Section 5 of the Federal Trade Commission (FTC) Act confers broad enforcement powers on the Commission to prohibit “unfair methods of competition.” In her February 13, 2014 keynote address to the Competition Law & Economics Symposium at George Mason law school, FTC Chairwoman Edith Ramirez argued that it would be a mistake for the Commission to circumscribe its authority by issuing guidelines for Section 5 enforcement. While Chairwoman Ramirez “do[es] not object to guidance in theory,” she believes any guidance should be descriptive rather than prescriptive.
Other commissioners, however, have strongly backed providing companies with a clearer set of rules. Commissioner Maureen K. Olhausen has said that she would refuse to support any Section 5 enforcement actions until the FTC establishes guidelines, while Commissioner Joshua D. Wright has already proposed such guidelines.
Section 5 may confer broader powers than the Sherman Act and Clayton Act in theory, but many courts have in practice treated Section 5 as coterminous with these other antitrust statutes and the far more extensive body of caselaw interpreting them. Whether the FTC can extend its power with Section 5 may depend on the specific circumstances of any action. Invoking Section 5, however, is a somewhat fraught exercise for the Commission, which would not want an unfavorable court decision that could tie its hands in the future. Indeed, Chairwoman Ramirez made a point of saying that for “most of [its] antitrust cases,” the FTC has no need of Section 5.
The scope of Section 5 may remain uncertain, but one can be sure the debate will continue.
Oregon has now become the second state to take aim at non-practicing entities (NPEs), more colorfully called “patent trolls,” with laws addressing patent enforcement. On February 25, 2014, the state attorney general announced that the legislature had passed a measure making it a violation of the Oregon Unlawful Trade Practices Act to send a demand letter that fails to identify the patent and the violation, or that insists the recipient make a licensing payment in an “unreasonably short” amount of time.
The Oregon law is only the latest, however, in a flurry of activity. Vermont passed a similar measure last year and Nebraska is considering doing so now. Also last year, the U.S. House of Representatives passed a bill designed to raise the stakes for NPEs that threaten or engage in patent litigation. The House bill would force plaintiffs to include in complaints the identity of their parent companies and greater detail regarding the alleged infringement. The bill further imposes restraints on discovery to prevent plaintiffs from using discovery costs to pressure defendants for a settlement early in the litigation. In some circumstances, costs could be imposed on losing plaintiffs. The U.S. Senate has not yet acted on the legislation. However, U.S. Senator McCaskill introduced a bill on February 27, 2014 called the Transparency in Assertion of Patents Act that, like the state laws, particularly focuses on making it harder for patent assertion entities to issue demand letters to small companies.
Finally, President Obama is implementing new measures to reduce the prevalence of NPE patent litigation in the future by raising the overall quality of patents. These measures include additional training for patent examiners and crowdsourcing “prior art” from the public.
Lawmakers and commentators disagree over whether NPEs stifle innovation or perform a useful role by creating a broader market for patents. But the movement toward greater regulation of the enforcement and litigation tactics that some NPEs favor is unlikely to lose steam.
France is one of the last western European countries to introduce a class action system. After decades of debates, two failed attempts by both left wing and right wing Parliament majorities, nine months of legislative procedure and thousands of amendments, it should soon, finally, be possible to launch a group action in France.
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by John Z.L. Huang, Alex An, Bryan Fu and Cook Xu
China’s National Development and Reform Commission (NDRC) recently outlined its latest efforts in the enforcement of the Anti-Monopoly Law and price supervision. This newsletter summarizes the noteworthy information NDRC disclosed.
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In a challenge brought both by private plaintiffs and the government, a court has ruled that a health system’s acquisition of a competing physician group practice violated the antitrust laws where the transaction resulted in the health system employing 80 percent of the primary care physicians in one area. Hospitals and health systems pursuing physician practice mergers should carefully consider the implications of this decision on proposed acquisitions and should incorporate antitrust due diligence into their transaction planning.
