Antitrust Agency Insights: Developments at the US Antitrust Enforcement Agencies—Second Quarter 2022
Successfully navigating antitrust agency investigations requires a familiarity with Department of Justice and Federal Trade Commission processes, as well as insight into those agencies and their leaderships’ current priorities for enforcement and competition policy. This newsletter will provide periodic updates on both, offering an analytical look at how the antitrust agencies are approaching important competition issues and what current investigations may mean for potential future enforcement. We hope our experience—both inside and outside these agencies—will provide insights that help you make more informed decisions for your business.
Letter from the Editors
Increased Focus on Algorithmic Pricing and Potential for AI Coordination
Antitrust enforcement has been criticized in the past for failing to keep up with technological advancements.1 One new technological quandary is the use of algorithmic pricing, allowing companies to increasingly price dynamically in near real time in response to competitor price movements, customer demands and other market conditions. The US Department of Justice, Antitrust Division (DOJ) and other observers have raised concerns about the potential impact of this practice—and artificial intelligence (AI) more generally—on competition, including whether it increases the potential risk for price fixing through technological means.2
DOJ has signaled to companies that they should be cognizant of the risk of price fixing when technology is used. At the 21st Annual International Competition Network Conference in Berlin, Germany on May 4, 2022, Assistant Attorney General (AAG) Jonathan Kanter acknowledged the interplay of AI and antitrust. AAG Kanter suggested that, “whether you use a smoke-filled room in a basement or you’re using AI and an API, it’s still the same thing. It’s still collusion.”3 AAG Kanter suggested that companies proactively design (and train) algorithms and artificial intelligence programs not to collude, just as they train their employees.4 To address these new market dynamics, DOJ is increasing its capacity to pursue investigations and enforcement actions in this area.5
It is clear that if two firms (or their employees) expressly agree to use artificial intelligence and/or algorithms as a means of fixing prices, they face antitrust risk just as much as if they agreed to use a more primitive implementation.6 The use of algorithms alone, however, should not give rise to antitrust liability. Sherman Act § 1 prohibits agreements to fix prices for competing products, but does not prohibit mere “parallel pricing” (i.e., competing products being sold at the same or similar prices absent proof of an agreement).7 And Sherman Act § 2 jurisprudence generally protects the right of any company, even a monopolist, to set prices freely.8
But what happens if artificial intelligence and algorithms are able to collude among themselves without human intervention? In theory, and validated by some experiments, pricing programs in the same market can “agree” to a common price, and appear to raise prices in a coordinated way, without express instructions from human overseers to do so.9 Historically, US enforcers have maintained a consistent position that the legal standard for finding unlawful collusion does not change in the context of pricing algorithms—the independent use of pricing algorithms by two companies, without an agreement to fix prices, should not give rise to liability.10 Yet, AAG Kanter’s suggestion that AI could facilitate the equivalent of a “smoke-filled room,” suggests that DOJ may be entertaining the idea that AI is capable of entering into an unlawful “agreement” for purposes of Sherman Act § 1. And, at the very least, algorithm pricing that is correlated with competitors’ pricing could be viewed as a plus factor (combined with other factors), that could lead to an inference of an anticompetitive agreement.
Courts will likely continue to demand proof of conspiracy (i.e., an actual agreement between human beings) in order to prove allegations of price fixing, but AAG Kanter’s speech emphasizes that algorithmic pricing and other automated programs may raise scrutiny. DOJ is building up its capability to investigate, and potentially challenge, conduct that may cross the line from unilateral decision making to inappropriate coordination between competitors. Parties using pricing AIs or other similar systems should consider and take steps to mitigate antitrust risk when developing, purchasing and/or supervising those programs. Finally, antitrust compliance training will become even more important for companies using algorithmic pricing programs to ensure that no one—or no system—crosses the line.
Continued Focus on the Pharmaceutical Supply Chain
During the week of June 13th, the DOJ and Federal Trade Commission (FTC) hosted two events highlighting their focus on the pharmaceutical industry, particularly the role of pharmaceutical benefit managers (PBMs) and the impact of rebating practices in the industry. On June 14th and 15th, the DOJ and FTC hosted a workshop to “showcase new learning about competition in the pharmaceutical industry” and assess “whether current enforcement approaches accurately reflect marketplace conditions.” On June 16th, the FTC hosted an open meeting to discuss and issue a new enforcement policy statement that it will purported “ramp up enforcement against any illegal bribes and rebate schemes that block patients’ access to competing lower-cost drugs.” Alleging that rebates and fees block patients’ access to competing lower-cost drugs, the FTC committed to “use its full range of legal authorities to combat illegal prescription drug practices that foreclose competition and harm patients.” The FTC specifically suggesting that “exclusionary rebates” could violate Sections 1 and 2 of the Sherman Act, Sections 3 of the Clayton Act prohibiting exclusive dealing, Section 5 of the FTC Act prohibiting unfair methods of competition, and Section 2(c) of the Robinson-Patman Act prohibiting certain payments to intermediaries. These developments follow the FTC’s recent announcement of a study of PBMs under Section 6(b) of the FTC Act.
