Because national and regional merger control regimes in Africa often overlap, investors should take careful note of the scope and powers of key regional organizations vested with merger control oversight.
On January 12, the Seventh Circuit Court of Appeals refused Motorola Mobility LLC’s petition for a rehearing en banc of its price-fixing claims against foreign manufacturers of liquid crystal display (LCD) panels. Motorola Mobility LLC v. AU Optronics Corp., et al., case number 14-8003. Motorola alleged that these foreign manufacturers violated Section 1 of the Sherman Act by conspiring with each other to set the price for LCD panels. Only approximately 1 percent of the panels sold to Motorola by defendants were purchased by and delivered to Motorola in the United States to be used in the assembly of Motorola cellphones. Motorola’s foreign subsidiaries purchased the rest – with 57 percent of all panels bought by a Motorola entity incorporated into cellphones sold abroad, and the remaining 42 percent assembled by the Motorola foreign subsidiary into cellphones and then sold to and delivered to Motorola for resale in the United States. The Northern District of Illinois granted partial summary judgment to the defendants, ruling that Motorola’s claim as to the 99 percent of panels purchased by foreign subsidiaries was barred by the Foreign Trade Antitrust Improvement Act (FTAIA), 15 U.S.C. §§ 6a, which has been interpreted to limit the extraterritorial reach of U.S. antitrust law. The district judge certified an order for immediate appeal.
In November, the Seventh Circuit affirmed the district court’s partial grant of summary judgment. In his amended opinion filed January 12, Judge Posner determined that the effect of the alleged foreign cartel did not give rise to a federal antitrust claim because the plaintiff could only be injured indirectly. Under federal antitrust jurisprudence, claimants that purchase indirectly and/or suffer derivative harm lack antitrust standing to bring suit in the United States. Posner explained that plaintiff’s foreign subsidiaries were the direct purchasers injured by the alleged LCD panel conspiracy. In response to Motorola’s argument that it and its foreign subsidiaries should be treated as a single entity, Posner asserted that the corporate formalities of the U.S. parent and its foreign subsidiaries should be respected. Motorola decided to have its subsidiaries incorporated in and pay taxes to these foreign jurisdictions, and therefore, the subsidiaries must seek relief in the countries in which they or the alleged conspirators are incorporated. A parent does not have a right to sue for damages on behalf of its foreign subsidiaries in the United States. Importantly, although Posner’s opinion could protect an alleged foreign conspirator from facing treble damages in U.S. civil court, his opinion also made clear that if the alleged price-fixing has a direct, substantial and reasonably foreseeable effect on U.S. commerce, then the FTAIA does not block the U.S. Department of Justice from seeking injunctive or criminal relief.
In December, Motorola petitioned the Seventh Circuit for a rehearing en banc. It argued that defendants purposefully negotiated directly with Motorola in the United States and that Motorola determined the prices and quantities of panels purchased from defendants by its U.S. subsidiaries. The defendants purposefully engaged in business with the plaintiff, and the conspiracy’s harm knowingly passed into U.S. commerce via Motorola’s importation of the cellphones. As such, defendants should not be able to escape civil damages in the United States. After review of Motorola’s petition, the Seventh Circuit refused the request for the case to be reheard before the full panel in a three sentence order.
Last Friday, foreign cargo carriers filed motions to dismiss an air freight price-fixing suit brought by Schenker AG, the logistics division of Germany’s national railway company, Deutsche Bahn, in the Eastern District of New York. Schenker AG v. Societe Air France, et al., case number 1:14-cv-04711. In its complaint filed last August, Schenker alleged that seven foreign airlines conspired to fix surcharge rates for various air cargo routes to, from and within the United States. This suit is just the latest in a series of investigations and claims concerning anticompetitive behavior in the air cargo industry, which began in 2006 when the U.S. Department of Justice (DOJ), in conjunction with the European Commission and South Korea’s Fair Trade Commission, organized raids of the offices of numerous air carriers around the world. Airlines have paid billions of dollars in fines to competition agencies throughout the world and nearly a billion more dollars in settlements to direct purchaser plaintiffs in a multi-district litigation in U.S. federal court.
