Latest Developments and Trends in Antitrust Law


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Latest Developments and Trends in Antitrust Law

  1. 1. CLE Seminar for In-House Counsel October 11, 2013 Washington, DC Latest Developments and Trends In Antitrust Law Stephen D. Libowsky Partner Dentons US LLP +1 312 876 2529 © 2013 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, Tying, and Minimum and Maximum Resale Pricing 2. Price Discrimination 3. Communications Regarding Prices and Markets 4. Claims that Someone is a “Monopolist” 5. 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. RISK AREA: Exclusive Dealing, Tying, Bundling & Minimum Pricing • Agreements with Customers:  Exclusivity: Explicit or implicit requirement that customer purchase, use or promote only your products (express or “de facto” exclusive dealing);  Agreement required to prove a §1 violation, but not a §2 violation.  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.  Minimum Resale Pricing: Requiring customers to set a price floor for resale.     Potential Claimants Competing Manufacturers Direct Customers Downstream Users of our Products State or Federal Governments 9
  11. 11. 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 is 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? 10
  12. 12. 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? 11
  13. 13. RISK AREA: Price Discrimination • Complex distribution chain. • Offering different prices, rebates, advertising and promotional allowances and services. • Favored customers (lower prices) buy directly from you and compete with each other as well as disfavored customers (higher prices). • Disfavored customers may claim disparate treatment affects their ability to compete resulting in lost sales and/or lower profit margins. • Application of Robinson-Patman Act • Price Discrimination = (1) Difference in price; (2) in sales to 2 buyers contemporaneously purchasing from a single seller, (3) involving commodities; (4) of like grade or quality; (5) that may injure the competition. Potential Claimants  Disfavored Purchasers  Downstream Customers  State or Federal Governments 12
  14. 14. RISK AREA: Price Discrimination • Competitive Injury • Injury to competitors vs. injury to competition in the relevant market. • Actual injury: Lost profits and diverted sales. • Morton Salt inference: • Substantial price discrimination; • Over a significant period of time; and • Low margins. 13
  15. 15. RISK MANAGEMENT: Price Discrimination • Antitrust compliance policy requires review by counsel or law department of: • Standard pricing programs. • Deviations from those programs and length of time deviations in place. • Special programs for particular customers (e.g., introductory discounts). • Functional discounts intended to provide reasonable reimbursement to cover customer’s actual marketing functions. • Sensitize sales force on key issue: Will “special” prices or promotional allowances for some materially affect others who do not receive them. • “Meeting the Competition” • “Acting in good faith to meet an equally low price of a competitor.” • Includes customer-by-customer and area-wide meeting competition. • Includes retention of current customers and gaining new business. • Details for support and considers whether information is consistent with other reports, there is a threat of termination or loss of business. 14
  16. 16. Resale Price Maintenance: Developments • Did Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) actually change the game? • Held that minimum RPM is judged by the rule of reason and is no longer per se illegal under federal law. • Major consideration – will state antitrust law also apply the rule of reason? • Depends on: • Language of state statutes • Deference that must be given to federal antitrust decisions 15
  17. 17. Resale Price Maintenance: Developments • So far, state decisions and legislative changes still make minimum RPM a substantial risk. • Kansas: O'Brien v. Leegin Creative Leather Products, Inc., No. 101,000 (Kan. May, 4, 2012) (RPM illegal under Kansas state antitrust law); but new Kansas statute in 2013 may have overturned that decision • California: People v. DermaQuest, Inc., Case No. RG 10497526 (Cal. Super. Ct. Alameda County 2010); People v. Bioelements, Inc. (Cal. Super. Ct. Riverside County December 30, 2010) • Maryland: specifically outlaws minimum resale price maintenance • Consideration: possible Congressional overturning of Leegin? • Bill Baer, now head of Antitrust Division, said he supports overturning Leegin at his July 2012 confirmation hearing. 16
