The Public Competition Enforcement Review: USA
In 2019, the Antitrust Division of the US Department of Justice (DOJ) and Federal Trade Commission (FTC) confirmed investigations of large technology platforms. The FTC is said to be leading investigations into Amazon and Facebook, and the DOJ is focusing on Google and Apple. State attorneys general are also conducting separate investigations into Google and Facebook. These investigations are pending and no enforcement actions have been announced, but leadership at each federal agency have said they are aiming to conclude the investigations sometime in the coming year.
While these investigations proceed, the agencies have continued to pursue a vigorous enforcement agenda. The DOJ announced several criminal cartel enforcement actions, including in the generic pharmaceuticals industry. The FTC also continued its civil enforcement activities against pharmaceutical companies for engaging in practices that allegedly delay the availability of generic drugs. Meanwhile, both the FTC and DOJ were active in investigating mergers. There were a number of matters settled with divestitures or conduct remedies, several deals that were abandoned in the face of regulatory challenges and several cases litigated before the courts and at the FTC. We discuss these matters in greater detail below.
There have been several notable recent policy developments. In July 2019, the Antitrust Division announced a new policy to incentivise corporate compliance: it revised the DOJ's Justice Manual to permit the Antitrust Division to consider compliance at the charging stage in criminal antitrust investigations. Previously, the Justice Manual explained that the Antitrust Division's policy was not to give credit 'at the charging stage for a compliance program', but that text has been deleted. Instead, corporate antitrust compliance programmes will now factor into prosecutors' charging and sentencing decisions and may allow companies to qualify for deferred prosecution agreements or otherwise mitigate exposure, even when companies are not the first to self-report criminal conduct.
In another announcement that gained considerable attention, on 10 January 2020, the DOJ and FTC issued draft vertical merger guidelines for public comment. The guidelines describe potential anticompetitive harms that may arise with vertical mergers – such as raising rivals' costs, foreclosing rivals from access to an input, and providing a vertically-integrated firm with access to its rivals' competitively sensitive business information – while recognising that they also 'have the potential to create cognizable efficiencies that benefit competition and consumers'.
The DOJ has continued to file statements of interest and amicus briefs in cases in which it is not a party. For example, in March 2019, the DOJ filed a statement of interest in several cases in federal district court in Washington state setting forth its position on 'the legal standards governing whether a plaintiff has stated a claim that a no-poach agreement in a commercial-franchise relationship violates federal antitrust law'. The DOJ also filed an amicus curiae brief in the Court of Appeals for the Ninth Circuit in the Federal Trade Commission's case against Qualcomm Incorporated. In that case, the district court found for the FTC, and Qualcomm appealed. The DOJ's brief sides with Qualcomm.
The agencies' international activities also continued. In the spring, the International Competition Network (a group of national and multinational competition authorities) adopted a Framework on Competition Agency Procedures, and 62 agencies have signed on. According to the DOJ, '[t]his historic multilateral agreement recognizes fundamental principles of transparency and procedural fairness in antitrust enforcement and promotes review mechanisms to ensure that participating agencies abide by these norms'. The DOJ further wrote that:
the framework identifies universal due process principles that are widely accepted across the globe, including commitments regarding non-discrimination; transparency and predictability; proper notice, access to information, meaningful and timely engagement, and opportunity to defend; timely resolution of proceedings; confidentiality protections; avoidance of conflicts of interest; access to counsel and privilege; written enforcement decisions and public access to decisions; and availability of independent review of enforcement decisions.
In September 2019, in a speech on the topic of international comity in antitrust enforcement, Assistant Attorney General for the Antitrust Division Makan Delrahim announced that he has 'directed the Division to undertake a review of' the January 2017 DOJ-FTC Antitrust Guidelines for International Enforcement and Cooperation. He said that the Guidelines 'make clear our ongoing commitment to applying principles of comity to our own decision making', but that '[w]e need to ensure . . . that comity is a two-way street. We cannot agree to subject American companies to unfair treatment under foreign laws in the name of comity and avoidance of conflict'. He went on to say: 'Any application of comity has to take into account the particular enforcer, including any history of discrimination in favor of its own domestic companies or against foreign companies. We will not defer our own investigation unless we are certain that our foreign counterparts will conduct a full and fair investigation of their own'. Mr Delrahim also said: 'we hope to further strengthen our invaluable relationships with our international colleagues, as we all pursue the common goal of protecting competition'.
i Significant cases
The DOJ carried forward its prosecution of price-fixing conduct in e-commerce, particularly the customised promotional products industry. In January 2019, a federal grand jury in Houston indicted Taiwan-based G Nova corporation and its CEO for participating in a conspiracy to fix prices of insulated beverage containers, and the DOJ announced that it had filed criminal charges against Netbrands Media Corporation and two executives for their roles in a separate conspiracy to fix prices of wristbands, lanyards, temporary tattoos, and buttons sold in the United States. Netbrands and the executives all agreed to plead guilty or entered guilty pleas.
