Health care antitrust

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Health care antitrust

  1. 1. Health Care Antitrust: Latest Developments And Trends Stephen D. Libowsky Partner Dentons Chicago 312.876.2529 stephen.libowsky@dentons.com CLE Seminar for In-House Counsel June 5, 2014 Chicago, Illinois © 2014 Dentons. All rights reserved.
  2. 2. OBJECTIVES Review basic but relevant antitrust principles to identify: 1. Situations raising antitrust risks 2. Potential claimants 3. Major legal issues for each claim 4. Risk management strategy 5. What Are The DOJ and FTC doing 1
  3. 3. RELEVANT TOPICS 1. Exclusive Dealing, Bundling, And Tying 2. Communications Regarding Prices and Markets 3. Claims that Someone is a “Monopolist” 4. Mergers and Acquisitions 2
  4. 4. ANTITRUST BASICS: U.S. Laws & Regulations; Agencies; Definitions • Sherman Act § 1: Prohibits contracts/agreements/understandings to fix prices, reduce output or allocate markets that unreasonably restrain trade. • Sherman Act § 2: Prohibits unilateral conduct to obtain/maintain or to attempt to obtain monopoly power by actions likely to succeed. • Clayton Act: Prohibits mergers that may substantially lesson competition or that may tend to create a monopoly. • Robinson – Patman Act: Price discrimination causing competitive injury in sales of like kind/grade of goods to customers in the same tier of use or distribution. • Federal Trade Commission: Merger control and analysis; antitrust enforcement. • Department of Justice: Merger control and analysis; antitrust enforcement. • Antitrust Injury: Injury reflecting the effects of anticompetitive activities; harm to competition or the competitive process. 3
  5. 5. SHERMAN ACT §1: Prohibits Conduct to Fix Prices or Allocate Markets • Cartels/Price Fixing with Competitors; Collusion/Ganging Up on Customers. Every Antitrust Enforcement Agency in the World Looking at this. Number 1 Issue Today: Criminal Sentences, Fines, Penalties. Dozens of Active Worldwide Criminal & Civil Investigations Ongoing. Market Allocations: Territories by Geography; Customers by Category. • Need Compliance Program & Strict Enforcement Policies. Do you have a Good Compliance Program─Top Down Policy To Comply. • Agreements with Dealers and Distributors. Minimum Resale Price Maintenance (i.e., Must Sell at this Price or Higher). Maximum Resale Price Maintenance (i.e., Must Sell at this Price or Lower). 4
  6. 6. SHERMAN ACT §1: Per Se Violations • Concepts of “Conspiracy,” “Agreement,” and “Understanding” are broad. • Not limited to “formal” contracts; includes oral and informal arrangements. • Can be proven by parties’ course of conduct or dealing and direct or circumstantial evidence. • Examples of conspiracies or agreements that are “per se” illegal: • Price fixing between (a) competitors (horizontal price fixing) or (b) suppliers and dealers (vertical price fixing); • Bid rigging by competitors; • Division or allocation of customers or territories by competitors; • Limitation of supply by and among competitors; and • Boycotts/Refusal to Deal by and among competitors. 5
  7. 7. SHERMAN ACT § 1: Rule of Reason Analysis • If not per se unlawful, agreements or understandings with competitors (i.e., joint ventures), suppliers or dealers are unlawful if there is a substantial adverse effect on competition; otherwise known as the “Rule of Reason Analysis.” Direct proof of anticompetitiveness: • Higher prices for same services/quality; or • Less availability without substantial justification. Can also infer anticompetitive effects through: • Market power of defendants; • Nature of restraint; • Actual or probable impact; or • Bogus business justifications. 6
  8. 8. SHERMAN ACT § 2: Monopolization • Monopolization • Monopoly power in a relevant market (50% or more). • Anticompetitive, exclusionary conduct such as: • “Predatory” pricing (below marginal cost); • Exclusive dealing─“leveraging” practices; • Refusals to deal; or • “Unfair” business practices. • Attempted monopolization: • Exclusionary or predatory conduct. • Likely to achieve monopoly power. 7