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On February 12, 2014, Cathay Pacific Airlines Ltd. settled a freight shipping price-fixing multidistrict class action litigation in the Eastern District of New York. In re Air Cargo Shipping Services Air Cargo Antitrust Litigation, case number 1:06-md-01775. The Hong Kong-based airline agreed to pay consumers of air-freight shipping services $65 million in the settlement. After the U.S. Department of Justice and European Commission initiated investigations of the air freight industry, purchasers of shipping services brought price-fixing actions against air cargo companies from two dozen countries in 2006. The Department of Justice claimed that these air cargo companies conspired to set the rate at which they charged for certain routes. These airlines then held subsequent meetings to ensure that these rates were enforced. To date, 20 defendant groups have paid $758 million in settlements with eight defendant groups still remaining in the class action. Cathay Pacific previously paid $1.44 million to the Canadian Competition Bureau and $60 million to the Department of Justice for pleading guilty to violations of Canadian and United States competition and antitrust laws, respectively.
On February 6, 2014, the Federal Trade Commission (FTC) released its opinion and final order against McWane Inc., finding the company unlawfully maintained its monopoly by excluding competitors. McWane Inc. is the largest domestic supplier of ductile iron pipe fittings, which are used in municipal and regional water distribution systems to change water flow or allow connectivity for hydrants, valves and water meters.
The administrative complaint alleged that McWane conspired with two of its competitors that altogether supply the majority of domestic fittings, to raise and stabilize prices. Additionally, McWane was alleged to have excluded its competitors from the domestic pipe fittings market in order to unlawfully maintain its monopoly in violation of antitrust laws.
The Commission found McWane liable for unlawfully maintaining its monopoly in domestic pipe fittings, which constitute a separate market because many local, state and federal regulations required special fittings. Consequently, imported products were not substitutable and domestic distributors required access to special fittings to supply all the project needs of their customers. While one of McWane’s competitors sold the commonly used fitting sizes and configures that could be used in nearly 80 percent of projects, as a new entrant, it did not sell more specialized fittings. Knowing that the competitor did not supply a full line of pipe fittings, McWane established an unlawful exclusive dealing program. Under McWane’s “Full Support Program,” it threatened that distributors purchasing domestic fittings from Star would be prohibited from purchasing domestic fittings from McWane. Thus, McWane was able to unlawfully maintain its monopoly by “foreclose[ing] [its competitor] and other potential entrants from accessing a substantial share of distributors.” The Commission further found that McWane “created a strong economic incentive for distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the domestic fittings market.”
While the Commission’s opinion found McWane liable for unlawfully maintaining its monopoly, the remaining counts in the administrative complaint were dismissed for a variety of reasons. Although the two commissioners found McWane engaged in price-fixing behavior, the counts were dismissed in the public interest due to a lack of majority position. The Commission’s final order precludes McWane from requiring exclusivity from its distributors, but still permits McWane to lure customers through discounts, rebates and other price and non-price incentives.
The wireless industry has seen steady consolidation since the late 1980s. Recently, in late 2013, reports began circulating about a potential merger between Sprint and T-Mobile, the nation’s third and fourth-largest wireless carriers, respectively. Last week, however, in an interview with the Wall Street Journal, William Baer, the assistant attorney general for the antitrust division at the Department of Justice (DOJ), cautioned that it would be difficult for the Agency to approve a merger between any of the nation’s top four wireless providers.
T-Mobile’s CEO, John Legere, stated that a merger between his company and Sprint “would provide significant scale and capability.” Baer, on the other hand, warned that “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers,” As a result, any future consolidation in the wireless industry is likely to face a huge hurdle in the form of DOJ’s careful scrutiny of any proposed transaction.
