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DOJ Developments

Call Waiting: DOJ to Maintain Scrutiny of Wireless Industry Consolidation

by Lisa A. Peterson | Feb 7, 2014 | DOJ Developments, Mergers & Acquisitions

The wireless industry has seen steady consolidation since the late 1980s. Recently, in late 2013, reports began circulating about a potential merger between Sprint and T-Mobile, the nation’s third and fourth-largest wireless carriers, respectively. Last week, however, in an interview with the Wall Street Journal, William Baer, the assistant attorney general for the antitrust division at the Department of Justice (DOJ), cautioned that it would be difficult for the Agency to approve a merger between any of the nation’s top four wireless providers.

T-Mobile’s CEO, John Legere, stated that a merger between his company and Sprint “would provide significant scale and capability.” Baer, on the other hand, warned that “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,” As a result, any future consolidation in the wireless industry is likely to face a huge hurdle in the form of DOJ’s careful scrutiny of any proposed transaction.

Much of the DOJ’s interest in the wireless industry stems from the Agency’s successful challenge of a proposed merger between T-Mobile and AT&T in 2011. Since then, Baer believes consumers have benefitted from “much more favorable competitive conditions.” In fact, T-Mobile gained 4.4 million customers in 2013, bringing optimism to the company’s financial outlook after years of losses. In the final two quarters of 2013, T-Mobile’s growth bested that of both Sprint and AT&T. The low-cost carrier attracted customers and shook up the competition by upending many of the terms consumers had come to expect from wireless carriers, as well as investing in network modernization and spectrum acquisition. This flurry of activity has pushed the competition to respond with its own deals, resulting in “tangible consumer benefits of antitrust enforcement,” according to Baer.

The DOJ’s antitrust division has kept careful watch over the wireless industry the past few years. That scrutiny will remain, as the Agency persists to advocate that four wireless carriers are required for healthy market competition. The cards are beginning to play out from the Agency’s decision, and as Baer stated, “competition today is driving enormous benefits in the direction of the American consumer.”

Judge Rules in Favor of DOJ Finding Bazaarvoice/PowerReviews Merger Anticompetitive

by McDermott Will & Emery | Jan 13, 2014 | DOJ Developments, Mergers & Acquisitions

On January 8, 2014, Judge Orrick of the Northern District of California ruled that Bazaarvoice’s acquisition of competitor PowerReviews violated Section 7 of the Clayton Act. The ruling was in favor of the U.S. Department of Justice (DOJ). The public version of the opinion was made available on January 10. In its self-described “necessarily lengthy opinion,” which spans 141 pages, the court ultimately found that the facts overwhelmingly showed the acquisition will have anticompetitive effects and that Bazaarvoice did not overcome the government’s prima facie case. The case included 40 witnesses at trial, more than 100 depositions and 980 exhibits. Dr. Carl Shapiro testified as DOJ’s economist and Dr. Ramsey Shehadeh testified on behalf of Bazaarvoice/PowerReviews. The court noted that the case presented some difficult issues, including that there were no generally accepted “market share statistics covering the sales of R&R solutions or social commerce solutions and no perfect way to measure market shares.” And while neither side presented flawless analyses, the court found Dr. Shapiro’s approaches more persuasive than those of Dr. Shehadeh.

Bazaarvoice and PowerReviews each offered sophisticated “R&R platforms.” R&R platforms provide a user interface and review form for the collection and display of user-generated content (i.e., user reviews) on the product page of a commercial website where the product can be purchased. Often these are in the form of star ratings and open-ended reviews in a text box. R&R platforms increase sales for the retailer and have a variety of different features. The court noted that many on-ine retailers view an R&R platform as “necessary.” Before the merger, Bazaarvoice and PowerReviews offered similar products and features and targeted similar customers.

The court found that the relevant product market was the narrow “R&R platforms,” rather than the broader “social commerce tools” or “eCommerce platforms.” The court went through many popular social media platforms such as Facebook, Google+, Twitter, Instagram, and Pinterest, explaining why each was not a substitute for these R&R platforms. In this relevant market, the court found that PowerReviews was Bazaarvoice’s only real competitor, and thus the merger “would eliminate Bazaarvoice’s only meaningful commercial competitor.”

At the end of the opinion, the court commented on the role of antitrust “in rapidly changing high-tech markets.” It noted that there is a debate as to whether antitrust is properly suited to assess competitive effects in these markets. The court declined to take sides and stated that its “mission is to assess the alleged antitrust violations presented, irrespective of the dynamism of the market at issue.”

The case now moves to the remedy phase. In its complaint, the DOJ requested that the court order Bazaarvoice to divest assets originally possessed by either Bazaarvoice and/or PowerReviews to create a viable, competing business. However, as Judge Orrick noted, 18 months after the merger, it may not be so simple to divest assets. The judge scheduled a conference for January 22 with the parties to discuss a possible remedy.

