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.

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

According to Advocate General Nils Wahl’s opinion, delivered on July 26, in the Court of Justice of the European Union’s (CJEU) case Coty Germany GmbH v Parfümerie Akzente GmbH (case C-230/16), suppliers of luxury goods may prohibit their authorized retailers from selling their goods via third-party internet platforms. Such bans do not necessarily infringe Article 101(1) of the Treaty of Functioning of the European Union (TFEU) (which prohibits anticompetitive agreements).

Background of the Case

On July 16, 2016, the Higher Regional Court of Frankfurt lodged a request for a preliminary ruling with the CJEU asking whether selective distribution systems that serve to ensure a “luxury image” for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU and, whether bans on sales via third-party internet platforms constitute a restriction “by object” and should be viewed as “hardcore restrictions” under the Commission’s Vertical Agreements Block Exemption Regulation (VBER).

The initial dispute arose when Coty, a supplier of luxury cosmetics in Germany, brought an action against one of its authorized retailers, Parfümerie Akzente, for having infringed a provision in Coty’s selective distribution agreement that prohibited the retailers from distributing the luxury products via third-party platforms, such as Amazon, in order to preserve the brand image. The agreement provided that the authorized retailers could only sell the products online through an “electronic store window,” provided that the luxury character of the products was preserved. Continue Reading Advocate General Wahl Delivers Opinion on Legality of Bans on Online Sales via Third-Party Platforms in Selective Distribution Systems

District Judge Walter H. Rice of the Southern District of Ohio granted three pretrial motions brought by the Defendants on the eve of trial in The Medical Center at Elizabeth Place, LLC v. Premier Health Partners, et al., Case No. 3:12-cv-26, 2017 WL 3433131 (S.D. Ohio Aug. 9, 2017), and denied as moot eleven remaining pretrial motions. Judge Rice dismissed the entire case with prejudice because he ruled the contracts that Plaintiff, a competitor hospital, challenged should be analyzed under the rule of reason, but Plaintiff had failed to plead a rule of reason case. Plaintiff’s decision not to do so doomed the case to failure.

WHAT HAPPENED:

  • Judge Rice’s key decision related to the Defendants’ pretrial challenge of District Judge Black’s (who was previously assigned to the case) order holding that the per se rule applied.
  • The Defendants include four hospital systems in the Dayton, Ohio area that formed the Premier joint venture. The hospitals “are owned, controlled and operated independently” but “their income streams are consolidated, and Premier manages many of their business functions, including the negotiation of each hospital’s managed care contracts with insurers.” 2017 WL 3433131, at *13.
  • The Plaintiff challenged two types of agreements Premier negotiated on behalf of the hospitals: (1) agreements with insurance companies (payers) that included a “rate-for-volume clause”—that is, a provision wherein payers agreed to give Premier the option to terminate or renegotiate rates should the payers add other hospitals to their network; and (2) non-compete agreements with physicians in which physicians agreed to refer patients internally.

Continue Reading THE LATEST: Rate-for-Volume Payer Contract Provision Should Be Analyzed under Rule of Reason

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.

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

Read the full report here.

On July 24, 2017, the US Court of Appeals for the Ninth Circuit affirmed the dismissal of an antitrust counterclaim brought by ICTSI Oregon, Inc. (ICTSI), the operator of a marine shipping facility, against the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). ILWU is a labor union that represents many ICTSI employees, including longshoremen and mechanics. PMA is a multi-employer collective bargaining association covering the West Coast of the United States, which represents employers, including ICTSI, in negotiations with labor unions.

The opinion elucidates the current law surrounding the scope of Noerr-Pennington immunity and the implied labor exemption to antitrust liability.

WHAT HAPPENED

  • ICTSI’s antitrust counterclaim arose out of a labor dispute concerning ILWU’s collective bargaining agreement (CBA) with PMA, which required that all “reefer work” (i.e., plugging, unplugging and monitoring refrigerated shipping containers) performed by PMA members must be assigned to ILWU workers. When ICTSI instead assigned its reefer work to a rival union, the collective bargaining agreement administrator, the Joint Coast Labor Relations Committee, notified ICTSI that it was in violation of the CBA and faced monetary fines and expulsion from the collective bargaining association.
  • ICTSI initiated a proceeding before the National Labor Relations Board (NLRB) to resolve the dispute. The NLRB ruled that the rival union workers were entitled to the reefer work. While the NLRB proceedings were pending, ILWU and PMA filed suits in the US District Court for the District of Oregon seeking an injunction ordering ICTSI to comply with the Joint Committee decision and assign the work to ILWU.

