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Cartel Corner | March 2022

The US Department of Justice’s (DOJ) Antitrust Division (Division) has continued to actively investigate and pursue alleged criminal violations of antitrust laws and collusive activity in government procurement. US Attorney General Merrick Garland noted in a March 2022 speech at the ABA Institute on White Collar Crime that the Division ended last fiscal year “with 146 open grand jury investigations—the most in 30 years.” As we near the end of the first quarter of 2022, the Division has a record number of criminal cases either in trial or awaiting trial.

In this installment of Cartel Corner, we examine and review recent and significant developments in antitrust criminal enforcement and profile what the Division has highlighted as its key priorities for enforcement. For 2022 and beyond, those priorities are—and likely will remain—identifying and aggressively pursuing alleged violations involving the labor markets, consumer products, government procurement, and the generic pharmaceutical industry.

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Recent Treasury Department Report Emphasizes Fostering Competition in Labor Markets

Continuing the recent string of actions across the Biden administration in response to the July 2021 Executive Order on “Promoting Competition in the American Economy,” on March 7, 2022, the US Treasury Department (Treasury) released a report titled “The State of Labor Market Competition,” and on March 10, 2022, the US Departments of Justice (DOJ) and Labor (DOL) announced a Memorandum of Understanding (MOU) to strengthen and coordinate enforcement efforts in labor markets. These developments highlight the administration’s continuing focus on anticompetitive conduct in the labor markets at both the local and national levels and warrant careful attention by employers of all sizes and in all industries.

Treasury Report In Depth

  • Treasury’s report sets out to “summarize the prevalence and impact of uncompetitive firm behavior in labor markets.”
  • It focuses on both inter-employer conduct—such as the sharing of wage information, entering into no-poach agreements and outright conspiracies to fix wages—and employer-employee conduct—like forcing workers to sign non-compete agreements, mandatory arbitration agreements and class action waivers, misclassification of employees as independent contractors and opacity surrounding employees’ compensation rates—as being potentially anticompetitive and contributing to the imbalance of power between employers and employees in labor markets.
  • The structures of various labor markets, including overall low rates of unionization, “fissuring” of workplaces as a wide variety of job functions (e.g., janitorial or food services) are outsourced from in-house employees to external contractors, and occupational licensing requirements imposed by federal, state, and/or local governments, are highlighted as having overall negative effects on the competitiveness of various labor markets.
  • The report estimates that employers’ market power is responsible for approximately 20% lower wages compared to a fully competitive labor market, and notes that the harms that flow from a lack of labor market competition disproportionately impact lower-income occupations, women and people of color.
  • The report concludes by emphasizing that adverse effects on workers as a result of limited competition in labor markets have broader effects on the labor markets, the firms that participate in them and the economy as a whole.
  • Finally, the report specifically examines the labor markets in the healthcare, agricultural and minor-league baseball industries, and it outlines the Biden administration’s efforts to increase competition and deter and punish anticompetitive conduct in labor markets across the country.

The Memorandum of Understanding (MOU)

  • The DOJ and DOL’s MOU likewise emphasizes the shared “interest in protecting workers who have been harmed or may be at risk of being harmed as a result of anticompetitive conduct,” as Assistant Attorney General Jonathan Kanter noted in the joint press release announcing the MOU, “[p]rotecting the right of workers to earn a fair wage is core to the work of both our agencies, and it will continue to receive extraordinary vigilance from the Antitrust Division.”
  • The MOU states the DOJ’s and DOL’s intent to “share enforcement information, collaborate on new policies, and ensure that workers are protected from collusion and unlawful employer behavior.”
  • [...]

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Antitrust M&A Snapshot | Q2 2021

In the United States, aggressive antitrust enforcement is likely to continue with the appointment of Lina Khan as Federal Trade Commission (FTC) Chair and the nomination of Jonathan Kanter to lead the Department of Justice’s (DOJ) Antitrust Division. The premerger notification landscape continues to shift as filings reach another record high. Technology companies remain in the “hot seat” as legislators in the US House of Representatives introduced five antitrust reform bills that would change the enforcement landscape for digital platforms, including seeking to preclude large digital platform companies from acquiring smaller, nascent competitors. And the US Department of Justice is making good on President Biden’s pledge to regulate “Big Ag” by challenging Zen-Noh Grain Corporation’s proposed acquisition of 38 grain elevators from Bunge North America, Inc.

Meanwhile, in Q1 2021, the European Commission (Commission) published its Guidance on Article 22 of the EU Merger Regulation. The Guidance encourages the EU Member States to refer certain transactions to the Commission even if the transaction is not notifiable under the laws of the referring Member State(s). In Q2, not long after the issuance of the Guidance, the Commission received its first referral request to assess the proposed acquisition of GRAIL by Illumina. In light of the growing global debate on the need for more effective merger control, EU Competition Commissioner Margrethe Vestager confirmed that the Commission will not soften EU merger policy going forward. The Commission’s statement was made despite the fact no deals have been blocked by the Commission in about the last two years.

