Drinker Biddle ABA Antitrust Section Corporate Counseling September October Update

Monthly Antitrust Update September/October 2009 ABA Section of Antitrust Law Corporate Counseling Committee November 6, 2009 Presenters: M. Howard Morse Joanne C. Lewers Paul H. Saint-Antoine Kenneth M. Vorrasi

Table of Contents Mergers and Acquisitions DOJ / FTC Civil + Criminal Initiatives Legislative Developments Intellectual Property Antitrust Developments Private Litigation Presenters

Mergers and Acquisitions Merger Guidelines revisions Pfizer / Wyeth Merck / Schering Plough Ovation Carilion Clinic K&S / Morton AT&T / Centennial Public reports of ongoing investigations EU developments

Merger Enforcement – U.S. Pfizer/Wyeth – Approved October 14, 2009 $68 billion acquisition will result in world’s largest pharma company Divestitures of animal pharmaceutical and vaccine products required in U.S. No remedies involving human health products Private plaintiffs’ challenge continues on behalf of California pharmacies Schering-Plough-Merck – Approved October 29, 2009 $41.1 billion acquisition will result in second largest pharma company, behind Pfizer/Wyeth Divestitures of animal and human health products required in U.S. * FTC press releases included references to cooperation with other authorities that were investigating the mergers, e.g., EC, Canada

Merger Enforcement – U.S. AT&T/Centennial – Approved October 13, 2009 $944 million acquisition involving mobile wireless telecommunication services in eight areas in southwestern and central Louisiana and southwestern Mississippi affected DOJ joined by AG of Louisiana in filing complaint and proposed settlement AT&T has already agreed to sell five of the Centennial service areas to Verizon Transaction also subject to FCC review K+S/Morton International – Approved September 25, 2009 $1.68 billion acquisition involving bulk de-icing road salt assets in Maine and Connecticut FTC identified state and local governments as primary purchasers of these products

Merger Enforcement – U.S. Carilion Clinic – Post-merger enforcement $20 million acquisition non-reportable Administrative complaint issued in July which challenged 2008 acquisition of outpatient imaging center and outpatient surgical center located in Roanoke, VA Carilion has three months to identify a buyer for the divested assets Proposed consent order includes provisions in addition to divestitures

Merger Enforcement – EU Oracle-Sun – EC Review EC’s concern involves a database market DOJ completed its review in August, without requiring any remedies. DOJ’s focus was on Java programming language, not database software Ticketmaster/Live Nation – UK Review Preliminary ruling identifies concerns over live music ticketing market Next step is to consider how to address potential competitive concerns DOJ review continues

Merger Enforcement – Policy Considerations Merger Guidelines – Changes are on the horizon Five workshops announced September 22, 2009 Regulators and practitioners agree this is a long-time in coming Questions remain about what changes are necessary and how they will be implemented

Merger Enforcement – Policy Considerations Agencies continue to focus on innovation/potential competition Staff inquires about R&D and current overlaps at early stage in its review Consider language in AT&T Competitive Impact Statement: [T]he loss of competition between AT&T and Centennial will increase the merged firm's incentive and ability in the relevant geographic markets to increase prices, diminish the quality or quantity of services provided, and refrain from or delay making investments in network improvements

DOJ / FTC Civil & Criminal Initiatives FTC Subpoena Enforcement Interlocking Directorates Criminal Antitrust Developments Business Review Letters Varney on Resale Price Maintenance

FTC Subpoena Enforcement FTC v. Tarriff (D.C. Cir. Oct. 23) Appeal from D.D.C. decision granting petition to enforce subpoenas requiring video testimony Not moot despite completion of depositions Objection “utterly without merit” FTC v. Boehringer Ingelheim Pharmaceuticals (D.D.C, filed Oct. 23) FTC seeking order to comply with subpoena within 10 days “ When companies fail to respond promptly and completely to agency subpoenas, we will not hesitate to go to court to seek enforcement.”

