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Gregory (Greg) E. Heltzer focuses his practice on defending mergers and acquisitions before the US Federal Trade Commission, US Department of Justice, state antitrust authorities and foreign competition authorities. Greg has extensive experience in evaluating whether potential transactions will be cleared by antitrust enforcers and developing a viable path for clearance. In addition, he handles complex antitrust litigation, government investigations and antitrust counseling. Read Greg Heltzer's full bio.

On January 31, the Board of the Mexican Competition Authority—the Federal Economic Competition Commission (COFECE)—approved REMY Holdings International’s acquisition of BorgWarner’s vehicle aftermarket business. However, the companies failed to file and were fined for their misconduct (~$153,134). The fine was less severe because the parties voluntarily acknowledged their failure to notify COFECE.

WHAT HAPPENED:

  • On October 3 2016, BorgWarner Inc. (BorgWarner) agreed to sell its REMY light vehicle aftermarket business to an investor group led by Torque Capital Group. The sale included manufacturing facilities in Mexico, US, Belgium, Tunisia and Hungary. The purchase price was approximately $80 million.
  • The deal between BorgWarner and REMY exceeded the thresholds provided in the Federal Economic Competition Law (LFCE), yet COFECE was not notified of the transaction until October 2018.
  • Under the LFCE, failure to notify a concentration is considered severe misconduct. The parties’ voluntary acknowledgement of the failure to notify, however, was a mitigating factor in determining the appropriate fine.
  • In light of the above, the COFECE fined each party MXN 1,460,800 (~$75,230).

WHAT THIS MEANS:

  • For transactions having an impact in the Mexican territory, it is advisable to verify whether a COFECE filing is required. While the fines in this matter were limited, COFECE fines can be very significant.
  • Failure to notify a concentration can be fined with up to five percent of the parties’ turnover.
  • In addition, the COFECE will analyze the impact of the transaction. If the COFECE finds that the transaction harms competition, the transaction will be deemed illicit and the parties may face additional fines of up to eight percent of their turnover.
  • In determining the amount of the fines, the COFECE will consider mitigating circumstances, such as the parties´ voluntary recognition of the infringement.
  • This decision is another example of the importance of performing an international antitrust filing assessment (often referred to as a multi-jurisdiction assessment or “Multi-J”) in all transactions having an international component. Antitrust agencies worldwide are increasing their focus on failures to notify and gun jumping generally. Last July, the Australian Competition and Consumer Commission brought its first ever gun jumping case against Cryosite and Cell Care Australia. Similarly, in April, the European Commission imposed a record fine of EUR 124.5 million on Altice for implementing its acquisition of PT Portugal before notification or approval by the Commission.

Sara Fernandez, a visiting international attorney in the Washington, DC office, also contributed to this post.

The US Federal Trade Commission recently announced increased thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and for determining whether parties trigger the prohibition against interlocking directors under Section 8 of the Clayton Act.

Notification Threshold Adjustments

The US Federal Trade Commission (FTC) announced revised thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) pre-merger notifications on February 15, 2019. These increased thresholds will become effective mid-to-late March. These new thresholds apply to any transaction that closes on or after the effective date.

  • The base filing threshold, which frequently determines whether a transaction requires filing of an HSR notification, will increase to $90 million.
  • The alternative statutory size-of-transaction test, which captures all transactions valued above a certain size (even if the “size-of-person” threshold is not met), will be adjusted to $359.9 million.
  • The statutory size-of-person thresholds will increase slightly to $18 million and $180 million.

The adjustments will affect parties contemplating HSR notifications in various ways. Transactions that meet the current “size-of-transaction” threshold, but will not meet the adjusted $90 million threshold, will only need to be filed if they will close before the new thresholds take effect mid-to-late March.

Parties may also realize a benefit of lower notification filing fees for certain transactions. Under the rules, the acquiring person must pay a filing fee, although the parties may allocate that fee amongst themselves. Filing fees for HSR-reportable transactions will remain unchanged; however, the size of transactions subject to the filing fee tiers will shift upward as a result of the gross national product (GNP)-indexing adjustments:

Filing Fee Size-of-Transaction
$45,000 $90 million, but less than $180 million
$125,000 $180 million, but less than $899.8 million
$280,000 $899.8 million or more
Interlocking Directorate Thresholds Adjustment

The FTC also announced revised thresholds for interlocking directorates. The FTC revises these thresholds annually based on the change in the level of GNP. Section 8 of the Clayton Act prohibits a person from serving as a director or officer of two competing corporations if certain thresholds are met. Pursuant to the recently revised thresholds, Section 8 of the Clayton Act applies to corporations with more than $36,564,000 in capital, surplus and undivided profits, but it does not apply where either interlocked corporation has less than $3,656,400 in competitive sales. These new thresholds are effective immediately upon publication in the Federal Register, expected within the week.

