Clarity And Confusion: FTAIA Developments In 2014

This article originally appeared in Law360 on Jan. 16, 2015. A pdf version is available here

The Foreign Trade Antitrust Improvements Act[1] has confounded practitioners and courts alike for years. This past year brought long-anticipated decisions from the Second (Lotes),[2] Seventh (Motorola Mobility II)[3] and Ninth (Hsuing)[4] Circuits regarding four important issues: (1) whether the FTAIA is substantive or jurisdictional; (2) the scope of the exclusion for conduct affecting “import commerce”; (3) the appropriate standard for the “domestic effects” test; and (4) the increasing importance of the “gives rise to a claim” test. This article summarizes these recent circuit court opinions and offers some thoughts about issues to watch going forward.

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7th Circuit Decision in Motorola Mobility Holds That the FTAIA Bars a U.S. Parent’s Damages Claims Based on Its Overseas Affiliates’ Purchases of Price-fixed Products, But Does Not Bar Criminal Enforcement of the Sherman Act

​The Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a (FTAIA), enacted in 1982, has provided ambiguous direction to courts and practitioners regarding the applicability of U.S. antitrust laws to conduct occurring wholly or partially in other countries. In Motorola Mobility LLC v. AU Optronics Corp. et al., No. 14-8003 (7th Cir. Nov. 26, 2014) (Motorola Mobility II), the 7th U.S. Circuit Court of Appeals became the latest appellate court to weigh in on the meaning of this opaque statute, holding that purchases by a U.S. parent company’s foreign affiliate of price-fixed goods that were incorporated into products subsequently shipped to the U.S. parent did not give rise to damages claims under Section 1 of the Sherman Act. At the same time, however, and in an apparent reversal of direction by the same panel, the Court made clear that its decision does not preclude efforts by the U.S. Department of Justice to pursue criminal charges against foreign defendants for cartel activity relating to components of finished products sold in the United States. Read More

Federal Circuit Provides Important Guidance in RAND Disputes

On Dec. 4, 2014, the Federal Circuit issued a much-anticipated opinion in Ericsson, Inc. v. D-Link Sys., Inc., Nos. 2013-1625, -1631, -1632, -1633 (Fed. Cir. Dec. 4, 2014). The panel—consisting of Judges Kathleen O’Malley, Richard Taranto and Todd Hughes—ruled on several issues, the most significant of which is the proper methodology for calculating “reasonable and non-discriminatory” (RAND) royalty rates for RAND-encumbered “standard essential patents” (SEPs). The opinion, authored by Judge O’Malley, represents the first guidance from an appellate court on how to calculate a RAND royalty. Read More

FTC Settles Its First Action Against a Patent Assertion Entity

On Nov. 6, 2014, the U.S. Federal Trade Commission settled its first action against a patent assertion entity. The FTC alleged that MPHJ Technology Investments LLC and its law firm had sent more than 16,000 letters to small businesses throughout the United States asserting that they were infringing its patents for scanning documents to email and that MPHJ would institute litigation unless the letter recipients agreed to pay MPHJ a royalty. The FTC alleged that the mass letters were misleading and therefore actionable under Section 5 of the FTC Act, because, among other things, MPHJ did not have an intention of actually filing patent infringement suits. MPHJ maintains that it always intended to bring suits, but only decided not to after the validity of its patents was challenged in America Invents Act proceedings. Under the settlement, MPHJ agreed to refrain from making certain deceptive representations when asserting its patent rights. A copy of the agreement containing consent order is available here.

FTC Reaches Consent Agreements with Blue Rhino and AmeriGas to Settle Charges of Restraining Competition

The two leading suppliers of pre-filled propane exchange tanks, commonly used in barbecue grills and outdoor heaters, have reached an agreement with the U.S. Federal Trade Commission to settle charges that the companies illegally agreed not to deviate from their plan to reduce the volume of propane sold to Walmart and other key customers. The companies had previously settled private multi-district litigation based on the same conduct.

