THE PENDULUM SWINGS BACK
A Review of Antitrust Enforcement in 2013
and Predictions for 2014
Devin Laiho, Assistant Attorney General, State of Colorado
Rich Cunningham, Of Counsel, Gibson, Dunn & Crutcher LLP
April 16, 2014
Overview
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New leadership at both DOJ and the FTC
Overview of state antitrust enforcement
Criminal enforcement
Civil conduct enforcement
Merger review
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New DOJ & FTC Leadership
• Antitrust Division: Assistant Attorney General Bill Baer
• Federal Trade Commission:
– New Chairwoman – Edith Ramirez
– Director of the Bureau of Competition – Deborah Feinstein
– Director of the Bureau of Economics – Martin Gaynor
– New Democratic Commissioner – Terrell McSweeny
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Antitrust Fundamentals
• Per se / rule of reason
• Price fixing
– Horizontal, vertical, or both
• Bid rigging
• Market allocation
• Group boycott
• Tying arrangement
• Joint venture
• Information sharing
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State Enforcement
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State AGs enforce state and federal antitrust laws
Work as individual states for matters of pure local concern
Work as multistate groups for regional or national matters
Joint enforcement with federal agencies
• Simultaneous investigations reduce burden & costs
• Civil law enforcement actions
• Civil penalties and injunctive relief
• Relief for consumers as parens patriae
• Not mass actions subject to CAFA
• Unlike Rule 23 actions, class certification not required
• States have Article III standing and prudential standing
• Represent state agencies harmed by anticompetitive acts
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Criminal Enforcement
• Remains DOJ’s “First Priority”
• Law is fairly steady – liability limited to “hard core” cartel violations
• Price fixing
• Quantity limits
• Market allocation (geographic, customer, or product)
• Amnesty program remains primary case generation mechanism
• Cases are not numerous, but are very large, and incredibly high risk
• Critical decisions are made from the earliest moments that an issue is
uncovered:
• Amnesty, disclosures, privilege, multiple jurisdictions
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Criminal Enforcement: Auto Parts
Many companies are involved
• To date, 23 companies (most of them Japanese) have agreed to pay U.S.
fines totaling more than $1.8 billion (USD).
Company
U.S. Fine
Company
U.S. Fine
Company
U.S. Fine
Yakzaki
$470,000,000
Takata
$71,300,000
T.RAD
$13,750,000
Furukawa
$200,000,000
NSK
$68,200,000
Valeo Japan
$13,600,000
Hitachi
$195,000,000
Panasonic
$45,800,000
Yamashita Rubber
$11,000,000
Mitsubishi
Electric
$190,000,000
Fujikura
$20,000,000
Eagle Eyes Traffic
Industrial
$5,000,000
Mitsuba
$135,000,000
Diamond Electric
$19,000,000
TRW Deutschland
$5,100,000
Toyo Tire &
Rubber
$120,000,000
Tokai Rika
$17,700,000
G.S. Electech
$2,750,000
JTEKT
$103,270,000
Mitsubishi Heavy
Industries
$14,500,000
Nippon Seiki
$1,000,000
DENSO
$78,000,000
Autoliv
$14,500,000
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Criminal Enforcement: 2014 Predictions
• Expect a “second wave” of auto parts
cases: new investigations will open, new
subpoenas and search warrants will issue
• Expect developments in new
investigations underway in financial
sector
– Interest-rate swaps
– North Sea Brent crude oil
– Foreign currency exchange
• Expect the unexpected
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Civil Conduct Enforcement
• Monopolization cases, boycotts, MFNs and “other” conduct
subject to the antitrust laws
• Recent agency successes
• Patents, patents, patents
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Civil Conduct Enforcement: Apple E-Books
Litigation
• DOJ and 33 states filed suit against Apple and 5 book publishers
alleging they conspired to increase prices of e-books
• Raised questions related to use of “agency” contracts and MFNs
• The judge said:
– “The Publisher Defendants conspired with each other to eliminate retail
price competition in order to raise e-book prices.”
– “Apple played a central role in facilitating and executing that conspiracy.
Without Apple’s orchestration of this conspiracy, it would not have
succeeded as it did in the Spring of 2010.”
• Appeal and damages proceedings upcoming
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Civil Conduct Enforcement:
Pharmaceutical Pay-for-Delay Settlements
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Hatch-Waxman Act encourages entry by
generic drug manufacturers
– But also creates incentive for branded
manufacturers to sue generics for patent
infringement
– Settlements sometimes involve payments
by a branded maker for delay in entry by
generic
FTC v. Actavis – Pay-for-delay agreements
are subject to a rule of reason analysis (most
Circuits had held the settlements per se legal)
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Civil Conduct Enforcement:
Standard Essential Patents
• SEPs: Patents adopted as part of an industry-wide technology
standard
– Licensing: often a commitment by owner to license on fair,
reasonable, and nondiscriminatory basis (FRAND).
– What constitutes “fair” and “reasonable” licensing terms
may be open to interpretation:
• Charging higher royalties relative to past licensing
practices?
• Comparison of royalty rate to value of end consumer
device?
• Charging competitors higher royalties than other firms?
