United States

Second Circuit Squeezes the Juice Out of Vitamin C Jury Verdict

Orange Fruit Slices Vitamin C Antitrust Litigation

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.

For context, the Chinese Government regulates the vitamin C industry through the China Chamber of Commerce of Medicines & Health Products Importers & Exporters (“Chamber”), which itself is an arm of the Ministry of Commerce of the People’s Republic of China (“Ministry”). The Ministry is China’s equivalent of the U.S. Department of Commerce.  The Chamber created an entity called the vitamin C Subcommittee (“Subcommittee”), which included representatives from the major Chinese vitamin C manufacturers.  The Subcommittee members, at the Ministry’s Direction, set and coordinated vitamin C prices and export levels to help the Chinese vitamin C industry remain stable as the country transitioned from a centrally-planned economy to one that is more market-based in accordance with China’s obligations to the World Trade Organization (“WTO”).  Under a 2002 Notice issued by the Ministry, in order to export vitamin C, a manufacturer was required to submit documentation to the Chamber indicating the amount and price of vitamin C it desired to export.  If the Chamber found the price and quantity in line with the levels set by the Subcommittee, it would “verify” the contract and affix a “chop” (a type of seal) to the contract, indicating that the Chamber had reviewed and approved the transaction.

The plaintiffs, for their part, viewed the Chamber and the Subcommittee as more akin to a trade association than a government entity, and argued that the language contained in 2002 Notice did not require the manufacturers to agree on price and output.

The defendants moved to dismiss the consolidated complaint on grounds of foreign sovereign compulsion, international comity, and the act of state doctrine. In what the Second Circuit called “an historic act,” the Ministry filed an amicus brief in support of the defendants’ dismissal motion – the first time any Chinese Government entity appeared as an amicus in any U.S. court.  The Ministry’s brief explained the structure and operation of the vitamin C industry in China, and made clear that the manufacturers were, in fact, required by Chinese law to coordinate on the price and output of vitamin C.  The district court, however, refused to defer to the Ministry’s explanation of Chinese law and denied the motion.  The district court denied the defendants’ summary judgment motions, and a jury trial took place in 2013.  Plaintiffs prevailed in the trial, which resulted in a $147 million judgment post-trebling.

The Second Circuit, eight years after the district court denied the defendants’ motion to dismiss, held that because the Chinese Government appeared before the district court and made a statement under oath that Chinese law required the defendants to set prices and limit quantities of vitamin C sold in the United States, and because the defendants could not simultaneously comply with Chinese law (as explained to the court by the Ministry) and with the U.S. antitrust laws, the district court should have declined to exercise jurisdiction over the case.  The court did not reach the question of whether the foreign sovereign compulsion, act of state or political question defenses also provide grounds for dismissing the case.

The appellate court held that the district court should have deferred to the Ministry’s statement that Chinese law required the defendants to coordinate the price and output of vitamin C. It “reaffirm[ed] the principle that when a foreign government, acting through counsel or otherwise, directly participates in U.S. court proceedings by providing a sworn evidentiary proffer regarding the construction and effect of its laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements.”  The Second Circuit further stated:  “Not extending deference in these circumstances disregards and unravels the tradition of according respect to a foreign government’s explication of its own laws, the same respect and treatment that we would expect our government to receive in comparable matters before a foreign court.”

Accepting the Ministry amicus submission as true, the Second Circuit determined that under the verification and chop regime, the defendants would only be allowed to export vitamin C to the United States. if they did so after coordinating on price and output.  That coordination constitutes an antitrust violation in the United States, which put the defendants in the impossible position of being unable to comply with Chinese law and with U.S. law at the same time.  As such, the district court should have declined to exercise subject matter jurisdiction over the case and should have dismissed it.

Of particular note, the Second Circuit stated that deference to the Chinese government is especially important in this case “because of the unique and complex nature of the Chinese legal- and economic-regulatory system and the stark differences between the Chinese system and ours.”  Further, the appellate court explained that the plaintiffs are not without a remedy – they can address their complaint through diplomatic channels and the World Trade Organization’s processes. Allowing the district court to order the vitamin C manufacturers to comply with conflicting legal requirements, however, “is an untenable outcome.”

For defendants, the Second Circuit’s decision underscores that in advancing arguments based on international comity concerns, it may be prudent, or even necessary, to seek the assistance of the relevant foreign government to create an evidentiary record of the foreign country’s laws that are in conflict with U.S. laws.

