Articles Posted in Antitrust News

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Author:  Steven J. Cernak

Remember when UPS ran TV commercials, complete with jingles, trying to make logistics something that everyone cares about? No need now. Now, everyone knows how supply chain issues can affect toilet paper supplies, microchips for cars and, perhaps, even make Santa late with toys and decorations for Christmas.

With every supplier, distributor, retailer, and wholesaler scrambling to scrounge supplies and ship finished goods in some reasonably efficient and cost-effective manner, some harried supply chain executives might be tempted to take some bold and dangerous steps. Just as we have done a couple times during the pandemic, your friendly neighborhood antitrust lawyers are here to remind you of the old rules that still apply and speculate on how antitrust might affect these issues in the future.

Price Fixing and Price Gouging Rules Remain the Same

In a time of crisis, one tempting bold but possibly dangerous step for an executive to take is to directly contact or signal intentions to a competitor. For instance, a CEO might want assurance that any price increase to help recover increased transportation costs will be matched by the competitor. Depending on how the conversation goes, antitrust enforcers and courts could find a price fixing agreement — and, as the enforcers have made clear, price fixing is still per se illegal, even during a pandemic or other crisis. An agreement among competitors to boycott logistics providers raising their prices would meet a similar fate.

On the other hand, so-called price gouging does not violate the U.S. federal antitrust laws, as we explained here. So that CEO contemplating a price increase to cover increased transportation costs need not worry about federal antitrust issues; some states, however, do have non-antitrust laws that prohibit price gouging under certain circumstances.

Joint Ventures Might Help

Instead of jail time for price fixing, that phone call between competitor CEO’s could lead to joint efforts that could ease the business pain while staying on the right side of the antitrust laws.  As we explained here, the antitrust rules regarding joint ventures do not change in a crisis and some joint efforts among competitors, if implemented properly, do not violate the antitrust laws.  So if that CEO call will lead to joint research on new shipping methods; a new jointly-run warehouse; or lobbying the local legislature for regulatory relief, the antitrust laws likely will not stand in the way. Looks like some CEO’s are already thinking about joint ventures.

Bottlenecks Turn Out to be Monopolies?

While the antitrust laws have not changed, the changed economic conditions might lead to new outcomes. For instance, bottlenecks in the supply chain might start to look more like monopolies and so be subject to restrictions on monopolizing actions.

As we explained here, the first element in a monopolization claim under the U.S. antitrust laws is finding that the defendant is a “monopolist.” Usually, that process means defining a market and then seeing if the defendant has a high market share; however, the market share method is used more often only because the data are available to make the estimate. What a court really is trying to measure is the ability of the defendant to control its own price, that is, to price with little regard to how competitors might react. The supply chain crisis has uncovered several bottleneck companies that, at least in certain geographic areas, can name their price. As we described above, those high prices themselves would not violate the antitrust laws; however, any additional actions by that company to exclude new competition and maintain that pricing power could be a violation. Look for actions against such companies in the future.

More Merger Challenges Coming

As we have detailed here and here, the FTC is modifying their merger review processes and making it clear that they plan to challenge more mergers, irrespective of any supply chain issues.  And because the number of filings under the Hart-Scott-Rodino Act is way up, the FTC and DOJ Antitrust Division will have that many more chances to challenge mergers. So expecting more merger challenges is an easy prediction.

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Authors: Steven Cernak and Luis Blanquez

FTC Chairwoman Lina Khan keeps up her frenetic crusade to change the practice of antitrust enforcement. The new––and surely not last––change: the vertical merger guidelines.

On Wednesday, September 15, 2021, the FTC held an open virtual meeting to discuss the following:

Here, we will only discuss the first two items. For more background on these and other recent changes at the FTC, see our previous articles:

The FTC Continues the HSR Antitrust Process’s “Death of a Thousand Cuts”

FTC Guts Major Benefit of Antitrust HSR Process for Merging Parties

FTC Withdraws Vertical Merger Guidelines and Commentary

As expected, the FTC on a 3-2 vote decided to withdraw its approval of the Vertical Merger Guidelines, issued jointly just last year with the Department of Justice Antitrust Division (DOJ), and the FTC’s Vertical Merger Commentary.

According to the FTC’s press release, the guidance documents include unsound economic theories that are unsupported by the law or market realities. The FTC is withdrawing its approval to prevent industry or judicial reliance on this allegedly flawed approach. The FTC reaffirmed its commitment to working closely with the DOJ to review and update the agencies’ merger guidance.

The statements by the various Commissioners show the deep divisions within the FTC since Khan joined the Commission, not just about these Guidelines but more generally about how to enforce the antitrust laws and how to run the FTC.  The statement by the FTC majority asserts that the 2020 Vertical Merger Guidelines had improperly contravened the Clayton Act’s language with its approach to efficiencies. The statement explains the majority’s concerns with the Guidelines’ treatment of the purported pro-competitive benefits of vertical mergers, especially its treatment of the elimination of double marginalization.

The dissenting Statement of Commissioners Phillips and Wilson starts with a bang: “Today the FTC leadership continues the disturbing trend of pulling the rug out under from honest businesses and the lawyers who advise them, with no explanation and no sound basis of which we are aware.” The statement goes on to not only lament the confusion the withdrawal will generate but contrast the process used when the Guidelines were issued — months of public input and debate — with the process used for their withdrawal — no public input and, seemingly, no discussion even at the FTC outside the offices of three Commissioners.