Continue Reading THE LATEST: Ninth Circuit Affirms Dismissal of Antitrust Counterclaim against Labor Union Clarifying Scope of Noerr-Pennington Doctrine and the Implied Labor Exemption

On July 19, 2017, the Second Circuit vacated the convictions and dismissed the indictments of two individuals accused of playing a role in the manipulation of the London Interbank Offered Rate (LIBOR). United States v. Allen, No. 16-898-cr, Slip Op. at 3 (2d Cir. July 19, 2017). The ruling was based on the Fifth Amendment to the US Constitution, which provides that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself.” US Const. amend. V. The Second Circuit’s decision clarifies that this protection against self-incrimination is an “absolute” “trial right” that applies to all criminal defendants in US courts (including non-citizens) and to all compelled testimony (including testimony given during a foreign government’s investigation). United States v. Allen, No. 16-898-cr, Slip Op. at 55. The court’s clarification of the Fifth Amendment’s scope has important implications for US antitrust enforcers prosecuting international cartels and for individuals ensnared in cross-border criminal investigations alike.

Continue Reading Second Circuit Clarifies Fifth Amendment Law, with Implications for US Prosecution of International Cartels

On June 21, 2017, US District Judge Sue L. Robinson blocked EnergySolutions, Inc.’s proposed acquisition of Waste Control Specialists LLC (WCS), applying a strict standard for the “failing firm” defense to a merger challenge. The parties compete in the disposal of low level radioactive waste (LLRW). WCS had argued that it would be forced to exit the market due to heavy operating losses if the transaction were not approved. Judge Robinson’s recently released opinion provides insights into how aggressively a putative failing firm must shop its assets to third parties before it can qualify for the failing firm defense to an otherwise anticompetitive merger.

WHAT HAPPENED:

  • The US Department of Justice (DOJ) filed suit in November 2016 to enjoin the proposed acquisition of WCS by EnergySolutions, arguing that the merger would lead to a substantial lessening of competition in the LLRW disposal industry. DOJ alleged that EnergySolutions and WCS are the only significant competitors in this industry for the relevant geographic market.
  • The court found that the government easily established a prima facie case of anticompetitive effects by demonstrating that the proposed acquisition would create a firm controlling an exceedingly high percentage of the relevant market and result in a significant increase in market concentration. Judge Robinson identified two product markets: the disposal of higher-activity LLRW, and the disposal of lower-activity LLRW. In both markets she found that the relevant measures of concentration “blow past the presumptive barriers” for harm to competition, especially in regards to higher-activity LLRW where the transaction would result in a “merger to monopoly.” 
  • The defendants’ main defense to rebut the government’s prima facie case was that WCS was a “failing firm.” The failing-firm doctrine considers the possible harm to competition resulting from an acquisition preferable to the negative impact on competition, loss to stockholders, and negative effect on local communities that results when a company goes out of business. Judge Robinson’s opinion explains that in order to assert a valid failing firm defense, the defendants must show that WCS faces the “grave possibility of business failure” and that there was no “other prospective purchaser.” 
  • Judge Robinson avoided deciding the more difficult question concerning whether WCS indeed faced imminent business failure, finding instead that the defendants failed to demonstrate that EnergySolutions was the only available purchaser. According to Judge Robinson, WCS’s parent company failed to make the necessary “good faith efforts to elicit reasonable alternative offers” that would have lesser negative effects on competition. 
  • The opinion highlights the fact that once it was clear that the parent company was serious about selling all of WCS, the parent company had already agreed to several deal protection devices, such as a 30-day exclusivity period with EnergySolutions, and a “no-talk” provision in the merger agreement. WCS and its parent company thus did not respond to other companies that reached out to express interest in acquiring WCS after the transaction with EnergySolutions was announced.

