                                    In the

       United States Court of Appeals
                     For the Seventh Circuit
                          ____________________
No. 11-1446
ROCHE DIAGNOSTICS CORPORATION,
                                                         Plaintiff-Appellant,
                                       v.
MEDICAL AUTOMATION SYSTEMS, INC.; GREGORY A. MENKE;
and KURT M. WASSENAAR,
                                      Defendants-Appellees.
                 ____________________
            Appeal from the United States District Court for the
             Southern District of Indiana, Indianapolis Division.
         No. 1:10-cv-1718-SEB-DML — Sarah Evans Barker, Judge.
                          ____________________

          ARGUED MAY 9, 2011 — DECIDED MAY 24, 2011†
                   ____________________

    Before EASTERBROOK, Chief Judge, and WOOD and
WILLIAMS, Circuit Judges.
    EASTERBROOK, Chief Judge. Roche Diagnostics makes glu-
cose monitors and other diabetes-related products that incor-
porate software written by Medical Automation Systems
(MAS). Roche’s contract with MAS entitles it to use the soft-
ware for two years after the contract’s initial term (2006
through 2010) and any extension. It also gives Roche a right of
first refusal should MAS agree to sell its stock or assets to one
of Roche’s competitors “during the term of this Agreement.”
MAS notified Roche that it would not extend the contract af-
ter the original expiration date. Roche learned that investors in

   †   This opinion is being released in typescript. A printed copy will follow.
No. 11-1446                                                Page 2


MAS were negotiating to sell their stock to Alere, Inc., which
Roche considers to be a competitor. It told MAS in December
2010 that would match Alere’s offer, but MAS replied that, be-
cause the transaction would not close until 2011, Roche’s right
of first refusal did not apply.
    The contract provides for arbitration of disputes about the
right of first refusal but allows either party to ask a judge for
equitable relief while arbitration is ongoing. Invoking the diver-
sity jurisdiction, Roche asked for an injunction pending arbitra-
tion. Because the merits of the dispute will be resolved by the
arbitrator, we do not discuss the terms of the contract or the
nature of the parties’ contentions beyond the few words already
written. Some of these details appear in the district court’s
opinion. 2011 U.S. Dist. LEXIS 18117 (S.D. Ind. Feb. 23, 2011). It
is enough for now that the district court concluded—and MAS
does not deny—that Roche has a reasonable chance of prevail-
ing in the arbitration.
    The district court concluded that Roche will suffer irrepa-
rable injury if Alere acquires MAS. The acquisition could un-
dermine the value of Roche’s right to use the software through
2012. The court also concluded that the difficulty of undoing a
sale (soon to be followed by a merger) could reduce, if not elim-
inate, the value of Roche’s right of first refusal. At the same
time, the district judge found, enjoining the sale would cause
irreparable harm to MAS and Alere by prolonging the uncer-
tainty about who is entitled to control MAS’s business. Delay
could reduce the value of MAS to Alere, leading it to withdraw
(or reduce the price), to the detriment of MAS’s stockholders.
The district judge concluded that the best way to balance these
competing interests would be to allow the sale to proceed, sub-
ject to a requirement that MAS allow Roche to use the soft-
ware through 2012. The district court issued an injunction im-
plementing this decision; the injunction expires as soon as the
arbitrator renders a decision (or at the end of 2012, if the arbi-
trator still has not acted).
    Roche asked us for an injunction pending appeal. We con-
cluded that the sale can proceed if MAS and Alere respect
Roche’s exclusive rights, and if the parties ensure that MAS is
maintained as a separate firm so that the transaction can be un-
done and the business transferred to Roche—with its full value
intact—should the arbitrator rule in Roche’s favor. The hold-
separate portion of our injunction sets these conditions:
No. 11-1446                                               Page 3


  1. MAS survives the merger in its current form as an in-
      dependent, though wholly or partially owned, corpo-
      rate entity;
  2. There are no material changes in MAS’s operations;
  3. There are no material changes in MAS’s business
      plans;
  4. Alere does not hire any current or former employees,
      officers, or directors of MAS;
  5. MAS does not hire any current or former employees,
      officers, or directors, of Alere;
  6. No current or former employees, officers, or directors
      of Alere serve as directors or board members of MAS;
  7. No current or former employees, officers, or directors
      of MAS serve as directors or board members of Alere;
  8. MAS does not share with Alere any confidential or
      proprietary information regarding Roche or any other
      company with which MAS does business;
  9. MAS does not share with Alere any of MAS’s own
      confidential and proprietary information except to the
      extent that MAS shares such information with third-
      parties in its normal course of business; and
  10. MAS does not transfer or dispose of any material as-
      sets or make any material acquisitions.
MAS and Alere elected not to close the transaction under these
conditions. We accelerated the briefing and argument of the
appeal. Meanwhile the arbitration is under way: the arbitrator
has allowed extended discovery and set a hearing for Septem-
ber. This does not seem like an expedited schedule, but none of
the litigants has complained.
    Appellate review of a district judge’s decision balancing the
harms in a proceeding requesting equitable relief is deferential.
See Ashcroft v. ACLU, 542 U.S. 656, 664–65 (2004). MAS con-
tends that deferential review leads straight to affirmance, be-
cause after an evidentiary hearing the district judge reached a
thoughtful conclusion recognizing the injury that could be done
by either closing the deal or delaying the closing. The problem
with MAS’s argument is that the district judge included, as an
injury on MAS’s side of the ledger, the harm that would be
No. 11-1446                                                  Page 4


