Antitrust Agency Insights: Developments at the US Antitrust Enforcement Agencies—October 2018
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 and Analysis
Since his September 2017 confirmation as head of the DOJ's Antitrust Division, Assistant Attorney General Makan Delrahim has spoken repeatedly on both intellectual property and the merger review process. The past month brought two particularly noteworthy speeches on these topics.
1. DOJ's "New Madison" Approach to Antitrust and IP
On September 18, 2018, AAG Delrahim delivered a speech entitled "Antitrust Law and Patent Licensing in the New Wild West" at the IAM Patent Licensing Conference in San Francisco, California. AAG Delrahim's remarks were the latest articulation by DOJ leadership of its "New Madison" approach to antitrust and intellectual property law, which seeks to "achieve a greater degree of symmetry between the dueling concerns of 'hold up' by patent holders and 'hold out' by patent implementers[.]" AAG Delrahim first announced this policy in November 2017, followed by speeches on the topic in March and April 2018.
A key tenet of AAG Delrahim's "New Madison" approach is that antitrust law should not be used to enforce FRAND licensing commitments made by SEP-holders to standard-setting organizations (SSOs). He bases this conclusion on the following premises:
- Not All Exclusionary Conduct Is Condemned by the Antitrust Laws. AAG Delrahim stated that the standard-setting process inherently involves "exclusionary conduct" because it selects a single "winning" technology, and that such "exclusionary conduct" is pro-competitive because it results in unification around a single standard.
- A FRAND Commitment in the Standard-Setting Process Does Not Create an Antitrust Duty to License. AAG Delrahim argues that a FRAND commitment may create contract-based licensing limitations, but that the Sherman Act does not create an obligation to price one's products on either fair or nondiscriminatory terms nor does it require that courts act as "central planners" and determine "reasonable" licensing rates.
- The Risk of False Positives Is Great and Would Suppress Procompetitive Conduct. AAG Delrahim believes that given the uncertainty surrounding the meaning of FRAND, subjecting patent holders to antitrust liability for violation of a FRAND commitment could create a risk of "false positives" and condemn procompetitive conduct and innovation by patent holders.
AAG Delrahim went further in this September speech than in his previous ones when he stated that antitrust law should not be used to enforce FRAND commitments "even if a patent holder is alleged to have misled or deceived a standard-setting organization with respect to its licensing intentions."1
DOJ's current policy in this area marks a clear departure from its policy under the Obama Administration and appears to reflect potential divergence between the DOJ and FTC enforcement policy; the FTC has an ongoing lawsuit against Qualcomm Inc. alleging that Qualcomm's failure to license on FRAND terms constitutes an antitrust violation. FTC Chairman Joseph Simons appears sensitive to the risk that the DOJ and FTC will be perceived to hold different views on this issue. In a recent speech, he echoed prior statements by AAG Delrahim and stated that potential instances of patent "hold-out" deserve enforcement scrutiny, particularly if associated with collusive behavior by potential licensees. Chairman Simons also stated that he agrees with DOJ that a breach of a FRAND commitment alone (including when that breach includes "a fraudulent promise to abide by a FRAND commitment")2 is not sufficient to prove an antitrust violation unless that breach results in "the acquisition or maintenance of monopoly power in a properly defined market, or involve[d] an agreement that unreasonably restrains trade."3 However, Chairman Simons's careful phrasing and the remainder of his comments appear to reflect a continued view that patent "hold up" could cause harm to competition and that a FRAND violation may provide the basis for an antitrust action.4
Given DOJ's recent public statements, the risk of a DOJ investigation solely based on an SEP-holder's failure to license on FRAND terms seems low unless there is evidence of deception related to the existence of patents reading on the standard—as opposed to the patent holder's licensing intentions. The FTC appears be more open to investigating conduct relating to the breach of FRAND commitments. If the conduct at issue includes either unreasonable deception in the standard-setting process or collusion, then either agency will likely consider the conduct worthy of investigation.
