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FTC Developments

Patent Enforcement Protected by First Amendment?

by Michelle Lowery | Apr 24, 2014 | FTC Developments, IP Antitrust

After receiving a draft complaint and a stipulated order from the Federal Trade Commission (FTC) banning its allegedly deceptive letters to infringers of its scanning technology, MPHJ Technology Investments LLC (MPHJ) filed suit against the FTC in the Western District of Texas, alleging violations of the First Amendment. The complaint alleged that the FTC’s investigation prevented MPHJ from its government-granted right to enforce its patent, a form of free speech under the Bill of Rights. On March 28, 2014, the FTC filed a motion to dismiss the complaint, and MPHJ filed its response on April 18, 2014.

The FTC argued in its motion to dismiss that the controversy was not ripe for suit because there had been no final agency action, that MPHJ was not immune from suit because patent enforcement activity is not protected by the First Amendment and that the FTC is not looking to prevent MPHJ from sending letters, only looking to prevent the deceptive statements within those letters.

MPHJ contended in its response that the FTC’s draft complaint was a sufficient “credible threat” of suit to make the case ripe for adjudication. MPHJ’s patent enforcement conduct included a threat to sue the alleged infringers, and it was this conduct, in part, that was subject to the FTC investigation and also protected by the First Amendment. MPHJ argued that in order to sue it under Section 5 of the FTC Act, the FTC must overcome the First Amendment protection for plaintiffs in a lawsuit from allegations of misconduct related to bringing that suit, which applies unless the suit brought was “objectively baseless.” MPHJ argued that the FTC has not overcome the burden of showing objective baselessness, because in its investigation of MPHJ’s conduct, it concluded only that the letters threatening to sue infringers were “deceptive.” According to MPHJ, allowing the type of enforcement activity pursued by the FTC would prevent patent holders like MPHJ from threatening to sue infringers. MPHJ further argued that the District of Nebraska entered a preliminary injunction against the attorney general when faced with identical facts.

The case is MPHJ Tech. Inv., LLC v. FTC, case number 6:14-cv-00011, pending before the U.S. District Court for the Western District of Texas.

Terrell McSweeny Confirmed as Fifth FTC Commissioner

by McDermott Will & Emery | Apr 11, 2014 | FTC Developments

10 months after President Obama nominated her, Terrell McSweeny has been confirmed as the fifth FTC commissioner. The vote was 95-1 for McSweeny with David Vitter, a Republican from Louisiana, voting against her nomination.

McSweeny’s confirmation marks the first time in history that four women have served as FTC commissioners at the same time. It also gives the FTC its full complement of commissioners (now three Democrats and two Republicans), which may increase the number of matters that move forward to investigation and may help to resolve matters more quickly. A full panel of commissioners will be key in several upcoming large mergers, including a plan by food distributor Sysco Corp to merge with rival U.S. Foods Inc., and a proposed combination of grocery chains Kroger and Harris Teeter.

Prior to the FTC, Ms. McSweeny served at the DOJ on many high-profile matters such as the Anheuser-Busch InBev NV-Grupo Modelo SAB de CV merger and the merger between American Airlines Inc. and US Airways Group Inc. She also worked on the DOJ’s e-books price-fixing suit against Apple Inc. and its work on the International Trade Commission’s decision to block the import of Apple Inc. products based on Samsung Electronics Co. Ltd.’s standard-essential patents.

Her experience at the DOJ will carry over to the FTC and will likely increase the cooperation between the two agencies. Her prior work at the DOJ in particular, as well as at her former law firm, O’Melveny Myers, gives her experience on an issue the FTC is currently pursuing on patent assertion entities, pay-for-delay arrangements and privacy issues.

Previously, Ms. McSweeny advised three presidential candidates on domestic policy and related matters. In 2008, she worked for Vice President Biden in various capacities including domestic policy issues.

FTC Hosts Public Workshop, “Examining Health Care Competition”

by McDermott Will & Emery, Stephen Wu and McDermott Will & Emery | Mar 26, 2014 | FTC Developments, Healthcare Antitrust

During the last several years, the Federal Trade Commission (FTC) has taken an active role in antitrust enforcement in the health care industry, particularly with respect to hospital and physician group acquisitions. Last week, the FTC held a two-day public workshop to examine new trends and developments in the health care industry related to professional regulations of health care providers, health information technology, new care delivery models, quality measurements and pricing transparency and how those developments may affect competition. Health care providers should anticipate increased FTC scrutiny of these trends and how they affect health care costs, quality, access and care coordination.

Click here to read the full article.

FTC Commissioners Disagree on Section 5 Authority

by McDermott Will & Emery | Mar 6, 2014 | FTC Developments

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.