In April 2019, the owner and president of Gennex Media became the fifth individual to plead guilty in the DOJ's ongoing promotional products investigation. According to the felony charges, the co-conspirators used social media platforms and encrypted messaging applications to reach and implement their agreement to fix the prices of customised promotional products sold online from as early as May 2014 until at least June 2016. In June 2019, Gennex was sentenced to pay a US$752,717 criminal fine, and its president was sentenced to eight months in custody, a US$20,000 criminal fine, and three years of supervised release. According to the DOJ, to date, '11 defendants have been charged in the investigation into the online customized promotional products industry. Of those defendants, five individuals and four companies have pleaded guilty'.
As part of its ongoing investigation into anticompetitive conduct in the generic pharmaceutical industry, the DOJ charged Heritage Pharmaceuticals Inc in May 2019 with 'conspiring with its competitors to fix prices, rig bids, and allocate customers' for glyburide, a medicine used to treat diabetes. The one-count felony charge was filed in the US District Court for the Eastern District of Pennsylvania. The Antitrust Division entered into a deferred prosecution agreement with the company. Under the terms of the agreement, Heritage admitted that 'it conspired to fix prices, rig bids, and allocate customers for glyburide', and agreed to pay a US$225,000 criminal penalty and to cooperate with the ongoing criminal investigation. In return, the DOJ agreed to defer prosecuting Heritage for three years to 'allow the company to comply with the agreement's terms'. The agreement is subject to the court's approval. According to the Antitrust Division, the deferred prosecution agreement was based on the individual facts and circumstances of the case, including 'the company's substantial and ongoing cooperation with the investigation' such as 'its disclosure of information regarding criminal antitrust violations involving drugs other than those identified in the criminal charge and the agreement'. In a separate civil resolution, Heritage 'agreed to pay [US]$7.1 million to resolve allegations under the False Claims Act related to the price-fixing conspiracy', including that 'between 2012 and 2015, Heritage paid and received remuneration through arrangements on price, supply, and allocation of customers with other pharmaceutical manufacturers for certain generic drugs'.
In December 2019, the DOJ also charged Rising Pharmaceuticals Inc, a generic pharmaceutical company, for conspiring with a competitor for generic drugs and its executives to fix prices and allocate customers for Benazepril HCTZ, a treatment for hypertension. The Antitrust Division also entered into a deferred prosecution agreement with Rising, which admitted to price fixing and customer allocation, agreed that US$1,543,207 was 'the appropriate amount of restitution' owed 'to victims of the charged conduct' and 'agreed to cooperate fully with the Antitrust Division's ongoing criminal investigation'. According to the DOJ, '[t]he agreement also requires Rising to pay a [US]$1.5 million penalty, reduced from . . . [US]$3.6 million under the US Sentencing Guidelines due to Rising's financial condition and liquidation'. In a separate civil resolution, Rising agreed to pay US$1.1 million in civil damages for its anticompetitive conduct, which reduced the criminal restitution to US$438,066. The deferred prosecution agreement requires approval by the bankruptcy court before it is filed in district court. The United States agreed to 'defer prosecuting Rising for three years, or until its ongoing bankruptcy proceedings become final, whichever comes first'.
The DOJ carried forward its investigation into the international roll-on, roll-off ocean shipping industry, which ships wheeled cargo, such as cars, that can be driven on and off a ship. In June 2019, a federal grand jury indictment from February 2018 was unsealed. The indictment charges two shipping executives at Höegh Autoliners AS with 'participating in a long-running conspiracy to allocate certain customers and routes, rig bids, and fix prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States'. The indictment alleges that at least between 2006 and 2012, the two executives 'conspired with their competitors to allocate certain customers and routes for the shipment of cars and trucks'. They also 'agreed with competitors to fix, stabilize, and maintain rates charged to customers of international ocean shipping services'. Including the unsealed charges, the DOJ stated that '13 executives ha[d] been charged in the investigation to date[:] [f]our have pleaded guilty and been sentenced to serve prison terms[,] [while] [o]thers remain international fugitives'. Höegh itself has pleaded guilty and has been sentenced to pay a US$21 million fine. Four other 'companies have also pleaded guilty for their [involvement], resulting in total collective criminal fines of over US$255 million'.
Heir-location services firms
In July 2019, a Salt Lake City-based heir-location services provider pleaded guilty to allocating customers with another heir-location services firm, following an indictment filed in August 2016 in the US District Court for the District of Utah. A central issue in the case was whether the per se rule or the rule of reason would apply in assessing the alleged anticompetitive conduct. Under the per se rule, certain types of restraints of trade are presumed categorically illegal. The Antitrust Division's policy is, in general, to criminally investigate and prosecute cases involving only per se illegal conduct rather than conduct falling under the rule of reason, which requires more extensive analysis. In June 2017, the court ruled that the customer allocation alleged in the indictment would be tried under the rule of reason standard. After the Antitrust Division appealed, the Tenth Circuit held that it did not have jurisdiction to address the lower court's order regarding the application of the rule of reason, but urged the district court to re-examine the issue. Upon the United States' Motion to Reconsider, the district court found that the per se rule applied to the customer allocation agreement alleged in the indictment. Since it is DOJ policy to bring criminal antitrust cases only when the alleged conduct is per se illegal, had the court not reversed itself, it is unlikely that the DOJ would have continued to pursue a criminal conviction. The company and its president were sentenced on 23 January 2020 to fines of $1.5 million and $77,596.