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THE LATEST: FTC Settles with Breeder Trade Association over Association Rules That Limited Price Competition for Dairy Bull Semen

The two current commissioners of the Federal Trade Commission (FTC) approved another final order and consent agreement with a trade association, this time with the National Association of Animal Breeders, Inc. (NAAB).

WHAT HAPPENED:
  • The new technology, called Genomic Predicted Transmitting Ability (GPTA) was developed by mid-2008.
  • In late 2008, NAAB implemented rules limiting access to the GPTA technology. Specifically, (1) only a NAAB member could obtain a dairy bull’s GPTA; and (2) the NAAB member obtaining a GPTA must have some ownership interest in the dairy bull.

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THE LATEST: Entanglements and Concentrated Markets Require Divestiture in the Dairy Industry

On July 6, 2016, Danone S.A. (Danone) agreed to acquire The WhiteWave Foods Company (WhiteWave) for $12.5 billion.

WhiteWave is the leading manufacturer of fluid organic milk in the United States and one of the top purchasers of raw organic milk. Danone is the leading US manufacturer of organic yogurt (Stonyfield). Nearly 90 percent of the raw organic milk used by Danone to manufacture organic yogurt is supplied via a strategic agreement by CROPP Cooperative (CROPP). As of 2009, the strategic supply agreement between Danone and CROPP also includes Danone providing CROPP with an exclusive license for the production and sale of Stonyfield branded fluid organic milk.

WhiteWave and CROPP are the two largest purchasers and top competitors for purchasing raw organic milk from farmers in the Northeast US. Additionally, WhiteWave, CROPP and Danone-CROPP are the only nationwide competitors for the sale of fluid organic milk to retailers and have a 91 percent share of nationwide branded fluid organic milk: Horizon (WhiteWave), Organic Valley (CROPP) and Stonyfield (Danone-CROPP). (more…)




THE LATEST: Further Efforts to Broaden the Scope and Impact for CFIUS Reviews of Foreign Acquisitions of US Businesses

We reported earlier on the Committee on Foreign Investment in the United States (CFIUS) and its legal and practical authority to review M&A transactions for possible risks to US national security posed by foreign ownership of a US business. Sens. Cornyn (R-TX) and Schumer (D-NY) reportedly are working separately on legislation to strengthen CFIUS, which could directly affect some cross-border M&A. Sen. Cornyn’s proposed changes to CFIUS would target Chinese technology investments while Sen. Schumer’s bill would encourage CFIUS to look at economic implications as part of its review.  These legislative efforts follow a bipartisan Congressional request in late Fall 2016 for the Government Accountability Office (GAO) to update its periodic analysis of CFIUS, urging the GAO to evaluate the possible expansion of factors considered by CFIUS in its M&A reviews to cover investment reciprocity and net economic benefits.

WHAT HAPPENED:
  • Now Sen. Debbie Stabenow (D-MI) and Sen. Chuck Grassley (R-IA) have introduced legislation that would add the Secretary of Agriculture and the Secretary of Health and Human Services as voting members of CFIUS. The bill would also direct CFIUS to consider matters of food security, access and safety when it reviews overseas acquisitions of US firms.
  • Though CFIUS may already consider food security as an element of national security, the new proposal would at a minimum enhance this factor. Stabenow said in a statement introducing the bill, “As foreign entities continue their aggressive acquisitions of US food and agriculture companies, it’s imperative that these transactions face additional scrutiny.”
WHAT THIS MEANS:
  • More broadly, the bipartisan legislative activity suggests an increased likelihood that CFIUS reform will gain traction in the Congress. Further support for broadening the scope and force of CFIUS may come from the Trump Administration, which would be consistent with its “America first” trade policy.
  • Any businesses with planned or pending cross-border M&A activity in the US, including those in the agribusiness sector, should monitor these developments.



Mushroom Growers Denied Capper-Volstead Antitrust Immunity

On October 14, 2014, the Eastern District of Pennsylvania denied a motion for reconsideration brought by members and affiliates of the former Eastern Mushroom Marketing Cooperative (EMMC).  In re Mushroom Direct Purchaser Antitrust Litig., No. 06-0620 (E.D. Pa. Oct. 14, 2014).  In 2009, the court denied defendants’ motion for partial summary judgment, which argued that defendants were immune from antitrust liability as members of an agricultural cooperative under the Capper-Volstead Act, 7 U.S.C. § 291.  The court gave two reasons for denying the motion: (1) the EMMC allegedly conspired with entities that were not engaged in agricultural production and (2) non-grower M. Cutone’s membership in the cooperative destroyed Capper-Volstead immunity.  Defendants moved for reconsideration in light of intervening authority from the Supreme Court in American Needle Inc. v. Nat’l Football League, 560 U.S. 783 (2010), and the Third Circuit in Deutscher Tennis Bund v. APT Tour, Inc., 610 F.3d 820 (3d Cir. 2010).

