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Views and Lessons from the Trenches of the First Criminal No-Poach Trial

by Jeffrey Stone, Justin P. Murphy and Daniel R. Campbell | Apr 22, 2022 | DOJ Developments

In a landmark case of first impression, the US Department of Justice’s (DOJ) Antitrust Division (Division) indicted and brought to trial a federal criminal prosecution alleging agreements between DaVita, Inc., its former CEO Kent Thiry and other companies not to solicit each other’s employees. The case was the first criminal trial of its kind in the Division’s recent efforts to expand Sherman Act liability under Section 1 to include so-called no-poach and non-solicit agreements. Following an eight-day jury trial and two days of deliberation, a Denver jury acquitted Thiry and DaVita on all counts of the unprecedented “no-poach” conspiracy. As the district judge himself succinctly put it to the jury: this case was “a unique case in the field of antitrust law.”

This criminal prosecution in the labor markets reflects a novel and aggressive stance on expanding Sherman Act criminal liability. In pursuit of this policy shift, the Division is trying to jam a square peg into a round hole by characterizing non-solicit and no-poach agreements as per se market allocation agreements. The per se rule creates a judicial shortcut of sorts that makes it easier for the government to prosecute classic cartel conduct such as price-fixing and bid rigging. This case, and related cases, are the first time the per se shortcut has been used in a so-called labor market allocation case. This unprecedented litigation created a watershed moment for the Division’s views that non-solicit and no-poach agreements are per se illegal. The complete acquittal of both defendants and the rulings of the district judge before trial cast doubt on whether the per se standard is appropriate for “no-poach” agreements and whether such agreements should be prosecuted criminally at all.

WHERE DID THIS COME FROM?

Historically, the Division pursued enforcement of alleged anticompetitive labor market practices in the civil context, meaning fines for companies and individuals. In fact, that was the approach the Division took with no-poach and no cold call agreements entered into by major technology and railway companies. The Division engaged in a volte-face and declared it would criminally prosecute such labor market agreements for the first time in October 2016. Without an intervening act of Congress, executive order or ruling by any court, the Division warned that going forward it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in the labor market. The Division declared that investigating alleged “naked wage-fixing or no-poach agreements” was a top priority. Ignoring concerns related to the separation of powers, the Division unilaterally cited its discretion and put the full weight of the government into labor market no-poach agreements. That momentum accelerated in December 2020 and continued throughout 2021, with the Division bringing 12 criminal cases against nine individuals and three companies. In short, aggressive and expansive antitrust enforcement from the DOJ is now the new normal.

DOJ SEEKS TO CREATE A NEW CATEGORY OF PER SE LIABILITY AND USES DAVITA AND THIRY AS A TEST CASE

The Division returned a superseding indictment against DaVita, Inc. and Kent Thiry on November 4, [...]

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FTC Secures Partial Victory Requiring SEP Holder to License to All Comers in Antitrust Case

by Lisa A. Peterson and McDermott Will & Emery | Nov 14, 2018 | FTC Developments, IP Antitrust

Recently, a federal district court in California granted partial summary judgment for the US Federal Trade Commission (FTC) in an important intellectual property and antitrust case involving standard essential patents (SEP). The court’s decision requires an SEP holder to license its SEPs for cellular communication standards to all applicants willing to pay a fair, reasonable and non-discriminatory (FRAND) rate, regardless of whether the applicant supplies components or end-devices. The decision represents a significant victory for the FTC in enforcing its views of an SEP holder’s commitments to license patents on FRAND terms.

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THE LATEST: FTC Challenges Retail Fuel Station and Convenience Store Transaction— Requires Ten Localized Divestitures in Wisconsin and Minnesota

by McDermott Will & Emery | Dec 28, 2017 | FTC Developments, Mergers & Acquisitions

WHAT HAPPENED:

Alimentation Couche-Tard Inc. (ACT) and its subsidiaries (including Circle K Stores, Inc.) are engaged in the retail sale of gasoline and diesel fuel in the United States, as well as in the operation of convenience stores. ACT is the largest convenience store operator in terms of company-owned stores and is the second-largest chain overall in the United States.
Pursuant to an Equity Purchase Agreements, dated July 10, 2017, ACT would acquire, through its wholly owned subsidiary Oliver Acquisition Corp., all of the equity interests of certain Holiday subsidiary companies.
The FTC defined the relevant product markets as the retail sale of gasoline and the retail sale of diesel.
The FTC defined local geographic markets, identifying ten separate geographic markets in Wisconsin (including Hayward, Siren and Spooner) and Minnesota (including Aitkin, Hibbing, Minnetonka, Mora, Saint Paul and Saint Peter).
In its complaint, the FTC stated that the “relevant geographic markets for retail gasoline and retail diesel are highly localized, ranging up to a few miles, depending on local circumstances” and “[e]ach relevant market is distinct and fact-dependent, reflecting the commuting patterns, traffic flows, and outlet characteristics unique to each market.” Additionally, the FTC stated that “[c]onsumers typically choose between nearby retail fuel outlets with similar characteristics along their planned routes.”
In its complaint, the FTC alleged that post-merger the transaction would reduce the number of independent competitors from 3-to-2 in five local markets, and from 4-to-3 in five other local markets.
The FTC also stated that new entry was unlikely to mitigate the impact of the transaction in these local areas because there are significant entry barriers in the retail gasoline and diesel fuel business, including “the availability of attractive real estate, the time and cost associated with constructing a new retail fuel outlet, and the time associated with obtaining necessary permits and approvals.”
The FTC alleged that the proposed acquisition would result in (1) an increased likelihood that ACT and its subsidiaries would unilaterally exercise market power in the relevant markets; and (2) an increased likelihood of collusive or coordinated interaction between the remaining competitors in the relevant markets.
The FTC accepted a consent order in which ACT agreed to divest certain of its subsidiary’s and Holiday’s retail fuel outlets and related assets to remedy concern in ten local geographic markets in Wisconsin and Minnesota. ACT must complete the divestiture to a Commission-approved buyer within 120 days after the acquisition closes.

WHAT THIS MEANS:

Local geographic markets are highly fact specific. Factors used to determine local geographic markets for retail gasoline and retail diesel include: commuting patterns, traffic flows and outlet characteristics unique to each market.
In certain markets where only two or three independent competitors will remain post-transaction, the FTC may allege that the transaction will increase the likelihood of coordination though no collusive or coordinated interaction is alleged. Certain aspects of the fuel industry make it vulnerable to coordination including: [...]

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Supreme Court Nominee Neil Gorsuch Has Significant Antitrust Experience

by Lauren Salins | Feb 24, 2017 | U.S. Supreme Court Developments

On January 31, 2017, President Trump nominated Neil Gorsuch to fill the vacant seat at the Supreme Court of the United States left by the late Justice Antonin Scalia. As a federal judge for the US Court of Appeals for the Tenth Circuit, a former private practitioner, and an adjunct professor of antitrust law at the University of Colorado, Gorsuch has an extensive background in antitrust.

In 1996, Gorsuch joined the law firm Kellogg Huber Hansen Todd Evans & Figel, where his practice included both plaintiff and defense litigation in antitrust matters. Gorsuch and his co-counsel helped secure a judgment of $1.05 billion in trebled damages for tobacco company Conwood Co. after a jury found that defendant United States Tobacco Co. engaged in anticompetitive marketing practices. Gorsuch also defended telecommunications company SBC Communications, Inc. during his tenure at Kellogg when a rival company alleged that SBC set forth an illegal tying arrangement. The US District Court for the Eastern District of Texas dismissed the tying count in 2004.

President George W. Bush appointed Gorsuch to the US Court of Appeals for the Tenth Circuit in 2006. In this role, Gorsuch authored several antitrust decisions. In 2009, Gorsuch wrote Four Corners Nephrology Associates, P.C. v. Mercy Medical Center of Durango, 582 F.3d 1216 (10th Cir. 2009), where he held that a hospital’s refusal to allow a physician to use its inpatient nephrology facilities did not violate the Sherman Act or Colorado law. In 2011, Gorsuch reversed a district court’s ruling in Kay Electric Cooperative v. City of Newkirk, Okla., 647 F.3d 1039 (10th Cir. 2011) after finding that a municipality’s electricity provider was not immune from antitrust liability under the state action immunity doctrine.