The FTC pledged to work with DOJ to update vertical merger guidance to better reflect how the agencies will review such transactions in the future. Just an hour later, DOJ issued a statement explaining that they are reviewing both the Horizontal Merger Guidelines and the Vertical Merger Guidelines and, as to the latter, have already identified several aspects of the guidelines, such as the treatment of and burdens for the elimination of double marginalization, that deserve close scrutiny.  (We raised those issues when the Guidelines went through public debate last year.)  DOJ expects to work closely with the FTC to update the Guidelines so, perhaps, we will have new Guidance at some point in the future.

FTC Staff Presents Report on Nearly a Decade of Unreported Acquisitions by the Biggest Technology Companies

During the same meeting, FTC presented findings from its inquiry into the hundreds of past acquisitions by the largest technology companies that did not require reporting to antitrust authorities at the FTC and DOJ, generally because they were below HSR thresholds. Launched in February 2020, the inquiry analyzed the terms, scope, structure, and purpose of these transactions by Alphabet Inc., Amazon.com, Inc., Apple Inc., Facebook, Inc., and Microsoft Corp. between Jan. 1, 2010 and Dec. 31, 2019.

“While the Commission’s enforcement actions have already focused on how digital platforms can buy their way out of competing, this study highlights the systemic nature of their acquisition strategies,” said Chair Khan. “It captures the extent to which these firms have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists—and how they were able to do so largely outside of our purview.”

The Commission voted 5-0 to make the report public. Chair Khan and Commissioners Chopra and Slaughter each issued separate statements. While the report did not recommend any changes to the merger review process, we expect that the FTC may utilize the report’s findings to recommend changes in the HSR process.

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Authors:  Steven J. Cernak and Luis Blanquez

In late 2020, the Federal Trade Commission (FTC) and the attorneys-general (AGs) from 48 states filed nearly identical antitrust lawsuits against Facebook for stifling competition by acquiring potential competitors, mainly Instagram in 2012 and WhatsApp in 2014, and for enforcing policies that blocked rival apps from interconnecting their product with Facebook. The alleged effect of this conduct was to (i) blunt the growth of potential competitors that might have used that interoperability to attract new users, and (ii) deter other developers from building new apps or features or functionalities that might compete with Facebook.

This week, the judge hearing the cases agreed to dismiss the claims from the FTC––without prejudice––stating that the lawsuit failed to plead enough facts to plausibly establish that Facebook has monopoly power in the personal social networking services market. Likewise, the Court also dismissed ––with prejudice––a similar case pursued by a group of 48 states on the basis that any alleged violations took place too long ago.

While by no means the final decision on these matters, the motion to dismiss opinion will significantly narrow the FTC case for now. It also highlights some of the difficulties that enforcers will face using the current antitrust laws against Big Tech companies.

Online platforms have been––and continue to be––scrutinized by antitrust enforcers around the world. In the U.S. the Antitrust Subcommittee of the House Judiciary Committee issued last year its long-anticipated Majority Report of its Investigation of Competition in Digital Markets. The Report detailed its findings from its investigation of Google, Apple, Facebook, and Amazon along with recommendations for actions for Congress to consider regarding those firms. In addition, the Report included recommendations for some general legislative changes to the antitrust laws. Since then, online platforms have been involved in high-profile antitrust litigation in the U.S. So even though Facebook has won the first round of this litigation, the war is far from over.

Chinese Translation: Thank you to our friends at the Beijing Fairsky Law Firm for preparing a translation in Chinese of this article.

Update: Please see an important update about the FTC’s amended complaint at the end of the article.

The FTC and State AGs Parallel Antitrust Complaints against Facebook

Both suits focused on the same Facebook categories of conduct. First were the acquisitions of Instagram and WhatsApp, both of which occurred more than five years ago. These deals allegedly increased Facebook’s power over social media networks, facilitating data integration and its sharing among some of the largest social media platforms. Next was Facebook’s requirement that any applications connecting to Facebook may not compete with Facebook or promote any of Facebook’s competitors. The complaint alleged that Facebook enforced these policies by cutting off access to the Application Programming Interface (“API”), the software that allows applications to talk to one another to allow communication with rival personal social networking services, mobile messaging apps, and any other apps with social functionalities.

Both the FTC and AG suits claimed that Facebook’s actions amounted to illegal monopolization in violation of Sherman Act Section 2. The states’ suit also claimed that the two acquisitions violated Clayton Act Section 7, the statutory prohibition of anticompetitive mergers.

In March Facebook Fired Back in its Motion to Dismiss

In March 2021, Facebook moved to dismiss the suits on several grounds.

First, the company claimed that the complaints did not properly allege a relevant market or that Facebook had monopoly power in any market.

Second, Facebook asserted that the FTC could not claim that the two acquisitions were illegal monopolization because the agency had cleared both transactions earlier under the Hart-Scott-Rodino premerger notification system. Even if the agency could make such a claim, the company claimed that the FTC failed to properly allege that such acquisitions were anticompetitive.  (We discussed the concept of post-HSR review both prior to and immediately after the FTC complaint was filed.)

Finally, Facebook claimed that the complaint did not properly allege that the company’s decision not to deal with all potential app developers who were potential competitors was subject  to an exception to antitrust law’s usual rule that even monopolists can choose their own partners. Basically, under U.S. antitrust laws if you are a monopolist, you can still refuse to deal with your competitors, unless: (i) you have already been doing business with them, and (ii) by stopping you are giving up short-term profits for the long-term end of knocking them out of the market.

The District Court’s Opinions Dismissing Both Cases

The judge hearing both cases granted Facebook’s motions to dismiss. The Court dismissed the FTC complaint without prejudice. This means that the FTC is allowed to amend its complaint and refile the case, and now has 30 days to do so. The AGs were not that lucky, and the judge dismissed their complaint with prejudice. The Court applied the doctrine of laches to conclude that AGs waited too long to challenge Facebook’s purchases of Instagram in 2012 and WhatsApp in 2014.

