Joint Ventures/Competitor Collaboration Archives | Page 6 of 11

Joint Ventures/Competitor Collaboration

FTC Consent Agreement with Par Petroleum Demonstrates Increased Agency Focus on Competitive Effects

by Emily Townsend | Mar 29, 2015 | FTC Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

On March 18, 2015, the Federal Trade Commission (FTC) ordered Par Petroleum Corporation to terminate its storage and throughput rights at a key gasoline terminal in Hawaii. This action will settle FTC charges seeking to prevent Par’s acquisition of Koko’oha Investments, Inc. Notably, the market structure created as a result of this remedy mirrors a market structure that was deemed anticompetitive in a 2005 FTC action. The two differing approaches to the same market highlight a key trend in the FTC’s merger enforcement: the focus on competitive effects of a transaction, as opposed to the resulting market structure.

The Market for Hawaii-Grade Gasoline Blendstock

The allegedly anticompetitive transaction affects the market for Hawaii-grade gasoline blendstock. Gasoline blendstock is produced by refining crude oil and is later combined with ethanol to make finished gasoline. The finished gasoline is sold to Hawaiian consumers.

Prior to the transaction, there were four competitors in the market for Hawaii-grade gasoline blendstock. Par and another oil company competed by operating refineries and producing the blendstock on the Hawaiian Islands. The other two competitors, Mid Pac Petroleum, LLC, and Aloha Petroleum, Ltd., competed by sharing access to the only commercial gasoline terminal on the Islands not owned by a refinery and capable of receiving full waterborne shipments of gasoline blendstock. This terminal, the Barbers Point Terminal, was owned by Aloha, but Mid Pac shared access through a long-term storage and throughput agreement.

The two oil refiners produced more gasoline than was consumed in Hawaii. As a result, importing gasoline blendstock was unnecessary. However, Mid Pac and Aloha were able to constrain the price of gasoline blendstock purchased from the Hawaiian refiners by maintaining their ability to import gasoline blendstock through the Barbers Point Terminal.

The Proposed Transaction and the FTC Challenge

On June 2, 2014, Par agreed to acquire Koko’oha for $107 million. As part of this transaction, Par would acquire Koko’oha’s 100 percent membership interest in Mid Pac and, therefore, Mid Pac’s rights to access the Barbers Point Terminal. The FTC filed a complaint alleging this transaction was likely to substantially lessen competition in the bulk supply of Hawaii-grade gasoline blendstock.

The basis of the FTC’s action was that “[t]he Acquisition would weaken the threat of imports as a constraint on local refiners’ [gasoline blendstock] prices.” By acquiring Mid Pac’s throughput and storage rights at Barbers Point Terminal, Par would have an incentive to use those rights strategically to weaken Aloha’s ability to constrain the price of gasoline blendstock. The specific competitive concern the FTC cited was that Par would store substantial amounts of gasoline in the Barbers Point Terminal for extended periods of time. By doing so, Par would tie up the capacity at the terminal and thereby reduce the size of import shipment that Aloha could receive at the terminal. “This would force Aloha to spread substantial fixed freight costs over a smaller number of barrels of gasoline, which would significantly increase its cost-per-barrel of importing.”

On March 18, 2015, the FTC and Par [...]

Continue Reading

Increasing Antitrust Risk in Non-Reportable Transactions – DOJ Obtains Disgorgement of Profits in Tour Bus Settlement

by Jon B. Dubrow | Mar 11, 2015 | DOJ Developments, Joint Ventures/Competitor Collaboration

The U.S. Department of Justice (DOJ) recently reached a settlement with Coach USA Inc. and City Sights LLC, breaking up their joint venture. The DOJ also employed the rarely used remedy of disgorgement to recover $7.5 million in profits from the defendants. This case demonstrates the aggressive posture the antitrust agencies are taking to challenge and impose harsh remedies upon transactions that are not reportable under the Hart-Scott-Rodino (HSR) Act. It also highlights the need to properly evaluate and prepare for the antitrust implications of non-reportable transactions under the HSR Act.