  9. 9. SHERMAN ACT § 2: Unilateral Refusals To Deal • Absolute Right To Work With Or Refrain To Work With Any Person Or Business • Must Be Truly A Unilateral Decision • When Can A Unilateral Refusal Be An Antitrust Problem? • Done by a monopolist; entity with market power • Refusal leaves target with minimal market alternatives • Refusal is part of a scheme to monopolize (tying, bundling) • No business justification • Done by entity with an “essential” facility 8
  10. 10. FTC Letter Dated 2/13/13 Re: Norman PHO • PHO Network - nonexclusive • Clinical Integration - high degree of interdependence and cooperation to create efficiencies • Joint Contracting subordinate to integration/efficiency • 280 physicians; 38 specialties • Revenue from membership fees, dues, reimbursement withholds, contributions from regional health system, employer agreements • All clinical programs not finalized • Quality programs; electronic medical records • Providers free to contract with payors not in network • No agreements related to inpatient or outpatient services 9
  11. 11. Mergers, Virtual Mergers and Joint Operating Agreements • Healthamerica Penn. v. Susquehanna Health System, 278 F.Supp.423 (M.D. Pa 2003) • Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1983) • American Needle, Inc. v. NFL, 130 S. Ct. 2201 (2010) • Single Entity/Joint Venture • No concerted action vs. rule-of-reason • Control • Integration • Single economic purpose • Competitive impact 10
  12. 12. RISK AREA: Exclusive Dealing, Bundling And Tying • Agreements with Customers:  Exclusivity: Explicit or implicit requirement that customer purchase, use or promote only your products or services (express or “de facto” exclusive dealing);  Tying: Requiring customer to purchase your other products if they want one of your particular products; or  Bundling: Offering customers additional discounts/rebates if they purchase across your product line. Potential Claimants  Competing Manufacturers  Direct Customers  Downstream Users of our Products or Services  State or Federal Governments 11
  13. 13. RISK AREA: Exclusive Dealing • Exclusive dealing is often lawful, especially if you don’t have market power. • Need positive business reasons, not a desire to exclude competitors. • Factors examined: Market power in the “relevant market;” Scope of the Agreement (number of products; “restrictions”); Duration (5 years might be a problem; but 1-year term should be fine); Effect on Competition:  How much of relevant market is open after the agreement?  How much of the downstream market is “foreclosed”?  What is the relevant base for determining foreclosure?  Does it raise competition’s costs? Are there pro-competitive reasons for exclusivity? 12
  14. 14. RISK AREA: Tying & Bundling Tying • Two separate products that aren’t integrated (e.g., paint & brush). • Seller has “market power” over tying product. • Competitor’s ability to sell in market for tied product is “foreclosed.” Bundled Discounting • Multi-product company offers lower prices when its products are purchased together. • When is bundling considered pro-competitive discounting? • Is market power over some products being used to create market power over others? • Does bundling enhance your ability to increase or maintain prices? • Does bundling potentially exclude competitor as efficient as you? • Must competitor sell below cost to meet price on bundled product in which it is competing? 13
  15. 15. Bundled Pricing • Ninth Circuit’s approach to bundling– “discount attribution.” (Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) • Bundling condemned only if the total discounts in the bundle, when applied to the ''competitive'' product, resulted in a price below the average variable cost of that product. • Based on concerns about (a) the potential for multiproduct bundled discounts to exclude equally efficient competitors, and (b) courts' relative lack of experience in evaluating such claims. • Compare the Third Circuit’s LePages, Inc. v. 3M, 324 F.3d 141 (2003). • Held that even bundled discounts that did not act to lower the selling price of a good below cost could constitute illegal exclusionary conduct under Section 2 of the Sherman Act. 14
