In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In this installment, we will unpack some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. In particular, we will first try to separate the analyses of, on the one hand, JV formation, and on the other, JV operation and structure. Then we will consider whether a JV (i) constitutes a “naked” agreement between or among competitors which is per se unlawful, (ii) presents no significant antitrust issue because there is only a single, integrated entity performing the JV functions, or (iii) involves restraints within the scope of a legitimate collaboration that are virtually per se lawful.
Last week, President Trump nominated Makan Delrahim to serve as the Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice. Mr. Delrahim, who is currently serving as White House Deputy Counsel, is a former lobbyist and veteran of the George W. Bush Justice Department. He served as Deputy Assistant Attorney General for International from 2003–2005. Mr. Delrahim had a good working relationship with the career staff who he will now rely upon to advance the Trump Administration’s antitrust enforcement agenda and priorities.
Associate Elena Kamenir and Partners Russell Cohen and Richard Goldstein published an article discussing the scope of antitrust petitioning immunity in light of recent FTC and First Circuit opinions that addressed the Noerr-Pennington doctrine. In these two recent matters, defendants asserted the doctrine as an affirmative defense in two different contexts: in connection with trademark disputes in 1-800 Contacts and in relation to private standards-setting activity that was adopted by a regulatory agency in Amphastar v. Momenta. In their article, the authors suggest that the scope of the immunity likely remains narrow.
To read the published article, please click here.
In Sullivan v. Barclays PLC, Judge P. Kevin Castel, of the Southern District of New York, raised an interesting point regarding the relationship between the viability of antitrust claims subject to the Foreign Trade Antitrust Improvement Act (FTAIA) and constitutional requirements for personal jurisdiction: The FTAIA “arguably may apply a less-exacting standard than the due process threshold to exercise personal jurisdiction over a foreign defendant.” In other words, even though the standard for the FTAIA might be met to allow an antitrust claim to proceed against a foreign defendant, the court nonetheless might not be able to assert personal jurisdiction. The question whether the FTAIA should be read more strictly than has been the case to conform to due process requirements, or that foreign defendants should be more diligent in challenging personal jurisdiction, are interesting ones that warrant further analysis.
Last September, we discussed the U.S. Court of Appeals for the Second Circuit’s opinion in In re Vitamin C Antitrust Litigation vacating a $147 million judgment against Chinese vitamin C manufacturers based on the doctrine of international comity. That case stemmed from allegations that the defendants illegally fixed the price and output levels of vitamin C that they exported to the United States. In reversing the district court’s decision to deny the defendants’ motion to dismiss, the Second Circuit held that the district court should have deferred to the Chinese government’s explanation that Chinese law compelled the defendants to coordinate the price and output of vitamin C.
Joint ventures (“JVs”) can require navigation of a potential minefield of antitrust issues, which we’ll explore in a series of six blog posts beginning with this introductory post. Not all of the law in this area is entirely settled, and there remain ongoing debates about some aspects of the antitrust treatment of JVs. Indeed, arriving at a coherent and unified view of JV law is like putting together a jigsaw puzzle with missing and damaged pieces.
The Federal Trade Commission has announced new (2017) premerger notification thresholds under the Hart-Scott-Rodino Act as follows:
Any acquisition of voting securities and/or assets requires premerger notification to the Federal Trade Commission and the Department of Justice under the HSR Act and the regulations promulgated thereunder (16 C.F.R. Sections 801 – 803) if the following tests are satisfied and if no exemption applies (15 U.S.C. Section 18a(a)(2)). Where a premerger notification is required, both parties must file, the acquiring person must pay a filing fee ((i) $45,000 for transactions below $161.5 million, (ii) $125,000 for transactions of $161.5 million or more but less than $807.5 million, and (iii) $280,000 for transactions of $807.5 million or more) and the parties must observe a 30 day waiting period prior to closing.
On January 13, 2017, the U.S. Department of Justice and the Federal Trade Commission issued their updated Antitrust Guidelines for the Licensing of Intellectual Property, first issued in 1995, which explains how the two agencies evaluate licensing and related activities involving patents, copyrights, trade secrets and know-how. Although the agencies have issued a variety of reports since 1995 regarding antitrust and IP issues, this is the first comprehensive update of the Guidelines. The final updated Guidelines do not differ significantly from the proposed Guidelines released in August 2016, which we analyzed in this blog post.
