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

by Lisa A. Peterson | Jan 26, 2016 | DOJ Developments, FTC Developments

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.

Shipping Executive Acquitted of Antitrust Charge

by Gregory E. Heltzer | May 18, 2015 | Cartel Enforcement, DOJ Developments

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.

Parking Heater Manufacturer Pleads Guilty to Price-Fixing

by Young Cynn | Mar 17, 2015 | Cartel Enforcement, DOJ Developments

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.”

Increasing Antitrust Risk in Non-Reportable Transactions – DOJ Obtains Disgorgement of Profits in Tour Bus Settlement

by Jon B. Dubrow | Mar 11, 2015 | DOJ Developments, Joint Ventures/Competitor Collaboration

The U.S. Department of Justice (DOJ) recently reached a settlement with Coach USA Inc. and City Sights LLC, breaking up their joint venture. The DOJ also employed the rarely used remedy of disgorgement to recover $7.5 million in profits from the defendants. This case demonstrates the aggressive posture the antitrust agencies are taking to challenge and impose harsh remedies upon transactions that are not reportable under the Hart-Scott-Rodino (HSR) Act. It also highlights the need to properly evaluate and prepare for the antitrust implications of non-reportable transactions under the HSR Act.

DOJ Obtains Disgorgement

In 2009, two operators of hop-on, hop-off bus tours in New York City formed a joint venture, Twin America LLC. Prior to the formation of Twin America, Coach USA and City Sights were the two largest companies in the alleged hop-on, hop-off bus tour market in New York City, with a combined 99 percent share of the market. The DOJ alleged that the two companies’ joint venture created an unlawful monopoly and enabled them to increase prices by approximately 10 percent. The DOJ filed an antitrust complaint challenging the deal in December 2012, well after it was consummated in 2009. The case was proceeding towards trial when the parties agreed to a settlement, which they announced on March 16, 2015.

Under the terms of the settlement, the defendants must take several steps to restore competition allegedly lost through the formation of the venture. Twin America must divest all 50 of City Sight’s valuable Manhattan bus stop authorizations. The divestiture will eliminate a significant barrier to entry, as the bus stop authorizations are required by the New York City Department of Transportation to operate bus tours, and little capacity for new authorizations exists. Coach USA and Twin America must also establish antitrust training programs and provide the government with advance notice of any future acquisition in the alleged market. Coach USA must pay $250,000 in attorney’s fees to the United States in connection with claims that it spoliated evidence and did not meet its document preservation obligations.

Most noteworthy, the settlement requires the defendants to pay $7.5 million to disgorge what the DOJ viewed as excess profits obtained as a result of the combination. Prior to this settlement, the defendants had already agreed to pay $19 million to settle a related class action lawsuit. One criticism of disgorgement as a remedy in antitrust matters is that disgorgement may excessively punish defendants that are also subject to potential civil litigation in which they may pay additional damages. Here, the DOJ concluded that the defendants were unjustly enriched by an amount greater than the $19 million settlement, and the additional $7.5 million disgorgement was intended to divest the defendants of additional ill-gotten profits and deter similar conduct in the future.

This disgorgement is significant. It is a remedy that the FTC and DOJ have used very infrequently, particularly in merger cases. To the extent the Twin America case creates a precedent for the use of that remedy, it increases [...]

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Top Antitrust Watchdog to Merging Firms: DOJ Not Interested in Remedies that Require Ongoing Regulatory Oversight

by McDermott Will & Emery | Feb 19, 2015 | DOJ Developments, Mergers & Acquisitions

Head U.S. Department of Justice (DOJ) antitrust enforcer, Bill Baer, believes the Federal Trade Commission and DOJ are law enforcement agencies, not regulators. In his recent speech at the Global Competition Review Fourth Annual Antitrust Leaders Forum, Baer stressed that antitrust regulation “is not what we do. And it is not how we ought to think about what we do.” He added that the antitrust agencies “do not aspire to be regulators or to pick winners and losers. Instead antitrust enforcement, done right, focuses on removing impediments to competitive markets and protecting market structures that facilitate competition.” Baer’s enforcement-minded approach likely explains one reason why the federal antitrust agencies do not typically accept conduct remedies to resolve antitrust concerns. Conduct remedies require an entity to take, or refrain from, certain business conduct (e.g., price maintenance commitments). The federal antitrust agencies disfavor conduct remedies in part because they often require significant monitoring (i.e., regulation) to fully protect competition. As enforcers, Baer believes the agencies should use the antitrust laws to preserve competition with little regulatory involvement. He noted in his recent speech that effective antitrust remedies “minimize the need for ongoing regulatory involvement in decisions better left to the market.”

As litigation expenses continue to rise, it is often prudent for parties under antitrust investigation to resolve the antitrust agencies’ concerns through a consent agreement. The nature of the parties’ proposed remedy is highly important. With federal antitrust agencies unlikely to accept conduct remedies to resolve antitrust concerns, parties must be ready to present structural remedies—i.e., asset divestitures to ready, willing and able buyers—that fully preserve competition. The antitrust agencies will carefully scrutinize any proposed remedy. If the reviewing agency believes the remedy falls short of fully preserving competition, then it likely will be rejected. Indeed, Baer messaged in his speech that “[s]ound antitrust enforcement requires careful attention to remedies.” He praised DOJ’s recent efforts to reject inadequate remedy proposals in favor of pursuing law enforcement actions to obtain the relief DOJ deemed necessary to preserve competition. In short, parties must be ready to fully address the antitrust agencies concerns or do battle in court.

Aerospace & Defense Series: Leading Antitrust Considerations for M&A Transactions

by Jon B. Dubrow | Dec 18, 2014 | DOJ Developments, FTC Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

Aerospace and defense contractors engage in a wide range of mergers, acquisitions and joint venture transactions, which are often subject to heightened antitrust scrutiny. This article highlights some of the leading antitrust factors that contractors should consider when contemplating M&A transactions in their unique industry.

Read the full article.

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.

Proposed Remedies in the Midst of the Patent Wars: EU and US Antitrust Watchdogs Push to Strengthen FRAND in Standard Setting

by McDermott Will & Emery | Nov 20, 2012 | DOJ Developments, FTC Developments, IP Antitrust

by David Henry, Wilko van Weert and Philipp Werner

Chief Economists from the US Federal Trade Commission, the US Department of Justice and the EU Directorate General for Competition, have agreed on a set of four, non-binding suggestions that should—if followed by standard-setting organizations – increase the level of protection afforded to consumers and promote innovation.

To read the full article, click here.

FTC Names Dafny Deputy Director of the Agency’s Bureau of Economics

by McDermott Will & Emery | Jun 14, 2012 | FTC Developments, Healthcare Antitrust

by Stephen Wu

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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