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DOJ Developments

DOJ Continues to Monitor Interlocking Corporate Directorates with Restructuring of Tullett Prebon’s Acquisition of ICAP

by McDermott Will & Emery | Aug 2, 2016 | DOJ Developments, Mergers & Acquisitions

On July 14, 2016, the US Department of Justice (DOJ) announced that the restructuring of a planned $1.5 billion transaction between Tullett Prebon Group Ltd. (Tullett Prebon) and ICAP plc adequately addresses the DOJ’s concerns that the transaction would violate Section 8 of the Clayton Act by creating an interlocking directorate. The parties restructured their transaction after the DOJ issued a Second Request to adequately investigate the parties post-closing ownership structure. The DOJ’s investigation of this transaction should serve as a warning for companies considering transactions with competitors where the parties will continue to compete post-merger: the antitrust agencies are going to extensively review any corporate governance structures which could be seen as creating a “cozy relationship” between competitors.

Section 8 of the Clayton Act generally prohibits representatives of a corporation from serving on the board of directors of a competitor corporation. This provision of the Clayton Act, which seeks to prevent the sharing of competitively sensitive information through director communications, continues to be rigorously enforced by the antitrust agencies since the FTC’s 2009 investigation of individuals serving on the boards of multiple large technology companies.

Last year, Tullett Prebon agreed to purchase ICAP’s global hybrid voice broking and information business. Voice broking involves speaking to clients on the phone to negotiate prices and facilitate business. The alternative to voice broking is electronic broking where prices are put on a platform and customers can transact without the need for a human broker. Voice broking is typically used for illiquid assets, whereas electronic broking is used more often in highly liquid markets. By selling its voice broking business, ICAP sought to focus on its electronic trading services.

As originally structured, the transaction would have resulted in ICAP owning 19.9 percent of Tullett Prebon and having the right to nominate one member of Tullett Prebon’s board of directors. This structure was problematic for the DOJ due to the fact that ICAP and Tullett Prebon would continue to compete post-merger in non-voice broking platforms. This led to the DOJ issuing a Second Request, which was focused on post-closing shareholding and governance arrangements.

After the restricting of the transaction, ICAP will not retain any ownership in Tullett and will not have the ability to appoint any directors. This new structure will allow the parties to be “actually independent of each other” according to Principal Deputy Assistant Attorney General Renata Hesse. “As originally proposed this deal would have violated [a] core principle – creating a cozy relationship among competitors.”

Companies considering transactions with competitors where the parties will continue to compete should exercise caution in their ownership structures and corporate governance post-closing. Any arrangements which can be interpreted as allowing the parties to share information or create a conflict of interest will be closely examined by antitrust regulators and may lead to extended reviews.

FTC Encourages VA to Adopt Proposed Rule Preempting State Laws to Allow Advanced Practice Registered Nurses to Provide Services Without Physician Oversight

by Emily Townsend | Aug 1, 2016 | Consumer Protection/Privacy, DOJ Developments, FTC Developments, Healthcare Antitrust, Joint Ventures/Competitor Collaboration

On July 25, 2016, the Federal Trade Commission (FTC) submitted comments to the Department of Veterans’ Affairs (VA) supporting a proposed rule only affecting VA facilities that would authorize Advanced Practice Registered Nurses (APRNs) to provide primary health care services without the mandatory supervision of physicians, regardless of state or local laws, with limited exceptions. Currently, APRNs in the employ of the VA are subject to VA requirements as well as various regulations on a state-by-state basis, with physician supervision required in over half of the states. Under Proposed Rule RIN 2900-AP44, APRNs that meet VA standards would have the authority to provide a described list of services without such physician supervision.