The Federal Trade Commission (FTC) submitted comments supporting the Food and Drug Administration’s (FDA) guidance for assessing whether a pharmaceutical company petitioner is misusing the citizen petition process to delay approval of a competing drug.

WHAT HAPPENED:

  • The FDA released revised draft guidance intended to discourage pharmaceutical companies from gaming the citizen petition process.
  • The FTC expressed approval of the considerations the FDA will use to determine whether a petition was submitted to delay or inhibit competition.
  • The considerations the FDA will use include:
    • The petition was submitted unreasonably long after the petitioner learned or knew about the relevant information;
    • The petitioner submitted multiple and/or serial petitions;
    • The petition was submitted close to the expiration date of a known patent or exclusivity;
    • The petition’s scientific positions were unsupported by data or information;
    • The petition was the same or substantially similar to a prior petition to which the FDA had already substantively responded;
    • The petitioner had not commented during other opportunities for input;
    • The petition requested a standard more onerous or rigorous than the standard applicable to the petitioner’s drug product; and
    • Other relevant considerations, including the petitioner’s history with the FDA.

WHAT THIS MEANS:

  • Each of the FTC commissioners testified during Senate confirmation hearings that scrutinizing health care and pharmaceutical companies would remain a top priority of the Commission.
  • The FTC’s support of the FDA guidance appears to be part of a broader agenda to actively pursue sham petitions and discourage attempted abuses that seek to use Noerr-Pennington immunity as a shield in an administrative setting.
    • In 2017, the FTC filed a lawsuit in federal court alleging that Shire ViroPharma Inc. (Shire) violated antitrust laws through repeated use of sham petitioning.
    • Though the district court dismissed the FTC’s complaint, the FTC has lodged an appeal and appears committed to reining in alleged abuses of the citizen petition process.
    • Going forward, citizen petitions are likely to face even more scrutiny. Under the revised draft guidance, once the FDA determines that a petition was submitted primarily to delay competition, it will refer that determination to the FTC. Potentially anticompetitive petitions will now face two rounds of review by federal regulators.

Consistent with Assistant Attorney General Delrahim’s speech on September 25, 2018, the DOJ released a new Model Timing Agreement which sets out that it will require fewer custodians, take fewer depositions, and commit to a shorter overall review period in exchange for the provision of detailed information from the merging parties earlier in the Second Request process than has previously been required.

WHAT HAPPENED:

  • In November, the US Department of Justice (DOJ) published a new Model Timing Agreement (the Model) much like the FTC’s model published earlier this year. Timing agreements are agreements between agency staff and merging parties that outline expected timing for various events (g., production of documents and data, timeline for depositions and front-office meetings if needed) and help provide clarity for the agencies to conduct an orderly investigation during a Second Request.
  • By providing this Model, the DOJ is signaling that it wants certainty on timing during its Second Request reviews and that this Model is a fast way for the parties and the DOJ to come to agreement on these issues.
  • Some highlights of the DOJ Model include:
    • Parties must wait 60 days after substantial compliance to consummate transactions and give 10 days’ notice prior to closing.
    • The Model limits the number of custodians to 20 per party and depositions to 12 per party, except in extenuating circumstances.
    • The Model reserves the DOJ’s ability to add 5 more custodians at any time prior to filing a complaint, with the requirement that parties must produce those individual’s responsive documents within 15 days or the agreed timing will be tolled.
    • For document productions, depending on production method (technology assisted review or linear review), all responsive, non-privileged documents must be produced approximately 30-45 days before substantial compliance. Production of potentially privileged documents ultimately deemed not privileged must be produced approximately 10-25 days before the substantial compliance certification date.
    • Most data productions are required 30-45 days before substantial compliance.

