Articles Posted in Antitrust News

Could Elon Musk Acquire TikTok Under a Joint Operating Agreement Exception to the Antitrust Laws?

January 17, 2025 | Bona Law PC

Authors: Pat Pascarella and Aaron Gott

The idea of Elon Musk purchasing TikTok might sound like a headline ripped from a speculative business column, and maybe it is. But as antitrust lawyers, we couldn’t resist. Obviously, Mr. Musk already owns X, and any such acquisition might raise antitrust concerns.

But could you head off those concerns by structuring the deal with an exception to the antitrust laws known as a Joint Operating Agreement? While JOAs were related to the newspaper industry and are largely seen as a relic of the past, their principles could provide a framework for addressing modern concerns.

A Brief History of Joint Operating Agreements

Joint Operating Agreements emerged during the 20th century as a mechanism to save failing newspapers thereby maintaining at least some level of editorial competition. By the mid-20th century, many U.S. cities had two major newspapers, but declining revenues and readership often left one teetering on the edge of closure. To prevent monopolization of the news market, Congress enacted the Newspaper Preservation Act of 1970, which allowed competing newspapers to enter into JOAs.

Under a JOA the two newspapers would be permitted to merge their business operations, so long as they agreed to maintain separate editorial teams. The goal was to preserve journalistic diversity in cities that were about to find themselves with only one surviving paper. But JOAs required approval from the Department of Justice (DOJ) and were contingent on demonstrating that one of the newspapers was “failing.”

JOA Requirements

For a JOA to be approved, the following conditions had to be met:

Failing Firm Doctrine: One of the parties had to demonstrate that it was financially unsustainable and would likely exit the market absent the agreement.
No less anticompetitive alternative: There must not be a less anticompetitive alternative to the joint operation agreement.
Preservation of Competition: The agreement had to preserve a degree of competition, particularly in areas such as content creation or editorial independence.
DOJ Oversight: The DOJ maintained the authority to review and approve any proposed JOAs, ensuring they aligned with antitrust laws.

Applying the JOA Framework to a Musk-TikTok Deal

Elon Musk’s ownership of X likely would raise antitrust concerns about the acquisition of TikTok. But a JOA (or JOA.2) could provide a creative solution to balance these concerns with broader policy objectives, such as ensuring competition with other tech giants like Meta and Alphabet while also addressing national security issues tied to TikTok’s current Chinese ownership.

A critical hurdle, however, would be demonstrating that TikTok meets the “failing firm” criterion. While TikTok is far from failing financially, isn’t “failing” simply another term for “about to involuntarily exit the market.” Same outcome, hence same justification.

But this difference could mean a crucial difference under the JOA legal framework. As explained above, there must be no less anticompetitive alternative available. When it came to the failing newspapers, there was no alternative: failing newspapers did not have buyers lining up to buy them. But popular social media platforms do.

But there’s an answer here as well. One idiosyncrasy of the TikTok situation is that the Chinese government has taken the position that the TikTok algorithm is a Chinese national security secret. So any sale of TikTok means, as a practical matter, that it is not likely to come with a functioning algorithm. This limits the potential pool of buyers to those who either have one they can adapt or who can put one together on the fly.

This likely narrows significantly the existing pool of willing buyers to those who already have social media companies, or possibly even to those people who are known to drive their teams to accomplish skunkworks-like missions on impossible timelines.

Political and Regulatory Considerations

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Antitrust Agency Publishes Revised HSR Notification Thresholds and Filing Fees For 2025

January 15, 2025 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

On January 10, 2025, the Federal Trade Commission (FTC) issued its usual annual announcement to increase the Hart-Scott-Rodino (HSR) Act thresholds. The 2025 thresholds will take effect 30 days after publication in the Federal Register, which means February 10, 2025.

HSR requires the parties to submit certain information and documents and then wait for approval before closing a transaction. The FTC and DOJ then have 30 days to determine if they will allow the merger to proceed or seek much more detail through a “second request” for information. The parties may also ask for “Early Termination” to shorten the 30-day waiting period, although for nearly two years the agencies have suspended this option.

The HSR Act notification requirements apply to transactions that satisfy the specified “size of transaction” and “size of person” thresholds. These thresholds adjust annually to reflect changes in the U.S. gross national product.

Three thresholds determine the applicability of HSR filing requirements.

First, one of the parties to the transaction must be in commerce in the United States or otherwise affect U.S. commerce.

Second, the acquiring party must be acquiring securities, non-corporate interest, or assets of the target in excess of $126.4 million––the “size of transaction” threshold. Entities need not file notifications when the value of the voting securities and assets is below this threshold.

Third, if the transaction exceeds $126.4 million but does not exceed $505.8 million–the “size of the parties” threshold–– then at least one party involved in the transaction must have annual net sales or total assets of at least $252.9 million, and the other party must have annual net sales or total assets of at least $25.3 million.