Defendants All Nippon Airways Co., Ltd. and Cargolux Airlines International S.A. moved the district court to dismiss the action on the grounds of forum non conveniens under the Second Circuit’s precedent in Capital Currency Exch., N.V. v. Nat’l Westminster Bank PLC, 155 F.3d 603, 609 (2d Cir. 1998). According to these defendants, Schenker’s choice of forum should be afforded little deference because Schenker is a foreign corporation that was forum shopping, choosing the United States for its treble damages. Instead, defendants argued that Germany was an adequate alternative forum, especially given that Schenker is owned by the German government and that many of the witnesses and documents are located in Europe. In addition, defendant Qantas filed a separate motion to dismiss on the basis that Schenker filed its claims after the Clayton Act’s four year statute of limitations had run. Qantas argued that if Schenker had performed the requisite due diligence, then it would have been aware of its claims on February 15, 2006, the day after which it was reported that the DOJ organized the raids of the airlines. Even considering that the statute of limitations was tolled until May 2011 when Schenker opted out of the middle-district class action against the airlines, Qantas contended that Schenker had to file its complaint before June 1, 2014, which the plaintiff failed to do.
On January 6, 2015, Makoto Horie of Toyoda Gosei North America pled guilty to the United States Department of Justice (DOJ) for conspiring to fix the prices of automotive hoses sold to U.S. companies. Mr. Horie was sales general manager for Toyoda Gosei in Japan. He will serve one year and one day in a U.S. prison and pay a $20,000 criminal fine for participating in the conspiracy between March 2007 and September 2010.
Toyoda Gosei pled guilty in September 2014 to price-fixing and bid-rigging for automotive hoses, airbags and steering wheels. Unlike Toyoda Gosei’s plea agreement, Mr. Horie’s Information did not allege any wrongdoing related to automotive airbags or steering wheels. Including Mr. Horie and his former employer, 29 individuals and 32 companies have now admitted guilt to the DOJ. These individuals and entities have agreed to pay over $2.4 billion in fines.
Mr. Horie’s plea agreement is subject to approval by the United States District Court for the Northern District of Ohio.
On January 6, 2015, the Second Circuit granted defendants’ motion for an expedited appeal but denied their motion for a stay in New York v. Actavis PLC, 14-4624 (2d Cir. Jan. 6, 2015). Defendants are manufacturers of Namenda, a brand name pharmaceutical prescribed to patients with moderate to severe Alzheimer’s disease. New York Attorney General Eric Schneiderman filed suit against the defendants in September 2014, alleging that the defendants’ plan to cease production of Namenda IR, a twice-daily instant release formulary whose patent expires in April 2015, was motivated by anticompetitive concerns and violated federal and state antitrust laws. According to Schneiderman, defendants’ motive for ceasing sales of Namenda IR was to force patients to switch to Namenda XR, an extended release formulary of the drug with a longer patent life. Converting patients to Namenda XR before the expiration of the Namenda IR patent would negate generic manufacturers’ ability to win market share through the automatic substitution of generic drugs for brand name prescriptions required under many state laws because the generic instant release formulary is not “bioequivalent” to the extended release version.
The Southern District of New York found that the “hard switch” from Namenda IR to XR would injure competition and consumers and granted the state’s motion for a preliminary injunction on December 11, 2014. Defendants presented evidence that switching to the extended release formula would benefit patients by reducing the number of doses they would need to take each day, which can be particularly beneficial for patients with memory problems. However, the court concluded that the purpose of defendants’ plan was to nullify state generic substitution laws and that defendants failed to establish any cognizable harm that would result from an injunction requiring them to continue selling Namenda IR. The harm defendants sought to avoid, the court explained, was the intended effect of the federal and state regulatory regimes at play: increased competition.
The Second Circuit’s January 6 order was brief and not accompanied by an opinion. The court held that the defendants had not met the standard for a stay of the injunction, citing In re World Trade Center Disaster Site Litigation, 503 F.3d 167, 170 (2d Cir. 2007). The court granted their motion for an expedited appeal and ordered them to submit an expedited briefing schedule within seven days.
The Federal Energy Regulatory Commission (FERC or the Commission) recently opted not to take action to set aside the results of a power auction that was allegedly manipulated. In the face of significant public complaints, the Commission ordered revisions to tariff provisions governing future auctions. While it opted not to take action here, the opinions of the commissioners effectively gave notice to capacity owners that rate increases alone may be a sufficient basis for investigating auction results, even if the auction is conducted pursuant to tariff.