  18. 18. Loyalty Discounts • Eaton Corp. v. ZF Meritor LLC, 696 F.Ed 254 (3d Cir. 2012), reh’g denied (Oct. 26, 2012), cert. denied (April 29, 2013). • 2 to 1, including visiting district court judge • Loyalty discount for purchasing large percentages of requirements • All purchases were above marginal cost • Long-term contracts (5 or more years) • Engineering/technical support • No exclusive dealing language • 3d Circuit: • De facto exclusive dealing • Anticompetitive way to exclude competitors • Above marginal cost pricing not outcome determinative 17
  19. 19. Loyalty Discounts (continued) • Concerns for National Sellers and Sellers in Delaware, New Jersey and Pennsylvania who have loyalty, handling, rebate and similar programs: • Business Justification • Program’s Duration • Customer’s Ability To Terminate • Nonprice Terms • Market Power? • Competitor Foreclosure? 18
  20. 20. Resale Price Maintenance: Developments • How Should the Courts Apply the Rule of Reason in this Area? • May turn on the same considerations used in evaluating nonprice vertical restraints (e.g., customer and territorial restrictions), including: • The market power of the supplier in the relevant market, • The market power of the dealers in the relevant market, • The vigor of interbrand competition and the degree of concentration in an industry, • The extent to which rival suppliers use minimum RPM, • The origins of the policy (i.e., to what extent is the restraint “imposed” or “pushed” by a group of competing distributors?), • What justifications are offered and recognized for the practice (and whether the internal and external communications are consistent with those justifications). 19
  21. 21. Resale Price Maintenance: Developments • The growing, but still somewhat limited, body of post-Leegin cases in the federal courts suggests that the existence of market power will significantly shape RPM analysis—just as in non-price vertical restraints decisions. • Federal agencies have been considering “structured” or “truncated” approaches to the rule of reason, but no notable enforcement initiatives . . . so far! • Federal Trade Commission - See In re Matter of Nine West Group, Inc., “Order Granting in Part Petition to Reopen and Modify Order Issued April 11, 2000” (May 6, 2008) • Department of Justice - Christine A. Varney, Antitrust Division, “Antitrust Federalism: Enhancing Federal/State Cooperation,” remarks as prepared for the National Association of Attorneys General Columbia Law School State Attorneys General Program, October 7, 2009 20
  22. 22. Resale Price Maintenance: Developments • Alternative strategy: the RPM is part of a horizontal price fixing conspiracy among dealers and therefore per se illegal. • See Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., 530 F.3d 204 (3d Cir. 2008) (The court found sufficient evidence of a horizontal agreement among Mack dealers not to compete outside assigned territories of responsibility and that Mack entered into vertical competition-restricting resale price maintenance agreements with its dealers that unreasonably restrained trade by supporting the dealers’ illegal conspiracy; however, rule of reason was applied). 21
  23. 23. 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. 22
  24. 24. Bundled Pricing • Recent 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. 23
  25. 25. 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-ornothing” 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.” 24
  26. 26. 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. 25
  27. 27. Most Favored National Clauses • Recent Developments 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 MFN’s 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. 26
  28. 28. 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. 27
  29. 29. 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-toface training includes segment on relationships with competitors. 28
  30. 30. 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 crosselasticity, 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. 29
  31. 31. 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. 30
  32. 32. 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? 31
  33. 33. 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); • Trial 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; court enjoins transaction (2012); • FTC allows Express Scripts/Medco Merger (2012); • FTC Integrated Device-PLX Technology Merger; parties abandon (2012); • Multiple health care acquisitions; • 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); 32
  34. 34. 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) • Phoebe Putney/Palmyra (Albany, Georgia) • Bazaarvoice/Power Reviews (January 2013) (trial began in Sept. 2013) (DOJ) • St. Luke’s Hospital/Saltzer Medical Group (Idaho March 2013) (trial began in Sept. 2013) (FTC) • Ardagh Group/Saint Gobain (trial was set for Oct. 2013, now delayed) (FTC) 33
