At the one year anniversary of the Trump administration, antitrust merger enforcement remains similar to the Obama administration, but it is still early to judge given the delays in antitrust appointments and given the DOJ’s lawsuit against the vertical AT&T/Time Warner transaction, the first vertical merger litigation in decades. Below are some of the recent developments that have impacted merger enforcement by the Federal Trade Commission (FTC) and Antitrust Division of the US Department of Justice (DOJ), as well as European regulators.
A grand jury has indicted three foreign currency exchange spot market dealers for alleged violations of the Sherman Act, 15 U.S.C. § 1, in a case brought jointly by the DOJ’s Antitrust Division and the US Attorney’s Office for the Southern District of New York (SDNY). The allegations in the case, United States v. Usher, et al., are that the three named defendants conspired to suppress and eliminate competition for the purchase and sale of Euro/US dollar (EUR/USD) currency pairs via price fixing and bid rigging.
The foreign currency exchange spot market (the “FX Spot Market”) enables participants to buy and sell currencies at set exchange rates. The FX Spot Market is an “over-the-counter” market conducted via direct customer-to-dealer trades, i.e., without an exchange. In the market, currencies are traded and priced in pairs, whereby one currency is exchanged for the other. When filling customer orders, dealers in the FX Spot Market do not serve in a broker capacity, but rather fulfill the orders via their own trading and speculation in the requested currency markets. Dealers employ traders to quote prices and engage in trades to fill customer orders. The dealers and their traders are able to access a separate virtual market, known as the interdealer virtual market, which enables currency trades amongst dealers. According to the Indictment, currency pair prices are set by a continuous auction in the interdealer virtual market, where “individual actions taken by competing traders—to bid or not bid, to offer or not offer, to trade or not to trade, at certain times, and using certain tactics—can cause or contribute to a change in the exchange rate shown in the [virtual trading] interface, and thus may benefit, harm, or be neutral to a competing trader.” The Indictment asserts that this is because the benchmarks used by the virtual market were calculated at particular times each day and were based on “real-time bidding, offering, and trading activity” on the virtual trading market.
The Indictment asserts that the defendants violated the Sherman Act by:
engaging in chat room communications whereby they discussed customer orders, trades, names and risk positions;
refraining from trading against each other’s interests;
coordinating bids for the purpose of fixing the price of the EUR/USD pair.
Defendants are alleged to have engaged in profitable EUR/USD transactions while acting to fix prices and rig bids for the EUR/USD product in the FX Spot Market. The Indictment further alleges that others were co-conspirators, suggesting that there may be cooperating witnesses and possibly further indictments to follow. Of note, however, recent Trump Administration changes to US Attorneys and DOJ Division Deputies and Chiefs may conceivably alter the course of this and any follow-on litigation. Regardless, over-the-counter markets have been a focus of antitrust lawsuits in recent years, most notably in the widely-covered Libor suits, and that trend is expected to continue.
Transactions that meet the Hart-Scott-Rodino thresholds for notification must be reported to the Federal Trade Commission (“FTC”) and Department of Justice. Where a notified transaction raises competition concerns, the reviewing agency may decide to launch an in-depth investigation and request additional information from the merging parties, known as a “Second Request,” which can take several months and cost companies millions of dollars to fully respond. Under FTC Acting Chairwoman Maureen Ohlhausen’s leadership, however, the burden of a Second Request may decrease, as she intends to narrow their scope.
WHAT HAPPENED:
Acting Chairwoman Ohlhausen has signaled that Second Requests will be more limited under her leadership, based on comments made on February 15, 2017 at a Washington conference.
The standard for initiating a Second Request will not change. However, once initiated, Second Requests will be narrower in scope, in terms of markets assessed and data requested from companies.
WHAT THIS MEANS:
The standard used by the FTC to initiate such investigations will not change; thus, complex transactions raising competition concerns will likely still face a Second Request.
However, the time and cost associated with complying with a Second Request may be reduced, which will be good news for companies who may face a shorter review at a lower cost.
This business-friendly approach is consistent with Commissioner Ohlhausen’s guiding principles of “regulatory humility, […] the power of competitive markets, and a devotion to empiricism” and her objective to “minimiz[e] the burdens on legitimate businesses”. As such, it may be one of further changes to come in FTC enforcement.
On Friday, January 13, 2017, the Department of Justice (DOJ) and Federal Trade Commission (FTC) released the new Antitrust Guidelines for International Enforcement and Cooperation. These guidelines were jointly developed by the agencies and serve to update the Antitrust Enforcement Guidelines for International Operations that have been in place since April 1995. The new guidelines include a revised discussion on conduct involving foreign commerce, a new chapter on international cooperation, and updated language, case law, and illustrative examples throughout.
In the last two years, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) brought, and won, several litigated merger cases by establishing narrow markets comprised of a subset of customers for a product. This narrow market theory, known as price discrimination market definition, allowed the agencies to allege markets in which the merging parties faced few rivals and, therefore, estimate high post-merger market shares. By their nature, price discrimination markets can lead to a challenge of a high-value deal where only a small number of the merging parties’ customers are allegedly harmed. Given the increased usage by the agencies and now judicial acceptance of the theory, counsel for merging parties must consider the potential for price discrimination market definition in assessing the antitrust risks for transactions.
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 [...]
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.”
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 [...]
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.
On June 12, 2012, the Federal Trade Commission (FTC) announced the appointment of Leemore Dafny to assume the newly created position of Deputy Director for Health Care and Antitrust, effective August 1, 2012.
Dafny is an Associate Professor of Management and Strategy at the Kellogg School of Management of Northwestern University, where she has served on the faculty since 2002. She is a microeconomist whose research focuses on competition in health care markets.
Her appointment to a newly created position signals the FTC’s continuing focus on the U.S. health care industry for antitrust scrutiny and, if anything, an effort to increase its expertise/jurisdiction over health care in relation to the U.S. Department of Justice. According to economists with whom McDermott regularly works, clients should not expect a change in the FTC’s enforcement posture as a result of her appointment, but Dafny should bring a broader perspective given her work with health insurance markets, experience the FTC is currently lacking.
The FTC’s press release announcing Dafny’s appointment can be found here.
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