Antitrust Agency Insights: Developments at the US Antitrust Enforcement Agencies—May 2019
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: DOJ's Amicus Initiative Continues
Senior officials at DOJ's Antitrust Division have been vocal about their plans to continue to expand the Division's amicus program to "promote the use of antitrust and competition principles across the judiciary,"1 and the pace of filings reflects this effort. Deputy Assistant Attorney General Michael Murray announced that the Antitrust Division is on pace to file about 20 amicus briefs this year, up from nine in 2018 and an average of three per year during the Obama Administration and the first year of the Trump Administration.2 Many of the filings are statements of interest at the district court level, evidencing a willingness to intervene earlier in the litigation process to stake out the Division's position.
To date, during the Trump Administration, we have seen the Division use amicus filings to present the following views:
- No-poach agreements between franchisees and a franchisor within the same franchise system should be evaluated under the rule of reason where they are ancillary to a legitimate and procompetitive business transaction or collaboration, whereas naked no-poach agreements between horizontal competitors in the labor market are per se unlawful.3
- A plaintiff need not prove antitrust standing to seek a declaratory judgment regarding a market division agreement between competitors.4
- The Illinois Brick indirect purchaser doctrine does not bar treble-damages claims by plaintiffs who are the first purchasers outside a conspiracy, even when plaintiffs may be indirect purchasers from other conspiracy participants.5
- Refusals to deal do not violate Section 2 of the Sherman Act unless the defendant's conduct makes "no economic sense" absent its tendency to eliminate or lessen competition.6
- The Illinois Brick indirect purchaser doctrine bars treble-damages claims by buyers of iPhone apps because their claims are based on a "pass-on" theory.7 (Joint brief with FTC)
- The Division has a strong preference for structural relief in merger cases.8
State Action and Exemptions to Antitrust Liability
- State action immunity in the context of a no-poach agreement is inappropriate where a state agency is not acting as a regulator, but rather is acting purely as a labor market participant, and Midcal is not satisfied.9
- In interpreting foreign law under FRCP 44.1, federal courts should "ordinarily afford . . . substantial weight" to a foreign government's submission regarding its own law, but how much deference is due should depend on all relevant facts and available evidence; courts should not merely defer to any facially valid characterization offered by the foreign government.10
- State bars controlled by active market participants must satisfy the "clear articulation" and "active supervision" prongs of the state action doctrine to obtain exemption from antitrust liability.11
- The existence of Noerr-Pennington protected activity (in this case, patent litigation) does not shield nonpetitioning conduct (in this case, patent acquisition) from antitrust liability.12 (Joint brief with FTC)
- A state must clearly articulate its intention to displace competition with a regulatory structure in order for a municipality to invoke state action exemption from antitrust laws.13 (Joint brief with FTC)
- Immunity under the Foreign Sovereign Immunity Act's (FSIA) "commercial activity" exemption is limited to "organs of a foreign state" in which the foreign government has a controlling (although not necessarily majority) interest and the allegedly immune entity is serving a public (not-for-profit) purpose. However, the exemption does not apply only to "direct sales" into the United States, because even indirect sales may satisfy the statute's "direct effect" requirement.14
- A health insurer's exclusivity policy that prohibits an insurance broker from selling plans offered by competing insurers should not be exempt from antitrust scrutiny under the McCarran-Ferguson Act where the exclusivity policy does not constitute the "business of insurance" and plaintiff's claim involves allegations of coercion.15
- Dormant Commerce Clause analysis of state right-of-first-refusal laws was flawed where the lower court: (i) failed to properly assess discriminatory effects on out-of-state actors, (ii) improperly interpreted Supreme Court precedent as creating a general exemption to the dormant Commerce Clause for state laws benefitting public entities and (iii) inaccurately stated that FERC had approved the law in question.16
- With respect to state judiciary rules regarding the unauthorized practice of law, the phrase "practice of law" should be interpreted in a manner that allows nonattorneys to offer competition to attorneys in the provision of real estate settlement services "except where specialized legal knowledge and training is demonstrably necessary to protect the interests of consumers."17 (Joint brief with FTC)
- The court in the FTC v. Qualcomm case—in which DOJ's fellow enforcement agency brought claims against the chipmaker for allegedly anticompetitive licensing practices related to standard essential patents—should order additional briefing and hold an evidentiary hearing before imposing any remedy in the case, unless the parties enter into a consent. DOJ emphasized that "a remedy should work as little injury as possible to other public policies."18
Although the Division has weighed in on a wide variety of issues, at this point no clear pattern has emerged in the amicus filings in terms of industry focus or policy priorities—besides, of course, the Division's keen interest in labor issues. Based on statements from DAAG Murray and other senior Antitrust Division officials, practitioners and clients should be aware of the increased focus on intervention and this Administration's willingness to enter the fray at the trial court level.19 Assuming the Division keeps pace with DAAG Murray's prognostications, these filings will continue to provide a window into the Division's enforcement priorities over the coming months, and litigants facing issues where the DOJ has expressed an interest or taken a recent public stance should consider whether they are able to align their positions with those expressed by the Division.