While the FTC acknowledged the important role of federal and state legislators in determining the “best balance of policy priorities,” the FTC has expressed skepticism of state laws requiring physician supervision. They have noted that such requirements “may raise competition concerns because they effectively give one group of health care professionals the ability to restrict access to the market by another competing group of health care professionals, thereby denying health care consumers the benefits of greater competition.” In fact, the FTC argued that physician supervision requirements may increase the cost of services that APRNs could provide, and by relaxing such requirements, consumers “may gain access to services that would otherwise be unavailable.” This increased access could also address shortages in access to primary and specialty care. As the FTC noted, the US has current and projected health care workforce shortages, particularly in primary care physicians, and the VA has emphasized the need to provide care to veterans in rural areas who have limited access to specialty services, some of which APRNs could provide.

Additionally, the FTC commented that the proposed rule could yield information about models of health care delivery. Under the current system, the VA’s use of APRNs is limited by state regulation. By preempting the state requirements, the FTC argued that the VA would be free to “innovate and experiment with models of team-based care.”

Interestingly, the proposed rule only applies within the scope of VA employment, which falls outside of “competition in the private sector” for which the FTC acknowledged it is typically concerned. But in this instance, the FTC concluded that the VA’s actions could positively impact competition in the health care service provider markets by encouraging entry that could “broaden the availability of health care services” outside of the VA’s system.

This is another example of antitrust regulators’ interest in occupational licensing and competition concerns generally. Just as this letter encourages competition between physicians and nurses for certain health care services, last month, US Department of Justice (DOJ) and FTC jointly submitted a letter encouraging competition between lawyers and non-lawyers in the provision of legal services in North Carolina. We previously analyzed that letter, and other important developments in occupational licensing that have occurred since February 2015, when the Supreme Court affirmed an FTC decision not to apply state action antitrust immunity for [...]

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McDermott’s Antitrust M&A Snapshot Published on July 17, 2016

by McDermott Will & Emery, Jon B. Dubrow and Joel R. Grosberg | Jul 27, 2016 | Consumer Protection/Privacy, DOJ Developments, EC Developments, EU Developments, FTC Developments, Mergers & Acquisitions, Monopolization/Abuse of Dominance

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

United States: January – June Update

The Federal Trade Commission (FTC) and US Department of Justice (DOJ) have been actively challenging mergers and acquisitions in the first half of 2016. In some instances, the parties abandoned their deal once the FTC or DOJ issued a complaint, in others, the parties entered into consent agreements with the agencies. In matters where a divestiture is an acceptable remedy, the FTC and DOJ have required robust divestitures with financially and competitively viable buyers. There is increasing pressure for broad divestitures and for upfront buyers in industries where the agencies do not have ample experience and where there may not be multiple competitive buyers willing to acquire the assets.

In merger challenges, the agencies have been successful in obtaining preliminary injunctions in Washington, DC, but have been less successful outside of their home court. The agencies have successfully argued price discrimination markets, where sales of products to a narrow group of customers were the market, and courts are accepting the agencies’ narrow market definition. We also see a trend in challenges due to innovation, where the merging parties are the market leaders in new developments and research and development in particular areas. Investigations continue to take many months, with many approaching or exceeding a year.

EU: January – June Update

In the EU, there has been a noticeable increase in the number of notified transactions to the European Commission (from 277 notifications in 2013 to 337 in 2015). Most of these transactions have been cleared by the EU regulator in Phase I without any commitments. However, there have still been a number of antitrust interventions requiring the merging parties to offer, often far-reaching, remedies. One industry has recently seen a particularly high ratio of antitrust intervention is the telecoms sector. For example, in the merger between the mobile operators Telenor and TeliaSonera, the parties abandoned the transaction due to European Commission opposition to the transaction. The European Commission publicly announced that the transaction would not have been cleared, and that the remedies offered by the companies were not convincing. A prohibition decision was also issued, despite the offered remedies, in the failed combination of Telefónica UK’s “O2” and Hutchison 3G UK’s “Three”. This transaction involved the longest merger control review by the European Commission to end up in a prohibition decision (243 calendar days, compared to the average of 157 calendar days to block a deal).

With regard to current trends in merger control remedies at the level of the European Commission, there continues to be [...]