  35. 35. 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. 34
  36. 36. European Union • Articles 81 and 101 of the Treaty are akin to Sherman §1. • Articles 82 and 102 of the Treaty are akin to Sherman §2; portions of Robinson-Patman Act. • EU Antitrust Law is multinational. • “Dawn Raids”: tool allowing surprise visits to search business and obtain records at business locations and at homes and in cars of officers and directors. • Competition Commissioner is extremely powerful; runs the overall enforcement more singularly than as is done in the United States. Each EU member enforces competition law within its own country. • In the EU, Competition Commissioner can block a merger; in the United States only a court can do so. • United States laws are enforced to promote competition; EU laws are more concerned with protecting competitors. • No real private antitrust suits. Stay tuned. 35 24
  37. 37. What’s New At The Agencies? 36
  38. 38. Changing of the Guard at DOJ • Bill Baer Is The New Head of the Antitrust Division • Edith Ramirez Is The New Chairwoman of the FTC • Maureen Ohlhausen and Joshua Wright Are New Commissioners of the FTC; Terrell McSweeny Has Been Nominated To Fill The One Vacancy Remaining. She has worked in the Antitrust Division and for Vice Presidents Gore and Biden • What Will Change? 37
  39. 39. DOJ Criminal Enforcement 38
  40. 40. Criminal Enforcement • Fines Continue at Staggering Levels • Fiscal 2013 – $1.02 Billion 39
  41. 41. Fines Exceeding $100 Million • Auto Parts – 20 companies, 21 executives; $1.6 Billion in fines, lengthy jail sentences 40
  42. 42. Prison Terms Are Up As Well 41
  43. 43. Big Cases Yield Big Fines and Long Jail Terms • TFT-LCD Displays Cartel • $1.39 billion in total fines so far • $500 million fine for Au Optronics with two of its top execs sentenced to three years in prison • 13 executives have pled guilty or been convicted and have been sentenced to a combined 4,871 days in prison • Auto Parts • $1.6 billion in fines to date and still growing • Includes fine of $470 million against Japanese manufacturer Yazaki Corporation • 21 individuals have received prison sentences ranging from a year and a day to two years 42
  44. 44. Other Enforcement Targets • Real Estate Foreclosure • Charges against 38 individuals and two companies for bid-rigging and fraud at real estate auctions nationwide; 10 guilty pleas so far • Freight Forwarding • Criminal fines of nearly $100 million and 13 companies have been charged so far. • Municipal Bond Bid-Rigging • 11 guilty pleas and pending charges against six individuals. • UBS, J.P. Morgan Chase, Wachovia, Bank of America, GE Funding Capital Markets Services have agreed to pay a total of nearly $745 million in restitution, penalties, and disgorgement 43
  45. 45. Financial Institutions Face Other Problems As Well • The Mushrooming LIBOR Investigation • Barclays entered into a DOJ non-prosecution agreement and settlements of various fraud charges with the CFTC and the U.K.’s FSA, agreeing to pay $453 million in fines and penalties • UBS Securities Japan Co. Ltd. pled guilty to felony wire fraud and agreed to pay a $100 million fine; the parent (UBS AG) entered into a non-prosecution agreement and agreed to pay an additional $400 million • Internal e-mails that came to light as a result of the Barclays settlement seem to show a broad conspiracy to manipulate the rate involving a number of banks • DOJ is still looking at possible criminal charges against other banks and authorities in Canada, Japan, Singapore, Switzerland, and Germany, as well as a number of State AGs are also continuing to investigate • A number of antitrust class actions have also been brought on behalf of groups such as community banks, municipalities, and purchasers of a variety of financial instruments whose interest rates were indexed to LIBOR 44
  46. 46. Civil Enforcement At The Agencies 45
  47. 47. Supreme Court Heard FTC Challenge To “Pay-ForDelay” 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 holds that a claim exists and evidence will determine result. • How strong is the patent • How much in payments for how long. 46
  48. 48. 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. 47
  49. 49. 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. 48
  50. 50. 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).)" 49
  51. 51. 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). 50
  52. 52. Other Significant Cases 51