  16. 16. Bundled Pricing • Government actions of note: • United States v. United Regional Health Care System (N.D. Tex. Feb. 25, 2011) (complaint and consent decree) • Contracts allegedly offered a substantially larger discount off billed charges if United Regional is the only local provider in the insurer’s network; • The Antitrust Division charged that the contracting practice was exclusionary because the contracts: • Effectively foreclosed other competing hospitals from the most profitable health insurance contracts; • Led to higher prices and reduced quality by delaying and preventing new entry, limiting price competition, and preventing competitors from differentiating themselves based on quality; and • Were effectively “below cost” contracts because, considering only the volume of services that rivals could contest, no rival could effectively compete. 15
  17. 17. Bundled Pricing • Intel Corp. (FTC Complaint settled by consent decree, dated 8/4/10) • Resolved antitrust claims that Intel stifled competition in order to bolster its dominant position in the markets for central processing units (CPUs), graphics processing units (GPUs) and chipsets. • Complaint challenged (a) bundled prices, discounts or retroactive rebates to discourage computer makers from buying a competitor’s chips, and (b) “all-or- nothing” discounts to lock computer makers in to purchasing chips exclusively from Intel. • Consent decree: In contrast to Cascade Health Solutions, the Intel settlement defines below-cost pricing in a way that captures pricing that “exceeds Intel’s average variable cost but [that] does not contribute to its fixed sunk costs in an appropriate multiple of that average variable cost.” 16
  18. 18. Most-Favored Nations (MFN) Clauses • Typically require one party (typically the seller) to guarantee the other (the buyer) that it is receiving contract terms as good as or better than any arrangements made by its rivals. • Often sustained against attack as legitimate means for buyer to bargain for low prices. E.g., MFN “tends to further competition on the merits and, as a matter of law, is not exclusionary.” Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101, 1110 (1st Cir. 1989); see Blue Cross & Blue Cross Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995). • When might there be an antitrust issue? The theory is, when imposed by a dominant buyer/re-seller (or a group of them in an oligopolistic market), MFNs discourage price cutting to aid a new market entrant, because the seller would also be forced to make the lower price available to the existing customers representing a large (dominant) portion of the market. 17
  19. 19. Most Favored National Clauses • Cases regarding MFNs. • United States v. Blue Cross Blue Shield of Mich., 809 F. Supp. 2d 665 (E.D. Mich. 2011) • Claim: Insurer (BCBSM) used a combination of standard MFNs and “MFN-plus” clauses (requiring that health care providers charge competing insurers more than they charge BCBSM) to enhance its market power in various local health insurance markets. • Use of such provisions by a dominant insurer could prevent new entrants or to take any price advantage away from smaller firms seeking to expand. • Defendant’s motion to dismiss denied: “it is plausible that the MFNs entered into by Blue Cross with various hospitals in Michigan establish anticompetitive effects as to other health insurers and the cost of health services in those areas.” 809 F. Supp. at 674. 18
  20. 20. Most Favored Nations Clauses • Recent Developments regarding MFNs. • United States v. Apple, Inc. (S.D.N.Y); allegations: • Apple and six book publishers conspired to utilize a uniform agency model for retail e-book sales, allowing them raise retail prices. • Allegedly reinforced through an MFN providing that none of the publishers’ e-books could be sold for any less than the price on Apple’s iBookstore. • This “effectively required that each publisher Defendant take away retail pricing control from all other e-book retailers, including stripping them of any ability to discount or otherwise price promote e-books out of the retailer’s own margins.” • Apple found to have violated antitrust laws. • 2d Circuit decision expected in 2014. 19
