ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
Monopolization/Abuse of Dominance
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Local Wholesaler-Retailer Dispute Has Federal Implications

by | Oct 16, 2014 | , ,

On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.

In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand.  Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.

The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell.  Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information.  Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores.  According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”

After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products.  This temporary resolution, however, failed when Major Mart did not reallocate its shelf space.  In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors.  Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college.  Eventually, Major Mart sued.

Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act.  In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.

Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to [...]

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Contractual Duty to Deal Does Not Equal Antitrust Duty to Deal

by | Jul 31, 2014 | , ,

Addressing for the first time whether a patent holder under a contractual duty to deal is also subject to an antitrust duty to deal, the U. S. Court of Appeals for the Second Circuit upheld dismissal of a putative antitrust class action challenge to a drug manufacturer’s refusal to fully supply competitors’ requested quantities under patent settlement agreements.  In re Adderall XR® Antitrust Litigation, Case No. 13-1232 (2d Cir., June 9, 2014) (Sack, J.).

The defendants, Shire, hold patents covering Adderall XR.  Previously, Shire sued generic drug manufacturers Teva and Impax for patent infringement after those manufacturers—seeking U.S. Food and Drug Administration (FDA) approval to produce generic Adderall XR—argued that Shire’s patents were “invalid or will not be infringed.”  Shire settled with Teva and Impax in 2006 with variants of the traditional reverse-payment agreement.  In these settlement agreements, Teva and Impax agreed to stay out of the Adderall XR market for three years (even if FDA approval came earlier), but unlike a traditional reverse-payment agreement (where the patent holder pays money to the potential entrant), Shire agreed to grant licenses starting in 2009 for making and selling the drug and, if FDA approval had not yet occurred, to supply Teva and Impax’s requirements of unbranded Adderall XR for resale.  The 2d Circuit summarized the arrangement as follows: “Shire undertook to give its competitors both the rights and the supplies necessary to participate in the market for [Adderall XR].”  By the time Shire’s contractual exclusivity expired, the FDA had not approved either Teva or Impax’s applications, so Teva and Impax began purchasing from Shire.  Shortly thereafter, both companies alleged that Shire breached the settlement agreement obligations by refusing to fully fulfil their requirement orders.  However, both companies eventually settled with Shire.

In the present case, drug wholesaler and plaintiff Louisiana Wholesale Drug Company (LWD) brought a putative class action against Shire.  It alleged antitrust violations stemming from the effect of the supply shortfall on the prices the proposed class of drug wholesalers paid.  LWD argued that Shire’s “ordinary breach of contract” became “an unlawful act of monopolization” because, by entering into the agreements, Shire “relinquish[ed] its monopoly control over” Adderall XR vis-à-vis Teva and Impax and thereby created a “duty to deal” with its competitors under the Supreme Court’s 1985 Aspen Skiing decision.  Specifically, LWD alleged that Shire artificially inflated prices by holding back some of its supply from generic manufacturers/patent licensees Teva and Impax, from whom LWD purchased Adderall XR.  After the district court dismissed the complaint on a R. 12(b)(6) motion to dismiss, LWD appealed.

The 2d Circuit affirmed the district court’s dismissal for failure to state a claim, concluding that LWD’s “allegations amount to the self-defeating claim that Shire monopolized the market by ceding its monopoly” and that “the complaint does little more than attach antitrust ‘labels and conclusions’ to what is, at most, an ordinary contract dispute to which the plaintiffs are not even parties.”  The court reasoned that “‘the sole exception to the broad right of [...]

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China’s Latest Enforcement of the Anti-Monopoly Law and Price Supervision/Regulation

by | Feb 25, 2014 | ,

by John Z.L. Huang,  Alex An, Bryan Fu and Cook Xu

China’s National Development and Reform Commission (NDRC) recently outlined its latest efforts in the enforcement of the Anti-Monopoly Law and price supervision.  This newsletter summarizes the noteworthy information NDRC disclosed.

Click here to read the full article.