The Opinion against the FTC

In the decision re the FTC, the Court found that the complaint fails plausibly to allege how Facebook has a monopoly over personal social networking (“PSN”) services.

As with all monopolization plaintiffs, the FTC must plausibly allege that Facebook has monopoly power in some properly defined market. As do most plaintiffs, the FTC chose to allege this power indirectly by alleging that Facebook has a high share of the market, here for PSN services.  Despite some misgivings, the court found that the complaint’s allegations make out a plausible market for PSN services.

But that hardly ends the analysis. The FTC must also explain why Facebook enjoys a high share of that market and, therefore, monopoly power.  Here, the court found that the FTC’s allegations were inadequate for two reasons.

First because that “PSN services are free to use, and the exact metes and bounds of what even constitutes a PSN service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear.” In other words, the FTC must further explain whether and why other, non-PSN services available to the public either are or are not reasonably interchangeable substitutes with PSN services.

Second, even if the FTC better defines the market(s) of social networking, it must better explain how it developed the allegation that Facebook enjoys a market share of at least 60%: “[T]he FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague ‘60%-plus’ assertion too speculative and conclusory to go forward.” Thus, the FTC has also fallen short to plausibly establish the existence of monopoly power by Facebook in the relevant market.

That finding alone was enough to support the court’s granting the motion to dismiss; however, it helpfully went on to discuss Facebook’s other grounds for dismissal.

The court explained that even if the FTC had sufficiently pleaded market power, its challenge to Facebook’s policy of refusing interoperability permissions with competing apps also failed to state a claim for injunctive relief. The Court held in both decisions that there is nothing unlawful about having such a policy in general. While implementation of such a policy can be illegal monopolization in certain limited circumstances, the FTC did not allege such facts.  Finally, all such denials of access occurred in 2013, seven years ago. Thus, the FTC lacks statutory authority to seek an injunction from a court for such past conduct.

On the other hand, the court did find that the FTC might be able to seek injunctive relief relating to Facebook’s past acquisitions of Instagram and WhatsApp. While those acquisitions took place years ago, the court found that Facebook’s continued ownership of the companies could be considered a continuing violation of Section 2. While the doctrine of laches does not apply to the US government, including the FTC, the court did note but did not decide several issues, including remedial ones, with such a long-delayed allegation.

The Opinion Against State Enforcers (AGs)

The judge also dismissed the parallel case brought by the AGs. The court explained that unlike the federal government, the states are bound by the doctrine of laches, in which those who “sleep on their rights” and wait too long to file a case cannot seek court relief. As a result, the allegations regarding the Instagram and WhatsApp acquisitions were insufficient to state a claim under either Sherman Act Section 2 or Clayton Act Section 7.

Using an analysis identical to the one used with the FTC complaint, the judge further rejected the AG’s claims that Facebook’s refusal to allow interoperability with competing apps constituted illegal monopolization. Because all of the claims of the AG’s were rejected in ways that cannot be rectified by the AG’s, the judge dismissed the complaint without any chance for the AG’s to modify the complaint and refile.

Final Remarks

At the time of this writing, the FTC is considering possible next steps. It could beef up its allegations regarding the market definition and Facebook’s share of that market and file an amended complaint regarding Facebook’s prior acquisitions. It could also appeal the dismissal of its current complaint.

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Author: Pat Pascarella

The press is awash in reports on proposed amendments to the antitrust laws and heightened, and in some instances targeted, enforcement agendas at the DOJ, FTC, and state AGs’ offices. While the specifics of each may be fascinating to antitrust attorneys and law professors, the sole question on most general counsels’ minds is whether there is “anything I need to do right now to better protect my client?”  The answer is an unequivocal “not really, but…”

To start, proposed legislation, presidential orders, and enforcement agency  guidelines and statements of interest are not the law. That does not mean however that one should entirely ignore this current antitrust craze. Plaintiff attorneys and certain government enforcers certainly won’t. And I expect an uptick in lawsuits and investigations based on, to be polite, creative interpretations of the antitrust laws.

What it does counsel is that, at present, the most important focus should be on ensuring that internal antitrust guidelines and procedures target not only actual violations, but also conduct that could create the appearance of a potential violation. Price increases, production slow-downs, announcements about future business plans, communications or information exchanges with competitors, and dealer or supplier terminations, are the usual suspects. But care should be taken in any instance in which an action or strategy might appear to be inconsistent with unilateral self-interested behavior in the absence of a conspiracy—or where it will have a significant impact on competitors, suppliers, or downstream market participants (a/k/a plaintiffs).

This of course is not to say that businesses should forego legal strategies or actions for fear of a frivolous antitrust investigation or complaint. But it does mean that in the case of certain activities, there likely will be steps that enable the company to avoid, or at least extract itself more quickly from, lawsuits and investigations based on overly aggressive interpretations of the antitrust laws. Sometimes the solution will be as simple as documenting the business rational for a particular activity, while at other times it could involve active and ongoing oversight by antitrust counsel.

That of course raises its own set of problems for in-house attorneys—i.e., convincing their clients to come to them before taking certain actions. Having been an in-house antitrust attorney myself for many years, I can offer a few suggestions. First, get loud and clear officer-level signoff on any new guidelines or procedures. While you may be the clients’ lawyer, those clients are far more inclined to pay attention to a directive from someone who controls their advancement and salary. Second, market yourselves. Communicate to your clients that you understand their needs both in terms of your substantive guidance as well as in the timing of that guidance.  Your clients have targets and goals they are trying to achieve. They need to believe that engaging with Legal will not delay the achievement of those goals and will only result in a “no go” opinion after every viable option has been exhausted.