Also on January 13, 2017, the DOJ and FTC issued their revised Antitrust Guidelines for International Enforcement and Cooperation, first issued in 1995 as the Antitrust Enforcement Guidelines for International Operations. These Guidelines explain the agencies’ current approaches to international enforcement policy and their related investigative tools and cooperation with foreign enforcement agencies. The revised Guidelines differ from the 1995 Guidelines by adding a chapter on international cooperation, updating the discussion of the application of U.S. antitrust law to conduct involving foreign commerce (e.g., the Foreign Trade Antitrust Improvement Act, foreign sovereign immunity, foreign sovereign compulsion, etc.), and providing examples of issues that commonly arise.
Judge Katherine Forrest of the Southern District of New York recently dismissed another set of complaints in what she described as “the next chapter in the saga” of the In re Aluminum Warehousing Antitrust Litigation cases, No. 13-md-024710-KBF (S.D.N.Y. Nov. 30, 2016). Referring to her previous October 5, 2016 ruling, which dismissed claims asserted by certain first-level purchasers of aluminum products, Judge Forrest found (in a ruling dated November 30, 2016) that the remaining complaints by additional first-level purchasers were equally defective because they too failed to establish antitrust injury. The October 5, 2016 ruling, in turn, substantially relied on the Second Circuit’s August 9, 2016 opinion, which affirmed dismissal of claims brought by indirect purchasers of aluminum or aluminum products. Broadly, the various complaints alleged that aluminum futures traders, banks, and others conspired to manipulate the warehouse storage costs of aluminum, resulting in higher prices in the market for physical aluminum.
As of November 28, 2016, the Federal Trade Commission (FTC) has expanded the filing obligations under the Hart-Scott-Rodino (HSR) Act by requiring filers to submit certain documents analyzing a deal or affected markets even where the evaluation or analysis is limited to geographies or operations outside of the United States. This is a significant shift in the Agency’s interpretation of Items 4(c) and 4(d) of the HSR Notification and Report Form.
On November 17, 2016, Jon Sallet, DOJ’s Deputy Assistant Attorney General for litigation, presented a speech at the American Bar Association Antitrust Section’s Fall Forum in which he outlined his views regarding the DOJ’s approach to vertical mergers and other transactions that raise the potential for vertical restraints on competition. After recapping some of the history regarding the DOJ’s treatment of vertical restraints, Mr. Sallet commented on issues such as merger-related efficiencies, competitive effects, input foreclosure and raising rivals costs, innovation effects, the exchange of competitively sensitive information that could harm interbrand competition, and potential anticompetitive effects in transactions that do not involve a combination of vertically related assets. Finally, he noted that if the DOJ has concerns regarding anticompetitive effects, it might feel that conduct remedies are insufficient and may require structural remedies or even try to block the transaction. Any company considering a vertical merger or a transaction that may raise the potential for vertical restraints on competition will benefit from reviewing Mr. Sallet’s speech. The speech is available here.
The Seventh Circuit’s decision in Motorola Mobility v. AU Optronics–which blocked a U.S. parent’s Sherman Act claim based on its foreign subsidiary’s purchases of a price-fixed product–continues to reverberate throughout federal district courts. A district court in the Sixth Circuit recently followed Motorola Mobility to dismiss a U.S. company’s price-fixing claims based on its foreign subsidiary’s purchases of allegedly price-fixed components that were incorporated abroad into finished goods that the subsidiary then shipped to the United States. In re Refrigerant Compressors Antitrust Litigation, No. 2:09-md-02042, 2016 WL 6138600 (E.D. Mich. Oct. 21, 2016). The district court’s decision demonstrates that, post-Motorola Mobility, defendants have strong arguments in some circuits under the Foreign Trade Antitrust Improvements Act (“FTAIA”) and Illinois Brick to defeat a U.S. parent’s price-fixing claims based on purchases by its overseas subsidiary, especially where that subsidiary is not wholly-owned.
In SOLIDFX, LLC v. Jeppesen Sanderson, Inc., Case Nos. 15-1079 and 15-1097 (opinion available here), the Tenth Circuit aligned itself with the First and Federal Circuits to hold that the invocation of intellectual property rights is a presumptively valid business justification sufficient to rebut a Sherman Act Section 2 refusal to deal claim, but left open some questions about when and how the presumption can (if ever) be rebutted.
