On Monday, September 11, Tri-Union Seafoods LLC, the US subsidiary of Thai Union Group, announced it blew the whistle on competitors in the US Department of Justice’s (DOJ) investigation of the packaged seafood industry. The “Chicken of the Sea” canned tuna manufacturer also said it received conditional leniency from DOJ in exchange for its cooperation.

WHAT HAPPENED:

  • In 2015, DOJ began investigating the packaged seafood industry for anticompetitive conduct, including price fixing. DOJ’s investigation followed a failed merger between Thai Union and Bumble Bee Foods LLC.
  • In June 2017, a former StarKist Co. sales executive pleaded guilty to price fixing.
  • Private plaintiffs filed class action complaints in October 2016 alleging antitrust violations in the packaged seafood industry. The private plaintiffs represent grocery retailers who sold packaged tuna to US consumers.

WHAT THIS MEANS:

  • Despite the significant costs of participating in DOJ’s Corporate Leniency Program, leniency recipients continue to receive significant value for their cooperation. Conditional leniency recipients like Tri-Union and their employees will not face criminal fines, jail time or prosecution.
  • Full cooperation with DOJ’s program will place heavy demands on leniency applicants, including gathering and translating foreign documents, bringing foreign witnesses to the United States for interviews and testimony, and providing several attorney proffers.
  • It is critical to have a robust compliance program in place to detect any potential or actual violations of antitrust law. Such a program will allow a company to investigate any potential misconduct and, if necessary, report it to DOJ. Time is of the essence when seeking leniency with DOJ’s Corporate Leniency Program.
  • Companies contemplating acquisitions should consider whether any problematic antitrust conduct could arise during the merger review and result in a subsequent criminal investigation.

Businesses and individuals in Texas, Florida, the Southeast, Puerto Rico and the Virgin Islands are preparing for a massive recovery and reconstruction effort in the wake of Hurricanes Harvey and Irma. The Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have issued antitrust guidance that reiterates key principles of permissible and impermissible competitor collaboration and provides useful examples related to disaster recovery. Continue Reading Joint FTC / DOJ Guidance: Hurricanes Harvey and Irma

The US Department of Justice (DOJ) Antitrust Division’s criminal case against an heir location service provider collapsed when the US District Court for the District of Utah ruled that the government’s Sherman Act § 1 case was barred by the statute of limitations. The court held that the alleged conspiracy ceased when the alleged conspirators terminated their market division guidelines, and that continued receipt of proceeds tied to the alleged conspiracy did not extend the limitations period. The court further rejected DOJ’s argument that the case should be subject to the per se standard, instead finding the alleged anti-competitive agreement amongst competitors to be unique and subject to the rule of reason.

This ruling opens a crack in the line of Sherman Act per se cases, creating an opportunity for defendants to argue for rule of reason treatment where there are novel factual issues.

Continue Reading

On August 31, 2017, the Attorney General of Washington filed a complaint in the United States District Court for the Western District of Washington alleging that two transactions harmed competition for healthcare on the Kitsap Peninsula.

WHAT HAPPENED:

  • In July 2016, CHI Franciscan Health System (Franciscan) acquired WestSound Orthopedics (WestSound), a physician practice of seven orthopedists based in Silverdale, Washington.
  • In September 2016, Franciscan entered into a set of agreements which allowed The Doctors Clinic (TDC), a 54 physician multispecialty practice also based in Silverdale, to use Franciscan’s reimbursement rates with payors in exchange for certain ancillary services.
  • While the publicly stated rationale for the transactions included “enhanced patient access and efficiency,” the Attorney General’s complaint alleged that the “true motivation” for the deals was to “charge higher rates for physician services, and to collectively gain negotiating clout over healthcare payers by removing head-to-head competition.”
  • The complaint also alleges that the TDC agreements would enable Franciscan to effectively shut down TDC’s facilities providing ancillary surgical, imaging, and laboratory services, and shift these outpatient procedures to Franciscan’s nearby inpatient hospital, where it could charge higher, hospital-based rates for the same services.

WHAT THIS MEANS:

  • Even without involvement from the Federal Trade Commission (FTC), state attorneys general can and do independently challenge transactions they consider anticompetitive and continue to be aggressive in pursuing enforcement actions where health systems either acquire physician practices or use other agreements to charge higher rates for physician and ancillary services
  • Health systems should consider that even unreportable transactions may trigger a challenge from either the FTC or state attorneys general to unwind them and, if a transaction has been consummated, any profits resulting from an unlawful transaction may be subject to disgorgement.
  • Since internal emails and documents discussing a transaction, even one that does not meet the Hart-Scott-Rodino Act’s reporting threshold, may eventually surface in an antitrust investigation, this illustrates how “bad documents” can undermine obtaining clearance for a transaction.