ADDITIONAL AGENCY UPDATES
Cases and Proceedings
- FTC Administrative Law Judge Finds that Merger of Major Titanium Dioxide Companies Would Have Harmed Competition. On December 17, 2018, Chief FTC ALJ Chappell issued an Initial Decision upholding the FTC complaint challenging a proposed merger between two suppliers of titanium dioxide, holding that it would create a highly concentrated market and increase the likelihood of coordinated conduct among the four remaining firms. On April 10, 2019, the Commission accepted a remedy whereby the parties agreed to divest the Seller's North American titanium dioxide business to resolve competitive concerns.
- FTC Imposes Conditions in Joint Venture Among Three Producers of PET Resin. On December 21, 2018, three polyethylene terephthalate (PET) resin producers agreed to restructure their proposed transaction and to accept certain behavioral conditions to settle the FTC challenge to their proposed $1.1 billion acquisition, out of bankruptcy, of an under-construction production facility. The terms of the consent order are intended to address FTC concerns that, as originally structured, the acquisition might adversely affect competition by (i) facilitating collusion, (ii) allowing the exercise of market power and (iii) serving as a conduit for sharing of competitively sensitive information beyond what is required to accomplish the legitimate purposes of the JV.
- Staples and Essendant Agree to FTC Conditions on Proposed Merger Intended to Prevent Information Sharing. On January 28, 2019, office supply distributors Staples Inc. and Essendant Inc. agreed to a settlement to resolve FTC allegations that their proposed $482.7 million deal may have harmed competition in the market for office supply products sold to small and mid-sized businesses. In particular, the complaint alleged that the proposed acquisition would give Staples access to commercially sensitive business information about the prices that Essendant charged to its reseller customers, which might soften competition between Staples and those resellers. The consent order requires Staples to erect a firewall separating its business-to-business sales operations from Essendant's wholesale business. The Commission's vote to approve the transaction was 3-2, with Commissioners Slaughter and Chopra issuing dissents and Commissioner Wilson joining the majority and issuing a separate statement. Commissioner Chopra's dissent expressed skepticism that the firewall remedy was sufficient, focusing on both the possibility of harm to suppliers (a horizontal concern) and the potential for foreclosure of independent dealers in geographic markets dominated by Essendant. Commissioner Slaughter's dissent also identified several potential avenues of vertical harm, and urged the Commission to undertake a retrospective investigation to ensure that the proposed conduct remedy sufficiently resolved the competitive concerns.
- DOJ Brings Price-Fixing Charges in Customized Promotional Products Industry. On January 31, 2018, the DOJ announced the first criminal charges in a conspiracy to fix the prices of insulated beverage containers, indicting a Taiwan-based corporation and its CEO. The DOJ simultaneously announced further criminal charges in its ongoing investigation into a separate conspiracy to fix the prices of customized promotional products like wristbands, lanyards, temporary tattoos, and buttons.
- DOJ Settles with College Multimedia-Rights Provider Accused of Unlawful Agreements Not to Compete. On February 14, 2019, the DOJ announced that it had reached a settlement with Learfield IMG College to resolve allegations that Learfield engaged in unlawful agreements not to compete for multimedia-rights contracts for universities' athletic programs. The proposed settlement bars Learfield from entering into agreements not to bid, or to submit joint bids, with any of its competitors.
- FTC Approves Fresenius-NxStage Merger with Divestitures. On February 19, 2019, the FTC voted 3–2 to approve the $2 billion merger between Fresenius Medical Care AG & KGaA and NxStage Medical Inc., contingent on the divestiture of NxStage's bloodline tubing products business. The FTC's Complaint alleged that the proposed 3-to-2 merger would likely have resulted in competitive harm in the highly concentrated market for bloodline tubing sets. Commissioners Chopra and Slaughter issued separate dissents, both on the basis that the remedy failed to address anticompetitive effects created by the vertical aspects of the transaction.