The administrative complaint, issued on March 27, 2014, alleged that Blue Rhino and AmeriGas—which together account for around 80 percent of the market—each decided in 2008 to reduce the fill of their propane tanks from 17 to 15 pounds without a corresponding price decrease, effectively increasing by 13 percent the per-unit price of the propane. This initial reduction was not alleged to be an unlawful agreement. However, in the face of resistance from Walmart, Blue Rhino and AmeriGas allegedly agreed that each company would stand firm in its reduction and not give in to Walmart’s pressure. Among the evidence supporting these allegations were telephone and email conversations in which the companies’ executives discussed the reduction and urged each other to “hang in there” when insisting on the 15-pound tank. The complaint alleged that the conduct was a per se unlawful price-fixing agreement. Read More

Price-Fixing MDL Against Online Travel Booking Companies Dismissed With Prejudice

On Oct. 27, 2014, the U.S. District Court for the Northern District of Texas dismissed with prejudice a complaint accusing a group of online travel booking companies of colluding to set hotel room rates. The putative customer class had alleged that the online travel companies, including Orbitz, Expedia, Travelocity and Priceline, colluded with hotels like Marriott and Hilton to fix room prices, thereby engaging in a resale price maintenance conspiracy. The complaint alleged that the companies struck agreements with hotels that ensured that online retailers didn’t discount room reservation rates. The hotels allegedly refused to let competing online retailers sell room reservations if they wouldn’t fix and maintain prices.

In dismissing the complaint with prejudice, the court noted that plaintiffs described the alleged conspiracy in vague terms and used a vague and contradictory timeline of events, leaving open the possibility that the companies’ actions were legitimate and could be explained by common economic experience. The court had previously dismissed a prior complaint on similar grounds. Though plaintiffs’ amended complaint provided new allegations and dropped a group of hotel chains from the suit, the court ultimately found the changes insufficient to suggest a conspiracy had actually formed.

Court Approves Settlement of Narrowed Class Following Supreme Court’s Denial of Class Certification in Comcast v. Behrend

On Dec. 12, 2014, a District Court judge granted preliminary approval of the settlement submitted by the plaintiff class in Glaberson. v. Comcast Corp., No. 2:03-cv-06604 (E.D. Pa.). Judge John R. Padova issued the order in the case, a decade-old class action in which the U.S. Supreme Court had reversed a 3rd U.S. Circuit Court of Appeals order affirming class certification in the closely followed case captioned Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The proposed settlement fund is $50 million, consisting of $16.7 million in cash and services valued at $33.3 million. For background on the case and the Supreme Court’s decision, click here.

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U.S. Ramps Up Criticism of China’s Enforcement of Its Antitrust Laws Against Foreign Companies

I.  Introduction

For some time, many in the antitrust community have expressed concerns about how China is enforcing its antitrust laws against foreign companies. The past several months have seen a steady stream of criticism from the United States that in certain areas—notably, dominant firm conduct, intellectual property rights and mergers—China is selectively enforcing its antitrust laws outside of international norms in order to protect domestic industries. The criticism includes pointed complaints, comments and recommendations from the U.S. enforcement agencies, U.S. business groups and antitrust practitioners. This article provides a brief overview of some of the comments and recommendations being offered to the Chinese government. Read More

9th Circuit: State Action Immunity Protects Convention Center from Exclusive Dealing Claim

In United National Maintenance, Inc. v. San Diego Convention Center, Inc., No. 12-56809, 2014 WL 2094545 (9th Cir. May 14, 2014), the 9th U.S. Circuit Court of Appeals held that the San Diego Convention center enjoyed state action immunity from antitrust claims brought by a supplier of cleaning services whose business was negatively impacted by the convention center’s decision to be the exclusive supplier of cleaning services.

The California Legislature specifically authorized San Diego (and other cities) not only to build a convention center, but also to create a commission that would “manage the use” of the convention center. This type of managerial authorization, the court held, was sufficient to make any anticompetitive effects the result of a clearly articulated and affirmatively expressed state policy—the first prong of the test for state action immunity. The 9th Circuit also held that the center did not need to meet the second state action immunity requirement (that its actions were “actively supervised” by the state), because 1) the City of San Diego appoints all of the center’s board members; 2) upon dissolution, the center’s assets revert back to San Diego; and 3) the center must publicly account for its operations. Overall, the court held, the center acts as an agent that operates the convention center for the benefit of its principal, the city of San Diego. It is an extension of the municipality of San Diego and thus does not require active supervision by the state in order to retain its immunity from antitrust liability. Furthermore, the court noted, the specific facts indicate there is no need for the evidentiary function of active supervision. Read More

Federal Circuit Breathes New Life into Sham Claims Against Tyco

On Aug. 6, 2014, a split three-judge panel from U.S. Court of Appeals for the Federal Circuit restored two of Mutual Pharmaceutical Company Inc.’s antitrust counterclaims against Tyco Healthcare Group LP that stemmed from Tyco’s 2006 patent infringement suit against the company. See Tyco Healthcare Grp. LP v. Mut. Pharm. Co., Inc., 762 F.3d 1338 (2014).