Plus, as I often told my clients, some day you are going to be called up to the general counsel’s office and asked, “who approved this?” How the rest of your day goes will be significantly determined by whether your answer is “me” or “our antitrust counsel.”

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Author: Luis Blanquez

Following DOJ’s remarks on blockchain, it was only a matter of time until antitrust law and the unstoppable blockchain world would meet in court. And it finally happened some months ago in the complex Bitmain case.

In this case a cryptocurrency developer and mining company sued Bitcoin Cash miners, developers, and exchange operators for violating of Section 1 of the Sherman Act and Section 4 of the Clayton Act. It accused them of manipulating a network upgrade to take control of the Bitcoin Cash blockchain. The Court dismissed the Amended Complaint twice (the last one with prejudice), for failing to plausibly show a conspiracy to hijack the network and centralize the market, an unreasonable restriction of trade, and antitrust injury.

  1. Blockchain and cryptocurrencies

Blockchain is such a complicated technology that just the simple task of defining it would require a much longer article. But the Southern District Court of Florida did a great job explaining in very simple terms what these two concepts––blockchain and cryptocurrencies–– are:

Cryptocurrency is a form of digital currency that trades in currency markets. The Satoshi Nakamoto whitepaper, published in October 2008, launched the idea of this “peer-to-peer” version of electronic cash that allows online payments from one party to another, independent of any financial institution. The Whitepaper coined the term “Bitcoin”, and today Bitcoin and Bitcoin Cash are different forms of cryptocurrency.

Cryptocurrencies are a “permissionless” system that rely on a network of decentralized encrypted public ledgers that document all digital transactions, known as a “blockchain”. The blockchain is a series of blocks, which are units of accounting that record new transactions in cryptocurrency. Confidence and trust in the accuracy of the transactions in the blockchain is possible because the decentralized ledgers are identical and continuously updated and compared.

The system has mechanisms that allow for consensus on the validity of the blockchain. One is “Proof-of-Work”, which is designed to eliminate the insertion of fraudulent transactions in the blockchain. Also, the “main chain” (normally, the longest chain) at any given time, is whichever valid chain of blocks has the most cumulative “Proofs-of-Work” associated with it. A consensus being reached on the longest blockchain is essential to the integrity of the network.

New cryptocurrency is created through a process called “mining”. Miners compete to “mine” virtual currencies by using computing power that solves complex math puzzles. The computer servers that first solve the puzzles are rewarded with new cryptocurrency, and the solutions to those puzzles are used to encrypt and secure the currency. The awarded currency is then stored in a digital wallet associated with the computing device that solved the puzzle.

  1. The Bitmain case

In a nutshell, this case is about how certain mining pools, protocol developers and crypto-exchange defendants allegedly colluded to manipulate a network upgrade by creating a new hard fork, taking control of the Bitcoin Cash cryptocurrency. In the end, however, the court concluded that the plaintiff ––a protocol developer of blockchain transactions and mining cryptocurrencies––, failed to (i) show a plausible conspiracy, (ii) define any relevant product market to prove an unreasonable restriction of trade, and (iii) show any antitrust injury.

The Parties

As Konstantinos Stylianou effectively explains in his article What can the first blockchain antitrust case teach us about the crypto economy?, in the cryptocurrency world it is important to understand what the different players are and how they are connected in the market: investors, mining pools (groups of miners that combine their mining resources), crypto-exchanges, and protocol developers. We highly recommend his article.

The plaintiff, United American Corporation (UAC), is a developer of technologies for both the execution of blockchain transactions and mining cryptocurrencies. One of them is called BlockNum, a distributed and decentralized ledger technology that allows the execution of blockchain transactions between any two telephone numbers regardless of their location, eliminating the need for cryptocurrency wallets. The other one is called BlockchainDome, which provides a low-cost energy-efficient solution for mining cryptocurrency. UAC built four domes in total that operate over 5,000 Bitcoin Cash-based miners, investing more than $4 million in technology.

On the flip side, there are three different categories of defendants:

  • The mining pools: (i) Bitmain Technologies operate two of the largest Bitcoin Core and Bitcoin Cash mining pools in the world: Antpool and BTC.com. It is also the largest designer of Application Specific Integrated Circuits (“ASIC”), which are chips that power the Antminer series of mining servers––the dominant servers mining on a number of cryptocurrency networks, including Bitcoin and Bitcoin derivatives; (ii) Wu, CEO of Bitmain Technologies and one of its founders; and (iii) Ver, founder of Bitcoin.com, which provides Bitcoin and Bitcoin Cash services.
  • The crypto exchanges––Kraken and its CEO Jesse Powell––which operate exchanges on which Bitcoin, Bitcoin Cash and other cryptocurrencies are traded.
  • The protocol developers Shammah Chancellor, Amaury Sechet and Jason Cox who––similarly to UAC––, work on the development of the software to execute blockchain transactions and mining of cryptocurrencies.

The Alleged Antitrust Conspiracy

Summarized from the briefing:

Bitcoin Cash (or “BCH”) emerged as a cryptocurrency from the original Bitcoin Core (or “BTC”) on August 1, 2017, as a result of a “hard fork”. A hard fork is a change to the protocol of a blockchain network whereby nodes that mine the newest version of the blockchain follow a new set of rules, while nodes that mine the older version continue to follow the previous rules. Because the two rule-sets are incompatible, two different blockchains are formed, with the new version branching off.

The 2017 hard fork resulted from a dispute over Bitcoin’s utility: whether it should primarily be used to store value or conduct transactions.

(Note: BTC’s resistance to this significant attempt to fork it further strengthened it by demonstrating that it can overcome an attack of this type. If BTC were subject to significant forks that change its nature, it would not have the trust it has now as a store of value. This and other attacks on BTC actually strengthen it—Bitcoin is Antifragile in this way).

