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FTC Rule Change Simplifies Process Following a Denial of a Preliminary Injunction Motion

by Lisa A. Peterson | Mar 18, 2015 | FTC Developments, Mergers & Acquisitions

On March 14, 2015, the Federal Trade Commission (FTC) announced procedural revisions governing the FTC process when it loses an injunction bid in federal court, to block the consummation of a merger pending its in-house administrative proceedings on the legality of the merger.

When the FTC seeks to challenge a merger, the FTC generally seeks an injunction in court to prevent consummation of the merger pending the outcome of an internal administrative proceeding. If the injunction is implemented, it prevents the parties from integrating the assets and preserves the FTC’s ability to effectively and efficiently fix the merger should it be warranted at the conclusion of the administrative proceeding.

Under the new rules, when the FTC loses its request for an injunction, the pending in-house administrative proceeding will be automatically withdrawn or stayed at the request of the merging parties unless the FTC determines that continuing the litigation would serve the public interest. The intention of the new procedure it to make clear that the FTC will not automatically continue its internal administrative hearing to block a merger if it fails to win an injunction in federal court.

When deciding whether to continue its administrative proceedings, the FTC will still evaluate a proposed transaction under the same factors it used before the rule change. The five factors the FTC uses to determine whether it is in the public interest to pursue administrative proceedings are: (1) a federal court’s factual findings and legal conclusions; (2) any new evidence developed during the preliminary injunction proceeding; (3) whether administrative proceedings will resolve important issues of fact, law or merger policy raised by the transaction; (4) an overall evaluation of the costs and benefits; and (5) any other matter that influences whether it would be in the public interest to continue with the merger challenge.

The FTC’s procedural revision will go into force shortly. It will, therefore, be in effect before the outcome of its preliminary injunction hearing seeking to block the merger between Sysco Corp. and US Foods Inc. pending an internal administrative proceeding. The preliminary injunction hearing is set in May 2015 before Judge Amit Mehta in the United States District Court for the District of Columbia, and the in-house administrative proceeding is set for July. If the FTC loses the preliminary injunction hearing in federal court, the new procedure will be exercised for the first time.

FTC Competition Chief Defends Stand-Alone Section 5 Use in Unfair Competition Cases

by Young Cynn | Mar 16, 2015 | FTC Developments

In a blog post last Friday, Debbie Feinstein, Director of Competition at the Federal Trade Commission (FTC), defended the agency’s use of FTC Act Section 5 to target unfair methods of competition outside the scope of the Sherman and Clayton Acts.

While the use of Section 5 in consumer protection cases has long been established, many, including U.S. Congress members and FTC Commissioners, have urged the FTC in recent years to issue clearer guidelines on how Section 5 will be used to target conduct related to unfair methods of competition. Feinstein suggested that those interested in the FTC’s future use of Section 5 “should look at what the Commission has done and the reason it gave for acting to stop the behavior. . . . The touchstone of every stand-alone Section 5 claim . . . is likely or actual harm to competition or the competitive process.”

Feinstein pointed specifically to invitation to collude cases as a prime example of the type of conduct prosecuted in a stand-alone Section 5 action. The FTC first brought an invitation to collude case in the early 1990s, see Quality Trailer Products, 115 F.T.C. 922 (1992), in which Quality Trailer Products employees visited a competitor and urged it to raise its prices while stating that Quality Trailer would also raise prices. Since that time, the FTC has continued to use Section 5 to bring actions in invitation to collude cases. Most recently, the FTC brought complaints against two internet resellers of UPC barcodes in July 2014, alleging they had sent messages to one of their competitors proposing a scheme to raise their prices in line with the prices of another competitor. Feinstein suggested that the large number of cases brought unanimously by the Commissioners “demonstrates that we are using our stand-alone Section 5 authority responsibly.”

Feinstein also noted that nearly all stand-alone Section 5 cases brought by the FTC have resulted in an injunctive remedy — “I want to underscore that the Commission’s policy is not to seek disgorgement in stand-alone Section 5 cases. . . . Without the threat of a monetary penalty (let alone treble damages), I find it hard to understand the claim that significant procompetitive conduct is chilled by the possibility that the FTC may use its stand-alone Section 5 authority in some unforeseen way.”

FTC Merger Review Likely to Incorporate Analysis of Privacy Issues

by Emily Townsend | Mar 3, 2015 | Consumer Protection/Privacy, FTC Developments, Mergers & Acquisitions

The Federal Trade Commission (FTC or the Commission), along with the U.S. Department of Justice, can challenge mergers it believes will result in a substantial lessening of competition – for example through higher prices, lower quality or reduced rates of innovation. Although the analysis of whether a transaction may be anticompetitive typically focuses on price, privacy is increasingly regarded as a kind of non-price competition, like quality or innovation. During a recent symposium on the parameters and enforcement reach of Section 5 of the FTC Act, Deborah Feinstein, the director of the FTC’s Bureau of Competition, noted that privacy concerns are becoming more important in the agency’s merger reviews. Specifically she stated, “Privacy could be a form of non-price competition important to customers that could be actionable if two kinds of companies competed on privacy commitments on technologies they came up with.”