Transactions valued at more than $505.8 million are reportable regardless of the size of the parties, unless an HSR Act exemption applies.

The FTC’s notice also implemented a new filing fee structure from the new legislation. The new structure will be in place starting with filings made on or after February 10, 2025. Below are the new fee thresholds:

2025

Size of the Transaction                        Merger Fee

$126.4 million – $179.4 million             $30,000

$179.4 million – $555.5 million        $105,000

$555.5 million – $1.111 billion           $265,000

$1.111 billion – $2.222 billion                   $425,000

$2.222 billion – $5.555 billion                   $850,000

$5.555 billion or more                                  $2,390,000

As a result of the new legislation, those fees will also adjust annually, based on changes to the consumer price index.

The FTC further published revised thresholds relating to Section 8 of the Clayton Act. Section 8 prohibits interlocking directorates in which one “person” serves simultaneously as an officer or director of competing corporations, subject to certain exceptions. Now, Section 8 of the Clayton Act applies when each of the competing corporations has capital, surplus, and undivided profits aggregating more than $51,380,000 and each corporation’s competitive sales are at least $5,138,000 again with certain exceptions.

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The Third Circuit Rejects a Fraud Exception to the Noerr-Pennington Exemption from Antitrust Liability

December 17, 2024 | Bona Law PC

Author: Ruth Glaeser

The Third Circuit Court of Appeals held that Merck is exempt from antitrust claims under the Noerr-Pennington doctrine in a lawsuit accusing it of deceiving the government about the effectiveness of its mumps vaccine to prevent competition.

Background from the Third Circuit’s Opinion

Merck was the sole licensed manufacturer of mumps vaccines in the United States for over fifty-five years, until 2022. The vaccine was FDA-approved and included an FDA-approved label that outlined its shelf life, minimum-potency requirements, and effectiveness. Merck had an ongoing duty to ensure that the drug label was accurate.

In the late 1990s, the FDA expressed concern that Merck’s mumps vaccine did not provide immunity near the end of its purported 24-month shelf life. At the FDA’s suggestion, Merck overfilled the vaccine doses to try to make the doses potent through the end of the shelf-life period.

But this did not resolve the issue, and Merck did not share that information with the FDA. Merck feared that disclosing this information would lead the FDA to require a change in the vaccine’s label. And a label change was particularly problematic for Merck because it competed with GlaxoSmithKline (“GSK”), which sold a similar vaccine in Europe. Merck thought that GSK’s vaccine would soon enter the U.S. market and a label change on Merck’s vaccine would make it easier for GSK to demonstrate that its vaccine was not inferior to Merck’s.

So, to preserve its market dominance, Merck misrepresented the vaccine’s potency and effectiveness at the end of its shelf life. To support this, Merck ran a clinical trial and claimed that it could reduce the potency of the vaccine without impairing the existing drug-label claims about immunity. But the appellees in this case said the study did not reliably capture information about the drug’s immune response in the human body. Nonetheless, the FDA continued to approve Merck’s mumps vaccine label and Merck continued to make unsupported claims about the self-life and immunity of its mumps vaccine on the drug label.

GSK eventually demonstrated that its vaccine was competitive with Merck’s. And the FDA approved GSK’s application to sell its vaccine in 2022.

The Noerr-Pennington Doctrine

The Noerr-Pennington doctrine provides limited exemption from antitrust liability for actions intended to influence governmental decision-making in all three branches of government. This doctrine protects the First Amendment right to petition the government, including the courts.

It is, however, subject to a caveat—the “sham exception.” For Noerr-Pennington to apply, the challenged action must be a legitimate government petition rather than conduct intended to interfere with a competitor. Generally, the court will look to see if the anticompetitive conduct arises from the process of the government petitioning rather than the outcome. If the anticompetitive conduct arises from the process, rather than the outcome, of petitioning the government—like baseless litigation bankrupting a competitor due to legal fees—then the sham exception is more likely to apply. But if the anticompetitive conduct is merely the outcome or result of legitimate government petitioning, then the Noerr-Pennington doctrine protects the conduct.

The Court’s Analysis

The Third Circuit engaged in this process v. outcome analysis. The crux of Appellees’ antitrust injury was that Merck’s actions delayed the launch of GSK’s competing vaccine in the United States for over a decade by maintaining deceptive statements on the vaccine label. They argued that it was the misleading statements on the label that prevented GSK from entering the market because GSK was unable to match Merck’s alleged effectiveness.

But the Court explained that the allegedly false or misleading claims on the drug label were the result of Merck’s successful petition to the FDA rather than part of the process. The Court said that Merck faced a dilemma when it was approached by the FDA: Merck could either (1) reveal that its vaccine might be mislabeled, leading to potential relabeling by the FDA; or (2) persuade the FDA that overfilling the doses fixed the problem (despite not actually doing so) and the request that the label remain unchanged. Merck did the latter, and the FDA did not order Merck to change the label or take further action against Merck after learning the truth.