Suspension assemblies in hard disk drives
In July 2019, NHK Spring Co Ltd, a Japanese manufacturer of suspension assemblies used in computer hard disk drives, agreed to plead guilty for its role in a global conspiracy to fix prices. Specifically, the felony charge alleged that NHK Spring agreed with co-conspirators to refrain from price competition, to allocate their respective market shares for the suspension assemblies and to exchange pricing information. Subject to court approval, NHK Spring agreed to pay a US$28.5 million criminal fine and to cooperate in the ongoing investigation. According to the DOJ, the investigation is ongoing.
Freight forwarding services
As part of its ongoing investigation into the international freight forwarding industry, the DOJ filed its first felony charge against a Louisiana-based freight forwarder in September 2019 in the US District Court for the Southern District of Florida. According to the DOJ, 'Freight forwarders arrange for and manage the shipment of goods'. According to court documents, the freight forwarder and its co-conspirators met to discuss and agree to fix prices 'from September 2010 until at least March 2015'. The freight forwarder agreed to plead guilty and to pay a $488,250 criminal fine, subject to court approval. Two of the freight forwarder's executives were sentenced in June 2019 to 18-month and 15-month terms of imprisonment for their involvement. In October 2019, the DOJ filed its third individual felony charge against the owner of a different freight forwarding company based in Houston, for her role in the 'nationwide conspiracy to fix prices for international freight forwarding services'.
Foreign exchange markets
The DOJ carried forward its long-running investigation into alleged collusion with respect to foreign currency exchange (FX). In November 2019, after a three-week trial, a jury convicted the former executive director at a major multinational bank of 'conspiring to fix prices and rig bids in Central and Eastern European, Middle Eastern and African (CEEMEA) currencies, which were generally traded against the US dollar and the euro from at least October 2010 through at least January 2013'.
As part of the DOJ's ongoing investigation into the market for packaged seafood, the former president and CEO of a packaged seafood company was convicted in December 2019 for his participation in fixing the prices of canned tuna, following a four-week trial in the US District for the Northern District of California. The company itself pleaded guilty and was sentenced to pay a criminal fine of at least US$25 million. In September 2019, another packaged seafood company was sentenced to pay a US$100 million criminal fine for its role in the conspiracy. So far, 'four individuals . . . have been charged in the investigation', and '[t]he other three individuals pled guilty and testified [at the defendant's] trial'.
Defence fuel supply contracts
In March 2019, two South Korean-based companies – Hyundai Oilbank Co Ltd and S-Oil Corporation – pleaded guilty to criminal charges, and agreed collectively to pay US$75 million in criminal fines, for their involvement in 'a bid-rigging conspiracy that targeted contracts to supply fuel to the United States Army, Navy, Marine Corps, and Air Force bases in South Korea'. The superseding indictment charges the two South Korean-based companies and seven individual defendants – 'associates, managers, and executives of [the] companies' – with efforts 'to suppress and eliminate competition during the bidding process for . . . fuel supply contracts' with the US Defense Department to supply fuel to US military bases throughout South Korea. The DOJ noted that the companies' guilty pleas were the fourth and fifth resulting from 'ongoing federal investigation into bid rigging, price fixing, and other anticompetitive conduct targeting US Defense Department fuel supply contracts in South Korea'. The Antitrust Division also filed a civil antitrust complaint against the same two companies, and at the same time filed proposed settlements amounting to a total of US$52 million. The litigation resulted from a whistle-blower action.
Commercial flooring contractors
In April 2019, the DOJ announced its first charge in its 'ongoing investigation into bid rigging and price fixing by commercial flooring contractors'. According to the one-count felony charge, the former vice president of an unnamed Chicago-based contractor agreed with others to submit 'complementary' bids so that a designated company would win the bidding. The contractor allegedly engaged in this anticompetitive behaviour from 'at least as early as 2009 until as late as June 22, 2017'. In August 2019, the DOJ announced its first charge brought against a corporation as part of its investigations into the conspiracy. The company agreed to pay a US$150,000 criminal fine and to cooperate in the Antitrust Division's ongoing investigation.
Insulation installation contracts
The DOJ achieved its first convictions in its ongoing investigation into bid rigging by insulation installation contractors in 2019. According to court documents, the contractors conspired to rig bids on insulation installation contracts in Connecticut, New York and Massachusetts. Assistant Attorney General Delrahim stated that the conspiracy was a '$45 million scheme' to fix prices on insulation contracts, where the conspirators attempted to hide their conduct using 'high-tech encryption apps [and] burner phones'.