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DOJ and FTC Encourages Competition Between Lawyers and Non-Lawyers in the Provision of Legal Services in Comments on North Carolina “LegalZoom” Bill

by Emily Townsend | Jul 7, 2016 | Consumer Protection/Privacy, DOJ Developments, FTC Developments

On June 10, 2016, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) jointly submitted a letter recommending that the North Carolina General Assembly limit the definition of the “practice of law” only to activities for which “specialized legal knowledge and training” is demonstrably necessary to protect consumers. The regulators argue that if such a definition were applied to North Carolina House Bill 436, presently under consideration, it would promote competition between lawyers and non-lawyers in the provision of legal-related services. (more…)

Lessons Learned – The State of Affairs in US Merger Review

by Raymond A. Jacobsen, Jr., Joel R. Grosberg, Jon B. Dubrow, Bilal Sayyed and McDermott Will & Emery | May 18, 2016 | DOJ Developments, FTC Developments, Mergers & Acquisitions

In the last year, the US antitrust regulators successfully challenged multiple transactions in court and forced companies to abandon several other transactions as a result of threatened enforcement actions. Looking back at the different cases, there are some trends that we see developing in the government’s positioning on mergers, and these should be kept in mind as parties contemplate mergers and acquisitions moving forward.

Read the full article.

Baer to Serve as Acting Associate Attorney General

by Young Cynn | Apr 12, 2016 | DOJ Developments

On Monday, April 11, the U.S. Department of Justice (DOJ) confirmed in a press release that Bill Baer will serve in the DOJ’s third-highest ranking position effective April 17, 2016. Baer will be stepping in for Acting Associate Attorney General Stuart Delery.

Attorney General Loretta Lynch praised Baer’s record at the Antitrust Division, noting that he has worked to obtain $400 million in relief for consumers in a case against Apple for the price-fixing of e-books, achieved a record level of fines from large banks in the LIBOR scandal, and defended consumers in industries from beer and wine to airlines and phone companies.

Baer was nominated by President Obama and was confirmed to lead the Antitrust Division in December 2012. It has been widely reported that Renata Hesse, Deputy Assistant Attorney General for Criminal and Civil Operations, will take the reins upon Baer’s departure. Hesse previously served as Acting Assistant Attorney General for a short time preceding Baer’s confirmation.

Practitioners do not expect Baer’s move to affect the Division’s track record of aggressive enforcement in recent years. On Friday, at the American Bar Association Antitrust Spring Meeting, Baer stated that the federal government has shown it is serious about stopping what it sees as competition-reducing mergers. Baer emphasized that the government is looking at the overall market as well as the individual pieces, and that lawyers should not “get lost in the weeds as you’re advising your clients about the antitrust merits.”

House Passes GOP-Backed SMARTER ACT Aiming to Harmonize Merger Review Process for FTC and DOJ

by McDermott Will & Emery | Apr 4, 2016 | DOJ Developments, FTC Developments, Mergers & Acquisitions

On March 23, 2016, the U.S. House of Representatives passed the Standard Merger and Acquisition Reviews Through Equal Rules (SMARTER) Act by a vote of 235-171, despite strenuous objections from the Federal Trade Commission (FTC). The FTC and the Department of Justice (DOJ) review proposed mergers and acquisitions. Currently, the FTC can challenge transactions under different processes and standards than the DOJ, and those procedures provide several advantages to the FTC. The SMARTER Act would neutralize those advantages for the FTC by: (1) eliminating the FTC’s ability to use its internal administrative proceedings to challenge unconsummated transactions; and (2) standardizing the criteria for the FTC and DOJ to obtain a preliminary injunction to block a merger in federal court.

The FTC has the authority to pursue administrative relief to challenge a transaction. Even if the FTC is denied a preliminary injunction in federal court, the agency may continue to seek to block or unwind a transaction in an administrative trial at the FTC’s own in-house court. That process creates two procedural advantages for the FTC. First, the FTC can continue to challenge a transaction even after a federal district court denies an injunction. Second, because the full trial will take place in the FTC’s court, some courts have said that the the standard the FTC uses to obtain a federal court injunction is lower than the standard the DOJ must meet. The courts will generally grant the FTC an injunction if the case “raise[s] questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground” for a full hearing “by the FTC in the first instance and ultimately by the Court of Appeals.” Under that standard, the FTC need not show a substantial likelihood of success at the trial on the merits or irreparable harm.