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Civil Conduct Enforcement:
Patent Assertion Entities (“Patent Trolls”)
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PAE: Entity whose primary business is to acquire patents for purpose of
asserting them against existing products or services, not to practice, enable,
or develop the technology
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DOJ: various theories of harm to competition
identified, but no one-size-fits-all antitrust theory
– Concerns regarding “privateering,” in which
a practicing entity transfers patents to a PAE
to be used against competitors of the
practicing entity
– Potential for operating entities to collude with
each other through PAEs to raise rivals’ costs
and exclude competitors
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Civil Conduct Enforcement:
Section 5: “Unfair Methods of Competition”
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Long-standing debate in antitrust law
FTC relied solely on Section 5 “unfair methods of competition” authority
as basis in recent enforcement cases
– Intel—alleged product pricing and design practices
– Bosley/Hair Club—exchange of competitively sensitive information
– U-haul—invitations to collude/coordinate
Commissioner Wright has proposed a Section 5 Policy Statement to guide
enforcement
– Acts or practices that “harm or are likely to harm competition
significantly,” and
– “lack cognizable efficiencies”
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Civil Conduct Enforcement:
Data Privacy and Security Issues
• Data can be a particularly critical asset
• Mergers can create market power through the aggregation of
complementary (or competing) datasets
• All manner of subsidiary privacy and data issues can be
uncovered, leading to follow-on investigations
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Civil Conduct Enforcement: Predictions for
2014
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Increased scrutiny of the healthcare provider, insurance, and technology
markets
– Targeting of “most favored nation” clauses
Patent-related enforcement actions, possibly under Section 5
Focus on reducing burden of investigations on businesses, particularly
improving electronic discovery
– Growing efforts to review investigations post hoc, develop divisionwide best practices
Spillover from Consumer Protection cases, particularly in areas of data
privacy and security
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Civil Conduct Enforcement: Practice Tips
When you receive a government subpoena…
• Almost always the best strategy is to cooperate
– Identify information that is particularly accessible
– Investigations have momentum
– Can be responsive without showing an unwillingness to fight
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Consider coordinating across enforcers
Facts and evidence more persuasive than saber-rattling
Consider document preservation obligations
Resources
• http://www.ftc.gov/tips-advice
• DOJ / FTC Guidelines for Collaboration Among Competitors
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Merger Enforcement
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Several merger challenges last year – all successful
– American Airlines/U.S. Airways
– Imbev/Modelo
– Bazaarvoice
– Ardagh (Bottles)
– Multiple hospital cases
Agencies are taking concentration thresholds much more seriously
Agency remedy demands are becoming more onerous
Merger Enforcement: American Airlines
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In August 2013, DOJ sued to enjoin the $11 billion merger between American
Airlines and U.S. Airways, which would create the world’s largest airline.
– DOJ contended that it would increase airline pricing, including pricing on
ancillary fees like baggage and flight change charges.
– Trial was set for November 25, 2013.
On November 12, airlines announced a settlement with DOJ.
– Divestitures: airlines agreed to give up 69 takeoff and landing slots at
LaGuardia and Reagan National, gate and support facilities at other airports.
– Stated goal of concessions is to enhance low-cost carriers’ ability to compete
system-wide.
Other recent airline mergers have not faced litigation challenges:
– Delta/Northwest (2008)
– Southwest/Air Tran (2008)
– United/Continental (2010)
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Merger Enforcement: Bazaarvoice
• Bazaarvoice, an internet-based product rating and review platform,
acquired a competitor, PowerReviews, for $168 million in June 2012
– Transaction was not submitted for pre-merger review under HSR
• DOJ sued, alleging that the consummated merger created an illegal
monopoly
– Heavy reliance on damaging internal Bazaarvoice documents
• After a three-week trial, Court ruled almost completely for DOJ
• Take-always:
– Bad documents can be damning
– DOJ focused on emerging technologies
– Consider giving notice of a non-reportable deal
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Merger Enforcement: Health Care!
• FTC v. St. Luke’s Health
System, Ltd. (D. Idaho)
• FTC v. Phoebe Putney Health
System, Ltd. (M.D. Ga.)
• FTC v. Mercy Hot Springs
• United States v. United
Regional Health Care System
(N.D. Tex.)
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Merger Enforcement: Predictions for 2014
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Aggressive enforcement will likely continue
through the second Obama term
FTC pursues a potential competition case
Both agencies seek to block a merger with
mid-range HHIs and a “big name” party
More hospital & medical services cases
Link between “consumer protection” data
privacy & security issues and merger
enforcement at FTC
Increased international coordination &
enforcement
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Merger Enforcement: Keys to Clearance &
Practice Tips
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Structure matters
– Nearly deal that can be classified as a 5-to-4 will receive some scrutiny
– Deals viewed as 4-to-3 have a near presumption of illegality absent a
very strong defense story
Clean documents
Pro-competitive motivation
Explain the benefits to consumers rather than doomsday for the parties
without the merger
Deal structure matters, particularly with:
– Joint ventures, failing firms, antitrust risk provisions
Agencies are open to creativity
– Pull & refile
– “quick looks”
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Contact Information
Rich Cunningham
Gibson, Dunn & Crutcher LLP
1801 California Street
Denver, CO 80202
Tel: 303-298-5752
rhcunningham@gibsondunn.com
Devin Laiho
Colorado Attorney General’s Office
Ralph L. Carr Colorado Judicial Center
1300 Broadway, Seventh Floor
Denver, CO 80203
Tel: 720-508-6219
Devin.Laiho@state.co.us
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