  21. 21. RISK MANAGEMENT: Communications Regarding Prices • Antitrust compliance policy contains clear and explicit rules that employees not discuss prices, markets, customers, or strategic plans with competitors. • Do not communicate with competitors about prices/customers which suggest price fixing/market allocation (per se illegal; criminal penalties/treble damages). • Communications with competitors raise serious risks and must hold a prominent place in corporate compliance programs and require legal department approval. • Interactive web-based compliance program and face-to- face training includes segment on relationships with competitors. 20
  22. 22. RISK AREA: Claims that one is a “Monopolist” • Supreme Court and DOJ/FTC define what constitutes a “Relevant Market” by: • Measuring supply and demand elasticities • What is the available supply of (or demand for) reasonable substitutes if there is a 5-10% price increase or supply shortfall of the desired product? • Do products have the ability to take business away from each other? • Courts have turned to “practical” surrogates to measure cross- elasticity, which have been used in some cases to define “narrow” product markets. • Whether products have sufficiently distinctive uses and characteristics; • Whether various business categories routinely monitor each other’s actions and calculate and adjust their own prices on the basis of prices of others; • Whether there are unique production facilities and/or unique production issues; • Whether there are specialized vendors, materials or other inputs; • Whether consumers consider various categories of sellers as substitutes; and • Whether a sizeable price disparity between different types of sellers persists over time for an equivalent amount of comparable goods. • Courts come to opposite conclusions, even from the same type of evidence. 21
  23. 23. RISK MANAGEMENT: Claims that one is a “Monopolist” • Because of the complexity and uncertainty of issues around the definition of the “relevant market,” for planning purposes, always assume narrowly-defined relevant markets as part of its analysis. • For planning and risk management purposes, business should be conducted as if you hold a “monopoly share” of the “relevant market.” • Annual training provided addressing the need to: • Avoid the creation of documents and emails that could be used to prove an unfavorable market definition. • Avoid the use and misuse of certain language as part of antitrust training programs for those with substantial sales/marketing roles. • Legal review of documents used in analyst presentations, public filings with SEC, and major strategic documents. 22
  24. 24. MERGERS AND ACQUISITIONS • Merger/acquisition analysis is concerned with whether a merger/acquisition creates or enhances market power by combining market participants, thereby increasing concentration and likely increasing prices/reducing output. • Will the combination (a) enhance the ability of the remaining firms to coordinate actions regarding price/output or (b) permit one firm unilaterally to maintain a selling price above the level that would prevail in a competitive market? • Will the acquisition likely result in higher prices to purchasers? • Number of manufacturers today? Next year? Five years? • Amount of capacity/overcapacity today? Next year? Five years? • Prices to competitors? buyers? 23
  25. 25. MERGERS AND ACQUISITIONS • Relevant Geographic market: international, national, regional, state or city? • Recent examples of Dominant Player Trying to Buy a Competitor: • DoJ challenges American Airlines/U.S. Airways combination (August 2013); • Settled shortly before trial was to begin Nov. 25, 2013 • DoJ challenges AB-In Bev acquisition of Grupo Models; deal restructured (2013); • DoJ sues to block AT&T/T-Mobile merger; parties abandon (2012); • DoJ sues to block H&R Block from buying TaxACT; transaction enjoined (2012); • FTC allows Express Scripts/Medco Merger (2012); • FTC Integrated Device-PLX Technology Merger; parties abandon (2012); • DC Circuit enjoins Whole Foods from buying Wild Oats (2 to 1); Market found to be premium, natural & organic supermarkets (2008); • DC Circuit allows merger of Arch Coal & Triton Coal; Market found to be specialty coal, no coordinated effects problems (2004); 24