DOJ Obtains Disgorgement

In 2009, two operators of hop-on, hop-off bus tours in New York City formed a joint venture, Twin America LLC. Prior to the formation of Twin America, Coach USA and City Sights were the two largest companies in the alleged hop-on, hop-off bus tour market in New York City, with a combined 99 percent share of the market. The DOJ alleged that the two companies’ joint venture created an unlawful monopoly and enabled them to increase prices by approximately 10 percent. The DOJ filed an antitrust complaint challenging the deal in December 2012, well after it was consummated in 2009. The case was proceeding towards trial when the parties agreed to a settlement, which they announced on March 16, 2015.

Under the terms of the settlement, the defendants must take several steps to restore competition allegedly lost through the formation of the venture. Twin America must divest all 50 of City Sight’s valuable Manhattan bus stop authorizations. The divestiture will eliminate a significant barrier to entry, as the bus stop authorizations are required by the New York City Department of Transportation to operate bus tours, and little capacity for new authorizations exists. Coach USA and Twin America must also establish antitrust training programs and provide the government with advance notice of any future acquisition in the alleged market. Coach USA must pay $250,000 in attorney’s fees to the United States in connection with claims that it spoliated evidence and did not meet its document preservation obligations.

Most noteworthy, the settlement requires the defendants to pay $7.5 million to disgorge what the DOJ viewed as excess profits obtained as a result of the combination. Prior to this settlement, the defendants had already agreed to pay $19 million to settle a related class action lawsuit. One criticism of disgorgement as a remedy in antitrust matters is that disgorgement may excessively punish defendants that are also subject to potential civil litigation in which they may pay additional damages. Here, the DOJ concluded that the defendants were unjustly enriched by an amount greater than the $19 million settlement, and the additional $7.5 million disgorgement was intended to divest the defendants of additional ill-gotten profits and deter similar conduct in the future.

This disgorgement is significant. It is a remedy that the FTC and DOJ have used very infrequently, particularly in merger cases. To the extent the Twin America case creates a precedent for the use of that remedy, it increases [...]

Continue Reading

Aerospace & Defense Series: Leading Antitrust Considerations for M&A Transactions

by Jon B. Dubrow | Dec 18, 2014 | DOJ Developments, FTC Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

Aerospace and defense contractors engage in a wide range of mergers, acquisitions and joint venture transactions, which are often subject to heightened antitrust scrutiny. This article highlights some of the leading antitrust factors that contractors should consider when contemplating M&A transactions in their unique industry.

Read the full article.

Aerospace & Defense Series: DOD Study Touts Competition Benefits in Military Purchases—Creates Implications for Future Antitrust Reviews

by Jon B. Dubrow | Jul 18, 2014 | Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

It is a general tenet that competition serves customers well, enabling them to acquire better products at lower prices. Of course, this premise underlies the antitrust laws. In the aerospace and defense industry, the customers are often government agencies that are monopsonists with significant purchasing leverage. Government customers often have contracting mechanisms that are not generally available in the commercial marketplace, such as the ability to receive certified cost and pricing data from contractors. From time to time, contractors have attempted to rely on arguments that the government’s buyer power and contracting rights ensure that contractors cannot impose unreasonable pricing on the government, even if there is no or limited competition. The antitrust regulators and the U.S. Department of Defense (DoD) have long rejected that notion, stressing that regulation is not a substitute for competition. A recent DoD study supports that general proposition, and provides data the DoD interprets as showing that the presence of competition improves contracting outcomes for the government. See DoD 2014 Annual Report on the Performance of the Defense Acquisition System. This report provides some interesting thoughts and data that may impact future antitrust agency reviews.

Read the full article.

Aerospace and Defense Series: Leading Antitrust Considerations for Teaming Agreements

by Jon B. Dubrow | Apr 28, 2014 | Joint Ventures/Competitor Collaboration

This newsletter identifies when “teaming agreements” between contractors are likely to raise antitrust issues, and suggests some practice tips for evaluating or defending those arrangements.

Read the full article.

How to (Legally) Keep Competitors from Poaching Your Key Employees: Antitrust Law and Non-Poaching/Non-Solicitation Agreements

by Emily Townsend | Aug 16, 2013 | Joint Ventures/Competitor Collaboration

by Nick Grimmer

How can a company legally protect its valuable interests in key employees, when a competitor can just swoop in with a more attractive employment offer? A non-poaching agreement or clause (also called a no- or non-poach, -hire, -interference, -switching or -solicitation agreement or clause, depending on the circumstances) can offer protection. In these agreements, competitors or potential competitors for skilled labor might agree not to cold call, solicit, recruit or even hire each other’s employees. The agreements usually cover specified employees or categories of employees (e.g., by title, skill area or salary level) and usually last for a set period of time.