Interlocking Directorates Levinson resigned from Google board, remains on Apple board (Oct. 12) Leibowitz “praised” companies “for their willingness to resolve our concerns without the need for litigation” Followed Google CEO’s resignation from Apple board in August, and statement “We will continue to investigate remaining interlocking directorates between the companies” Clayton 8 restricts interlocking directorates, subject to de minimis exceptions adjusted annually, 1 year grace period

Criminal Antitrust Developments Municipal bonds Firm and executives indicted for bid rigging in “ongoing antitrust investigation into the municipal bonds industry” (Oct. 30) Insurance 3 Marsh executives acquitted after 11 month bench trial, prosecuted by NYAG (Oct. 26) Packaged ice Firm agreed to pay $9 million, 3 executives pled guilty for allocating customers (Oct. 13) Optical disk drives Sony, Hitachi and Toshiba disclose subpoenas Kickback / fraud schemes Scott Hammond testimony, “Follow the Money: An Update on Stimulus Spending, Transparency and Fraud Prevention” (Sep. 10) 9 DOJ press releases relate to defense contracting, government procurement, through National Procurement Fraud Task Force DOJ updates fines chart 72 fines > $10 million, 10 in 2009 (Oct. 16)

DOJ Business Review Letters Less than truckload freight venture (Sept. 8) Venture among firms serving distinct regions to bid jointly Restrictions on expansion necessary to operate efficiently, to provide nationwide service, allowed where no member has a significant share in its respective region Hospital joint purchasing agreement (Sept. 4) Conduct within Health Care Policy Statement #7 safety zone joint purchases less than 20% of total revenues from all products or services sold by each participant joint purchases less than 35% of each suppliers' sales in market

AAG Varney on Resale Price Maintenance “ Antitrust Federalism: Enhancing Federal/State Cooperation” before NAAG (Oct. 7) Leegin held minimum RPM will be analyzed under rule of reason Varney proposes “new structured rule of reason approach” Would require plaintiffs to prove “existence of the agreement and its scope” and “structural conditions” under which RPM is likely to be anticompetitive Burden would shift to the defendant to demonstrate that its RPM policy is procompetitive, showing it adopted RPM to compete with rivals

Health Care Legislation Pharmaceutical settlement legislation Senate Judiciary reported substitute bill, S.369, that presumes agreements unlawful if ANDA filer receives anything of value absent “clear and convincing evidence” that benefits outweigh anticompetitive effects (Oct. 15) Pelosi health care reform bill, § 2573, includes per se ban (Oct. 29) McCarran-Ferguson reform Health Insurance Industry Antitrust Enforcement Act of 2009, H.R.3596, S.1681 introduced (Sept. 17) Varney testified before Senate Judiciary (Oct. 14) House Judiciary reported 20-9 (Oct. 21) Included in Pelosi bill, § 262 (Oct. 29) Bill would also restore FTC authority to investigate health insurance industry

Other Legislative Developments Railroad Antitrust Enforcement Act of 2009 H.R.233 reported by House Judiciary (Sept. 16) Would limit antitrust exemption for railroad industry, give agencies authority to review mergers Consumer Financial Protection Agency Act of 2009 H.R.3126 reported by House Financial Services (Oct. 22) and House Energy & Commerce (Oct. 29) Would authorize FTC to recover civil penalties for any violation of the FTC Act, similar to proposed FTC Reauthorization Act of 2008

IP-Related Antitrust Developments Deception During the Course of Standard Setting Aftermarkets Market Definition Sham Litigation and Walker Process Claims Google Books Settlement & Copyright

IP-Related Antitrust Developments Actividentity v. Intercede (N.D. Cal. Sept. 11) In patent litigation, Intercede asserted monopolization counterclaims against Actividentity Alleged that Actividentity failed to disclose its patent interests during the course of standard setting at SSO (Global Platform) and that the SSO would have adopted a different standard if Actividenity disclosed its patent interests Court found that Intercede sufficiently pled plausible claims for monopolization and attempted monopolization in markets for software using smart cards Reliance on Rambus v. FTC (D.C. Cir. 2008) and Broadcom v. Qualcomm (3d Cir. 2007).

