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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THE LATEST: Federal Judge Blocks Merger of Nuclear Waste Disposal Companies Rejecting “Failing Firm” Defense

by | Jul 18, 2017 | ,

On June 21, 2017, US District Judge Sue L. Robinson blocked EnergySolutions, Inc.’s proposed acquisition of Waste Control Specialists LLC (WCS), applying a strict standard for the “failing firm” defense to a merger challenge. The parties compete in the disposal of low level radioactive waste (LLRW). WCS had argued that it would be forced to exit the market due to heavy operating losses if the transaction were not approved. Judge Robinson’s recently released opinion provides insights into how aggressively a putative failing firm must shop its assets to third parties before it can qualify for the failing firm defense to an otherwise anticompetitive merger.

WHAT HAPPENED:
  • The US Department of Justice (DOJ) filed suit in November 2016 to enjoin the proposed acquisition of WCS by EnergySolutions, arguing that the merger would lead to a substantial lessening of competition in the LLRW disposal industry. DOJ alleged that EnergySolutions and WCS are the only significant competitors in this industry for the relevant geographic market.
  • The court found that the government easily established a prima facie case of anticompetitive effects by demonstrating that the proposed acquisition would create a firm controlling an exceedingly high percentage of the relevant market and result in a significant increase in market concentration. Judge Robinson identified two product markets: the disposal of higher-activity LLRW, and the disposal of lower-activity LLRW. In both markets she found that the relevant measures of concentration “blow past the presumptive barriers” for harm to competition, especially in regards to higher-activity LLRW where the transaction would result in a “merger to monopoly.” 
  • The defendants’ main defense to rebut the government’s prima facie case was that WCS was a “failing firm.” The failing-firm doctrine considers the possible harm to competition resulting from an acquisition preferable to the negative impact on competition, loss to stockholders, and negative effect on local communities that results when a company goes out of business. Judge Robinson’s opinion explains that in order to assert a valid failing firm defense, the defendants must show that WCS faces the “grave possibility of business failure” and that there was no “other prospective purchaser.” 
  • Judge Robinson avoided deciding the more difficult question concerning whether WCS indeed faced imminent business failure, finding instead that the defendants failed to demonstrate that EnergySolutions was the only available purchaser. According to Judge Robinson, WCS’s parent company failed to make the necessary “good faith efforts to elicit reasonable alternative offers” that would have lesser negative effects on competition. 
  • The opinion highlights the fact that once it was clear that the parent company was serious about selling all of WCS, the parent company had already agreed to several deal protection devices, such as a 30-day exclusivity period with EnergySolutions, and a “no-talk” provision in the merger agreement. WCS and its parent company thus did not respond to other companies that reached out to express interest in acquiring WCS after the transaction with EnergySolutions was [...]

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THE LATEST: Federal Trade Commission and State Attorney General Seek to Block a Health System’s Physician Group Acquisition

by | Jun 29, 2017 | , ,

With its latest lawsuit to block an acquisition of physicians, the Federal Trade Commission (FTC) confirmed last week that monitoring physician consolidation is a priority. The FTC and North Dakota Attorney General sued to block the proposed acquisition by a health system (Sanford Health) of Mid-Dakota Clinic (MDC), which both serve the areas of Bismarck and Mandan, North Dakota. The deal would allegedly create very high market shares in several physician service markets.

WHAT HAPPENED
  • Sanford Health is a vertically integrated health system, which operates a general acute care hospital in Bismarck and clinics providing primary care and specialty services. Sanford employs approximately 160 physicians who work in Bismarck or Mandan. MDC is a multispecialty medical practice employing 61 physicians who provide services in Bismarck.
  • Concurrent with its sealed federal complaint to preliminarily enjoin the deal, the FTC filed an administrative complaint that alleges that the transaction would create anticompetitive effects in four physician service markets: adult primary care services, pediatric services, Obstetrics and Gynecology (OB/GYN) services, and general surgery services. Sanford and MDC are the area’s two largest providers of each of those services; in general surgery, they are the only providers.
  • The complaint contends that the relevant geographic market is no larger than the four-county Bismarck, ND Metropolitan Statistical Area. The FTC alleges that this area encompasses the locations where, to be marketable to employers, commercial health plan networks must include physicians.
  • The complaint alleges that Sanford and MDC are each other’s closest competitors and that the combination would result in post-transaction market shares of 75 percent for adult primary care services, over 80 percent for pediatric services, over 85 percent for OB/GYN services and 100 percent of general surgery services.
  • The FTC rejects as unsubstantiated and not merger specific the parties’ claims that the transaction would yield significant cost savings and quality improvements. In any event, the FTC alleges that the claimed efficiencies do not outweigh the transaction’s likely competitive harm.