There are several lessons to be gathered from this case. First, the [...]

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Price-Fixing Executive Dealt Tough Sentence for Role in Cartel

by Lisa A. Peterson | Dec 13, 2013 | Cartel Enforcement, DOJ Developments

On December 6, 2013, Frank Peake, former president of Sea Star Line LLC, was sentenced to five years in prison and ordered to pay a $25,000 fine for his role in fixing prices for rates and surcharges for freight transportation in coastal waters between the United States and Puerto Rico. The alleged conduct began around late 2005 and continued until at least April 2008. Earlier this year, Peake was convicted of violating Sherman Act Section 1 following a two-week trial in the United States District Court for the District of Puerto Rico. Although Peake’s five-year sentence is shorter than the seven-year sentence sought by the Department of Justice, five years is the longest prison sentence ever handed down to an individual for a single antitrust charge. Previously, Peter Baci, another executive at Sea Star Line LLC, tied the record for longest prison sentence for a single antitrust charge with a four-year sentence.

Peake’s sentence reinforces the Department of Justice’s (DOJ) commitment to prosecuting executives involved in conspiracies to fix prices in violation of the antitrust laws. Bill Baer, Assistant Attorney General of the DOJ Antitrust Division stated, “The Antitrust Division will continue to vigorously prosecute executives who collude to fix prices at the expense of consumers.”

The DOJ reported that Peake and other executives convicted in the price-fixing scheme conspired through meetings and other communications to fix, maintain and stabilize freight services rates in the coastal waters between the United States and Puerto Rico, to allocate customers in the freight services market, and to rig bids. By selling Puerto Rican freight services at collusive, non-competitive rates, the “coastal shipping price-fixing conspiracy affected the price of nearly every product that was shipped to and from Puerto Rico during the conspiracy,” said Baer.

In all, six executives and three companies have either pled guilty or were sentenced at trial in the coastal freight waters cartel investigation. The corporations were fined $14.2-$17 million for price-fixing. Four executives were fined $20,000 and received prison sentences ranging from 20-48 months. Another executive was sentenced to seven months for obstruction of justice.

This latest conviction illustrates the DOJ’s objective of prosecuting company executives as a means of deterring and punishing cartel activity. In the past few years, cartel investigations have resulted in more executives sentenced to longer period of jail time. For example, the percentage of executives sentenced to prison has increased to 71 percent from 2010-2012, up from 62 percent from 2000-2009 and 37 percent from 1990-1999. Similarly, the average prison sentence increased to 25 months in 2010-2012 from 20 months from 2000-2009 and just eight months from 1990-1999.

U.S. Senators Debate Toughening Cartel Penalties

by Lisa A. Peterson | Nov 19, 2013 | Cartel Enforcement, DOJ Developments

On November 14, 2013, members of the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights heard arguments regarding the effectiveness of current cartel prosecution and punishment strategies in deterring cartel conduct. In her opening remarks, Senator Amy Klobuchar, chair of the Subcommittee on Antitrust, called price-fixing the most egregious form of antitrust violations. “Cartels have no other purpose than to rob consumers,” Klobuchar stated.

At the hearing, William Baer, assistant attorney general for the Department of Justice (DOJ) Antitrust Division, highlighted the Division’s efforts to prosecute cartels over the last decade. Under the Antitrust Division’s recent aggressive enforcement efforts, the DOJ obtained record fines and jail time against corporations and individual corporate officers for cartels conduct. In 2013, the DOJ obtained $1.02 billion in fines and filed 50 cases against cartels, including charges against 21 corporations and 34 individuals and the imposition of 28 prison terms averaging two years. This presents a marked increase in the eight-month average jail term imposed against Antitrust Division defendants in the 1990s.

Over the past five years, the DOJ has, on average, obtained over $850 million in fines from cartels. Baer noted the success of the DOJ’s leniency program, as well as cooperation with state and federal agencies like the Federal Bureau of Investigation (FBI) in investigating cartels. The leniency program has increased the rate of self-disclosure by providing both corporations and individuals with incentives for investigating and reporting antitrust violations. The DOJ has also amped up efforts to collaborate with competition authorities in foreign countries worldwide to better coordinate cartel policies, detection efforts and investigations. As a result, the DOJ has obtained more sentences against foreign nationals, currently an average of 11 per year, as opposed to three per year in the 1990s. The DOJ recently obtained record criminal fines and jail time in prosecuting large, complex cartels involving price-fixing conspiracies in the liquid crystal television displays, air cargo and freight, and automobile parts markets.