Tyco sued Mutual for infringement and also filed a citizen petition with the U.S. Food and Drug Administration to prevent Mutual from marketing a generic version of Tyco’s insomnia drug, Restoril. In response, Mutual filed four antitrust counterclaims, alleging that the infringement suit and citizen petition—filed a day after Tyco lost a summary judgment motion as to the validity of the Restoril patent—each was a sham and that no reasonable litigant would expect the patents to withstand an invalidity challenge. Mutual also asserted a Walker Process claim alleging that Tyco procured its patents by fraud on the patent office. The district court rejected each of Mutual’s counterclaims. On appeal, the Federal Circuit affirmed the dismissal of the validity and Walker Process counterclaims, but remanded the infringement and citizen petition counterclaims to the district court. Read More

U.S. District Court Rejects Proposed Settlement of High-Tech Employees Non-Solicitation Cases

On Aug. 8, 2014, Judge Lucy Koh of the U.S. District Court for the Northern District of California rejected the proposed settlement of a class action brought by employees of Silicon Valley technology companies alleging that the companies had entered into agreements not to solicit each other’s employees. In re: High Tech Emp. Antitrust Litig., 2014 U.S. Dist. LEXIS 110064 (N.D. Cal. Aug. 8, 2014).

Plaintiffs filed complaints against certain high-tech companies and film studios alleging they had entered into agreements not to solicit each other’s employees. In April 2013, the court denied a motion for class certification on the ground that the plaintiffs’ expert had failed to demonstrate class-wide impact. Plaintiffs again filed a class certification motion and while it was pending, and they settled their claims against certain defendants for a total of $20 million. In October 2013, the court approved that settlement. The litigation continued against the high-tech companies, and in October 2013 the court granted class certification as to a narrowed class of employees. In March 2014, the court denied the defendants’ summary judgment motion. Shortly before the trial was set to begin, the parties informed the court that they had reached a settlement. Plaintiffs filed a motion for preliminary approval of a settlement totaling $324.5 million, and one class member objected to the settlement. Read More

U.S. District Court Rules that NCAA’s Rules Regarding Compensation for Student Athletes Violate the Sherman Act

On Aug. 8, 2014, Judge Claudia Wilken of the U.S. District Court for the Northern District of California issued a post-trial order that the National Collegiate Athletic Association (NCAA) violated Section 1 of the Sherman Antitrust by adopting rules that bar student-athletes from receiving a share of revenue that the NCAA and its member schools earn from the sale of licenses to use the student-athletes’ names, images and likeness. Edward O’Bannon et al. v. NCAA, et al., No. C 09-3329, 2014 U.S. District LEXIS 110036 (N.D. Cal. Aug. 8, 2014).

The NCAA is an association of 1,100 colleges and universities that regulates intercollegiate athletic competition in about two dozen sports. It issues rules that establish academic eligibility requirements for student-athletes, sets forth guidelines and restrictions for recruiting high school athletes, and imposes limits on the number and size of athletic scholarships that each school may provide. The NCAA has three divisions based on the number and quality of opportunities schools can provide, including the financial aid provided to student-athletes. The NCAA imposes rules that bar schools from sharing with student-athletes revenue earned from selling licensing rights to use the student-athletes names, likenesses and images. Read More

Is Cash King? Two District Courts Throw Out “Reverse Payment” Claims, But Highlight Confusion Over Applying FTC v. Actavis

In September 2014, two separate district courts dismissed claims against branded drug manufacturers stemming from pay-for-delay patent infringement settlements. While the end result was the same, the opinions from these cases show a continuing inconsistency in the approach courts are taking as to whether reverse payment claims should be interpreted flexibly under the Supreme Court’s 2013 decision in FTC v. Actavis to include non-cash payments, or more strictly to require an actual cash payment.

On Sept. 12, Judge Peter G. Sheridan in New Jersey dismissed a multidistrict case challenging an allegedly anticompetitive settlement between Pfizer Inc. and Ranbaxy Laboratories Ltd. concerning patents for the cholesterol drug Lipitor. See In re Lipitor Antitrust Litig., No. 3:12-cv-02389 (PGS), 2014 U.S. District LEXIS 127877 (D.N.J. Sept. 12, 2014). Judge Sheridan did not take issue with the fact that the allegedly anticompetitive settlement was nonmonetary, but nevertheless dismissed the case because the plaintiffs failed to quantify and reasonably estimate the value and amount of that nonmonetary payment. By contrast, on Sept. 4, Judge William E. Smith in Rhode Island similarly dismissed a claim that Warner Chilcott PLC and others entered into an illicit agreement regarding Loestrin, but did so on the basis that Actavis requires an actual cash payment to violate the antitrust laws. See In re Loestrin 24 Fe Antitrust Litig., No. 1:13-md-2472-S-PAS, 2014 WL 4368924 (D.R.I. Sept. 4, 2014). In particular, because the settlement agreement at issue included a worldwide license to one generic firm and other co-promotion and licensing arrangements—but did not call for any cash exchange—it did not trigger Actavis. Read More