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Authors:  Steven J. Cernak and Luis Blanquez

On August 3, 2021, the Federal Trade Commission Bureau of Competition announced what might seem like a small technical change to the Hart-Scott-Rodino merger review process: Some proposed mergers would receive form letters at the end of the 30-day initial review period saying that an antitrust investigation remains open and that the FTC might challenge the transaction if the parties close it. The FTC blamed the recent surge in HSR filings for the change. While seemingly small, the new process is another step by the FTC that reduces a major benefit of the HSR process—likely closure.

As this website has discussed frequently, the US was the pioneer among global competition law regimes in requiring parties to most large mergers and similar transactions to obtain approval from the jurisdiction’s enforcer before closing. Under HSR’s latest thresholds, both the buyer and seller for most transactions with values exceeding $92M must submit a form and certain documents and then wait for 30 days before closing the transaction.

Until recently, the reviewing agency, either the FTC or DOJ, would use that time to take one of three steps. If the agencies saw no competitive issues with the transaction and the parties requested it, the agencies would issue an “early termination” of the 30-day waiting period, post that information on the FTC website, and allow the parties to close the transaction. Second, the agencies could forego all communication with the parties and simply allow the 30-day period to expire. This “no news is good news” result also allowed the parties to close the transaction.

Third, the reviewing agency could determine that the transaction might be anti-competitive and so issue a “second request” for information to make a better determination. The prohibition on closing would continue until the parties submitted the requested information, usually months later, and waited again. (The agency usually would have expressed some interest in the transaction before issuing a second request, giving the parties one final shot at heading off the burdensome second request, as we discussed here.)

While the agencies saw the number of HSR filings significantly decline at the beginning of the pandemic, the number has been up sharply the last twelve months, often a multiple of year ago levels. To smooth the process and accommodate staffs working from home, the agencies moved to electronic submissions. Once the kinks were worked out of the system, filing parties also benefited from the streamlined process. Other actions the FTC has taken since the pandemic’s onset, however, have slowed the process and reduced the benefits parties receive from HSR.

First, the agencies suspended the early termination program early in 2021 to conserve resources.  That temporary suspension continues with no end in sight. Unfortunately, because most parties request early termination and receive it, the change in policy means that hundreds of transactions that posed no competitive issues have been delayed ten days or more for an unclear benefit from a shift in agency resources.

Second, in late 2020, the FTC sued Facebook for illegal monopolization through, among other actions, its acquisitions of Instagram and WhatsApp years earlier. Those two transactions had gone through the HSR process and the FTC did not try to block them.  As we have discussed and as the FTC has explicitly stated in its HSR guidance, successfully navigating the HSR process does not preclude either agency from later challenging the transaction.  But in that same Introductory Guide, the FTC also recognized that “the fact that [the agencies rarely challenge reviewed mergers post-consummation] has led many members of the private bar to view [HSR] as a helpful tool in advising their clients.”  HSR will be much less “helpful” if post-HSR challenges become more common and legal uncertainty increases.

That uncertainty will increase further with the August 2021 announcement from the FTC. In a new blog post, FTC Bureau of Competition Director Holly Vedova notes, “for deals that we cannot fully investigate within the requisite timelines [under the Hart Scott Rodino Act], we have begun to send standard form letters alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful. Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk.”

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Authors: Luis Blanquez and Steven Cernak

Strong winds of change keep blowing in the antitrust world. In the past weeks we’ve witnessed two new major developments in the U.S.: (i) President Biden’s Executive Order to increase antitrust enforcement, and (ii) six antitrust bills issued by the House Judiciary Committee. That’s a lot to summarize in one article, so we’ve decided to just unwrap them below for you to decide how deep you want to keep digging.

  1. President’s Biden Executive Order on Promoting Competition in the American Economy

This month President Biden issued the Executive Order on Promoting Competition in the American Economy (the “Order”). The Order aims to reduce the trend of corporate consolidation, drive down prices for consumers, increase wages for workers and facilitate innovation. It establishes a Whole-of-Government effort to promote competition in the American economy by including 72 initiatives to enforce existing antitrust laws and other laws that may impact competition to combat what it sees as excessive concentration of industry and abuses of market power, as well as to address challenges posed by new industries and technologies.

The Fact Sheet further explains how the Order (i) encourages the leading antitrust agencies to focus enforcement efforts on problems in key markets and (ii) coordinates other agencies’ ongoing response to corporate consolidation.

Calling the DOJ and FTC to enforce the antitrust laws vigorously

The Order calls on the federal antitrust agencies, the Department of Justice (DOJ) and Federal Trade Commission (FTC), to enforce the antitrust laws vigorously. The Order acknowledges the overlapping jurisdiction of both agencies and encourages them to cooperate fully, both with each other and with other departments and agencies, in the exercise of their oversight authority.

In particular, the Order encourages the Chair of the FTC to exercise the FTC’s statutory rulemaking authority in areas such as (i) unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy, (ii) unfair anticompetitive restrictions on third-party repair or self-repair of items, such as the restrictions imposed by powerful manufacturers that prevent farmers from repairing their own equipment; (iii) unfair anticompetitive conduct or agreements in the prescription drug industries, such as agreements to delay the market entry of generic drugs or biosimilar; (iv) unfair competition in major Internet marketplaces; (v) unfair occupational licensing restrictions; (vi) unfair tying practices or exclusionary practices in the brokerage or listing of real estate; and (vii) any other unfair industry-specific practices that substantially inhibit competition.

