Attorney General has not identified any actual anticompetitive conduct by Halcyon since the acquisition closed on January 31, 2023. The State has not presented evidence that Halcyon has raised prices for Meridian's CPO modules, degraded product quality, reduced output, refused to deal with any customer, impaired the interoperability of Meridian's products, or engaged in any other form of anticompetitive behavior.
The State's motion is premised entirely on a speculative theory of future harm — that Halcyon might, at some unspecified point, degrade the interoperability of Meridian's CPO modules with competitors' switch ASICs. But as discussed at length in Section I.D above, this theory is contradicted by Halcyon's economic incentives, the constraints imposed by the OIF open standards, the sophistication and multi-sourcing capabilities of Meridian's customers, and the complete absence of any documentary or testimonial evidence suggesting that Halcyon intends to pursue such a strategy.
Speculative future harm does not constitute the type of irreparable injury necessary to justify the extraordinary remedy of a preliminary injunction. See Harris v. Suniga, 344 Or. 301, 312 (2008) (the movant must show "a substantial likelihood that irreparable injury will occur"); State of Oregon v. Monitronics Int'l, Inc., 321 Or. App. 516, 530 (2022) (harm must be "actual or imminent, not conjectural or hypothetical"). The State's failure to demonstrate any actual or imminent irreparable harm is itself sufficient grounds for denying the motion.
Furthermore, the State's position is not one of irreparable injury for which no adequate remedy at law exists. If the Attorney General ultimately prevails on the merits of its antitrust claims at trial, the Court retains full authority to fashion appropriate relief at that time, including behavioral remedies, conduct restrictions, and — if warranted — structural relief in the form of divestiture. The availability of post-trial remedies underscores the absence of irreparable harm from denying preliminary relief. The State has offered no persuasive explanation for why the normal course of litigation — including full discovery, expert depositions, and a trial on the merits — would be inadequate to protect whatever competitive interests the State asserts.
The balance of equities is thus stark: on one side, Halcyon faces concrete, substantial, and potentially irreversible harm from behavioral restrictions that would disrupt a seven-month-old integration, strand capital investments, and prevent the realization of procompetitive efficiencies; on the other side, the State asserts speculative, future harm that has not materialized, is unlikely to materialize, and for which post-trial remedies would be available in a