Defendants argued that, under American Needle, an unlawful conspiracy could not exist between an EMMC grower member and its affiliated distributor.  The court analyzed American Needle and emphasized that “substance, not form, should determine whether a[n] . . . entity is capable of conspiring under § 1 [of the Sherman Act].”  Mushroom, No. 06-0620 at 6 (quoting American Needle, 560 U.S. at 195).  The court held that its prior conclusion that member Kaolin/South Mill and its distribution centers were not a single entity was undisturbed by American Needle.  That the entities were “separate decision makers pursuing separate economic interests” was strongly evidenced, in the court’s eyes, by litigation that had occurred between the entities.  Mushroom, No. 06-0620 at 9.

Defendants also argued that participation in the cooperative by M. Cutone, a non-grower affiliate of grower-member M&V Enterprises, was protected under Capper-Volstead under the same rationale behind the intra-enterprise conspiracy doctrine discussed in American Needle.  The court held that this argument “misconstrue[d] the nature of the single entity defense. . . . Merely because two parties are considered to be a single entity for the purpose of a conspiracy claim under American Needle does not require that they be similarly considered in order to determine whether the cooperative’s membership included non-growers.”  Mushroom, No. 06-0620 at 12.  Therefore, M. Cutone’s “power to participate in the control and policy making of the association through voting . . . destroyed the availability of Capper-Volstead immunity for the cooperative.”  Id. at 11-12 (internal quotation marks omitted).

The court certified both issues for interlocutory review under 28 U.S.C. § 1292(b), as well as the question of whether a cooperative member’s good faith reliance on the advice of counsel can shield it from antitrust liability.  It remains to be seen whether the Third Circuit will take up the appeal.




S.D.N.Y. Dismisses Cotton Traders’ § 1 Claims Under Copperweld

On September 30, 2014, the Southern District of New York reconsidered the Commodities Exchange Act (CEA) and Sherman Act claims brought against Louis Dreyfus Commodities B.V. and its affiliates in In re Term Commodities Cotton Futures Litigation, 12 Civ. 5126 (ALC)(KNF) (S.D.N.Y. Sept. 30, 2014).  The plaintiffs, cotton futures traders, alleged that the defendants manipulated the price of cotton futures by “unreasonably and uneconomically demanding delivery of certificated cotton in fulfillment of futures contracts,” among other allegations of manipulative behavior.  In December 2013, the court denied defendants’ motion to dismiss, and defendants subsequently moved for reconsideration.  On reconsideration, the court dismissed plaintiffs’ § 1 claim under the intra-enterprise conspiracy doctrine set forth in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), but declined to dismiss the CEA or § 2 claims.

The court began its analysis by emphasizing the narrow holding of Copperweld.  It noted that Copperweld’s holding was limited to the relationship between “a parent and its wholly owned subsidiary”; where the relationship between two conspirators is anything less than complete ownership, lower courts “must draw from the analysis in Copperweld without the benefit of a bright line rule.”  Cotton, 12 Civ. 5126 at 6-7.  While the court rejected an interpretation of the intra-enterprise conspiracy doctrine that “Section One claims are not viable where the only named coconspirators are a parent corporation and its subsidiaries” as an overstatement of the law, it did not go so far as to hold that the doctrine only applies to parents and their wholly owned subsidiaries.

The five defendants in Cotton were all related through a web of parent-subsidiary relationships.  The plaintiffs did not specify whether each subsidiary was wholly owned, or clearly plead the nature of the defendants’ relationships.  The court held that, viewing the allegations in the light most favorable to the plaintiffs, it could not conclude that the allegations supported “a reasonable inference that Defendants ha[d] ‘separate corporate consciousnesses.’”  Cotton, 12 Civ. 5126 at 10.  For the defendants that were not wholly owned by other defendants, “the allegations portray[ed] the other Defendants as having ‘ownership’ and ‘control over’ them and giving ‘directions to’ them.  Nothing in the [complaint] demonstrate[d] a rational possibility that Defendants were ‘previously separate and competing entities [that combined] to act as one for their common benefit.’”  Id.

Regarding the § 2 claim, defendants argued that the court should apply the pleading standards for predatory pricing claims established by the Supreme Court in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007).  The court disagreed and concluded that Weyerhaeuser was inapplicable to these facts because the case did not present a classic predatory bidding scheme.  Due to the procedural posture of the case, the court did not discuss any additional issues related to defendants’ alleged monopolization.  Though it did not dismiss the § 2 claim, the court noted “the delicate factual balance in which Plaintiffs’ remaining claims hang” and granted defendants leave to move for summary judgment before the plaintiffs could [...]