FTC Opinion Finds Domestic Pipe Fitter Unlawfully Maintained Its Monopoly

by Lisa A. Peterson | Feb 7, 2014 | FTC Developments, Monopolization/Abuse of Dominance

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.

FTC Hit with Lawsuit by Target of its Fraudulent Patent Enforcement Investigation

by Michelle Lowery | Jan 27, 2014 | FTC Developments, IP Antitrust

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.

Federal Trade Commission Announces Revised, Higher Pre-merger Filing Thresholds

by Emily Townsend | Jan 21, 2014 | FTC Developments, Mergers & Acquisitions

On January 17, 2014, the Federal Trade Commission (FTC) announced revised, higher Hart-Scott-Rodino (HSR) pre-merger notification filing thresholds. The FTC adjusts the HSR thresholds annually to represent the increase or decrease in GNP. These revised thresholds will become effective 30 days from the date on which notice is published in the Federal Register, which should occur within the next week. As such, we expect that these new thresholds will become effective by late February. Once we know the precise effective date for these adjusted thresholds, we will publish an On The Subject that can be distributed to clients. Clients with transactions pending may benefit from the higher threshold if the transaction closes on or after the effective date and ultimately falls below the revised threshold.

Most notably, the size-of-transaction threshold, which frequently determines whether a transaction requires an HSR notification, will increase from $70.9 million to $75.9 million. Other thresholds will increase as well, including thresholds for the size-of-person test, filing fees and certain exemptions. The revised thresholds are as follows:

Original Threshold

2014 Adjusted Threshold

$10 million $15.2 million $50 million $75.9 million $100 million $151.7 million $110 million $166.9 million $200 million $303.4 million $500 million $758.6 million

Generally, a transaction requires an HSR notification if it meets the applicable size-of-transaction and/or the size-of-person tests, described briefly below, and does not fall within any exemptions.

A transaction meets the size-of-transaction test if, as a result of the transaction, the acquiring party holds assets, voting securities or a controlling interest in a non-corporate entity valued in excess of

$50 million, as adjusted ($75.9 million upon the effective date of these revised thresholds), assuming the size-of-person test is met, or
$200 million, as adjusted ($303.4 million upon the effective date of these revised thresholds) — this threshold applies to transactions even if the size-of-person test below is not met.

For the size-of-person test, upon the effective date of these revised thresholds, a transaction resulting in the acquiring party holding assets, voting securities or a controlling interest in a non-corporate entity valued at $75.9 million or more, but less than $303.4 million, is generally reportable if one party has net sales or total assets of at least $10 million, as adjusted ($15.2 million upon the effective date of these revised thresholds), and the other party has net sales or total assets of at least $100 million, as adjusted ($151.7 million upon the effective date of these revised thresholds).

Although the filing fees for HSR notifications will not change at this time (although this is something currently under review), the thresholds (based upon the size-of-transaction) that determine the correct filing fee will also adjust:

Filing Fee

Size-of-Transaction

$45,000 $75.9 million, but less than $151.7 million $125,000 $151.7 million, but less than $758.6 million $280,000 $758.6 million or more

Again, these revised thresholds will become effective 30 days after publication of notice in the Federal Register.

FTC Commissioner Wright Renews Calls for Section 5 Guidelines

by Daniel Powers | Dec 4, 2013 | FTC Developments

Federal Trade Commission (FTC) Commissioner Joshua Wright continues to press for a “policy statement” that would define, and perhaps limit, the scope of the FTC’s authority to police unfair methods of competition under Section 5 of the FTC Act. Commissioner Wright first advanced his proposed policy statement in June 2013. A lively debate has ensued, with contributions from his fellow Commissioners as well as leading academics and practitioners. Commissioner Wright published additional comments in November and also spoke on the issue in December during testimony before the House Subcommittee on Commerce, Manufacturing and Trade.

Commentators have long noted the vagueness inherent in Section 5’s prohibition of “unfair” methods of competition. Some see this vagueness as a virtue that allows the Commission the potential to police activities that fall outside the reach of other tools of antitrust enforcement. Others, however, view Section 5 as creating significant uncertainty for businesses subject to the law.

In his remarks entitled “Recalibrating Section 5: A Response to the CPI Symposium,” Commissioner Wright argues that this uncertainty is magnified by the “administrative process advantages” enjoyed by the FTC. For Wright, “the institutional framework that has evolved around the application of Section 5 cases in administrative adjudication is quite different than that faced by Article III judges in federal court in the United States.” Wright points to empirical observations which show that, over the past 20 years, defendants in FTC proceedings face far less likelihood of success than they do against private plaintiffs in the federal courts of appeal: “In other words, in 100 percent of cases where the administrative law judge (ALJ) ruled in favor of the FTC, the Commission affirmed; and in 100 percent of the cases in which the ALJ ruled against the FTC, the Commission reversed.” According to Wright, private plaintiffs on appeal are likely to win only about 50 percent of the time.