  26. 26. MERGERS AND ACQUISITIONS, continued • District Court, N.D. Cal., allows merger of Oracle and PeopleSoft; “High function” accounting/finance software is not market (2004); • District Court enjoins Staples from buying Office Depot; Market = office superstores (1997); • DoJ allows Whirlpool to buy Maytag although combined firm will have 70% of washer/dryer market (May 2006); • FTC allows Boeing to buy McDonnell Douglas; market: worldwide, need competitor to Airbus, McDonnell Douglas would never again be a real competitor in domestic US airplane manufacturing. (1997); and • FTC blocks merger of Heinz (#3) and BeechNut (#2) in baby food market even though both are much smaller than Gerber, which had a 70% share. • FTC and DoJ seek to unwind closed transactions, even when no HSR filing • Pro Medical/St. Luke’s Hospital (Lucas County, Ohio) – Merger unwound • Phoebe Putney/Palmyra (Albany, Georgia) – State action immunity not applicable • Bazaarvoice/Power Reviews (January 2013) – Merger unwound • DoJ filed this suit after the transaction closed. The transaction was not reportable under the Hart- Scott-Rodino Act 25
  27. 27. MERGERS AND ACQUISITIONS, continued • The case was lost when during the merger planning phase. Documents created by the companies and their advisors before closing were at the heart of the DoJ's case and the court's opinion. Pages 21 to 41 of the opinion describe at length the damaging admissions and devastating comments made by multiple individuals, any of which doomed the case. The court summed up its analysis of the documents and arguments as follows on page 40: "The lack of pre-acquisition documentary evidence supporting Bazaarvoice's argument at trial that the elimination of its primary competitor had nothing to do with anticompetitive intent and likely effect, particularly compared with the substantial evidence of anticompetitive intent and likely effect to the contrary, was striking. The anticompetitive rationale for the acquisition remained constant in board presentations throughout the negotiation process, and it underlies many of the documents and much of the testimony that Bazaarvoice relied on at trial" • Document creation burns as many companies as document destruction. • http://www.bloomberglaw.com/public/document/United States of America v. Bazaarvoice Inc. Docket No 313cv00133 N/1 • St. Luke’s Hospital/Saltzer Medical Group (Idaho March 2013)–Merger unwound • Ardagh Group/Saint Gobain (trial was set for Oct. 2013, delayed) by gov't shutdown, settled with divestitures in April 2014) 26
  28. 28. State Law • Most states in the United States mirror federal antitrust law, but important exceptions and distinctions. • Over 30 states have Illinois Brick repealer statutes allowing suits by indirect purchasers for price fixing and market allocation. • Every state has an unfair trade practices and consumer protection statute and law of unfair competition. • Usually only allow consumer, not business plaintiffs. • Every state has statutes and common law relating to covenants not to compete and covenants not to solicit concerning employees. • Every state has statutes and common law relating to trade secrets and a company’s ability to restrict the use of former employees knowledge and information learned in the job. 27
  29. 29. What’s New At The Agencies? 28
  30. 30. Changing of the Guard at DOJ • Bill Baer Is The Relatively New Head of the Antitrust Division • Edith Ramirez Is The Relatively New Chairwoman of the FTC • Maureen Ohlhausen and Joshua Wright Are the Relatively New Commissioners of the FTC; Terrell McSweeny Is The Newest Commissioner. She has worked in the Antitrust Division and for Vice Presidents Gore and Biden • What Will Change? 29
  31. 31. Civil Enforcement At The Agencies 30
  32. 32. Supreme Court Heard FTC Challenge To “Pay-For- Delay” Hatch-Waxman Settlement • “Pay for Delay” cases arise when a pharmaceutical patent holder sues a generic manufacturer (about to enter the market) for patent infringement. Instead of litigating the validity of the patent to conclusion, the parties enter into a settlement agreement in which the patent holder pays the generic manufacturer not to enter the market until some time shortly before the expiration of the patent. • FTC v. Watson Pharmaceuticals, Inc., et al., 677 F.3d 1298 (11th Cir. 2012), rev'd, (June 17, 2013). • Solvay Pharmaceuticals filed suit against 2 generic manufacturers who had filed ANDA and