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William (Will) Díaz litigates and counsels clients on antitrust cases, obtains Federal Trade Commission (FTC) and Department of Justice clearance on mergers, and defends clients in government investigations. Will has significant experience in the interplay between the antitrust and intellectual property laws and the issues that crossover into both areas, including standard-setting activities, patent pools, fair, reasonable and non-discriminatory (FRAND) licensing issues and patent misuse. He also has handled numerous litigations and transactions in the biotech, pharmaceutical and medtech industries. Read William Díaz's full bio.

Bumble Bee Foods, and two of its senior vice presidents, have recently pled guilty to US Department of Justice (DOJ) charges that they engaged in a conspiracy to fix prices of shelf-stable tuna fish sold in the United States from 2011 to 2013. Bumble Bee agreed to pay a $25 million criminal fine that can increase to $81.5 million under certain conditions, and the company’s two senior vice presidents pled guilty and agreed to pay criminal fines as well. The investigation appears to have been prompted by information that the DOJ uncovered during its investigation of Thai Union Group’s (owner of Chicken of the Sea) proposed acquisition of Bumble Bee, which was abandoned after DOJ concerns.

WHAT HAPPENED:

  • On December 19, 2014, Thai Union Group, the largest global producer of shelf-stable tuna, announced that it had agreed to acquire Bumble Bee Foods for $1.5 billion. A year later, on December 3, 2015, the DOJ announced that the parties had abandoned the transaction after the DOJ expressed concerns that the acquisition would harm competition. The DOJ stated that “Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands, as well as combined the first and second largest domestic sellers of other shelf-stable seafood products.”
  • Beyond its comments about the potential for competitive harm from the transaction, however, the DOJ further noted that “[o]ur investigation convinced us – and the parties knew or should have known from the get go – that the market is not functioning competitively today, and further consolidation would only make things worse.”
  • It appears that the DOJ’s concerns that the market for packaged seafood was not functioning competitively spurred the government to proceed with an investigation into potential collusion among the suppliers of packaged seafood. After its investigation, the DOJ concluded that Bumble Bee Foods, two of its senior vice presidents, and other co-conspirators “discussed the prices of packaged seafood sold in the United States[,] agreed to fix the prices of those products [and] negotiated prices and issued price announcements for packaged seafood in accordance with the agreements they reached.”

WHAT THIS MEANS:

  • In the Mergers & Acquisitions context, the merging parties are most often concerned with the potential risk that antitrust concerns may pose to the deal and the ability to obtain DOJ or Federal Trade Commission (FTC) clearance for the transaction. This criminal investigation by the DOJ demonstrates that the parties need to be aware of their conduct in the market, whether they have engaged in conduct that may be found to be collusive, and the potential consequences of such conduct not only on the proposed transaction but on the companies themselves and their employees.
  • It is critical for companies to regularly monitor the conduct of their employees and provide antitrust training and compliance courses. In a merger between horizontal competitors, before proceeding, each company should do some internal diligence to understand whether a merger investigation may turn up inappropriate communications or agreements with competitors.

In an antitrust case involving bundled discount on sutures, the United States Court of Appeals for the Tenth Circuit affirmed a lower court decision granting summary judgment in favor of defendants Cardinal Health 200, LLC and Owens & Micro Distribution, Inc.  The Tenth Circuit held that Plaintiff-Appellant Suture Express, Inc. could not prove that the defendants individually possessed market power and that it had not demonstrated that defendants caused substantial adverse effects on competition.

WHAT HAPPENED:

  • Suture Express, a distributor focused on the sale of sutures, sued Cardinal Health and Owens & Micro, which are national distributors of a broad array of medical-surgical products, claiming that they had engaged in illegal tying through their practice of bundling sutures with other medical-surgical products in a manner that penalized customers that purchased sutures from other suppliers.
  • The parties filed cross motions for summary judgment and the lower court granted summary judgment to the defendants.  The court held that Suture Express’ claims failed as a matter of law because it could not prove that the defendants individually possessed market power.  The court also held that Suture Express could not meet the antitrust injury requirement because it had not shown that competition had been harmed.
  • The Tenth Circuit affirmed the lower court’s ruling.  On the issue of market power, the appellate court agreed with the lower courts’ findings that the defendants’ market shares on the alleged tying products (medical-surgical products excluding sutures) were relatively low (31 percent and 38 percent), there were many examples of customers switching to other distributors, and the defendants’ declining profit margins on medical-surgical products excluding sutures demonstrated that the defendants did not have the ability to control prices.
  • With respect to antitrust injury, the Tenth Circuit stated that the antitrust laws are meant to protect competition, not individual competitors.  The appellate court noted that despite the fact that roughly half of the market was not constrained by the bundling arrangement at issue, Suture Express accounted for a relatively small portion of this piece of the market.  This raised the question of whether it was just Suture Express that was harmed as opposed to competition generally.

