Antitrust Year In Review: U.S.

Thursday, August 22, 2013 - 16:11

The past year has been an active one in U.S. antitrust law, with neither plaintiff/enforcers nor defendants emerging as clear winners. The federal enforcement agencies, the Federal Trade Commission and Antitrust Division of the Department of Justice, continued to focus primarily on the high-tech industry, mergers and (in DOJ’s case) criminal behavior. The U.S. Supreme Court issued three opinions on antitrust-relevant issues, with one opinion arguably helpful for enforcers, one opinion arguably more helpful for defendants, and the third unclear in its effect.  

The Supreme Court Speaks, With Varying Results

The U.S. Supreme Court issued three opinions in the past year that affect antitrust law. In Comcast v. Behrend, the Court clarified that class action plaintiffs must demonstrate at the class certification stage a method for calculating damages on a class-wide basis – a clear victory for class action defendants. In FTC v. Phoebe Putney, the Court appeared to raise the standard required to invoke the state-action defense, possibly tightening the “foreseeability” requirement used in the Eleventh Circuit Court of Appeals and perhaps elsewhere. The FTC v. Actavis decision resolved a long-running debate over the standard to be used in pharmaceutical reverse-payment cases, holding that the rule of reason applies and the competitive effect of such agreements must be shown and not presumed. Given the choices of viewing such settlements as presumptively legal or presumptively illegal, Actavis probably sides with neither enforcers nor the drug companies.

Civil Enforcement And Private Litigation

After a lengthy investigation, the FTC settled claims against Google that the company stifled competition in markets for certain consumer electronics like smartphones by refusing to honor past commitments to license its standards-essential patents on fair, reasonable and non-discriminatory (“FRAND”) terms. The settlement follows the FTC’s imposition of a record-breaking civil fine on Google in 2012 for allegedly violating a past privacy settlement with the agency by placing Internet-tracking cookies on the computers of customers using Apple, Inc.’s Safari web browser.

In June 2013, the Department of Justice and 33 state and territorial attorneys general scored a decisive victory, with Judge Denise Cote of the U.S. District Court for the Southern District of New York finding that Apple, Inc. had conspired with five previously settling book publishers to fix the price of e-books. The Court will hold hearings on remedies shortly.

The agencies continue to study whether patent assertion entities (or, more derisively, “patent trolls”) pose a competitive threat. Toward that end, the Department of Justice and FTC held a public workshop in December 2012, and officials from both agencies continue to probe the issue in public addresses.

In private litigation, perhaps the largest case of the past few years appears to be winding down. Since 2006, if not before, at least 12 manufacturers and suppliers of liquid crystal displays (LCDs) have faced civil and criminal enforcement actions across the globe. U.S., E.U., Japanese and Korean enforcement agencies have secured multi-million-dollar fines against the companies, which include such well-known names as Sharp, NEC, Hitachi, Samsung, Mitsubishi and LG. Civil settlements by these defendants with classes of direct and indirect purchasers are in place, leaving only the claims of opt-out plaintiffs – mostly large buyers of LCD panels – remaining. In one of those opt-out cases, a sprawling multidistrict litigation consolidated in the Northern District of California, companies including Eastman Kodak, Costco, RadioShack and T-Mobile have reached settlements with the defendants at a fairly steady pace. One of the holdouts, Best Buy, recently began its trial against two manufacturers, Toshiba and Korean company HannStar Display Corp.

Mergers: A Mixed Bag

In merger policy, the FTC issued a staff report in January 2013 analyzing 464 merger investigations from fiscal years 1996 through 2011. Among the data collected there, the report noted that pharmaceutical mergers were most likely to be challenged and pointed out the importance of “hot documents” and consumer complaints in prompting further agency action.

In their treatment of specific mergers, the agencies were mixed. The Department of Justice closed its investigation of a major telecom merger, allowing T-Mobile, the fourth-largest long-distance provider in the U.S., and MetroPCS, the fifth largest, to finalize their union in May 2013. Less than two years ago, DOJ’s opposition and threatened litigation had prompted AT&T to abandon its planned acquisition of T-Mobile. This year DOJ also settled its objections to beer giant ABInBev’s acquisition of Grupo Modelo, requiring the divestiture of Grupo Modelo’s U.S. assets. The biggest news, however, may come in the next year, as DOJ continues its August 2013 challenge to the blockbuster American Airlines–US Air deal, and the FTC decides whether to oppose Office Depot’s acquisition of rival Office Max. Each of these transactions invokes ready comparisons: respectively, with the 2008 merger of Delta and Northwestern, which DOJ ultimately did not oppose, and with the proposed 1997 acquisition by Staples of Office Depot, which the FTC successfully challenged.