FTC Updates Fred Meyer Guidelines Regarding Promotional Allowances

On Sept. 29, 2014, the U.S. Federal Trade Commission published revisions to its Guide for Advertising Allowances and Other Merchandising Payments and Services, commonly referred to as the “Fred Meyer Guidelines,” effective Nov. 10, 2014. Fed. Reg. Vol. 79, No. 188 (Sept. 29, 2014).

The Fred Meyer Guidelines were first published in 1969 to help businesses comply with sections 2(d) and 2(e) of the Robinson-Patman Act, 15 U.S.C. § 13(d), which generally prohibit a seller from paying allowances or furnishing services to promote the resale of its products unless the allowances or services are offered to all competing customers on proportionally equal terms. Sections 2(d) and 2(e) relate to the resale of a firm’s products, as opposed to section 2(a) of the Act, which relates to the original or first sale. The FTC made minor amendments to the Guidelines by, among other things, providing some additional guidance through revised examples of conduct regarding slotting allowances, making promotional services and allowances available to competing customers on proportionally equal terms, and taking reasonable steps to ensure that promotional services and facilities are functionally available to competing customers, particularly in the context of on-line commerce.

The notice published in the Federal Register, as well as the revised Fred Meyer Guidelines, are available here.

Trade Associations Agree to Eliminate “No Poaching” Code of Ethics Provisions Pursuant to FTC Consent Orders

On Aug. 22, 2014, the U.S. Federal Trade Commission announced it had reached two separate proposed consent orders with the National Association of Residential Property Managers, Inc. (NARPM) and the National Association of Teachers of Singing, Inc. (NATS). NARPM and NATS agreed to eliminate provisions in their respective codes of ethics that restrain competition.

NARPM represents more than 4,000 real estate brokers, managers and agents. Its code of ethics read, “The Property Manager shall not knowingly solicit competitor’s clients,” and “NARPM Professional Members shall refrain from criticizing other property managers or their business practices.” The FTC’s complaint alleged that these limitations on comparative advertising and solicitation restrained competition in violation of the FTC Act. The proposed settlement order requires NARPM to stop restraining its members from soliciting property management work, and from making statements that are not false or deceptive about a competitor’s products, services, or business or commercial practices. Among other things, NARPM also must implement an antitrust compliance program. Read More

Assistant Attorney General Bill Baer Warns Amnesty Applicants to Fulfill Their Obligations Under ACPERA

On Sept. 10, 2014, Assistant Attorney General Bill Baer spoke to the Global Antitrust Enforcement Symposium at Georgetown University on the topic of “Prosecuting Antitrust Crimes,” emphasizing the need for amnesty applicants to fulfill their obligations under the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA).

Baer explained that amnesty cooperation needs to be complete and robust, and that companies cannot pick and choose what they report about their overall wrongdoing. He said the fact that there may be a cooperating corporation has dramatically “changed the calculus” for other corporate co-conspirators, and as a result, the Division is seeing more companies seeking to mitigate the consequences of their cartel activity at early stages of investigations. Baer added that the Division takes compliance commitments seriously, and questions whether companies that continue to employ culpable senior executives who do not accept responsibility and are carved out of a corporate plea agreement are effective in their remediation efforts. In such cases, the Division may argue that a term of corporate probation is required, he said.

Assistant Attorney General Baer’s full speech is available here.

U.S. Supreme Court To Determine Whether Natural Gas Act Preempts Price-Fixing Claims

On July 1, 2014, the U.S. Supreme Court granted review to determine whether the Natural Gas Act preempts price-fixing claims in multidistrict litigation against energy companies. In In Re: Western States Wholesale Natural Gas Antitrust Litigation, 715 F.3d 716 (9th Cir. 2013) (court of appeals decision available here), the 9th U.S. Circuit Court of Appeals held that the Natural Gas Act did not preempt state law antitrust challenges to natural gas rates and practices related to natural gas sales. The 9th Circuit relied upon the Supreme Court’s 1989 decision in Northwest Central Pipeline Corp., 489 U.S. 493 (1989). There, the Supreme Court held that the Natural Gas Act provides a “regulatory role for the states” in natural gas production, and, according to the 9th Circuit, rejected the argument that federal regulations preempted all state regulations that may affect rates within federal control. The natural gas companies sought review, arguing that the 9th Circuit’s decision conflicted with those of two state supreme courts. After the U.S. Supreme Court asked the federal government to address the dispute, the U.S. Solicitor General argued that the Federal Energy Regulatory Commission (FERC) had exclusive jurisdiction over the issues, but recommended that the Supreme Court deny review because there was no conflict with state supreme court decisions and the issue was not likely to recur given FERC’s subsequently expanded authority. The U.S. Supreme Court nevertheless accepted the case, which will be heard during the next term, which starts in October. The case is styled in the Supreme Court as Oneok, Inc., et al. v. Learjet, Inc., Case No. 13-271.