done by delaying a final decision about whether MAS’s business
goes to Alere or to Roche. The district court wrote that this
injury could be avoided by allowing the sale to proceed. Yet
closing the sale will not avoid uncertainty. Until the arbitrator
decides, uncertainty continues whether the sale has closed or
not. The chance that the arbitrator will decide that Roche
properly exercised a right of first refusal, and thus is entitled to
acquire MAS, means that the final outcome cannot be known
today. It is the arbitration agreement between Roche and
MAS, not an injunction, that prolongs uncertainty.
    Because “uncertainty” is a wash, we need to ask whether
Roche or MAS faces the greater harm. The district judge said
that Roche’s harm is the greater, if effects of uncertainty from
delay are put aside. We agree. Roche faces harm from acts that
may undermine its right to use the software in connection with
diabetes-related products. And it faces harm from the fact that
parties to the sale of a business—whether accomplished by
merger, the sale of assets, or the transfer of all stock—
commonly make changes that impede any effort to restore the
status quo ante. Often the point of the deal is to give one firm
access to another’s assets, including its intellectual property,
and its executives too. The acquiring firm may install new man-
agers in order to protect or enhance its investment, may move
assets to or from the acquired business in order to achieve
economies of scope (often called synergies), and may alter the
acquired firm’s business plans substantially.
    A careful study concluded that changes of this kind prevent
divestiture that would solve antitrust problems. See Kenneth
G. Elzinga, The Antimerger Law: Pyrrhic Victories?, 12 J.L. &
Econ. 43 (1969). A recognition that eggs can’t be unscrambled
underlies the Hart-Scott-Rodino Antitrust Improvements Act,
15 U.S.C. §§ 15c–15h, 18a, which entitles antitrust enforcers to
notice of impending sales and mergers, so that anticompetitive
acquisitions can be tackled while effectual relief is still possible.
And the difficulty of restoring an acquired firm to its original
independent situation is why we conditioned closing on the de-
fendants’ willingness to hold the firms’ assets and management
separate until the arbitrator could make a decision. Their un-
willingness to accept these conditions implies a desire to take
one or more of the steps that would make the deal hard, if not
impossible, to reverse.
No. 11-1446                                                Page 5


    An irreversible transaction would defeat Roche’s right of
first refusal, should the arbitrator vindicate Roche’s position.
MAS does not contend that this loss could be compensated in
damages. It would be difficult indeed to know just how much
more MAS is worth to Roche than the price it must pay to
match Alere’s offer. MAS concedes that irreparable injury, and
the other conditions for injunctive relief, see Winter v. NRDC,
Inc., 555 U.S. 7 (2009), have been established. Its only argument
is that the district court did not abuse its discretion because
the harms are in equipoise given the loss it will suffer if uncer-
tainty continues. Since the uncertainty will continue until the
arbitrator’s decision—when any injunction will expire—the
harms are one-sided. Roche is entitled to effective relief until
the arbitrator decides.
    This court’s hold-separate order protects Roche’s interests;
it has not asked for more. After oral argument, however, MAS
asked us to modify two of the conditions, which it said obstruct
the transaction even though Alere is willing to accept the other
eight.
    Condition 6 provides: “No current or former employees, of-
ficers, or directors of Alere [may] serve as directors or board
members of MAS.” This not only prevents Alere from making
substantial changes but also prevents it from displacing MAS’s
current managers, officers, and directors, whose continuing
presence may be essential should MAS later be transferred to
Roche. What worries Alere is that, after closing, some promises
in the acquisition agreement would cease to operate. MAS
promised Alere that before closing it would not incur liabilities
exceeding $100,000 except in the ordinary course of business;
would not allow assets to become subject to a lien; would not
sell new stock or acquire any new business; would not dispose
of its intellectual property; and so on. These are normal terms
of an acquisition agreement. The promises expire when the
transaction closes, because the buyer can install its own per-
sonnel to ensure that the business is well operated. If the sale
proceeds but condition 6 applies, however, Alere’s investment
will be at risk: MAS’s old shareholders will have their money
and may neglect their duties or take imprudent risks. Certainly
their competitive edge will be dulled.
    The way to handle this problem is not, however, to modify
condition 6. It is to add a new requirement, condition 11: “If
Alere acquires MAS subject to the first 10 conditions, then
No. 11-1446                                                 Page 6


