The Antitrust Attorney Blog

Antitrust for Kids: As Rivals Become Friends, The Government Gets Angry (The PGA Mini-Golf Tale Continued)

July 5, 2023 | Bona Law PC

Authors: Molly Donovan & Luke Hasskamp

You may recall Liv, age 8—the new kid. Last we heard, Liv was getting pushed around by Paul, Greg and Adam (“PGA” for short) because she dared to build a mini-golf course in an attempt to challenge PGA’s longstanding position as the best and only mini-golf in town.

PGA was not happy about the new competition and unilaterally announced that any kid who played with Liv would be banned from the PGA’s more reputable course.

As we ended things last time, the town kids spoke with an antitrust lawyer and ultimately forced PGA to end the boycott. We thought that would be this story’s end, but what happened next was a real shock.

Liv and PGA were unsatisfied with the resolution forced upon them by the players. They each lawyered up as Liv accused PGA of abusing its dominant position in the mini-golf world causing Liv tens of dollars in antitrust damages. Turns out, the lawyer fees started adding up fast, and PGA could not continue to the fight.

As Liv and PGA spoke privately about how to resolve their dispute, they came up with a surprising idea that (they believed) would end PGA’s legal fees and satisfy Liv’s desire for a meaningful seat at the mini-golf table that could end her “new kid” stigma: why not merge? Liv and PGA could join forces permanently, becoming a mini-golf behemoth that would end the rivalry and potentially increase profits for all.

Great solution! Everything is neatly wrapped up and most importantly, by all accounts, Liv and PGA are seemingly good friends.

Wrong! The town government hates the idea. Why should the only two competitors in the mini-golf market be allowed to team up? Liv and PGA—now referred to as PGA Plus*—couldn’t stop the lawyer-fee-bleed after all. They had to keep their antitrust lawyers on retainer to gear up for their next battle: this time, against the town.

But is it really plausible that Liv and PGA want to be BFFs, living hand-in-hand in perpetuity? Is some contingent secretly going behind closed doors encouraging the government to tank the deal?**

If the new alliance is legit, how will PGA Plus defend the merits of a merger that unquestionably eliminates all existing (and probably all possible) competition?

We’ll wait and see as events continue to unfold in this thrilling antitrust tale.

Moral of the Story: One antitrust problem can lead to another. A dominant company like PGA can raise the specter of antitrust scrutiny by engaging in unilateral anticompetitive conduct or by collaborating or combining with another horizontal firm.

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If I Were You…I’d Listen to this Podcast about Antitrust in Employment Markets in the UK and EU

June 29, 2023 | Bona Law PC

Author: Molly Donovan

A new episode of the “If I Were You” podcast is ready! You can listen to it here. Featuring guest host Luis Blanquez and guest commentators Andreas Reindl and Marc Freedman of Van Bael & Bellis, a leading independent firm based in Brussels and London with an outstanding competition law practice. If you’re not a podcaster, read Andreas’ and Marc’s thoughts about antitrust enforcement in US and EU labor markets here:

This Episode Is About: Antitrust enforcement in UK an EU labor markets

Why: The UK’s competition authority (Competition and Markets Authority) recently issued antitrust guidance to UK employers so it’s a good time for an update and check-in on this subject

The Five Bullets: In-house lawyers, if I were you, I would educate your employment team about the following antitrust risks in UK and EU labor markets.

The CMA’s guidance encourages businesses, their lawyers and recruiters to avoid:
1. No-poaching agreements: 2 or more businesses agree not to approach or hire each other’s employees (or not to do so without the other employer’s consent).
2. Wage-fixing agreements: 2 or more businesses agree to fix employees’ pay or other employee benefits. This includes agreeing to the same wage rates or setting maximum caps on pay.
3. Information sharing: 2 or more businesses share sensitive information about terms and conditions that a business offers to employees.
The guidance does not mention that businesses can violate UK antitrust law by reaching labor-related agreements even if they do not compete in the downstream market. The product market of concern is labor (not the goods or services produced by labor).
Enforcement in the UK is real: the CMA has been aggressive in prosecuting and levying very significant fines on companies that infringe UK antitrust law. The CMA has other sanctions at its disposal, including – unlike many other European antitrust authorities – possible criminal liability and individual director disqualifications. CMA’s guidance signals a change in enforcement priorities with a marked increase in antitrust scrutiny of labor markets.
EU companies may be behind the curve in terms of compliance based on a perception that labor markets are not an area of competition concern. This needs to change: there’s been a recent uptick in enforcement activity in labor markets by a number of Member State competition authorities and there are clear signals that the European Commission is actively looking at labor markets as well.
If you’re a UK or EU employer and realize you’ve already crossed the line, you need a lawyer’s assessment to decide the most appropriate strategy that mitigates the risks. Strategies range from stepping away from the agreement and documenting that decision to making a leniency application. Whether or not to communicate a withdrawal to the other agreeing parties is a difficult one that should be thought through on a case-by-case basis. To avoid this difficult situation, make compliance a top priority and incorporate labor-related conduct into antitrust compliance policies, trainings and protocols for internal reporting.