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Understanding Antitrust Scrutiny: Lessons from United States v. American Airlines and JetBlue

December 16, 2024 | Bona Law PC

Author: Sabri Siraj

In a landmark decision, the U.S. Court of Appeals for the First Circuit upheld a district court ruling to permanently enjoin the Northeast Alliance (NEA) between American Airlines and JetBlue Airways. This case offers key insights into the relationship between joint ventures and antitrust and the standards of review for evaluating competitive harm.

Airline Case Summary

Defendants presented NEA as a collaborative effort between American Airlines and JetBlue to streamline services, enhance route options, and compete more effectively in the Northeast region of the U.S. Specifically, the arrangement allowed the two carriers to coordinate schedules, pool revenue, and integrate operations in select markets. The airlines argued that the NEA would create efficiencies that would benefit consumers through improved services and better connectivity. But the Department of Justice (DOJ) and several state attorneys general challenged the agreement, asserting that it undermined competition, raised ticket prices, and reduced consumer choice.

The district court’s findings supported the DOJ and the States, concluding that the NEA’s anticompetitive effects far outweighed any claimed benefits. The court held that the alliance reduced output in critical markets and failed to generate meaningful procompetitive benefits that could not be achieved through less restrictive means. On appeal, American Airlines argued that the NEA deserved lenient antitrust scrutiny because it is a joint venture. The First Circuit, however, rejected that defense, emphasizing that the legality of such arrangements hinge on their substance and actual effects rather than their label.

Antitrust Issues and Decision

This case serves as a critical examination of the standards applied to joint ventures under antitrust law. Joint ventures, when properly structured, can foster innovation, enhance efficiencies, and deliver consumer benefits by pooling resources and expertise. But these benefits do not exempt joint ventures from antitrust scrutiny. The First Circuit’s ruling focused on three key principles:

First, the court emphasized the importance of substance over form. It rejected American Airlines’ argument that the NEA’s classification as a joint venture warranted less rigorous analysis. As the court noted, “One could describe price fixing as a joint venture,” highlighting that the label itself does not insulate an arrangement from scrutiny. The court’s inquiry focused instead on the practical implications of the NEA, particularly its impact on competition and consumer welfare.

Second, the court applied the rule-of-reason framework to evaluate the NEA’s competitive effects. This standard requires a detailed analysis of the agreement’s purpose, its potential procompetitive justifications, and its actual anticompetitive effects. Here, the NEA failed to demonstrate sufficient procompetitive benefits to offset its negative impact on competition. The court agreed with the district court’s finding that the alliance reduced output and increased prices in key markets, with no evidence of justifying efficiencies.

Finally, the decision reinforced longstanding antitrust principles requiring genuine economic integration in joint ventures. The court found that the NEA lacked the necessary integration of resources and operations to qualify as a legitimate joint venture. Instead, it functioned as a mechanism to coordinate behavior between two major competitors, effectively reducing competition without delivering substantial consumer benefits.

The Broader Implications of the Ruling

The First Circuit’s decision has significant implications for businesses and legal practitioners navigating antitrust issues. For companies considering joint ventures or similar collaborations, the ruling serves as a reminder that such arrangements must be carefully structured to withstand legal scrutiny. A legitimate joint venture should integrate resources and create new or improved products or services that enhance market competition. Agreements that merely coordinate behavior between or among competitors without achieving these objectives are unlikely to survive antitrust challenges.

Additionally, the case underscores that businesses should proactively address potential antitrust risks during the joint venture’s planning and formation. This includes consulting with antitrust counsel, conducting thorough market analyses, and ensuring that any restrictions are ancillary to the venture’s objectives and proportional to achieving its goals. Companies should also document the procompetitive benefits of their agreements, providing clear evidence to support their claims if challenged.

Insights for Practitioners

The NEA case highlights why antitrust attorneys tailor legal advice to the specific facts and context of each arrangement. Joint ventures remain a common strategic tool for businesses seeking to innovate or expand their market presence. But, as this case illustrates, not all joint ventures are created equal. To withstand antitrust scrutiny, an arrangement must demonstrate genuine economic integration and clear consumer benefits.

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Unpacking the Implications of the FTC’s Antitrust Case Against Amazon for Online Marketplace Competition

October 22, 2024 | Bona Law PC

Author: Sabri Siraj

The Federal Trade Commission has survived a motion to dismiss in a high-stakes lawsuit against Amazon, igniting critical discussions about competition in the online marketplace. As a dominant player in global e-commerce, Amazon’s practices have long affected both consumers and competitors. Will this case change those practices or otherwise have implications for online marketplaces?

Important Note

Bona Law is currently representing Zulily in a similar lawsuit against Amazon in federal district court. You can read the complaint here.