claimed Solvay’s patent for its testosterone drug Androgel was invalid • Solvay agreed to pay $12 million/year and share profits, in exchange for generic manufacturers agreeing not to market the generic drugs until 2015 • The FTC alleges that the settlement was an unlawful agreement not to compete and to share monopoly profits under Solvay’s invalid patent • Eleventh Circuit affirmed dismissal of the complaint. • Supreme Court (5-3 with Alito recusing) holds that a claim exists and evidence will determine result. • How strong is the patent (merits or more limited review) • How much in payments (money, value?) for how long • How do you balance patent strength with money/value paid 31
  33. 33. Supreme Court Decided Phoebe Putney • Alleged merger to monopoly of two Georgia hospitals • 11th Circuit held that the transaction was immune from antitrust scrutiny on State Action grounds • Supreme Court heard case to decide two Issues: • Does the Georgia Hospital Authorities Law “clearly articulate” the legislature’s determination to displace competition law in this area in favor of administrative regulation? Answer: No. • Whether the state had actively supervised the Hospital Authority of Albany-Dougherty County's exercise of it regulatory power? No need to decide. • Odd conclusion – FTC decides it cannot seek "unwinding" or any type of "break-up" due to Georgia Certificate of Need Laws. • Supreme Court granted certiorari in North Carolina Board of Dental Examiners v. FTC; Oral Argument in Fall 2014 32
  34. 34. ProMedica Health System/St. Luke's Hospital • May 2010 acquisition • Agreement to hold separate during investigation • Toledo, Ohio, acute care hospitals • 1/5/12 ALJ decision ordering ProMedica to divest St. Luke's • 3/8/12 FTC (4-0) orders ProMedica to divest • Product market─general acute care inpatient hospital services sold to commercial health plans • Geographic Market─Lucas County, Ohio • Merger would create 3 competitors instead of 4 • ProMedica would go from 46.8% share to 58.3% share • St. Luke's was struggling financially • Weak, not failing • In April 2014, US Court of Appeals for the Sixth Circuit upheld FTC decision. • The court's analysis of what presumptively proves an illegal merger; 33
  35. 35. ProMedica Health System/St. Luke's Hospital, continued • The extent to which the court referred to the parties' internal documents and employee testimony as support for the FTC decision; • The court's noting the failure of the hospital, in the face of such evidence, to offer any justification based on better quality, better access, lower costs or some combination of these; and • The court's rejection of a "weakened competitor" or "flailing firm" defense, because the evidence indicated a profitable competitor. • Court agreed with the FTC that the relevant markets for purposes of analyzing the merger's competitive effects are (1) "a cluster market" of primary (but not obstetrical) and secondary inpatient services–a "general- acute care" or "GAC market," and (2) "a separate market for OB services." The relevant geographical market is Lucas County. • Based on the increases in market share in the relevant markets, and concentration in those markets post-merger (as measured by the Herfindahl-Hirschman Index, or "HHI"), the FTC found that the merger to be "presumptively illegal." 34
  36. 36. ProMedica Health System/St. Luke's Hospital, continued • Considered but rejected ProMedica's argument that measuring market concentration to apply a presumption of illegality only applies in "coordinated-effects" cases, and not when a merger is challenged based on a "unilateral effects" theory. ("Unilateral effects theory . . . holds that '[t]he elimination of competition between two firms that results from their merger may alone constitute a substantial lessening of competition.' ") • Prior to the proposed merger, ProMedica's prices were on average 32 percent higher than Mercy's, 51 percent higher than UTMC's and 74 percent higher than St. Luke's. • Managed care organizations have historically found it necessary to include either ProMedica or St. Luke's in their networks since those hospital systems are dominant in southwest Lucas County, where St. Luke's is located, and where the two were direct competitors before the merger. • Court made much of the fact that ProMedica did not attempt to argue that "this merger would benefit consumers . . . in any way." 35
