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Heard at the 2023 Spring Meeting: Part 1

by , , , , , , , and | Apr 3, 2023 | , , , ,

The American Bar Association’s Antitrust Law Section recently held its annual Spring Meeting in Washington, DC, featuring updates from federal, state, and international antitrust enforcers and in-depth commentary on leading antitrust issues facing the business community today. This post recaps key takeaways from the first portion of the Spring Meeting.

CIVIL ENFORCEMENT AND MERGER REVIEW: US DEPARTMENT OF JUSTICE (DOJ) PRIORITIES

  • Aggressive Enforcement by Any Other Name: DOJ Antitrust Division Deputy Assistant Attorney General Hetal Doshi characterized DOJ’s enforcement posture as “not aggressive enforcement, just enforcement,” but nevertheless opined that the Department’s past practice of erring on the side of under-enforcement has “ill-served” the public.
  • Whole-of-Government Means Whole-of-Government: The Division’s Deputy Assistant Attorneys General Maggie Goodlander and Michael Kades highlighted that various federal statutes other than the antitrust laws confer the power to act to preserve competition. They emphasized DOJ’s intent to pursue sweeping enforcement priorities to execute President Biden’s recent executive order calling for a whole-of-government approach to protecting competition, including by working in conjunction with other federal agencies like the Departments of Defense, Transportation, and Agriculture.
  • Enforcement Priorities Include Technical Violations of HSR Act, Spoliation, Gun-Jumping: Deputy Assistant Attorney General Goodlander emphasized DOJ’s intent to pursue vigorously violations of the HSR Act, including failures to make required premerger notification filings, failures to provide all Item 4 documents, and “gun-jumping” caused by concerted action prior to the satisfaction of the HSR Act’s waiting period. Goodlander also commented on DOJ’s intent to scrutinize merging parties’ conduct during the due diligence phase to investigate whether parties are using due diligence to conceal and accomplish anticompetitive conduct. Other DOJ officials further emphasized that DOJ and the Federal Trade Commission (FTC) are working to ensure that the agencies’ investigations are not harmed by the use of third-party ephemeral communication platforms and to penalize spoliation of evidence contained in such messaging applications.
  • Hostility Toward Freely Granted Divestitures in Merger Investigations: Deputy Assistant Attorneys General Doshi and Andrew Forman conveyed the high bar merging parties face when they offer structural or behavioral remedies, including divestitures, to resolve or head off a DOJ challenge to a merger or acquisition. Doshi and Forman pointed to instances where divestitures and/or carveouts offered in merger transactions have failed and “the American people bear the risk” of anticompetitive harms and asserted that “the idea that a divestiture can cure the feared antitrust issues can’t rest on our hopes of what might happen in the future after the deal and divestiture closes.”
  • Consent Decrees Face Much Stricter Scrutiny: Deputy Assistant Attorneys General Forman, Goodlander, and Kades emphasized the “exacting standard” that must be applied when DOJ is considering entering into a consent decree to resolve a merger challenge. According to the Department officials, the antitrust laws prohibit mergers that may substantially lessen competition, which means that for a consent decree to resolve antitrust concerns, it must eliminate the possibility that a merger could cause harm—an “extremely high bar.”
  • Updated Merger Guidelines to Focus on Relevant [...]

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THE LATEST: California Jury Rejects Robinson-Patman Act Claim Against 5-hour Energy Maker

by , and | Oct 28, 2019 |

Family-owned wholesalers brought a Robinson-Patman claim against the maker of 5-hour Energy alleging discounts given to Costco amounted to illegal price discrimination. A jury in California rejected the claim after a fact-intensive analysis of competition and potential antitrust injury.

WHAT HAPPENED:

  • After seven hours of deliberations, a California jury decided that Living Essentials LLC, the maker of 5-hour Energy, did not engage in illegal price discrimination under the Robinson-Patman Act. U.S. Wholesale Outlet & Distribution, Inc. v. Innovation Ventures, LLC et al., No. 2:18-cv-01077 (C.D.Ca. Oct. 21, 2019).
  • Plaintiff wholesalers argued that the rebates and discounts Living Essentials offered to Costco on the list price for 5-hour Energy amounted to price discrimination.
    • The family-owned wholesalers have endured a steady decline since 2012 in their sales of 5-hour Energy, a decline they claimed accounted for hundreds of thousands of dollars in lost sales for a product with annual retail sales of more than $1 billion.
    • They attribute this decline to unfair price discrimination that provided a competitive advantage to Costco, allowing the membership-only warehouse club to offer the product for less than its competitors. According to plaintiffs, Costco received as much as a 26-cent discount on each 5-hour Energy bottle compared to the wholesalers. The 26-cent discount resulted from a combination of spoilage allowances, early payment discounts and indirect advertisement discounts (including promotion in Costco mailers and at fences and endcaps). The wholesalers alleged this unfair price discrimination created a reasonable possibility of harm to competition.
  • Living Essentials countered that the wholesale distributors are not competitors with Costco and that there was no competitive injury.
    • Living Essentials argued the plaintiff wholesalers did not provide the economic analysis necessary to show actual competition between Costco and the wholesalers, despite having access to the kind of data necessary for such an analysis. Instead, the wholesalers relied on hearsay testimony from customers claiming they purchased 5-hour Energy from both the wholesalers and Costco.
    • Living Essentials pointed to the different products and services available from Costco compared to the wholesalers and argued that it did not view Costco as a vehicle for getting its product into convenience stores—a particularly important method of distribution. Living Essentials offered discounts to wholesalers who purchased 5-hour Energy displays and racks to encourage those wholesalers to resell these products to convenience store customers who would place the displays and racks on their counters. Living Essentials never sold these displays and racks to Costco.
    • Any loss of customers for 5-hour Energy, defendants argued, could be due to store cleanliness, professionalism, free shipping, rewards programs or a number of other reasons beyond the discounts and rebates Living Essentials offered to Costco.
    • Without proof of diverted customers, there was no way to know whether customers lost by these wholesalers went to Costco rather than other competitors in the area, such as Sam’s Club, McLane, or other wholesalers.
  • The jury sided with Living Essentials and found that it had not engaged in illegal price discrimination.

WHAT [...]

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Local Wholesaler-Retailer Dispute Has Federal Implications

by | Oct 16, 2014 | , ,

On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.

In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand.  Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.

The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell.  Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information.  Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores.  According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”

After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products.  This temporary resolution, however, failed when Major Mart did not reallocate its shelf space.  In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors.  Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college.  Eventually, Major Mart sued.

Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act.  In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.

Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to [...]

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District Court Pares Down Price Discrimination Suit Against Chrysler

by | Jul 18, 2014 | ,

On July 11, 2014, the Northern District of California dismissed one of two federal antitrust claims brought against Chrysler Group LLC under the Robinson-Patman Act, 15 U.S. C. § 13, as well as several state statutory and common law claims.  Matthew Enterprise, Inc. v. Chrysler Group LLC, No. 13-cv-04236-BLF (N.D. Cal. July 11, 2014).  The plaintiff, a franchise car dealer and direct customer of the defendant, alleged that Chrysler committed anticompetitive price discrimination by offering volume discounts to new dealers on more favorable terms than those offered to established dealers like the plaintiff and by selectively offering the plaintiff’s competitors disguised price discounts in the form of below-market rent.  The court allowed the former claim to go forward but dismissed the latter for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

The court began by recounting the purposes behind the Robinson-Patman Act, as described by the Supreme Court in FTC v. Sun Oil Co., 371 U.S. 505, 520 (1963): “to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers . . . and to ensure that businessmen at the same functional level . . . start out on equal competitive footing so far as price is concerned.”  Matthew Enterprise, slip op. at 6 (internal quotation marks omitted).  It explained that in order to state a “secondary-line case” involving competition among customers of a common seller, a plaintiff must plead facts showing that “(1) the relevant sales were made in interstate commerce; (2) the products were of like grade and quality; (3) the seller discriminated in price between the Plaintiff and another purchaser of the same products; and (4) that the effect of that price discrimination was to injure, destroy, or prevent competition to the advantage of a favored purchaser.”  Id., slip op. at 7.

The plaintiff in Matthew Enterprise alleged that Chrysler offered volume discounts to established car dealers based on a formula that took into account the dealer’s prior year sales.  Because new dealers, by definition, did not have prior  year sales, Chrysler used different criteria to determine the volume at which new dealers would receive a discount, which the plaintiff alleged was substantially lower than the volume the plaintiff needed to sell in order to qualify for the discount.  For example, the plaintiff alleged that “this inequality of treatment led to [one new competitor] receiving vehicle subsidies during July 2012, despite selling only sixty vehicles, while Plaintiff failed to receive incentives, despite selling 130 vehicles.”  Id., slip op. at 8.  These allegations, taken as true for purposes of the motion to dismiss, allowed the court ultimately to conclude “that Chrysler ha[d] set up its newly opened dealers as a class of ‘favored purchasers’” in violation of the Robinson-Patman Act.  Id., slip op. at 9.