IP-Related Antitrust Developments Xerox v. Media Sciences (S.D.N.Y. Sept. 30) In patent litigation over ink stinks for Xerox’s printers, generic ink stick manufacturer, MSI, asserted Kodak aftermarket monopolization counterclaims Court entered summary judgment in favor of Xerox: Insufficient evidence of prohibitive switching costs Information costs low given availability of life-cycle pricing No evidence of a post-lock in change in policy (e.g. raising price on ink sticks) to exploit installed base of customers No supracompetitive pricing; substantial evidence that Xerox’s aftermarket prices had decreased

IP-Related Antitrust Developments Allergan v. Athena Cosmetics (C.D. Cal. Sept. 16) Athena asserted antitrust counterclaims against Allergan in ongoing patent litigation over eyelash enhancement products Court found sham litigation and commercial disparagement claims properly pled Court held that allegations as to monopoly power in overall market were plausible, but allegations as to monopoly power in the retail market were insufficient because Allergan does not sell in retail (only by prescription) Court also held that Athena adequately alleged antitrust injury Fiber Sys. v. Applied Optical Sys . (E.D. Tex. Oct. 26) Walker Process counterclaims in patent litigation relating to fiber optics technology Court found significant risk in confusing the jury and severed trial on the antitrust counterclaims

IP-Related Antitrust Developments Google Books Service – The Authors Guild v. Google (S.D.N.Y.) Proposed Settlement in private class action litigation Book Rights Registry – distribute payments from Google to copyright owners Pricing algorithm to establish default prices Limitations on discounting Most favored nations clause DOJ Statement (Sept. 18) Settlement allows publishers to collectively set prices to distributors and restricts retail price competition Settlement may preclude digital distributors from competing with Google in the sale of digital works Court required Google and plaintiffs to submit a revise settlement by Nov. 9

Private Antitrust Litigation “ Single Entity” for Section 1 Conspiracies Bundling Agreements Antitrust Standing / Walker Process Claims “ Essential Facilities” Claims Class Certification

“ Single Entity” Issue Under Section 1 of the Sherman Act American Needle v. NFL (Sup. Ct. Appeal Pending) Copperweld : Section 1 requires concerted action by separate entities, not owned or controlled by one another At issue in American Needle is licensing of NFL trademarks and logos 7th Circuit affirmed SJ for NFL, holding that it functions as a single entity; U.S. Supreme Court granted cert. In September, DOJ and FTC filed amicus brief before U.S. Supreme Court advocating against a “broad-brush approach” that NFL always acts as a single entity, suggesting a two-part test: Teams and league must have effectively merged the operations in question, eliminating competition among the teams Conduct must not significantly impact competition among teams outside of merged operations

Bundling Agreements Masimo v. Tyco Health Care (9th Cir. Oct. 28) Brooke Group : A plaintiff seeking to establish competitive injury from a rival’s low prices must show such prices are below an appropriate measure of the rival’s costs Tyco gave “loyalty” discounts to consumers for purchasing 90-95 percent of their requirements of certain bundled products from them; Masimo alleged bundling amounted to de facto exclusive dealing District court vacated jury verdict as to the claims on bundling agreements; other aspects of the jury verdict were left intact Ninth Circuit acknowledged plaintiff’s argument that Tyco’s bundling practices could be evaluated under standards applicable to exclusive dealing arrangements However, there was still insufficient evidence of market foreclosure to sustain the claim

Antitrust Standing / Walker Process Claim In re: DDAVP Direct Purchase Antitrust Litigation (2d Cir. Oct. 16) Walker Process : A patentee may lose antitrust immunity by enforcing a patent obtained through fraud on PTO District court dismissed claims by direct purchasers of acetate tablets in DDAVP, in part, because they were not competitors of patentees Second Circuit reversed, finding that the direct purchaser plaintiffs had met the standards for antitrust standing

“ Essential Facilities” Claim Four Corners Nephrology v. Mercy Medical Center (10th Cir. Sept. 29) General antitrust rule: No duty to deal with antitrust rivals ( see , e.g. , Trinko ) Plaintiff’s claim in Four Corners was that defendant restrained competition in nephrology services by refusing to share its facility 10 th Circuit, in affirming dismissal of claim, underscores the U.S. Supreme Court observation that the “essential facilities” doctrine is an outlier in antitrust law

Class Certification Reed v. Advocate Health Care (N.D. Ill. Sept. 28) Rule 23(b)(3) requires a showing that common questions of law and fact applicable to the class claims predominate over individual ones Recent appellate authority ( e.g. , Hydrogen Peroxide (3d Cir.)) compels scrutiny of evidence supporting class certification District court in Advocates Health Care found “fundamental problems” in plaintiff’s expert analysis Reliance on “average” by class plaintiff’s expert was a “critical” flaw: even if average wage was reduced by the alleged conspiracy, not all nurses in the class would necessarily be impacted