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THE LATEST: DOJ Price-Fixing Probe Demonstrates That Deal Risk Is Not the Only Antitrust Concern Merging Parties Should Keep in Mind

by | Jun 15, 2017 | , , , ,

Bumble Bee Foods, and two of its senior vice presidents, have recently pled guilty to US Department of Justice (DOJ) charges that they engaged in a conspiracy to fix prices of shelf-stable tuna fish sold in the United States from 2011 to 2013. Bumble Bee agreed to pay a $25 million criminal fine that can increase to $81.5 million under certain conditions, and the company’s two senior vice presidents pled guilty and agreed to pay criminal fines as well. The investigation appears to have been prompted by information that the DOJ uncovered during its investigation of Thai Union Group’s (owner of Chicken of the Sea) proposed acquisition of Bumble Bee, which was abandoned after DOJ concerns.

WHAT HAPPENED:
  • On December 19, 2014, Thai Union Group, the largest global producer of shelf-stable tuna, announced that it had agreed to acquire Bumble Bee Foods for $1.5 billion. A year later, on December 3, 2015, the DOJ announced that the parties had abandoned the transaction after the DOJ expressed concerns that the acquisition would harm competition. The DOJ stated that “Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands, as well as combined the first and second largest domestic sellers of other shelf-stable seafood products.”
  • Beyond its comments about the potential for competitive harm from the transaction, however, the DOJ further noted that “[o]ur investigation convinced us – and the parties knew or should have known from the get go – that the market is not functioning competitively today, and further consolidation would only make things worse.”
  • It appears that the DOJ’s concerns that the market for packaged seafood was not functioning competitively spurred the government to proceed with an investigation into potential collusion among the suppliers of packaged seafood. After its investigation, the DOJ concluded that Bumble Bee Foods, two of its senior vice presidents, and other co-conspirators “discussed the prices of packaged seafood sold in the United States[,] agreed to fix the prices of those products [and] negotiated prices and issued price announcements for packaged seafood in accordance with the agreements they reached.”
WHAT THIS MEANS:
  • In the Mergers & Acquisitions context, the merging parties are most often concerned with the potential risk that antitrust concerns may pose to the deal and the ability to obtain DOJ or Federal Trade Commission (FTC) clearance for the transaction. This criminal investigation by the DOJ demonstrates that the parties need to be aware of their conduct in the market, whether they have engaged in conduct that may be found to be collusive, and the potential consequences of such conduct [...]

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THE LATEST: FTC Files Complaint Against Louisiana Real Estate Appraisers Board

by | Jun 2, 2017 |

This week, the Federal Trade Commission filed an administrative complaint against the Louisiana Real Estate Appraisers Board (LREAB). This complaint is the FTC’s first against a state licensing board since it prevailed in the Supreme Court in the decision in NC State Board of Dental Examiners v. FTC in 2015. There, the Court held that immunity from the antitrust laws under the state action doctrine does not apply to a state board that regulates an industry if: 1) a majority of the board members are active participants in the market they are regulating, and 2) the board has not been actively supervised by the state. McDermott reported in detail about the NC Board of Dental Examiners at the time of the decision. The complaint comes on the tail of a settlement agreement between the FTC and a trade organization, the American Guild of Organists, as reported this week.

FTC alleges that the LREAB violated Section 5 of the Federal Trade Commission Act by unreasonably restraining price competition for real estate appraisal services provided to appraisal management companies (AMCs) in Louisiana.

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THE LATEST: American Guild of Organists Reaches Settlement Agreement with the FTC over Challenged Professional Association Rules

by and | May 31, 2017 |

The two current commissioners of the Federal Trade Commission (FTC) approved a final order and consent agreement with the American Guild of Organists (AGO) after a public comment period of two months. The FTC alleged that the AGO violated Section 5 of the Federal Trade Commission Act by agreeing to restrain competition among its organist and choral conductor members. Under the terms of the settlement, the AGO agreed to make certain changes to its rules and policies.

