DOJ Antitrust Division

On January 28, the US Federal Trade Commission (FTC) announced that it had accepted a proposed settlement with office supply distributors Staples and Essendant in connection with Staples’ proposed $482.7 million acquisition of Essendant. The settlement suggests that the FTC is currently more willing than the US Department of Justice (DOJ) to accept conduct remedies to resolve competitive issues raised by vertical mergers.

WHAT HAPPENED:

  • The FTC Commissioners voted 3-2 to accept a proposed settlement establishing a firewall to prevent Staples from receiving competitively sensitive customer information from Essendant.
  • Staples is the largest reseller of office products in the US, and one of only two retail office supply superstores in the US. Essendant is one of only two nationwide office product wholesale distributors. In September 2018, Staples agreed to acquire Essendant.
  • Staples competes with various resellers to sell office supplies to mid-sized companies. Many of those resellers rely on Essendant as their wholesale distributor. In that role, resellers have to provide Essendant with detailed information about their end customers’ identities, purchasing history, product preferences and similar data.
  • The FTC alleged in its complaint that the transaction was likely to harm competition by giving Staples access to the commercially sensitive information (CSI) of Essendant’s resellers and those resellers’ end customers. The FTC contended that access to that information could allow Staples to offer higher prices than it otherwise would when bidding against a reseller for an end customer’s business.
  • To address this competitive concern, the FTC imposed a conduct remedy. Specifically, the FTC required the parties to establish a firewall limiting Staples’ access to the CSI of Essendant’s resellers and the end customers of those resellers.
  • Two FTC Commissioners issued dissenting statements, arguing that the settlement does not fully remedy the transaction’s likely anticompetitive effects. In the dissenters’ view, the evidence suggests that the integrated firm could implement a strategy of raising costs for Staples’ reseller rivals.

WHAT THIS MEANS:

  • The settlement indicates that the FTC remains willing to cure competitive issues raised by vertical mergers with conduct remedies, such as firewalls, instead of imposing a divestiture or seeking to block the deal.
  • Under Makan Delrahim’s leadership, the DOJ’s Antitrust Division has been less receptive of conduct remedies, even in vertical merger cases. Delrahim has stated that conduct remedies are fundamentally regulatory and are inconsistent with the DOJ’s role as a law enforcement agency.
  • The DOJ refused to accept conduct remedies to resolve the competitive issues arising from AT&T’s acquisition of Time Warner. DOJ challenged the transaction in federal court. In June 2018, a DC district court judge ruled against the DOJ, and the case is currently on appeal to the DC Circuit.
  • One of the FTC Commissioners, Rebecca Kelly Slaughter, argued in her dissenting statement that the FTC should be more willing to challenge, and seek to block vertical mergers when it identifies competitive concerns. That position is more aligned with the DOJ’s currently stated policy, but overall the FTC appears more willing to accept conduct remedies than the DOJ.

In testimony before the Senate Subcommittee on Antitrust, Assistant Attorney General Makan Delrahim from the US Department of Justice (DOJ) and Chairman Joseph Simons from the US Federal Trade Commission (FTC) staked out differing interpretations of when antitrust considerations are relevant in standard setting agreements restricted by fair, reasonable and non-discriminatory (FRAND) rates, a rare divergence of opinion between the two antitrust enforcement agencies.

WHAT HAPPENED:

  • Since AAG Delrahim took over as head of the DOJ Antitrust Division in September 2017 he has consistently hinted at a differing interpretation of antitrust law as it relates to standard essential patents and FRAND rates in the context of antitrust. 
  • Standard essential patents (SEPs) are patents that have been incorporated into a standard by a standard setting organization and industry participants to facilitate interchangeability between products. Often, to be included in a standard, patent holders agree to license a patent essential to that standard at a FRAND rate. 
  • With the proliferation of standards, more scrutiny has been devoted to SEPs and FRAND rates, and some companies have brought antitrust suits relating to “patent hold-up” or the refusal to license a patent on FRAND terms (typically seeking higher royalties or fees on patents for widely adopted standards). 
  • In testimony on October 3, 2018, AAG Delrahim indicated his view was that a patent holder’s unilateral decision not to license a patent—even if that patent is part of a standard—is not conduct intended to be reached by the antitrust laws. AAG Delrahim indicated such a dispute would more appropriately be handled by contract law. 
  • This position differs from that of the FTC, where Chairman Simons has indicated that antitrust law can be relevant in patent hold-up cases.
    •  The FTC demonstrated its view in a recent complaint filed against Qualcomm, Inc. The complaint summarizes the patent hold-up concern:

Once a standard incorporating proprietary technology is adopted, the potential exists for opportunistic patent holders to insist on patent licensing terms that capture not just the value of the underlying technology, but also the value of standardization itself. To address this “hold-up” risk, [standard setting organizations] often require patent holders to disclose their patents and commit to license standard-essential patents (“SEPs”) on fair, reasonable, and non-discriminatory (“FRAND”) terms. Absent such requirements, a patent holder might be able to parlay the standardization of its technology into a monopoly in standard-compliant products.