Wright suggests that the agency’s institutional and procedural advantages, coupled with the vague nature of the Commission’s Section 5 authority leads to over-enforcement. Faced with the ambiguities of Section 5 and the Commission’s “perfect” record, many firms will prefer settlement of questionable Section 5 claims to the expense of lengthy administrative litigation.

In testimony before the House Subcommittee on Commerce, Manufacturing and Trade in early December, Wright echoed these concerns and again pushed for the Commission to issue guidelines on the application of Section 5. Wright’s fellow Commissioners have not shown signs that they are ready to pursue establishment of any Section 5 guidelines, but it appears this topic is likely to remain a subject of debate that bears watching.

FTC Focuses Enforcement Efforts on Health Care, Technology and Energy Sectors

by McDermott Will & Emery | Nov 25, 2013 | Energy/Commodities, FTC Developments, Healthcare Antitrust, IP Antitrust, Monopolization/Abuse of Dominance

On November 15, 2013, Chairwoman Edith Ramirez testified on behalf of the Federal Trade Commission (FTC) before the House Subcommittee on Regulatory Reform on the topic of antitrust oversight and enforcement. Ramirez explained that the FTC “focuses its enforcement efforts on sectors that most directly affect consumers, such as health care, technology and energy.”

The FTC has identified health care provider consolidation as a significant component of increasing health care costs, and overseeing provider combinations has remained a key priority for the agency. The FTC has also undertaken efforts to promote competition between manufacturers of generic and brand-name drugs. In addition to litigating “pay-for-delay” settlements, the Commission has filed amicus briefs to advocate against other practices it considers anticompetitive, such as “product hopping,” the practice of altering the formula of a brand-name drug in a minor, non-therapeutic way in order to preserve monopoly power in the face of generic competition.

In the technology arena, the FTC has targeted the problem of patent hold-up. The Commission has pursued enforcement actions aimed at preventing holders of standard essential patents from rescinding agreements to license the patents on reasonable and non-discriminatory (RAND) terms. The FTC is also actively looking into the potential harms and efficiencies of “patent assertion entities,” which are companies “with a business model focused primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technology.”

The Chairwoman noted that the Commission utilizes “all the powers at its disposal” to police competition in the energy sector, and it considers merger review “essential to preserving competition in these markets.” The agency also monitors gasoline and diesel fuel prices on a daily basis for unusual pricing activity, which could be a sign of anticompetitive conduct.

Pay-for-delay to Stay FTC’s Top Priority

by Lisa A. Peterson | Nov 18, 2013 | FTC Developments

In a recent interview, Federal Trade Commission (FTC) Bureau of Competition chairwoman Deborah Feinstein announced that targeting pay-for-delay arrangements by pharmaceutical companies would continue as a top priority for the FTC. Pay-for-delay deals arise when pharmaceutical companies marketing branded drugs pay a pharmaceutical company to enter into a patent settlement with manufactures of generic drugs. Under the patent settlements, the branded pharmaceutical company pays a large fee to the generic pharmaceutical manufacturer in order to delay entry of the generic drug into the market. The FTC views such deals as anticompetitive and harmful to consumers because they stifle competition by preventing a lower-cost alternative from entering the market.

Feinstein stated that in addition to two ongoing litigation matters challenging pay-for-delay arrangements, the FTC continues to vigilantly monitor fillings submitted under the Medicare Prescription Drug, Improvement and Modernization Act. Likely, the FTC will open additional investigations into pay-for-delay deals. Feinstein also commented that the FTC will proactively advance federal antitrust law and its policy toward pay-for-delay through amicus brief filings in private litigation matters.

Earlier this year, the Supreme Court ruled in FTC v. Activis, Inc. that pay-for-delay deals are subject to antitrust scrutiny and should be assessed under the rule of reason to balance the procompetitive benefits against the anticompetitive effects. Additionally, the antitrust Subcommittee of the Senate Judiciary Committee has held hearings focusing on the anticompetitive effects of pay-for-delay arrangements. Several senators, including Senators Al Franken (D-Minn.) and David Vitter (R-La.) have proposed legislation promoting pharmaceutical competition by offering alternatives to non-settling generic drug companies for challenging a patent and entering the drug market. Effectively, this would permit some drug companies to circumvent market restrictions created by pay-for-delay deals.

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