The ancillary restraints doctrine generally governs non-poaching agreements. Under that doctrine, a restraint of trade (here, the non-poaching agreement) is permissible if it is one in which there is also a legitimate/procompetitive main agreement, and the covenant in restraint of trade is necessary and merely ancillary (i.e., collateral or subordinate) to that agreement. If it is not, then it is a “naked restraint of trade” and will be per se illegal under federal antitrust law (and the plaintiff—typically, the affected employee(s)—will need only to prove the existence of the restraint, as opposed to having to show its anticompetitive effects, which are presumed). Conversely, if a non-poaching agreement is ancillary to a legitimate/procompetitive agreement, it is judged under the rule of reason, which involves a balancing of procompetitive benefits and anticompetitive effects.

Agreements that keep employees out of competitors’ camps come in several flavors. The basic types—and their general antitrust treatment—include:

“Naked” agreements between competitors: Like an (illegal) agreement among competitors to divide sales territories, a naked agreement among competitors for labor simply to not hire each other’s employees is likely per se illegal (in essence, they both entail “you keep what’s yours, I keep what’s mine”). To avoid per se illegality, keep these points in mind:

The purpose of the main agreement must be legitimate; a non-poaching agreement aimed only at “protecting” employees from poaching or improving relations with a competitor for labor is a non-starter. We address examples of legitimate purposes below.
The more related and tailored the non-poaching agreement is to a legitimate purpose, the more likely it is necessary and ancillary to a legitimate main agreement (such that the rule of reason will apply); conversely, a broad, vague or general non-poaching agreement might be subject to per se treatment. So, a non-poaching agreement should:
- be in writing
- set a specific end point with a clear relationship to the main agreement (e.g., a reasonable period following a sale); and
- specifically define the scope of covered employees (by class, position, section of the company, geography or even name) in a manner clearly related to the main agreement; it should cover only the employees that are or might be directly involved or at issue in the main agreement. So, for example, if two companies enter a joint venture that relates to only one of their numerous product lines, the joint venture agreement’s [...]
  
  Continue Reading

ACOs and Antitrust Are Aligned and Compatible, Says Commissioner Brill

by Emily Townsend | Jun 13, 2013 | FTC Developments, Healthcare Antitrust, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

by Carrie G. Amezcua

FTC Commissioner Julie Brill addressed attendees at the 2013 National Summit on Provider Market Power on June 11. The focus of her remarks were on the intersection of antitrust, the Affordable Care Act (ACA) and Accountable Care Organizations (ACOs). She first touched on the ACA. Noting the empirical evidence shows that high concentration among health care providers has harmful competitive effects, she was optimistic that the exchanges that will be established as a result of the ACA will offer consumers a range of competing, affordable health care products and will encourage greater competition in local insurance markets.

Turning to ACOs and antitrust, she stated that the FTC is starting to hear providers contend that the ACO program is a justification for their (alleged) anticompetitive activity. Providers complain that the government is "talking out of both sides of their mouth" with Centers for Medicare & Medicaid Services (CMS) encouraging coordination via the ACO program and the antitrust agencies challenging coordination. Commissioner Brill disagreed stating that "the goals of the ACA and antitrust enforcement are aligned and compatible." She noted the extensive cooperation between CMS and the antitrust agencies. She explained that the ACA requires coordination of care but that it "neither requires nor encourages to merger or otherwise consolidate," but like any collaboration short of a merger, they must do so in a way that does not violate antitrust laws. Commissioner Brill also stated that ACOs are flourishing and only two provider groups have thus far sought antitrust guidance as permitted under the ACO Policy Statement from the agencies before forming the ACOs.

Finally, Commissioner Brill emphasized that the FTC will continue to investigate provider collaborations or mergers where there may be competitive harm. She made a point to clarify that the FTC evaluates all assertions of efficiencies and quality improvements but that parties must provide "good documentary evidence" to support these assertions.

Commissioner Brill’s speech is consistent with the posture and approach the agencies have been taking with regard to provider consolidations in the relatively new landscape being built by the ACA and formation of ACOs. There is not yet enough data to see exactly how the ACA will affect providers from an antitrust perspective. But providers can be certain that the agencies will continue to look closely at any consolidation or collaboration that may violate the antitrust laws, regardless of whether the activity was taken to try to comply with the ACA.