Others testifying in front of the Subcommittee pressed the Senate to adopt stricter cartel punishments in light of the “steady stream of cartels” that they view as a persistent problem despite the DOJ’s leniency program. The panelists questioned the effectiveness of monetary penalties as a deterrent, noting that fear of jail time is only effective if individuals and corporations involved in cartels believe they are likely to be caught. They testified that steep fines and punishments may actually discourage individuals from self-disclosing violations, so a better deterrent may be imposing bans on corporations and individuals convicted of cartel violations, which would prevent them from conducting business in certain markets or preclude them from serving on boards or in other corporate functions.

As the DOJ, in conjunction with other federal agencies, continues to vigilantly investigate and prosecute cartels, individuals and corporations should evaluate policies and internal compliance measures in consideration of federal and state antitrust laws.

Auction Rigger Enters Guilty Plea

by Emily Townsend | Nov 11, 2013 | DOJ Developments

A thirty-seventh individual pleaded guilty to participating in a conspiracy to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California. The guilty plea, entered on Monday, November 4, is yet another victory for the Department of Justice (DOJ) Antitrust Division in its ongoing investigations into a bid rigging and mail fraud conspiracy that took place from 2007 to 2011.

According to the DOJ, the conspirators arranged winning bidders for specific public real estate foreclosure auctions in several California counties. After acquiring the properties at sub-competitive prices, the conspirators then conducted a second, private auction only open to members of the bid rigging ring. The difference in the private auction price and public auction price could then be used for payoffs to the conspiracy members. Had the public auctions been competitive and free from bid rigging, however, that same money taken by the conspiracy would have been used to pay off the mortgage, the debt holders of, and sometimes even the owners of the properties being foreclosed.

This investigation highlights the government’s increased focus on rooting out financial crimes as part of its larger economic recovery plan. In particular, the interagency Financial Fraud Enforcement Task Force, established by President Obama in 2009, has used the “broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud” in financial markets and those hit hardest by the recession.

Support for Airlines Merger Grows

by Young Cynn | Oct 25, 2013 | DOJ Developments, Mergers & Acquisitions

Mayors from Charlotte, Chicago, Dallas, Fort Worth, Philadelphia, Phoenix and Miami-Dade County wrote to Attorney General Eric Holder on Wednesday, urging him to allow American Airlines Inc. and U.S. Airways Group Inc. to merge. The mayors encouraged the Justice Department to “reconsider [the] ill-conceived lawsuit,” and asserted that the deal would benefit both consumers and their respective communities where the largest hubs for the two airlines are located. “Without this merger,” the letter continued, “American and U.S. Airways will be at a permanent competitive disadvantage to Delta and United, each of which has been allowed to build superior route networks through mergers that were cleared by the Justice Department.” The letter comes one week after 68 House Democrats, led by legislators from Texas and Arizona – home to American and U.S. Airways headquarters, respectively – wrote a similar letter of support to President Barack Obama, pressing him to call off the lawsuit. The Justice Department and seven state Attorneys General sued to block the $11 billion merger back in August, but the Texas Attorney General dropped out of the lawsuit earlier this month.

Assistant Attorney General Addresses Antitrust Remedies in First Formal Remarks

by Emily Townsend | Oct 16, 2013 | Cartel Enforcement, DOJ Developments, Mergers & Acquisitions

On September 25, 2013, Assistant Attorney General Bill Baer gave his first formal remarks since becoming head of the Antitrust Division at the United States Department of Justice (DOJ) in January. Speaking at Georgetown Law’s Seventh Annual Global Antitrust Enforcement Symposium, Baer’s address was entitled “Remedies Matter: The Importance of Achieving Effective Antitrust Outcomes.”

Baer emphasized that achieving a remedy that preserves or restores competition is more important than the government winning a particular lawsuit. He then addressed remedies in four contexts: merger remedies, civil non-merger remedies, civil disgorgement and criminal remedies.

Regarding mergers, Baer said that the DOJ “should only consider remedies that effectively resolve the competitive concerns and protect the competitive process.” He indicated that some deals are nearly unfixable and noting that litigation is not DOJ’s preferred option, Baer warned that reaching a consent decree takes time and cautioned parties against waiting until late in an investigation to engage the DOJ in negotiations. The proposed acquisition of Grupo Modelo by Anheuser-Busch InBev initially included a component addressing antitrust concerns, but the DOJ wanted more. Baer used the consent decree in that matter to highlight important provisions in “an effective merger remedy:” structural relief, a fully-vetted up-front buyer, a monitoring trustee and a conveyance of intellectual property and know-how.

For civil non-merger remedies, Baer pointed to the e-books litigation involving Apple and five of the six largest publishers in the United States. In prosecuting Apple for its role in the civil price-fixing conspiracy, DOJ was seeking a remedy “that would stamp out any lingering effects of the conspiracy,” prevent similar conduct in the future, and ensure Apple’s compliance, with “success … measured not by [DOJ’s] ability to prove the violation, but rather by the effectiveness of the remedies … obtained.” Baer believes the final judgment accomplishes this through antitrust compliance requirements, including an external compliance monitor.