The DOJ can only challenge transactions in federal court proceedings. The DOJ can seek a preliminary injunction under Section 15 of the Clayton Act (15 U.S.C. § 25) on the grounds that the transaction is likely to substantially lessen competition. The DOJ is subject to a traditional equitable injunction standard including criteria such as a showing of a substantial likelihood of success and the potential for irreparable harm.

Supporters of the SMARTER Act argue that reform is necessary to ensure consistent and fair application of the antitrust laws. SMARTER Act supporters also argue that courts apply a more lenient standard to the FTC for blocking a transaction than to the DOJ. However, those that oppose the SMARTER Act argue that in practice, courts impose the same standards on the FTC and DOJ during injunction hearings. Those against the SMARTER Act also argue that workload statistics compiled in the DOJ and FTC Annual Competition Reports actually demonstrate that mergers reviewed by the DOJ are more likely to be challenged or receive a Second Request than mergers reviewed by the FTC. FTC Chairwoman Edith Ramirez expressed concern that the SMARTER Act “risks undermining the effectiveness of the FTC.” Chairwoman Ramirez also [...]

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Virginia’s Certificate of Need Laws May Stay, Fourth Circuit Says

by Lisa A. Peterson | Jan 26, 2016 | DOJ Developments, FTC Developments

On January 21, the U.S. Court of Appeals for the Fourth Circuit upheld Virginia’s Certificate of Need (CON) laws, ruling that the scheme does not illegally discriminate against out-of-state health care providers. See Colon Health Ctrs. v. Hazel, No. 14-2283 (4th Cir. Jan. 21, 2015).

In Virginia, and the 35 other states with CON laws, health care facilities are required to obtain government approval before establishing or expanding certain medical facilities and undertaking major medical expenditures. CON laws require applicants to show sufficient public need for the expenditure in question and thereby attempt to reduce healthcare costs by preventing excess capacity and unnecessary duplication of services and equipment.

The plaintiff-appellants in the case were two out-of-state outpatient providers that sought to open facilities to provide medical imaging services in Virginia. Their request for a CON for new CT scanners and MRI machines was denied. The plaintiff-appellants subsequently challenged the laws as putting an undue burden on interstate commerce in violation of the dormant commerce clause. The Fourth Circuit affirmed the district court’s ruling that the CON requirement neither discriminated against nor placed an undue burden on interstate commerce because both in-state and out-of-state providers were required to abide by the CON requirement.

Previously, in October 2015, the Federal Trade Commission (FTC) and U.S. Department of Justice’s Antitrust Division (DOJ) issued a joint statement urging Virginia to consider changes to its CON laws. Both agencies argued that CON requirements create significant competitive concerns by suppressing supply and misallocating resources. Moreover, FTC and DOJ said the requirements have not been shown to lower costs or improve the quality of care for consumers. The agencies said that CON requirements can hinder “the efficient functioning of health care markets” by allowing an existing provider to file challenges to prevent or delay competition from a rival. Additionally, they may enable anticompetitive agreements among providers to pursue CON approval for separate services. The Fourth Circuit’s recent opinion may lessen the likelihood that the FTC or DOJ would separately challenge Virginia’s CON laws, but the agencies are likely to remain active in speaking out against CON requirements in Virginia and elsewhere.

DOJ Nabs Two More in Real Estate Bid Rigging Conspiracy

by Emily Townsend | Jan 11, 2016 | DOJ Developments

Two real estate investors pleaded guilty to participating in a conspiracy to rig bids and commit mail fraud at public real estate foreclosure auctions in Georgia. The guilty pleas, entered on Monday, January 4, are the 11th and 12th defendants charged in the investigation by the U.S. Department of Justice (DOJ) Antitrust Division in its ongoing investigations into a bid rigging and mail fraud conspiracy that took place from 2009 to 2011.