Online auctions for surplus government equipment
In April 2019, the DOJ filed its first criminal charge in its ongoing investigation into bid rigging at 'online public auctions of surplus government equipment' conducted by the US General Services Administration (GSA). The 'owner of a Texas company that purchases computers to resell and recycle' pleaded guilty to a one-count felony charge. According to the charge, the company and its co-conspirators obtained the surplus government equipment by 'agreeing which co-conspirators would submit bids for particular lots . . . and which co-conspirator would be designated to win a particular lot offered' for auction by the GSA. A second individual located in Pennsylvania pleaded guilty for his involvement in the conspiracy in September 2019.
Banca IMI Securities Corp and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), two New York broker-dealers, pleaded guilty in May and June 2019 respectively as part of the DOJ's ongoing investigation into bid-rigging in the market for pre-release American Depository Receipts (ADRs). ADRs are created by US depository banks and represent foreign ordinary shares that can be traded in the United States. ADRs permit US investors to 'gain exposure to . . . companies whose common stock is listed only on foreign stock exchanges'. At an 'auction-style process' for 'pre-release ADRs' of a US depository bank, the conspiring broker-dealers coordinated their bids for rates to borrow ADRs, resulting in 'artificially suppressed rates'. Banca IMI and ICBCFS were sentenced to pay criminal fines in excess of US$2 million and US$3 million respectively for their involvement. The former head of the securities lending desk at Banca IMI and a former vice president at ICBCFS also pleaded guilty for their involvement.
ii Trends, developments and strategies
At the close of fiscal year 2019 (ending September 30), the Antitrust Division had 102 pending grand jury investigations, which Assistant Attorney General Delrahim stated was 'the highest total since 2010'. We will watch to see how these investigations progress in the coming year.
Among other active investigations, the DOJ is set to continue its investigation and prosecution of companies and individuals involved in government procurement. Along with the FBI, the Defense Department, the US Postal Service, and the General Services Administration, the DOJ formed a new government Procurement Collusion Strike Force in November 2019. According to Assistant Attorney General Delrahim's announcement regarding the strike force, 'more than one third of the Antitrust Division's 100-plus open investigations relate to public procurement or otherwise involve the government being victimized by criminal conduct'.
While summarizing the Antitrust Division's criminal enforcement for 2019 to the US Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, Assistant Attorney General Delrahim noted several additional areas in which there would be ongoing investigation, including e-commerce, financial services, generic pharmaceuticals, and real estate foreclosure auctions. The DOJ also affirmed its interest in the labour market, stating that 'criminal prosecution of naked no-poach and wage-fixing agreements remains a high priority for the Antitrust Division'. To date, there have been no charges announced in this area.
Antitrust: restrictive agreements and dominance
i Significant cases
The FTC has continued its enforcement efforts in the pharmaceutical industry. In 2017, the Commission issued an administrative complaint against Impax Laboratories, Inc for allegedly entering into an agreement with Endo Pharmaceuticals Inc to inhibit generic competition for Endo's Opana ER drug. In May 2018, an administrative law judge dismissed the FTC's complaint against Impax, concluding that the FTC had failed to prove that the agreement between Impax and Endo violated the FTC Act. The administrative law judge found it unlikely that generic manufacturers would have been able to enter the market earlier absent the challenged agreement, and therefore the magnitude and extent of any anticompetitive harm was theoretical. The FTC's complaint counsel filed a notice of appeal seeking a full review by the FTC. On 29 March 2019, the FTC announced that it reached a 5-0 decision reversing the administrative law judge and finding that Impax Laboratories violated Section 5 of the FTC Act. According to the Commission's press release,
[t]he Commission found that Endo possessed market power in the market for branded and generic oxymorphone ER. The Commission found that Impax received a large and unjustified payment, which included: (1) a 'No AG' commitment, i.e., a promise from Endo not to launch an authorized generic during the 180-day exclusivity period that the Hatch-Waxman Act provides to the first generic filer; and (2) an additional credit that Endo would pay Impax in the event the market for Opana ER declined before Impax's entry date'.
Impax has sought review of the FTC's order in the United States Court of Appeals for the Fifth Circuit.