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FTC Opinion Finds Domestic Pipe Fitter Unlawfully Maintained Its Monopoly

by | Feb 7, 2014 | ,

On February 6, 2014, the Federal Trade Commission (FTC) released its opinion and final order against McWane Inc., finding the company unlawfully maintained its monopoly by excluding competitors.  McWane Inc. is the largest domestic supplier of ductile iron pipe fittings, which are used in municipal and regional water distribution systems to change water flow or allow connectivity for hydrants, valves and water meters.

The administrative complaint alleged that McWane conspired with two of its competitors that altogether supply the majority of domestic fittings, to raise and stabilize prices.  Additionally, McWane was alleged to have excluded its competitors from the domestic pipe fittings market in order to unlawfully maintain its monopoly in violation of antitrust laws.

The Commission found McWane liable for unlawfully maintaining its monopoly in domestic pipe fittings, which constitute a separate market because many local, state and federal regulations required special fittings.  Consequently, imported products were not substitutable and domestic distributors required access to special fittings to supply all the project needs of their customers.  While one of McWane’s competitors sold the commonly used fitting sizes and configures that could be used in nearly 80 percent of projects, as a new entrant, it did not sell more specialized fittings.  Knowing that the competitor did not supply a full line of pipe fittings, McWane established an unlawful exclusive dealing program.  Under McWane’s “Full Support Program,” it threatened that distributors purchasing domestic fittings from Star would be prohibited from purchasing domestic fittings from McWane.  Thus, McWane was able to unlawfully maintain its monopoly by “foreclose[ing] [its competitor] and other potential entrants from accessing a substantial share of distributors.”  The Commission further found that McWane “created a strong economic incentive for distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the domestic fittings market.”

While the Commission’s opinion found McWane liable for unlawfully maintaining its monopoly, the remaining counts in the administrative complaint were dismissed for a variety of reasons.  Although the two commissioners found McWane engaged in price-fixing behavior, the counts were dismissed in the public interest due to a lack of majority position.  The Commission’s final order precludes McWane from requiring exclusivity from its distributors, but still permits McWane to lure customers through discounts, rebates and other price and non-price incentives.



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Court Certifies Class in Hospital Merger Antitrust Lawsuit

by | Dec 19, 2013 | , ,

On December 10, 2013, Judge Edmond Chang of the Northern District of Illinois certified a class of plaintiffs who filed a proposed class action against NorthShore University Health System (formerly Evanston Northwestern Healthcare) on behalf of all end-payors who purchased inpatient and outpatient healthcare services directly from NorthShore.

In 2000, Evanston Northwestern acquired rival Highland Park Hospital.  The FTC successfully challenged the consummated merger in 2004, but did not order divestiture because the hospitals had already been merged and was functioning as a single entity for several years.  After the FTC’s decision, the plaintiffs brought their class action, alleging that NorthShore illegally monopolized the market and caused the plaintiffs and the putative class to pay artificially inflated prices for healthcare services.

A previously assigned judge denied the plaintiffs’ motion for class certification, holding that the plaintiffs had failed to satisfy the Rule 23(b)(3) “predominance” prerequisite to class certification – i.e., that there are questions of law or fact common to class members that predominate.  Fed. R. Civ. P. 23(b).  On interlocutory appeal, the Seventh Circuit held that the plaintiffs did satisfy predominance, then vacated the district court’s order and remanded.

On remand, Judge Chang held that the only remaining issue as to class certification was whether  the plaintiffs had satisfied the Rule 23(b)(3) “superiority” prerequisite to class certification, i.e., that a class action must be “superior to other available methods for fairly and efficiently adjudicating the controversy.”  Fed. R. Civ. P. 23(b)(3).  NorthShore argued that  the plaintiffs failed to satisfy the superiority prerequisite because: 1) arbitration is superior to class action litigation (with respect to the payors who NorthShore alleged are bound by arbitration provisions in the payor contracts); 2) managed care organizations have an interest in individually controlling any claim against NorthShore; and 3) class certification would be unmanageable because a trial would require “hundreds of mini-trials analyzing many individual [NorthShore contracts with payors]”.  Judge Chang disagreed, finding, among other things, that the parties disagreed as to whether all of NorthShore’s contracts with payors even contained arbitration provisions.  Moreover, Judge Chang noted that the payors had not yet taken a position as to whether they wanted to exercise their individual right to control the litigation, despite ample opportunity to do so.  Finally, Judge Chang commented that the “Seventh Circuit credited the ability of the plaintiffs’ expert . . . to use common evidence to show that all of the class members suffered some antitrust impact,” which would eliminate the need for hundreds of mini-trials on liability.  Accordingly, Judge Chang found that the plaintiffs had satisfied the superiority prerequisite and certified the class.