2. DOJ's Plan to Update its Merger Review Process
AAG Delrahim announced plans to modify DOJ's merger review process in his "It Takes Two: Modernizing the Merger Review Process" speech at Georgetown University on September 25, 2018. After both noting that the average time required for a merger review has increased over the last several years and discussing the harm that such delay can cause, AAG Delrahim announced a series of DOJ actions designed to speed the DOJ's merger review process with the goal of completing most reviews within six months. These reforms include:
- Offering Early DOJ Front Office Meetings with the Parties. The DOJ front office will be available to meet with the parties for an introductory meeting to discuss deal rationale and other important facts.
- Publishing a Model Voluntary Request Letter. By publishing a Model Voluntary Request Letter, the DOJ hopes to give parties a head start in complying with those requests and submitting key materials for the review as early as possible.
- Instituting a Pull-and-Refile Accountability System. DOJ staff will develop an investigative plan for the pull-and-refile 30-day waiting period to use that time more effectively and put the agency in a position, as appropriate, to close the investigation or issue a narrower Second Request.
- Publishing a Model Timing Agreement. Much like the FTC's recent action, discussed in our September 24, 2018 newsletter, DOJ will publish a Model Timing Agreement on its website to facilitate negotiation of a timing agreement.
- Reforming the Model Timing Agreements. In an effort to narrow areas for negotiation with the parties, reduce the burden on the parties complying with a Second Request and facilitate more efficient merger reviews, DOJ's Model Timing Agreement will provide for express limits on the scope and timing of Second Requests in exchange for expeditious production of documents and a more robust discovery process if DOJ challenges the transaction.
- Ensuring Third Parties Comply with CIDs in a Timely Manner. DOJ will hold third parties to deadlines and specifications outlined in CIDs and bring enforcement actions in federal court to ensure compliance. AAG Delrahim's speech indicates the burden on third parties in merger investigations may increase, especially for important competitors or customers of the merger parties.
- Improving Coordination with Foreign Competition Authorities for Cross-Border Investigations. Parties should consider aligning review time periods for all relevant jurisdictions for a given transaction and, in response, DOJ will seek to improve coordination with foreign enforcers.
- Withdrawing the 2011 Remedies Guide. Merger remedy negotiations between the parties and DOJ can add significant time to the merger review process, so DOJ will review its remedies policy to explore ways in which it can shorten the duration of merger reviews. In the meantime, it has withdrawn its 2011 Remedies Guide and, until it develops another remedy policy, will follow the 2004 Policy Guide to Merger Remedies. This is significant primarily because the 2004 Guide is less accepting of behavioral remedies for mergers, particularly for vertical mergers. As AAG Delrahim has previously stated, DOJ currently has a strong preference for structural relief in merger consents.
An efficient and transparent merger review process typically benefits the parties. However, as is the case with the FTC's Model Timing Agreement, parties should carefully consider whether entering into such an agreement (or taking advantage of any other reforms in the DOJ process) would be in their best interest on a deal-by-deal basis.
Additional Agency Updates
Cases and Proceedings
- DOJ and States Require Divestiture in Proposed CVS-Aetna Merger. On October 10, 2018, DOJ and California, Florida, Hawaii, Mississippi, and Washington announced they will require Aetna Inc. to divest its Medicare Part D prescription drug plan (PDP) business for individuals to WellCare as a condition of its $69 billion merger with CVS Health Corporation. DOJ found the proposed merger would cause competitive harm in the sale of PDPs to Medicare-eligible beneficiaries under Medicare's Part D programs in 16 Part D regions in the US covering 22 states. DOJ also examined whether the combination of CVS's PBM and retail pharmacy business with Aetna's health insurance business would lessen competition through vertical foreclosure of Aetna's rivals, but found that the combined firm would not be able to profitably raise the cost of CVS's PBM or retail pharmacy services to Aetna's health insurance rivals.
