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THE LATEST: FTC’s New “Technology Task Force” Has Broad Mandate Including Review of Consummated Transactions

The US Federal Trade Commission’s (FTC) Bureau of Competition announced the launch of a new Technology Task Force that will investigate anticompetitive conduct, review past transactions, as well as contribute to pending merger reviews. The FTC’s investigation of consummated transactions will not be limited to large transactions that meet the HSR filing thresholds, but will also include so-called “non-reportable” transactions. The launch of this task force along with the ongoing FTC Hearings on Competition and Consumer Protection in the 21st Century is further evidence of US antitrust enforcers’ increasing focus on the technology sector.

WHAT HAPPENED:
  • On February 26, the FTC’s Bureau of Competition announced the creation of a Technology Task Force dedicated to monitoring competition in US technology markets. The mandate is expansive allowing for investigations of anticompetitive conduct, mergers and industry practices.
  • Importantly, the task force is not only charged with aiding in the review of prospective mergers, but also investigating consummated mergers of any size. For consummated mergers, the task force has the authority to reconsider prior matters and seek the full set of remedies (e.g., divestiture, licensing, etc.) that would be available during the review of a prospective transaction.
  • Patricia Galvan, currently the Deputy Assistant Director of the Mergers III Division, and Krisha Cerilli, currently Counsel to the Director, will lead the task force. Their team includes approximately 17 existing staff attorneys with experience in complex technological markets such as online advertising, social networking and mobile operating systems.
  • Bureau of Competition Director Bruce Hoffman explained that “by centralizing [the FTC’s] expertise and attention, the new task force will be able to focus on these markets exclusively—ensuring they are operating pursuant to the antitrust laws, and taking action where they are not.”
WHAT THIS MEANS:
  • The launch of the Technology Task Force together with the ongoing FTC Hearings on Competition and Consumer Protection in the 21st Century highlights the FTC’s and DOJ’s increasing focus on maintaining “free and fair competition” in the technology sector.
  • FTC Chairman Joseph Simons’s prior work at the FTC involved launching the Merger Litigation Task Force, which focused on hospital merger retrospectives, and sharpened the FTC’s approach in challenging health care transactions. This appears to be a similar move to sharpen the FTC’s knowledge and approach, but now directed at the technology sector.
  • Technology companies that have recently completed mergers should take care not to draw scrutiny from antitrust enforcers.
  • Typically, investigations of consummated transactions and anticompetitive conduct will begin with a review of publicly available materials before burdening targets with compulsory process and seeking information from customers, competitors and industry experts.
    • Upon receiving information requests from the FTC, targets of the investigations should engage quickly to understand the scope and focus of the investigation. An information request likely means the FTC investigation has progressed beyond the initial phase.
    • Industry participants (competitors, customers) could also receive significant information associated with FTC investigations. Those parties should also engage with the FTC quickly to jointly develop a reasonable plan for addressing [...]

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THE LATEST: Online Retailer Pleads Guilty in Conspiracy Effectuated Through Social Media

Azim Makanojiya founded Zaappaaz Inc. as a nineteen-year-old university student and quickly turned it into a multi-million dollar business.

WHAT HAPPENED:
  • On Tuesday, August 7, online retailer Zaappaaz Inc. and its twenty-nine-year-old president and founder, Azim Makanojiya, agreed to plead guilty for conspiring to fix the prices of “customized promotional products” such as silicone wristbands and lanyards.
  • According to an Information filed in the United States District Court for the Southern District of Texas, the company  “engaged in a conspiracy with other persons and entities engaged in the sale of customized promotional products,” which was carried out in part “via text and online messaging platforms.”  The alleged conspirators reportedly used social media platforms Facebook, Skype and WhatsApp to coordinate their price-fixing efforts.
  • Acting Assistant Attorney General Andrew Finch of the Department of Justice’s Antitrust Division explained the significance of the charges in a press release, stating that, “[a]s today’s charges show, criminals cannot evade detection by conspiring online and using encrypted messaging.”  “In addition,” he continued, “today’s charges are a clear sign of the Division’s commitment to uncovering and prosecuting collusion that affects internet sales.  American consumers have the right to a marketplace free of unlawful collusion, whether they are shopping at retail stores or online.”
  • While Zaappaaz Inc. has agreed to pay a $1.9 million criminal fine, the Department of Justice has not yet indicated what sentence it will support for the company’s president, Azim Makanojiya. He could face up to 10 years in prison for violating the Sherman Act, though in practice sentences tend to be much shorter, especially when defendants agree to cooperate with an ongoing investigation, as both defendants have done here.
  • At this time, the Department of Justice has not named any of Zaappaaz Inc.’s competitors as alleged conspirators, but other companies in the promotional products industry are reportedly under investigation.
WHAT THIS MEANS:
  • The successful prosecution of Zaappaaz Inc. and Makanojiya reflects efforts by the Antitrust Division to keep pace with technological developments while policing conspiratorial activity in both the online and brick-and-mortar arenas.
  • Meanwhile, its decision to file charges against Makanojiya is consistent with a trend of holding individual executives accountable for their role in corporate criminal activity.
  • Retailers should take note that the Division’s enforcement efforts are not limited to concentrated markets for commodities or essential services; sellers of low-value, readily abundant consumer goods can find themselves under the Division’s scrutiny as well.



