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December 17, 2018

Antitrust Agency Insights: Developments at the US Antitrust Enforcement Agencies—December 2018

Antitrust/Competition Newsletter

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: KEY AGENCY NEWS

FTC Orders Merging Companies Linde AG and Praxair, Inc. to Hold Separate All Assets Until They Complete Most Required Divestitures

On October 22, 2018, the FTC announced that it had reached an agreement with Linde AG (Linde) and Praxair, Inc. (Praxair), the second and third largest global industrial gas suppliers, to settle charges that their proposed merger would harm competition in multiple industrial gas markets in the United States.1 The settlement requires Linde to divest a number of assets to pre-approved buyers within four months of closing2, and also prohibits the parties from integrating their operations anywhere in the world until most of the required divestitures are completed.3

This provision is relatively unusual. The FTC commonly mandates that the parties preserve the divestiture assets, but does not require that they be held separate.4 In this case, not only is there a hold-separate requirement as to the divestiture assets, but the hold-separate order covers the assets to be retained by the combined company as well. In effect, the order delays the de facto consummation of the entire transaction until after most of the divestitures are completed.

The FTC Linde consent takes the same approach that the DOJ took in the Bayer-Monsanto merger consent, which required the merging companies to operate their entire businesses separately until divestitures to a preapproved buyer were completed.5 Although DOJ uses hold-separate orders more often than the FTC, they typically cover solely the divestiture assets.

Neither the FTC nor the DOJ explained publicly why it required broader hold-separate orders for these transactions. Both transactions involved divestiture packages that included assets from multiple businesses in multiple markets, but this has been the case in previous mergers as well. Companies considering a deal should watch carefully how the antitrust agencies approach upcoming transactions; if agencies begin to routinely require completed divestitures as a prerequisite to integration, timelines will be extended.

DOJ Releases Model Timing Agreement and Model Voluntary Request Letter

As previewed in our October issue of Antitrust Agency Insights, the Antitrust Division recently released a Model Timing Agreement (MTA) and Model Voluntary Request letter (MVR). DOJ's release follows closely the FTC's release of its own MTA (discussed in detail in our September issue). Key provisions in DOJ's new MTA include:

  • DOJ Review Period. The MTA requires that parties give DOJ 60 days from the time the parties substantially comply with the Second Request before the parties may close the transaction (as opposed to the 30-day statutory HSR waiting period). The MTA also reserves the right to extend the period beyond 60 days for more complex transactions.
  • 10-Day Notification Requirement. The MTA requires that the parties give DOJ 10 days' notice prior to closing.
  • Custodians. The default position is that DOJ will seek documents responsive to the Second Request from no more than 20 custodians, who will be specified as part of the MTA. DOJ reserves the right to add up to five additional custodians at any time and will require that the new custodians' documents be produced within fifteen days of adding the custodians. DOJ also reserves the right to demand additional custodians with the approval of the Deputy Assistant Attorney General responsible for that particular matter.
  • Rolling Production. All responsive documents must be produced at least 30 days before the parties certify substantial compliance with the Second Request. Certain categories of responsive data, including P&L reports and a description of certain databases, must be produced at least 45 days prior to certification.
  • Depositions. The default position is that no more than 12 depositions per party will be sought, but DOJ reserves the right to demand additional depositions with the approval of the Deputy Assistant Attorney General responsible for a particular matter.
  • TROs and Prohibition on Declaratory Judgment Actions. The MTA requires that the parties agree to refrain from consummating the deal if DOJ is going to challenge it and to refrain from closing for at least seven days following entry of judgment by the court. The MTA also provides for a minimum period of post-complaint discovery, and requires that parties agreenot to seek a declaratory judgment on the merits of the transaction.

