Antitrust
Part I: Conduct Cases and Enforcement
2012 OFII General Counsel Conference
Washington, D.C.
1
2011 – 2012 Antitrust Update
• Conduct Cases
– Section 1 of the Sherman Act prohibits agreements and
conspiracies that restrain trade. 15 U.S.C. § 1.
– Section 2 of the Sherman Act prohibits monopolization. 15
U.S.C. § 2
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Standard of Review
Two Categories of Violations:
• “Per se”: violations that meet the strict
characterization of a Section 1 violation, such that
no further inquiry into the practice’s actual effect
on the market or the intentions of the participants
is necessary.
• “Rule of Reason”: violations requiring a look at
the totality of the circumstances and whether the
challenged conduct promotes or suppresses
competition.
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Price-Fixing
United States v. Apple, Inc., et al (E-Books), 12-CV-2826 (DLC)
• Alleged horizontal conspiracy among publishers to raise the
price of eBooks
• Alleged horizontal/vertical[?] conspiracy among publishers and
Apple to move to an agency model of distribution
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Price-Fixing (cont’d)
In re LIBOR-Based Financial Instruments
Antitrust Litigation, MDL No. 2262, 1:11-md2262-NRB
•
•
•
•
LIBOR
DOJ – antitrust
CFTC – market manipulation
Barclay’s settlement for manipulation
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Foreign Trade Antitrust Improvements Act
• The Foreign Trade Antitrust Improvements Act (FTAIA) limits
enforcement of U.S. antitrust laws in situations where there are no
clear effects on U.S. consumers.
• Three-step test, Animal Science Prods., Inc. v. China Nat’l Metals &
Minerals Import and Export Corp. (D.N.J. Dec. 30, 2008):
1) Did the conduct involve U.S. import trade or import commerce?
2) If not, does the conduct involve trade with foreign nations? and
3) If the conduct involves trade with foreign nations, does it have a “direct,
substantial, and reasonably foreseeable effect” on the U.S. market?
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Foreign Trade Antitrust Improvements Act
(cont’d)
Minn-Chem, Inc. v. Agrium Inc. (7th Cir. Sept. 23, 2011)
• Direct and indirect purchasers alleged that defendants
engaged in a widespread price-fixing conspiracy in violation of
Sherman Act Sec. 1, resulting in a 600% increase in the price
of potash.
• The Seventh Circuit panel held that the district court lacked
subject-matter jurisdiction under the Foreign Trade Antitrust
Improvements Act, because the purchasers failed to show
that the allegedly anticompetitive conduct was directed at an
import market.
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Foreign Trade Antitrust Improvements Act
(cont’d)
Minn-Chem, Inc. v. Agrium Inc. (7th Cir. June 27, 2012)
•
•
Reversed en banc, the 7th Circuit held that the FTAIA sets forth an element
of a Sherman Act claim, rather than a jurisdictional limit.
For purposes of the FTAIA, the term “direct” means only a “reasonably
proximate causal nexus.”
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Bundling
•
•
•
“Bundling” is the practice of offering a single discounted price for two or
more products or services that are also sold separately . This practice
raises antitrust concerns when a supplier with monopoly or significant
market power uses bundled discounts to drive sales of other products or
services that would otherwise be sold in a market.
LePage’s Inc. v. competitive 3M (3d Cir. 2003): Bundling by a monopolist
violates Section 2 of the Sherman Act if it is exclusionary or predatory and
undertaken without a valid business justification.
Cascade Health Solutions v. PeaceHealth (9th Cir. 2008): Rejected the
LePage’s standard, held that plaintiff must establish that, after allocating
the discount given by the defendant on the entire bundle of products to the
competitive product or products, the defendant sold the competitive product
or products below its average variable cost of producing them.
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Bundling (cont’d)
United States v. United Regional Health Care Systems (N.D. Tex. Feb. 25, 2011)
Claims:
•
•
United Regional held monopoly power in markets for inpatient and outpatient hospital services.