- FTC Reaches Global Settlement Resolving Reverse-Payment Charges Against Teva. On February 19, 2019, the FTC reached a global settlement resolving claims against Teva Pharmaceuticals Industries Ltd. (and subsidiaries) in three separate federal suits related to the sleep disorder drug Provigil. Building on the terms of a 2015 stipulated order—under which Teva was required to pay $1.2 billion to compensate purchasers including drug wholesalers, pharmacies and insurers—the new global settlement also bars Teva from entering into various types of patent infringement settlements that include reverse payments involving "side deals" and "no authorized generic" commitments, broadens the definition of "payment," and extends the settlement term until 10 years from the date of entry.
- FTC Settles with Solvay Over Illegal Pay-For Delay Agreement. On February 28, 2019, the Federal Trade Commission reached a settlement in FTC v. Actavis, the 2009 case alleging that the brand-name pharmaceutical company Solvay and three generic drug companies illegally agreed to restrict generic competition to Solvay's branded testosterone-replacement drug AndroGel—and led to the Supreme Court's Actavis decision that reverse payment patent settlements are to be evaluated under the rule of reason. Under the settlement, Solvay's current owner AbbVie is prohibited from entering into certain patent infringement settlement agreements that restrict generic entry for certain drugs.
- DOJ Requires Thales to Divest Assets to Acquire Gemalto. On February 28, 2019, the DOJ announced that Thales SA will divest its General Purpose Hardware Security Module (GP HSM) business to resolve competitive concerns regarding its proposed $5.64 billion acquisition of Gemalto NV. GP HSMs are secure encryption processing and key management devices used to safeguard sensitive data.
- FTC Settles with Impax over Illegal Pay-for-Delay Agreement. On March 29, 2019, the FTC voted 5-0 to approve an opinion and final order against generic pharmaceutical manufacturer Impax Laboratories LLC, finding that Impax engaged in an illegal reverse payment patent settlement to block a lower-cost generic extended-release opioid painkiller. The Final Order bars Impax from entering into any reverse payment arrangement that restricts or defers generic entry.
- Inmate Calling Solutions Acquisition Abandoned After DOJ and FCC Express Concerns. On April 2, 2019, Securus Technologies Inc. confirmed that it had abandoned plans to acquire Inmate Calling Solutions LLC after the DOJ identified "significant concerns" about the proposed merger between two of the four major inmate telecommunications services companies in the United States. A parallel FCC review also identified "significant competitive concerns," leading FCC staff to determine that the deal "would not be in the public interest."
- Wine and Spirits Distributor Merger Abandoned After FTC Investigation Raised "Significant" Concerns. On April 5, 2019, alcohol distributors Republic National Distributing Company and Breakthru Beverage Corp. announced that they were abandoning their proposed merger more than 16 months after the initial announcement. Staff had informed the parties that the proposed transaction raised "significant concerns" about "higher prices and diminished service in the distribution of wine and spirits in several states."
- Insulation Contractor Branch Manager Pleads Guilty to Bid Rigging and Fraud. On April 8, 2019, a manager at a New England insulation company pled guilty to bid-rigging and fraud in connection with insulation installation contracts. The guilty plea was the first conviction in an ongoing investigation.
- Texas Bidder Pleads Guilty to Rigging Bids at Online Auctions for Surplus Government Equipment. On April 10, 2019, the owner of a Texas firm that purchases computers for resale and recycling pled guilty in connection with an investigation into a conspiracy to rig bids submitted to the Government Services Administration. The defendant is the first individual charged in this matter and has agreed to cooperate in the Department's ongoing investigation.
- FTC v. Qualcomm: DOJ Urges District Court to Hold Hearing Before Imposing Remedy. The Department of Justice filed a Statement of Interest in the FTC's litigation against Qualcomm urging the court to order briefing and hold an evidentiary hearing on a potential remedy, if the court finds liability. DOJ argues that "there is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology."
- FTC Launches Tech Task Force. On February 26, 2019, the FTC's Bureau of Competition announced that it is creating an internal task force dedicated to monitoring competition, investigating potential anticompetitive conduct and taking enforcement actions in US technology markets. The Technology Task Force will coordinate with other FTC staff regarding review of both prospective and consummated mergers in the technology sector.
- FTC and State AGs Announce Training Program on Hospital and Physician Mergers. In a March 5, 2019 speech at the National Association of Attorneys General Winter Meeting, FTC Chairman Simons announced the creation of a new training program to give state AGs support in evaluating and litigating hospital and physician group mergers. The program, which is still in development, will be made available to any state that is interested.
