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ABA Antitrust Section Corporate Counseling Committee
ANTITRUST UPDATE July 2011
Sponsored by
Lesley AinsworthLondon
44 20 7296 2181 [email protected]
Megan DixonSan Francisco
415 374 [email protected]
Adrian EmchBeijing
86 10 6582 9510 [email protected]
Eric StockNew York
212 918 8277 [email protected]
Robby RobertsonWashington, DC
202 637 5774 [email protected]
Participants
Litigation Mergers/Agencies
Cartels Europe China
Mergers and Other Agency Developments
Varney Departure
• AAG Varney has announced she is leaving
• Varney will leave by August 5
• Starts at Cravath in September
• No announcement of replacement
U.S. v. H&R Block (D. D.C.)
• DOJ challenge to merger involving digital tax preparation products
• Expedited schedule set
• Hearings set for after Labor Day
• Court denied motion to transfer
FTC v. Phoebe Putney Health Sys., Inc. (M.D. Ga.)
• PPHS, in conjunction with the Hospital Authority of Albany-Dougherty County, sought to acquire Palmyra Park Hospital, Inc.
• FTC and State of Georgia moved for PI• Court concluded that all three steps of the proposed
transaction fell within the § 7 analysis• However, concluded that state action immunity
applied to all Defendants; motion to dismiss granted• FTC has appealed
Justice Department Reaches Settlement with George’s Inc.
• DOJ announced on June 23, 2011 that it had reached settlement with George’s Inc.– In May, George’s acquired Tyson Foods’ chicken
processing plant in Harrisonburg, Virginia– DOJ challenged acquisition, claiming it would have
the anticompetitive effect of reducing prices paid to Shenandoah Valley area chicken farmers
• Settlement requires George’s to make important capital improvements to the Harrisonburg facility
• DOJ said that settlement would enhance competition by increasing production capacity of the Harrisonburg poultry processing plant, thereby increasing the demand for local poultry grower services
DOJ Issues Updated Merger Remedies Guide
• On June 17, 2011, DOJ released an updated version of the Antitrust Division’s Policy Guide to Merger Remedies
• Explains role of the Antitrust Division’s Office of the General Counsel to enforce division consent decrees
• The guide finds that effective merger remedies include structural and/or conduct provisions– For horizontal mergers, the guide states that effective merger
remedies are typically structural remedies, although conduct remedies may be considered in appropriate cases
– For vertical mergers, relief may include a combination of conduct and structural remedies
• States that “effectively preserving competition is the key to an appropriate merger remedy”
Proposed Dow Chemical Settlement Modification Rejected
• On June 15, 2011, the FTC announced that it had denied Dow’s petition to modify a 2009 settlement which required Dow to divest a chemical facility in California– Dow agreed to buy chemical maker Rohm and Haas in July
2008 for $18.8 billion – FTC reviewed the transaction and ordered Dow to sell to an
FTC-approved buyer– FTC-approved buyer wanted to lease plant with an option to
purchase the portion of the property where plant located– FTC approved lease; granted Dow one year to sell remaining
property– Dow requested that FTC modify the order and allow Dow to keep
property or grant Dow three-year extension for Dow to sell the property
• FTC rejected modification arguing that Dow had failed to justify relief requested
FTC Opens Investigation into Google
• On June 23, the FTC issued a subpoena and civil investigative demand to Google
• The investigation reportedly focuses on the main aspects of Google’s business, its search and advertising systems, and whether Google unfairly channels users to its expanding network of services to the detriment of competitors
• Similar to complaints pending in EC
United States v. United Regional, (N.D. Tex.)
• On June 15, the DOJ moved for entry of final judgment approving February settlement – DOJ sued United Regional Health Care System for violating
Sherman Act § 2– UR’s contracts with health insurers allegedly prevented insurers
from contracting with competing health care providers
• Seven-year settlement agreement prohibits United Regional from using contracts that condition prices and discounts on maintaining an exclusive relationship with United Regional
Other Agency Developments• Facebook. On June 28, 2011, consumer group filed
complaint with FTC objecting to requirements that Facebook imposes on game developers using its website (e.g., to exclusively use Facebook’s virtual currency, called “Facebook Credits,” and charge a 30 percent fee for every transaction)
• Twitter. Press has also reported an FTC preliminary investigation relating to practices by Twitter
• FERC. In response to request for comment from FERC, FTC advises FERC to adopt approach of 2010 merger guidelines (focused on competitive effects) in evaluating energy sector mergers
U.S. Litigation and Court Decisions
United States v. Blue Cross Blue Shield of Michigan (E.D. Mich.)
