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Antitrust Enforcers Discuss Recent Highlights, Ongoing Cases, Enforcement Priorities and General Trends at the 2015 ABA Section of Antitrust Law Spring Meeting

by | Apr 29, 2015 | , , ,

The American Bar Association (ABA) Section of Antitrust Law Spring Meeting concluded earlier this month with the traditional “Enforcers’ Roundtable,” an interview with leading competition authorities about recent highlights, ongoing cases, enforcement priorities and general trends.

This year’s participants were Bill Baer, U.S. Assistant Attorney General for Antitrust; Edith Ramirez, Federal Trade Commission (FTC) Chairwoman; Kathleen Foote, Chair of the Multistate Antitrust Task Force of the National Association of Attorneys General; Margrethe Vestager, E.U. Commissioner for Competition; and Lord David Currie, Chairman of the one-year old UK Competition and Markets Authority (CMA). Below is a summary of certain highlights from the discussion.

Recent Domestic Achievements and Enforcement Priorities

Ramirez touted the FTC’s recent U.S. Supreme Court victory in North Carolina Board of Dental Examiners[1], in which the court held that a state licensing board was not entitled to state action immunity because active market participants controlled the board, and the board was not subject to active supervision by the state. Foote noted that states are currently taking steps to ensure compliance with this ruling.

Ramirez also highlighted the FTC’s current efforts to challenge the merger between the nation’s two largest food distributors, Sysco and US Foods. Foote noted that the Sysco/US Foods[2] case is a multistate effort, with 11 state attorneys general collaborating with the FTC.

Enforcement in the pharmaceutical industry, especially pertaining to reverse payment settlements, is a priority, panelists stated. Ramirez discussed the FTC’s ongoing litigation in three reverse payment settlement cases. She noted that in the aftermath of the Supreme Court’s ruling in Actavis[3], the FTC posits that non-monetary payments, such as supply agreements, could constitute reverse payments and thus be subject to antitrust scrutiny.

Foote remarked that reverse payment settlements are also a major state focus, pointing to the recent settlement between the New York Attorney General and two generic pharmaceutical companies, Ranbaxy Pharmaceuticals Inc. and Teva Pharmaceuticals USA Inc.

Global Cartel Enforcement: a Record-Breaking Year

Baer and Vestager highlighted the increasing number and severity of fines imposed on companies engaged in price-fixing, as well as prison sentences imposed on executives in the U.S. In recent years, enforcers have scrutinized conduct in a range of industries, including financial services, agriculture, ocean shipping, consumer goods and the auto parts industry.

Baer indicated that cartel enforcement accounts for more than 40 percent of the Antitrust Division’s work. Vestager noted that the European Commission (EC) rendered 10 decisions related to cartel activity in 2014, including eight settlements. She noted that settlements are part of the EC’s “toolbox,” but the EC would continue rendering infringement decisions to develop case law.

In contrast to the U.S. Department of Justice (DOJ) and the EC, Currie said that the CMA’s 2014 cartel record was not as strong as he would have liked and that the CMA received a recent budget increase in part to enhance enforcement efforts.

International Enforcement Cooperation

Each of the panelists praised the quality of international cooperation among antitrust agencies. Vestager said that 60 [...]

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Supreme Court Asked to Clarify the Reach of U.S. Antitrust Laws to Foreign Conduct

by and | Mar 24, 2015 | , ,

On March 16, 2015, AU Optronics Corporation America Inc. (AU Optronics) and Motorola Mobility LLC separately asked the U.S. Supreme Court to clarify the Foreign Trade Antitrust Improvements Act (FTAIA) and the extent to which its language allows foreign conduct to be brought within the scope of the Sherman Act.  The requests for review follow from potentially conflicting holdings from the Seventh and Ninth Circuits in cases that stem from distinct interpretations of the same provisions in the FTAIA and involve the very same conduct – AU Optronics’ and its co-conspirators’ agreement overseas to fix the prices of liquid crystal display (LCD) panels.  The cases have different procedural foundations in that the Ninth Circuit case is a criminal suit brought by the Department of Justice (DOJ), while the Seventh Circuit case is a civil matter in which private parties are seeking damages.

In Hsiung,[i] AU Optronics appeals the Ninth Circuit’s holding that the Sherman Act via the FTAIA can support criminal charges against foreign cartel conduct.  In that case, the court had affirmed AU Optronics’ conviction in July 2014 and rendered an amended opinion on January 30, 2015.  Meanwhile, Motorola Mobility appeals the Seventh Circuit’s finding in Motorola Mobility[ii] that a civil price-fixing claim against the same cartel could not be supported under the same provisions of the FTAIA.  The Seventh Circuit decided the case on November 26, 2014 (after vacating a previous opinion from March 2014) and later amended its opinion on January 12, 2015.  The companies believe that these interpretations of the FTAIA are conflicting and, therefore, ripe for Supreme Court review.