In another pharmaceutical case, the United States Court of Appeals for the Third Circuit upheld a lower court's finding that the FTC lacked authority to bring an action against Shire ViroPharma Inc in federal court. In February 2017, the FTC filed a complaint in the United States District Court for the District of Delaware alleging that the company illegally abused government processes to delay generic competition for Vancocin HCI capsules. According to the FTC's complaint, between 2006 and 2012, ViroPharma made 43 'sham' filings with the US Food and Drug Administration (FDA) and filed three lawsuits against the FDA to delay the FDA's approval of generic Vancocin capsules and to exclude competition. In September 2018, District Judge Richard Andrews dismissed the case, holding that the FTC lacked authority to bring the proceedings absent allegations that VioPharma's conduct violated, or was about to violate, the law. In April 2018, the FTC appealed to the Third Circuit, and on 25 February 2019, the Third Circuit affirmed. In its opinion, the appeals court held that Section 13(b) of the FTC Act – which allows the FTC to seek injunctive relief in federal district court if it has 'reason to believe' that an entity 'is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission' – does not permit the FTC to bring a claim based on long-past conduct without some evidence that the defendant 'is' committing or 'is about to' commit another violation', which, according to the court, the FTC's complaint did not plausibly allege. Instead, the court wrote, '[i]f the FTC wants to recover for a past violation – where an entity “has been” violating the law – it must use Section 5(b)' of the FTC Act and bring an administrative proceeding.
The FTC also settled several pharmaceutical cases in 2019. Early last year, the FTC announced that it reached a settlement agreement that, if accepted by the courts in which the actions are pending, will resolve the FTC's claims against generic pharmaceutical manufacturer Teva Pharmaceuticals Industries Ltd. The settlement calls for the entry of stipulated permanent injunctions with durations of ten years in three pending cases, which, according to the FTC, will prohibit Teva 'from entering into a patent infringement settlement agreement that includes a reverse payment transferring value from the brand to the generic'. This would include 'prohibiting Teva from entering into the two most pernicious and common forms of reverse payments: (1) a side deal, in which the generic company receives compensation in the form of a business transaction entered at the same time as the patent litigation settlement; and (2) a no-AG commitment, in which a brand company agrees not to compete with an authorized generic version of a drug for a period of time'.
In July 2019, the FTC announced that Reckitt Benckiser agreed to pay US$50 million and made other commitments to settle 'charges that it violated the antitrust laws through a deceptive scheme to thwart lower-priced generic competition to its branded drug Suboxone, . . . a prescription oral medication used to minimize withdrawal symptoms in patients recovering from opioid addiction'. According to the FTC's press release, 'before the generic versions of Suboxone tablets became available, Reckitt . . . developed a dissolvable oral film version of Suboxone and worked to shift prescriptions to this patent-protected film. . . . Reckitt allegedly employed a “product hopping” scheme where the company misrepresented that the film version of Suboxone was safer than Suboxone tablets because children are less likely to be accidentally exposed to the film product'. The FTC also alleged that 'to buy more time to move patients to the film version of Suboxone, Reckitt . . . filed a citizen petition with the FDA reciting the same unsupported safety claims and requesting that the agency reject any generic tablet application' in order 'to delay the approval of generic competitors while the FDA reviewed it'.
Dental products distribution
In October, FTC Chief Administrative Law Judge D Michael Chappell found that Benco Dental Supply and Patterson Companies 'conspired to refuse to offer discounted prices or otherwise compete for the business of buying groups and that such an agreement is a per se violation of Section 5 of the FTC Act'. Judge Chappell also found that '[t]he evidence fail[ed] to prove a conspiracy involving' a third distributor, Henry Schein. As evidence of an agreement between Benco and Patterson, Judge Chappell cited, among other things, emails between the two companies 'constitut[ing] evidence of exchanges of assurances and a confrontation about perceived cheating followed by reassurance'. Judge Chappell also cited 'Patterson's conduct following the . . . exchange of assurances, . . . effectively adopting a blanket policy of summarily refusing to deal with buying groups, without evaluation'. The decision became final as the parties did not appeal to the Commission.
National Association for College Admission Counselling
Late in 2019, the DOJ announced that it and the National Association for College Admission Counseling (NACAC) entered into a proposed consent decree pursuant to which the NACAC will 'remove three anticompetitive rules from its Code of Ethics and Professional Practices'. The DOJ alleged that certain rules contained in the code 'prevented, or severely limited, colleges from (1) directly recruiting transfer students from another college, (2) offering incentives of any kind to college applicants who applied via a process known as Early Decision, and (3) recruiting incoming college freshmen after May 1'. According to the DOJ, '[t]hese rules [were] drafted, voted on, and enforced by NACAC members', which include 'non-profit colleges and their admissions personnel, and high schools and their guidance counselors'. While noting that '[m]any of [the NACAC] rules appear to strengthen the market for college admissions', the so-called 'Recruiting Rules . . . were not reasonably necessary to achieve the otherwise market-enhancing rules contained in the [code], and furthermore had the effect of unlawfully restraining competition among NACAC's college members, resulting in harm to college applicants and potential transfer students'. The consent decree is subject to approval by a federal district judge.