  37. 37. ProMedica Health System/St. Luke's Hospital, continued • Court found that the St. Luke's financial difficulties before the merger (in connection with its "weakened competitor" defense) provided no basis to reject the FTC's findings about the merger's anticompetitive effects–in light of its increasing market share before the merger and cash reserves sufficient to pay all of its obligations and meet its capital needs. 36
  38. 38. Evanston Northwestern Healthcare/Highland Park Hospital • Merger in 2000 • FTC opens investigation in 2002 • In 2005, ALJ orders ENH to divest HP • 8/6/07, FTC affirms ALJ and orders ENH to establish separate and independent managed care contracting teams not to divest • December 2013, plaintiff antitrust class certified 37
  39. 39. St. Luke's/Saltzer • 12/31/12 St. Luke's acquired Saltzer • Saltzer─41 physicians; multispecialty; 30 are PCPs • March 2013─FTC and Idaho AG sue • Allegation: Merger creates a 80% player in adult PCP market • 2 St. Luke's competitors also filed suit • Trial began on 9/23/13 and ended on 11/7/13, Decision January 2014 • Decision • Market Power vs. Improved Efficiencies/Quality • Internal emails predict price increases and increased leverage • St. Luke's and Saltzer were each others' closest substitutes • Court recognizes need for health care reform • Efficiencies Must Be Merger Specific • St. Luke's already employed PCPs and implemented coordinated care 38
  40. 40. St. Luke's/Saltzer • Committed Team needed; not a specific structure • Risk Sharing does not require employed physicians • Complete Record, experienced counsel, well known experts • Relevant Geographic Market how far will patients travel • No "smoking gun" documents like other cases • Will increased PCP concentration cause increased prices for ancillary services, i.e., everything else a hospital offers • Why can't competing hospitals hire PCPs to compete • Could efficiencies/quality be increased without merger • Why force divestiture; waive noncompetes; required separate negotiating teams 39
  41. 41. Section 5 Invitations to Collude • Section 5 is broader than Section 1 of the Sherman Act: it does not require proof of an agreement. • Relying on that distinction, the FTC has long held that it can attack unilateral “invitations to collude”. • See, e.g., Quality Trailer Products Corp., Dkt. No. C-3403 (Nov. 5, 1992). • FTC has cautiously limited this theory to private conversations involving an unambiguous, naked invitation. 40
  42. 42. FTC Actively Looking to Expand This Doctrine • It has now used the theory to go after public statements, including ones made: • On financial analyst calls—In the Matter of U-Haul International, Inc., Docket No. C-4294 (July 20, 2010) and In the Matter of Valassis Communications, Inc., Docket No. C-4160 (April 28, 2006); or • In communications to your distributor network—In the Matter of McWane inc. and Star Pipe Products, Ltd., Docket No. 9351 (January 4, 2012). • This prompted a dissent by Commissioner Rosch, who while a proponent of an expansive use of Section 5 to go after Section 2-like exclusionary behavior, is more cautious here. ("I am concerned that Star’s alleged participation in the price-fixing conspiracy and information exchange relies, in part, on treating communications to distributors as actionable signaling on prices or price levels. See, e.g., Williamson Oil Co., Inc. v. Philip Morris USA, 346 F.3d 1287, 1305–07 (11th Cir. 2003).)" 42
  43. 43. Can this Theory Cross Over Into Section 1? • Some courts may be coming around to a similarly expansive view of that law • See In re Delta/ AirTran Baggage Fee Antitrust Litigation, 733 F.Supp.2d 1348 (N.D. Ga. 2010) (Denying motion to dismiss complaint alleging that AirTran and Delta used statements in public earnings calls to conspire on baggage fees and removal of excess capacity from the market survives). 42
  44. 44. Other Significant Cases 43