See the proposed consent decree materials »
- DOJ Requires Divestiture in Proposed Acquisition of Rockwell Collins by United Technologies. On October 1, 2018, DOJ announced it will require the divestiture of Rockwell Collins's pneumatic ice protection systems and trimmable horizontal stabilizer actuators (THSAs) businesses as a condition of United Technologies Corporation's (UTC) $30 billion acquisition of Rockwell Collins. DOJ's complaint alleges UTC and Rockwell Collins are two of only three competitors for the development, manufacture and sale of pneumatic ice protection systems for aircraft and are each other's closest competitors for THSAs for large aircraft.
See the proposed consent decree materials »
- DOJ Closes Investigation into Proposed Cigna-Express Scripts Merger. On September 17, 2018, DOJ announced it had closed its six-month investigation into Cigna Corporation's $67 billion proposed acquisition of Express Scripts Holding Co. The DOJ examined whether there would be a substantial lessening of competition in the sale of PBM services or whether the combined firm could increase the cost of PBM services to Cigna's competitors. In both cases, the DOJ found the answer to be "no" because of a limited horizontal competitive overlap between Cigna and Express Scripts for PBM services and existing competition from other large PBMs, some of which are already vertically integrated.
See the DOJ's closing statement »
- US and EU Competition Authority Leadership Meet in Washington, DC. On September 27, 2018, leaders of competition authorities from the US and EU met to discuss substantive and procedural competition policy and cross-border cooperation issues. The meeting included FTC Chairman Simons, DOJ AAG Delrahim, European Commission Commissioner Margrethe Vestager, and their respective senior staffs.
Read the FTC's press release »
Read the DOJ's press release »
- FTC Holds Its First Two Hearings on Competition and Consumer Protection in the 21st Century. The FTC kicked off its "Competition and Consumer Protection in the 21st Century" series of hearings on September 13, 2018 with speakers reviewing the policy landscape of competition and consumer protection, concentration and competitiveness in the US economy, and the regulation of consumer data. The series continued on September 21 with speakers that included Nobel laureate Joseph Stiglitz, former FTC Chairman William Kovacic, and former FTC Bureau of Competition Director (and current head of Arnold & Porter's Global Antitrust group) Debbie Feinstein, discussing the state of US antitrust law and monopsony/buyer power.
See materials from the September 13 session »
See materials from the September 21 session »
- FTC Staff Releases Report on Improving Occupational License Portability. The "Options to Enhance Occupational License Portability" report is part of the FTC's Economic Liberty Task Force initiative and builds on last year's roundtable on the topic. The report reviews legal structures that can be used to improve license portability and offers specific initiatives to reduce the burden on military spouses, many of whom move frequently and are particularly burdened by limits on license portability.
Read the report »
- FTC Chairman Names New Bureau of Competition Deputy Director. Chairman Simons named Gail F. Levine as deputy director for the FTC's Bureau of Competition, effective October 15, 2018. Ms. Levine joins the FTC from Uber Technologies Inc., where she was director of US Competition Law. She previously served as an in-house antitrust lawyer at Verizon and at the FTC as attorney advisor to former Chairman Deborah Majoras, deputy assistant general counsel, and assistant director of the Office of Policy Planning.
Read the FTC's press release »
- Christine S. Wilson Sworn in as FTC Commissioner. On September 26, 2018, Christine S. Wilson was sworn in as FTC Commissioner, filling the seat vacated by former Commissioner Maureen K. Ohlhausen (see next bullet). Commissioner Wilson, whose term expires on September 25, 2025, previously served as chief of staff to former FTC Chairman Tim Muris. She joined the FTC from Delta Air Lines, where she served as Senior Vice President— Legal, Regulatory & International.
Read the FTC's press release »
- Commissioner Ohlhausen Departs the FTC. At the expiration of her term on September 25, 2018, Commissioner Maureen K. Ohlhausen announced her departure from the agency having served on the Commission since April 4, 2012 and as acting Chairman from January 25, 2017 to May 1, 2018. Commissioner Ohlhausen previously served the FTC in various capacities, including as the agency's director of the Office of Policy Planning.