On 22 November 2019, the DOJ announced that after 'a thorough review, including a 60-day public comment period', it filed 'a motion to terminate the Paramount Consent Decrees, which for over 70 years have regulated how certain movie studios distribute films to movie theatres'. According to the DOJ, the Paramount 'decrees required the movie studios to separate their distribution operations from their exhibition businesses. They also banned various motion picture distribution practices, including block booking (bundling multiple films into one theatre license), circuit dealing (entering into one license that covered all theatres in a theatre circuit), resale price maintenance (setting minimum prices on movie tickets), and granting overbroad clearances (exclusive film licenses for specific geographic areas)'. In seeking to terminate the decrees, the DOJ observed that '[n]ew technology has created many different movie platforms that did not exist when the decrees were entered into, including cable and broadcast television, DVDs, and the Internet through movie streaming and download services'.
ii Trends, developments and strategies
The agencies have continued their enforcement of civil anticompetitive conduct matters. In particular, developments in the past year continue to evince the FTC's interest in the pharmaceutical industry. This, along with the DOJ's activity detailed in the prior section, and ongoing litigation involving private plaintiffs and state attorneys general are all part of a larger trend in the United States of examining pharmaceutical pricing.
Generally, the FTC and DOJ can be expected to continue closely to monitor the pharmaceutical industry for potential anticompetitive conduct, and we will watch with interest to see how the appeals court rules on the pending appeal in the Impax case discussed above.
We will also watch to see how the DOJ's motion to terminate the Paramount decrees is decided. The decrees at issue have shaped the film distribution industry for over 70 years. The DOJ's review attracted numerous public comments and several oppositions have been filed with the court deciding the motion. This matter is perhaps the highest profile output to date of the DOJ's ongoing judgment termination initiative. Beyond the Paramount decrees, we expect the DOJ to continue to evaluate other existing consent decrees and the agency may seek to terminate certain of these. Indeed, this decree review and termination initiative has been ongoing for a while, and, according to the DOJ, it involves a 'review of nearly 1,300 legacy judgments'.
Finally, following recent comments by the Attorney General and Chairman of the Federal Trade Commission, in the coming year we may see significant developments in the agencies' investigations of technology companies.
Sectoral competition: market investigations and regulated industries
2019 was another active year for the DOJ and FTC in merger review and enforcement. Both agencies investigated numerous proposed acquisitions and required divestitures and sued to enjoin several transactions. Perhaps most notably, the DOJ lost its bid to block AT&T's acquisition of Time Warner when the United States Court of Appeals for the District of Columbia upheld the lower court's denial of the government's request to block the deal. Also of note is that the DOJ is allowing the T-Mobile-Sprint merger to proceed with divestitures, but a group of states has separately challenged that deal. The FTC won rulings against mergers in federal court and in Commission proceedings. In addition, both the DOJ and FTC settled several challenges with consent decrees.
i Significant cases
Litigated merger challenges
AT&T and Time Warner
On 20 November 2017, the DOJ filed suit to block AT&T's acquisition of Time Warner. The DOJ alleged that AT&T, a video programming distributor, 'would hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner's networks, and it would use its increased power to slow the industry's transition to new and exciting video distribution models that provide greater choice for consumers'. AT&T and Time Warner argued that the proposed merger 'is a procompetitive, pro-consumer response to an intensely competitive and rapidly changing video marketplace'; that 'no competitor will be eliminated by this merger'; and that the 'transaction is . . . a classical vertical deal, combining . . . content with . . . distribution platforms so that the merged company can compete more effectively against market-leading cable incumbents and insurgent tech giants'. On 12 June 2018, the judge hearing the case denied the DOJ's request for an injunction. In his opinion, the district judge wrote that the government did not meet its burden of showing, among other things, that Time Warner would be able to increase its bargaining leverage in negotiations for the carriage of its networks on rival video distribution systems. On 26 February 2019, the United States Court of Appeals for the District of Columbia Circuit held that the DOJ failed to show that the district court clearly erred in denying the government's request for a permanent injunction to block the AT&T-Time Warner merger.
Ottobock and Freedom
On 6 May 2019, the FTC's Chief Administrative Law Judge, D. Michael Chappell, released an initial decision in which he found that Ottobock's consummated acquisition of Freedom violated Section 7 of the Clayton Act and ordered a complete divestiture. Both Ottobock and Freedom manufacture microprocessor prosthetic knees (MPK). Judge Chappell found 'that the Acquisition will significantly increase concentration in the relevant MPK market, which gives rise to a presumption that the Acquisition may substantially lessen competition. In addition, the evidence proves that Ottobock and Freedom are direct competitors in the MPK market, and that this competition has enabled clinic customers to negotiate lower prices and has spurred MPK innovation. This is more than sufficient to meet Complaint Counsel's prima facie burden to show that the Acquisition of Freedom by Ottobock, and the removal of Freedom as an independent competitor, may substantially lessen competition in the MPK market'. Judge Chappell also found that Ottobock's rebuttal arguments and defences were without merit, writing that '[t]he evidence fails to demonstrate that repositioning by competitors in the MPK market will be timely, likely or sufficient to prevent anticompetitive effects; that power buyers or limits on insurance reimbursement will constrain price increases in the MPK market; that Freedom at the time of the Acquisition was a failing (or flailing) company; . . . or that the Acquisition is justified by cognizable efficiencies'. Judge Chappell rejected a limited divestiture proposed by Ottobock, writing that Ottobock failed to establish that 'divestiture of Freedom's MPK-related assets will eliminate any likelihood of anticompetitive effects from the Acquisition'.
