ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
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US and EU Requirements for Pre-Merger Notification of an Acquisition of a Minority Shareholding Interest

by and | Aug 31, 2016 | , , , ,

In May, the Federal Trade Commission (FTC) required Hikma Pharmaceuticals PLC to divest its 23 percent interest in Unimark Remedies, Ltd. and its US marketing rights to a generic drug under manufacture by Unimark as a condition to allowing Hikma to complete its acquisition of Roxane Laboratories. The FTC was concerned that Hikma’s continued holding of a 23 percent interest in Unimark after consummation of its proposed acquisition of Roxane would create the incentive and ability for Hikma to eliminate future competition between Roxane and Hikma/Unimark in the sale of generic flecainide tablets (a drug used to treat abnormally fast heart rhythms) in the United States.

The FTC’s divestiture requirement was unusual but not unprecedented. The Horizontal Merger Guidelines identify three theories of competitive harm associated with an acquisition or holding of a small but significant minority interest in a competitor.

  1. Minority ownership, and any associated rights, such as veto rights over the competing firm’s budget or strategic decisions, or representation on its board of directors, may allow the shareholder to forestall, delay or otherwise hamper the competing firm’s further development or marketing of competitive products
  2. The holder of a minority interest in a competing firm has diminished incentives to compete aggressively with the competitor firm because the holder obtains an economic benefit from the success of the competing firm through its partial ownership of that competitor.
  3. The holder of a minority interest in a competing firm may have access to non-public, competitively sensitive information of the competing firm, and thus may be better able to coordinate its business decisions—such as pricing, output, or research and development efforts—with those of the competing firm, thus diminishing competition.

These theories of potential antitrust harm from minority interest acquisitions are not unique to the United States; other competition agencies, including the European Union’s competition directorate, accept and apply these theories when considering the competitive impact of a firm’s actual or proposed partial ownership interest in a competitor. However, the United States applies a significantly lower threshold than the European Union (and other competition agencies) for the pre-acquisition notification of an entity’s acquisition of a minority, non-controlling interest in another firm.

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Price Discrimination Markets Lead Antitrust Enforcers to Increased Success

by and | Aug 16, 2016 | , ,

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.

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Recent Enforcement Trends in Divestiture Packages

by | Aug 11, 2016 | , ,

The Federal Trade Commission (FTC) and US Department of Justice’s (DOJ) Antitrust Division have been actively challenging mergers and acquisitions (M&A) across a variety of industries where there is not a viable or acceptable remedy to mitigate the agencies’ competitive concerns. Parties to M&A transactions that the FTC or the DOJ believe are likely to harm competition may remedy those concerns by divesting certain businesses or assets. The parties may divest the business or assets that raise anticompetitive concerns and proceed with the remainder of the transaction. Divestitures in horizontal mergers (i.e., transactions between competitors) aim to maintain or replace the competition in the relevant market that might otherwise be lost as a result of the transaction.

Proposed divestitures are evaluated on the particular facts of the case and must be robust enough to present a viable competitor. Recent transactions demonstrate that the FTC and DOJ will reject divestiture proposals that the agency finds insufficient, putting the entire deal at risk for merging parties. Before proposing a remedy to the FTC or DOJ, parties should keep the following in mind: (1) in today’s enforcement environment, the agencies are more demanding in seeking effective remedies; (2) the agencies are more likely to  require a buyer up front, particularly if the parties seek to divest assets that are less than an entire on-going, stand-alone business, or the to-be-divested assets are at risk of deterioration pending divestiture; and (3) a buyer must be competitively and financially viable.

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McDermott’s Antitrust M&A Snapshot Published on July 17, 2016

by , and | Jul 27, 2016 | , , , , , ,

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

United States: January – June Update

The Federal Trade Commission (FTC) and US Department of Justice (DOJ) have been actively challenging mergers and acquisitions in the first half of 2016. In some instances, the parties abandoned their deal once the FTC or DOJ issued a complaint, in others, the parties entered into consent agreements with the agencies. In matters where a divestiture is an acceptable remedy, the FTC and DOJ have required robust divestitures with financially and competitively viable buyers. There is increasing pressure for broad divestitures and for upfront buyers in industries where the agencies do not have ample experience and where there may not be multiple competitive buyers willing to acquire the assets.

In merger challenges, the agencies have been successful in obtaining preliminary injunctions in Washington, DC, but have been less successful outside of their home court. The agencies have successfully argued price discrimination markets, where sales of products to a narrow group of customers were the market, and courts are accepting the agencies’ narrow market definition. We also see a trend in challenges due to innovation, where the merging parties are the market leaders in new developments and research and development in particular areas. Investigations continue to take many months, with many approaching or exceeding a year.