The matter involved the impacts of actions taken by an energy provider that altered the outcome of a competitive auction. Energy Capital Partners, a private equity firm, allegedly exercised and abused market power by announcing the impending shutdown of its coal-fired plant just prior to the auction and after the deadline for new resources to participate (thereby leaving a significant power deficit, triggering certain administrative pricing rules and driving up auction prices). Multiple consumer groups intervened at FERC, seeking action by FERC to set aside the auction results, asserting that the auction had been manipulated.
FERC has authority to ensure that regional wholesale electricity markets served by regional transmission operators operate competitively. Pursuant to ISO-New England Inc.’s (ISO-NE’s) applicable tariff, FERC is responsible for determining whether the results of ISO-NE’s annual Forward Capacity Market Auctions—through which power generators bid to sell their future capacity to ISO-NE—are “just and reasonable.” Intervening consumer advocate groups opposed the capacity rates resulting from FCA-8 (ISO-NE’s most recent auction).
FERC—deadlocked 2-2—allowed FCA-8’s rates to become effective by operation of law and issued statements explaining their positions. Despite the lack of a formal FERC order, these statements provide insight regarding the commissioners’ opinions on the scope of FERC’s authority, regulatory/rate certainty, market power and the filed rate doctrine. Under the filed rate doctrine, a regulated entity may not charge a rate “different from the one on file with the Commission” so long as the filed rate was reached via proper implementation of the applicable tariff.
Two commissioners (Clark and Bay), troubled by allegations and evidence of market power abuse, emphasized that FERC must “deter and mitigate market power abuses for the benefit of consumers.” They further did not see the filed rate doctrine as an obstacle to FERC’s examination of the justness and reasonableness of FCA-8’s rates. In their view, the Commission should have rejected FCA-8’s rates and taken a closer look by means of fast-tracked hearing and settlement procedures. They expressed strong objection to “precluding an examination of capacity prices when evidence suggests that the exercise of market power may have contributed to those prices.”
By contrast, the other two commissioners would have accepted FCA-8’s rates as just and reasonable, but their differing approaches are noteworthy. Chairman LaFleur argued that ISO-NE followed its tariff and that FERC thereby lacks authority to inquire further. Under that view, any analysis of resulting rates—rather than review only of compliance with the tariff provisions—“would constitute retroactive ratemaking in violation of the filed rate doctrine . . . [and] introduce significant regulatory uncertainty and risk.” Taking the middle ground, Commissioner Moeller agreed that ISO-NE complied with its tariff, but implicitly rejected the notion that the filed rate doctrine precludes further consideration. In his view, higher prices—even those reached in compliance with tariff rules—deserve greater scrutiny. Here, he would have approved FCA-8’s rates as “just and reasonable” on the basis that they resulted from “the existence of very tight supply and demand fundamentals.”
Despite their lack of agreement regarding FCA-8’s results, the commissioners issued an order requiring ISO-NE to revise its existing tariff to provide for review and potential mitigation of importers’ offers prior to each auction in order to protect against importers’ exercise of market power in connection with future auctions (or to show cause why such revisions are not required).
Three of the four commissioners (including Commissioner Bay, who takes over as Chairman mid-2015) do not appear to view mere tariff compliance as sufficient to preclude further review of auction results. In light of that fact, resource owners may view the commissioners’ statements in this case as notice that auction prices cannot necessarily be relied upon until FERC passes upon the auction results, even where auctions are conducted pursuant to tariff. This case may signal FERC’s more active use of its enforcement arm with an eye towards consumer protection at the potential expense of regulatory certainty and the filed rate doctrine.
For additional information on the filed rate doctrine and the 6th Circuit’s noteworthy Williams v. Duke Energy decision (holding the filed rate doctrine inapplicable to electricity purchasers’ claims that electricity providers gave an unfair competitive advantage to their largest customers by paying undisclosed rebates under side agreements, thereby effectively charging rates lower than the filed rate), see our prior Antitrust Alert post, “6th Circuit Limits Applicability of the Filed-Rate Doctrine and Holds that Electricity is a ‘Commodity’ under Robinson-Patman.”