In 2013, Gorsuch authored his most well-known antitrust opinion, Novell v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013). In this case, plaintiff Novell accused Microsoft of maintaining monopoly power over its operating systems by withholding intellectual property from rival software developers. Gorsuch determined that Microsoft’s purely unilateral conduct did not violate the Sherman Act and that “[f]orcing monopolists to hold an umbrella over inefficient competitors might make rivals happy but it usually leaves consumers paying more for less.” Id. at 1072 (internal citations omitted).

With background in representing plaintiffs and defendants and deciding cases in favor of both sides, Gorsuch’s policies about antitrust laws are not entirely clear. However, in his most recent and well-known case, Novell v. Microsoft, Gorsuch stated “[t]he antitrust laws don’t turn private parties into bounty hunters entitled to a windfall anytime they can ferret out anticompetitive conduct lurking somewhere in the marketplace.” Id. at 1080. This language may indicate a preference for a less interventionist approach to competitor conduct relating to its intellectual property.

With an extensive antitrust background, it will be interesting to see whether the Senate ultimately confirms Gorsuch (they did so eleven years ago unanimously) and, if so, whether antitrust issues reach our nation’s highest court.

Supreme Court Finds No Pre-emption in Natural Gas Act Case

by Emily Townsend | May 1, 2015 | Energy/Commodities, Private Litigation

The U.S. Supreme Court recently held in ONEOK Inc. v. Learjet, Inc., that the Natural Gas Act (NGA) does not pre-empt state-law antitrust suits over manipulation of natural gas indices. The court’s decision has important ramifications for natural gas regulation and the regulation of the energy industry more broadly.

In ONEOK, a group of direct-sales natural gas customers sued gas pipelines, alleging that the pipelines violated state antitrust laws by reporting false information to privately published market-based price indices, which are used as a tool to determine prices in contracting. The pipelines, in response, argued that the NGA subjected the conduct to federal oversight that pre-empted the lawsuits. The justices resolved the issue 7-2 in favor of the direct-sales customers, over a spirited dissent from Justice Scalia in which the Chief Justice joined.

The majority based their reasoning upon Congressional intent in regulating the natural gas industry. Traditionally, the industry has been regulated in three distinct segments: (1) the production and gathering of gas in the field; (2) the pipelines’ interstate transportation and sale at wholesale of gas to local distributors; and (3) the distributors’ local sale at retail of gas to business and residential customers. The NGA divides the regulation of the three segments into federal and state domains: Generally, the Federal Energy Regulatory Commission (FERC) has jurisdiction over the second segment, and the states have jurisdiction over the first and third segments.

In this context, the question of responsibility over regulation of conduct affecting natural gas price indices arises (these indices list the prices at which natural gas has been sold across the country). Here, the group of direct-sales customers alleged that the pipelines manipulated the market price indices, resulting in excessively high retail prices. The alleged manipulation of the price indices by the pipelines, however, necessarily affected the wholesale prices for natural gas. The question for the court, therefore, was whether federal regulation pre-empts state regulation of conduct that affects both retail and wholesale prices for natural gas.

The majority opinion, delivered by Justice Breyer, relied upon U.S. Congress’s “meticulous regard for the continued exercise of state power” through its express designation in the NGA of state authority in regulation of local retail sales. After distinguishing previous case law relied upon by the dissent, the majority ultimately held that the doctrine of field pre-emption does not bar state antitrust regulation of price indices manipulation in this context, even if such conduct affects wholesale prices.

In dissent, Justice Scalia argued for a “straightforward” application of pre-emption regarding the NGA, relying on precedents suggesting that the test for determining a field pre-empted is simply whether FERC has the exclusive authority over a field of conduct. Here, the dissent reasoned, FERC has exclusive authority to regulate conduct affecting interstate wholesale gas sales. Therefore, the state regulation of this conduct, even if it is solely aimed at regulation of intrastate retail gas sales, is pre-empted by the NGA.

This case has several important ramifications for the natural gas industry and energy [...]

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FTC Asks Court to Reverse Payment Decision

by Emily Townsend | May 12, 2014 | FTC Developments, IP Antitrust

On May 2, 2014, the Federal Trade Commission (FTC) filed an amicus brief with the U.S. Court of Appeals for the Third Circuit requesting that the court reverse the district court’s decision in Lamictal Direct Purchaser Antitrust Litigation, finding that a “no authorized generic” agreement between branded and generic drug makers does not qualify as a “payment,” and is therefore not an antitrust violation. Such agreements arise in patent settlements when a branded drug maker agrees to not issue its own authorized-generic alternative when the generic company begins to compete.

