Review basic but relevant antitrust principles to
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. 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
ANTITRUST BASICS: U.S. Laws & Regulations;
• 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
• Federal Trade Commission: Merger control and analysis; antitrust
• Department of Justice: Merger control and analysis; antitrust
• Antitrust Injury: Injury reflecting the effects of anticompetitive activities;
harm to competition or the competitive process.
SHERMAN ACT §1: Prohibits Conduct to Fix Prices
or Allocate Markets
• Cartels/Price Fixing with Competitors; Collusion/Ganging Up on
Every Antitrust Enforcement Agency in the World Looking at
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).
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
• 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.
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.
SHERMAN ACT § 2: 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.
SHERMAN ACT § 2: Unilateral Refusals To Deal
• Absolute Right To Work With Or Refrain To Work With Any Person Or
• 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
RISK AREA: Exclusive Dealing, Tying, Bundling &
• 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
Downstream Users of our Products
State or Federal Governments
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?
RISK AREA: Tying & Bundling
• 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.”
• Multi-product company offers lower prices when its products are
• 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?
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.
State or Federal Governments
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.
RISK MANAGEMENT: Price Discrimination
• Antitrust compliance policy requires review by counsel or law
• 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.
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
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.
• 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
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?
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
• 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).
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
• 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
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).
• Ninth Circuit’s approach to bundling– “discount attribution.”
(Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th
• 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
• 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.
• 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
• 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
• 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.”
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.
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.
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
• 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.
RISK MANAGEMENT: Communications Regarding
• 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
• 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
RISK AREA: Claims that one is a “Monopolist”
• Supreme Court and DOJ/FTC define what constitutes a “Relevant
• 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”
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
RISK MANAGEMENT: Claims that one is a
• 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
• Legal review of documents used in analyst presentations, public
filings with SEC, and major strategic documents.
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?
MERGERS AND ACQUISITIONS
• Relevant Geographic market: international, national, regional, state or
• 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
• 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);
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
• 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)
• 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.
• 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.
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?
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
• 21 individuals have received prison sentences
ranging from a year and a day to two years
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
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
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.
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
• Odd conclusion – FTC decides it cannot seek "unwinding" or any type
of "break-up" due to Georgia Certificate of Need Laws.
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,
• FTC has cautiously limited this theory to private conversations
involving an unambiguous, naked invitation.
FTC Actively Looking to Expand This Doctrine
• It has now used the theory to go after public statements, including
• 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).)"
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
Employee “No Poaching” Litigation
• In 2010, Apple, Intel, LucasFilms, Pixar and others settled a DOJ
complaint involving agreements not to poach each others’
• November 2012: lawsuit charging eBay agreed not to recruit of hire
• 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)
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.”
• 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
• DOJ is monitoring the use of “standard essential patents” (SEPs) in the
wireless device industry, “particularly in the smartphone and computer tablet
• 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.
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
• 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
• 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
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
• 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.”
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
• 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
• 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
• 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.
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
• 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
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.
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
• Continued cooperation between U.S. agencies and non-U.S.
counterparts in merger investigations.
Stephen D. Libowsky