This is a unique case because most hospital mergers are challenged pre-consummation, where an injunction is the only remedy available to plaintiffs.  In fact, this is the first private antitrust class action related to a hospital merger.



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FTC Focuses Enforcement Efforts on Health Care, Technology and Energy Sectors

by | Nov 25, 2013 | , , , ,

On November 15, 2013, Chairwoman Edith Ramirez testified on behalf of the Federal Trade Commission (FTC) before the House Subcommittee on Regulatory Reform on the topic of antitrust oversight and enforcement.  Ramirez explained that the FTC “focuses its enforcement efforts on sectors that most directly affect consumers, such as health care, technology and energy.”

The FTC has identified health care provider consolidation as a significant component of increasing health care costs, and overseeing provider combinations has remained a key priority for the agency.  The FTC has also undertaken efforts to promote competition between manufacturers of generic and brand-name drugs.  In addition to litigating “pay-for-delay” settlements, the Commission has filed amicus briefs to advocate against other practices it considers anticompetitive, such as “product hopping,” the practice of altering the formula of a brand-name drug in a minor, non-therapeutic way in order to preserve monopoly power in the face of generic competition.

In the technology arena, the FTC has targeted the problem of patent hold-up.  The Commission has pursued enforcement actions aimed at preventing holders of standard essential patents from rescinding agreements to license the patents on reasonable and non-discriminatory (RAND) terms.  The FTC is also actively looking into the potential harms and efficiencies of “patent assertion entities,” which are companies “with a business model focused primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technology.”

The Chairwoman noted that the Commission utilizes “all the powers at its disposal” to police competition in the energy sector, and it considers merger review “essential to preserving competition in these markets.”  The agency also monitors gasoline and diesel fuel prices on a daily basis for unusual pricing activity, which could be a sign of anticompetitive conduct.



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Dow Chemical Co. Secures Stay, Will Challenge Calculation of Treble Damages on Appeal

by | Oct 8, 2013 | ,

by Lincoln Mayer

The U.S. District Court for the District of Kansas granted Dow Chemical’s request to stay a $1.06 billion verdict in an antitrust class action suit pending appeal.  The jury’s original $400 million verdict, for allegedly fixing prices of chemical inputs for urethane foam, was trebled to $1.2 billion before the court reduced the award to account for damages paid by other defendants.  Dow said that, among other arguments it will maintain on appeal, it plans to contend that each plaintiff—not the class as a whole—was entitled to trebling of damages.

This may be a novel argument and the district court declined to adopt it because it said it had been provided with no case law on point.  But if the argument, which relies on a very literal reading of the statute, were to gain more traction on appeal, it could give defendants in antitrust class actions a useful tool: the ability to stretch out payments over a longer period of time by forcing each specific plaintiff to prove its damages before receiving the treble portion of the award.  Defendants alternatively could use that ability as leverage to negotiate a reduced overall award.



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Federal Jury Finds Horse Association Guilty of Antitrust Conspiracy and Monopolization

by | Aug 5, 2013 |

by Karne Newburn

On July 30, 2013, a federal jury unanimously ruled against the American Quarter Horse Association (AQHA), the largest equine breed registry and membership organization, in Abraham & Veneklasen Joint Venture v. American Quarter Horse Association, 2-cv-0103 (N.D. Tex.).  The jury found AQHA guilty of conspiring to bar cloned horses from the organization’s horse registry, and monopolizing the U.S. market for high-quality registered Quarter Horses in violation of Sherman Act Sections 1 and 2, and analogous Texas state law.  The jury did not award any damages.