About the Case

The FTC’s lawsuit, filed in Washington State federal court, stems from allegations that Amazon engages in anticompetitive practices that inhibit competition and violate the Sherman Act, the FTC Act, and consumer protection laws. The FTC alleges Amazon pricing practices harm competition by limiting consumer choices, and that Amazon engages in coercive tactics that disadvantage third-party sellers, creates barriers for new entrants, overcharges sellers, and makes it more expensive for sellers to offer their products on other platforms. Numerous states have joined the FTC’s lawsuit.

Amazon denies the allegations and asserts that its practices benefit consumers and competition. The court dismissed some state law claims but has otherwise allowed the lawsuit to proceed, with trial scheduled for October 2026.

Will the Case Affect Amazon’s Competitors?

For Amazon’s existing competitors, the FTC’s actions could provide both opportunities and challenges. If the lawsuit successfully restricts Amazon’s anti-competitive practices, it may level the playing field for other marketplaces like Walmart, eBay, and Shopify. These companies have often struggled to compete with Amazon’s extensive resources, alleged anticompetitive conduct, and customer loyalty programs. A more dynamic marketplace could enable them to attract more sellers and consumers, driving innovation and diversity in e-commerce offerings.

Moreover, if Amazon’s pricing strategies are curtailed, consumers could benefit through lower prices and improved service from competitors. This could encourage a competitive environment where companies strive to enhance their offerings, benefiting consumers.

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Mergers & Acquisitions, AI and Antitrust: The New Creative Ways for Big Tech to Enter the AI Market and Avoid HSR Rules

July 21, 2024 | Bona Law PC

Author: Luis Blanquez

Two of the main pillars from the Biden Administration Antitrust Policy in 2023 have been an aggressive merger enforcement agenda and its crusade against Big Tech and vertical integration.

On the merger side, the Department of Justice (DOJ) and Federal Trade Commission (FTC) have published new Merger Guidelines (see also here) and proposed new changes to Hart-Scott-Rodino Act (HSR) notification requirements (see also here.) In addition, both antitrust agencies have challenged more mergers in 2022 and 2023 than ever before. In a letter from November 2023 responding to questions from Rep. Tom Tiffany, R-Wis., FTC Chair Lina Khan stressed the fact that:

“a complete assessment of the FTC’s success in stopping harmful mergers reveals that of the 38 mergers challenged during my tenure as Chair, 19 were abandoned, another 14 were settled with divestitures, and two are pending a final outcome.”

This includes key acquisitions such as the Nvidia/Arm Ltd or Meta/Within, among many others. And the FTC is showing no signs of slowing down this aggressive approach. Another recent example of a merger challenge by the DOJ is the Live Nation/Ticketmaster’s complaint.

But despite the FTC’s Chair confidence and the recent new challenge by the DOJ, this hasn’t been an easy path for the antitrust enforcers. Courts in the US have pushed back several of the agencies’ extreme challenges and new theories, such as in the Microsoft/Activision, (see also here, here, and here.)

On the Big Tech front things do not look much better. Both agencies have filed major illegal monopolization cases, sometimes together with State AGs, against Apple (Smartphones), Google (Google Search and Google Ad Technology), Amazon (Online Retail), and Meta (Instagram/WhatsApp––see also here––, and Within acquisitions.)

In other words, if you work in Big Tech, forget about acquiring an AI startup, unless you want to go through a long and hostile review process. This is having a serious impact on the most disruptive and growing industry we’ve seen in years.

The “Magnificent Seven” Tech Companies

The ascendency of Apple, Microsoft, Nvidia, Tesla, Meta, Alphabet and Amazon, the so-called “Magnificent Seven” tech stocks––is indicative of “a fundamental shift”, primarily propelled by advancements in AI. Currently, the top seven tech stocks have not only accounted for about half of the gains in the entire S&P 500, but also contributed to over a quarter of the index’s total market capitalization. These companies are not merely riding the wave of current technologies but actively shaping the future of AI. They collectively gather most of the market cap in the industry.

But until we see a shift on the current enforcers’ antitrust policy against acquisitions involving Big Tech, it doesn’t matter how well these companies perform. Why? Because as a startup in the tech industry (and really in any industry), your main goal is to either try to eventually go public through an IPO––if you become big enough––, or rather look for one of the Big Tech companies to acquire you. But with the antitrust agencies’ current appetite to block such transactions, Venture Capital companies and investors in the AI industry are thinking twice before risking their money on a startup, unless they specifically know that company is going public. Otherwise, the risk that VCs and investors see to get the deal blocked by either the FTC or DOJ is just too high, regardless of the potential these startups might have. And let’s be honest, the number of companies that make it to that level is already extremely low.

First, this is clear evidence of how such an aggressive and disproportionate approach to acquisitions involving Big Tech is currently hindering innovation in the most relevant and disruptive industry we’ve seen in years. But this is a topic for another article.

Second, what I want to discuss in this article is how because of such an extreme approach from the Biden Administration, Big Tech are starting to develop new and creative strategies to get involved in the AI industry, without having to acquire any startups and face the antitrust agencies. At least not until now, because this has already raised some eyebrows at both the DOJ and FTC.