Overall, DOJ's MTA envisions a review process that is largely consistent with the review process outlined in the FTC's MTA. The most significant difference between the two agencies' MTAs relates to the pre-closing notice, with the FTC requiring a 30-day notice and the DOJ requiring only 10 days. In addition, there is a difference in approach by the two agencies regarding custodians and investigational hearing (IH)/deposition provisions. While DOJ's MTA specifies the numbers of custodians and depositions that DOJ typically would seek, the FTC's MTA proposes commitments regarding the timeline for identification of the relevant custodians and completion of the IH process.

DOJ also released a Model Voluntary Request letter (MVR). The MVR is designed to give the parties a "head start" in identifying information that DOJ will likely request during the initial HSR waiting period for transactions that DOJ is interested in examining. The MVR categories include:

  • Details regarding product overlaps, sales, competitors, and customers
  • Win/loss data
  • Analyses of the transaction provided to analysts, investors or the government and other materials relating to the transaction
  • Documents analyzing efficiencies
  • Organizational charts

As we noted with regard to the FTC's Model Timing Agreement, parties should carefully consider whether entering into a timing agreement is ultimately in their best interest taking into account the facts of each specific deal.

ADDITIONAL AGENCY UPDATES

Cases and Proceedings

  • FTC v. Qualcomm, No. 5:17-cv-00220 (N.D. Cal.). On November 6, 2018, US District Judge Lucy H. Koh issued an order granting the FTC's motion for partial summary judgment on the issue of whether Qualcomm must provide licenses for its standard-essential patents (SEPs) to rival chipmakers. Qualcomm maintained that it is required to license its SEPs on fair, reasonable, and non-discriminatory (FRAND) terms only to manufacturers of end devices—not manufacturers of components. Judge Koh found that both the policies and guidelines of the standard-setting organizations support the conclusion that Qualcomm is obligated to license to competing chipmakers.

    Read the court's decision »
  • FTC to Decide on a Petition by Teva Pharmaceuticals to Reopen and Modify the Decision and Order Issued in Connection with Watson Pharmaceuticals Inc.'s Acquisition of Actavis Inc. in 2012. On October 23, 2018, Teva, in its capacity as a successor in interest to Actavis, requested that the FTC extend the term of a supply agreement under which Teva supplies to Pfizer the brand name drug Embeda, an abuse-resistant opioid pain killer. The supply agreement was part of a remedy package adopted in connection with Watson's acquisition of Actavis in 2012 that required, among other things, the divestiture of Embeda to Pfizer. In its petition, filed at the request of Pfizer, Teva claims that Pfizer will not be able to supply the drug to patients upon expiration of the supply agreement at the end of 2018 due to a delay in scheduled technology transfer to a third party. Teva also claims that the extension of the supply agreement will not delay its plans to introduce a generic version of Embeda.

    Read Teva's petition and the 2012 consent agreement package »
  • DOJ Settled a Civil Lawsuit Against Six Broadcast Television Companies to Terminate and Refrain From Unlawful Sharing of Competitively Sensitive Information. On November 13, 2018, DOJ announced a settlement agreement with six broadcast television companies that allegedly engaged in unlawful exchanges of non-public spot advertising data. DOJ claimed that the data sharing enabled each company to better anticipate whether its competitors were likely to raise, maintain, or lower spot advertising prices and to adjust its own pricing strategies and negotiations with advertisers. DOJ stated that the unlawful activity was uncovered while the DOJ reviewed the now-abandoned Sinclair-Tribune merger.

    Read the DOJ announcement and related court filings »
    Read Arnold & Porter client advisory about the settlement »
  • DOJ Settles a 2016 Lawsuit Against Atrium Health Challenging Steering Provisions in its Contracts with Health Insurers. On November 15, 2018, DOJ announced that Atrium Health, formerly known as Carolinas HealthCare System, agreed to refrain from using anticompetitive steering restrictions in contracts between commercial health insurers and its providers in the Charlotte, NC metropolitan area. DOJ alleged that Atrium, the dominant hospital system in the Charlotte area, used its market power to restrict health insurers' effort to encourage consumers to choose healthcare providers that offer better overall value. Under the terms of the settlement, Atrium Health agreed not to enforce steering restrictions in its contracts with health insurers, not to seek similar contract terms in future contracts, and to refrain from taking any action that would prohibit, prevent, or penalize steering by insurers in the future.