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

June 17, 2023 | Bona Law PC

Author: Luis Blanquez

A company using a blockchain––or perhaps even the blockchain itself––, with a sizeable share of a market, could be a monopolist subject to U.S. antitrust laws. But monopoly by itself isn’t illegal. Rather, a company must use its monopoly power to willfully maintain that power through anticompetitive exclusionary conduct.

Thus, a monopolization claim requires: (i) the possession of monopoly power in the relevant market––i.e. the ability to control output or raise prices profitability above those that would be charged in a competitive market; and (ii) the willful acquisition or maintenance of that power as distinguished from attaining it by having a superior product, business acumen, or even an accident of history. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

The monopolist may also have a legitimate business justification for behaving in a way that prevents other firms from succeeding in the marketplace. For instance, the monopolist may be competing on the merits in a way that benefits consumers through greater efficiency or a unique set of products or services.

There are many ways a company may willfully acquire or maintain such monopoly power through anticompetitive exclusionary conduct. Some of them include exclusive supply or purchase agreements, tying, bundling, predatory pricing, or refusal to deal.

In this article we briefly discuss the refusal to deal theory of harm in the context of web3.

What is Web3?

The internet is an evolving creature. Thirty years ago, web 1.0 was all about browsing and reading information. As a consumer you had access to information, but few were able to publish online.

In the early 2000s the current web 2.0. arrived, and everyone started publishing their own web content and building communities. The problem today is that we have a centralized internet. Very few companies––big online platforms such as Google, Facebook or Amazon––control and own everyone’s online content and data. And they even use all that data to make money through, for instance, targeted advertising.

That’s why web3 is a necessary step in the right direction. As a consumer you can now access the internet without having to provide your personal data to these online gatekeepers. And you don’t need to give up ownership of the content you provide. Plus, you own your digital content and can execute digital agreements using crypto currencies. If wonder how is all that possible, the answer is through a new infrastructure called blockchain.

You can read a broader discussion of antitrust guidelines for companies using blockchain technology here.

Refusal to Deal with Competitors or Customers

Competitors and Rivals

First, an illegal refusal to deal may occur when the monopolist refuses to deal with a competitor or rival. Under US antitrust laws such claims are challenging and rarely successful.

Although a company generally has no duty to deal with its rivals, courts have found antitrust liability in some limited scenarios when a monopolist (i) unilaterally outright refuses to sell a product to a rival that it made available to others (Verizon Commc’ns, Inc. v. Law Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 407–09 (2004), see also Aspen Skiing, 472 U.S. at 601; Otter Tail Power Co. v. United States, 410 U.S. 366, 377-78 (1973); OR (ii) had a prior voluntary and presumably profitable course of dealing with a competitor, but then terminated the relationship, giving up short-term profit from it in order to achieve an anticompetitive end. See Pac. Bell Tel. Co. v. linkLine Commc’ns, 555 U.S. 438, 442, 451 (2009), Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013), cert. denied, 572 U.S. 1096 (2014).

Applied to the web3 world, this means that the validators of a blockchain could face antitrust scrutiny only if they had monopoly power, and (i) they previously allowed a competitor access to its blockchain but later agreed to exclude that rival, or (ii) sacrifice short-term profits without a reasonable business justification. This is, of course, unlikely considering the decentralized structure of blockchains and their need for gas fees to keep validators’ business profitable and the chain secured. When the validators are decentralized, they are not a single economic entity for purposes of the antitrust laws. But the risk would still differ depending on the blockchain and the level of decentralization.