WHAT THIS MEANS:

  • Going forward, US antitrust enforcement with respect to SEP issues may be limited to the FTC. AAG Delrahim’s speeches indicate that it will be the rare case that the Antitrust Division pursues such cases in the future.
  • This divergence between the two US agencies responsible for enforcing antitrust laws will create confusion for SEP holders and their licensees with respect to the risks of US government intervention. Companies dealing with SEPs and FRAND rates will want to be cognizant of which agency is reviewing, as approaches may be different.
  • While there may be divergence in the US government agencies that enforce the US antitrust laws, the Antitrust Division’s new policy has no impact on the body of case law developed by US courts over the years with respect to SEPs and antitrust liability. Private parties seeking to enforce their rights with respect to SEPs and antitrust law in US courts should not be impacted by the Antitrust Division’s change in policy.

A recent settlement shows that the US Federal Trade Commission (FTC) will use its enforcement authority to target employer collusion in the labor market.

WHAT HAPPENED

  • The FTC brought a complaint against a medical staffing agency, Your Therapy Source, LLC, and the owner of a competing staffing agency, Integrity Home Therapy, for allegedly agreeing to reduce the rates they would pay to their staff. Simultaneously, the FTC settled the case with a consent order that forbids the parties from any future attempt to exchange pay information or to agree on the wages to be paid to their staffs.
  • This was the first FTC wage-fixing enforcement action since the FTC and US Department of Justice (DOJ) issued their joint Antitrust Guidance for Human Resource Professionals in October 2016. That guidance stated that naked wage-fixing and no-poach agreements—e.g., agreements separate from or not reasonably necessary to a larger legitimate collaboration between the employers—are per se illegal under the Sherman Act.
  • The respondents in the Your Therapy Source case are staffing agencies that allegedly provided therapists such as physical therapists, speech therapists and occupational therapists to home health agencies on a contract basis. The respondents were responsible for recruiting the therapists and paying them a “pay rate” per visit or per patient.
  • According to the complaint, the alleged unlawful agreement began when one home health agency unilaterally notified Integrity that it was going to reduce the “bill rates” that it paid Integrity for its therapists, thus cutting into Integrity’s profit margins. Integrity’s owner then reached out through one of his therapists to the owner of Your Therapy Source and the two exchanged information about their respective rates paid to therapists. The two firms then reached an agreement via text message to reduce the rates they paid therapists.
  • Once the respondents had reached the agreement to reduce therapists’ pay, Integrity’s owner allegedly reached out via text to four other competing therapy-staffing agencies to solicit their participation in the agreement.
  • The FTC’s complaint alleged that this conduct violated Section 5 of the FTC Act, which prohibits unfair and deceptive acts and practices.

WHAT THIS MEANS

  • Wage-fixing cases have been notable in the health care industry, with prior DOJ enforcement against a hospital buying group and several class actions against health care providers in the 2000s that alleged the fixing of nurses’ pay.
  • Companies should strictly avoid colluding with other firms on wages, salaries, fringe benefits or other remuneration paid to workers. Companies should also exercise extreme caution in information exchanges regarding wages and benefits, which can lead to improper agreements or result in independent antitrust liability if not properly supervised.
  • Firms should be mindful of the DOJ/FTC’s joint guidance on information sharing in the health care industry (see link at p. 50), which also provides a useful template for how the US antitrust agencies will analyze information sharing more generally. The joint guidance provides a safety zone for wage, salary and benefit surveys where:
    • The survey is managed by a third party
    • The information provided by survey participants is more than 3 months old
    • There are at least five providers reporting data on which each statistic is based, no individual provider’s data represents more than 25 percent on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.
  • Although FTC’s settlement in this matter was civil in nature, these same facts could also have led to a criminal investigation by the DOJ Antitrust Division. The agencies’ 2016 Human Resources Guidance specified that naked wage-fixing or no-poach agreements among employers could be prosecuted criminally. More recently, the DOJ has stated that it has several criminal investigations open into employer collusion in the labor market.

On September 14, 2017, Senator Amy Klobuchar (D-MN), introduced new legislation to curtail market concentration and enhance antitrust scrutiny of mergers and acquisitions. As the Ranking Member of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights, Klobuchar is the leading Senate Democrat for antitrust issues.

Two bills were submitted to the Senate: the Consolidation Prevention and Competition Promotion Act (CPCPA) and the Merger Enforcement Improvement Act (MEIA). The CPCPA is co-sponsored by Senators Kirsten Gillibrand (D-NY), Richard Blumenthal (D-CT) and Ed Markey (D-MA). The MEIA is co-sponsored by Senators Blumenthal, Markey and Gillibrand, along with Senators Patrick Leahy (D-VT), Al Franken (D-MN), Cory Booker (D-NJ), Dick Durbin (D-IL), Mazie Hirono (D-HI) and Tammy Baldwin (D-WI). Both bills propose amendments to the Clayton Act. Earlier this year, Senate democrats announced these legislative proposals as part of their “A Better Deal” antitrust agenda.