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Fifth Circuit Reverses $25 Million Damages Award Against Pilgrim’s Pride

On August 27, 2013, the Court of Appeals for the Fifth Circuit reversed a district court damages award of more than $25 million against Pilgrim’s Pride Corporation, a large producer of processed chicken.  A group of chicken growers with whom Pilgrim’s Pride contracted filed suit against the company alleging that the company violated the Packers and Stockyards Act (PSA) by engaging in a course of business for the purpose of “manipulating or controlling prices.”  The Eastern District of Texas held that Pilgrim’s Pride’s conduct of idling or selling its chicken processing plant reduced output to increase prices, and awarded damages over $25 million to plaintiffs.

On appeal, Pilgrim’s Pride argued that the PSA section (7 U.S.C. § 192) that prohibits manipulation or control of prices is, in actuality, an antitrust statute.  Therefore, the PSA section “is only violated by attempts to affect market prices which are anti-competitive, or ‘injurious to competition.’”  Pilgrim’s Pride argued that because its output reductions were not anti-competitive, it did not violate the PSA.  The plaintiffs argued that the PSA should be applied more broadly, not only to conduct that is anticompetitive.

The Fifth Circuit relied on a prior en banc decision addressing the same PSA provision, Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355 (5th Cir. 2009) (en banc) to hold that there was little question that PSA § 192 “proscribes only anti-competitive conduct.”  The court also reasoned that the use of the terms “manipulation” and “control” meant that Congress intended to prohibit “deceptive, illegitimate, or unnatural—i.e., anti-competitive—attempts to influence prices.”

After establishing that PSA § 192 prohibited only anticompetitive manipulation of prices, the court analyzed Pilgrim’s Pride’s conduct of idling or closing plants under the rule of reason.  Quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993), the court stated that the “purpose of [antitrust law] is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. . .  “ The court also stated that a company’s unilateral attempt to raise prices, standing alone, is not inherently anticompetitive.  The court reasoned that Pilgrim’s Pride had, on its own, produced more chicken than the market demanded and was causing damage to its own business.  As a result, the company decided to stop flooding the market.  The court found no evidence that the company’s conduct was anything but a legitimate, rational response to market conditions.  Therefore, the court concluded Pilgrim’s Pride conduct was not anticompetitive, even though the conduct may have affected the price for chicken.

In a well-reasoned opinion, the Fifth Circuit relied on one of the fundamental tenants of antitrust law: that its purpose is to protect competition, not competitors.   However, clients that wish to make price moves, or take other actions that would affect price, should consider whether those contemplated actions could be perceived as anticompetitive by customers or other market participants, and should take steps to document the legitimate business justification behind such moves.   That applies even to regulated [...]

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Egg Producer Agrees to Pay $28 Million to Settle Price-Fixing Claims

by Nicole Castle

On July 23, 2013, Cal-Maine Foods Inc., the largest producer of fresh shell eggs in the U.S., announced that it had agreed to pay $28 million to settlement the direct purchaser claims brought by plaintiffs in In re Processed Egg Products Antitrust Litigation, 08-cv-2002 (E.D. Pa.).  The direct purchaser plaintiffs alleged that Cal-Maine Foods and the other defendants engaged in a long-running scheme to limit egg supply in an effort to raise prices.  

Cal-Maine Foods will be the third defendant to settle with the direct purchasers in this case.  Defendants Sparboe Farms Inc. and Moark LLC previously settled the direct purchaser claims.

Cal-Maine Chairman, President, and CEO Dolph Baker said in a statement on Tuesday: 

We remain confident that our conduct has at all times been lawful, appropriate and fair to our customers.  The largest retailers and egg buyers in the country, including many of our customers, in fact, were fully aware of, and explicitly supported, the industry-wide animal welfare guidelines challenged in this litigation.  And, the USDA was fully aware of, and explicitly supported, these animal welfare guidelines as well as all the other conduct the plaintiffs challenged.  We were able to negotiate a settlement which would eliminate most of our exposure in the antitrust litigation against the Company for an amount that we believe is in the best interest of the shareholders, employees, customers and consumers.  It significantly reduces the distraction, expense, exposure and inconvenience of protracted litigation and potentially multiple appeals, and allows us to focus on executing the long-term strategy of our business.

The terms of the settlement are subject to approval by the court following notice to all class members.  The parties expect to file for preliminary approval of the settlement next week.  The settlement does not affect the class actions filed on behalf of the indirect purchasers. Cal-Maine has stated that it intends to continue to defend the remaining cases and believes that it has strong defenses.




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