At this same symposium, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, remarked on the agency’s increasing expectations that companies protect the consumer data they collect and be more transparent about what they collect, how they store and protect it, and about third parties with whom they share the data.

The FTC’s Bureaus of Competition and Consumer Protection fulfill the agency’s dual mission to promote competition and protect consumers, in part, through the enforcement of Section 5 of the FTC Act. With two areas of expertise and a supporting Bureau of Economics under one roof, the Commission is uniquely positioned to analyze whether a potential merger may substantially lessen privacy-related competition.

The concept that privacy is a form of non-price competition is not new to the FTC. In its 2007 statement upon closing its investigation into the merger of Google, Inc. and DoubleClick Inc., the Commission recognized that mergers can “adversely affect non-price attributes of competition, such as consumer privacy.” Commissioner Pamela Jones Harbour’s dissent in the Google/DoubleClick matter outlined a number of forward-looking competition and privacy-related considerations for analyzing mergers of data-rich companies. The FTC ultimately concluded that the evidence in that case “did not support the theories of potential competitive harm” and thus declined to challenge the deal. The matter laid the groundwork, however, for the agency’s future consideration of these issues.

While the FTC has yet to challenge a transaction on the basis that privacy competition would be substantially lessened, parties can expect staff from both the Bureau of Competition and the Bureau of Consumer Protection to be working closely together to analyze a proposed transaction’s impact on privacy. The FTC’s review of mergers between entities with large databases of consumer information may focus on: (1) whether the transaction will result in decreased privacy protections,i.e., lower quality of privacy; and (2) whether the combined parties achieve market power as a result of combining their consumer data.

This concept is not unique to the United States. The European Commission’s 2008 decision inTomTom/Tele Atlas examined whether there would be a decrease in privacy-based competition [...]

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FTC Commissioner Brill Comments on Potential Reforms in Data Privacy Enforcement

by McDermott Will & Emery | Feb 20, 2015 | Consumer Protection/Privacy, FTC Developments

On February 18, 2015, Commissioner Julie Brill spoke to students at the Tuck School of Business at Dartmouth concerning the Federal Trade Commission’s (FTC’s) recent data privacy and security enforcement, as well as the FTC’s interactions with international regulators in this area. In her prepared remarks, Commissioner Brill described ways she hopes the FTC and other regulators can improve their current data privacy enforcement regimes to “develop practical, effective, and interoperable frameworks that will allow data to be adequately protected.”

Commissioner Brill addressed the skepticism of those who believe the United States is the “Wild West” of data privacy, by highlighting the FTC’s enforcement of Section 5 of the Federal Trade Commission Act. However, she made clear that the U.S. “consumer privacy and data security framework can and should be improved.” She specifically endorsed President Obama’s proposed legislation as described during a recent visit to the FTC. These legislative proposals include strengthening the FTC’s existing data security enforcement tools by authorizing the FTC to obtain civil penalties from companies that break the law. Further, the White House and the FTC seek legislation that would provide consumers with greater transparency concerning how their data is collected and used by data brokers.

In addition to her comments concerning methods to improve the U.S. data security regime, Commissioner Brill described ongoing discussions with foreign data security regulators, especially those in Europe, concerning the global flow of personal data. Like their counterparts in the U.S., European regulators are in the process of drafting a new regulation to heighten data security protections and address the dynamic new ways companies are using personal data. As they modify their own data security frameworks, the FTC and foreign regulators are engaged in a dialogue concerning the interoperability of their data privacy laws. Both groups recognize the importance of the flow of data to their respective economies, but each seeks to protect the interests of consumers and companies under their own laws. Commissioner Brill is “optimistic” that agreements will be reached to promote the interoperability of the data privacy regimes.

As more companies create products that will collect and transmit personal data, there will likely be significant changes to the data privacy regimes attempting to protect consumers from harm. To avoid potential regulatory action, any company that collects, uses or shares consumers’ personal data should ensure that there are protections in place to secure personal data from breaches or hacks. In addition, companies should promote transparency by providing clear statements about their data collection and use to consumers.

Out-of-Market Divestiture Required to Resolve Competitive Concerns

by Jon B. Dubrow | Feb 9, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

On January 30, 2015, the Federal Trade Commission (FTC) announced a settlement of its investigation into Sun Pharmaceutical Industries Ltd.’s (Sun) acquisition of Ranbaxy Laboratories Ltd. (Ranbaxy) from Daiichi Sankyo Co., Ltd. Sun and Ranbaxy are both multinational pharmaceutical companies that produce a range of generic and branded drugs.