Howard Morse is a Washington-DC based partner and co-chair of Drinker Biddle’s Antitrust Practice Group. He regularly represents businesses before the Federal Trade Commission, the Department of Justice, and State Attorneys General in investigations involving mergers, acquisitions and joint ventures as well as alleged monopolization and restraint of trade cases. He also counsels clients on antitrust issues and represents companies in private antitrust litigation. Howard has been at the forefront of applying antitrust law to the high-tech sector and the intersection of antitrust and intellectual property law, including issues related to innovation markets, patent pools, standard setting and settlement of intellectual property litigation. Before joining Drinker Biddle, Howard served for ten years at the FTC as Deputy Assistant Director for Policy and Assistant Director of the Bureau of Competition. At the Commission, he was responsible for more than 50 enforcement actions including Hart-Scott-Rodino Act civil penalty and merger enforcement actions in the pharmaceutical, medical device, computer hardware and software, and other industries. Howard is chair of the ABA Antitrust Section’s Federal Civil Enforcement Committee and has previously served on the Section Council and as chair of its Computer Industry, Intellectual Property, and Exemptions and Immunities committees. He is a member of and past vice chair of the IPO’s Antitrust & Competition Law Committee. Howard has testified before Congress, the Antitrust Modernization Commission and the DOJ/FTC hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy .. Howard is listed in the Chambers USA 2009 Guide which describes him as “a tireless advocate for his clients" who "impresses with his superb analytical and communications skills.” He is a summa cum laude graduate of Dartmouth College and cum laude graduate of Harvard Law School.

Paul H. Saint-Antoine is a partner in Drinker Biddle’s Philadelphia office and Co-Chair of Drinker Biddle’s Antitrust Team and concentrates his practice on antitrust litigation. In addition to his experience in federal enforcement actions, Paul has represented numerous corporate clients on both sides of private antitrust litigation. His experience in MDL proceedings and other federal and state antitrust cases extends to products and services in the, software, computer, pharmaceutical, paper, telecommunications and healthcare sectors, and to charges of price fixing, price discrimination, group boycotts, unlawful mergers and other sorts of anticompetitive conduct. Paul is a former vice chair of the Computer and Internet Committee and currently co-chairs the Intellectual Property Committee of the ABA Antitrust Section. He is also a Fellow of the American Bar Foundation. He served as editor-in-chief of Federal Antitrust Guidelines for the Licensing of Intellectual Property, Origins and Applications (Second Edition), an antitrust handbook published by the American Bar Association.

Joanne C. Lewers is a partner in Drinker Biddle’s Philadelphia office. Her practice is focused on antitrust counseling and litigation. Prior to joining the firm, Joanne served for four years at the Federal Trade Commission where she investigated mergers and acquisitions in various industries. While at the FTC, she served as an Assistant to the Director of the Bureau of Competition. Joanne represents clients involved in complex antitrust suits before state and federal courts. In addition, she appears before the federal antitrust agencies on behalf of clients seeking antitrust clearance for their proposed mergers or acquisitions. Joanne’s clients are involved in a number of industries, including computer, pharmaceuticals and health care. Joanne is vice chair of the Books and Treatises Committee of the Antitrust Section of the American Bar Association.

Kenneth M. Vorrasi is an associate who practices in the areas of antitrust and litigation. Ken’s antitrust practice focuses on litigation, investigations before the U.S. Department of Justice, Federal Trade Commission, and state enforcement authorities. He also counsels clients on a variety of antitrust issues with an emphasis on matters at the intersection of antitrust and intellectual property. Ken’s practice includes representing clients in litigation in federal and state court and appearing before the federal antitrust agencies to obtain clearance of mergers, acquisitions, and joint ventures. Ken is a member of the ABA’s Antitrust Section, and currently serves as the editor of the Section’s IP Committee E-Bulletin , which focuses on developments in antitrust and intellectual property.

CALIFORNIA | DELAWARE | ILLINOIS | NEW JERSEY NEW YORK | PENNSYLVANIA | WASHINGTON DC | WISCONSIN © 2009 Drinker Biddle & Reath LLP | All rights reserved. A Delaware limited liability partnership Joanne C. Lewers (215) 988-2712 [email_address] M. Howard Morse (202) 842-8883 [email_address] Paul H. Saint-Antoine (215) 988-2990 [email_address] Kenneth M. Vorrasi (202) 354-1361 [email_address]

Drinker Biddle ABA Antitrust Section Corporate Counseling September October Update

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