In an October surprise, the DOJ and FTC (collectively, the “Agencies”) released guidance for HR professionals on the application of the antitrust laws to employee hiring and compensation. The Agencies’ October 20, 2016 release, Antitrust Guidance for Human Resource Professionals, announced that “naked” agreements among employers not to poach each other’s employees and to fix wages and other terms of employment are per se illegal. Critically, for the first time, the Agencies warn that such agreements could result in criminal prosecution against individual HR professionals, other company executives, as well as the company. This Guidance, coupled with repeated requests to approach the Agencies to report such agreements, signals a significant shift in enforcement focus for the Agencies, including a further move to individual prosecutions, particularly when taken together with last year’s DOJ Yates Memorandum calling for more emphasis on individual executive liability.
On August 9, 2016, the Second Circuit affirmed a district court’s dismissal of claims asserted by two groups of self-proclaimed “indirect purchasers” of aluminum products who alleged that three aluminum futures traders, which had acquired operators of warehouses for aluminum, manipulated a price component for aluminum (warehouse storage costs). The Second Circuit concluded that these “indirect purchasers” did not suffer antitrust injury because they were not participants in the aluminum warehousing market. In re Aluminum Warehousing Antitrust Litig., Nos. 14-3574, 14-3581(2d Cir. Aug. 9, 2016). In the district court, Judge Katherine Forrest recently applied the Second Circuit’s analysis to dismiss similar claims brought by the purported “direct purchasers” of the aluminum because they, too, were not participants in the aluminum warehousing market. In re Aluminum Warehousing Antitrust Litig., No. 13-2481 (S.D.N.Y. Oct. 5, 2016). These two decisions (assuming the district court’s decision is affirmed) should help defendants attack plaintiffs’ efforts to establish antitrust standing in other cases by trying to thread the “inextricably intertwined” needle for market participants that the Supreme Court established in Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982).
Partners Jay Jurata and Alex Okuliar recently published a chapter on IP and Antitrust in The Antitrust Review of the Americas 2017 published by Global Competition Review. They note that antitrust and competition law is being wielded as an increasingly effective weapon to diminish patent rights in the US. Follow the link to the chapter.
For years, a debate has swirled in Washington and around the country about the role and economic value of “patent assertion entities” – often referred to derisively in the press as “patent trolls.” Some of these PAEs have been known to blanket small businesses with threatening letters claiming infringement of sometimes questionable patents hoping to receive a quick payout. The Federal Trade Commission just recently published a long-awaited Patent Assertion Entity Activity Study that analyzes the structure, organization, and behavior of PAEs, hoping to inform the debate about these entities. Using responses from a sample of 22 PAEs and more than 2,500 PAE affiliates and related entities, the study analyzes PAE acquisitions, litigation, and licensing practices over a six-year period. The findings in the study are extensive and are likely to provoke further discussion and debate. The Commission’s key findings and recommendations are discussed below. READ MORE
Partners Alex Okuliar and Jim Tierney recently published a piece in the National Law Journal entitled Are Patent Rights Poised for a Resurgence? They argue that after several years of retrenchment, economic trends in the US and China, as well as developments at the federal agencies and US courts, could signal a return to stronger protections for patent owners. Follow the link to the article.
On September 20, 2016, the U.S. Court of Appeals for the Second Circuit issued an opinion in In re Vitamin C Antitrust Litigation, reversing the district court’s eight year-old decision not to grant a motion to dismiss the case, based on international comity. The Second Circuit vacated the $147 million judgment against the two defendants that took the case to trial in 2013, and remanded with instructions to dismiss the complaint with prejudice. The court did not opine on the defendants’ other grounds for dismissal – the foreign sovereign compulsion, act of state, and political question doctrines. In re Vitamin C Antitrust Litig., No. 13-4791 (2d Cir. Sept. 20, 2016).
In 2005, the plaintiffs brought several class action complaints against the major Chinese vitamin C manufacturers, alleging that the manufacturers illegally fixed the price and output levels of vitamin C that they exported to the United States. The cases, which were consolidated in the Eastern District of New York, marked the first time that Chinese companies had been sued in a U.S. court for violation of the Sherman Act.
On September 15, 2016, the Third Circuit jump-started a federal antitrust class action involving truck transmissions, holding that a direct purchaser’s assignment of its federal antitrust claims to an indirect purchaser is valid as long as the assignment was written and express—even if there was no consideration for the assignment. The Third Circuit also held that a proposed class representative’s motion to intervene is presumptively timely if made before class certification. Wallach, et al. v. Eaton Corp., et al., No. 15-3320 (Sept. 15, 2016).