WHAT HAPPENED

  • The AGO represents approximately 15,000 member organists and choral directors in 300 chapters in the United States and abroad.
  • The FTC initiated an inquiry into the AGO’s practices in late 2015 after receiving complaints from consumers and organists regarding guild rules.
  • Specifically, the AGO’s rules required a customer seeking to hire a musician who was not dedicated as the “incumbent musician” in a particular area to pay both the “incumbent musician” in the area as well as the hired musician. The AGO’s Code of Ethics stated that members should “protect themselves” through contracts that secured fees even when not performing.
  • Also, the AGO published compensation schedules and formulas, instructing its membership to use the formulas to determine pricing in their region.
  • Finally, the AGO’s rules prohibited a member from soliciting employment from an organization already employing an “incumbent musician.”
  • The FTC’s complaint alleged that these actions restrained competition by encouraging a fixed pricing schedule between and among the AGO’s membership, and by preventing members from freely seeking or accepting employment. It also alleged that the AGO’s rules and guidelines likely raised prices for consumers seeking to employ organists for special occasions, as well as the organizations that employed organists.
  • The settlement requires the AGO to change its rules and Code of Ethics, and mandates that each chapter of the AGO certify compliance in order to remain in the organization. In particular, the AGO no longer can publicize or endorse any standardized or suggested prices or interfere with any member’s ability to seek work as an organist or choral conductor.

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THE LATEST: Rohit Chopra, Progressive Student Loan Watchdog, Recommended for FTC Commissioner

by and | May 17, 2017 |

The Federal Trade Commission (FTC) is composed of five Commissioners each with terms of seven years. The Commissioners are appointed by the President with the advice and consent of the Senate. At any given time, no more than three Commissioners may be members of the same political party. Currently, Acting Chairman Ohlhausen (R) and Commissioner McSweeny (D) are the only FTC Commissioners. President Trump, therefore, can nominate two republican Commissioners and a democrat or independent commissioner. On May 9, United States Senate Minority Leader Charles Schumer (D-NY) formally recommended to President Donald Trump that Rohit Chopra fill the empty Democratic FTC Commissioner position. It is not clear how President Trump will proceed following the recommendation. Prior presidents have typically relied on recommendations from opposition leaders when deciding on a nominee for a minority commissioner.

WHO IS ROHIT CHOPRA?
  • Chopra is a Harvard University (BA) and Wharton School (MBA) graduate who has focused his career on consumer protection; specifically, advocacy for student loan forgiveness and better student loan servicing, and criticism of for-profit universities.
  • Chopra was one of the initial employees of the Consumer Financial Protection Bureau (CFPB), founded in July 2010 and proposed in 2007 by Elizabeth Warren (D-MA) in response to the Great Recession. There, Chopra served as Assistant Director and Student Loan Ombudsman, where he worked to improve student loan servicing and sued ITT Tech and Corinthian Colleges Inc. for consumer fraud.
  • In 2015, Chopra became a Senior Fellow at progressive think tank the Center for American Progress.
  • He then joined the Obama Administration as Special Advisor to the Secretary of Education, after having been critical of the Obama Administration’s work on student loan issues while at the CFPB. In particular, he encouraged the Secretary of Education to combat data showing that student loan debt doubled under the Obama Administration and the amount of student loans in default continued to increase.
  • Currently, Chopra serves as a Senior Fellow of the Consumer Federation of America, a non-profit consumer protection organization founded in 1968.
WHAT THIS MEANS?
  • If appointed, Chopra would be a non-lawyer FTC Commissioner without significant experience in antitrust issues, having worked solely in the consumer protection arena.
  • Chopra would replace former FTC Chairman Edith Ramirez, another progressive, who resigned her position effective February 10, 2017.


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McDermott Releases 1Q2017 Antitrust M&A Snapshot

by and | Apr 21, 2017 | , , , ,

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.

Read McDermott’s 1Q2017 M&A Snapshot.



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Bag Fee Case Highlights Antitrust Risk Of Public Statements

by and | Apr 12, 2017 | , , ,

For publicly traded companies, earnings calls are routine business events, as are press releases, speeches, investor conferences and trade association meetings. However, in the world of antitrust law, words uttered in these situations can provide fodder for plaintiffs to claim that instead of providing information for investors and the public, the communication’s purpose was to invite competitors to unlawfully collude. In the past several years, allegations that competitors used public statements to carry out a price-fixing agreement have been a common thread in antitrust class actions and multidistrict litigations.

Recently, a federal district court granted summary judgment in an antitrust case based on earnings calls in the airline industry. While the defendants ultimately prevailed, the case stands as a reminder to publicly traded companies to be mindful of antitrust considerations in earnings calls and other public communications.

Read the full article.

Originally published in Law360.com, April 11, 2017.