MAS remains bound by all promises in §7.7 of the acquisition
agreement for as long as this injunction remains in force.” All of
the matters that concern Alere are in §7.7, so this additional
requirement should ensure that the value of MAS does not de-
teriorate while the arbitrator is adjudicating Roche’s conten-
tions. And because §7.7 is in force today, its continuation pend-
ing the resolution of the arbitration cannot injure Roche.
    Alere’s second concern arises from condition 9, which limits
the information that MAS can provide. Alere believes that, af-
ter acquiring all of MAS’s stock, it will be required to consoli-
date its financial statements with those of MAS, something
that would not be possible if MAS can provide Alere with no
more information than MAS releases to the public. The SEC’s
Regulation S–X generally requires consolidation if a reporting
company such as Alere owns a majority or some other compa-
ny’s stock. See 17 C.F.R. §§ 210.3–01, 210.3–02, 210.3–03. But
generally differs from always. Rules of the Financial Accounting
Standards Board permit a firm not to prepare consolidated fi-
nancial statements when “control does not rest with the majori-
ty owner”. FASB Reg. §810-10-15-10(a)(1). While the hold-
separate conditions are in force, control would not rest with
Alere, which would not violate any statute or regulation by
treating stock in MAS as an asset, rather than preparing a con-
solidated financial statement. Similarly, Alere’s lack of day-to-
day control would excuse it from changing or certifying MAS’s
internal financial system in order to comply with the Sarbanes–
Oxley Act. This makes it unnecessary to modify condition 9.
    One final matter calls for discussion. The district court did
not require Roche to post a bond as a condition of the prelimi-
nary injunction that protects its contractual period of exclusivi-
ty. Nor did this court require a bond when enjoining the closing
unless MAS and Alere implement the hold-separate conditions.
Normally an injunction bond or equivalent security is essential.
See Fed. R. Civ. P. 62(c), 65(c); Mead Johnson & Co. v. Abbott La-
boratories, 201 F.3d 883, 887–88, amended, 209 F.3d 1032 (7th
Cir. 2000). Injunctions can injure litigants—MAS’s investors
certainly are injured by both the district court’s injunction and
our hold-separate order. And preliminary injunctions, which
may be issued in haste, are more likely to be erroneous than in-
junctions issued at the close of the litigation. A party injured by
an erroneous preliminary injunction is entitled to be made
whole. Established doctrine has it that the damages payable to a
No. 11-1446                                                  Page 7


person injured by an erroneously issued injunction cannot ex-
ceed the amount of the bond. W.R. Grace & Co. v. Rubber Work-
ers, 461 U.S. 757, 770 n.14 (1983); Russell v. Farley, 105 U.S. 433,
437–38 (1882); Coyne-Delany Co. v. Capital Development Board, 717
F.2d 385, 393–94 (7th Cir. 1983). Judges therefore should take
care that the bond is set high enough to cover the losses that
their handiwork could cause. A limit of zero—the upshot of an
injunction without a bond—is bound to be too low.
     The reason why neither the district court nor this court re-
quired a bond is that the contract between Roche and MAS not
only assigns to a court (rather than an arbitrator) the question
whether to block a sale pending arbitration, but also waives
both parties’ entitlement to an injunction bond. By waiving the
protection of an injunction bond, MAS surrendered any right
to compensation should an injunction cause the deal to fall
through. But judges still should take account of the risk that
their deeds creates. We could, for example, set a time limit on
the injunction, though this would allocate to Roche the risk
that relief would expire, and the sale close, before the arbitrator
is done.
     We asked Roche’s counsel at oral argument whether Roche
is willing to compensate MAS’s investors for the time value of
money. Alere has offered $43 million for all shares of MAS.
That price, paid at a closing in January 2011, is worth more than
the same price paid (by either Roche or Alere) at a closing in
January 2012. Counsel for Roche replied that the equity inves-
tors in MAS would be fully compensated for any loss they incur
because of delay in receiving the purchase price, and that if
Roche eventually acquires the shares it will pay the investors at
least $43 million plus interest from the time the MAS–Alere
deal originally was scheduled to close. We have taken that
promise into account in deciding that the hold-separate order
should last until the arbitrator is done—or decides that equita-
ble relief is no longer necessary, if that is earlier. Roche has
made a financial commitment to MAS’s investors and must
keep its word.
      The judgment of the district court is modified to incorpo-
rate the 11 hold-separate conditions stated in this opinion.
Alere and MAS can close their transaction if they respect both
those conditions and the district court’s requirement that
Roche receive its unimpaired period of exclusive use of MAS’s
No. 11-1446                                          Page 8


diabetes-product software. As modified, the judgment of the
district court is affirmed.