Microsoft/Inflection

The first of these deals involves Microsoft and Inflection.

Backed by Microsoft, Nvidia and billionaires Reid Hoffman, Bill Gates and Eric Schmidt; ex-DeepMind leader Mustafa Suleyman––now Google’s main AI lab, and Reid Hoffman, who co-founded LinkedIn, started Inflection in 2022, claiming to have the world’s best AI hardware setup.

Inflection thesis was based on AI systems that can engage in open-ended dialogue, answer questions and assist with a variety of tasks. Named Pi for “personal intelligence,” Inflection’s first release helped users talk through questions or problems over back-and-forth dialog it then remembers, seemingly getting to know its user over time. While it can give fact-based answers, it’s more personal and “human” than any other chatbot.

In March of this year, Microsoft announced the payment of $650 million to inflection. $620 million for non-exclusive licensing fees for the technology (meaning Inflection is free to license it elsewhere) and $30 million for Inflection to agree not to sue over Microsoft’s poaching, which includes co-founders Mustafa Suleyman and Karén Simonyan. Suleyman will run Microsoft’s newly formed consumer AI unit, called Microsoft AI–– a new division at Microsoft that will bring together their consumer AI efforts, as well as Copilot, Bing and Edge––, whereas Simonyan is joining the company as a chief scientist in the same new group. Inflection will host Inflection-2.5 on Microsoft Azure. It will be also pivoting away from building the personalized AI chatbot Pi to become an AI studio helping other companies work with large language model AI.

So here is where it gets interesting. Microsoft didn’t formally need to make an offer to acquire Inflection. In other words, technically Inflection remains an independent company. But the antitrust agencies seem to disagree and have started asking themselves the following questions.

First, if the key people, money and technology have all left the company to go to Microsoft, what’s really left in Inflection to still be considered as a competitor in the market?

Second, could this qualify as a change in control according to 16 C.F.R. §801.1(b)? What about a file-able acquisition of just “assets”––a term currently undefined by the HSR statute and regulations?

And third, does this move create a “reverse acqui-hire” transaction, a practice which is becoming very popular in the AI industry? The so-called “acqui-hires,” are transactions in which one company acquires another with the main purpose to absorb key talent. But what’s going on in the AI industry is not quite the same. Big Tech are acquiring key employees––such as Suleyman and Simonyan with their core teams in this case––, while licensing technology, leaving the targeted company still functioning independently––so no HSR filing requirement is apparently triggered. This is not the first time we’ve seen this scenario in the AI industry. Last month, Amazon poached Adept’s CEO and key employees, while getting a license to Adept’s AI systems and datasets.

But the antitrust enforcers have started to ask themselves whether Inflection and Adept are still real competitors in the AI market. The FTC has already sent subpoenas to both parties in the Microsoft/Inflection transaction, asking for information about a potential gun-jumping scenario: whether the $650 million deal may qualify as an informal acquisition requiring previous government approval. In the case of Amazon/Adept, the FTC has also decided to start an investigation and asked for more information.

OpenAI, Nvidia and Microsoft

The FTC and DOJ are finalizing an agreement to split duties to investigate potential antitrust violations of Microsoft, OpenAI, and Nvidia.

According to Politico, the DOJ will lead the Nvidia investigation, and its leading position in supplying the high-end semiconductors underpinning AI computing, while the FTC is set to probe whether Microsoft, and its partner OpenAI, have unfair advantages with the rapidly evolving technology, particularly around the technology used for large language models. At issue is the so-called AI stack, which includes high-performance semiconductors, massive cloud computing resources, data for training large language models, the software needed to integrate those components and consumer-facing applications like ChatGPT.

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New Antitrust Cases and Statements of Interests About Algorithmic Collusion

June 9, 2024 | Bona Law PC

Author: Luis Blanquez

We recently wrote about the Federal Trade Commission’s blog post explaining how relying on a common algorithm to determine your pricing decisions might violate Section 1 of the Sherman Act.

The FTC has Algorithmic Price-Fixing in its Antitrust Crosshairs

It was just a matter of time until the first cases would hit the courts. That’s why during the last couple of years, we’ve seen four main federal antitrust cases alleging that algorithmic pricing might violate the antitrust laws. In three of them, the antitrust agencies also filed Statements of Interest (SOI), outlining the agencies’ opinion about what the legal principles applicable to claims of algorithmic price fixing should be.

Realpage, Inc. Software Antitrust Litigation

This multidistrict litigation in the Middle District of Tennessee involves unlawful price-fixing schemes against multifamily housing developers and managers, and student housing developers and managers, both organized by RealPage––a software algorithm company. RealPage developed software to collect property owners’ and managers’ data, used for pricing and inventory strategies, that later shared with its clients.