WHAT DO THE BILLS PROPOSE:

  • Notably, the CPCPA proposes to revise the Clayton Act so that in challenging an acquisition, the Federal Trade Commission (FTC) and Department of Justice (DOJ) would only have to show that the proposed transaction materially lessens competition rather than significantly lessens competition, which is the current standard. The legislation defines “materially lessens competition” to mean “more than a de minimis amount.” This change would reduce the burden of proof for the government in challenging an acquisition.

Continue Reading Senate Democrats Push for Tougher Merger Enforcement

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.

A grand jury has indicted three foreign currency exchange spot market dealers for alleged violations of the Sherman Act, 15 U.S.C. § 1, in a case brought jointly by the DOJ’s Antitrust Division and the US Attorney’s Office for the Southern District of New York (SDNY). The allegations in the case, United States v. Usher, et al., are that the three named defendants conspired to suppress and eliminate competition for the purchase and sale of Euro/US dollar (EUR/USD) currency pairs via price fixing and bid rigging.

The foreign currency exchange spot market (the “FX Spot Market”) enables participants to buy and sell currencies at set exchange rates. The FX Spot Market is an “over-the-counter” market conducted via direct customer-to-dealer trades, i.e., without an exchange.  In the market, currencies are traded and priced in pairs, whereby one currency is exchanged for the other.  When filling customer orders, dealers in the FX Spot Market do not serve in a broker capacity, but rather fulfill the orders via their own trading and speculation in the requested currency markets.  Dealers employ traders to quote prices and engage in trades to fill customer orders.  The dealers and their traders are able to access a separate virtual market, known as the interdealer virtual market, which enables currency trades amongst dealers.  According to the Indictment, currency pair prices are set by a continuous auction in the interdealer virtual market, where “individual actions taken by competing traders—to bid or not bid, to offer or not offer, to trade or not to trade, at certain times, and using certain tactics—can cause or contribute to a change in the exchange rate shown in the [virtual trading] interface, and thus may benefit, harm, or be neutral to a competing trader.” The Indictment asserts that this is because the benchmarks used by the virtual market were calculated at particular times each day and were based on “real-time bidding, offering, and trading activity” on the virtual trading market.

The Indictment asserts that the defendants violated the Sherman Act by:

  • engaging in chat room communications whereby they discussed customer orders, trades, names and risk positions;
  • refraining from trading against each other’s interests;
  • coordinating bids for the purpose of fixing the price of the EUR/USD pair.

Defendants are alleged to have engaged in profitable EUR/USD transactions while acting to fix prices and rig bids for the EUR/USD product in the FX Spot Market.  The Indictment further alleges that others were co-conspirators, suggesting that there may be cooperating witnesses and possibly further indictments to follow. Of note, however, recent Trump Administration changes to US Attorneys and DOJ Division Deputies and Chiefs may conceivably alter the course of this and any follow-on litigation. Regardless, over-the-counter markets have been a focus of antitrust lawsuits in recent years, most notably in the widely-covered Libor suits, and that trend is expected to continue.

by William Diaz

The head of the United States Department of Justices’s (DOJ) Antitrust Division, Christine Varney, gave a speech to the Chamber of Commerce on June 24, 2011.  One of the topics she discussed involved IP/antitrust issues regarding standard-setting organizations (SSOs).  Provided below is the excerpt from her remarks dealing with this topic.  While her remarks do not signify a change in the way the DOJ analyzes SSOs, they serve as a reminder that the DOJ is vigilant of anticompetitive practices related to standard-setting.

Christine Varney’s Remarks on SSOs:

One issue that arises in the context of civil non-merger enforcement, and which I understand is of considerable interest to the business community, is the application of the antitrust laws to standard setting.  I have examined standard setting since my days as a Federal Trade Commissioner, when I voted to challenge Dell Computer Corporation’s anticompetitive conduct in a Standard Setting Organization (SSO).  The FTC alleged that Dell—as a member of an SSO—restricted competition in the personal computer industry and undermined the standard-setting process by threatening to exercise undisclosed patent rights against computer companies that had adopted the standard.   In that settlement, the FTC made clear that the antitrust laws do not allow firms to commit to an open standard, and only after the standard is adopted, assert patent rights to block use of the design or increase prices.

However, if structured appropriately, standards promulgated by an SSO can be permissible under the antitrust laws. As you well know, standard setting creates enormous benefits for businesses and consumers, including reducing production costs and fostering public health and safety. The Division has expressed this support for SSOs in a joint report with the FTC, in business review letters and in speeches.

I personally support the role of standard setting in promoting innovation as long as such standards comply with the basic and fundamental principles of the antitrust laws. This requires that standards be open and published, with clear disclosure and license rules, and should be apportioned fairly and efficiently, with no company able to distort the process. In addition, standards should be limited to technical and operational functions that support individual business decisions—not thwart the competitive process by enabling collective and collusive business decisions. The best SSO framework may vary by industry, but these fundamental principles remain.

To view Christine Varney’s full comments, please click here

by Joel R. Grosberg and Megan Morley

The DOJ has released an updated merger remedies guide that provides an overview on how the DOJ Antitrust Division staff will analyze proposed remedies in merger matters.  The revised guide places an increased emphasis on behavioral or conduct remedies to address issues raised by vertical transactions.

To view the full article, click here.