What we might eventually see, however, is a company with monopoly power using a blockchain to exclude its rivals from the market through different anticompetitive conduct. For instance, we might see restrictions to only use one blockchain, to use smart contracts to impose loyalty rebates and other barriers to switch between blockchains, conditioning the use of one blockchain for a specific application or product by restricting the use of other blockchain or non-blockchain rivals’ infrastructure, or to require suppliers upstream or end customers downstream, to use the same blockchain for different products or applications.

Customers

Second, a refusal to deal may also take place when a monopolist refuses to deal with its customers downstream or suppliers upstream. A monopolist’s refusal to deal with customers or suppliers is lawful so long as the refusal is not the product of an anticompetitive agreement with other firms or part of a predatory or exclusionary strategy. Note, however, that a monopolist cannot decline to deal with customers as retaliation for those customers’ dealings with a competitor. That is often called a refusal to supply and is in a different doctrinal category than a refusal to deal. But, beyond these anticompetitive exceptions, private companies are typically free to exercise their own independent discretion to determine with whom they want to do business.

This test is broader than the one for competitors and requires a case-by-case legal and economic analysis to determine whether anticompetitive conduct exists. And web3 is not any different in this respect.

The Apple App Store and web3

Let’s take the Apple App Store as an example.

In the web2 world, Apple has created a “walled garden” in which Apple plays a significant curating role. Developers can distribute their apps to iOS devices only through Apple’s App Store and after Apple has reviewed an app to ensure that it meets certain security, privacy, content, and reliability requirements. Developers are also required to use Apple’s in-app payment processor (IAP) for any purchases that occur within their apps. Subject to some exceptions, Apple collects a 30% commission on initial app purchases and subsequent in-app purchases.

There are currently several related ongoing antitrust investigations and litigations worldwide about Apple’s conduct with its App Store. In the U.S., the Court of Appeals from the Ninth Circuit on the Epic Games saga held that Apple should not be considered a monopolist in the distribution of iOS apps. But this ruling also came with a string attached. The judge concluded that Apple did violate California’s unfair competition law and could not maintain anti-steering rules preventing users from learning about alternate payment options. If you want to learn more (see here). Both companies have recently asked the Ninth Circuit for a rehearing and the stakes are high.

Companies in web3 are now starting to deal with similar potentially anticompetitive behavior from web2 big tech companies. Uniswap, StepN and Damus are just three of many recent examples.

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Minnesota is the New California for Non-Compete Agreements

June 5, 2023 | Bona Law PC

Author: Aaron Gott

In May of 2023, Minnesota enacted a new law that broadly bans employee non-compete agreements with few exceptions and also limits the use of forum-selection and choice-of-law clauses in employment agreements. You can read that law here (jump to 66.12).

Note: the Federal Trade Commission is also contemplating a ban on employee non-compete agreements, but we don’t know what that will look like until the final rule is published. We’ve written about the FTC’s proposed rule here and here.

In other words, Minnesota is the new California, which already broadly bans non-competes and prevents employers from getting around California law with forum-selection and choice-of-law clauses to obtain a more favorable law or a more receptive judicial audience outside the state. We’ve been advising both employers and employees on California’s non-compete law for almost a decade.

That isn’t to say Minnesota’s law is now exactly the same as California’s, which we’ve discussed at length in the past. Here’s a quick and dirty run-down of Minnesota’s new law.

Minnesota’s new non-compete law becomes effective July 1, for new agreements only

Minnesota’s new non-compete law becomes effective July 1, 2023. But it only applies prospectively, i.e. to agreements executed on July 1, 2023 or later. This means that employers can still seek to enforce their existing employment non-compete provisions.

It’s important to keep in mind, though, that a sea change in legislative policy like this can often affect judicial decisions relating to the old policy (i.e. existing agreements) down the road. When the Minnesota courts get used to the new paradigm, their view of the old paradigm is likely to change.

Minnesota’s new non-compete ban is broad

The ban is quite broad—it prohibits all non-compete agreements between employers and employees, including executives, those who otherwise have access to trade secrets and other proprietary information, and those who could take considerable customer goodwill with them when they leave.