The FTAIA was adopted to clarify the enforcement scope of U.S. federal antitrust laws as applied to anticompetitive conduct that occurs abroad.  Since its enactment, however, lower courts have interpreted the FTAIA differently, which has led to conflicting decisions and legal uncertainty.  Under the FTAIA, all foreign conduct is placed outside the scope of the Sherman Act, unless (1) the alleged conduct involves import commerce (import commerce exemption)  or (2) it has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce and the criminal charge or civil claim “arises from” that effect (domestic effects exception).

The circuit courts interpreted certain language in these provisions differently, specifically “import commerce” and “direct effect,” and when such effect “gives rise to a Sherman Act claim.”  In Hsiung, the Ninth Circuit considered import commerce to be any conduct affecting an import market, which means that it need not be shown that a foreign defendant directly imported goods himself into the U.S.  As to the domestic effects exception, the Ninth Circuit further explained that foreign conduct has a direct effect on U.S. commerce where the conduct “follows as an immediate consequence of the defendant[s’] activity.”  According to the court, AU Optronics’ conduct had a direct effect on U.S. commerce that gave rise to a Sherman Act claim because the price-fixed goods manufactured abroad were a significant component of [...]

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Parking Heater Manufacturer Pleads Guilty to Price-Fixing

by | Mar 17, 2015 | ,

On March 12, 2015, the U.S. Department of Justice (DOJ) announced that Espar Inc., pleaded guilty to one count of price-fixing under the Sherman Act in a scheme involving parking heaters for commercial vehicles that ran from October 2007 through December 2012.  Parking heaters heat the inside of a vehicle when the engine is not running.

According to the press release, Espar, a parking heater manufacturer, agreed to pay a criminal fine and cooperate in the DOJ’s ongoing investigation.  Espar and its co-conspirators discussed prices for parking heaters and agreed to set a price floor for parking heater kits sold to aftermarket customers.  Further, the companies agreed to coordinate the timing and amount of price increases, and enforced the agreement by exchanging information.  Investigation into the other companies is ongoing, with assistance from the Federal Bureau of Investigation.

Although the judge initially agreed to Espar’s and DOJ’s joint request to waive the pre-sentence investigation report and schedule sentencing on the same day as the plea hearing, the judge later changed his mind.  The judge stated in his order that his review of the pre-sentence report would ensure that “the agreed-upon fine is not too modest” and address any concerns that the terms of the plea agreement may implicate Fifth Amendment issues for individual employees who are required to cooperate with DOJ.  Espar’s plea agreement is still subject to court approval, and sentencing is scheduled for June 5, 2015.  The maximum fine for price-fixing in violation of the Sherman Act for corporations is either $100 million, or the amount twice the gain derived from the crime or twice the loss suffered by the victims—whichever is greater.

DOJ Assistant Attorney General Bill Baer stated that the “plea demonstrates the Antitrust Division’s commitment to holding companies accountable for conspiracies that fix prices on parts used in every day products,” and that “[t]he Antitrust Division will vigorously prosecute companies that engage in schemes that subvert normal competitive processes and defraud American consumers and businesses.”



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Increasing Antitrust Risk in Non-Reportable Transactions – DOJ Obtains Disgorgement of Profits in Tour Bus Settlement

by | Mar 11, 2015 | ,

The U.S. Department of Justice (DOJ) recently reached a settlement with Coach USA Inc. and City Sights LLC, breaking up their joint venture. The DOJ also employed the rarely used remedy of disgorgement to recover $7.5 million in profits from the defendants. This case demonstrates the aggressive posture the antitrust agencies are taking to challenge and impose harsh remedies upon transactions that are not reportable under the Hart-Scott-Rodino (HSR) Act. It also highlights the need to properly evaluate and prepare for the antitrust implications of non-reportable transactions under the HSR Act.

DOJ Obtains Disgorgement

In 2009, two operators of hop-on, hop-off bus tours in New York City formed a joint venture, Twin America LLC. Prior to the formation of Twin America, Coach USA and City Sights were the two largest companies in the alleged hop-on, hop-off bus tour market in New York City, with a combined 99 percent share of the market. The DOJ alleged that the two companies’ joint venture created an unlawful monopoly and enabled them to increase prices by approximately 10 percent. The DOJ filed an antitrust complaint challenging the deal in December 2012, well after it was consummated in 2009. The case was proceeding towards trial when the parties agreed to a settlement, which they announced on March 16, 2015.