  45. 45. Employee “No Poaching” Litigation • In 2010, Apple, Intel, LucasFilms, Pixar and others settled a DOJ complaint involving agreements not to poach each others’ employees. http://www.justice.gov/opa/pr/2010/September/10-at- 1076.html • November 2012: lawsuit charging eBay agreed not to recruit of hire Intuit’s employees. • A class action by allegedly affected employees recently settled. In Re: High-Tech Employee Antitrust Litigation (N.D. Cal.) 44
  46. 46. Bad E-Mails From The “No Poaching” Litigation • Steve Jobs of Apple once wrote Eric Schmidt of Google to complain about a cold call to one of his employees. • Schmidt sent the request on, saying: “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know.” 45
  47. 47. Merger Developments 46
  48. 48. Mergers: Hart-Scott-Rodino Filings • Number of deals subject to reporting under the Hart-Scott- Rodino Act (HSR) continues to grow from the depths of the financial crisis. • Markets include: pharmaceuticals, hospitals, industrial goods, retail outlet centers, and energy • The agencies are issuing "second requests" (i.e., subjecting transactions to a formal investigation) at a substantially higher rate. 47
  49. 49. Mergers • There are also more challenges to deals. • FTC challenged 23 transactions during FY 2013. • Led to 18 consent orders, one trial, two transactions abandoned or restructured after parties learned of FTC’s concerns, two transactions abandoned after complaints filed, trials. • DOJ challenged 20 transactions, 13 of which involved court actions during FY 2012. • DOJ successfully litigated one, one dismissed after merger was abandoned, and 11 were resolved by consent decrees. • Seven others were resolved by the parties. • Markets include: wireless communications, digital tax prep services, hair care products, stock listing services, and travel website software. 48
  50. 50. Mergers – 2010 Horizontal Merger Guidelines • 2010 Horizontal Merger Guidelines – Some Key Revisions • De-emphasize the importance of market definition • Place more emphasis on other empirical and theoretical approaches to predicting anticompetitive effects, Merger simulation models • Economic tests of “upward pricing pressure” (UPP) • Use of win/loss data • “Natural experiments” • Many of these are sensitive to the values of key inputs • Emphasis on whether merger will facilitate “price discrimination” against a subset of customers • Herfindahl-Hirschman Index (HHI) thresholds have been upwardly revised • HHI of 2500 or greater is considered a “highly concentrated” market; increase of more than 200 points and a post-merger HHI exceeding 2500 is presumed anticompetitive 49
  51. 51. Mergers – Relevant Markets • The 2010 Merger Guidelines de-emphasize market definition analysis and place greater focus on competitive effects. • Section 4 of the guidelines asserts that "[t]he Agencies' analysis need not start with market definition" and that "[s]ome of the analytical tools used by the agency to assess competitive effects do not rely on market definition." • Agencies nonetheless often do allege narrow markets • And recent cases indicate that courts continue to treat market definition as a central element of antitrust analysis. • E.g., U.S. v. H&R Block, 2011 WL 548955 (D.D.C. Nov. 10, 2011) (stating that although in circumstances where "market power itself can be directly measured, then in theory market definition is superfluous, at least as a matter of economics . . . [a]s a matter of law, however, a market definition may be required be Section 7 of the Clayton Act“; City of New York v. Group Health Inc., 649 F.3d 151 (2d Cir. 2011); FTC v. Lundbeck, 650 F.3d 1236 (8th Cir. 2011). 50
  52. 52. Mergers – Some Other Developments • New policy guide to merger remedies. • Recognizes DOJ’s willingness to accept conduct remedies to address competitive concerns raised by vertical mergers. See GrafTech/Seadrift, Comcast/NBC joint venture, and Google/ITA consent decrees. • Continued cooperation between U.S. agencies and non-U.S. counterparts in merger investigations. 52
  53. 53. Thank You! We are very interested in your feedback - please take a moment to leave a note about this class and presenter on the back side of your evaluation form. © 2014 Dentons. Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices. Stephen D. Libowsky Partner Dentons Chicago 312.876.2529 stephen.libowsky@dentons.com

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