On 7 September 2017, the European Court of Justice issued a decision (Decision) on the interpretation of the European Union Merger Regulation (EUMR). The Decision clarifies the conditions under which the EUMR applies to the setting-up of joint venture companies.

WHAT HAPPENED:

  • 3(4) of the EUMR stipulates that the “creation” of joint ventures requires a notification only if the joint venture “performs the functions of an autonomous economic entity” (Full-Function JV).
  • Companies with management dedicated to its day-to-day operations, as well as access to sufficient resources including staff, finance and assets usually qualify as Full-Function JV. If the joint venture has only one specific function for the parent companies (e.g. supplying input products or services), and has no or only very limited own resources, it is unlikely to be considered a Full-Function JV.
  • There has been considerable uncertainty whether Art. 3(4) EUMR applies only to the creation of a new company (greenfield operation), or whether it also applies if joint control is acquired over an existing company.
  • The European Commission significantly contributed to this uncertainty by repeatedly taking inconsistent and contradictory positions. In a fairly unusually move, the ECJ’s Advocate General chastised the European Commission, calling it “extremely regrettable” that the European Commission did notcommit to a clear and uniform approach and then apply it consistently”.
  • The ECJ’s Decision comes at the request of an Austrian court. The Austrian court had to decide whether the acquisition of joint control over a small asphalt plant–which does not qualify as Full-Function JV–requires notification and clearance under the EUMR by the European Commission.
  • The ECJ has now held that the change of sole control to joint control only requires a notification under the EUMR if the newly created joint venture qualifies as a Full-Function JV.

WHAT THIS MEANS:

  • The Decision brings much-awaited clarity to a key issue of European Union merger control.
  • If two or more companies create a joint venture company, it will be subject to the EUMR only if it qualifies as s Full-Function JV. This applies both to greenfield operations, where a new company is created, and the change from sole to joint control over an existing company. Whether a notification to the European Commission is actually required, will depend on whether the jurisdictional turnover thresholds under the EUMR are met.
  • The creation of joint ventures which do not qualify as Full-Function JV does not require notification to and clearance by the European Commission. However, these joint ventures may still be subject to merger control in one or several EU Member States.
  • The European Commission required and accepted in the past the notification of transactions which involved the creation of joint ventures not qualifying as Full-Function JV. Following today’s decision by the ECJ, it appears that the European Commission did not have jurisdiction. An interesting question to be explored in the coming weeks and months is therefore whether the Decision somehow affects the legality of these transactions.

On August 14, 2017, we reported on an online retailer’s guilty plea for conspiring to fix the prices of “customized promotional products” such as silicone wristbands and lanyards, and the ongoing US Department of Justice (DOJ) investigation into the online promotional products industry. On August 22, 2017, DOJ announced two more guilty pleas in the investigation, announcing that e-commerce company Custom Wristbands Inc. and its owner and CEO Christopher Angeles had pled guilty to violating the Sherman Act, 15 USC § 1.

WHAT HAPPENED:

  • According to an Information filed in the US District Court for the Southern District of Texas by DOJ and the US Attorney’s Office for the Southern District of Texas, Defendant Angeles and his co-conspirators engaged in a conspiracy from at least as early as June 2014 through at least June 2016 to “suppress and eliminate competition by fixing and maintaining prices of customized promotional products, including wristbands, sold in the United States and elsewhere.”
  • DOJ alleges that Defendants and co-conspirators attended meetings and communicated via text and online messaging platforms regarding pricing for the online sale of customized promotional products.
  • Defendant Custom Wristbands Inc. (d/b/a Kulayful Silicone Bracelets, Kulayful.com, Speedywristbands.com, Promotionalbands.com, Wristbandcreations.com, and 1inchbracelets.com) has agreed to pay a criminal fine in the amount of $409,342. Defendant Angeles faces up to 10 years in prison and up to a $1 million fine.
  • DOJ has announced that both defendants have agreed to cooperate with the Antitrust Division’s ongoing investigation.

WHAT THIS MEANS:

  • The DOJ Antitrust Division continues to investigate the “online promotional products industry” and we anticipate that additional defendants will be charged over the course of the investigation. 
  • DOJ continues to hold individual executives accountable in price fixing cases, even where their corporations plead guilty and agree to cooperate with ongoing investigations.

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.