T-Mobile and Sprint
On 26 July 2019, the DOJ announced that it reached a proposed settlement relating to the T-Mobile-Sprint merger. The agreement requires, among other things, Sprint and T-Mobile to make divestitures to Dish Network. According to the DOJ's press release, 'T-Mobile and Sprint must divest Sprint's prepaid business, including Boost Mobile, Virgin Mobile, and Sprint prepaid, to Dish Network Corp, a Colorado-based satellite television provider. The proposed settlement also provides for the divestiture of certain spectrum assets to Dish. Additionally, T-Mobile and Sprint must make available to Dish at least 20,000 cell sites and hundreds of retail locations. T-Mobile must also provide Dish with robust access to the T-Mobile network for a period of seven years while Dish builds out its own 5G network'.
According to the DOJ's allegations:
without the divestiture, the proposed acquisition would eliminate competition between two of only four facilities-based suppliers of nationwide mobile wireless services. . . . T-Mobile and Sprint both operate mobile networks and offer nationwide coverage to consumers, and they are particularly close competitors to each other for the roughly 30% of retail subscribers who purchase prepaid mobile wireless service. The combination of T-Mobile and Sprint would eliminate head-to-head competition between the companies and threaten the benefits that customers have realized from that competition in the form of lower prices and better service.
The settlement is subject to approval by a federal judge. Arkansas, Colorado, Florida, Illinois, Kansas, Louisiana, Nebraska, Ohio, Oklahoma, Pennsylvania, South Dakota, and Texas have joined in the proposed settlement.
Notable, however, is that a separate group of states – New York, California, Connecticut, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Oregon, Virginia, and Wisconsin – and the District of Columbia brought a separate suit to block the merger. The bench trial in this case concluded in January 2020, and the judge ruled against the states.
Illumina and Pacific Biosciences of California
On 17 December 2019, the FTC announced that it was seeking to block the acquisition of Pacific Biosciences of California (PacBio) by Illumina. The FTC alleged that 'Illumina is seeking to unlawfully maintain its monopoly in the U.S. market for next-generation DNA sequencing (NGS) systems by extinguishing PacBio as a nascent competitive threat', 'the proposed acquisition is illegal because it may substantially lessen competition in the U.S. NGS market by eliminating current competition and preventing future competition between Illumina and PacBio', and 'the acquisition would harm competition by reducing the combined firm's incentive to innovate and develop new products'. According to the FTC, Illumina's systems use 'short-read sequencing technology, which has been the predominant NGS technology in the United States for the last decade', and PacBio's systems use 'long-read sequencing technology'. However, 'PacBio has made significant technological advancements in recent years that have increased the accuracy and overall throughput of its systems, while lowering the cost'. 'As a result', the FTC said, 'PacBio is a closer alternative to Illumina than ever before. Customers have already switched some sequencing volume from Illumina to PacBio for certain use cases and applications, and PacBio is poised to take increasing sequencing volume from Illumina in the future'. On 3 January 2020, the parties announced that they are abandoning the deal.
TreeHouse Foods and Post Holdings
On 19 December 2019, the FTC announced that it was seeking to block the acquisition of the 'private label ready-to-eat cereal business' of TreeHouse Foods by Post Holdings. According to the FTC, 'Post and TreeHouse are two of only three significant manufacturers and distributors of private label ready-to-eat cereal in the United States. The acquisition would give Post more than a 60 percent share of an already highly concentrated market and eliminate the vigorous competition between them to serve grocers across the country'. The parties have since abandoned the deal.
Divestiture and conduct remedies
The DOJ required divestitures in several proposed mergers, including:
- Thales and Gemalto (divestiture of general purpose hardware security module business);
- Amcor and Bemis (divestiture of manufacturing facilities and other assets);
- Boston Scientific and BTG (divestiture of drug eluting bead and bland bead business); and
- BB&T and SunTrust Banks (divestiture of bank branches).
The DOJ previously announced that it was requiring the divestiture of a prescription health insurance plan business in order for the merger of CVS Health Corporation and Aetna Inc to proceed. In accordance with standard procedure, the DOJ filed a complaint and proposed final judgment, pursuant to which CVS and Aetna divested Aetna's Medicare Part D prescription insurance plan business to WellCare Health Plans. The DOJ determined that, without the divestiture, the merger would have 'cause[d] anticompetitive effects, including increased prices, inferior customer service, and decreased innovation in sixteen Medicare Part D regions covering twenty-two states'. The US Tunney Act requires, among other things, that '[b]efore entering any consent judgment proposed by the United States . . . the court shall determine that the entry of such judgment is in the public interest'. Normally, this is a straightforward process. In December 2018, however, the judge in the case wrote that he was 'less convinced of the sufficiency of the Government's negotiated remedy than the Government is' and that 'neither [he], nor the public has had a chance to evaluate whether the proposed final judgment adequately remedies the harm alleged in the complaint, and more importantly perhaps, whether the complaint as drafted is actually in the public interest'. The judge then proceeded to hold a high-profile hearing in which he heard from several entities opposing the settlement. Ultimately, on 4 September 2019, the judge determined that the proposed final judgment in the CVS-Aetna merger case was in the public interest.