  53. 53. Employee “No Poaching” Litigation • In 2010, Apple, Intel, LucasFilms, Pixar and others settled a DOJ complaint involving agreements not to poach each others’ employees. • November 2012: lawsuit charging eBay agreed not to recruit of hire Intuit’s employees. • A class action by allegedly affected employees survived a motion to dismiss. In Re: High-Tech Employee Antitrust Litigation (N.D. Cal. Apr. 18, 2012) 52
  54. 54. 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.” 53
  55. 55. Patent-Related Developments • DOJ scrutiny of strategic patent acquisitions. • Whether firms acquiring patents could use these patents to raise rivals’ costs or foreclose competition, when the prior owners had committed to license to industry participants through participation in standard-setting organizations (SSOs). • DOJ is monitoring the use of “standard essential patents” (SEPs) in the wireless device industry, “particularly in the smartphone and computer tablet markets” • Google (FTC, January 3, 2012) • Google allegedly reneged on its “FRAND” commitments and pursued – or threatened to pursue – injunctions against companies that needed to use Google-owned, standard-essential patents in their devices and were willing to license them on FRAND terms. • FTC alleged that this conduct constituted an “unfair method of competition:” and an “unfair act and practice” in violation of Section 5 • Google agreed not to seek injunctions against willing licensees, either in federal court or at the ITC, to block use of standard-essential patents that the company has previously committed to license on FRAND terms. 54
  56. 56. Results of FTC Investigation of Google (January 3, 2013) • Google agrees to meet prior commitments to allow competitors access, on FRAND terms, to patents on standardized technologies need to make devices. • The FTC closes its investigation of allegations that Google has unfairly biased its search results to harm competition, finding that the evidence does not support a claim that Google’s prominent display of its own content on its general search page was undertaken without legitimate justification. • Although not ordered to do so, Google commits to stop the “most troubling” of its business practices related to internet search and advertising. • It will stop misappropriating (“scraping”) the content of its rivals for use in its own specialized search results. • It will drop contractual restrictions that allegedly impaired the ability of small businesses to advertise on competing search advertising platforms. • The FTC Chairman says that “these commitments have reporting requirements that will allow the Commission to vigorously monitor and enforce Google’s compliance.” 55
  57. 57. PATENT-RELATED DEVELOPMENTS • Bosch/SPX (FTC, November 2012; merger consent decree) • Indicates that FTC will use its authority under Section 5 of the Federal Trade Commission Act to challenge attempts by holders of FRANDcommitted SEPs to obtain injunctions against implementers of standards. • FTC using Section 5, which prohibits “unfair methods of competition” and “unfair or deceptive acts or practices,” to address conduct that the Commission acknowledged is not necessarily prohibited by the Sherman Act. 56
  58. 58. Foreign Trade Antitrust Improvements Act • Minn-Chem Inc. v. Agrium Inc., 683 F.3d 845 (7th Cir. 2012) • Addressed whether the FTAIA sets jurisdictional limitations on what the courts can hear or articulates a substantive element of a Sherman Act violation • En banc decision of the Seventh Circuit, by Judge Wood (joined by, among others, Judges Posner and Easterbrook) overruled earlier Seventh Circuit precedent and adopted the Third Circuit’s approach in Animal Science Products, Inc. v. China Minmetals Corp., 654 F.3d 462 (3d Cir. 2011), cert. denied, 132 S.Ct. 1744 (March 19, 2012), holding: • “the FTAIA sets forth an element of an antitrust claim, not a jurisdictional limit on the power of the federal courts.” 57
  59. 59. Merger Developments 58
  60. 60. Mergers: Hart-Scott-Rodino Filings • Number of deals subject to reporting under the Hart-ScottRodino 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. 59
  61. 61. Mergers • There are also more challenges to deals. • FTC challenged 20 transactions during FY 2012 • Led to 15 consent orders and five transactions abandoned or restructured after parties learned of FTC’s concerns. • DOJ challenged 20 transactions, 13 of which involved court actions. • 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. 60
  62. 62. Mergers – HSR Filings 61
  63. 63. Mergers – HSR Second Requests 62
  64. 64. 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 63
  65. 65. 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). 64
  66. 66. 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. 65
  67. 67. Questions? Stephen D. Libowsky Chicago T 312.876.2529 66