    Read the DOJ announcement and related court filings »
  • FTC Comments on FDA's Guidance on the Citizen Petition Process. On December 4, 2018, the FTC released a comment responding to the Food and Drug Administration's October 2, 2018 revised draft guidance titled "Citizen Petitions and Petitions for Stay of Action Subject to Section 505(q) of the Federal Food, Drug, and Cosmetic Act. In its Comment, which the FTC approved in a 5-0 vote, the FTC stated that it "shares the FDA's concerns about patient access to lower-cost generic drugs and biosimilars" and reaffirmed its "longstanding interest in sham petitioning and other abuses of government processes that may inhibit competition." As a result of these recent agency actions, citizen petitions submitted by pharmaceutical companies are likely to face increased scrutiny by both the FDA and the FTC.

    Read the FTC Comment on the Food and Drug Administration's Revised Draft Guidance on Citizen Petitions »
    Read Arnold & Porter client Advisory about the FTC Comment »

Policy

  • PDAAG Finch letter to the American National Standards Institute IP Rights Policy Committee (ANSI IPRPC). On October 11, 2018, Principal Deputy Assistant Attorney General Andrew Finch wrote to ANSI IPRPC to address the proposed "Sample Patent Letter of Assurance Form" currently under consideration by the Committee. He stated that the Division would not take a position for or against the adoption of such a model form, but encouraged ANSI to ensure that accredited standards developers remain free to choose whether to use the model form or to develop their own or not to use letters of assurance at all.

    Read the letter here »
  • New PNO Guidance about HSR Reporting Obligations for Combinations of Non-Profit Entities. On October 26, 2018, the PNO announced a change in its interpretation of the HSR filing requirements for transactions involving non-profit entities. In the past, the PNO had determined whether there was a change in "beneficial ownership" of non-profit assets by focusing exclusively on board control. From now on, the PNO will look to factors beyond board control to identify who will "hold" the assets or voting securities as a result of the transaction.

    Read the new PNO tip sheet here »
  • Hearings on Competition and Consumer Protection in the 21st Century. The FTC's Hearings Initiative continued with five additional hearings devoted to a variety of topics. In addition to antitrust law practitioners and scholars, speakers at these hearings included specialists in related areas of law, economists, and technology experts. The third hearing in the series took place on October 15-17, 2018 and addressed novel antitrust issues arising from the use of digital technology and the proliferation of digital marketplaces and technology-based platform businesses. Arnold & Porter Global Antitrust group chair and former Director of the Bureau of Competition at the FTC Debbie Feinstein participated in a panel discussing the review and investigations of acquisitions of nascent competitors in the tech sector. This hearing also included a session on antitrust analysis of labor markets. The fourth hearing in the series, which took place on October 23-24, 2018, was devoted to antitrust issues in the context of innovation and intellectual property. The analysis of vertical mergers was the subject of the fifth hearing, which took place on November 1, 2018. It also included a session about the role of the consumer welfare standard in US antitrust law. The sixth hearing in the series, held on November 6-8, 2018, examined competition and privacy concerns arising from the use of big data. Former Antitrust Division AAG and current Arnold & Porter partner Bill Baer participated in a panel on former enforcers' perspective on big data and antitrust, together with former acting FTC Chairman Maureen Ohlhausen and former FTC Commissioner Julie Brill. Finally, the seventh hearing, on November 13-14, 2018, addressed antitrust implications of algorithms, artificial intelligence, and predictive analytics. Arnold & Porter partner and former DAAG for Civil and Criminal Operations Sonia Pfaffenroth participated in a panel on algorithmic collusion.