- Read the Enforcement Policy Statement
- Read the Press Release concerning rebate enforcement
- Read the Press Release & agenda for the pharma workshop
Additional Agency Updates
FTC & DOJ Appointments
- Alvaro Bedoya was sworn in as FTC Commissioner on May 16. Bedoya was confirmed by Congress on May 11, 2022.
- On April 25, 2022, Anisha Gasgupta joined the FTC as General Counsel and Elizabeth Wilkins joined the FTC as Director of the Office of Policy Planning.
- Michael Kades and Andrew Forman joined DOJ’s Antitrust Division as Deputy Assistant Attorney Generals in early May 2022.
FTC Cases and Proceedings
- By a 4-0 vote, the FTC approved a final order to settle a May 2017 case against Louisiana Real Estate Appraiser Board. On April 5, 2022, the FTC finalized an order holding that “the Board cannot adopt a fee schedule for appraisal services or take any other actions that have the effect of raising, stabilizing, or fixing compensation levels for appraisal service.”
- By a 4-0 vote, the FTC approved a consent agreement with Hikma Pharmaceutical and Custopharm. On April 19, 2022, the FTC required Custopharm’s parent company to retain and transfer Custopharm’s assets related to the corticosteroid drug triamcinolone acetonide, or TCA, to another subsidiary, Long Grove Pharmaceuticals, LLC
- By a 4-0 vote, the FTC settled its antitrust concerns related to Prince International’s acquisition of Ferro Corp. On April 21, 2022, the FTC alleged that the two companies competed in the North American market for porcelain enamel frit, in the worldwide market for forehearth colorants, and in the worldwide market for glass enamel. The parties agreed to divest three facilities used to make porcelain enamel frit, glass enamel, and forehearth colorants to a named upfront buyer, KPS Capital Partners LP.
- By a 5-0 vote, the FTC challenged a merger of New Jersey hospitals. On June 2, 2022, the FTC alleged that RWJBarnabas Health proposed acquisition of nearby Saint Peter’s Healthcare System would reduce head-to-head competition in central New Jersey. The parties abandoned the proposed merger shortly thereafter.
- By a 5-0 vote, the FTC challenged a merger between Utah healthcare systems. On June 2, 2022, the FTC alleged that the proposed transaction would combine the second and fourth largest healthcare system in the most populous part of Utah. The parties abandoned the transaction later in June.
- By a 5-0 vote, the FTC required fuel terminal operators to divest in three local markets. On June 2, 2022, the FTC alleged that Buckeye Partners, L.P.’s acquisition of 26 petroleum terminals from Magellan Midstream Partners, L.P. would reduce competition for terminally light petroleum products, specifically gasoline. The parties agreed to divest 5 terminals in South Carolina and Alabama to an upfront buyer (US Venture). The parties agreed to seek prior approval for ten years before acquiring any light petroleum terminals within 60 miles of the divested assets. The divestiture buyer also agreed to obtain prior approval before reselling the divested assets to any light petroleum terminal operators in the relevant local markets for 10 years (three years if reselling to any other buyer). Commissioners Phillips and Wilson wrote separately to call for public comments on the use of prior approval provisions.
- By a 5-0 vote, the FTC settled its antitrust concerns about JAB Consumer Partners proposed acquisition of SAGE Veterinary Partners, LLC. On June 13, 2022, the FTC required the parties to divest six veterinary clinics in California and Texas to an upfront buyer, United Veterinary Care, to ameliorate concerns about lost horizontal competition. The FTC also imposed a 10-year prior approval condition for any acquisition of further specialty or emergency veterinary clinics within 25 miles of any clinic it owns in California or Texas (and a 10-year prior notice requirement for acquisitions elsewhere). These conditions apply to clinics owned now or acquired in the future. Chair Khan wrote a statement that, in part, argued that the “extra protections” of “future-proofed” prior notice and prior approval requirements were justified as a means for FTC to detect and address “stealth roll-ups by private equity firms.” Commissioners Phillips and Wilson wrote separately to reiterate their concern that prior approval and prior notice provisions are unwarranted and to call for public comments.