The FTC required divestitures in a number of deals, including:
- Fresenius and NxStage Medical (divestiture of bloodline tubing set business);
- Quaker Chemical and Houghton International (divestiture of aluminium hot rolling oil and steel cold rolling oil product lines and related assets);
- US Foods and Services Group of America (divestiture of three distribution centres); and
- Bristol-Myers Squibb and Celgene (divesture of psoriasis treatment).
In addition, the FTC agreed to accept a proposed settlement allowing Staples' acquisition of Essendant to proceed. Staples is an office supply reseller, and Essendant is a wholesaler that sells office supplies to Staples and competing resellers. According to the FTC, Staples 'will establish a firewall separating Staples' business-to-business [resale] operations from Essendant's wholesale business . . . . This firewall will restrict Staples' access to the commercially sensitive information of Essendant's [reseller] customers' (which allegedly compete with Staples for retail sales). In its complaint, the FTC identified '[t]he sale and distribution of office products to midmarket business-to-business customers in local areas' as the relevant market, and alleged that absent the firewall, 'Staples would have access to Essendant's reseller customers' commercially sensitive business information, which could allow Staples to offer higher prices than it otherwise would when bidding against a reseller for an end customer's business'. Under the settlement order, according to the FTC, 'only those Staples employees who will be performing wholesale functions' will have access to Essendant's commercially sensitive reseller information. FTC Commissioners Chopra and Slaughter dissented from accepting the settlement, arguing that the transaction should have been blocked.
On 13 September 2019, the FTC announced that it is requiring NEXUS Gas Transmission and North Coast Gas Transmission to remove a non-compete clause from their sales agreement pursuant to which NEXUS will acquire North Coast's Generation Pipeline entity, which 'owns and operates a 23-mile [natural gas] pipeline in the Toledo, Ohio area'. According to the FTC, the 'non-compete clause . . . [would] keep North Coast from competing to provide natural gas pipeline transportation, for three years after the acquisition closes, in parts of the Ohio counties of Lucas, Ottawa, and Wood', where North Coast has another pipeline. The FTC said that '[t]he Generation pipeline and the North Coast pipeline may be the best alternatives for some large industrial customers in the Toledo area who are located reasonably close to both pipelines. By prohibiting North Coast from competing with the Generation pipeline, the non-compete clause would harm customers who otherwise would benefit from that competition'. The FTC alleges that the non-compete provision 'is not reasonably limited in scope to protect a legitimate business interest'.
ii Trends, developments and strategies
Merger enforcement remains robust and the agencies continue to focus on thorough investigation of the matters before them. Among the notable developments in merger enforcement in 2019 is the DOJ's announcement that it agreed with the parties to a proposed acquisition to use binding arbitration 'to resolve the dispositive issue' of product market definition in the DOJ's challenge to that acquisition. The Administrative Dispute Resolution Act of 1996 authorises the use of arbitration for such purposes, but this is the 'first time the Antitrust Division is using this arbitration authority to resolve a matter', according to the government's press release. Assistant Attorney General for the Antitrust Division Makan Delrahim indicated that arbitration 'is an important tool' and that the Antitrust Division will use it again 'in appropriate circumstances'. In a speech discussing arbitration, Mr Delrahim highlighted three key questions:
First, what are the efficiency gains relative to the alternatives? The Division would be more likely to arbitrate if doing so could save significant time or taxpayer money while ensuring that competition and consumers are protected. Second, is the question the arbitrator will be asked to resolve clear and easily can be agreed upon? If not, then arbitration may not be the best use of our or the parties' resources. Third, would arbitration result in a lost opportunity to create valuable legal precedent? This will depend on the facts of the particular case, but the effect could be mitigated depending on the transparency of the process and the arbitrator's decision.
We will watch with interest to see if the DOJ and deal parties avail themselves of arbitration to settle merger challenges in the future.
We expect the agencies to continue to devote substantial resources to merger investigations. We will watch with particular interest to see how the agencies address proposed mergers in the technology space. In May 2019, an FTC official (who has since left the agency) called on tech industry participants to alert the FTC to potential competitive issues when a tech company acquires a nascent competitor, as these acquisitions are often below the reporting threshold. The coming year may bring important insight into how agencies will evaluate deals involving the acquisition of nascent competitors.
2019 was a busy year for the competition enforcement agencies in the United States, and we expect continued vigorous enforcement in the year ahead, when we may see results from the federal and state agencies' technology industry investigations. Competition policy also may see some prominence in the 2020 presidential campaign, as a number of the candidates continue to speak out on these matters.