The plaintiffs are a rancher and a joint venture that breed cloned horses.  The plaintiffs sued AQHA over a 2004 AQHA rule that prohibits the registration of cloned horses and their offspring in AQHA’s breed registry.  Registration is an alleged prerequisite for participation in horse shows, races and other events.

The plaintiffs’ conspiracy claim alleged that particular AQHA officers or committee members influenced AQHA’s decision to ban cloned horses because they have a financial incentive to block competition from cloned horses in races and other events.  The plaintiffs’ monopolization claim alleged that AQHA monopolized or attempted to monopolize the market for “high quality registered Quarter Horses” in the United States by instituting and maintaining its rule prohibiting cloned horse registration.  The plaintiffs also alleged that their cloned horses are “virtually worthless” without AQHA registration.

AQHA announced on its website its intention to overturn the federal jury’s verdict on Thursday.  The announcement included the following comments made on Tuesday from AQHA Executive Vice President, Don Treadway, Jr.:

“We are deeply disappointed by the outcome of this trial.  It continues to be our position that our rule prohibiting the registration of clones and their offspring is both reasonable and lawful.  When individuals with shared interests, goals and values come together to form a voluntary association to serve a common purpose, the members have a right to determine the rules for their association. The wisdom of our membership – which is largely not in favor of the registration of clones and their offspring – has not been upheld by this verdict.”  

Post-trial proceedings will likely follow, including the determination of the scope of the injunctive relief requested.



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Judge Finds that Apple Conspired to Raise E-book Prices

by | Jul 12, 2013 | ,

by James Camden

On July 10, 2013, Judge Denise Cote of the Southern District of New York issued a 160-page opinion holding that Apple conspired with five book publishers to raise e-book prices and eliminate retail price competition in violation of Section 1 of the Sherman Act and several relevant state statutes.  United States v. Apple Inc., case number 12-civ-2826 (DLC).  The five publishers – Hatchett, HarperCollins, Macmillan, Penguin and Simon & Schuester – had all previously settled with the U.S. Department of Justice (DOJ).

The opinion stated that as Apple prepared to launch its iPad to the public and sought to concurrently enter the e-book market with its iBookstore, it met with the publishers and agreed to provide them with an “agency model” for e-book pricing that allowed the publishers to set the prices of the e-books themselves, subject to certain price caps.  Apple’s agreements with the publishers also included Most Favored Nation provisions which ensured that Apple could match its competitors’ prices and also provided an incentive for the publishers to lobby Amazon and other retailers to change their wholesale business models to agency models.  According to the court’s opinion, these agency model agreements caused e-book prices to increase, sometimes 50% or more for a specific title.

A separate trial for potential damages will be scheduled later.  Apple said it will appeal the ruling.



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Antitrust and Healthcare: A Comprehensive Guide

by | Jul 9, 2013 | , ,

McDermott Will & Emery is pleased to announce the publication of Antitrust and Healthcare: A Comprehensive Guide, First Edition. This new publication, produced by American Health Lawyers Association provides invaluable “practice pointers” to help healthcare industry participants, and their counsel, minimize antitrust risk and more successfully plan and execute business and litigation strategies.   McDermott partner, David Marx, Jr., co-authored this first edition with Christine L. White and Saralisa C. Brau of the Federal Trade Commission. The authors draw on their significant government enforcement and private-sector counseling and litigation experience to explain the application of antitrust principles to the different segments of the healthcare industry and the specific issues they confront.  Health care lawyers and antitrust practitioners will find this new guide a complete resource for representing all types of organizations including healthcare providers; commercial insurance companies and managed care organizations; for-profit, not-for-profit, and government-owned or controlled concerns; self-insured employers; and professional partnerships.   Sections covered include:
  • Antitrust Overview
  • Mergers, Acquisitions, and Issues of Legality
  • Premerger Notification and Transaction Planning
  • Joint Ventures
  • Provider Networks and Managed Care Contracting
  • Trade Associations and Group Purchasing Organizations
  • Medical Staff Privileges, Exclusive Physician Contracts, and Peer Review
  • Monopolization
  • The Robinson-Patman Act
  •  Exemptions and Immunities
The full table of contents can be viewed here.   To purchase the book, click here. 


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