Continue Reading THE LATEST: DOJ Announces New Model Timing Agreement for Merger Investigations

WHAT HAPPENED

  • The FTC posted a short article indicating that after finalizing a settlement package with FTC Staff, it takes approximately four weeks for the Directors of the Bureau of Competition and the Bureau of Economics (the Directors), as well as the Commission to review the Directors’ recommendations and vote on the package.
  • The FTC explained that an expedited review is unlikely, particularly when the parties’ actions contributed to the timing concerns.
  • The FTC provided a procedure for how parties seeking an expedited review should proceed, and outlining potential scenarios that would cause the FTC to look unfavorably upon the application–g., the parties caused their predicament. Expedited review is unlikely, for example, when:
    • The parties agreed to a too-early drop dead date or a ticking agreement that fails to properly account for antitrust review; or
    • Negotiations between the parties and the FTC on custodian review drag on or the parties provide responses to requests for documents and information that are incomplete.

WHAT THIS MEANS

  • Since the Merger Remedy Report was released in 2017, both the FTC and DOJ have taken steps to improve best practices for evaluating settlement packages. In particular, greater vetting of both the remedy package and buyer is the new norm, with more extensive information requests to establish the sufficiency of the settlement package. These changes are extending the merger review process when a settlement is necessary to address antitrust enforcer concerns.
  • In addition to its revised best practices for Staff development of settlement packages, this procedural move supports the FTC’s recent focus on developing protocols that allow it to take its due time in reviewing merger remedies.
    • Last month, the FTC published a new Model Timing Agreement that, if agreed to, provides the government additional time to evaluate cases beyond the statutory period.
    • The FTC has followed that move this month by setting out protocols and timing expectations for Directors and Commissioners to vet settlement packages advanced by Staff.
  • The latest move makes clear that the extended development of settlement packages by Staff will not lead to a curtailed review of those same settlement packages by the Directors or the Commission. Antitrust enforcers continue to take the principled view that enforcers must be cautious when approving a merger with remedies and any risks in the process should be shifted to the parties where appropriate.

WHAT HAPPENED

  • The Wall Street Journal has reported that the Antitrust Division of the Department of Justice (DOJ) is currently investigating whether advertising sales teams for competing television station owners engaged in anticompetitive conduct regarding communications on performance levels. Per the Journal’s reporting:
  • DOJ is investigating whether the purported communications led to higher rates for television commercials.
  • DOJ’s industry-wide investigation developed from its review of Sinclair Broadcast Group’s (Sinclair) proposed acquisition of Tribune Media (Tribune).
  • As part of the DOJ’s merger review, Sinclair and Tribune received a “Second Request.” Responding to a Second Request typically involves the production of a wide range of company documents regarding competition in the industry under investigation.
  • Many times in the past, merging parties’ Second Request responses have led to separate anticompetitive conduct cases. A few notable examples are provided below:
  • In April 2018, DOJ brought a civil complaint alleging that three rail equipment companies had no-poaching agreements that depressed salaries and competition for their employees. The agreements were discovered during the review of an acquisition involving two of the three companies.
  • In 2003, DOJ filed a civil antitrust lawsuit to block the acquisition of Morgan Adhesives Company by UPM-Kymmene and, at the same time, opened a criminal investigation into price-fixing conduct in the labelstock industry.

Continue Reading THE LATEST: Collateral Risk in Merger Reviews

The Federal Trade Commission (FTC) recently announced that it has challenged a merger between Wilhelmsen Maritime Services (Wilhelmsen) and Drew Marine Group (Drew) because of an overlap in service to “global fleet customers,” a narrow customer segment that purchases marine water treatment chemicals and services.

WHAT HAPPENED:

  • The FTC issued an administrative complaint and filed a complaint in federal court seeking a temporary restraining order and preliminary injunction, asserting that Wilhelmsen’s proposed $400 million acquisition of Drew would significantly reduce competition in the market for marine water treatment chemicals and services used by global fleets.
  • The FTC enforcement action focuses on a narrow sub-segment of customers, global fleet customers, that buys marine water treatment chemicals and services.
  • The FTC distinguished global fleet customers from other marine water treatment chemical customers on the basis that:
  • (1) global fleets have specialized needs that only a few suppliers can meet
    (turn-key global sales, service and delivery capabilities, as well as consistent and reliable product supply); and
  • (2) these customers seek out suppliers via requests for proposal and direct negotiation and therefore potential suppliers can price discriminate to that subset of customers.
  • Because of the specific needs of global fleet customers and because global fleet suppliers can identify which customers are seeking service for global fleets, suppliers are able to price discriminate to the global fleet customer set.
  • The FTC alleged a harm to competition because their investigation showed Wilhelmsen and Drew are each other’s closest competitors based on company documents, statements by the business personnel, and bid data showing that the companies are most frequently the first and second choice for global fleet customers. In addition, the FTC noted that Wilhelmsen and Drew would control at least 60 percent of the market with the next largest competitor having less than a 5 percent share.
  • The FTC complaint disparaged the remaining market participants as unable to practicably compete with Wilhelmsen and Drew to service global fleets because they are perceived as offering lower quality products with less reliability, having more limited service capabilities, and failing to price competitively.