The FTC has taken the position that the “no authorized generic” agreements are akin to reverse payment settlements. In FTC v. Actavis, Inc., the Supreme Court clarified that reverse payment settlements can violate the antitrust laws and are to be reviewed under the rule of reason. In a reverse payment settlement, the branded drug maker pays the generic drug maker to drop its patent claim and not sell the generic drug.

In the Lamictal case, the issue in question was what constituted a payment and therefore, what types of settlements are considered to be subject to antitrust scrutiny. On one hand, the FTC holds the position that a “no authorized generic” agreement is valuable compensation to the generic drug maker in exchange for abandoning a patent challenge. The FTC is concerned that unless “no authorized generic” agreements are subject to antitrust laws, drug makers will simply avoid Actavis by structuring patent settlements to exclude cash payments.

The district court, on the other hand, found that a “no authorized generic” agreement is not a cash or other payment that would make the settlement subject to antitrust scrutiny. One of the primary concerns of classifying this type of agreement as a payment is that nearly all patent settlements include valuable compensation for a party, so almost every patent settlement would raise concerns that the agreement is anticompetitive.

Sixth Circuit Vacates Class Certification in Detroit Nurses Antitrust Case

by McDermott Will & Emery | Jan 17, 2014 | Private Litigation

On January 6, 2014, the Sixth Circuit vacated a class certification order for reconsideration in light of the Supreme Court’s 2013 decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013). In re VHS of Michigan, Inc., No. 13-0013 (6th Cir. Jan. 6, 2014). In Comcast, the Supreme Court reversed a grant of class certification on the ground that the plaintiffs had failed to demonstrate that damages could be proven on a classwide basis because their damages model was inconsistent with their theory of liability.

Pre-Comcast, the plaintiffs in VHS filed a class action complaint alleging two theories of liability under the Sherman Act: (1) a “per se” claim that the defendant hospitals conspired to depress the wages of the plaintiff nurses, and (2) a “rule-of-reason” claim that the defendants exchanged information about nurse wages in order to reduce competition. Subsequently, the district court granted the defendants’ motion for summary judgment on the per se claim.

Post-Comcast, the defendants moved to exclude the plaintiffs’ expert witness’s testimony, which was based on the assumption that the plaintiffs could prove both of their claims, and the district court denied the defendants’ motion without considering the potential impact of Comcast on its decision. The district court later certified the class on the rule-of-reason claim, and the defendants appealed. Because the district court did not take Comcast into account in its certification decision, and because the parties failed to analyze the issue before the district court, the Sixth Circuit held that it would be premature to accept an appeal. Instead, it vacated the district court’s order and directed the court to reconsider its certification decision in light of Comcast.

Keeping Third Party Communications Protected by the Attorney-Client Privilege

by Emily Townsend | Dec 23, 2013 | Private Litigation

A recent Pennsylvania federal court decision highlights the difficulty in keeping third party communications privileged. (King Drug Co. of Florence, Inc. v. Cephalon, Inc., No. 06-CV-1797, 2013 WL 4836752 (E.D. Pa. Sept. 11, 2013)). In Cephalon, the court found third party communications privileged because the third party performed a role for Cephalon substantially identical to that of Cephalon employees. The Federal Trade Commission (FTC) had sought an order requiring Cephalon to produce documents shared with or created by its third party consultants in connection with work the consultants performed for Cephalon that Cephalon withheld or redacted based upon the attorney-client privilege.

In keeping the documents protected, the court followed other courts and adopted the broader “functional equivalent” approach to third party communications. According to the court, this approach “reflects the reality that corporations increasingly conduct their business not merely through regular employees but also through a variety of independent contractors retained for specific purposes.” Cephalon, 2013 WL 4836752, at *7. The broader “functional equivalent” analysis looks at the following factors. First, third party consultants must perform a role substantially identical to that of an employee. For example, in Cephalon, the consultants worked closely with employees by providing managerial support, strategic advice, and participating in making preservations to senior management. The consultants also had dedicated office space and were subject to confidentiality agreements. Second, the documents or communications must be kept confidential. And, third, the documents or communications must be made for the purpose of providing or obtaining legal advice.