United Regional’s contracts provide for a higher discount off billed charges to insurers if it is the only local
hospital or outpatient surgical provider in the insurer’s network, and a much smaller discount if the
commercial health insurer adds another competing hospital to its network.
DOJ Complaint and Settlement:
•
•
“When the entire ''discount'' that a commercial health insurer receives in exchange for agreeing to
exclusivity is allocated to the patient volume that United Regional would likely lose to a competitor in the
absence of the exclusionary contracts (the ‘contestable patient volume’), it is clear that United Regional is
selling services to commercial health insurers for the contestable volume at a price below its own marginal
costs. A competing hospital, therefore, would need to offer a price below United Regional's marginal cost
to induce a commercial health insurer to turn down exclusivity.”
DOJ filed a proposed consent decree on February 25, 2011, prohibiting United Regional from engaging in
such practices.
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Reverse Payments
In re K-Dur Antitrust Litigation (3d Cir. July 16, 2012)
•
•
A reverse payment occurs when one firm pays another firm to delay its
entry into the market.
In this case, Schering-Plough Corp. and Upsher-Smith Laboratories
entered into an agreement to settle patent infringement litigation in 1997
that included “reverse payments” in an agreement for one party to delay
market entry of the generic drug until September 2001. Plaintiffs alleged
the agreement extended Schering’s monopoly and kept prices artificially
high, in violation of antitrust laws.
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Reverse Payments (cont’d)
In re K-Dur Antitrust Litigation (3d Cir. July 16, 2012)
• Court held that reverse payments are presumptively unlawful, and
any payment from a patent holder to a generic challenger who
agrees to delay entry into the market must be treated as prima facie
evidence of an unreasonable restraint of trade, which could be
rebutted by showing that the payment was for a purpose other than
delayed entry or offers some pro-competitive benefit.
• Splits from 11th, 2d, and Federal Circuits on whether such
agreements survive antitrust scrutiny.
– Other circuits apply a “scope of the patent” test, “reverse payments are
permitted so long as (1) the exclusion does not exceed the patent's
scope; (2) the patent holder's claim of infringement was not objectively
baseless, and (3) the patent was not procured by fraud on the [Patent
and Trademark Office].”
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Standard of Review
California v. Safeway (9th Cir. Aug. 17, 2010)
•
Three supermarket chains, Albertson’s, Ralphs, and Vons (subsidiary of Safeway) They entered into
a revenue sharing agreement, where each chain would submit sales data for an eight-week period
preceding a strike to a certified public accountant for calculation of any increase or decrease in
revenues during the strike period relative to their historic shares. Those experiencing an increase
would pay 15% of the increased revenues to lower performing chains. Pursuant to this, Ralphs paid
over $80 million to Vons, and over $60 million to Albertson’s.
•
9th Circuit applied a “blended analysis”, and concluded that a profit sharing agreement of limited but
unknown duration among firms comprising the majority of the relevant market would be considered a
violation of § 1 of the Sherman Act, even by an ''individual with rudimentary knowledge of antitrust
law ... in the absence of some extraordinary circumstance.'‘
– Found that the Attorney General did not need to provide empirical evidence of an
anticompetitive effect because “the data required to best distinguish between the effects of the
strike and those of the agreement and determine whether and how the agreement affected
competition between the defendants does not exist.”
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Standard of Review (cont’d)
California v. Safeway (9th Cir., en banc, July 12, 2011)
•
•
•
9th Circuit reviewed en banc and reversed. The court disagreed with the
9th circuit panel’s use of a “blended analysis”.
This was not a per se violation, due to the temporary and unknown duration
of the agreement and the exclusion of other competing grocers.
Also declined to apply “quick look” analysis, because the anticompetitive
effects of this agreement were not obvious. It was not clear that the
agreement was entered into with the intention of reducing price
competition.