- Read the Press Release
- Read the Analysis to Aid Public Comment
- Read Chair Khan’s Statement (joined by Commissioners Slaughter and Bedoya)
- Read Commissioners Phillips and Wilson Concurring Statement
- By a 5-0 vote, the FTC settled its concerns about JAB Consumer Partners acquisition of Ethos, a veterinary clinic operator. On June 29, 2022, the FTC voted to accept a settlement to resolve its concerns that JAB’s acquisition of veterinary clinics in Richmond, Virginia, Denver, Colorado, San Francisco, California, and the Washington, DC metro area eliminated horizontal competition. The parties agreed to divest clinics in these markets to up-front buyers as well as to prior approval and prior notice requirements similar to those in the JAB/SAGE settlement.
- By a 5-0 vote, the FTC settled its antitrust concerns regarding a retail fuel transaction with an ancillary non-compete agreement. ARKO Corp. and its subsidiary GPM agreed to acquire 60 Express Stop retail fuel outlets from Corrigan Oil Company in 2021. That deal included a “sweeping agreement not to compete covering more than 190 GPM locations in Michigan and Ohio, many of which are completely unrelated to the transaction” according to Holly Vedova, Director of the Bureau of Competition. On June 14, 2022, the parties agreed with the FTC to return five locations to Corrigan in order to ameliorate concerns about lost competition in local markets. The parties also agreed to limit their non-compete with Corrigan to three years and three miles, to exclude locations that were not actually acquired, and to rescind other non-competes related to assets that GPM already owns. The FTC also imposed a prior approval condition before the buyers may purchase retail fuel assets within a three-mile driving distance of any of the five returned locations for 10 years. Chair Khan wrote a statement joined by Commissioners Slaughter and Bedoya to highlight their concerns about non-competes.
DOJ Cases and Proceedings
- DOJ filed an opposition brief at the Supreme Court in canned tuna pricing-fixing litigation. DOJ defended its position that application of the per se rule in criminal cases comports with the constitutional requirement that the government prove every element of a crime beyond a reasonable doubt.
- Brief for the United States in Opposition, Lischewski v. United States, Supreme Court (No. 21-852) (March 2022).
- Former Caltrans Contract Manager pled guilty to participation in a conspiracy to rig bids for improvement and repair contracts with California Department of Transportation (Caltrans) on April 11, 2022.
- DOJ charged three defendants with conspiring to rig bids for customized promotional products to the US Army on April 12, 2022.
- DOJ obtains grand jury indictment for big rigging in military contracts on May 20, 2022.
- US v. Jindal. A jury found defendants not guilty in DOJ’s first-ever criminal wage-fixing case on April 14, 2022. The jury, however, did find one defendant guilty of obstruction.
- US v. DaVita. A jury found defendants not guilty in DOJ’s first-ever criminal no poach trial on April 15, 2022.
- Media Coverage
- Verdict, United States v DaVita Inc., No. 1:21-cr-00229-RBJ (D. Co. April 15, 2022), ECF No. 264.
- Verzatec and Crane abandon merger in face of DOJ opposition. DOJ challenged the merger of pebbled fiberglass reinforced plastic wall panels manufacturers on March 17, 2022, alleging that the transaction would both substantially lessen competition in violation of Clayton Act § 7 and allow Verzatec to unlawfully monopolize the relevant market in violation of Sherman Act § 2.
- Contractors pled guilty to big rigging and price fixing for commercial flooring.Defendants agreed to pay a $1.2 million criminal fine on June 9, 2022.
- Contractors indicted for alleged conspiracy to falsify competitive quotes and other misrepresentations to win government contracts on June 23, 2022.
- DOJ challenged Booz Allen Hamilton’s proposed acquisition of EverWatch. On June 29, 2022, DOJ filed a complaint alleging that the transaction threatens competition for a contract to provide the National Security Agency with operational modeling and simulation services.
- AAG Kanter announces changes to key enforcement areas. Speaking at the joint Enforcers Summit on April 4, 2022, AAG Kanter announced changes to key areas of the Antitrust Division’s enforcement policies regarding(i) Section 2 criminal enforcement, (ii) leniency program, and (iii) Clayton Act Section 8 interlocking company directorates enforcement.
- Read Arnold & Porter’s Advisory on the announcement.
- Read Arnold & Porter’s Advisory, The Return of Criminal Sanctions for Violating Section 2 of the Sherman Act
- DOJ updated its Leniency Policy. On April 4, 2022, DOJ’s Antitrust Division announced updates to its Leniency Policy and issued a revised set of frequently asked questions (FAQs). The Antitrust Division also launched a new dedicated email address to make it easier for companies and individuals to apply for leniency.
- DOJ, PTO, NIST withdrew from 2019 SEP Statement. DOJ, together with US Patent and Trademark Office and the National Institute of Standards and Technology, announced on June 8, 2022 the withdrawal of the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued in 2019. President Biden’s Executive Order on Promoting Competition in the American Economy had encouraged the agencies to review the 2019 statement. AAG Kanter expressed hope that DOJ’s “case-by-case approach will encourage good-faith efforts to reach F/RAND licenses and create consistency for antitrust enforcement policy.”
