This newsletter identifies when “teaming agreements” between contractors are likely to raise antitrust issues, and suggests some practice tips for evaluating or defending those arrangements.
by Nick Grimmer
How can a company legally protect its valuable interests in key employees, when a competitor can just swoop in with a more attractive employment offer? A non-poaching agreement or clause (also called a no- or non-poach, -hire, -interference, -switching or -solicitation agreement or clause, depending on the circumstances) can offer protection. In these agreements, competitors or potential competitors for skilled labor might agree not to cold call, solicit, recruit or even hire each other’s employees. The agreements usually cover specified employees or categories of employees (e.g., by title, skill area or salary level) and usually last for a set period of time.
The ancillary restraints doctrine generally governs non-poaching agreements. Under that doctrine, a restraint of trade (here, the non-poaching agreement) is permissible if it is one in which there is also a legitimate/procompetitive main agreement, and the covenant in restraint of trade is necessary and merely ancillary (i.e., collateral or subordinate) to that agreement. If it is not, then it is a “naked restraint of trade” and will be per se illegal under federal antitrust law (and the plaintiff—typically, the affected employee(s)—will need only to prove the existence of the restraint, as opposed to having to show its anticompetitive effects, which are presumed). Conversely, if a non-poaching agreement is ancillary to a legitimate/procompetitive agreement, it is judged under the rule of reason, which involves a balancing of procompetitive benefits and anticompetitive effects.
Agreements that keep employees out of competitors’ camps come in several flavors. The basic types—and their general antitrust treatment—include:
“Naked” agreements between competitors: Like an (illegal) agreement among competitors to divide sales territories, a naked agreement among competitors for labor simply to not hire each other’s employees is likely per se illegal (in essence, they both entail “you keep what’s yours, I keep what’s mine”). To avoid per se illegality, keep these points in mind:
FTC Commissioner Julie Brill addressed attendees at the 2013 National Summit on Provider Market Power on June 11. The focus of her remarks were on the intersection of antitrust, the Affordable Care Act (ACA) and Accountable Care Organizations (ACOs). She first touched on the ACA. Noting the empirical evidence shows that high concentration among health care providers has harmful competitive effects, she was optimistic that the exchanges that will be established as a result of the ACA will offer consumers a range of competing, affordable health care products and will encourage greater competition in local insurance markets.
Turning to ACOs and antitrust, she stated that the FTC is starting to hear providers contend that the ACO program is a justification for their (alleged) anticompetitive activity. Providers complain that the government is "talking out of both sides of their mouth" with Centers for Medicare & Medicaid Services (CMS) encouraging coordination via the ACO program and the antitrust agencies challenging coordination. Commissioner Brill disagreed stating that "the goals of the ACA and antitrust enforcement are aligned and compatible." She noted the extensive cooperation between CMS and the antitrust agencies. She explained that the ACA requires coordination of care but that it "neither requires nor encourages to merger or otherwise consolidate," but like any collaboration short of a merger, they must do so in a way that does not violate antitrust laws. Commissioner Brill also stated that ACOs are flourishing and only two provider groups have thus far sought antitrust guidance as permitted under the ACO Policy Statement from the agencies before forming the ACOs.
Finally, Commissioner Brill emphasized that the FTC will continue to investigate provider collaborations or mergers where there may be competitive harm. She made a point to clarify that the FTC evaluates all assertions of efficiencies and quality improvements but that parties must provide "good documentary evidence" to support these assertions.
Commissioner Brill’s speech is consistent with the posture and approach the agencies have been taking with regard to provider consolidations in the relatively new landscape being built by the ACA and formation of ACOs. There is not yet enough data to see exactly how the ACA will affect providers from an antitrust perspective. But providers can be certain that the agencies will continue to look closely at any consolidation or collaboration that may violate the antitrust laws, regardless of whether the activity was taken to try to comply with the ACA.
The full speech can be found here.
by Henry Chen, Frank Schoneveld and Alex An
China’s Ministry of Commerce recently issued two new draft regulations. The first provides a wider range of potential remedies to obtain the clearance of a concentration (e.g., a merger, acquisition, joint venture, etc.); the other defines the standards for “simple” merger cases that are eligible for a “fast-track” clearance procedure.
To read the full article, click here.
by Jon B. Dubrow and Shauna A. Barnes
Recently published reports of land acquisition activities between Chesapeake Energy and EnCana senior executives will likely expose those companies to a Department of Justice (DOJ) antitrust investigation and challenge, as well as, if accurate, civil antitrust claims. This matter highlights the risks that energy companies face when discussing lease arrangements with their competitors.
Joint Bidding or Bid Rigging for Property Rights Can Violate the Antitrust Laws
In February 2012, DOJ settled its first challenge to a bidding agreement for mineral rights, alleging that agreements between Gunneson Energy Corporation and SGI Interests to bid jointly for government mineral leases were anticompetitive. In a previous post, we explained the potential issues and pitfalls related to joint bidding for oil and gas properties. We suggested various factors that companies can use to assess, or manage, their antitrust exposure.
Reuters Obtains and Publishes Confidential Communications Between Chesapeake and EnCana Appearing to Coordinate to Reduce Prices Paid for Properties
On June 25, 2012, Reuters published a special report indicating that Chesapeake and EnCana agreed to suppress bids for mineral rights at public and private land auctions. Citing dozens of highly inflammatory emails, the article purports to detail how Chesapeake’s CEO, Aubrey McClendon, and other senior executives at Chesapeake and EnCana discussed how to avoid creating a bidding price war in acquiring drilling rights for Northern Michigan properties.