EU: January – June Update

In the EU, there has been a noticeable increase in the number of notified transactions to the European Commission (from 277 notifications in 2013 to 337 in 2015). Most of these transactions have been cleared by the EU regulator in Phase I without any commitments. However, there have still been a number of antitrust interventions requiring the merging parties to offer, often far-reaching, remedies. One industry has recently seen a particularly high ratio of antitrust intervention is the telecoms sector. For example, in the merger between the mobile operators Telenor and TeliaSonera, the parties abandoned the transaction due to European Commission opposition to the transaction. The European Commission publicly announced that the transaction would not have been cleared, and that the remedies offered by the companies were not convincing. A prohibition decision was also issued, despite the offered remedies, in the failed combination of Telefónica UK’s “O2” and Hutchison 3G UK’s “Three”. This transaction involved the longest merger control review by the European Commission to end up in a prohibition decision (243 calendar days, compared to the average of 157 calendar days to block a deal).

With regard to current trends in merger control remedies at the level of the European Commission, there continues to be [...]

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Baer to Serve as Acting Associate Attorney General

by | Apr 12, 2016 |

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.”



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House Passes GOP-Backed SMARTER ACT Aiming to Harmonize Merger Review Process for FTC and DOJ

by | Apr 4, 2016 | , ,

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 [...]

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Virginia’s Certificate of Need Laws May Stay, Fourth Circuit Says

by | Jan 26, 2016 | ,

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.



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Top Antitrust Enforcers Respond to Congressional Questioning

by | May 26, 2015 | , , , , ,

Federal Trade Commission (FTC) Chairwoman Edith Ramirez and Assistant Attorney General William Baer testified before the House Committee on the Judiciary’s Subcommittee on Regulatory Reform, Commercial and Antitrust Law on May 15, 2015. The oversight hearing provided an opportunity for the heads of the U.S. antitrust enforcement agencies to survey their agencies’ priorities and recent achievements. The two agency heads also faced congressional questions on a variety of topics ranging from proposed reforms to the FTC’s merger review process to the alleged unfair targeting of foreign firms by Chinese antitrust authorities.

In her prepared testimony, Chairwoman Ramirez reviewed her agency’s recent activity, emphasizing especially recent U.S. Supreme Court and appellate court victories. She reiterated the agency’s strategic focus on core areas of concern, including health care, where the agency continues to review health care provider and pharmaceutical industry mergers carefully. Ramirez also stressed the agency’s continued attention to combating efforts to stifle generic drug competition. Other key focus areas include consumer products and services, technology and energy markets.

For the U.S. Department of Justice’s (DOJ’s) Antitrust Division, Assistant Attorney General Baer’s prepared remarks focused on the division’s criminal cartel enforcement activity, including the expansive London Interbank Offered Rates  and auto parts investigations. Baer also highlighted the Division’s civil enforcement activity, noting for example that three major mergers had recently been abandoned in the face of concerns raised by the division.

Chairwoman Ramirez faced questioning from the subcommittee about its merger review process. Asked about a recent rule change, Ramirez downplayed the significance of the change and stated that it was meant merely to clarify the agency’s position in situations where a court has refused to issue a preliminary injunction. She stated that the new rule was not a departure from past practice and that the Commission always assessed each case to determine whether to continue with an administrative hearing in the wake of the denial of an injunction.

Ramirez also faced questioning about the proposed SMARTER Act. The proposed legislation, which passed out of committee in the House last fall, would require the DOJ and FTC to satisfy the same standards to obtain preliminary injunctions against mergers. Currently, for the DOJ to obtain an injunction, it must show that the transaction would cause irreparable harm if allowed to go forward. The FTC faces a different test, and must only show that the injunction is in the public interest. Under the proposed legislation, both agencies would be held to the irreparable harm standard. In addition, the legislation would prevent the FTC from using its administrative court for mergers where an injunction has been denied.  Chairwoman Ramirez contended that the proposed Act “undermines one of the central strengths of the Federal Trade Commission and one of the reasons the FTC was created in the first instance, which was to have an expert body of bipartisan commissioners rule on and develop antitrust doctrine.” She pointed also to the agency’s record of appellate success to stress her view that the [...]

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Shipping Executive Acquitted of Antitrust Charge

by | May 18, 2015 | ,

On May 8, 2015, a jury in Puerto Rico acquitted Thomas Farmer (Farmer), the former vice president of price and yield management for Crowley Liner Services, Inc., of conspiring to suppress and eliminate competition in violation of Sherman Act, Section 1. The case is United States v. Thomas Farmer (3:13-cr-00162) in the United States District Court for the District of Puerto Rico.

In March 2013, the United States Department of Justice (DOJ) indicted Farmer. The DOJ accused him of conspiring with competing shipping companies, from mid-2005 through April 2008, to fix rates and surcharges for freight transported between the United States and Puerto Rico. The DOJ alleged that Farmer and competing shipping executives participated in meetings, conversations, and communications where they agreed to allocate customers; fix and inflate prices; and rig bids submitted to government and commercial customers. The type of freight in the alleged conspiracy included heavy equipment, medicines, food, beverages and consumer goods.

While the jury acquitted Farmer, other shipping executives have either pled or been found guilty of similar charges. In January 2013, a Puerto Rican jury convicted, Frank Peake (Peake), the former president of Sea Star Line LLC. Peake was sentenced in December 2013 to five years in prison, which at the time was the longest prison sentence for a Sherman Act violation. In addition, five other shipping executives have pled guilty and been sentenced to prison terms ranging from seven months to four years.



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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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