- Commissioners Noah Joshua Phillips and Christine S. Wilson publish comments questioning the FTC’s 2022 Budget Request. On March 28, 2022, the Commissioners argued that the “the enforcement productivity of the agency has declined substantially, despite the congressional largesse already granted to us.” The Commissioners blamed “unfounded policy and implementation choices” for those results, suggesting that additional funding would not change it.
- Chair Khan defended the FTC’s 2022 Budget Request. On May 18, 2022, Chair Khan responded to criticism about her budget request by explaining that the FTC’s headcount is lower today than it has been previously despite an exponentially expanded “scope of investigation and litigation discovery,” including voluminous electronic submissions.
DOJ Speeches & Reports
- AAG Kanter delivered “Antitrust Enforcement: The Road to Recovery.” In his keynote speech at University of Chicago on April 12, 2022, AAG Kanter reiterated his view on the limits of the consumer welfare standard in antitrust, which is shared with Chair Khan. He emphasized the non-economic legislative history of the Sherman Act, and the absence of “consumer welfare standard” from either the sparse statutory text, or Supreme Court precedent. AAG Kanter advocated for a less “technocratic” and “mathematical” approach to antitrust moving forward. He also identified multiple “outdated” antitrust precedents that may no longer be applicable in the digital world, including Brook Group (predatory pricing) as well as Trinko and Aspen Skiing (refusal to deal).
FTC Meetings & Workshops
- The FTC and DOJ hosted a two-day workshop on Antitrust Enforcement in the Pharmaceutical Industry on June 14 and 15, 2022. Intended as a capstone to the Multilateral Pharmaceutical Merger Task Force formed in March 2021 by then-Acting Chairwoman Rebecca Kelly Slaughter, panels discussed “new approaches” to addressing competition policy in the pharmaceutical industry.
- The FTC held an Open Commission Meeting on June 16, 2022. The FTC issued a enforcement policy statement on rebates and fees offered by pharmaceutical manufacturers to pharmacy benefit managers for favorable distribution. The FTC staff presented a presentation on the use of artificial intelligence to combat online harms like scams, deepfakes, harassment and child abuse. The FTC Commissioners voted to submit the underlying report to Congress.
- The FTC held a fifth listening forum on merger impacts on June 21, 2022. The FTC and DOJ have already held four “listening forums” to hear the viewpoint of merger and acquisition effects from non-experts with firsthand experience. The FTC announced an additional listening forum without the involvement of DOJ for June 21, 2022. As with the previous forums, it is intended that these events will inform merger enforcement guidelines being revised by the agencies.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
AAG Kanter, Remarks to the New York State Bar Association Antitrust Section (Jan. 24, 2024), (“In the past 20 years, we have seen an evolution in industry on par with, and perhaps greater than, the industrial revolution. . . . Antitrust law enforcement has not succeeded in keeping pace with these massive changes in our economy.”).
E.g., US DOJ’s Kanter warns companies over algorithmic price-fixing, calls for corporate compliance; Terrell McSweeny & Brian O'Dea, The Implications of Algorithmic Pricing for Coordinated Effects Analysis and Price Discrimination Markets in Antitrust Enforcement, Antitrust Vol. 31., No. 1 (Fall 2017).
See United States v. Topkins, No. CR 15-00201 (N.D. Cal. 2015) (defendant pled guilty to adopting pricing algorithms to coordinate prices for wall posters they sold on Amazon Marketplace and programming the software to avoid price competition); United States v. Airline Tariff Publishing Co., 836 F. Supp. 9 (D.D.C. 1993) (airlines settled allegation by DOJ that they used a jointly owned computerized online booking system to signal price changes to each other); cf. Meyer v. Kalanick, No. 1:15-cv-09796-JSR (S.D.N.Y.) (class action survived motion to dismiss before being removed to arbitration, having alleged that Uber’s pricing mechanism constituted a hub and spoke conspiracy among Uber drivers; arbitrator found no hub and spoke conspiracy).
Algorithms and Collusion—Note by the United States, May 26, 2017, official submission to the OECD Roundtable; Acting Chair of the FTC Maureen Ohlhausen, Remarks to the Concurrences Conference on Antitrust in the Financial Sector: "Should We Fear The Things That Go Beep In the Night? Some Initial Thoughts on the Intersection of Antitrust Law and Algorithmic Pricing" (New York, May 23, 2017); Acting Assistant Attorney General Andrew Finch, Keynote Address at Annual Conference on International Antitrust Law and Policy (Sep. 14, 2017).