Also, the Order specifically addresses merger review by (i) encouraging antitrust agencies to revisit and update the Merger Guidelines (both horizonal and vertical) and (ii) challenge bad mergers previously cleared by past Administrations. Immediately after the publication of the Order, FTC and DOJ also issued a joint statement highlighting the fact that the current guidelines deserve a hard look to determine whether they are overly permissive, and how they will jointly launch a review of the merger guidelines with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.

In parallel, FTC has also passed this month some new resolutions updating its rulemaking procedures to set stage for stronger deterrence of corporate misconduct, and authorizing investigations into key law enforcement priorities for the next decade. As FTC’s chair Lina M. Khan stressed in a recent statement, priority targets include repeat offenders; technology companies and digital platforms; and healthcare businesses such as pharmaceutical companies, pharmacy benefits managers, and hospitals. Last but not least, FTC recently voted to rescind a 1995 policy statement that made it more difficult and burdensome to deter problematic mergers and acquisitions. The 1995 Policy Statement on Prior Approval and Prior Notice Provisions made it less likely that the Commission would require parties that proposed mergers that the Commission had determined would be anticompetitive to obtain prior approval and give prior notice for future transactions. By rescinding this policy statement, the FTC will be more likely to obtain prior notice of future transactions by those parties even beyond HSR notice requirements.

Grab your popcorn. Following President Joe Biden’s recent nomination of Jonathan Kanter as the new AAG for U.S. Department of Justice Antitrust Division, it is likely we will see some important antitrust enforcement action from both agencies very soon aimed at corporate concentration, especially the big tech sector.

New White House Competition Council

The Order establishes a new White House Competition Council, led by the Director of the National Economic Council, to monitor progress on finalizing the initiatives in the Order and to coordinate the federal government’s response to what it sees as the rising power of large corporations in the economy.

The Council will meet on a semi-annual basis––unless the Chair determines that a meeting is unnecessary––and will work across agencies to provide a coordinated response to overconcentration, monopolization, and unfair competition. The FTC and other independent agencies are welcome and expected to participate in this process.

Granted patents and the protection of standard setting processes

To avoid the potential for anticompetitive extension of market power beyond the scope of granted patents, and to protect standard-setting processes from abuse, the Order encourages the Attorney General and the Secretary of Commerce to consider whether to revise their position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued jointly by the Department of Justice, the United States Patent and Trademark Office, and the National Institute of Standards and Technology on December 19, 2019.

Specific Industry Sectors addressed in the Order

Labor Markets

The Order encourages the FTC to: (i) ban or limit non-compete agreements, (ii) ban unnecessary occupational licensing restrictions that impede economic mobility, and (iii) along with DOJ, strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.

The Order directs the Treasury Department to submit a report on the impact of what it sees as the current lack of competition on labor markets within 180 days and encourages the FTC and DOJ to revise the Antitrust Guidance for HR Professionals.

Healthcare

The Order (i) directs the Food and Drug Administration (FDA) to work with states and tribes to safely import prescription drugs from Canada, pursuant to the Medicare Modernization Act of 2003; (ii) directs the Health and Human Services Administration (HHS) to increase support for generic and biosimilar drugs, which can provide low-cost options for patients; (iii) directs HHS to issue a comprehensive plan within 45 days to combat high prescription drug prices and price gouging, (iv) encourages the FTC to ban “pay for delay” and similar agreements by rule; (v) encourages HHS to consider issuing proposed rules within 120 days for allowing hearing aids to be sold over the counter, (vi) underscores that hospital mergers can be harmful to patients and encourages the DOJ and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers; (vii) and directs HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing.

Transportation

The Order directs the Department of Transportation (DOT) to consider (i) issuing clear rules requiring the refund of fees when baggage is delayed or when service isn’t actually provided—like when the plane’s WiFi or in-flight entertainment system is broken and (ii) issuing rules that require baggage, change, and cancellation fees to be clearly disclosed to the customer.

The Order further encourages (i) the Surface Transportation Board to require railroad track owners to provide rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly, and (ii) the Federal Maritime Commission to ensure vigorous enforcement against shippers charging American exporters exorbitant charges.

Agriculture

The Order expresses a concern on market concentration and helps ensure that the intellectual property system, while incentivizing innovation, does not also unnecessarily reduce competition in seed and other input markets beyond that reasonably contemplated by other laws.

In particular the Order directs the U.S. Department of Education (USDA) to consider issuing (i) new rules under the Packers and Stockyards Act making it easier for farmers to bring and win claims, stopping chicken processors from exploiting and underpaying chicken farmers, and adopting anti-retaliation protections for farmers who speak out about bad practices; (ii) new rules defining when meat can bear “Product of USA” labels, so that consumers have accurate, transparent labels that enable them to choose products made here; and (iii) a plan to increase opportunities for farmers to access markets and receive a fair return, including supporting alternative food distribution systems like farmers’ markets and developing standards and labels so that consumers can choose to buy products that treat farmers fairly.

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https://www.theantitrustattorney.com/files/2021/06/Alston-v.-NCAA-Antitrust-300x200.jpg

Author:  Steven J. Cernak[1]

On June 21, 2021, the U.S. Supreme Court affirmed lower court decisions and held that certain NCAA restrictions on educational benefits for student-athletes violated Sherman Act Section 1.  The unanimous opinion was a clear win for the plaintiff class and almost certainly will lead to big changes in college sports.

It was also a clear defeat for the NCAA. While the opinion (as the NCAA’s reaction emphasized) maintained the NCAA’s ability to prohibit non-educational benefits and define limits on educational ones, any such NCAA rules must be defended under a full antitrust rule of reason analysis, not a special deferential standard based on language from a 1984 Supreme Court case. Litigation on such issues is already in the lower courts and more can now be expected.