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Tying
• Tying occurs when a monopolist sells its
monopoly “tying” product on the condition
that the buyer also purchase a “tied”
product.
• Tying is per se illegal if:
1)
2)
3)
the tie-in involves two truly separate
products;
seller possess monopoly power over the
tying product;
and the tie-in affects a “not
insubstantial” dollar volume (not share)
of commerce in the tied product market.
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Tying (cont’d)
Brantley v. NBC Universal, Inc. (9th Cir. Oct. 31, 2011)
•
Class action challenging practice of cable programmers selling cable channels only in packages 1)
limits the manner in which distributors compete with each other; 2)
reduces consumer choice; and 3) increases prices.
•
•
Court found that the plaintiffs did not allege that the sale of tied “must-have” channels with “lowdemand” channels excludes other sellers of low-demand channels from the market.
The Court held that “[a]lthough plaintiffs may be required to purchase bundles that include unwanted
channels in lieu of purchasing individual cable channels, antitrust law recognizes the ability of
businesses to choose the manner in which they do business absent an injury to competition.”
– “Limitations on the manner in which Distributors compete with one another
do not, without more, constitute a cognizable injury to competition.”
•
On November 2, 2011, following the departure of one of the deciding judges, the 9th Circuit withdrew
its decision, and directed the clerk’s office to reconstitute the panel by drawing a third judge.
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International Enforcement
ICN
• Expanded from 15 to 123 members
• Advocacy and training
Enforcement Across Jurisdiction
• eBooks revisited
• LIBOR revisited
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Antitrust
Part II: Antitrust and Intellectual Property
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INJUNCTIONS AFTER FRAND
COMMITMENTS
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FRAND Commitments in Standard-Setting
• Many industries use standard-setting organizations
(SSOs) to establish technical standards
• To lessen the risk of patent hold-up, participating
companies typically must agree to:
– Disclose IP rights that would be essential to implementation of
the proposed standard
– License any IP that proves essential to the standard on fair,
reasonable, and nondiscriminatory (FRAND) terms
• But the typical SSO’s patent policy provides little
guidance on what constitutes a FRAND royalty
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Disputes Involving Holders of SEPs
• Many disputes have arisen recently between the holders
of so-called “standard essential patents” (SEPs) and
companies complying with the underlying standards
– Disputes arise when the SEP holder makes an offer that the
implementer of the standard finds unreasonable
– Or when the SEP holder refuses to engage in negotiations with
the implementer of the standard
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Injunctions After FRAND Commitments
• These disputes raise the question of remedies
appropriately available to an SEP holder following
infringement
• In federal court, permanent injunctive relief is no longer
nearly automatic following a finding of infringement
– See eBay v. MercExchange, 547 U.S. 388 (2006) (rejecting
presumption of irreputable harm and requiring proof of inadequacy
of money damages)
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Injunctions After FRAND Commitments (cont’d)
• In Apple v. Motorola,
Judge Posner, sitting
by designation,
recently concluded
that injunctions
should almost never
issue in the
standard-setting
context
.
“I don’t see how, given FRAND,
I would be
justified in enjoining Apple from infringing the
‘898 [patent] unless Apple refuses to pay a
royalty that meets the FRAND requirement.
By committing to license its patents on FRAND
terms, Motorola committed to license the ‘898
to anyone willing to pay a FRAND royalty and
thus implicitly acknowledged that a royalty is
adequate compensation for a license to use
that patent. How could it do otherwise?”
2012 WL 2376664 (June 22, 2012)
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Divergence in ITC Section 337 Cases?