In its complaint, the FTC alleges the relevant product market to be “the development, license, manufacture, marketing, distribution, and sale of generic minocycline hydrochloride 50 mg, 75 mg, and 100 mg tablets (‘minocycline tablets’).” Ranbaxy is currently one of only three U.S. suppliers of the relevant doses of minocycline tablets, with Sun being one of a limited number of firms likely to enter the alleged market in the near future. The complaint further alleges that the acquisition would eliminate a potential future competitor and therefore tend to substantially lessen competition by foregoing or delaying Sun’s entry into the relevant market and increase the likelihood that the combined entity would reduce price competition.

To resolve the competitive concern, the FTC is requiring divestiture not only of the minocycline tablets but also a product outside of the alleged relevant market—minocycline capsules. In its aid to public comment, the FTC states that this out-of-market divestiture is necessary to ensure that the divestiture buyer “achieves regulatory approval to qualify a new [active pharmaceutical ingredient] supplier for its minocycline tablets as quickly as Ranbaxy would have.”

Once the FTC or U.S. Department of Justice determines that a competitive problem exists, the agency will seek potential remedies, including divestiture. A cornerstone principle the agencies apply in evaluating a proposed remedy is that the remedy must restore competition to the level that would have existed had the underlying merger or acquisition not proceeded. This case illustrates an application of that principle, where the FTC required the divestiture of the out-of-market assets because, in its view, if those assets were not included the remedy would have left the relevant product market less competitive than it would have been if Sun and Ranbaxy remained independent competitors.

Although not a common outcome, firms considering a transaction involving products subject to regulatory approval should take note of the potential for out-of-market divestitures when assessing a potential deal.

The FTC’s complaint and related documents can be found here.

FTC Staff Comments on New York State Proposal to Transform Power Distribution

by Emily Townsend | Dec 30, 2014 | Energy/Commodities, FTC Developments

In April 2014, the New York Public Service Commission’s (NY PSC) Reforming the Energy Vision (REV) initiative “propose[d] a platform to transform New York’s electric industry . . . with the objective of creating market-based, sustainable products and services that drive an increasingly efficient, clean, reliable, and customer-oriented industry.” In August 2014, the NY PSC staff submitted for public comment a straw proposal that built on the April proposal, “incorporating subsequent party working group efforts, party comments, and further deliberation by Staff.”

The straw proposal authorizes the establishment of Distributed System Platform (DSP) operators that would be responsible for balancing electricity supply and demand on local, lower-voltage distribution lines. The NY PSC expects this new structure to lead to innovations such as customer-owned solar arrays, energy storage units and demand reductions offered by customers. “Distributed energy resources” (DERs), as the innovations are known, would lead to lower costs, increased reliability, improved resiliency and decreased environmental impacts.

Prior to deregulation in New York, the same utility would frequently hold both the means of power generation and distribution, making it difficult for independent generators to access the power grid. Deregulation led to retention of distribution-utility monopolies but increased competition at the power-generation level.

As a proponent of that increased competition and fearing a reversion to an environment of discrimination in access, the staff of the Federal Trade Commission (FTC or the Commission) issued a comment in October 2014 in response to the straw proposal, addressing the potential anticompetitive effects of the new platform. Specifically, the FTC staff expressed concern regarding the potential effects of a distribution utility serving as its own DSP operator. Through the potential for “a rebundling of distribution and generation by allowing distribution utilities to invest extensively in DERs,” FTC staff fears that such DSP operators have the incentive and ability to raise the costs and risks for rival independent DERs and foreclose their access to the power grid. As an alternative, the FTC staff recommends using a competitive procurement process to determine the entities that will serve as the DSP operators. The FTC staff believes that this bidding process would allow a demonstration of how bidders would keep costs low, remove discriminatory incentives and provide other pro-competitive benefits.

The FTC staff’s comment also encouraged use of one or more independent DSP market monitors to enhance enforcement and monitoring efforts.

The FTC considers the analyzing and advocating for regulatory policies in the electric utility sector among its core competencies. The comments issued in response to the NY PSC straw proposal reinforce the Commission’s efforts to “encourage policies that promote the interests of consumers and rely on competition as much as possible.” While it is still unclear what will be the exact effect of these comments, one can conclude that the Commission’s posture toward these markets would be more accommodating if its comments are heeded and a more competitive structure is implemented.

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.

“Reverse Payment” Settlements Subject to Greater Antitrust Scrutiny: Implications of Supreme Court FTC v. Actavis Ruling

by McDermott Will & Emery | Jun 21, 2013 | FTC Developments

by Jeffrey W. Brennan

By rejecting the “scope of the patent” test and holding that reverse payment patent settlements “can sometimes violate the antitrust laws,” the Supreme Court of the United States subjects such settlements to greater antitrust scrutiny. But, by establishing the rule of reason as the operative standard for adjudicating the cases, with the burden of proof on the plaintiff, the Supreme Court rejected the Federal Trade Commission’s position that reverse payment settlements are “presumptively anticompetitive” and that the burden should be on defendants to overcome the presumption at trial. Companies considering reverse payment settlements should evaluate a number of practical factors that may determine their level of antitrust risk.

Read the full article here.

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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