Justice Gorsuch’s unanimous opinion for the Court, however, contains numerous references, concepts, and phrases that will prove helpful to future antitrust defendants, especially those in joint ventures with competitors. The opinion is a reminder that any effort to aggressively change antitrust’s status quo will need to deal with a judiciary steeped in decades’ worth of precedent.  Below are some highlights of the opinion sure to be noted by future antitrust defendants.

American Express, Trinko Alive and Well 

The recent House Majority Report on antitrust issues in Big Tech, co-authored by recently confirmed FTC Commissioner Lina Khan, had several general recommendations. One of those recommendations was for Congress to overturn several Court antitrust opinions, including Ohio v. American Express (written by Justice Thomas) and Verizon v. Trinko (written by Justice Scalia). We covered the ramifications of such reversals here and here.

Apparently, the Court disagrees with that recommendation. American Express was cited at least seven times by the Court, both for when the rule of reason analysis should be used and the three-part burden-shifting process of such an analysis. In a heavily criticized part of the American Express opinion, the Court found that the rule of reason analysis needed to account for effects on both sides of a two-sided market. While Justice Gorsuch’s opinion here did not cite American Express for that proposition, it and the parties assumed that the NCAA could try to justify its restraints in the labor or input market with positive effects in the output market, further cementing the American Express analysis.

The opinion cites Trinko at least four times, usually for the proposition that judges should not impose remedies that attempt to “micromanage” a company’s business by setting prices and similar details. Another citation, however, is to Trinko’s admonition to courts to avoid “mistaken condemnations of legitimate business arrangements” that could chill the procompetitive conduct the antitrust laws are designed to protect. This focus on “error costs” has been embedded in antitrust jurisprudence for decades but has come under attack in recent years from commentators who would prefer more aggressive antitrust enforcement. This unanimous opinion ignores that criticism.

Bork and Easterbrook

Many of today’s antitrust principles can be attributed to Chicago School theorists, including Robert Bork and Frank Easterbrook. Their writings, both as academics and appellate court judges, have remained influential, although both recently have come under withering attack.  Justice Gorsuch seems to remain a fan of both.

Bork’s opinion in Rothery Storage v. Atlas Van Lines is cited twice, once for the proposition that the reasonableness of some actions can be judged quickly and once that courts should not require businesses to use the least restrictive means for achieving legitimate purposes. Bork’s recently re-released The Antitrust Paradox is also quoted for the proposition that competitors in sports leagues must be allowed to reach some agreements, such as on number of players, in order to have any competitions at all.

The Supreme Court cites two of Easterbrook’s Seventh Circuit opinions. The Court cites Polk Bros. v. Forest City Enterprises for the proposition that a joint venture among firms without the ability to reduce output is unlikely to harm consumers. A page later, the Court uses Chicago Professional Sports v. NBA to explain that different restraints among joint venturers might require different depths of analysis to ascertain their effect on competition. Finally, the Court cites one of his law review articles to support judicial caution in summarily condemning business conduct until courts and economists have accumulated sufficient understanding of its likely competitive effect. Surprisingly, Easterbrook’s most famous article — The Limits of Antitrust — was not used in the discussion of the error-cost framework discussed above, despite continuing to be celebrated as one of the leading descriptions of the concept.

Other Quotable Quotes

In addition to the citations above, several other portions of the opinion are sure to be used by future antitrust defendants. In fact, on June 21 Prof. Randy Picker (@randypicker) put together a Letterman-like Top 10 List of Things that Defense Attorneys will Like in Alston tweet thread.  No arguments here with any item on Prof. Picker’s list but two groups of such quotes are worth highlighting.

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FTC-Monetary-Damages-Supreme-Court-300x212

Author: Jarod Bona

The US Supreme Court in AMG Capital Management, LLC v. Federal Trade Commission ends, at least for now, the FTC’s habit of seeking monetary damages in court as part of requests for equitable relief.

The decision wasn’t controversial at the Supreme Court, as it was unanimous, with former Harvard Law antitrust and administrative law guru Justice Stephen Breyer writing the opinion. But this decision stings the FTC because it shuts down their decades-long practice and does so by simply parsing the wording of the relevant statutes.

Why did it take so long to understand what the statutes said?

Background about FTC Enforcement

The Federal Trade Commission is one of those alphabet (FTC) agencies that the textbooks consider independent and full of experts. Like the Antitrust Division of the Department of Justice, which is not independent, they are executive-branch federal-antitrust-law enforcers. Their authority also includes consumer-protection concerns.

The FTC doesn’t enforce the criminal antitrust laws like the Justice Department, but when they want to pursue an action, they have options. They can sue in federal court, but—like other independent federal agencies—alternatively, they can also start the action in their own administrative agency, utilizing an administrative law judge to do the fact-finding (this can sometimes make all the difference if you incorporate deferential standards of review). This is Section 5 of the FTC Act.

But what matters here is what happens if the FTC goes directly to federal court, which they can do under Section 13(b) of the FTC Act. This Section allows the FTC to obtain from a federal court “a temporary restraining order or a preliminary injunction.” But, over the years, the FTC has also regularly convinced courts to order restitution and other monetary relief.

AMG Capital Management, LLC v. Federal Trade Commission

The issue in AMG Capital Management was “Did Congress, by enacting §13(b)’s words, ‘permanent injunction,’ grant the Commission authority to obtain monetary relief directly from courts, thereby effectively bypassing the process set forth in §5 and §19?”

The answer is no.

This is now the part where most articles would summarize the Court’s reasoning, outlining various statutory clauses, their history, and how the Court decided to interpret them. But I am going to skip that. If you are litigating an active case involving similar language or a possess a great love for administrative-agency statutory language, you will read the actual decision anyway and Justice Breyer is rather articulate. For the rest of you, there is no reason for me to show off.