Finally, in the past year the agencies continued to pursue the unwinding of consummated or partially consummated mergers, which a former FTC commissioner has called “an increasingly important part of the FTC’s caseload.” Most recently the FTC challenged completed deals involving battery components and hospitals, and the DOJ sued to unwind an acquisition of an online consumer rating and review platform by a rival.

Criminal Enforcement: As Ever, A Bad Year For The Accused

Once again the Department of Justice reported an increase in total fines and jail terms in the past year. Total criminal fines exceeded the $1 billion mark for the first time, and of particular note were convictions and guilty pleas in industries involving auto parts, municipal bonds, LIBOR benchmark interest rates and freight forwarding. DOJ’s enforcement successes did not dampen its enthusiasm for greater efficiencies, however, as it closed field offices in Atlanta, Cleveland, Dallas and Philadelphia. Finally, in April 2013, the DOJ announced mid-year changes to its policy for carving out, or exempting, corporate employees whose companies qualified for immunity based on cooperation with the division. Going forward, DOJ will not carve out employees for reasons unrelated to culpability and will not publicly identify carved-out employees. 

Changes In Personnel

As in Canada, in the past year U.S. enforcement agencies have seen a number of important personnel changes. William Baer was sworn in as Assistant Attorney General for Antitrust in January, replacing interim head Sharis Pozen, and Scott Hammond, long-time Deputy Assistant Attorney General for Criminal Enforcement, has announced his departure.  Over at the FTC, Jon Leibowitz, Chairman of the Federal Trade Commission since 2009, resigned and was replaced by Edith Ramirez, a sitting commissioner. Commission Ramirez’s elevation leaves a vacant position at the Commission, which by law must be occupied by a Democrat. In January, Josh Wright, a law professor at George Mason University, filled a Commission spot vacated by Republican appointee Tom Rosch.

These are significant changes – not because they portend new directions in enforcement policy, but because they mark the departures of public servants who, each in his own way, affected enforcement policy in ways likely to endure. Former FTC Chair Leibowitz led the FTC’s attack on reverse-payment settlements, an effort that is likely to continue in light of the Supreme Court’s decision in Actavis. Scott Hammond’s eight-year tenure as chief of criminal enforcement saw the number of criminal cases filed more than double, from 32 to 67, and total fines in criminal cases rise from $338 million to $1.1 billion. Tom Rosch was among the most prolific writers and speakers in the FTC’s history, contributing provocative views on virtually every issue currently faced by the agency. (By my informal count, former Commissioner Rosch authored as many speeches and articles in an average year as some of his predecessors managed in their entire time on the FTC.)

Changes In The States

Legislative actions in the states also moved antitrust law in the last year. The Michigan state legislature outlawed most-favored-nation provisions in health insurance contracts with providers, prompting the Department of Justice to settle its high-profile case on that issue with Blue Cross Blue Shield of Michigan. In Kansas, the state legislature contributed to the ongoing debate over the proper standard for resale price maintenance agreements. In 2007 the U.S. Supreme Court’s Leegin opinion specified that such vertical agreements be analyzed under the rule of reason, which provides for a potentially protracted analysis of the agreements’ pro- and anticompetitive effects. In 2012 the Kansas Supreme Court joined a number of states in applying a different standard – per se illegality – to such agreements under state law. In April 2013, however, the Kansas state legislature effectively reversed that state decision, passing a law requiring a “reasonableness” standard under the Kansas Restraint of Trade Act. 

Looking Ahead

Against a backdrop of such mixed results, the past year hardly offers a basis for confident predictions about what the future holds. The following areas will, however, be worth particular attention:

  • Criminal enforcement will almost certainly continue apace, perhaps spurred in part by DOJ’s revisions to its carve-out policy.
  • Building on an ambitious district court opinion from the Western District of Washington in Microsoft Corp. v. Motorola Inc., courts may continue to define how to identify “fair, reasonable and non-discriminatory” patent licenses.
  • The American Airlines–U.S. Air and Office Depot–Office Max mergers will offer DOJ and the FTC opportunities to clarify merger policy through reasoning that can be compared with earlier airline and office-supply deals.
  • The Supreme Court’s apparent tightening of the state action may inspire further challenges to the actions of state agencies arguably dominated by the industries those agencies are supposed to regulate.
  • The temptation to outlaw most-favored-nation clauses in healthcare provider contracts may spread beyond Michigan.

Russell Wofford is a Partner in the Atlanta office of King & Spalding LLP specializing in antitrust issues.

Please email the author at rwofford@kslaw.com with questions about this interview.