• Section 337 of the Tariff Act of 1930 prohibits unfair
methods of competition (including patent infringement)
from imported goods
• By statute, the ITC can consider public interest factors in
deciding whether to issue an exclusion order after a
finding of infringement, but in practice the order almost
always issues
• Antitrust enforcers have raised concerns about the
competitive impact of recent exclusion orders involving
SEPs encumbered by FRAND obligations
2012 OFII General Counsel Conference
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Divergence in ITC Section 337 Cases? (cont’d)
• The Senate
Subcommittee for
Antitrust, Competition
Policy and Consumer
Rights has urged the
ITC not to enjoin
importation of products
following a patent
holder’s breach of
FRAND commitments
“Any precedent that would enable or
encourage companies to include their
patented technology in a standard, commit to
license included patents on RAND terms, and
then seek to secure an exclusion order
despite a breach of that commitment would
thus implicate significant policy concerns.
Such an outcome would severely undermine
broad participation in the standards-setting
process, which would in turn threaten the
meaningful benefits these standards provide
for both industries and consumers.”
Sens. Kohl (Antitrust Chair), Lee (Ranking Member), et al.
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ACQUISITION OF PATENTS
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Recent High-Profile Acquisitions
• DOJ recently reviewed three deals involving high-profile
acquisitions of patent portfolios:
– Google acquired Motorola Mobility, including its portfolio of
17,000 issued patents and 6,800 pending applications
– Rockstar Bidco (including Apple, Microsoft, and RIM) paid $4.5
billion to acquire approximately 4,000 Nortel patents
– Apple acquired patents from CPTN Holdings LLP, formerly
owned by Novell
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Recent High-Profile Acquisitions (cont’d)
• DOJ noted that these deals:
– “[H]ighlight the complex intersection of intellectual property rights and
antitrust law and the need to determine the correct balance between the
rightful exercise of patent rights and a patent holder’s incentive and
ability to harm competition through the anticompetitive use of those
rights”
• A leading commentator has observed that aggregation of
many patents could extend their market power beyond their
legitimate scope:
– “[E]ven if all the patents are relatively ‘weak,’ their sheer number
threatens that one might be held valid and infringed.” Areeda &
Hovenkamp 3 Antitrust Law ¶704b.
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DOJ Analysis of the Transactions
• DOJ analyzed the ability and incentives of the acquiring
firms to use the acquired patents to raise rivals’ costs or
foreclose competition
– Hundreds of the Motorola Mobility and Nortel patents at issue
were SEPs that the patent holders had committed to license to
industry participants in connection with their participation in
SSOs
– As a member of the Open Invention Network (OIN), Novell had
committed to cross-license its patents on a royalty-free basis for
use in the open source Linux system
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All Three Deals Were Cleared
• Relying on commitments made by the principal
competitors, DOJ cleared the three transactions
– Apple and Microsoft committed to license SEPs on FRAND
terms, and to refrain from seeking injunctions in disputes
involving SEPs
– DOJ noted that “Google’s commitments were more ambiguous
and do not provide the same direct confirmation of its SEP
licensing policies”
• DOJ stated that it “will continue to monitor the use of
SEPs in the wireless device industry”
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Non-Practicing Entities
• Nonpracticing entities (NPEs) hold patents but do not
produce goods or services covered by their patented
technology
• The controversy over NPEs is well-captured by the title
of a 2010 article by Shawn Miller:
– Patent ‘Trolls’: Rent-Seeking Parasites or Innovation-Facilitating
Middlemen?
