t he p endulum s wings b ack a review of antitrust enforcement in 2013 and predictions for 2014...

THE PENDULUM SWINGS BACK

A Review of Antitrust Enforcement in 2013 and Predictions for 2014

Devin Laiho, Assistant Attorney General, State of Colorado

Rich Cunningham, Of Counsel, Gibson, Dunn & Crutcher LLP

April 16, 2014

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Overview

• New leadership at both DOJ and the FTC• Overview of state antitrust enforcement• Criminal enforcement• Civil conduct enforcement• Merger review

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New DOJ & FTC Leadership

• Antitrust Division: Assistant Attorney General Bill Baer• Federal Trade Commission:

– New Chairwoman – Edith Ramirez – Director of the Bureau of Competition – Deborah Feinstein– Director of the Bureau of Economics – Martin Gaynor– New Democratic Commissioner – Terrell McSweeny

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Antitrust Fundamentals

• Per se / rule of reason• Price fixing

– Horizontal, vertical, or both• Bid rigging• Market allocation• Group boycott• Tying arrangement• Joint venture• Information sharing

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State Enforcement

• State AGs enforce state and federal antitrust laws• Work as individual states for matters of pure local concern• Work as multistate groups for regional or national matters• Joint enforcement with federal agencies

• Simultaneous investigations reduce burden & costs

• Civil law enforcement actions• Civil penalties and injunctive relief• Relief for consumers as parens patriae

• Not mass actions subject to CAFA• Unlike Rule 23 actions, class certification not required• States have Article III standing and prudential standing

• Represent state agencies harmed by anticompetitive acts

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Criminal Enforcement

• Remains DOJ’s “First Priority”• Law is fairly steady – liability limited to “hard core” cartel violations

• Price fixing• Quantity limits• Market allocation (geographic, customer, or product)

• Amnesty program remains primary case generation mechanism• Cases are not numerous, but are very large, and incredibly high risk• Critical decisions are made from the earliest moments that an issue is

uncovered:• Amnesty, disclosures, privilege, multiple jurisdictions

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Criminal Enforcement: Auto PartsMany companies are involved

• To date, 23 companies (most of them Japanese) have agreed to pay U.S. fines totaling more than $1.8 billion (USD).

Company U.S. Fine Company U.S. Fine Company U.S. Fine

Yakzaki $470,000,000 Takata $71,300,000 T.RAD $13,750,000

Furukawa $200,000,000 NSK $68,200,000 Valeo Japan $13,600,000

Hitachi $195,000,000 Panasonic $45,800,000 Yamashita Rubber $11,000,000

MitsubishiElectric

$190,000,000 Fujikura $20,000,000 Eagle Eyes Traffic Industrial

$5,000,000

Mitsuba $135,000,000 Diamond Electric $19,000,000 TRW Deutschland $5,100,000

Toyo Tire & Rubber

$120,000,000 Tokai Rika $17,700,000 G.S. Electech $2,750,000

JTEKT $103,270,000 Mitsubishi HeavyIndustries

$14,500,000 Nippon Seiki $1,000,000

DENSO $78,000,000 Autoliv $14,500,000

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Criminal Enforcement: 2014 Predictions

• Expect a “second wave” of auto parts cases: new investigations will open, new subpoenas and search warrants will issue

• Expect developments in new investigations underway in financial sector– Interest-rate swaps– North Sea Brent crude oil– Foreign currency exchange

• Expect the unexpected

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Civil Conduct Enforcement

• Monopolization cases, boycotts, MFNs and “other” conduct subject to the antitrust laws

• Recent agency successes• Patents, patents, patents

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• DOJ and 33 states filed suit against Apple and 5 book publishers alleging they conspired to increase prices of e-books

• Raised questions related to use of “agency” contracts and MFNs• The judge said:

– “The Publisher Defendants conspired with each other to eliminate retail price competition in order to raise e-book prices.”

– “Apple played a central role in facilitating and executing that conspiracy. Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the Spring of 2010.”

• Appeal and damages proceedings upcoming

Civil Conduct Enforcement: Apple E-Books Litigation

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Civil Conduct Enforcement: Pharmaceutical Pay-for-Delay Settlements

• Hatch-Waxman Act encourages entry by generic drug manufacturers

– But also creates incentive for branded manufacturers to sue generics for patent infringement

– Settlements sometimes involve payments by a branded maker for delay in entry by generic

• FTC v. Actavis – Pay-for-delay agreements are subject to a rule of reason analysis (most Circuits had held the settlements per se legal)

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Civil Conduct Enforcement: Standard Essential Patents

• SEPs: Patents adopted as part of an industry-wide technology standard– Licensing: often a commitment by owner to license on fair,

reasonable, and nondiscriminatory basis (FRAND).– What constitutes “fair” and “reasonable” licensing terms

may be open to interpretation:• Charging higher royalties relative to past licensing

practices?• Comparison of royalty rate to value of end consumer

device?• Charging competitors higher royalties than other firms?