In January 2024, the Court: (i) denied the motion to dismiss the multifamily housing cases––the renters plausibly alleged an antitrust violation, but (ii) rejected claims alleging a horizontal price-fixing conspiracy among landlords, which would have been per se illegal. The Court, however, concluded that those same landlords vertically conspired with RealPage. The Court also dismissed the student housing plaintiffs’ complaint.

In parallel, the DOJ opened an investigation and filed a SOI. Among other things, the DOJ highlighted:

The fact that today software algorithms process more information more rapidly than humans and can be employed to fix prices. The technical capabilities of software can enhance competitors’ ability to optimize cartel gains, monitor real-time deviations, and minimize incentives to cheat.
Section 1 prohibits competitors from fixing prices by knowingly sharing their competitive information with, and then relying on pricing decisions from, a common human pricing agent who competitors know analyzes information from multiple competitors. The same prohibition applies where the common pricing agent is a common software algorithm.
Factual allegations in both complaints point to evidence of an invitation to act in concert followed by acceptance—evidence that is sufficient to plead concerted action. Among other things, RealPage required each user to submit real-time pricing and supply data to it, and RealPage’s marketing materials allegedly “touted” its use of “non-public data from other RealPage clients,” enabling them to “raise rents in concert”; as well as the algorithms’ ability to “facilitate collaboration among operations” and “track your competition’s rent with precision.”
The complaints then allege that the landlords “gave their adherence to the scheme and participated in it.” In particular, the landlords allegedly sent RealPage the non-public and competitively sensitive data (as RealPage proposed), and overwhelmingly priced their units in line with RealPage’s suggested prices (80-90%). Indeed, the complaints also contain ample allegations on how RealPage directly constrained the “deviations” from its suggested prices, including by enforcing and monitoring compliance with those prices, so the landlords effectively delegated aspects of their pricing decisions.
Relatedly, the multifamily plaintiffs allege that the landlords jointly delegated aspects of decision making on prices to RealPage. They allege that, by using RealPage’s pricing algorithms, each client defendant “agreed” to a common plan that involved “delegat[ing] their rental price and supply decisions to a common decision maker, RealPage.” Indeed, RealPage allegedly touted this feature—stating in a press release that it gives clients “the ability to ‘outsource daily pricing and ongoing revenue oversight,’” such that RealPage could “set prices” as though it “own[ed]” the clients’ properties “ourselves.’”
Jointly delegating any part of the decision-making process reflects concerted action. That the delegation is to a software algorithm, rather than a human, makes no difference to the legal analysis. Just as “surrender[ing] freedom of action. . . and agree[ing] to abide by the will of the association” can be enough for concerted action, so can be relying on a joint algorithm that generates prices based on shared competitively sensitive data.
The “per se” rule prohibiting price fixing applies to price fixing using algorithms. And the analysis is no different simply because a software algorithm is involved. The alleged scheme meets the legal criteria for “per se” unlawful price fixing. Although not every use of an algorithm to set price qualifies as a per se violation of Section 1 of the Sherman Act, it is per se unlawful when, as alleged here, competitors knowingly combine their sensitive, nonpublic pricing and supply information in an algorithm that they rely upon in making pricing decisions, with the knowledge and expectation that other competitors will do the same.

The District of Columbia Attorney General has also filed a similar action in the Superior Court of D.C., alleging violations of the D.C. Antitrust Act.

Duffy v. Yardi Systems, Inc.

In this case from the US District Court for the Western District of Washington, plaintiffs allege that competing landlords violated Section 1 of the Sherman Act, by unlawfully agreeing “to use Yardi’s pricing algorithms to artificially inflate” multifamily rental prices.

The Agencies also filed a SOI to explain the two legal principles applicable to claims of algorithmic price fixing. First, a competitors’ agreement to use an algorithm software with knowledge that other competitors are doing the same thing constitutes evidence of a contract, combination or conspiracy that may violate Section 1. Second, the fact that defendants deviate from the pricing algorithm’s recommendations––for instance, by just setting initial starting prices or by starting with prices lower than the ones the algorithm recommends—is not enough to get them “off the hook” for illegal price fixing (even if no information is directly shared between the parties).

The Agencies SOI’s focus was on the second point: Defendants retaining pricing discretion. The Agencies stress in the SOI that it is “per se” illegal for competing landlords to jointly delegate key aspects of their pricing to a common algorithm, even if the landlords retain some authority to deviate from the algorithm’s recommendations. Although full adherence to a price-fixing scheme may render it more effective, the effectiveness of the scheme is not a requirement for “per se” illegality. Consistent with black letter conspiracy law, the violation is the agreement, and unsuccessful price-fixing agreements are also per se illegal.

Casino-Hotel Operators Cases

Two new algorithmic pricing antitrust cases are also ongoing against casino hotel operators in Las Vegas and Atlantic City.