However, not all courts agree with this broader approach. Other courts have adopted a narrower “functional equivalent” test. The main differences with the narrower approach are that consultants must be incorporated into the staff to perform a corporate function that is necessary in the content of actual or anticipated litigation, and possess information needed by attorneys in rendering legal advice. See In re Bristol-Myers Squibb Sec. Litig., No. 00-1990, 2003 WL 25962198, at *4 (D.N.J. June 25, 2003).

The varying scope of the functional equivalent test highlights that the most important factor in keeping third party communications privileged is to know your jurisdiction’s viewpoint. Other considerations include making certain that consultants are the functional equivalent of employees, and that the communications are kept confidential and created for the purpose of obtaining or providing legal advice.

Detroit Nurses Object to Sixth Circuit Reviewing Class Certification Decision

by Nicole Castle | Oct 15, 2013 | Cartel Enforcement, Healthcare Antitrust, Private Litigation

On October 11, 2013, the plaintiffs in the Detroit nurses litigation who have accused Detroit-area hospitals of conspiring to suppress their wages opposed VHS of Michigan, D/B/A Detroit Medical Center’s (DMC) petition to the Sixth Circuit for leave to appeal the district court’s decision granting class certification.

DMC had asked the Sixth Circuit to do an interlocutory appeal of a September ruling certifying a class of more than 20,000 registered nurses seeking more than $1.7 billion in damages based on a purported antitrust conspiracy among Detroit-area hospitals to reduce nurse wages.

The lawsuit was first filed in December 2006 and accuses the Detroit area hospitals of conspiring with one another to keep registered nurses’ wages low. In particular, the lawsuit alleges that the hospitals agreed to exchange compensation information to reduce wages and competition to hire and retain Detroit nurses. DMC is the only remaining defendant in the case. The other seven defendants previously settled the litigation.

In September, a district court judge granted plaintiffs’ motion for class certification. The hospital asked the Sixth Circuit to review that ruling a few weeks later. In support of that request, DMC argued that the district court’s decision conflicts with the approach followed by other federal courts and raises important questions about the proper interpretation of the Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (Comcast).

In particular, DMC argued that plaintiffs should not have been able to establish predominance through a damages model that calculated damages based in part on a theory of liability (wage fixing claim) that had already been dismissed on a motion for summary judgment. In addition, DMC argued that the district court failed to take a “close look” at the damages model before certifying the class.

Plaintiffs argued that DMC attempted to make a strained analogy to Comcast and also criticized DMC for raising arguments on appeal that were not raised with the district court. Plaintiffs argued that this case does not present the sort of “novel or unsettled question” of “class litigation in general” that is worthy of the Sixth Circuit’s discretionary review.

The full case name is In re: VHS of Michigan, Inc., No. 13-113 (6th Cir. filed Sep. 27, 2013).

Judge Refuses to Suspend Previous Apple, Inc. Ruling; Considers Limiting E-Book Negotiations

by Young Cynn | Aug 12, 2013 | IP Antitrust

by Young Cynn

On Friday, August 9, 2013, Judge Denise Cote of the U.S. District Court for the Southern District of New York denied Apple’s request to suspend pending appeal a previous ruling that it had violated antitrust laws by conspiring with publishers to raise the price of e-books.

Judge Cote also proposed a remedy which includes a two year prohibition on any contracts which would restrict Apple’s ability to discount e-books. Apple would then be required to negotiate with publishers on a staggered timeline. Judge Cote also stated that she would prefer Apple to instate a “vigorous” in-house antitrust compliance program, rather than follow the Justice Department’s proposal to hire a full-time internal compliance officer alongside court monitoring for 10 years. “I don’t want to do more than is necessary here,” said Judge Cote, recognizing the risk of disrupting innovation.

Judge Cote remained concerned about the “continuing danger of collusion,” especially given publishers’ recent protests of the Justice Department’s proposed remedies. Publishers claimed a proposed ban on Apple’s agency agreements would also punish them, even though they had already settled with the U.S. government on the condition that they could continue to use the agency model.

The case continues to move forward to a trial for damages while Apple intends to appeal the July ruling on liability.

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