It also applies to workers, whether they are employees or independent contractors.

There are two direct exceptions: non-competes in connection with the sale of a business, and non-competes in connection with the dissolution of a business.

But Minnesota’s new non-compete ban has limits

The new law is quite specific in two ways: it applies to “covenants not to compete” that apply to an employee’s conduct “after termination of the employment.”

Since the new law only covers “covenants not to compete,” it applies only to (1) “work for another employer for a specified period of time,” (2) “work in a specified geographical area” and (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement”. Further, the law specifically excludes some other types of agreements: nondisclosure agreements and other agreements to protect trade secrets, as well as nonsolicitation agreements.

And since the law only covers work “after termination of the employment,” it does not apply to agreements not to compete during employment. Minnesota’s law allows garden leave arrangements, which means employees remain employees for a certain amount of time, during which they are paid but do not work, and cannot compete.

Minnesota’s new non-compete law grants fees to prevailing employees

This is one area where Minnesota is doing something different than California: employees who prevail in enforcing their rights under the new law can recover attorney’s fees from the employer. This means greater risk and a changed playing field for employers who seek to protect their business interests.

Under Minnesota’s new non-compete law, an unenforceable non-compete doesn’t void the entire contract

Even if a provision of an employment agreement is found unenforceable as a prohibited non-compete, only the prohibited non-compete is void—not the entire contract.

Minnesota businesses should act quickly

Minnesota businesses need to act quickly for a couple of different reasons. The first is that they need to bring their current agreements and templates into compliance with the law in less than 30 days.

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Ten Ways to Tell Whether You Have an Antitrust Claim

June 3, 2023 | Bona Law PC

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see, e.g., Leegin and resale price maintenance).

And outside of a law-school hypothetical, it usually isn’t that difficult to apply the law to the facts. Of course, what makes antitrust law interesting is that it evolves over time and its application to different circumstances often challenges your thinking. Sometimes, you may even want to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve to become an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to Bitcoin or deadlifting.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, you can utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

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Antitrust for Kids: Everyone’s an Expert (So Don’t Overuse Daubert)

June 2, 2023 | Bona Law PC

Author: Molly Donovan

Olive (named for the fruit) is in eighth grade. She’s a very good inventor. For the science fair, Olive developed a simple device that allows students, each morning, to pre-select lunch items, ensuring each student’s preference is available in the lunch line later that day. It’s a simple-looking machine that the school ended up placing in the lobby for actual student use.

And the kids loved it. Everyone pre-selected lunch. Why not?

Here’s the trouble: Olive was secretly in cohoots with a lunch vendor (her aunt Clementine—also named for the fruit) so that students could only pre-select items made in Clementine’s own kitchen! The device simply did not present other vendors’ items as options! The result: Clementine’s sales soared, her prices went unchecked and kids didn’t have the pre-selection choices they should have had.

You’d think they’d notice right away, but it took some time for the kids to catch on. Once it did become clear that pizza was missing and Clementine’s calzones dominated, the kids were mad.

Everybody complained to the principal: you’ve got Olive in exclusive control of this device that everybody wants to use, and she’s allegedly abused that power to grow her family’s own catering business.

Shameful, no?

So, here’s what happened. The principal (a former antitrust lawyer from an unnamed major firm) decided to use the problem in an educational exercise. She felt there was no serious dispute that, under the circumstances, Clementine should return the ill-gotten gains as a donation to the school. The only question: what amount?

EXPERTS! The principal—and she thought this was very smart—would have parent-economists make presentations at a school assembly: one team would argue, based on fancy charts and graphs, that the amount owed is big; the other team would argue, with equally fancy visuals, that the amount owed is nothing at all, or at best, pretty small. Then the kids would vote. Good idea, but…

Was there a hiccup? Yes. The principal made the mistake of letting the lawyer-parents get involved. For the assembly, the lawyers developed Daubert-style challenges—why one expert wasn’t sufficiently qualified or didn’t do a good enough job with her analysis to be allowed to present at all. Those challenges were supposed to last 10 minutes or so, with the remaining 20 minutes reserved for judging the analyses on their merits: Who is most convincing? What number should be THE number? That’s the important part, right?