 See Statement of Chairman Cheryl A. LaFleur, Sept. 16, 2014, Docket No. ER14-1409-000, available at http://ferc.gov/media/statements-speeches/lafleur/2014/09-16-14-lafleur.asp#.VCLr2EopDcs.
 See Statement of Chairman LaFleur, supra n.2 (emphasis in original) (brackets omitted).
 See Statement of Commissioner Moeller, supra n.1. Commissioner Moeller explained:
While we can all agree that the auction resulted in high capacity prices, my objecting colleagues raise a valid point, that is, can an auction process that has previously been found to be just and reasonable produce results that are not just and reasonable? While such circumstances are not common, the answer is most certainly yes. However, in this case, while the prices resulting from FCA 8 were much higher than in prior auctions, the existence of very tight supply and demand fundamentals are primarily responsible for the FCA 8 results.
 See ISO New England Inc., Docket No. EL14-99-000, 148 FERC ¶ 61,201 (Sept. 16, 2014), available at http://www.eenews.net/assets/2014/09/17/document_gw_12.pdf.
In April 2014, the New York Public Service Commission’s (NY PSC) Reforming the Energy Vision (REV) initiative “propose[d] a platform to transform New York’s electric industry . . . with the objective of creating market-based, sustainable products and services that drive an increasingly efficient, clean, reliable, and customer-oriented industry.” In August 2014, the NY PSC staff submitted for public comment a straw proposal that built on the April proposal, “incorporating subsequent party working group efforts, party comments, and further deliberation by Staff.”
The straw proposal authorizes the establishment of Distributed System Platform (DSP) operators that would be responsible for balancing electricity supply and demand on local, lower-voltage distribution lines. The NY PSC expects this new structure to lead to innovations such as customer-owned solar arrays, energy storage units and demand reductions offered by customers. “Distributed energy resources” (DERs), as the innovations are known, would lead to lower costs, increased reliability, improved resiliency and decreased environmental impacts.
Prior to deregulation in New York, the same utility would frequently hold both the means of power generation and distribution, making it difficult for independent generators to access the power grid. Deregulation led to retention of distribution-utility monopolies but increased competition at the power-generation level.
As a proponent of that increased competition and fearing a reversion to an environment of discrimination in access, the staff of the Federal Trade Commission (FTC or the Commission) issued a comment in October 2014 in response to the straw proposal, addressing the potential anticompetitive effects of the new platform. Specifically, the FTC staff expressed concern regarding the potential effects of a distribution utility serving as its own DSP operator. Through the potential for “a rebundling of distribution and generation by allowing distribution utilities to invest extensively in DERs,” FTC staff fears that such DSP operators have the incentive and ability to raise the costs and risks for rival independent DERs and foreclose their access to the power grid. As an alternative, the FTC staff recommends using a competitive procurement process to determine the entities that will serve as the DSP operators. The FTC staff believes that this bidding process would allow a demonstration of how bidders would keep costs low, remove discriminatory incentives and provide other pro-competitive benefits.
The FTC staff’s comment also encouraged use of one or more independent DSP market monitors to enhance enforcement and monitoring efforts.
The FTC considers the analyzing and advocating for regulatory policies in the electric utility sector among its core competencies. The comments issued in response to the NY PSC straw proposal reinforce the Commission’s efforts to “encourage policies that promote the interests of consumers and rely on competition as much as possible.” While it is still unclear what will be the exact effect of these comments, one can conclude that the Commission’s posture toward these markets would be more accommodating if its comments are heeded and a more competitive structure is implemented.
Aerospace and defense contractors engage in a wide range of mergers, acquisitions and joint venture transactions, which are often subject to heightened antitrust scrutiny. This article highlights some of the leading antitrust factors that contractors should consider when contemplating M&A transactions in their unique industry.
In a speech at the American Antitrust Association (AAI) and Computer & Communications Industry Association (CCIA) Conference on Innovation, Patents and PAEs on December 10, 2014, Federal Trade Commissioner (FTC) Julie Brill reported that the FTC hopes to complete its study of patent assertion entities (PAEs) by the end of 2015. She cautioned against complacency, however, and said there is much Congress and enforcement agencies can do even before the study of so-called patent trolls is complete.
