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July 16, 2018

Supreme Court Nominee Brett Kavanaugh's Antitrust Record

Advisory

On July 9, 2018, President Trump announced the nomination of DC Circuit Judge Brett Kavanaugh to fill Anthony Kennedy's seat on the US Supreme Court, in light of Justice Kennedy's retirement effective July 31, 2018. This Advisory reviews Judge Kavanaugh's approach to antitrust law as reflected in his opinions.

Since Judge Kavanaugh joined the DC Circuit in 2006, he has weighed in on two significant mergers and a number of other antitrust issues. Judge Kavanaugh has been skeptical of government efforts to block mergers, dissenting from the majority in United States v. Anthem, Inc. and F.T.C. v. Whole Foods Market on efficiencies and market definition grounds.

Merger Cases

Most recently, Judge Kavanaugh dissented from the majority in United States v. Anthem, Inc., in which the court affirmed the district court's injunction preventing the proposed $54 billion merger of two health insurance companies, Anthem and Cigna.1 The majority rejected Anthem's argument that efficiencies created by the merger would outweigh any anti-competitive effect.2 The majority opinion also questioned the proper weight given to efficiencies in merger analysis.3

In his dissent, Judge Kavanaugh agreed with Anthem. He argued that even though evidence showed that Anthem would raise fees on its employer customers anywhere from $48 million to $930 million annually, the employers would ultimately save $1.7 to $3.3 billion annually in medical costs due to the merged firm's stronger negotiating position with health care providers. Judge Kavanaugh relied on United States v. General Dynamics Corp.4 for the proposition that merger analysis under Section 7 of the Clayton Act requires consideration of "the efficiencies and consumer benefits of the merger."5

At the same time, Judge Kavanaugh acknowledged one path by which the government could have blocked the merger: by proving harm to the upstream provider market of hospitals and doctors.6 He cautioned that the merged firm could have monopsony power over providers.7 Since the district court did not examine the upstream effects of the merger, Judge Kavanaugh said he would remand for further fact finding.8

Judge Kavanaugh also dissented from the DC Circuit's opinion in the FTC's 2007 challenge to the Whole Foods/Wild Oats merger.9 The FTC sought to block Whole Foods' acquisition of rival organic grocery chain Wild Oats, and the district court denied the FTC's motion for a preliminary injunction under 15 U.S.C. § 53(b). In a 2-1 decision, the DC. Circuit reversed the district court, but Judge Kavanaugh agreed with the lower court ruling. In particular, Judge Kavanaugh did not think that the FTC had put forward sufficient evidence that organic supermarkets were a separate market from regular supermarkets. He pointed out that the record demonstrated that "Whole Foods makes site selection decisions based on all supermarkets and checks prices against all supermarkets, not only so-called organic supermarkets" and that conventional supermarkets and "so-called organic supermarkets" "aggressively" competed for customers.10

Judge Kavanaugh also criticized the majority for agreeing with the FTC's argument on the standard it had to meet to obtain a preliminary injunction. The majority explained that 15 U.S.C. § 53(b) permits a district court to grant a preliminary injunction "[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest."11 In deciding whether to grant a preliminary injunction under this standard, the court held that "a district court must not require the FTC to prove the merits."12 Judge Kavanaugh disagreed, writing that the FTC cannot "just snap its fingers and temporarily block a merger."13 Judge Kavanaugh also disagreed with the majority that "core consumers, demanding exclusively a particular product or package of products," are a cognizable submarket.14 He concluded that using the "watered-down preliminary injunction standard" adopted by the majority would give the FTC "far greater power to block mergers than the statutory text or Supreme Court precedents permit."15 

Pharmaceutical Cases

Judge Kavanaugh has written or joined two decisions involving allegations that brand-name drug manufacturers attempted to delay the entry of generic competitors. 

In Meijer, Inc. v. Biovail Corp., decided in 2008, Judge Kavanaugh joined a unanimous opinion by Judge Douglas Ginsburg that affirmed a grant of summary judgment in favor of Biovail Corp., a brand-name drug manufacturer. The plaintiffs were wholesale purchasers of a brand-name drug for hypertension and angina. 16 They alleged that Biovail had misused its patents to delay the entry of a generic version of the drug by Andrx Pharmaceuticals.17

The court rejected both theories of liability advanced by the plaintiffs. First, the plaintiffs alleged that Biovail had falsely claimed in litigation and in statements to the FDA that one of its patents covered the brand-name drug, thereby allegedly delaying FDA approval of the generic drug.18 The court found that the plaintiffs had not alleged any antitrust injury, because they had not shown that the FDA would have approved the generic drug sooner if Biovail had not misused the patent.19 Second, in an amended complaint, the plaintiffs alleged that Biovail and its distributor had violated the antitrust laws by deciding not to sell their own generic version of the drug.20 The court rejected this theory as well, holding that it was both untimely and insufficient to establish an antitrust claim.21

In FTC v. Boehringer Ingelheim Pharmaceuticals, Inc., decided last month, Judge Kavanaugh ruled against the FTC on an attorney-client privilege issue that arose during the FTC's investigation of a "reverse payment settlement" between brand name pharmaceutical company Boehringer Ingelheim and a generics manufacturer.22 As part of the investigation, the FTC subpoenaed documents reflecting communications between Boehringer's employees and its general counsel.23 Boehringer asserted attorney-client privilege over the documents, claiming that they were created for the purpose of obtaining or providing legal advice.24