Under the terms of the settlement, the defendants must take several steps to restore competition allegedly lost through the formation of the venture. Twin America must divest all 50 of City Sight’s valuable Manhattan bus stop authorizations. The divestiture will eliminate a significant barrier to entry, as the bus stop authorizations are required by the New York City Department of Transportation to operate bus tours, and little capacity for new authorizations exists. Coach USA and Twin America must also establish antitrust training programs and provide the government with advance notice of any future acquisition in the alleged market. Coach USA must pay $250,000 in attorney’s fees to the United States in connection with claims that it spoliated evidence and did not meet its document preservation obligations.

Most noteworthy, the settlement requires the defendants to pay $7.5 million to disgorge what the DOJ viewed as excess profits obtained as a result of the combination. Prior to this settlement, the defendants had already agreed to pay $19 million to settle a related class action lawsuit. One criticism of disgorgement as a remedy in antitrust matters is that disgorgement may excessively punish defendants that are also subject to potential civil litigation in which they may pay additional damages. Here, the DOJ concluded that the defendants were unjustly enriched by an amount greater than the $19 million settlement, and the additional $7.5 million disgorgement was intended to divest the defendants of additional ill-gotten profits and deter similar conduct in the future.

This disgorgement is significant. It is a remedy that the FTC and DOJ have used very infrequently, particularly in merger cases. To the extent the Twin America case creates a precedent for the use of that remedy, it increases [...]

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FTC and DOJ Host Workshop Examining Health Care Competition

by , , , and | Mar 4, 2015 | , , ,

The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) held a public workshop on February 24–25, 2015, to examine recent trends and developments in health care provider organization and payment models, and their potential effects on competition in the provision of health care services. A main message from FTC and DOJ leadership at the workshop is that the agencies evaluate new provider and payment models for their adherence to competition principles, effect on cost of care, access and quality, and avoidance of market power.

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Federal Court Finds Amex’s “Anti-Steering” Merchant Rules Anticompetitive

by | Feb 27, 2015 | ,

After a seven-week bench trial in an enforcement action by the U.S. Department of Justice (DOJ) and 17 state attorneys general, U.S. District Judge Garaufis (Eastern District of New York) held that American Express Co.’s (Amex’s) “anti-steering” rules (Non-Discrimination Provisions or NDPs) are an unreasonable restraint of trade in violation of Section 1 of the Sherman Antitrust Act.  The NDPs in Amex’s agreements with merchants prevent merchants from attempting “to induce or ‘steer’ a customer” from paying with non-AmEx credit cards by, for instance, offering discounts or incentives to customers paying with other cards, even though “the cost of [such] transaction[s] [would likely] be lower for the merchant.”  At bottom, the court’s holding centered on its conclusion that “these NDPs create an environment in which there is nothing to offset [Amex’s incentive] to charge merchants inflated prices [to process transactions, which] results in higher costs to all consumers who purchase goods and services from these merchants.”

In the initial step of its rule-of-reason analysis—DOJ’s burden to demonstrate that the NDPs “have had an ‘adverse effect on competition as a whole in the relevant market,’” which may be met by “establishing that [Amex] had sufficient market power to cause an adverse effect on competition”—the court focused first on market definition, then market power and anticompetitive effects.

Regarding the relevant market, Amex argued that it includes both debit and credit cards.  It distinguished United States v. Visa, where the Second Circuit held that credit cards and debit cards are distinct relevant markets, in light of “the dramatic growth in customers’ use of debit cards” since that 2003 decision.  The court disagreed, finding that “debit cards have not become reasonably interchangeable with [credit] cards or network services in the eyes of credit-accepting merchants, who are the relevant consumers in this case.”  Rather, the court employed a market definition comprising only credit cards, where AmEx holds a 26 percent share.  The court did, however, reject DOJ’s argument for an even smaller submarket, i.e., credit card services for only travel and entertainment merchants (where Amex’s market share is even higher), based on its finding that DOJ failed to show that credit card companies are able to charge discriminatory prices to those merchants.

The court went on to conclude that “Amex’s NDPs have adversely affected competition in the [relevant] market, and [Amex] possesses sufficient market power to cause such effects.”  The court found that Amex “enjoy[s] significant market share in a highly concentrated market with high barriers to entry, and are able to exercise uncommon leverage over their merchant-consumers,” for instance by “imposing significant price increases . . . without any meaningful merchant attrition.”  The court also found actual adverse effects on interbrand competition (i.e., that the NDPs “render[] low-price business models untenable, stunt[] innovation, and result[] in higher prices”), reasoning that the NDPs “deny[] merchants the opportunity to influence their customers’ payment decisions and thereby shift spending to less expensive cards[, such that the NDPs] impede a significant avenue of horizontal interbrand competition in the [...]