The FTC is currently conducting an extensive review of PAE activity, using its authority under Section 6 of the FTC Act. The Commission’s authority under section 6(b) enables it to conduct broad economic studies that do not have a specific law enforcement purpose. Under this provision the Commission may also publicize portions of the information it obtains where such publication would serve the public interest.
The FTC has devoted substantial attention to PAEs in recent years. It has hosted or co-hosted a number of workshops to explore PAE-related issues. Although workshop participants shared numerous anecdotes describing the increasing PAE activity, a common refrain in those workshops was the lack of comprehensive and reliable empirical evidence about the costs and benefits of PAE activity. The FTC study was conceived to help fill this gap.
Although the study is underway, Commissioner Brill urged Congress not to await its outcome before taking concrete reforms that could “make it more difficult for PAEs and others that seek to profit by bringing and threatening to bring frivolous patent infringement lawsuits.” She noted that Congress is currently considering several reform proposals. “There is no need to wait for completion of our 6(b) study to act on these and other key legislative patent reform proposals,” Commissioner Brill said. She also emphasized that the ongoing study will have no impact on appropriate law enforcement actions. She said that if the FTC, the Department of Justice or the states “uncover PAE activity that is in violation of current law, they should act expeditiously to take whatever enforcement actions are warranted to stop inappropriate PAE abuse.”
On 27 November, the Italian Competition Authority dawn raided a major South African company for alleged excessive pricing of its oncology products in Italy. According to a complaint by one of the most active consumer associations in Italy, the group would have required the Italian Medicines Agency (AIFA) to align the price of its products, which are covered by the National Health Service (NHS), with the higher prices applied in other European countries, threatening the withdrawal of the products from the Italian market.
This new investigation is just the latest of many dawn raids that have taken place in Italy throughout 2014 relating to alleged bid rigging and other antitrust and criminal law infringements by pharmaceutical companies, including their participation in public tenders for the supply of products to the NHS. The significant number of dawn raids this year shows increased antitrust and criminal law enforcement in Italy in the pharmaceutical sector.
Two good examples of this trend are the €182.5 million in fines imposed in February 2014 on two major international groups for alleged collusive conduct concerning the sale of drugs for treating eye illnesses, and the investigation started by the Authority in January 2014 into alleged infringements in the sale of octreotide acetate in Italy. In the first case, the NHS would have suffered an overall cost increase of over €45 million in 2012 and likely damages of approximately €540 million in 2013 and €615 million in 2014. The second case relates, as do many of the investigations started this year, to alleged collusive conduct in public tenders for the supply of products to the NHS.
As soon as a proceeding is started in one Member State, international groups should brace themselves for potential complaints and investigations in all other countries where they have a presence or do business. As a recent example, the February 2014 fines were followed in April 2014 by unannounced inspections by the French Competition Authority at the premises of the same two pharmaceutical groups. In May 2014, former EU Competition Commissioner Joaquín Almunia reportedly indicated that the European Commission was gathering more information on the conduct of the two companies and was in contact with the national competition authorities of several EU Member States to assess whether or not further action would be needed. On 25 November 2014, a Belgian consumer association filed a complaint before the Belgian Competition Authority against the two pharmaceutical companies concerning the same alleged conduct.
Closer Cooperation Between the Commission and National Competition Authorities
Since the entry into force of Regulation No 1/2003 and the European Commission Notice on Cooperation within the Network of Competition Authorities of 27 April 2004, the Commission and the national competition authorities within the European Economic Area can cooperate more easily and more closely. They can now
- Inform each other about pending cases, even during informal proceedings
- Exchange and use information, including documents, statements and digital information, collected by other national competition authorities
- At the latest, 30 days before the adoption of a decision applying Articles 101 or 102 of the Treaty on the Functioning of the European Union, send the Commission and national authorities a summary of the case, including the envisaged decision or any other documents indicating the proposed course of action.
Very often, when companies are active in several EU Member States, such cooperation results in multiple proceedings before two or more national competition authorities acting in parallel.
International pharmaceutical groups are well advised to take this trend of increased enforcement into account. They should set up bespoke antitrust audit and compliance programs, tailored for participation in public tenders, taking into account the particular features of all the jurisdictions where they have premises or do business. In doing so, they should build efficient global coordination structure across their various local teams and offices, under a single antitrust compliance strategy.