WHAT THIS MEANS:

  • The FTC’s enforcement action continues a trend of applying price discrimination markets. These markets are characterized by: (1) buyers with special requirements that only select suppliers can service; and (2) sellers who can identify the buyers with those special requirements and selectively price based upon the knowledge of those special needs.
  • Antitrust enforcement of price discrimination markets lead to narrower product market definitions. Therefore, applying price discrimination markets may result in antitrust enforcers challenging mergers that appear lawful when viewed as a broader market.
  • There is increased risk of price discrimination markets being applied by antitrust enforcers in industries in which:
    • The customers’ end uses differ for the same product;
    • Merging companies’ documents recognize distinctions among customer groups; and
    • Groups of customers require unique product characteristics.

Dealmakers know that a critical part of the merger process is obtaining antitrust clearance from government enforcers. But, even if the antitrust enforcers review and clear a transaction, a third-party can file a private suit alleging the transaction violated the antitrust laws. Recently, an aggrieved customer did just that—it won a substantial jury verdict and is also seeking a court order to unwind the transaction nearly six years after the transaction was announced.

WHAT HAPPENED

  • On February 15, 2018, almost six years after Jeld-Wen announced an acquisition of Craftmaster Manufacturing, Inc. (CMI) in 2012, a federal jury awarded a customer, Steves and Sons (Steves), $58.6 million for antitrust damages and lost profits stemming from the acquisition. Additionally, Steves is seeking to unwind the 2012 Jeld-Wen/CMI transaction through a court order that would force Jeld-Wen to divest of assets sufficient to re-create a competitor as significant as CMI at the time of the acquisition in the doorskin market—that is, restoring competition to pre-transaction levels.
  • The Department of Justice (DOJ) reviewed, but did not challenge, Jeld-Wen’s acquisition of CMI, which reduced the number of doorskin suppliers from three to two. Interestingly, the 2012 transaction involved CMI, a company that entered the doorskin market in 2002, when it acquired divested assets because of DOJ concerns about a doorskin merger at that time.
  • One of the factors that led to DOJ clearance is that customers did not complain about the transaction. Prior to Jeld-Wen and CMI completing the transaction in 2012, Steves, entered into a long term supply agreement with Jeld-Wen.
  • After the transaction, Steves became dissatisfied with Jeld-Wen’s treatment and alleged that it received less favorable price terms, reduced product quality and output, and worse service.
  • As a result, in 2016—four years after closing—the customer filed a complaint alleging that Jeld-Wen’s acquisition of CMI violated the antitrust laws.

WHAT THIS MEANS

  • Business leaders must understand that even if antitrust enforcers clear a merger, not only can they revisit that decision, but third parties can also sue for damages or to unwind the transaction.
  • Steves did not complain about the merger until years after the transaction and yet still won a substantial verdict. This case is a reminder that business leaders must independently weigh the merits of their customer’s position (regardless of the antitrust enforcers’ posture regarding the same case) and manage the business appropriately after close to avoid a customer lawsuit.
  • Secondarily, business leaders must realize that customer lawsuits can also create significant operational issues that distract from the company’s business objectives. For example, not only may company personnel be distracted from running the business while assisting with the defense of the litigation, the company may also face significant legal costs, as well as invasive discovery. Further, a complaint filed by one private litigant could spur follow-on litigation from other aggrieved customers or third parties. Buyers should be cognizant of those risks and should consider whether mollifying any aggrieved customers or suppliers would avoid litigation.