In Cornish-Adebiyi v. Caesar’s Entertainment, Inc., a case pending in the U.S. District Court for the District of New Jersey, plaintiffs allege a conspiracy against eight Atlantic City casino-hotel operators, and the Cendyn Group LLC, which is a provider of the algorithmic software platform, called “Rainmaker,” used to fix, raise, and stabilize the prices of casino-hotel guest rooms in Atlantic City. Rainmaker allegedly gathers real-time pricing and occupancy data to generate “optimal” room rates for each participating casino hotel, which the software then recommends to each casino hotel.

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The Apple Store is in the Crosshairs of US and EU Antitrust and Competition Enforcers

April 9, 2024 | Bona Law PC

Author: Luis Blanquez

Apple is currently feeling the heat from antitrust authorities all over the world. Probably more than ever. Below is an article we recently published in the Daily Journal discussing in some detail the last developments in the Epic Games saga, both in the EU and the US.

Epic Games Has Returned to the Apple Store. Will Apple Throw a Hail Mary?

If you are a developer in the Web3 space trying to access the Apple Store, you should also review this article:

Antitrust, Web3 and Blockchain Technology: A Quick Look into the Refusal to Deal Theory as Exclusionary Conduct

So, what’s on Apple’s plate in the antitrust world on both sides of the pond?

In the European Union, the European Commission has fined Apple over €1.8 billion for abusing its dominant position on the market for the distribution of music streaming apps to iPhone and iPad users (‘iOS users’) through its App Store. The Commission found that Apple applied restrictions on app developers preventing them from informing iOS users about alternative and cheaper music subscription services available outside of the app. Such anti-steering provisions ban app developers from the following:

Informing iOS users within their apps about the prices of subscription offers available on the internet outside of the app.
Informing iOS users within their apps about the price differences between in-app subscriptions sold through Apple’s in-app purchase mechanism and those available elsewhere.
Including links in their apps leading iOS users to the app developer’s website on which alternative subscriptions can be bought. App developers were also prevented from contacting their own newly acquired users, for instance by email, to inform them about alternative pricing options after they set up an account.

At the same time, the European Commission has just opened a non-compliance investigation under the new Digital Markets Act about Apple’s rules on (i) steering in the App Store; (ii) its new fee structure for alternative app stores; and (iii) Apple’s compliance with user choice obligations––to easily uninstall any software applications on iOS, change default settings on iOS and prompt users with choice screens which must effectively and easily allow them to select an alternative default service.

Meanwhile, antitrust enforcement is also heating up for the Cupertino company in the United States.

Besides several private litigation actions, Epic Games recently filed a motion accusing Apple of violating an order issued last year under California law barring anti-steering rules in the App Store.

And just few days ago, the Justice Department, joined by 16 other state and district attorneys general, filed a civil antitrust lawsuit against Apple for monopolization or attempted monopolization of smartphone markets in violation of Section 2 of the Sherman Act. According to the complaint, Apple has monopoly power in the smartphone and performance smartphones markets, and it uses its control over the iPhone to engage in a broad, sustained, and illegal course of conduct. The complaint alleges that Apple’s anticompetitive course of conduct has taken several forms, many of which continue to evolve today, including:

Blocking Innovative Super Apps.Apple has disrupted the growth of apps with broad functionality that would make it easier for consumers to switch between competing smartphone platforms.
Suppressing Mobile Cloud Streaming Services. Apple has blocked the development of cloud-streaming apps and services that would allow consumers to enjoy high-quality video games and other cloud-based applications without having to pay for expensive smartphone hardware.
Excluding Cross-Platform Messaging Apps. Apple has made the quality of cross-platform messaging worse, less innovative, and less secure for users so that its customers have to keep buying iPhones.
Diminishing the Functionality of Non-Apple Smartwatches. Apple has limited the functionality of third-party smartwatches so that users who purchase the Apple Watch face substantial out-of-pocket costs if they do not keep buying iPhones.
Limiting Third Party Digital Wallets. Apple has prevented third-party apps from offering tap-to-pay functionality, inhibiting the creation of cross-platform third-party digital wallets.

The complaint also alleges that Apple’s conduct extends beyond these examples, affecting web browsers, video communication, news subscriptions, entertainment, automotive services, advertising, location services, and more.

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Antitrust Agency Publishes Revised HSR Notification Thresholds and Filing Fees For 2024

January 23, 2024 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

On January 22, 2024, the Federal Trade Commission (FTC) issued its usual annual announcement to increase the Hart-Scott-Rodino (HSR) Act thresholds. The 2024 thresholds will take effect 30 days after publication in the Federal Register, which is expected soon, so the thresholds likely will be effective in late February.

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Five Key Takeaways from Fifth Circuit’s Illumina Merger Review Opinion

December 26, 2023 | Bona Law PC

Author: Steven Cernak

On December 15, 2023, the Fifth Circuit remanded to the FTC its order requiring Illumina to divest its re-acquired subsidiary, Grail. Despite the remand, the opinion is a big win for the FTC. Below, we offer five takeaways for future merging parties and their counsel.