- DOJ Warns Academy About Blocking Streaming Services from Oscar Consideration. In a March 21, 2019 letter to the CEO of the American Academy of Motion Picture Arts & Sciences, AAG Delrahim cautioned that the Academy's proposal to exclude from Oscar consideration films by streaming services such as Netflix could be an unlawful agreement between competitors. In April, the Academy voted to leave the eligibility rules unchanged for now.
- FTC's Wilson Disputes Need for New Vertical Merger Guidelines. In a February 1, 2019 keynote address at the 8th Annual Antitrust Law Leaders Forum, Commissioner Wilson expanded upon her previously expressed view that vertical transactions are largely benign or procompetitive and that new vertical merger guidelines are unnecessary: "There is no reason to fundamentally rethink vertical merger policy given how much we know about the effects of vertical integration."
- ICN Approves New Multilateral Framework for Competition Agency Procedures. On April 5, 2019, DOJ announced that the steering group of the International Competition Network had unanimously approved a multilateral framework establishing standard procedures among global antitrust enforcement agencies designed to promote fundamental due process in agency practice. It will officially come into effect on May 15, 2019.
© Arnold & Porter Kaye Scholer LLP 2019 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.
Department of Justice, Antitrust Division Appellate Briefs.
Danielle Seaman v. Duke University, et al., Statement of Interest of the United States of America (Mar. 7, 2019); Joseph Stigar v. Dough Dough, Inc., et al., Statement of Interest of the United States of America (Mar. 7, 2019); Myrriah Richmond and Raymond Rogers v. Bergey Pullman Inc., et al., Statement of Interest of the United States of America (Mar. 7, 2019); Ashlie Harris v. CJ Starr LLC, et al., Statement of Interest of the United States of America (Mar. 7, 2019); In re: Railway Industry Employee No-Poach Antitrust Litigation, Statement of Interest of the United States (Feb. 8, 2019).
Shawn McCain v. Apex Energy Group, et al., Statement of Interest on Behalf of the United States of America (Apr. 25, 2018).
Marion Healthcare, LLC, et al. v. Becton Dickinson & Company, et al., Brief for the United States of America as Amicus Curiae in Support of Appellants and Vacatur (Apr. 25, 2019).
Viamedia, Inc. v. Comcast Corp., et al., Brief for the United States as Amicus Curiae in Support of Neither Party (Nov. 8, 2018).
Apple Inc. v. Robert Pepper, et al., Brief for the United States as Amicus Curiae (May 8, 2018); Apple Inc. v. Robert Pepper, et al., Brief for the United States as Amicus Curiae Supporting Petitioner (Aug. 17, 2018).
Steves v. JELD-WEN, Statement of Interest of the United States of America Regarding Equitable Relief (Jun. 8, 2018).
Danielle Seaman v. Duke University, et al., Statement of Interest of the United States of America (Mar. 7, 2019) (physicians).
Animal Science Products, Inc., et al. v. Heibei Welcome Pharmaceutical Co. Ltd., et al., Brief for the United States as Amicus Curiae Supporting Petitioners (Mar. 6, 2018); Animal Science Products, Inc., et al. v. Heibei Welcome Pharmaceutical Co. Ltd., et al., Brief for the United States as Amicus Curiae (Nov. 3, 2017).
TIKD Services LLC v. The Florida Bar, et al., Statement of Interest on Behalf of the United States of America (Mar. 12, 2018).
Intellectual Ventures I LLC, et al. v. Capital One Financial Corp. et al. Brief for the United States of America and the Federal Trade Commission as Amici Curiae in Support of Neither Party (May 11, 2018).
US Chamber of Commerce and Rasier LLC., v. City of Seattle, et al., Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Appellant and in Favor of Reversal (Nov. 3, 2017).
In re: Cathode Ray Tubes (CRTS), Statement of Interest of the United States (Apr. 23, 2019).
Oscar Insurance Company of Florida v. Blue Cross and Blue Shield of Florida, Inc., et al., Statement of Interest of the United States (Apr. 24, 2019).
LSP Transmission Holdings, LLC, v. Nancy Lange, et al., Brief for the United States of America as Amicus Curiae in Support of Neither Party, Vacatur, and Remand (Oct. 19, 2018).
In Re William Paplauskas, Jr., Brief for the United States and the Federal Trade Commission as Amici Curiae Supporting Respondent (Sep. 17, 2018).
Remarks of Deputy Assistant Attorney General Michael Murray (Mar. 1, 2019), (identifying labor issues, i.e., no-poach, as one of the Division's enforcement priorities and outlining a detailed framework for analyzing labor issues under the antitrust laws).