Arrivals/Departures

  • DOJ Appoints new Chief of Staff. William Rinner has replaced John Elias as acting Chief of Staff. Formerly an associate at Latham & Watkins, Rinner joined the Antitrust Division in September 2017 as counsel to AAG Delrahim and is part of the DOJ team litigating the AT&T/Time Warner merger.

Speeches

  • Speech by AAG Makan Delrahim at the ABA Antitrust Fall Forum, November 15, 2018, Washington, D.C. AAG Delrahim's remarks focused on recent settlements of DOJ enforcement actions. He devoted significant attention to the Division's use of its authority under Section 4A of the Clayton Act (15 U.S.C. §15a) to remedy antitrust injuries to the American taxpayer in cases where the victim of bid-rigging or other collusive action is the US government. He stressed that the Division's leniency policy will apply in situations where the Division pursues parallel civil actions under Section 4A of the Clayton Act in connection with criminal violations of the Sherman Act. In particular, leniency recipients that cooperate with the DOJ's civil investigation team will be subject only to single damages and will not be subject to joint and several liability.

    Read the speech here »
  • Speech by DAAG Roger Alford at the College of Europe's Global Competition Law Centre, November 12, 2018, Brussels. DAAG Alford addressed how competition authorities can promote fundamental due process in investigations and enforcement. He described the effort by leading antitrust agencies to craft the Multilateral Framework on Procedures in Competition Law Investigation and Enforcement (MFP) and discussed the core principles and structures of the MFP.

    Read the speech here »
  • Speech by AAG Makan Delrahim at the Federal Telecommunications Institute's Conference, November 7, 2018, Mexico City. AAG Delrahim shared perspectives from the United States on competition law enforcement in the digital economy. He discussed challenges associated with detection of digitally supported collusive schemes, determining market power, assessing barriers to entry, and analyzing effects of vertical mergers.

    Read the speech here »
  • Speech by AAG Makan Delrahim at the University of Haifa, October 17, 2018, Haifa, Israel. AAG Delrahim addressed start-ups, innovation, and antitrust policy in the digital economy.

    Read the speech here »
  • Speech by AAG Makan Delrahim at the Federal Circuit Bar Association Global Series 2018, October 10, 2018, Ottawa, Canada. AAG Delrahim addressed antitrust policy in the context of intellectual property rights.He discussed the debate over balancing the rights of inventors and implementers and emphasized the need for a decentralized, market-based process for determining inventors' compensation.

    Read the speech here »
  • Testimony by AAG Makan Delrahim and FTC Chairman Joseph Simons Before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, October 3, 2018, Washington, DC. At this congressional oversight hearing AAG Delrahim and Chairman Simons provided an overview of their respective agencies' efforts in enforcement of the antitrust laws over the past year. They also described recent policy initiatives to promote competition.

    Read the prepared statements and view a video recording of the hearing »

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This newsletter 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.

  1. The case filings are available at https://www.ftc.gov/enforcement/cases-proceedings/171-0068/linde-ag-praxair-inc.

  2. See Decision and Order {Redacted Public Version} at 10-11, In the Matter of Linde AG; Praxair, Inc. and Linde PLC, FTC Matter/File Number: 171 0068.

  3. See Order To Hold Separate and Maintain Assets, Sec. II, at 5, In the Matter of Linde AG; Praxair, Inc.; and Linde PLC, FTC Matter/File Number: 171 0068. Two plants in Texas are carved out of the pre-closing divestiture requirement. See id., Decision and Order {Redacted Public Version}, supra note 2, at 10-11.

  4. In the past two years, the FTC has issued only one other hold-separate order and that order covered the divestiture assets only. See Order To Hold Separate and Maintain Assets {Redacted Public Version}, In re Red Ventures Holdco and Bankrate, FTC Matter/File Number: 1710196.

  5. See Stipulation and Order, Sec. VII, at 6-8, U.S. v. Bayer AG and Monsanto Company, No. 1:18-cv-01241 (D.D.C.).

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