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THE LATEST: Occupational Licensing—Do We Need to Protect “the Public from Rogue Interior Designers Carpet-Bombing Living Rooms with Ugly Throw Pillows?”

by and | Mar 9, 2017 | ,

The Federal Trade Commission (FTC) has looked at licensing boards many times in the past and advocated for regulations with less restriction that promote competition.  There are numerous examples of antitrust regulators’ interest in occupational licensing and competition concerns, including Advanced Practice Registered Nurses in the VA, non-lawyers in the provision of legal services, and dental regulatory boards.  Acting Chairman Maureen Ohlhausen recently gave a speech at the Antonin Scalia Law School addressing economic liberty, including a critique of occupational licensing where she stated, “I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows.”

WHAT HAPPENED:
  • Acting Chairman Ohlhausen reiterated her view that occupational licensing inhibits economic liberty. “Market dynamics will naturally weed out those who provide a poor service, without danger to the public.  For many other occupations, the costs of added regulation limit the number of providers and drive up prices.  These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services.”
  • In the 1950s, less than five percent of jobs required a license. Today, approximately 25 to 30 percent of jobs require a license.
  • Different states regulate different occupations, and licensing requirements for the same occupations often vary significantly among states.
  • In her speech, Acting Chairman Ohlhausen said she is creating an Economic Liberty Task Force within the FTC. This task force will focus on occupational licensing regulations.
WHAT THIS MEANS:
  • We will likely see an increase in FTC actions involving licensing boards, such as in North Carolina Dental, where it is not the state itself acting but self-interested active market incumbents who impose occupational licensing requirements that limit competition.
  • The FTC Task Force will seek to “eliminate and narrow overbroad occupational licensing restrictions that are not narrowly tailored to satisfy legitimate health and safety goals.”
  • The FTC will help states identify problematic occupational licensing and reforms that promote reciprocity among states. We could see a roll back of occupational regulations.
  • Licensing boards and those who are involved in licensing regulations should examine the ways in which the regulation affects or could affect competition, whether there is evidence that a regulation is necessary to achieve the targeted policy goal, whether the regulation is narrowly tailored to meet the policy goal, and whether a less restrictive alternative is available to achieve the policy goal and benefit competition.


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THE LATEST: FTC Fixes Consummated Pharma Transaction Involving Pre-Phase 3 Product Because It Eliminated a “Nascent Threat”—Tacks on $100 Million Disgorgement Penalty

by and | Mar 7, 2017 | , ,

The Federal Trade Commission (FTC) challenged a consummated transaction using a monopolization theory to allege that the acquisition would eliminate “nascent” competition for therapeutic adrenocorticotropic hormones (ACTH) in the United States.

WHAT HAPPENED:
  • Questcor Pharmaceuticals, Inc.’s (Questcor) H.P. Acthar Gel (Acthar) is the only ACTH product sold in the US, is the standard of care for infantile spasms and is indicated for several other diseases.
  • In 2013, Questcor acquired the US rights to Synacthen Depot (Synacthen) from Novartis. Questcor was subsequently acquired by Mallinckrodt.
  • Synacthen is pharmacologically very similar to Acthar, as the active ingredient in both drugs is an ACTH molecule.
  • At the time of the acquisition by Questcor, Novartis’ Synacthen had been used safely and effectively for decades in Europe, Canada and other parts of the world to treat patients suffering from infantile spasms and other diseases. Synacthen had not yet begun US clinical trials.
  • The FTC alleged a monopolization theory—that Questcor had “extinguished a nascent competitive threat to its monopoly” by outbidding several other companies who were interested in bringing Synacthen to market in the US to compete with Questcor’s Acthar.
  • Then FTC Chairwoman Edith Ramirez (she has since resigned) noted that Questcor had a history of taking advantage of its monopoly, repeatedly raising the price of Acthar “from $40 per vial in 2001 to more than $34,000 per vial today—an 85,000 percent increase.”
  • The FTC settlement requires a $100 million monetary payment and that Mallinckrodt (Questcor was acquired by Mallinckrodt) license Synacthen for treating infantile spasms and nephrotic syndrome to an FTC approved licensee.
WHAT THIS MEANS:
  • In some circumstances, an action by a monopolist to block a nascent threat to its monopoly can violate the antitrust laws.
  • Typically, the FTC does not challenge pharmaceutical overlaps involving pharmaceuticals that have not yet entered Phase 3 clinical trials because there is still significant uncertainty that a product will ultimately come to market.
  • The FTC appears to have made an exception to its typical practice because Synacthen was anticipated to gain US approval easily and compete significantly with Acthar. Synacthen was approved outside the US for decades and was understood to be a safe and effective ACTH treatment.
  • The FTC may bring an action at any time under Section 7 to determine the legality of an acquisition. However, the FTC challenged this consummated transaction under a Section 2 theory of monopolization. The FTC has many tools to challenge actions under the antitrust laws.


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