• Suit by DOJ and State of Michigan alleging that BCBS’s use of “most-favored nation” clauses in contracts with hospitals violates antitrust laws by freezing out competition
• BCBS filed motion to dismiss based on state action grounds, and on market definition
• On June 7, 2011, District Court denied BCBSM’s motion to dismiss
• BCBS also faces a proposed antitrust class action also naming 21 Michigan hospitals as co- defendants
Ninth Circuit Dismisses Television Channel Bundling Case
• Brantley v. NBC Universal, Inc., No. 09-56785, 2011 WL 2163961 (9th Cir. June 3, 2011)
• Television programmers and distributors allegedly violated section 1 by selling only multi-channel cable packages and not making channels available “a la carte”
• Potential harm to consumers: “(1) limiting the manner in which Distributors compete with one another because Distributors are unable to offer a la carte programming, (2) reducing consumer choice, and (3) increasing prices.”
• Ninth Circuit affirmed district court’s dismissal under Rule 12(b)(6): “In the absence of any allegation of injury to competition, as opposed to injuries to consumers, we conclude that plaintiffs have failed to state a claim for an antitrust violation.”
Standard Setting Case Against Motorola Allowed to Proceed (W.D. Wis.)
• Apple alleges that Motorola failed to disclose ownership of patents that Apple says are essential to industry standards, and made RAND licensing commitments to SSO, but then refused to license the patents under RAND terms
• In June 7, 2011, court decision denied MTD– Allowed antitrust claims to proceed based on
allegations of misleading SSO– Allowed breach of contract claim based on SSO
policies; third party beneficiary theory
Court Dismisses Section 2 iTunes Case Against Apple
• Somers v. Apple, Inc., No. 5:07-cv-06507 (N.D. Cal.) • Between 2003 and 2009, Apple allegedly used
proprietary digital rights management file encoding to ensure that music sold through iTunes could only be played on iPods and that music purchased elsewhere could not be played on iPods
• Plaintiff, in putative class action of indirect purchasers, claimed Apple’s continual software updates allowed it to unlawfully acquire and maintain monopoly power
• Held: Plaintiff’s allegations were insufficient to support claims that songs sold through iTunes were priced supracompetitively and the “mere maintenance of DRM” does not constitute anticompetitive behavior
Summary Judgment Denied in Flonase Antitrust Case
• Class action by Flonase purchasers alleging that GSK intentionally delayed the entry of a generic equivalent by filing multiple citizen petitions with the FDA as well as a federal lawsuit against FDA immediately before its exclusive rights expired
• GSK moved for summary judgment, claiming it was immune from antitrust liability under the Noerr- Pennington doctrine
• The District Court (E.D. Pa) denied GSK’s motion, finding that genuine issues of material fact exist as to whether GSK’s conduct constituted “sham petitioning”
• Initial grant of TRO in lawsuit vs. FDA insufficient to establish lack of “sham”
Mercatus Grp. v. Lake Forest Hosp.
• Action alleging that Lake Forest Hospital monopolized market for physician services and prevented plaintiff from opening competing physician center by: – lobbying the city Board of Trustees in zoning proceeding– encouraging public to oppose the proposed center, and – offering incentives to physician groups not to move to the
proposed center • Seventh Circuit affirms summary judgment
– Noerr-Pennington protects Lake Forest’s right to petition the Board and any misrepresentations made about plaintiff were insufficient for antitrust liability in light of inherently political nature of proceedings
– Efforts to dissuade physicians from re-locating not sufficient to constitute predatory conduct
The latest on Twombly• Watson Carpet & Floor Covering v. Mohawk Indus. Inc.,
---F.3d ---, 2011 WL 2462833 (6th Cir. June 22, 2011) • Watson, a carpet dealer, sued competitor and carpet-
supplier, alleging that they violated section 1 by conspiring to drive Watson out of business through slander and refusals to deal
• Defendants argued that there were other reasons why supplier would refuse to deal with plaintiff
• Held: “to survive a motion to dismiss, Watson Carpet needs to allege only that the defendants’ agreement plausibly explains the refusals to sell, not that the agreement is the probable or exclusive explanation.”