But somehow the challenges—really meant to weed out only the unverifiable stuff—got completely out of hand. I mean, could someone with a PhD in economics really be unfit to talk about the dynamics of supply and demand in a lunch line? But the lawyer-parents ran with it.

So much time and energy was spent on the challenges, the principal had to bring it to a stop: no more Daubert. Everyone’s an expert. Let’s move to the important question at hand.

Moral of the Story: It was brought to us by Judge Gonzalez Rogers in the District Court for the Northern District of California in the In re Apple iPhone Antitrust Litigation. The court admonished the lawyers there for giving into the oft felt urge to overuse Daubert:

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Axon, Altria, Illumina, and Administrative Law: What an Antitrust Lawyer Should Know Now

April 20, 2023 | Bona Law PC

Authors: Steven Cernak and Aaron Gott

Last week, the U.S. Supreme Court ruled against the Federal Trade Commission and allowed Axon Enterprise to raise certain constitutional objections to FTC processes in federal court before going through the FTC’s internal administrative proceedings. That decision teed up an “existential” threat to the FTC that seems likely to return to the Court in a few years. In the meantime, however, different cases raise similar questions and might reach the Court earlier.

Axon Background and Summary

In May 2018, Axon purchased one of its competitors in a transaction that did not require an HSR filing. The FTC investigated and decided in January 2020 to challenge the consummated transaction. As is always possible with such challenges, the FTC chose to bring it in front of its internal Administrative Law Judge rather than in a federal court. In that procedure, the ALJ makes an initial decision, which then can be appealed by the parties or FTC Complaint Counsel to the Commissioners. The parties can then appeal any negative decision by the Commissioners to a federal court of appeals of their choosing.

Immediately after the FTC issued the administrative complaint, Axon sued in federal court to raise constitutional challenges to FTC procedures. Both the district court and Ninth Circuit ruled that Axon must go through the FTC’s procedures before eventually raising the constitutional issues to a federal court. Procedurally, the Ninth Circuit did issue a stay on the FTC’s proceedings in October 2020 while Axon pursued the appeal of its constitutional challenges.

On April 14, 2023, the Court unanimously ruled that Axon could pursue its constitutional challenge to the FTC in court now and did not need to wait until going through the FTC’s administrative proceedings. (The Court’s opinion also applied to a companion case involving the Securities and Exchange Commission.) Writing for the Court, Justice Kagan applied the Court’s “Thunder Basin factors” and concluded that a federal district court had jurisdiction to hear such “fundamental, even existential” challenges to the FTC’s procedures even before those procedures had run their course. That is because such constitutional challenges implicate federal courts’ general subject-matter jurisdiction to consider questions of federal law, rather than implicate the exception to questions of federal law that Congress has determined should be heard in agencies instead of the courts in the first instance. Justice Gorsuch concurred in the judgment on different grounds. The case was remanded for a trial to consider the merits of those constitutional challenges.

The Constitutional Challenges to be Decided on Remand

And what were those “fundamental, even existential” constitutional challenges? Axon explicitly identified two in its original complaint. First, Axon claims that it violates the separation of powers to have an FTC ALJ removable only for good cause — and then only by a Board whose members are also only removable for good cause — and not freely by the President. Second, Axon claims that having the FTC investigate and initiate, adjudicate, and review the complaint unconstitutionally combines prosecutorial and adjudicative functions. Finally, Axon also at least implicitly raised due process concerns because of the “black box” clearance process to determine whether the Justice Department Antitrust Division or FTC will review any individual merger under their different standards and procedures. (Justice Kagan did not think Axon’s complaint explicitly raised the clearance issue and so did not address it.)

Justice Thomas concurred fully in the Court’s opinion but wrote separately to express “grave doubts about the constitutional propriety” of having agencies, not federal courts, adjudicating private rights, as compared to governmental privileges, and with only highly deferential judicial review at the end of the proceedings.

Any antitrust attorney who has ever dealt with the FTC will agree with the Court’s description of these challenges as “fundamental” to how the FTC operates. Since 1914, the FTC has been the agency developing its alleged expertise in policing unfair methods of competition by playing prosecutor, judge, and jury. Specifically regarding potentially anticompetitive mergers, the FTC and Antitrust Division have decided which agency will perform the review based on opaque, historical, difficult-to-explain precedent. (For example, traditionally the FTC has reviewed mergers involving light-duty vehicles while the Antitrust Division reviewed those involving medium and heavy-duty vehicles.) With the Court’s remand in Axon, the FTC will soon be forced to defend these practices in a district court and, presumably, eventually again in the Supreme Court.