U.S. Supreme Court to Hear Libor Antitrust Appeal to Resolve Circuit Split Regarding Appealability of Orders Before Entry of a Final Judgment in an MDL Proceeding

On June 30, 2014, the U.S. Supreme Court agreed to consider whether bondholder plaintiffs accusing several banks of violating antitrust law by rigging Libor had the right to immediately appeal the dismissal of their case even though the broader multidistrict litigation is still ongoing. See Ellen Gelboim, et al. v. Bank of America Corp., et al., Case No. 13-1174. The district court had dismissed the majority of plaintiffs’ claims, including the antitrust claims, for failing to meet statutory requirements pertaining to private plaintiffs. The 2nd U.S. Circuit Court of Appeals denied plaintiffs’ appeal because a final judgment not yet been entered in the district court’s MDL case. See In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d 666 (S.D.N.Y. 2013).In their petition to the Supreme Court, the plaintiffs argued that there is a split of authority among the circuit courts over whether parties in their situation could appeal—the Federal, 9th and 10th circuits also would have refused to allow their appeal, but the D.C., 3rd, 5th, 7th, 8th, and 11th circuits would have permitted it. The defendant banks urged the Supreme Court to refuse to hear the case, arguing that doing so would interfere with trial courts’ abilities to manage their own calendars in complex cases.

The Supreme Court is expected to hold oral arguments on the case during its next term, which begins in October.

9th Circuit Upholds Criminal Judgment and $500 Million AUO Antitrust Fine for LCD Price-Fixing Conspiracy

On July 10, 2014, the 9th U.S. Circuit Court of Appeals denied an appeal by AU Optronics Corp. and two of its former executives to reverse a $500 million criminal judgment for participating in a conspiracy to fix the prices of liquid crystal display (LCD) panels. See United States of America v. AU Optronics Corp., et al, Case No. 12-10492 __ F.3d __, 2014 U.S. App. LEXIS 13051 (9th Cir. July 10, 2014). The appellants argued that the Foreign Trade Antitrust Improvements Act (FTAIA), which limits the extraterritorial reach of U.S. antitrust laws, barred prosecution for their conduct because the bulk of panels were sold to third parties outside the United States. The 9th Circuit rejected this argument, holding that the government had sufficiently proved at trial that the defendants had engaged in import trade into the U.S., and therefore the FTAIA did not apply. The court found that although AUO’s agreement to fix prices occurred in Taiwan, a substantial volume of goods containing the price-fixed panels were ultimately sold to customers in the U.S., thereby constituting import commerce. The court did not reach the merits of the defendants’ argument that the district court had given an improper jury instruction on the FTAIA’s domestic effects exception. Read More

7th Circuit Grants Motorola’s Petition for Interlocutory Appeal of FTAIA Decision Eliminating 99 Percent of Its Claim in LCD Price-Fixing Case

On July 15, 2014, the 7th U.S. Circuit Court of Appeals granted Motorola’s petition for interlocutory appeal of a district court decision that held that Motorola’s price-fixing claims based on purchases that its non-U.S. affiliates made from non-U.S. defendants were barred under the Foreign Trade Antitrust Improvement Act (FTAIA). See Motorola Mobility LLC v. AU Optronics Corp. et al., 746 F.3d 842 (7th Cir. 2014).

As reported in the April 2014 edition of Orrick’s Antitrust and Competition Newsletter, on March 27, 2014, Motorola’s petition originally resulted in a 7th Circuit decision, by Judge Richard Posner, that affirmed the district court’s decision based solely on Motorola’s petition for review and without full briefing on the merits or a hearing. Following that decision, as reported in our June 2014 Antitrust and Competition Newsletter, Motorola filed a petition for rehearing en banc, and the 7th Circuit issued a series of unusual decisions demanding briefing from the Solicitor General on the application of the FTAIA in light of positions the U.S. government had taken in other cases. In addition, the governments of Japan, Korea and Taiwan submitted amicus briefs. Read More