The conspirators agreed not to bid against each other for specific public real estate foreclosure auctions in several Georgia counties. By declining to bid against each other, the bidders could acquire the properties at sub-competitive prices. If the public auctions were competitive and free from bid rigging, however, the same money taken by the conspiracy would have been used to pay off the mortgage, pay the debt holders of, and/or pay the owners of the properties being foreclosed upon. This case serves as a reminder that a wide variety of behaviors, including agreeing to refrain from bidding against other bidders, may be considered bid rigging. In fact, courts have held that this and other types of bid rigging—such as rotating bids, or comparing bids before submission—can be per se illegal under the antitrust laws.

This investigation also highlights the government’s ongoing commitment to root out financial crimes. In particular, the interagency Financial Fraud Enforcement Task Force, established by President Barack Obama in 2009, has used the “broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud” and financial crimes. As part of this effort, the DOJ has frequently targeted conspiracies to rig bids. In fact, the agency has uncovered bid rigging in industries of all sizes, from regional conspiracies to large, nationwide conspiracies resulting in billions of dollars in fines.

Has Antitrust Enforcement Been ‘Reinvigorated’ Under Obama?

by Daniel Powers and Gregory E. Heltzer | Oct 27, 2015 | DOJ Developments, FTC Developments, Mergers & Acquisitions

In the 2008 presidential election campaign, then-candidate Barack Obama promised to “reinvigorate” antitrust enforcement. Over the last few years, several observers have concluded that the Obama administration’s antitrust record is not substantially different from that of his predecessor. Conventional wisdom suggests that antitrust enforcement is non-partisan. Some key statistics bear out this conclusion, but a comparative review of the data in Hart-Scott-Rodino (HSR) Annual Reports published jointly by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ), including the recently issued fiscal year 2014 report, reveals some significant differences in antitrust enforcement during the Obama administration.

Analyzing the first six years of each administration reveals some superficial differences, but also significant continuity. Between 2001 and 2006, the agencies received a total of 9080 HSR filings; in 2009–2014 they received only 7530 filings. The total number of filings reviewed by the agencies also declined in absolute terms in the Obama years (Bush: 1537; Obama: 1251). Yet the percentage of filings reviewed has been remarkably consistent at slightly less than 17 percent of filings received in each period (Bush: 16.9 percent; Obama: 16.6 percent). The same consistency applies to Second Requests issued. The agencies actually issued a higher number of Second Requests in the first six years of the Bush administration compared to the same period in the Obama administration (Bush: 284; Obama 275). Given the lower number of filings in 2009–2014, the number of Second Requests as a percentage of all filings reviewed was higher in the Obama years, but only slightly (Bush: 3.1 percent; Obama: 3.7 percent).

If the analysis stopped there, we might conclude that antitrust review and enforcement has changed little during the Obama years. But data for the individual agencies reveals a different picture. In the Bush years, the FTC issued 142 Second Requests compared to 134 during the Obama years. Once again, given the different volume of transactions, this difference in absolute numbers results in no meaningful change in the Second Requests issued as a percentage of the transactions reviewed (Bush: 15.3 percent; Obama: 15.4 percent). For the DOJ, however, the numbers reveal a different story. Although the DOJ issued an almost equal number of second requests in each administration (Bush: 142; Obama: 141), as a percentage of all transactions reviewed by the DOJ, this steady rate results in a significant increase in the total as a percentage of the transactions reviewed; 23.4 percent during the Bush administration, compared to 37.1 during the Obama administration.

The number of enforcement actions pursued by each agency also reveals significant differences. The FTC launched nine more actions under Obama than it did under Bush (Bush: 113; Obama: 124). These totals translate to a modest two percent increase when measured as a percentage of the transactions reviewed by the agency (Bush: 12.1 percent; Obama: 14.2 percent). At the DOJ, the total number of enforcement actions also increased, from 86 under Bush to 101 under Obama. Given the different number of transactions reviewed, however, this change almost doubled [...]

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