Bag Fee Case Highlights Antitrust Risk Of Public Statements

For publicly traded companies, earnings calls are routine business events, as are press releases, speeches, investor conferences and trade association meetings. However, in the world of antitrust law, words uttered in these situations can provide fodder for plaintiffs to claim that instead of providing information for investors and the public, the communication’s purpose was to invite competitors to unlawfully collude. In the past several years, allegations that competitors used public statements to carry out a price-fixing agreement have been a common thread in antitrust class actions and multidistrict litigations.

Recently, a federal district court granted summary judgment in an antitrust case based on earnings calls in the airline industry. While the defendants ultimately prevailed, the case stands as a reminder to publicly traded companies to be mindful of antitrust considerations in earnings calls and other public communications.

Read the full article.

Originally published in Law360.com, April 11, 2017.




THE LATEST: Employee “No-Poaching” Agreements Remain in the Antitrust Crosshairs

There have been a series of investigations, class action suits and high value settlements involving agreements not to solicit employees. In addition, the Department of Justice (DOJ) Antitrust Division made a splash a few months ago when it announced that it would criminally investigate and prosecute employers that engage in certain “naked” no-poach or wage-fixing agreements.

WHAT HAPPENED:
  • Employees filed a civil class action against the Carl’s Jr. hamburger chain because of a no-hire provision in its franchisee agreements.
  • The plaintiffs allege that Carl Karcher Enterprises (CKE), the franchisor, includes the no-hire provisions in its standard agreement to prevent its restaurants from hiring each other’s shift leaders. According to the complaint, the clause appears in the same part of the agreement that also prevents franchisees from competing for each other’s customers.
WHAT THIS MEANS:
  • The plaintiffs’ bar continues to view employee no-hire/non-solicitation agreements as a profitable area to bring class actions.
  • The DOJ’s policy guidance states that only “naked” agreements among employers will justify criminal enforcement. This means agreements that are not ancillary to some other joint competitive activity. Here, the restraint is arguably ancillary to operating a franchise chain.
  • Plaintiffs’ success likely will hinge on whether they can show that the agreement between the franchisor and its franchisees is really among separate entities rather than a single economic unit under the Copperweld
  • The Franchisor’s business justifications also are likely to be important as this litigation progresses.
  • Companies need to be sensitive to employment restrictions involving other employees such as non-solicitation or no-hire agreements.



UK Competition Regulator Issues Guidance on How Businesses Can Comply With Competition Laws

by Andrea L. Hamilton and David Henry

The UK Office of Fair Trading (OFT) has issued an overview of competition law and steps that companies can take to comply with competition law.  This advice was issued in response to the results of a survey carried out on behalf of the OFT, in which a sizable minority of the 2,000 businesses questioned claimed that they have not taken action to ensure compliance with competition law.  The OFT’s advice includes a four-step plan to achieving competition law compliance, and is accompanied by a short film depicting a dawn raid.

Highlights of the OFT’s written advice include the following:

  • Members of the Board and senior management should take responsibility for ensuring that firms do not operate anti-competitive practices
  • Managers should monitor work processes, including how employees interact with competitors, if they have access to rivals’ price or business plans, and whether the company has agreements with competitors that could allow unlawful practices to develop
  • Managers should also introduce new policies, ways of working and training to reduce the chance of unlawful anti-competitive activity occurring
  • Businesses should review their processes for identifying and counteracting anti-competitive risks.

This guidance underscores the importance that companies operating in Europe establish effective competition compliance programmes. 

The OFT’s "Quick Guide to Competition Law Compliance" is available here.




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