Much of the DOJ’s interest in the wireless industry stems from the Agency’s successful challenge of a proposed merger between T-Mobile and AT&T in 2011. Since then, Baer believes consumers have benefitted from “much more favorable competitive conditions.” In fact, T-Mobile gained 4.4 million customers in 2013, bringing optimism to the company’s financial outlook after years of losses. In the final two quarters of 2013, T-Mobile’s growth bested that of both Sprint and AT&T. The low-cost carrier attracted customers and shook up the competition by upending many of the terms consumers had come to expect from wireless carriers, as well as investing in network modernization and spectrum acquisition. This flurry of activity has pushed the competition to respond with its own deals, resulting in “tangible consumer benefits of antitrust enforcement,” according to Baer.
The DOJ’s antitrust division has kept careful watch over the wireless industry the past few years. That scrutiny will remain, as the Agency persists to advocate that four wireless carriers are required for healthy market competition. The cards are beginning to play out from the Agency’s decision, and as Baer stated, “competition today is driving enormous benefits in the direction of the American consumer.”
On January 13, 2014, MPHJ Technology Investment LLC (MPHJ) filed a seven-count complaint against the Federal Trade Commission (FTC) alleging various constitutional and other violations, including violations of MPHJ’s First Amendment rights and violations of the Separation of Powers Doctrine.
The FTC began an investigation into MPHJ’s business practices and in December 2013 served MPHJ with a draft complaint. The FTC’s complaint alleges that MPHJ sent 16,000 demands to small companies to pay $1,000 per employee to license MPHJ’s patents over document scanning equipment. In particular, the FTC took issue with two statements in the demands. The first was that MPHJ would file suit if the company did not respond and the second was that many companies with similar technology promptly paid licensing fees upon notification of the infringement. These statements were both false, according to the FTC, because MPHJ never intended to file suit and never actually filed suit against any recipient and also because MPHJ only sold 17 out of the 16,000 demanded licenses. Therefore, the FTC contends MPHJ’s demand letters constitute deceptive business practices.
MPHJ filed its complaint against the FTC in response to the FTC’s draft complaint. MPHJ alleges that its patents are valid, that they are being infringed by thousands of companies, that it has a right to enforce those patents, that the first step to doing so is sending demand letters to infringers, and that those demands may legally contain a threat to sue for infringement. MPHJ’s complaint states that the FTC has not contradicted or even disagreed with any of these assertions. Instead, according to MPHJ, the FTC’s position is that a litigation threat not followed by a prompt lawsuit is a violation on its own. In any event, MPHJ alleges the FTC does not have jurisdiction to interfere with MPHJ’s patent activity because the letters at issue do not meet the commerce requirement for Section 5 enforcement. Moreover, MPHJ alleges that the right to enforce a federally granted patent is covered under the First Amendment right to petition the government. As such, its patent enforcement activity is a petition to the government, and protected by the Noerr-Pennington doctrine. MPHJ also charges the FTC with failing to do the requisite pre-suit investigation to find infringement as required under Federal Rule of Civil Procedure 11.
MPHJ’s complaint was filed in the Western District of Texas as MPHJ Tech. Inv. LLC v. FTC et. al., Case No. 6:14-cv-00011.
On January 14, 2014, the Supreme Court ruled in a unanimous opinion that parens patriae suits brought by states on behalf of their citizens do not constitute “mass actions” under the Class Action Fairness Act (CAFA). Miss. ex rel. Hood v. AU Optronics Corp., No. 12-1036 (U.S. Jan. 14, 2014). Enacted in 2005, CAFA lowered the bar for diversity jurisdiction in class action and mass action lawsuits, thereby bestowing federal jurisdiction on defendants in these cases. A suit is not a “mass action” under CAFA unless it involves 100 or more claimants, in addition to other requirements.
In AU Optronics, Mississippi sued defendant LCD manufacturers in state court, alleging that the defendant’s participation in an international price-fixing cartel violated state antitrust and consumer protection laws. The defendants attempted to remove the case to federal court under CAFA. The district court and Fifth Circuit both held that the case was a “mass action” despite there being only one named plaintiff, but the Supreme Court disagreed. Writing for the majority, Justice Sotomayor rejected this interpretation of CAFA as unsupported by the text or Congressional intent. After Au Optronics, defendants in suits brought on behalf of state citizens will be stuck defending their cases in state court.