Will JLI/Altria or Illumina/Grail Reach the Court Before Axon?

While Axon now will have its day in district court to raise these issues, two other FTC competition matters that have already gone through the administrative proceedings might raise similar constitutional issues in courts of appeals more quickly.

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Antitrust for Kids: If You Write A Bad Note, Live with It: Document Preservation in Antitrust Cases

April 11, 2023 | Bona Law PC

Author: Molly Donovan

Gordon was recognized as dominant in the 5th grade class. He had the greatest share of friends and ran the fastest. He was the smartest and won the most academic awards at the end of each school year. He was always chosen as the lead in every school play.

But one day, Gordon’s teacher accused him of cheating. Rather than playing fair, Gordon had excluded a new student, Samuel, from the playground races at school. Samuel showed real promise in track and field and Gordon hated to admit that he felt a bit threatened. Although he knew it was wrong, Gordon wrote a number of notes to classmates telling them to exclude Samuel from all playground races. His teacher, of course, found one of those notes.

That was bad enough, but Gordon went and made everything worse. For use during an upcoming parent-teacher conference, Gordon’s teacher instructed him to collect and keep all the notes he had written to friends demanding that they refuse to race against Samuel. Instead, Gordon shredded the notes and threw away the scraps! Then—and this is the real clincher—Gordon told his teacher, falsely, that he had preserved the notes as instructed.

Obviously, this all came out at the conference. There, the teacher argued that Gordon should be punished for throwing away the notes and lying about their being preserved. Gordon argued that punishment was not necessary—his conduct was not that bad since at least half the notes were to friends who had nothing to do with the boycott of Samuel anyway.

As you might expect, Gordon’s parents agreed with the teacher. The result: Gordon had to give back a significant portion of his monthly allowance and donate it to the school, and further punishment—publicly unknown—would wait until Gordon got home. Eeeek!

Could Gordon continue his dominance after all that? You’ll have to wait for a future Antitrust for Kids to find out.

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Latest Step on Twisty Illumina/Grail Antitrust Merger Challenge Road

April 5, 2023 | Bona Law PC

Author: Steven Cernak

The twists and turns of the various antitrust challenges to the proposed Illumina/Grail merger have provided antitrust practitioners numerous lessons the last two years. This week, the FTC commissioners unanimously voted to overturn their administrative law judge’s initial decision and order Illumina to divest the controlling stake in Grail that it had purchased. The FTC’s opinions provided some lessons on vertical-merger challenges and the constitutionality of FTC organization and processes. But because the parties plan to appeal, this week’s decision is just the latest turn in a long and winding road.

Facts and Prior Developments

Here is a summary of the facts and past developments from our earlier writings. Illumina is a provider of a certain type of DNA sequencing, including instruments, consumables, and reagents. According to the FTC’s complaint, it is the dominant provider of this 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 FTC 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). The FTC also sought a temporary restraining order and preliminary injunction from the U.S. District Court for the District of Columbia. The parties successfully removed the case to the Southern District of California.

Shortly thereafter, the European Commission announced that it too would investigate the transaction, even though the transaction did not meet its usual thresholds. The Commission made this decision at the request of several member states. The parties challenged the Commission’s jurisdiction and its usual requirement that the transaction not close until the Commission completed its investigation. As a result of the European action, the FTC decided that its federal court case to block closing was no longer necessary and so dismissed it.

So, in Europe, the investigation continued while in the U.S. the parties prepared for and held the trial in front of the FTC’s ALJ. During this time, the parties closed the transaction. Last Fall, the Commission decided to block the transaction. The parties are appealing that decision. 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 FTC’s own ALJ decision. Earlier this week, the four Commissioners unanimously agreed to overturn it.

Review of Facts, Vertical Merger Standards, and FTC Constitutionality

In late 2021, the FTC voted to withdraw its vertical merger guidelines; therefore, this opinion is one of the first chances since then for practitioners to see how these particular Commissioners would approach vertical mergers. The Commission’s opinion asserted that “case law provides two different but overlapping standards for evaluating the likely effect of a vertical transaction:” Brown Shoe’s focus on share of the market foreclosed and other structural factors versus the more recent focus on the merged entity’s ability and incentive to foreclose rivals from necessary inputs or distribution channels.