I will, however, make one point about the Court’s reasoning: They address and reject the argument by amici about the policy-related importance of allowing the Commission to use §13(b) to obtain monetary relief.

And, in fact, after this decision, we heard a lot of worry about the FTC “losing” this power they never had, at least according to the highest Court in our land.

But I am happy to see the unanimous Court reject this argument. Sometimes when we are in the trees (not the forest) doing utility calculations in our highly regulated world, we forget that we have a federal government of limited powers. That means there must exist an actual concrete basis for any appendage of our government—backed by the most powerful military in the history of the world—to act against private citizens and businesses. We must never forget that. It doesn’t matter whether so-called experts think that it is “good” for certain governmental enforcers to have any particular power. If there isn’t a statutory or constitutional basis for the power, it doesn’t exist.

What Now?

The real issue is what happens now. Members of Congress, already excited about antitrust, have promised to restore this power and President Biden would certain sign such a bill.

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Pandemic-Antitrust-Changes-300x212

Author:  Steven J. Cernak

With the number of vaccinations rising and mask mandates going away, it appears that life might be heading back towards something like the “old normal.” But during the pandemic, businesses and consumers formed new habits. How many of those new actions will continue post-pandemic and how will those changed processes affect antitrust practice? With all the caveats about predicting the future, here is one set of opinions.

Joint Ventures

At the beginning of the pandemic, many law firms chose to remind their readers that antitrust laws still applied and, for instance, price-fixing was still per se illegal. We chose to remind our readers that pro-competitive joint ventures of various sorts have always been fine under the antitrust laws and might prove useful to businesses struggling to survive a pandemic and lockdowns. The DOJ and FTC also reminded everyone that antitrust laws still applied but, to their credit, also pointed to permissible joint ventures. They also streamlined their review processes for parties wanting an advisory opinion on joint efforts related to the pandemic.

Obviously, it is too early to tell if there has been any change in the number of price-fixing and similar conspiracies consummated during the pandemic; however, it does appear that many businesses did use joint ventures to improve efficiency. As of this writing, at least six joint efforts took advantage of DOJ’s streamlined Business Review Letter processes to obtain greater antitrust certainty about their joint efforts. Also, over 160 notices under the National Cooperative Research and Production Act were filed with DOJ and the FTC in the past twelve months. While many of those notices were merely updates from a much smaller number of joint ventures to disclose changes in membership of the consortium, they do provide some evidence that many companies remembered the pro-competitive business benefits of some collaborations of competitors. As businesses look for ways to improve efficiencies in uncertain times, look for these collaborations to continue.

Pricing

Pricing at all levels of distribution sends key signals to consumers, distributors, and manufacturers and so is often an important antitrust topic. As we explained early in the pandemic, however, price gouging is not a violation of the federal antitrust laws. State price gouging laws and contractual provisions were used early in the pandemic to protect consumers from high prices and manufacturers from blame for high prices by authorized and other distributors. Fears of price gouging seemed to fade early in the pandemic and, other than isolated incidents caused by temporary shortages, seem unlikely to return; instead, the pricing issue currently top of mind is general price inflation, a topic not covered by antitrust laws.

Supply Chain Issues—From Just in Time to Just in Case?

At the beginning of the pandemic, it was shortages of toilet paper and other paper products.  Here near the end, it is a shortage of computer chips for motor vehicles (and other products), chicken, and other products. Both the products and the causes of the shortages seem to have changed during the pandemic. The toilet paper shortage was caused by a sudden and extreme temporary increase in demand; the more recent ones are caused by various supply chain and labor issues resulting in multiple and long-term dislocations.

At bottom, many of these dislocations stem from companies trying to implement their interpretations of the Toyota Production System, particularly a just-in-time supply chain. Such supply chain management reduces costs and inefficiencies by eliminating buffer stocks and working closely with a smaller network of suppliers. In normal times, such systems reduce costs; however, they can be fragile and unable to quickly adjust to exogenous supply shocks, like natural disasters or unexpected bankruptcies. All such systems are based on assumptions that such shocks will not take place or that sufficient additional supply can be quickly found and substituted. When those assumptions turn out to be wrong, businesses can suffer.

Will living through these trying times cause businesses to think more about “just-in-case” supply?  Will manufacturers be more likely to object on antitrust grounds to supplier consolidation that leaves one fewer potential, even if not current, supplier?  Will “5-to-4” mergers now be problematic? Will the FTC object to a hospital merger that could reduce supply unlikely to be used except in a pandemic? If businesses, economists, and enforcers modify their thinking on “efficiencies”, merger review results could be different at least on the margins.

Fewer Smoke-Filled Rooms But Not Necessarily Less Price Fixing

Business travel seems to be coming back, though apparently more slowly than personal travel.  As companies and their employees have become more comfortable interacting virtually, it seems unlikely that travel to trade association and other meetings of competitors will soon, if ever, get back to prior levels. If so, there would be fewer opportunities for competitors to physically meet in typical “smoke-filled rooms” or hotel bars or other places where anti-competitive agreements have been hatched in the past. But that does not mean fewer opportunities to collude—it just means the conspirators will use Zoom, WhatsApp or many other communication and messaging methods. Fortunately, DOJ has understood these trends for years, as detailed in the links here.  For counselors and antitrust compliance specialists, we might need to update our training examples.

Zoom—The Next Google? 

Remember when you first discovered Google? Not only how well the search engine worked but how clean the site was, except when it included cute drawings and links like the Santa Tracker on Christmas Eve? Might be hard to remember now but the company whose motto was “Don’t be evil” seemed to be universally popular. Now? Well, it still remains at least respected and used by a lot of people, but it has also gathered enemies across the political spectrum and around the globe, often for alleged antitrust violations.

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