Regarding the second price discrimination claim, the court noted that it was not aware of any Ninth Circuit case law holding that the Robinson-Patman Act applies to real [...]

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Antitrust and Healthcare: A Comprehensive Guide

by | Jul 9, 2013 | , ,

McDermott Will & Emery is pleased to announce the publication of Antitrust and Healthcare: A Comprehensive Guide, First Edition. This new publication, produced by American Health Lawyers Association provides invaluable “practice pointers” to help healthcare industry participants, and their counsel, minimize antitrust risk and more successfully plan and execute business and litigation strategies.   McDermott partner, David Marx, Jr., co-authored this first edition with Christine L. White and Saralisa C. Brau of the Federal Trade Commission. The authors draw on their significant government enforcement and private-sector counseling and litigation experience to explain the application of antitrust principles to the different segments of the healthcare industry and the specific issues they confront.  Health care lawyers and antitrust practitioners will find this new guide a complete resource for representing all types of organizations including healthcare providers; commercial insurance companies and managed care organizations; for-profit, not-for-profit, and government-owned or controlled concerns; self-insured employers; and professional partnerships.   Sections covered include:
  • Antitrust Overview
  • Mergers, Acquisitions, and Issues of Legality
  • Premerger Notification and Transaction Planning
  • Joint Ventures
  • Provider Networks and Managed Care Contracting
  • Trade Associations and Group Purchasing Organizations
  • Medical Staff Privileges, Exclusive Physician Contracts, and Peer Review
  • Monopolization
  • The Robinson-Patman Act
  •  Exemptions and Immunities
The full table of contents can be viewed here.   To purchase the book, click here. 


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6th Circuit Limits Applicability of the Filed-Rate Doctrine and Holds that Electricity is a “Commodity” under Robinson-Patman

by | Jun 18, 2012 |

by Nick Grimmer, Gregory E. Heltzer and Shauna A. Barnes

On June 6, 2012, in Williams v. Duke Energy Int’l, Inc., the U.S. Court of Appeals for the 6th Circuit reversed a dismissal of Robinson-Patman Act (price discrimination) claims, amongst others.  In the district court, a class of electricity purchaser plaintiffs alleged that defendant electricity providers gave an unfair competitive advantage to several of the defendants’ largest customers by paying them undisclosed rebates in side agreements, such that the favored customers paid effective rates below those approved by the governing agency, while the plaintiffs still had to pay higher agency-approved rates.  The plaintiffs alleged that while the favored customers initially objected to the defendants’ proposed rate plan, they withdrew their objections in exchange for the undisclosed rebates.  The district court dismissed the plaintiffs’ claims under the filed-rate doctrine, which bars challenges to the reasonableness of a “filed rate” (i.e., a rate approved by the governing regulatory agency).

The 6th Circuit reversed, holding that while the “filed-rate doctrine bars challenges to the reasonableness of a filed-rate,” the plaintiffs were not challenging the filed (i.e., approved) rate.  Instead, the court explained that the plaintiffs challenged “the lawfulness and purpose of payments made . . .  pursuant to various side agreements” that were “made outside of the [approved] rate scheme” – that is, these side agreements “were not filed with any agency, including the [governing agency].”  The court held that the plaintiffs properly stated a cause of action by alleging that via rebate payments, the defendants charged certain favored customers less than the actual filed rate, thereby harming the plaintiffs by giving the favored customers an unfair competitive advantage.

The extent to which other circuits will follow Williams is not clear, particularly if award of damages would have the effect of altering the filed rate (a point argued by the Williams defendants, but unaddressed by the 6th Circuit).  In the 8th Circuit (FirstCom, Inc. v. Qwest Corp.), for instance, “to the extent [a plaintiff] seeks recovery for a price discount it was allegedly entitled to, its claims are barred by the filed rate doctrine.”  And in the 11th Circuit (Hill v. BellSouth Telecomms., Inc.), the filed-rate doctrine bars claims where “an award of damages to the customer-plaintiff would, effectively, change the rate paid by the customer to one below the filed rate paid by other customers.”  However, these cases (and similar cases, for instance, the 2nd Circuitin Marcus v. AT & T Corp.) did not involve allegations that side deals caused the effective rates to vary from the filed rates.

Another noteworthy holding of Williams is that electricity is a commodity for purposes of the Robinson-Patman Act – a statute that makes it unlawful to price discriminate between purchasers of commodities of like grade and quality.”  This holding is in conflict with district courts in other circuits (Delaware, for instance, in City of Newark v. Delmarva Power & Light Co.) holding that under the Robinson-Patman Act, electricity is not a commodity.  The [...]

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