Baer said that civil disgorgement is appropriate where an offending party would have otherwise “retained the monetary benefits of its anticompetitive conduct.” He also indicated that it would be a remedy considered in both merger and conduct cases. Pointing to the “broader legal landscape” and what some observers see as hurdles in private antitrust cases, Baer said that the DOJ would take into account the likelihood of success in private actions when it fashions its public remedies.

For criminal remedies, Baer discussed DOJ’s prosecution of AU Optronics Corporation, its U.S. subsidiary and two top executives for a criminal price-fixing conspiracy. The remedy included a $500 million fine, probation and an independent monitor to oversee an antitrust compliance program.

Baer appears open to developing creative remedies to achieve outcomes the agency finds most effective in “remedy[ing] anticompetitive conduct and guard[ing] against any recurrence.” Throughout the speech he emphasized the use of external monitors (the costs of which are borne by the offending parties) and difficult remedies to “fix” past offenses, including disgorgement and unwinding consummated mergers.

Takata Corp. Agrees to Pay $71.3 Million Fine for Its Role in Alleged Price-Fixing and Bid-Rigging in the Automotive Parts Industry

by Nicole Castle | Oct 14, 2013 | Cartel Enforcement, DOJ Developments

On October 10, 2013, Takata Corp. (Takata), a Japanese auto parts maker, agreed to pay a $71.3 million as part of a plea agreement for its role in an alleged conspiracy to fix prices on seat belts sold to car manufacturers. In addition, Takata agreed that the Chairman-CEO, Shigehisa Takada, will take a 30 percent cut in his compensation and the other directors will take a 15 percent cut.

According to the criminal charges filed in Detroit last week, Takata is accused of conspiring with other companies between January 2003 and February 2011 to suppress and eliminate competition in the automotive parts industry by agreeing to rig bids for, and to fix, stabilize and maintain the prices of certain seatbelts.

The alleged price-fixing affected products sold to multiple U.S. and international automobile manufacturers. Takata is also a supplier of automotive air bags, interior components and steering wheel systems, which have previously been a focus of investigation in the Department of Justice’s (DOJ) auto parts price-fixing investigations.

The DOJ’s ongoing auto parts investigation has yielded charges against companies who manufacture a wide number of automotive parts including seatbelts, airbags, steering wheels, antilock brake systems, instrument panel clusters and wire harnesses.

The DOJ has already brought criminal charges against 21 companies and 21 executives and has imposed nearly $1.7 billion in total fines as part of its automotive parts investigation.

FTC Initiates Inquiry Into Patent Assertion Entities

by Emily Townsend | Oct 4, 2013 | DOJ Developments, FTC Developments, IP Antitrust

by William Diaz

Last week, the Federal Trade Commission (FTC) announced its decision to seek public comment on a proposal to gather information from approximately 25 patent assertion entities (PAE). The agency defines a PAE as a company whose business model focuses primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies. The FTC also anticipates seeking information from approximately 15 other entities asserting patents in the wireless communications sector, including manufacturers and other non-practicing entities or licensing organizations. None of the PAEs or other firms has been identified by the FTC.

In late 2012, the FTC and Department of Justice conducted an industry workshop on the impact of PAEs on innovation and competition. Workshop participants identified numerous potential harms, but noted the lack of empirical data on PAE activities. The FTC now proposes to collect such data pursuant to its information-gathering authority under Section 6(b) of the FTC Act. The full scope of the information the FTC will seek is described in the official notice, which is can be found here. Public comments will be accepted for 60 days following publication in the Federal Register.

FTC and DOJ Accepting HSR Filings During Shutdown

by Emily Townsend | Oct 1, 2013 | DOJ Developments, FTC Developments, Mergers & Acquisitions

by Gregory Heltzer

The Federal Trade Commission (FTC) and Department of Justice (DOJ) both announced that they will have limited staff on hand to accept Hart-Scott-Rodino (HSR) premerger notification filings during the U.S. federal government shutdown. The HSR Act requires that parties subject to the Act must wait 30 days before closing their transaction. This waiting period provides the agencies with time to determine whether to challenge a transaction prior to closing. During the shutdown, the FTC will continue HSR investigations to the extent that “a failure by the government to challenge the transaction before it is consummated will result in a substantial impairment of the government’s ability to secure effective relief at a later time.” (See, FTC Shutdown Plan.) Likewise, the DOJ will also prepare cases that must be filed due to expiration of the HSR waiting period. (See, DOJ Shutdown Plan.) We will provide updates if and when we learn more regarding the protocols for merger review during the shutdown.

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