The full speech can be found here.

China’s Merger Control Rules Changing: MOFCOM Publishes New Draft Regulations on Remedies and Simple Cases

by Emily Townsend | Apr 17, 2013 | Chinese Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

by Henry Chen, Frank Schoneveld and Alex An

China’s Ministry of Commerce recently issued two new draft regulations. The first provides a wider range of potential remedies to obtain the clearance of a concentration (e.g., a merger, acquisition, joint venture, etc.); the other defines the standards for “simple” merger cases that are eligible for a “fast-track” clearance procedure.

To read the full article, click here.

Alleged Agreement Between Chesapeake Energy and EnCana Corporation to Suppress Prices for Mineral Rights Highlights the Antitrust Risks Facing Energy Companies

by Emily Townsend | Jul 3, 2012 | DOJ Developments, Energy/Commodities, Joint Ventures/Competitor Collaboration

by Jon B. Dubrow and Shauna A. Barnes

Recently published reports of land acquisition activities between Chesapeake Energy and EnCana senior executives will likely expose those companies to a Department of Justice (DOJ) antitrust investigation and challenge, as well as, if accurate, civil antitrust claims. This matter highlights the risks that energy companies face when discussing lease arrangements with their competitors.

Joint Bidding or Bid Rigging for Property Rights Can Violate the Antitrust Laws

In February 2012, DOJ settled its first challenge to a bidding agreement for mineral rights, alleging that agreements between Gunneson Energy Corporation and SGI Interests to bid jointly for government mineral leases were anticompetitive. In a previous post, we explained the potential issues and pitfalls related to joint bidding for oil and gas properties. We suggested various factors that companies can use to assess, or manage, their antitrust exposure.

Reuters Obtains and Publishes Confidential Communications Between Chesapeake and EnCana Appearing to Coordinate to Reduce Prices Paid for Properties

On June 25, 2012, Reuters published a special report indicating that Chesapeake and EnCana agreed to suppress bids for mineral rights at public and private land auctions. Citing dozens of highly inflammatory emails, the article purports to detail how Chesapeake’s CEO, Aubrey McClendon, and other senior executives at Chesapeake and EnCana discussed how to avoid creating a bidding price war in acquiring drilling rights for Northern Michigan properties.

According to Reuters, throughout 2010, EnCana and Chesapeake were the leading buyers in Michigan and they aggressively competed to acquire properties for hydraulic fracturing (fracing) operations. During a May 2010 land auction, they paid approximately $1,413 per acre. Following the auction, private landowners sought competing bids, leading to a bidding war resulting in offers of more than $3,000 per acre.

Reuters indicates that Chesapeake and EnCana discussed via email entering into a formal venture, including some areas of mutual interest that would allow the parties to share in the risks and rewards of developing properties. However, they did not enter into any venture. Instead, they purportedly discussed in emails ways, as independent bidders, to refrain from bidding up land prices, and to allocate various properties between themselves. These emails were followed by significant price reductions in the offers made by Chesapeake and EnCana.

Oil and Gas Industry Companies Need to be Sensitized to the Risks in Joint Activities Related to the Acquisitions of Mineral Rights

The Chesapeake-EnCana situation, following quickly on the heels of the DOJ’s joint bidding challenge earlier this year, serves as a reminder that companies in the oil and gas industry must exercise care in situations where they may want to work with potentially competing bidders. In the oil and gas industry, firms frequently work together to acquire and develop properties, and that can often be lawfully accomplished through a legitimate collaboration. Firms, and their executives, may often have opportunities to discuss property acquisition in the context of a legitimate, integrated venture, including with firms that might otherwise be competitors. However, while some [...]

Continue Reading

China Streamlines Antitrust Notification Process

by Emily Townsend | Jun 27, 2012 | Chinese Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

by Henry L.T. Chen, Frank Schonveld and Brian Fu

The Ministry of Commerce of China (MOFCOM) recently promulgated a new amended merger notification form along with instructions for completing the form. In doing so, MOFCOM aims to further regulate the procedures regarding antitrust review of large mergers, acquisitions and joint ventures; to promote transparency in the notification procedure; and to improve the efficiency of antitrust review.

To read the full article, please visit: https://www.mwechinalaw.com/news/2012/chinalawalert061c.htm.