• Court found that plaintiff plausibly alleged that the periodic refusals to sell by the supplier were part of an agreement with its co-defendant to exclude plaintiff
Michigan Court Refuses to Dismiss Claims Against Real Estate Trade Associations
• Allan v. Realcomp II, Ltd., (E.D. Mich.) • FTC previously concluded that by preventing “publicly-accessible
websites from receiving information on homes for sale in the southeast Michigan region listed by brokers using alternative contracting models with home sellers,” Realcomp—a joint venture operated on behalf of trade association members—illegally restrained trade
• Individual home sellers brought follow-on class action under section 1 of the Sherman Act alleging that because of the restrictions they paid more for brokerage services
• Real estate trade associations argued tat they did not compete themselves, and that actions were taken by Realcomp, not individual associations or member brokers
• Court held that the organizations that own and, through appointees, control a single corporation that provides an essential service for members of all of the organizations, can be held liable under Section 1 for the anticompetitive acts of that corporation – Substance not form determines capacity to conspire under section 1
W. Pac. Kraft, Inc. v. Duro Bag Mfg. Co. (C.D. Cal.)
• Plaintiff Western Pacific Kraft (WPK) claimed that its competitor Duro Bag price squeezed WPK from the paper bag production market by granting secret rebates to customers
• WPK became aware of the discriminatory pricing regime when its customers asked it to meet the competition from Duro Bag’s lower prices
• On May 24, 2011, United States District Court, Central District of California, denied defendant Duro Bag’s motion to dismiss– Court said even if Duro Bag stopped granting rebates to
customers, WPK’s complaint sufficiently pleaded that Duro Bag’s price rebates were secret
– Court also held that WPK sufficiently pleaded that WPK had been harmed by the secret rebates
U.S. Cartel Developments
JP Morgan Admits Antitrust Violations in Municipal Bond Market
• Between 2001 and 2006, employees at the derivatives desk manipulated and rigged bids on municipal bonds
• JP Morgan will pay $228 million in restitution, penalties, and disgorgement
• 18 former executives at a number of companies have been charged in the investigation
• UBS paid $160 million in May
EVA Pleads Guilty in Air Cargo
• DOJ filed a one-count felony charge in the U.S. District Court for the District of Columbia against Taiwan-based EVA Airways Corporation (EVA) on May 27, 2011– EVA transports a variety of cargo shipments, including sensitive
equipment used to manufacture liquid crystal display (LCD) panels as well as perishable foods and consumer goods
• According to the charge, EVA participated in a conspiracy to fix cargo base rates charged to customers for certain international air shipments
• EVA pleaded guilty to the conspiracy on May 27th
• Under the plea agreement, which is subject to approval, EVA agreed to pay a $13.2 million criminal fine
Guilty Plea in Ready-Mix Concrete Case
• United States v. Tri-State Ready Mix, No. 5:11-cr-04073 (N.D. Iowa)
• Between 2006 and 2009, Tri-State Ready Mix Inc., a producer of ready-mix concrete, conspired with GCC Alliance Concrete Inc. and its predecessor to fix prices for ready-mix concrete sold in parts of Iowa
• On June 20, Tri-State pled guilty to one charge• On June 21, Tri-State’s president was sentenced to 45
days in prison and fined $50,000 • He is the third executive to plead guilty; the other two
received significantly more severe prison terms and fines• In the Eighth Circuit, the DOJ filed its brief in support of
the trial court’s upward departure in the sentencing of another executive
Supreme Court Denies Cert in Foreign Documents Case
• Ninth Circuit had reversed district court’s order to quash DOJ subpoenas– Criminal antitrust investigation of the LCD display
market instituted by the U.S. in 2006– In subsequent civil suits, defendants produced
foreign-originating evidence– DOJ subpoenaed these documents from the
defendants’ law firms– Ninth Circuit enforced subpoena
Motion in Air Cargo to compel production of EC Decision
• In air cargo class action (EDNY), plaintiffs move to compel Defendants to produce copies of confidential EC Decision
• European Commission rules prohibit use of EC materials in foreign proceedings– EC opposes production
• Defendants argue comity requires that motion be denied
• Court has not yet ruled
Case Proceeds Against Auto Repossession Companies
• MVConnect LLC v. Recovery Database Network Inc., No. 3:10-cv- 01948 (N.D. Tex.)