Read the FTC's press release »
- AAG Delrahim Announces Acting DAAG for Economics. AAG Delrahim announced that Jeffrey Wilder, an economist and assistant section chief at the DOJ, will serve as Acting Deputy Assistant Attorney General for Economics. Dr. Wilder fills the position left vacant after former Deputy Assistant Attorney General Luke Froeb left the DOJ for Vanderbilt University in June.
- DOJ Appoints New DAAG and Counsel to the AAG. On September 17, 2018, DOJ announced the appointment of two new members of its front office: Michael Murray as a Deputy Assistant Attorney General and Lauren Willard as counsel to the Assistant Attorney General. Mr. Murray previously served as the DOJ's Associate Deputy Attorney General, and Ms. Willard joins the DOJ from private practice.
Read the DOJ's press release »
- FTC Chairman Speaks at Georgetown Law Global Antitrust Enforcement Symposium. In a speech delivered at the Georgetown Law Global Antitrust Enforcement Symposium on September 25, 2018, Chairman Joseph Simons described the following five factors that will influence his case selection at the FTC: (1) whether the conduct poses a substantial threat to consumers; (2) whether the conduct involves an economically significant sector; (3) whether the FTC's experience will allow it to make an impact quickly and efficiently; (4) whether the conduct presents a legal issue that would benefit from further study and potentially affect antitrust jurisprudence; and (5) whether the case involves unilateral conduct by dominant firms in industries with substantial network effects, where the conduct may impede entry or fringe expansion. With respect to this fifth factor in particular, he noted interest in mergers of high-tech platforms and nascent competitors. Chairman Simons also discussed his views on how the antitrust law applies to violations of a patent holder's commitments to license SEPs on FRAND terms (as discussed above).
Read the speech »
- AAG Speaks at Fordham Competition Law Institute Conference. AAG Makan Delrahim discussed international antitrust enforcement and cooperation in his "'Come Together': Victories and New Challenges for the International Antitrust Community" speech at the Fordham Competition Law Institute Conference on International Antitrust Law and Policy on September 6, 2018.
Read the speech »
© 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.
On its face, this view appears inconsistent with prior FTC enforcement actions, which challenged patent holders' deceptive actions in the SSO context as violations of the antitrust laws. See, e.g., In re Rambus, Inc., No. 9302, 2006 WL 2330117 (FTC Aug. 2, 2006), rev'd, 522 F.3d 456 (DC Cir. 2008); In re Union Oil Co. of Cal., 138 FTC 1 (FTC July 6, 2004); In re Dell, 121 FTC 616 (1996); Statement of the Fed. Trade Comm'n, In re Negotiated Data Solutions LLC, No. C-4234 (FTC Jan. 23, 2008). However, a footnote in his written remarks acknowledges that AAG Delrahim would consider "unreasonable deception of an SSO, such as willfully failing to disclose patents that read on a technology . . . , or intentionally misstating the capabilities of a technology itself . . ." that "caused the SSO to select a different technology, increased the patent-holder's market power, and caused harm to competition" to be a violation of the antitrust laws. This footnote focuses on deception with regard to the technology itself, but does not walk back from the notion that deception with regard to licensing intentions—i.e., a FRAND commitment— is not susceptible to challenge under the antitrust laws.
See Joseph Simons, Chairman, Fed. Trade Comm'n., Remarks at Georgetown Law Global Antitrust Enforcement Symposium (Sept. 25, 2018).
Id. ("But we also believe that hold-up raises potential antitrust issues, as well. Whether hold-up or hold-out is more likely to occur in the real world is not something we are focused on. If either one occurs, it can be problematic. I want to make clear that the FTC will continue our economically grounded and fact-based enforcement of the antitrust laws in this area.").