WHAT THIS MEANS:

  • Judge Robinson’s application of the failing-firm doctrine is consistent with the approach taken in the joint Federal Trade Commission (FTC)/DOJ Horizontal Merger Guidelines, which require the failing firm to demonstrate that “it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger.” 
  • The opinion is also consistent with a March 2015 article, published by the FTC and discussed here, that addressed the agency’s application of the failing firm doctrine to the health care context. In the article, the FTC explained that the mere fact that the acquired firm may be clearly failing does not quell the FTC’s concerns. Rather, the agency will seek information from the failing firm regarding its search for alternative offers, and reach out to other prospective purchasers to see if they were contacted and whether they have interest in acquiring the failing firm.
  • As Judge Robinson’s opinion demonstrates, in the rare case where merging parties believe that the “failing-firm” defense may be available to rebut a presumption of anticompetitive effects, the owners of the failing company should make serious, good faith efforts to seek out alternative offers that pose less danger to competition than a proposed merger. Further, owners of the failing company should not agree to any deal protection devices or exclusivity periods with the acquiring firm. The failing company should be aware that in soliciting reasonable alternative offers, the 2010 Horizontal Merger Guidelines consider any offer to purchase the assets of the failing firm for a price above the liquidation value to be a reasonable alternative offer.

Noah Feldman-Greene, McDermott summer associate, also contributed to this Antitrust Alert post.

On 12 July 2017, the German Federal Cartel Office (FCO) published a guidance paper (Guidance Paper) on the prohibition of resale price maintenance (RPM). The Guidance Paper has a particular focus on the food retail sector. At the same time, it offers good insights into the FCO’s current overall thinking on RPM. The FCO reiterates that companies engaging in RPM may be subject to severe fines. In addition, it is evident from the Guidance Paper that the FCO has a very broad understanding as to what may be considered as RPM.

WHAT HAPPENED:

  • RPM describes a situation where a supplier and a retailer agree that the retailer will not resell the supplier’s products below a certain (minimum) price.
  • While RPM falls under the rule of reason under US Federal antitrust law, it is considered as a hardcore antitrust restriction in most European jurisdictions, as well as under some US State antitrust laws (cf. Maryland’s Attorney General’ recent challenge of RPM).
  • The FCO is arguably the most active antitrust authority in terms of RPM. In recent years, it imposed fines for alleged RPM in a number of proceedings across various industries, including cosmetics, furniture, mattresses, tools and toys. In December 2016, the FCO imposed fines totaling € 260.5 million on 27 food retailers and food manufacturers.
  • A number of authorities provided in the past guidance on RPM. For example, the European Commission addresses RPM in its Guidelines on Vertical Restraints, and in the United Kingdom, the CMA published in June 2017 a one-pager on RPM. The FCO’s Guidance Paper now offers very comprehensive and specific guidance on RPM, in particular, but not exclusively, with respect to the retail sector.

Continue Reading THE LATEST: German Antitrust Authority Issues Guidelines on Resale Price Maintenance

With its latest lawsuit to block an acquisition of physicians, the Federal Trade Commission (FTC) confirmed last week that monitoring physician consolidation is a priority. The FTC and North Dakota Attorney General sued to block the proposed acquisition by a health system (Sanford Health) of Mid-Dakota Clinic (MDC), which both serve the areas of Bismarck and Mandan, North Dakota. The deal would allegedly create very high market shares in several physician service markets.

WHAT HAPPENED

  • Sanford Health is a vertically integrated health system, which operates a general acute care hospital in Bismarck and clinics providing primary care and specialty services. Sanford employs approximately 160 physicians who work in Bismarck or Mandan. MDC is a multispecialty medical practice employing 61 physicians who provide services in Bismarck.
  • Concurrent with its sealed federal complaint to preliminarily enjoin the deal, the FTC filed an administrative complaint that alleges that the transaction would create anticompetitive effects in four physician service markets: adult primary care services, pediatric services, Obstetrics and Gynecology (OB/GYN) services, and general surgery services. Sanford and MDC are the area’s two largest providers of each of those services; in general surgery, they are the only providers.
  • The complaint contends that the relevant geographic market is no larger than the four-county Bismarck, ND Metropolitan Statistical Area. The FTC alleges that this area encompasses the locations where, to be marketable to employers, commercial health plan networks must include physicians.
  • The complaint alleges that Sanford and MDC are each other’s closest competitors and that the combination would result in post-transaction market shares of 75 percent for adult primary care services, over 80 percent for pediatric services, over 85 percent for OB/GYN services and 100 percent of general surgery services.
  • The FTC rejects as unsubstantiated and not merger specific the parties’ claims that the transaction would yield significant cost savings and quality improvements. In any event, the FTC alleges that the claimed efficiencies do not outweigh the transaction’s likely competitive harm.

Continue Reading THE LATEST: Federal Trade Commission and State Attorney General Seek to Block a Health System’s Physician Group Acquisition