According to Reuters, throughout 2010, EnCana and Chesapeake were the leading buyers in Michigan and they aggressively competed to acquire properties for hydraulic fracturing (fracing) operations. During a May 2010 land auction, they paid approximately $1,413 per acre. Following the auction, private landowners sought competing bids, leading to a bidding war resulting in offers of more than $3,000 per acre.
Reuters indicates that Chesapeake and EnCana discussed via email entering into a formal venture, including some areas of mutual interest that would allow the parties to share in the risks and rewards of developing properties. However, they did not enter into any venture. Instead, they purportedly discussed in emails ways, as independent bidders, to refrain from bidding up land prices, and to allocate various properties between themselves. These emails were followed by significant price reductions in the offers made by Chesapeake and EnCana.
Oil and Gas Industry Companies Need to be Sensitized to the Risks in Joint Activities Related to the Acquisitions of Mineral Rights
The Chesapeake-EnCana situation, following quickly on the heels of the DOJ’s joint bidding challenge earlier this year, serves as a reminder that companies in the oil and gas industry must exercise care in situations where they may want to work with potentially competing bidders. In the oil and gas industry, firms frequently work together to acquire and develop properties, and that can often be lawfully accomplished through a legitimate collaboration. Firms, and their executives, may often have opportunities to discuss property acquisition in the context of a legitimate, integrated venture, including with firms that might otherwise be competitors. However, while some [...]
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by Henry L.T. Chen, Frank Schonveld and Brian Fu
The Ministry of Commerce of China (MOFCOM) recently promulgated a new amended merger notification form along with instructions for completing the form. In doing so, MOFCOM aims to further regulate the procedures regarding antitrust review of large mergers, acquisitions and joint ventures; to promote transparency in the notification procedure; and to improve the efficiency of antitrust review.
To read the full article, please visit: https://www.mwechinalaw.com/news/2012/chinalawalert061c.htm.
by Philip Bentley QC and Philipp Werner
The European General Court (GC) has confirmed a European Commission decision to hold chemical companies EI du Pont de Nemours and Dow Chemical jointly and severally liable for a fine imposed on their 50:50 joint venture (JV) for an infringement of European competition law (EI du Pont de Nemours and Company v Commission T-76/08 and The Dow Chemical Company v Commission T-77/08). In light of this judgment, parent companies would be well advised to check that their 50:50 JVs are compliant with EU competition rules.
To view the full article, please click here.
by Frank Schoneveld, Brian Fu and James Jiang
In giving approval to GE China’s joint venture with Shenhua Coal, China’s Ministry of Commerce (MOFCOM) has answered positively the recurring question of whether the formation of a joint venture falls within China’s merger control rules. It is now clear that the formation of a joint venture can require clearance from MOFCOM under China’s Anti-Monopoly Law.
To read the full article, click here.
by Louise-Astrid Aberg and Lionel Lesur
The French Competition Authority has taken a hard stance by withdrawing its authorization of French broadcaster Canal Plus’ purchase of rival commercial television company TPS, formerly the two most powerful players on the pay TV market. This decision reasserts the importance of respecting imposed remedies. In this case, Canal Plus was sanctioned with a fine of EUR 30 million for failing to fulfill the 59 remedies imposed by the Authority in 2006, and has been given one month to re-notify the transaction to the Authority.
While Canal Plus had "only" failed with respect to 10 of the 59 remedies, the Authority did not consider this to be an attenuating circumstance because several of these remedies were "essential" and that the entire "package" of commitments should have been implemented due to the likely impact of the concentration on competition in the market. In particular, Canal Plus was blamed for being too slow in providing downstream distribution companies (principally represented by internet access providers) access to channels and content. The downstream distributors needed this content to be able to offer competitive packages of pay TV. The Authority considered this obligation essential and at the heart of the commitments necessary for the maintenance of competition.
In France, the Competition Authority can act on its own to take action against companies that fail to respect commitments entered into in the context of an antitrust investigation. In the past, fines have been imposed on companies, but the amounts were quite symbolic (i.e., EUR 200,000 for two companies active in the postage sector). This recent decision will force companies submitting to remedies to resolve a planned concentration to be certain it can accept/effectuate those constraints, as the ultimate failure to respect them could lead to disastrous outcomes. Indeed, not only could companies risk a withdrawal of the Authority’s authorization and the imposition of very high fines, such as in the present case, but also, the parties could be ordered to reverse the concentration if the commitments would prove impossible to honor. Canal Plus, which has one month to renotify the concentration, will therefore be forced to undergo a new investigation by the Authority which could in theory end with an obligation to demerge.
It still remains unclear which type of remedies are considered essential by the Authority and, consequently, which breach could lead the Authority to impose the obligation to renotify and fines as significant as in the present case. More specific details from the Authority about which remedies are considered essential are necessary so that companies can be informed during their considerations of whether or not to accept certain types of remedies. This case is, however, very specific as the conditional authorization granted by the French Competition Authority in 2006 led to the creation of a monopoly. Moreover, many authors and practitioners highly criticized this decision, particularly several remedies which appeared to be impractical to implement immediately.
The decision (in French) and the press release (in English) can be read respectively at https://www.autoritedelaconcurrence.fr/pdf/avis/11d12.pdf and https://www.autoritedelaconcurrence.fr/user/standard.php?id_rub=389&id_article=1697.
McDermott Will & Emery’s International News, Issue 2, 2010, covers a range of legal developments of interest to those operating internationally. This issue focuses on Antitrust and Competition.
In this issue…
The full issue can be found at: https://www.mwe.com/info/news/int0210.htm.
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