Judge Kavanaugh explained that the communications had both a legal purpose ("to help the company ensure compliance with the antitrust laws and negotiate a lawful settlement") and a business purpose ("to help the company negotiate a settlement on favorable financial terms").25 When a communication has both legal and business purposes, he wrote, it is covered by the attorney-client privilege if "obtaining or providing legal advice was one of the significant purposes of the communications at issue."26 Judge Kavanaugh concluded that the communications at issue were privileged because one of their "significant purposes" was to obtain or provide legal advice.27

Although Boehringer Ingelheim did not involve substantive antitrust issues, Judge Kavanaugh's opinion does comment on the complexity of the law underlying reverse payment settlements.28 He said that the subpoenaed communications allowed Boehringer's general counsel to "analyze and navigate the treacherous antitrust issues surrounding reverse payment settlements."29 Later in the opinion, he added that attorney-client privilege is especially important in a case like this one because "compliance with the law in this area is hardly an instinctive matter."30

Other Cases

Judge Kavanaugh considered single-firm conduct when he evaluated a Federal Communications Commission (FCC) decision in 2013. In Comcast Cable Communications v. F.C.C., Comcast appealed an FCC ruling that it unlawfully advantaged its own networks by carrying the Tennis Channel on a lesser programming "tier" than the tier on which it distributed its own channels, the Golf Channel and Versus.31 The DC Circuit reversed and vacated the $375,000 fine imposed by the FCC. The Court found that the Commission had failed to identify sufficient evidence of discrimination, because Comcast had independent, business reasons for rejecting the Tennis Channel's proposal to move into the same programming tier as the Golf Channel.32

Judge Kavanaugh joined the Court's opinion in full.33 In his concurring opinion, Judge Kavanaugh also set forth a separate basis for overruling the FCC:  that it failed to show that Comcast had market power as required by Section 616 of the Communications Act, the statute that Comcast allegedly violated.34 He asserted that the Commission had misinterpreted the statute. Section 616 of the Communications Act prohibits "a distributor from engaging in conduct the effect of which is to unreasonably restrain the ability of an unaffiliated video programming vendor to compete fairly."35 Judge Kavanaugh argued that "unreasonably restrain" is an antitrust term of art, which establishes that "the statute applies only to discrimination that amounts to an unreasonable restraint under antitrust law."36 He stated that under Leegin37 Copperweld,38 and other vertical restraint cases, vertical integration and vertical contracts can be anticompetitive only if the firm has market power.39

Section 616, he concluded, can apply only when a video programming distributor possesses market power.40 Since Comcast did not have market power in the national video programming distribution market, it could not have violated Section 616.41

*Cindy Hong contributed to this Advisory. Ms. Hong is a graduate of Columbia Law School and is employed at Arnold & Porter Kaye Scholer LLP's Washington, DC office. Ms. Hong is not admitted to the practice of law in the District of Columbia.

© Arnold & Porter Kaye Scholer LLP 2018 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.

  1. 855 F.3d 345, 350 (D.C. Cir. 2017).

  2. Id. at 349___.

  3. Id. at 353 ("Despite, however, widespread acceptance of the potential benefit of efficiencies as an economic matter . . . it is not at all clear that they offer a viable legal defense to illegality under Section 7").

  4. 415 U.S. 486 (1974).

  5. Anthem, 855 F.3d at 377.

  6. Id. at 377.

  7. Id.

  8. Id.

  9. F.T.C. v. Whole Foods Market, 548 F.3d 1028 (D.C. Cir. 2008).

  10. Id at 367 (Kavanaugh, J., dissenting).

  11. Id at 347.

  12. Id at 348 (citing FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1342 (4th Cir. 1976)).

  13. Id at 365 (Kavanaugh, J., dissenting).

  14. Id at 354.

  15. Id at 376 (Kavanaugh, J., dissenting).

  16. Id. at 859. 

  17. Id.

  18. Id. at 862.

  19. Id. at 863.

  20. Id. at 865-66.

  21. Id. at 867.

  22. 892 F.3d 1264 (D.C. Cir. June 19, 2018). Judge Kavanaugh wrote the opinion for the panel majority. Judge Pillard wrote a concurring opinion agreeing with the majority opinion and adding additional comments.

  23. 892 F.3d at 1267.

  24. Id.

  25. Id.

  26. Id. at 1268.

  27. Id.

  28. Id. at 1267.

  29. Id.

  30. Id. at 1269 (quoting Upjohn v. United States, 449 U.S. 383, 392 (1981)).

  31. 717 F.3d 982, 984-86 (D.C. Cir. 2013).

  32. Id. at 987 ("Without showing any benefit for Comcast from incurring the additional fees for assigning Tennis a more advantageous tier, the Commission has not provided evidence that Comcast discriminated against tennis on the basis of affiliation.").

  33. Id. at 988.

  34. Id. at 988.

  35. 47 U.S.C. § 536(a)(3).

  36. Id. at 988.

  37. Leegin Creative Leather Products, Inc., v. PSKS, Inc., 551 U.S. 877 (2007).

  38. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 775 (1984).

  39. Id. at 990 ("Because Section 616 incorporates antitrust principles and because antitrust law holds that vertical integration and vertical contracts are potentially problematic only when a firm has market power in the relevant market, it follows that Section 616 applies only when a video programming distributor has market power in the relevant market.").

  40. Id.

  41. Id. at 988.

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