WHAT HAPPENED:

  • Senator Elizabeth Warren (D-MA) gave a speech at the Open Markets Institute on December 6 entitled “Three Ways to Remake the American Economy for All”, in which she repeatedly positioned antitrust policy as a tool to rebalance competition between “big, powerful corporations” and “just about everyone else.”
  • Senator Warren spoke critically about recent antitrust enforcement and advocated three steps for improving antitrust enforcement: (1) block mergers that choke-off competition; (2) crack down on anticompetitive conduct; and (3) get all government agencies to defend competition.
  • On mergers, Senator Warren asserted that “settlement agreements that allowed bad mergers if the companies promised to take actions” have not worked out because “those expertly crafted provisions have been epic failures” and that “[s]tudies show that those settlement conditions often fail to bring about the cost savings and other benefits giant corporations promised.”
  • She advocated that to improve antitrust enforcement “we need to demand a new breed of antitrust enforcers … Enforcers who will turn down papier-mache settlement agreements and actually take cases to court.”
  • Senator Warren stated that increased enforcement is needed not just for horizontal mergers between direct competitors, but also for vertical mergers (e.g., between customers/suppliers). In her view, the “Chicago School party line” that vertical mergers do not harm competition may be accepted theory, but is “not often the reality” when large companies are involved.
  • On anticompetitive conduct, Senator Warren singled out no-poach agreements as an area for increased enforcement—specifically franchises that do not allow an employee of one franchisee to be hired by another franchisee.
  • On getting other agencies to defend competition, Senator Warren noted that while not enforcers like DOJ, other government agencies like the Defense Department, the Food and Drug Administration, the Federal Deposit Insurance Corporation and the Federal Communications Commission, can significantly impact competition through regulation and purchasing.
  • Finally, Senator Warren highlighted several consolidated industries that she views as significantly concentrated for which she would like to see increased antitrust focus including: airlines, banking, healthcare, pharma, agriculture, telecom and tech.

WHAT THIS MEANS:

  • Senator Warren’s theme that antitrust can be used to protect small businesses, entrepreneurs, innovators, workers and just about everyone else from the “rich and powerful” shows that increasing antitrust enforcement has become a key party line for the upcoming midterm elections.
  • Additionally, Senator Warren stated that “[t]he individuals who lead the [FTC and DOJ] determine the federal government’s competition priorities,” and have a significant impact on antitrust enforcement by deciding which cases to open or take to court. Given these statements and that several high-profile mergers will be decided before the midterms, we expect that Senator Warren will continue to highlight the potential impact of high-profile mergers on small business and individuals.

WHAT HAPPENED

  • On February 14, 2017, Integra agreed to purchase Johnson & Johnson’s Codman neurosurgery business (excluding Codman’s neurovascular and drug deliver businesses) for $1.045 billion.
  • Seven months later, on September 25, 2017, the Federal Trade Commission (FTC) agreed to clear the transaction subject to the parties divesting five neurosurgical tools and associated assets including the relevant intellectual property (IP), manufacturing technology and know-how, and research & development (R&D) information related to the five tools. Additionally the buyer of the divested assets can freely negotiate to hire any employees that worked on sales, marketing, manufacturing, or R&D for the divestiture products. The parties must also supply Natus Medical Incorporated (Natus) with cranial access kits often sold with the divestiture assets until Natus can start sourcing them independently.
  • The FTC required that the parties divest the following medical devices:
    • Intracranial pressure monitoring systems, which measure pressure inside the skull. The FTC determined that Integra (68 percent) and Codman (26 percent) combined market share in the United States would be 94 percent and that only fringe competitors with limited presence would have remained.
    • Cerebrospinal fluid collections systems, which drain excess cerebrospinal fluid and monitor pressures within the fluid. The FTC found that Integra (57 percent) and Codman (14 percent) would combine for 71 percent market share in the United States and would have reduced the number of significant competitors from three to two.
    • Non-antimicrobial external ventricular drainage catheters, which funnel excess cerebrospinal fluid form the brain to cerebrospinal fluid collection systems to relieve intracranial pressure. Here, the FTC said Integra (29 percent) and Codman (17 percent) are the number two and three competitors accounting for 46 percent of the market in the United States and would have reduced the number of significant competitors from three to two.
    • Fixed pressure valve shunts, which are used to treat excessive accumulation of cerebrospinal fluid. The FTC found that Integra (23 percent) and Codman (15 percent) were the number two and three competitors would control 38 percent of the US market and, again, that the number of competitors would have been reduced from three to two.
    • Dural grafts, which are used to repair or replace the membrane that surrounds the brain and spinal cord and keep cerebrospinal fluid in place. The FTC determined that the merger would have reduced the number of significant competitors from four to three with Integra (66 percent) and Codman (nine percent) combining for 75 percent market share.
  • Under the terms of the settlement, the parties must divest within 10 days of closing to Natus, which is a global health care company with an existing neurology business including systems that are complementary to the divestiture assets.

Continue Reading THE LATEST: Integra Forced to Divest Neurosurgical Tools to Gain FTC Clearance