• Legislation (the SHIELD Act) has been proposed to curb
frivolous patent litigation, and antitrust enforcers are
conducting investigations
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K-DUR AND SCOPE OF THE
PATENT TEST
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Scope of the Patent Test
• Patent litigation settlements involving branded and
generic manufacturers long have been an enforcement
priority of FTC Chairman Jon Leibowitz
• The Second, Eleventh, and Federal Circuits have found
these settlements lawful under the “scope of the patent”
test, under which settlements are lawful if:
– The exclusion does not exceed the patent’s scope
– The patent holder’s infringement claim was not objectively
baseless
– No fraud on the U.S. PTO was used to procure the patent
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K-Dur Decision Created Circuit Split
• The Third Circuit rejected the “scope of the patent” test
– The court held that a reverse payment constitutes “prima facie
evidence of an unreasonable restraint on trade”
– And said that settlements must be reviewed under a quick look
rule of reason analysis based on their economic realities
• Reasoning: The scope of the patent test wrongly
assumes validity of the patent – that validity is in fact at
issue
• Petitions for certiorari are currently pending before the
Supreme Court, and similar litigation has been stayed
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REFUSALS TO DEAL
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General Rule: No Duty to Deal
• The antitrust laws impose no general “duty to deal” on a
firm, so long as the refusal is unilateral and unconditional
– “[A]s a general matter, the Sherman Act ‘does not restrict the
long recognized right of [a] trader or manufacturer engaged in an
entirely private business, freely to exercise his own independent
discretion as to parties with whom he will deal.’” Verizon
Commc’ns, Inc. v. Trinko, 540 U.S. 398, 408 (2004) (internal
citation omitted)
• The Ninth Circuit, which requires a business justification
for the refusal, has been widely criticized
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Second Circuit Confirmed Majority View
“To the extent Eatoni argues that RIM’s
mobile phones offer the only platform
compatible with its patented reduced
QWERTY keyboard technology, we agree
with the district court that § 2 does not
obligate RIM to share its patented platform
technology, from which RIM derives the
lawful power to exclude others’ use.”
Eatoni v. RIM (2d Cir. June 21, 2012)
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REMS and Refusal to Deal
• Certain drugs are subject to Risk Evaluation and
Mitigation Strategy (REMS) requirements
– REMS programs monitor usage of certain drugs to ensure that
their benefits outweigh their risks, and in some circumstances
require “safe use” precautions
• REMS legislation states that REMS requirements cannot
be used to block generic competition
• Earlier this year, a bill underscoring the branded drug
manufacturer’s obligation to sell to generic companies
passed the Senate but not the House
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REMS and Refusal to Deal (cont’d)
• The FTC is investigating refusals by branded drug
manufacturers to sell (or to permit sales of) product to
potential generic competitors
– Is refusal by branded company an unlawful attempt to
circumvent Hatch Waxman Act or a lawful refusal to deal?
• Last month, Actelion sued two generic manufacturers
under the Declaratory Judgment Act
• Actelion seeks a declaration that it is not obligated to sell
branded drug samples to potential competitors
2012 OFII General Counsel Conference
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Antitrust
Part III: Joint Ventures, Partial Ownership
Interests, and Interlocking Directorates
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Joint Ventures
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Antitrust: Joint Ventures
Any form of collaborative activity in which
independent firms pool resources in order to
achieve some positive result, such as
improved efficiency, increased innovation,
etc.
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Antitrust: Joint Ventures
• Common types include
– Fully-integrated
– Production
– Marketing and distribution
– Purchasing
– R&D
– Network
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Antitrust: Joint Ventures
• Ordinarily analyzed under Section 1 of the Sherman Act
as agreements in restrain of trade
• Also subject to analysis under Section 2 of the Sherman
Act as monopolization or attempted monopolization
• May be challenged under Section 7 of the Clayton Act if
the formation of the joint venture involves an acquisition
of stock or assets within the meaning of the statute
• May be challenged by federal or state enforcement
agencies, or private plaintiffs
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Antitrust: Joint Ventures
• Section 1 Analysis
– Threshold question: Whether joint venture involves a genuine
integration of economic resources sufficient to avoid
condemnation as a per se unlawful cartel
– If so, it will be subject to “Rule of Reason” analysis
– “Ancillary” restraints may be permissible if
• Reasonably necessary to the functioning of the joint venture
• Least restrictive alternative to achieve the procompetitive
goal
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Antitrust: Joint Ventures
• Potential Competitive Effects
– Courts and agencies have recognized that joint ventures can be
procompetitive
– Joint ventures may also have anticompetitive aspects:
• Opportunities for price-fixing
• May lessen competition
• Harm non-participating competitors
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Antitrust: Joint Ventures
• DOJ/FTC Guidelines for Collaborations Among
Competitors
– Generally apply a Rule of Reason analysis
– Recognize that joint ventures “may enable participants to offer
goods or services that are cheaper, more valuable to consumers,
or brought to market faster than would be possible absent the
collaboration.”
