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FTC Developments

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.

Office Supplies Surprise: FTC Approves Office Depot-OfficeMax Merger

by Emily Townsend | Nov 7, 2013 | FTC Developments, Mergers & Acquisitions

On Friday, November 1, 2013 the Federal Trade Commission (FTC) ended a seven-month investigation of the proposed merger between Office Depot Inc. and OfficeMax Inc., allowing the transaction to move forward.

The merger between the second and third largest office supply superstores (OSS) is not the first time the FTC has been interested in OSS transactions. In 1997, the FTC successfully blocked a proposed merger between the two largest OSS in FTC v. Staples, Inc., 970 F.Supp. 1066 (D.D.C. 1997). The FTC’s seemingly contradictory positions can be discerned, however, by the changes in the competitive landscape for OSS.

As acknowledged in the FTC’s statement concerning the proposed merger, OSS now compete with online retailers and mass merchants far more than in 1997. In fact, in Staples, the court determined that while mass merchants, wholesale clubs and mail order firms sold office supplies, prices at OSS were primarily affected by the presence of another OSS in the geographic market. Because of this determination, the FTC was successful in arguing that the relevant product market was the sale of consumable office supplies just through OSS.

Now, OSS compete rigorously with the growing number and size of online retailers and mass merchants. As the FTC found, OSS “closely monitor” and “respond competitively” to non-OSS retailers. Indeed, the FTC noted that OSS are responding to such competition not only through staples of competition such as price matching and price-checking, but also through innovation, such as “offering in-store pickup for online purchases and using in-store internet kiosks to order products online.”

The rapidly changing landscape in the consumable office supplies market is highlighted by two contrasting outcomes sixteen years apart. It highlights the importance of staying abreast of how changes in market dynamics and modernizing competition law may affect regulators’ view of potential transactions. As exemplified in this case, such knowledge can lead to a successful evaluation of a transaction that was previously thought to be impossible.

Republicans Press FTC to Establish a Clear Standard for Section 5

by Young Cynn | Oct 29, 2013 | FTC Developments

In a letter to the Federal Trade Commission (FTC) on Wednesday, October 23, eight GOP lawmakers from both the House and the Senate called on the FTC to publish clear guidance on Section 5 of the FTC Act.

Section 5 grants the Commission broad authority to regulate “unfair methods of competition” beyond the scope of the Sherman Act and Clayton Act. In FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972), the Supreme Court opined that the FTC was authorized to consider public values beyond the letter or spirit of the antitrust laws when enforcing Section 5. Then, during the 1980s, courts began rejecting the FTC’s attempts to bring Section 5 actions, out of concern that the agency had failed to put forth adequate standards. More recently, the FTC has used Section 5 in various agency actions to target invitations to collude and breaches of standard-setting commitments, but no cases have been affirmed by the courts.

In their letter, the legislators warned that “the absence of clear parameters . . . based on empirical and economic justifications, engenders uncertainty in the business community,” which in turn deters innovation and stifles economic growth. Over the summer, Commissioner Brill questioned the need for a formal statement, citing the fact that no business executive had ever addressed the lack of guidance with her. The letter also contended that defendants in administrative cases often settle due to “economic pressures rather than substantive agreement,” and these settlements leave no room for judicial review – pushing back on Chairwoman Ramirez’s belief that a policy could be developed through agency enforcement actions.

Both Commissioners Wright and Ohlhausen announced policy proposals earlier this year, which the lawmakers pointed to as evidence to refute Chairwoman Ramirez’s statement from a congressional oversight hearing that it is difficult to articulate the outer bounds of Section 5 authority and that the existing informal guidance is sufficient.

Tweet: No Antitrust Problems Here

by Emily Townsend | Oct 7, 2013 | FTC Developments, Mergers & Acquisitions

by Lincoln Mayer

The Federal Trade Commission (FTC) has approved social media heavyweight Twitter’s $350 million stock acquisition of MoPub. Twitter’s purchase of the mobile advertising exchange, which helps companies place ads on mobile devices, is expected to enhance Twitter’s ability to tailor mobile ads to users. The size of the deal triggered the Hart-Scott Rodino (HSR) Act’s mandatory filing requirement, but the FTC concluded that the acquisition posed no anticompetitive obstacles.

This high-profile transaction is a reminder of the value of good planning and involving antitrust counsel early in the planning process, even where the parties do not anticipate significant antitrust issues. With enough advance warning, counsel can work with the antitrust agencies to showcase the procompetitive aspects of the transaction, mitigate any problematic aspects and seek rapid clearance of deals that, at least from a competitive standpoint, are relatively straightforward. In Twitter’s case, that meant being able to resolve a potential regulatory issue involving its largest acquisition to date before the launch of Twitter’s initial public offering.

FTC Initiates Inquiry Into Patent Assertion Entities

by Emily Townsend | Oct 4, 2013 | DOJ Developments, FTC Developments, IP Antitrust

by William Diaz

Last week, the Federal Trade Commission (FTC) announced its decision to seek public comment on a proposal to gather information from approximately 25 patent assertion entities (PAE). The agency defines a PAE as a company whose business model focuses primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies. The FTC also anticipates seeking information from approximately 15 other entities asserting patents in the wireless communications sector, including manufacturers and other non-practicing entities or licensing organizations. None of the PAEs or other firms has been identified by the FTC.

In late 2012, the FTC and Department of Justice conducted an industry workshop on the impact of PAEs on innovation and competition. Workshop participants identified numerous potential harms, but noted the lack of empirical data on PAE activities. The FTC now proposes to collect such data pursuant to its information-gathering authority under Section 6(b) of the FTC Act. The full scope of the information the FTC will seek is described in the official notice, which is can be found here. Public comments will be accepted for 60 days following publication in the Federal Register.

FTC and DOJ Accepting HSR Filings During Shutdown

by Emily Townsend | Oct 1, 2013 | DOJ Developments, FTC Developments, Mergers & Acquisitions

by Gregory Heltzer

The Federal Trade Commission (FTC) and Department of Justice (DOJ) both announced that they will have limited staff on hand to accept Hart-Scott-Rodino (HSR) premerger notification filings during the U.S. federal government shutdown. The HSR Act requires that parties subject to the Act must wait 30 days before closing their transaction. This waiting period provides the agencies with time to determine whether to challenge a transaction prior to closing. During the shutdown, the FTC will continue HSR investigations to the extent that “a failure by the government to challenge the transaction before it is consummated will result in a substantial impairment of the government’s ability to secure effective relief at a later time.” (See, FTC Shutdown Plan.) Likewise, the DOJ will also prepare cases that must be filed due to expiration of the HSR waiting period. (See, DOJ Shutdown Plan.) We will provide updates if and when we learn more regarding the protocols for merger review during the shutdown.

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