[Disclosure: Bona Law filed an amicus brief for 34 Members of Congress arguing that the FTC’s action violated the “major questions” doctrine and misinterpreted Clayton Act Section 7 in several ways.]

Here is a quick summary of the twists and turns of this case from our earlier writings. Illumina is a dominant provider of a certain type of DNA sequencing. Grail is one of several companies developing a multi-cancer early detection (MCED) test. An MCED promises to be able to detect biomarkers associated with up to fifty types of cancer by extracting the DNA from a simple blood sample. To work, the MCED needs DNA sequencing supply. According to the complaint, the type of DNA sequencing that works best — and with which Grail and all other MCED developers have been working — is the type supplied by Illumina.

The parties announced Illumina’s proposed acquisition of Grail in September 2020 and said that it would speed global adoption of Grail’s MCED and enhance patient access to the tool. In late March 2021, the FTC challenged this transaction by filing an administrative complaint before its own administrative law judge (ALJ). Shortly thereafter, the European Commission announced that it too would investigate the transaction, even though the transaction did not meet its usual thresholds.

During these investigations, the parties closed the transaction. The European Commission decided to block the transaction and the parties appealed. Just before the European decision, the FTC ALJ dismissed the complaint in an unexpected decision ruling for the first time against the FTC in a merger case. In a nutshell, the ALJ concluded that the FTC failed to prove that Illumina’s post-acquisition ability and incentive to advantage Grail to the disadvantage of Grail’s alleged rivals would likely result in a substantial lessening of competition in the relevant market for the research, development, and commercialization of MCED tests. FTC Complaint Counsel appealed the ALJ decision. The four Commissioners unanimously agreed to overturn it. Now, the Fifth Circuit has largely upheld that decision of the Commission, though with a remand for reconsideration of one aspect of the decision, as described below.

Takeaway 1: This Development is Largely an FTC Win

Some of the initial tweets and headlines, perhaps after reading only the opinion’s opening paragraph vacating the FTC’s order and remanding for further consideration, seemed to characterize the Fifth Circuit opinion as another loss for the FTC. But make no mistake, this development is a big win for the FTC for several reasons. First, the FTC challenged this transaction to block, then later, unwind, the acquisition of Grail. About a day after the opinion was filed, Illumina announced it would divest Grail. Mission accomplished.

Second, the court found “substantial evidence” for the Commission’s conclusions, despite arguments by the parties (and amici) to the contrary. As detailed below, the court did not question the Commission’s use of older cases and theories to review mergers.

Third, even the court’s rationale for the remand was not that strong a rebuke of the FTC. During the investigation, Illumina made an Open Offer to other customers of its sequencing, promising to treat them as well as Grail. The ALJ found this a useful additional fact in concluding that Illumina did not have the incentive to harm Grail competitors. The FTC majority opinion disagreed with the ALJ and only considered the Open Offer in the remedy phase of the merger review. Commissioner Wilson also disagreed with the ALJ but considered the Open Offer in Illumina’s rebuttal portion of the liability phase of the review. The parties argued that the Open Offer should be addressed by the FTC Complaint Counsel in its prima facie case for liability. The Fifth Circuit agreed with Commissioner Wilson. It seems certain that the other three Commissioners would have reached the same ultimate conclusion on remand when considering the Open Offer earlier in the process.

Takeaway 2: The Court Quickly Punted Constitutional Concerns

As with several other recent challenges to the FTC and other administrative agencies, the parties raised serious, difficult constitutional questions about the structure and processes of the FTC and its review of mergers. The court wrestled with none of them. Instead, the court took only two pages to explain that the four questions were answered by precedent, either from the Fifth Circuit or the Supreme Court, and saw no reason to explore whether any court should change. While this opinion is not the final word on these and similar issues, the FTC at least avoided a number of thorny issues for now.

Takeaway 3: Vertical Might be the New Horizontal

We hear sometimes that a proposed transaction should sail through the Hart-Scott-Rodino merger review process because “the parties don’t compete.” While that focus on current horizontal competition might have been a sufficient screen for antitrust issues a few years ago, it no longer is. Whether the Trump Administration’s challenge of the AT&T/TimeWarner transaction or the Biden Administration’s challenge of this transaction, Microsoft/Activision, or others, vertical (and potential competition) mergers have been ripe for challenge for a few years. Illumina’s abandonment of this vertical deal after this ruling will only encourage further challenges by federal and state antitrust enforcement agencies.

Takeaway 4: Courts Sometimes Agree with New/Renewed Antitrust Theories

As the Biden Administration DOJ and FTC have issued new merger guidelines or unilaterally taken other actions, one popular response from parts of the antitrust commentariat has been “but just wait until the courts consider them.” It is true that a long-lasting change in antitrust interpretation (like, say, the Chicago School) can only start with law review articles and enforcer speeches but eventually will require supportive court opinions; however, the “wait for the courts” sentiment seems built on two faulty premises.

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