WHAT THIS MEANS:

  • Establishing market power when defendants have relatively low market shares is difficult.  While market shares in and of themselves are not determinative of whether market power exists, the courts give market shares significant weight and when evidence of low market shares is combined with the other factors the Tenth Circuit found here, it is difficult for a plaintiff to meet its burden.
  • Vertical pricing arrangements that offer discounts to customers, even if associated with a bundling arrangement, are often viewed as procompetitive.  A plaintiff has the difficult burden of showing that a defendant’s bundle creates anticompetitive effects that outweigh its procompetitive effects.  The plaintiff must demonstrate that the arrangement caused harm not only to the plaintiff, but to competition as a whole.  Even if a plaintiff finds it difficult to compete against a defendant’s bundle, if customers have shown that they are willing and able to switch from the defendant’s bundle, establishing harm to competition will be a challenge.

On January 13, 2017, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) issued updated Antitrust Guidelines for the Licensing of Intellectual Property (the Guidelines). The revised Guidelines follow nearly half a year of consideration and public commentary. According to the FTC, the updates were “intended to modernize the IP Licensing Guidelines without changing the agencies’ enforcement approach with respect to intellectual property licensing or expanding the IP Licensing Guidelines to address other topics.” In that vein, the modest updates to the Guidelines affirm that the antitrust agencies still believe that IP issues do not require an altered analysis and that the licensing of intellectual property is generally procompetitive.”

Read the full article here.

On October 6, the Federal Trade Commission (FTC) released its report on patent assertion entity (PAE) activity. The report is the result of research that began in September 2014 to address a gap in the agency’s understanding of PAEs, how they operate and how policies can be developed to reduce nuisance litigation. The study focused on PAE practices, including acquisition, litigation and licensing. The FTC recommends that policymakers address asymmetries in PAE litigation through various procedural and substantive reforms.

Read the full article here.

On April 13, 2016, the US District Court for the District of Delaware denied InterDigital’s motion to dismiss an antitrust suit filed by Microsoft (Microsoft Mobile, Inc. v. InterDigital, Inc., Case No. 15-cv-723-RGA).  In the suit, Microsoft alleged that InterDigital engaged in an unlawful scheme to acquire and exploit monopoly power over standard essential patents (SEPs) required for 3G and 4G cellular devices.  Specifically, Microsoft asserted that InterDigital falsely promised to license its 3G and 4G SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms in order to ensure its SEPs were included in standards set by the European Telecommunications Standards Institute (ETSI).  According to the complaint, InterDigital failed to live up to its commitment to FRAND licensing terms, and instead acquired monopoly power in the 3G and 4G cellular technology markets and used that power to demand supra-competitive royalties, “double-dip” royalty demands, and has pursued “baseless” International Trade Commission litigation against Microsoft and others.

In its motion to dismiss, InterDigital asserted that Microsoft failed to adequately plead a Sherman Act § 2 monopolization claim, namely that Microsoft failed to show that InterDigital possessed and exercised monopoly power and failed to adequately allege injury.  The court disagreed, finding Microsoft’s allegations to be materially similar to those found to be sufficient by the Third Circuit in Broadcom Corp. v. Qualcomm Inc. (2007).  With respect to monopoly power, the court found that Microsoft’s allegations as to the necessary technology standards, market entry barriers, and InterDigital’s market share to be sufficient.  The court found that allegations of an “intentional false promise” to license technology on FRAND terms, which was relied upon in selecting the technology for inclusion in mandatory standards, and breach of such promise was “sufficient to show anticompetitive conduct.”

As to injury, InterDigital asserted that its litigation activity was protected by the Noerr-Pennington doctrine.  The court held that injury was sufficiently pled, and that the Noerr-Pennington doctrine did not immunize InterDigital as its scheme, as alleged by Microsoft, would have been “ineffective without the threat of litigation” and therefore it was properly included in Microsoft’s anticompetitive scheme allegations.

This latest ruling demonstrates that prospective licensees may be able to raise antitrust claims against SEP holders when negotiations fail and litigation ensues.

The Antitrust Division of the U.S. Department of Justice (DOJ) recently issued a business review letter stating that it would not challenge the Institute of Electrical and Electronics Engineers, Inc.’s (IEEE’s) proposed revisions to its patent policy. These patent policy revisions seek to address the “wide divergence” in expectations between holders of patents essential to an IEEE standard and the market participants seeking to implement such standards. The DOJ’s response looked favorably on the IEEE’s proposed revisions pertaining to RAND royalties and limitations on injunctive relief for standard-essential patent holders.

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