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Civil Conduct Enforcement: Patent Assertion Entities (“Patent Trolls”)

• DOJ: various theories of harm to competition identified, but no one-size-fits-all antitrust theory

– Concerns regarding “privateering,” in which a practicing entity transfers patents to a PAE to be used against competitors of the practicing entity

– Potential for operating entities to collude with each other through PAEs to raise rivals’ costs and exclude competitors

• PAE: Entity whose primary business is to acquire patents for purpose of asserting them against existing products or services, not to practice, enable, or develop the technology

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Civil Conduct Enforcement:Section 5: “Unfair Methods of Competition”

• Long-standing debate in antitrust law

• FTC relied solely on Section 5 “unfair methods of competition” authority as basis in recent enforcement cases

– Intel—alleged product pricing and design practices

– Bosley/Hair Club—exchange of competitively sensitive information

– U-haul—invitations to collude/coordinate

• Commissioner Wright has proposed a Section 5 Policy Statement to guide enforcement

– Acts or practices that “harm or are likely to harm competition significantly,” and

– “lack cognizable efficiencies”

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Civil Conduct Enforcement:Data Privacy and Security Issues

• Data can be a particularly critical asset• Mergers can create market power through the aggregation of

complementary (or competing) datasets• All manner of subsidiary privacy and data issues can be

uncovered, leading to follow-on investigations

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Civil Conduct Enforcement: Predictions for 2014

• Increased scrutiny of the healthcare provider, insurance, and technology markets

– Targeting of “most favored nation” clauses

• Patent-related enforcement actions, possibly under Section 5

• Focus on reducing burden of investigations on businesses, particularly improving electronic discovery

– Growing efforts to review investigations post hoc, develop division-wide best practices

• Spillover from Consumer Protection cases, particularly in areas of data privacy and security

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Civil Conduct Enforcement: Practice Tips

When you receive a government subpoena…

• Almost always the best strategy is to cooperate– Identify information that is particularly accessible

– Investigations have momentum

– Can be responsive without showing an unwillingness to fight

• Consider coordinating across enforcers

• Facts and evidence more persuasive than saber-rattling

• Consider document preservation obligations

Resources

• http://www.ftc.gov/tips-advice

• DOJ / FTC Guidelines for Collaboration Among Competitors

Merger Enforcement

• Several merger challenges last year – all successful

– American Airlines/U.S. Airways

– Imbev/Modelo

– Bazaarvoice

– Ardagh (Bottles)

– Multiple hospital cases

• Agencies are taking concentration thresholds much more seriously

• Agency remedy demands are becoming more onerous

Merger Enforcement: American Airlines• In August 2013, DOJ sued to enjoin the $11 billion merger between American

Airlines and U.S. Airways, which would create the world’s largest airline.

– DOJ contended that it would increase airline pricing, including pricing on ancillary fees like baggage and flight change charges.

– Trial was set for November 25, 2013.

• On November 12, airlines announced a settlement with DOJ.

– Divestitures: airlines agreed to give up 69 takeoff and landing slots at LaGuardia and Reagan National, gate and support facilities at other airports.

– Stated goal of concessions is to enhance low-cost carriers’ ability to compete system-wide.

• Other recent airline mergers have not faced litigation challenges:

– Delta/Northwest (2008)

– Southwest/Air Tran (2008)

– United/Continental (2010)

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Merger Enforcement: Bazaarvoice

• Bazaarvoice, an internet-based product rating and review platform, acquired a competitor, PowerReviews, for $168 million in June 2012– Transaction was not submitted for pre-merger review under HSR

• DOJ sued, alleging that the consummated merger created an illegal monopoly – Heavy reliance on damaging internal Bazaarvoice documents

• After a three-week trial, Court ruled almost completely for DOJ• Take-always:

– Bad documents can be damning– DOJ focused on emerging technologies– Consider giving notice of a non-reportable deal

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Merger Enforcement: Health Care!

• FTC v. St. Luke’s Health System, Ltd. (D. Idaho)

• FTC v. Phoebe Putney Health System, Ltd. (M.D. Ga.)

• FTC v. Mercy Hot Springs

• United States v. United Regional Health Care System (N.D. Tex.)

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Merger Enforcement: Predictions for 2014

• Aggressive enforcement will likely continue through the second Obama term

• FTC pursues a potential competition case

• Both agencies seek to block a merger with mid-range HHIs and a “big name” party

• More hospital & medical services cases

• Link between “consumer protection” data privacy & security issues and merger enforcement at FTC

• Increased international coordination & enforcement

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Merger Enforcement: Keys to Clearance & Practice Tips• Structure matters

– Nearly deal that can be classified as a 5-to-4 will receive some scrutiny

– Deals viewed as 4-to-3 have a near presumption of illegality absent a very strong defense story

• Clean documents

• Pro-competitive motivation

• Explain the benefits to consumers rather than doomsday for the parties without the merger

• Deal structure matters, particularly with:

– Joint ventures, failing firms, antitrust risk provisions

• Agencies are open to creativity

– Pull & refile

– “quick looks”

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Contact Information

Rich CunninghamGibson, Dunn & Crutcher LLP1801 California StreetDenver, CO 80202Tel: 303-298-5752rhcunningham@gibsondunn.com

Colorado Attorney General’s OfficeRalph L. Carr Colorado Judicial Center1300 Broadway, Seventh FloorDenver, CO 80203Tel: 720-508-6219Devin.Laiho@state.co.us

Devin Laiho