– Recognize a safe harbor: “Absent extraordinary circumstances,
the Agencies do not challenge a competitor collaboration when
the market shares of the collaboration and its participants
collectively account for no more than twenty percent of each
relevant market in which competition may be affected.”
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Antitrust: Joint Ventures
• Recent Development: American Needle, Inc. v. NFL
– Challenge to NFLP’s grant of exclusive apparel license to
Reebok
– NFL argued it should be regarded as a “single entity” and not
subject to Section 1 of the Sherman Act
– U.S. Supreme Court held that NFL’s licensing activity was not
categorically beyond the reach of Section 1, but rather was
subject to analysis under the Rule of Reason
– Crucial facts: NFLP was controlled by a group of would-be
competitors and deprived the marketplace of independent
centers of economic decision-making
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Antitrust: Joint Ventures
• Recent Developments: Pricing activity
– Texaco v. Dagher
– Involvement of parents in pricing activity
– Firewalls
– Resale Price Maintenance
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Antitrust: Joint Ventures
• Special Case: Cross-border joint ventures
– Issues of laws of multiple jurisdictions (e.g., U.S.
Sherman Act, E.U. competition law, Japanese
Antimonopoly Act)
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Partial Ownership Interests
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Antitrust: Partial Ownership Interests
• Acquisition of partial ownership interests runs
afoul of antitrust law if the effect of the
acquisition may substantially lessen competition
or tend to create a monopoly
– Narrow exemption for stock acquired “solely for
investment”
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Antitrust: Partial Ownership Interests
• May raise competitive concerns
– Ability to influence/coordinate competitive conduct
– Reduce incentive to compete
– Access to non-public, competitively sensitive
information
• Complete ownership (i.e., parent-subsidiary)
does not pose same competitive concerns
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Antitrust: Partial Ownership Interests
• Recent examples
– U.S. v. Dairy Farmers of America
– Clear Channel
– Kinder Morgan
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Interlocking Directorates
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Antitrust: Interlocking Directorates
• Under Section 8 of the Clayton Act, unless certain safeharbor criteria are met, U.S. law prohibits individuals
serving as directors or officers of more than one entity if
those entities are competitors
– One court has suggested that Section 8 also applies to
“employees” more broadly
– Statute contains several highly technical safe harbors designed
to exempt interlocks that pose little risk of antitrust injury (size of
corporations, amount of competitive sales)
– Note: Section 1 of the Sherman Act also applies
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Antitrust: Interlocking Directorates
“Direct” Interlock
When the same individual serves as a director or officer of competing
corporations
Director
or
Officer
INDIVIDUAL
1
Director
or
Officer
CORPORATION
CORPORATION
A
B
COMPETITORS
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Antitrust: Interlocking Directorates
“Indirect” Interlock
When different individuals serve as directors or officers of competing
corporations, but both act on behalf of same third entity
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Antitrust: Interlocking Directorates
• Practical Considerations
– Companies must presently compete with each other – does not
apply to wholly-owned subsidiaries (Copperweld) and may not
apply to ownership of more than 50%
– Competitive sales must be more than de minimis for Section 8 to
apply
– May apply to foreign interlocks
– Minority stakes in competing corporations and a lack of voting
control do not eliminate Section 8 problem
2012 OFII General Counsel Conference
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Antitrust: Interlocking Directorates
• Practical Considerations
– A “firewall” to stop the possible flow of competitively sensitive
information between to competitors may or may not be sufficient
– One year grace period applies only to interlocks discovered
after-the-fact
– When Section 8 problems surface, other competition problems
may also be present
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