• Action against auto repossession companies, alleging that they colluded to restrain competitors in the use of Recovery Databases and Automated License Plate Recognition Technology (ALPR) by– Threatening to terminate access to recovery systems if affiliates used a
competing system; – Preventing the migration of data to other recovery databases; – Withholding commissions to affiliates that had not signed with preferred
partners, – Retaliating against subscribers who used competitors, – Influencing an industry trade group to promote defendants to the
exclusion of competitors• On May 27, 2011, District Court denied defendants’ motion to
dismiss, holding that Plaintiffs adequately pled conspiracy and monopolization claims under the Sherman Act, as well as civil conspiracy and tortious interference under Texas law
• The court dismissed claims against individual defendants
Summary Judgment Granted in Helicopter Price-Fixing Case
• Superior Offshore Int’l, Inc. v. Bristow Group, Inc., (D. Del. June 23, 2011)
• Putative class action alleging that various helicopter operators conspired to fix prices “for helicopter services to offshore oil and gas industries in the Gulf of Mexico from January 1, 2001 to December 31, 2005.”
• Held: “Plaintiff’s amended allegations [of direct agreement] are simply unsubstantiated. Tuttle’s purely subjective impressions and surmises do not cure the lack of legally significant evidence.”
Recent Developments in the EU
• Dawn raids – penalties for obstruction
• Access to leniency documents
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Dawn Raids – Penalties for Obstruction
• Intentional (and even unintentional) obstruction of dawn raids continues to be punished severely
• Recent cases at both EU and Member State level imposing large fines for “obstruction,” including:– refusal to give access to a hard disk containing copies
of mail files– delay of the start of an inspection by over an hour– breach of a seal affixed during an inspection
33
Seals
34
Void signs appear when seal is peeled off a doorframe
35
Obstruction Examples• November 2007 – Sony fine for participation in video tape
cartel increased by 30% for obstruction (refusal to answer questions and shredding documents)
• January 2008 – Eon fined €38 million (US$55 million) for breaking a seal
• Recent examples include:– March 2011: Polish competition authority fined Polkomtel €33 million (c.
US$48 million) for refusing to grant access to a hard drive and for delaying the start of an investigation to 11.45am
– May 2011: European Commission fined Suez Environnement and its subsidiary Lyonnaise des Eaux €8 million (c. US$12 million) for breach of a seal
36
Access to Leniency Documents• Should cartel damages claimants get access to
documents submitted in leniency applications?
• European Commission policy is generally to refuse disclosure
• Balance between competing public interests
• Desire to promote private enforcement of competition law through damages claims v. desire to avoid undermining leniency programme / Commission investigations
37
Access to Leniency Documents• Court of Justice judgment of June 14, 2011, in Pfleiderer
• Access to documents obtained by German FCO
• Documents submitted under a national leniency programme will not be protected from third party access as a matter of EU law
2722897
Access to Leniency Documents
• It is for the Courts of Member States to determine the conditions under which third party access to documents provided as part of a leniency application should be allowed or refused
• No distinction between oral statements and pre-existing documents
China Developments
China – Merger Control
Russian potash merger• Merger creates world no. 2 player, with 33%
market share• Potash is a concentrated market
– 80% from 3 countries– Potash Corp and merged entity have 70%
market share• MOFCOM highlights importance of imports,
and distinguishes between “seaborne” and “cross-border” trade
China – Merger Control (2)
Russian potash merger (2)• MOFCOM’s competitive assessment
– Unilateral effects– Coordinated effects– High entry barriers
• Behavioral remedies are accepted – Essentially “standstill” commitment by merging parties
• Decision shows wide range of MOFCOM's assessment “tool box”
• MOFCOM’s remedy policy still in flux
China – Cartel Area
Unilever case• Unilever spokesman announced April 1 price rises
to distributors, and to press• Explanations on how prices of various suppliers rise• Chinese competitors followed suit with price rise
announcements for similar dates• Price announcement led to panic-buying
China – Cartel Area (2)
Unilever case (2)• NDRC found violation of Price Law
“fabricating or disseminating information on price rises, driving up prices, and promoting excessive rises of product prices”
• But it also objected to “reciprocally coordinated price strategies to achieve a coordinated price practice”
• Decision may be warning on future cartel investigations under AML