In her concurring opinion (and one of her final actions before her resignation), Commissioner Wilson asserted that while Brown Shoe has not been overruled, its most recent application was in 1979, more recent FTC actions have focused on the ability/incentive framework, and some commentators have called Brown Shoe and its focus on market share, “largely repudiated.” Because the DOJ Antitrust Division has not abandoned the vertical merger guidelines and recent courts have focused more on the ability/incentive framework, the Commission opinion here introduces uncertainty for parties as to the standard they should follow for evaluating vertical mergers—the Court and DOJ standard or this new FTC standard?

While there was some disagreement on the legal standard, the four Commissioners agreed on the application to the facts: The transaction was anticompetitive and should be unwound. As per FTC procedure, the Commission reviewed the ALJ’s fact and legal findings de novo and disagreed with them in key areas. Below, we summarize three examples.

First, the ALJ had found that Illumina had the ability to foreclose Grail’s rivals in various ways; but the ALJ found these facts “less significant” in this case because that ability came from being the only practical supplier of the sequencing, regardless of the Grail transaction. The ALJ contrasted those facts with the recent DOJ AT&T vertical merger review, where the alleged ability would be created only by the challenged transaction. The Commission opinion found this analysis “flawed” and that Complaint Counsel must show only that the ability existed, not that it was created by the proposed merger.

Also, the ALJ rejected concerns about Illumina’s increased incentive to foreclose Grail rivals for several reasons, especially because successful commercial sale of the MCED tests of those competitors was so far in the future that a foreclosure strategy now made no sense. The Commission opinion disagreed, finding that foreclosure tactics now would destroy current and ongoing R&D competition and help cement Grail’s very profitable production future.

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Bona Law Helps Deliver Successful 2023 Spring Meeting for the ABA Antitrust Section

April 3, 2023 | Bona Law PC

Authors: Steve Cernak, Dylan Carson, Kristen Harris

Back in person again, the 71st edition of the American Bar Association Antitrust Law Section’s annual Spring Meeting did not disappoint and Bona Law was there for the formal and informal conversations that will help shape antitrust enforcement in the U.S. and abroad. With over 3700 registrants from over 60 countries and dozens of panels, events, and receptions — formal and informal — the 2023 Spring Meeting was the place to be for antitrust and consumer protection lawyers last week. Bona Law attorneys Steve Cernak, Dylan Carson, and Kristen Harris represented the firm and engaged with numerous public antitrust enforcers, private practitioners and in-house antitrust counsel from across the globe on a variety of hot topics. Next year’s event promises to continue this tradition when Cernak becomes Antitrust Section Chair-elect in August 2023 and Harris joins him in Section leadership.

Cernak moderated a panel of the Federal Trade Commission Bureau Directors. Our takeaway of their message is that they have no plans to slow down the aggressive antitrust and consumer protection enforcement, despite some court losses and other resistance. Some commentators had complained that this FTC was downplaying or completely ignoring economic learning. The new Director of the Bureau of Economics swatted away that claim, saying he and his economists are fully on board with the enforcement direction. Expect continued aggressive enforcement out of this FTC, with a focus on revitalizing vertical merger enforcement, the Commission’s Section 5 authority, and Robinson-Patman Act enforcement. On the DOJ side, the importance of corporate antitrust compliance programs and the future of criminal and civil monopolization cases were repeated themes on multiple panels.

The Spring Meeting attracts practitioners and enforcers with a wide range of views on antitrust enforcement priorities. An interesting vibe we picked up from panels on the Biden Administration as well as hallway conversations is the newer ideological splits. On one side are the Biden Administration enforcers and their many supporters who want to see new or revived enforcement theories or laws very different from those that have prevailed for over forty years. On the other side are the supporters of that economics-based status quo, including both Obama-era enforcers and big business types, who, while not always agreeing on specifics, have found a common opponent in the Biden Administration enforcers. The split is not the same “red v. blue” split seen elsewhere in U.S. politics and expect to see strange bedfellows for some time to come.

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