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Top Antitrust Watchdog to Merging Firms: DOJ Not Interested in Remedies that Require Ongoing Regulatory Oversight

by | Feb 19, 2015 | ,

Head U.S. Department of Justice (DOJ) antitrust enforcer, Bill Baer, believes the Federal Trade Commission and DOJ are law enforcement agencies, not regulators.  In his recent speech at the Global Competition Review Fourth Annual Antitrust Leaders Forum, Baer stressed that antitrust regulation “is not what we do.  And it is not how we ought to think about what we do.”  He added that the antitrust agencies “do not aspire to be regulators or to pick winners and losers.  Instead antitrust enforcement, done right, focuses on removing impediments to competitive markets and protecting market structures that facilitate competition.”  Baer’s enforcement-minded approach likely explains one reason why the federal antitrust agencies do not typically accept conduct remedies to resolve antitrust concerns.  Conduct remedies require an entity to take, or refrain from, certain business conduct (e.g., price maintenance commitments).  The federal antitrust agencies disfavor conduct remedies in part because they often require significant monitoring (i.e., regulation) to fully protect competition.  As enforcers, Baer believes the agencies should use the antitrust laws to preserve competition with little regulatory involvement.  He noted in his recent speech that effective antitrust remedies “minimize the need for ongoing regulatory involvement in decisions better left to the market.”

As litigation expenses continue to rise, it is often prudent for parties under antitrust investigation to resolve the antitrust agencies’ concerns through a consent agreement.  The nature of the parties’ proposed remedy is highly important.  With federal antitrust agencies unlikely to accept conduct remedies to resolve antitrust concerns, parties must be ready to present structural remedies—i.e., asset divestitures to ready, willing and able buyers—that fully preserve competition.  The antitrust agencies will carefully scrutinize any proposed remedy.  If the reviewing agency believes the remedy falls short of fully preserving competition, then it likely will be rejected.  Indeed, Baer messaged in his speech that “[s]ound antitrust enforcement requires careful attention to remedies.”  He praised DOJ’s recent efforts to reject inadequate remedy proposals in favor of pursuing law enforcement actions to obtain the relief DOJ deemed necessary to preserve competition.  In short, parties must be ready to fully address the antitrust agencies concerns or do battle in court.



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DOJ Issues Business Review Letter Pertaining to SSO Policy on Standard-Essential Patents and RAND Commitments

by and | Feb 12, 2015 | ,

The Antitrust Division of the U.S. Department of Justice (DOJ) recently issued a business review letter stating that it would not challenge the Institute of Electrical and Electronics Engineers, Inc.’s (IEEE’s) proposed revisions to its patent policy. These patent policy revisions seek to address the “wide divergence” in expectations between holders of patents essential to an IEEE standard and the market participants seeking to implement such standards. The DOJ’s response looked favorably on the IEEE’s proposed revisions pertaining to RAND royalties and limitations on injunctive relief for standard-essential patent holders.

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Former Toyoda Gosei Executive Pleads Guilty to Price-Fixing, Bid-Rigging

by | Jan 13, 2015 | ,

On January 6, 2015, Makoto Horie of Toyoda Gosei North America pled guilty to the United States Department of Justice (DOJ) for conspiring to fix the prices of automotive hoses sold to U.S. companies.  Mr. Horie was sales general manager for Toyoda Gosei in Japan.  He will serve one year and one day in a U.S. prison and pay a $20,000 criminal fine for participating in the conspiracy between March 2007 and September 2010.

Toyoda Gosei pled guilty in September 2014 to price-fixing and bid-rigging for automotive hoses, airbags and steering wheels.  Unlike Toyoda Gosei’s plea agreement, Mr. Horie’s Information did not allege any wrongdoing related to automotive airbags or steering wheels.  Including Mr. Horie and his former employer, 29 individuals and 32 companies have now admitted guilt to the DOJ.  These individuals and entities have agreed to pay over $2.4 billion in fines.

Mr. Horie’s plea agreement is subject to approval by the United States District Court for the Northern District of Ohio.



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Aerospace & Defense Series: Leading Antitrust Considerations for M&A Transactions

by | Dec 18, 2014 | , , ,

Aerospace and defense contractors engage in a wide range of mergers, acquisitions and joint venture transactions, which are often subject to heightened antitrust scrutiny. This article highlights some of the leading antitrust factors that contractors should consider when contemplating M&A transactions in their unique industry.

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