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, And Tying
2. Communications Regarding Prices and Markets
3. Claims that Someone is a ―Monopolist‖
4. 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.
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.
• 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.
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
FTC Letter Dated 2/13/13 Re: Norman PHO
• PHO Network - nonexclusive
• Clinical Integration - high degree of interdependence and cooperation to
• Joint Contracting subordinate to integration/efficiency
• 280 physicians; 38 specialties
• Revenue from membership fees, dues, reimbursement
withholds, contributions from regional health system, employer
• 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
Mergers, Virtual Mergers and Joint Operating
• 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
• Single economic purpose
• Competitive impact
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
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.
Downstream Users of our Products or Services
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 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?
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?
• 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.
• 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
• 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.
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.
• 2d Circuit decision expected in 2014.
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);
• 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.
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?
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 (5-3 with Alito recusing) holds that a claim exists and evidence will determine
• 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
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.
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
Evanston Northwestern Healthcare/Highland Park
• 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
• 12/31/12 St. Luke's acquired Saltzer
• Saltzer - 44 physicians; multispecialty
• March 2013 - FTC and Idaho AG sue
• Allegation: Merger creates a 60% player in adult primary care physician
• 2 St. Luke's competitors also filed suit
• Trial began on 9/23/13 and ended on 11/7/13
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.
• 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.‖
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 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.
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