 

Disclosure Statement: The authors represented one of the defendant vitamin C manufacturers in In re Vitamin C Antitrust Litigation.  Although Orrick and its client worked with the Ministry and briefed and argued the motion to dismiss on comity and other grounds in the District Court, its client was not involved in the appeal to the Second Circuit.

Third Circuit Jump-starts Class Action, Holding that an Indirect Purchaser Can Bring Federal Antitrust Claims as a Direct Purchaser Based on Assignment of the Claims Even Without Consideration

Antitrust Class Action Truck Transmissions

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).

READ MORE

Ninth Circuit Grounds Aftermarket Claims, Refusing to Stretch Antitrust Theories and Reminding Plaintiffs That Allegations Must Be Supported by Evidence of Anti-Competitive Harm

shutterstock_196757714

Last week, the Ninth Circuit affirmed a summary judgment disposing of numerous antitrust claims brought by an independent servicer against a manufacturer of systems and parts that also provides service. The court emphasized that “[t]his case serves as a reminder that anecdotal speculation and supposition are not a substitute for evidence, and that evidence decoupled from harm to competition—the bellweather of antitrust—is insufficient to defeat summary judgment.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., No. 14-15562 (9th Cir. Sept. 9, 2016).

Auxiliary Power Units (“APUs”) power an airplane’s air conditioning, cabin lights and instrumentation. Aerotec International, Inc. (“Aerotec’), a small servicer of APUs, including those manufactured by Honeywell International, Inc. (“Honeywell”), complained that Honeywell had stalled Aerotec’s sales efforts and prevented it from reaching cruising altitude through a variety of alleged anticompetitive conduct.

Honeywell has above a 70% share of the APU market, which includes just one other major manufacturer. Honeywell sells both APUs, APU parts, and APU service. Aerotec’s share of the repair market—which includes dozens of other firms—is about 1%. Some airlines also undertake their own APU servicing. Honeywell has a tiered pricing structure for its APU parts: Honeywell “affiliates” get the best pricing for and priority access to parts under long-term agreements that impose obligations on the affiliates. Airlines pay more than affiliates, and independent servicers—like Aerotec—pay even more on the spot market for Honeywell’s OEM parts. Those servicers, including Aerotec, can and do buy third-party parts approved by the FAA. Using such parts, Aerotec touted that its prices were 20% lower than its competitors on average.

Although Aerotec had some success as an APU servicer for a time, it claimed that its business was hurt when it had difficulty obtaining parts from Honeywell during what Honeywell deemed a parts shortage (which Aerotec alleged was pretextual). Aerotec also alleged that Honeywell maintained an overly burdensome ordering process, held Aerotec to stringent payment terms, withheld technical information, offered steeply discounted bundles of parts and repair services, and engaged in price discrimination against Aerotec and other independent servicers.

The Ninth Circuit had no difficulty in grounding Aerotec’s Sherman Act Section 1 and Section 2 claims and its Robinson-Patman Act claim. Aerotec advanced two Section 1 claims. First, it argued that Honeywell had unlawfully tied APU parts to service. This claim foundered because Aerotec presented no evidence of a tie, i.e., evidence that Honeywell either required customers to purchase Honeywell service if they wanted to buy APU parts or that Honeywell required customers not to purchaser service from others. The Ninth Circuit refused to stretch tying law to reach parts delays, pricing decisions, and removal of technical data. Those behaviors were directed not at a customer but at a competitor (Aerotec), distinguishing the situation from that in Eastman Kodak Co. v. Image Technical Servs. Inc., 504 U.S. 451 (1992). The court rejected Aerotec’s arguments that Honeywell “created an implied tie by making the purchase of Honeywell’s services an economic imperative.” Aerotec’s chain of logic and evidence – that airlines learned the “game” that to get parts, they should buy Honeywell service to avoid the complications or difficulties associated with using Aerotec—was “too attenuated to support liability” under Section 1. “[A]rguably manipulative tactics imposed on a third-party competitor are [not] sufficient by themselves to create a tie with respect to a separate buyer simply because they make it less desirable to purchase from the third party.”

Aerotec also argued that Honeywell violated Section 1 through exclusive dealing arrangements with customers. However, Aerotec did not present a global agreement by Honeywell with its customers. Other than submitting some evidence that purchasers of repair services contract for 3-7 years at a time, Aerotec failed to specify the amount or duration of foreclosure from any of Honeywell’s particular customer contracts. Aerotec’s “speculation and innuendo . . . cannot substitute for evidence.” The Ninth Circuit also declined to decide whether a substantial discount could amount to a de facto exclusive agreement. Even if it can, there was no evidence of any exclusive requirements on which the discounts were conditioned. The de facto theory did not “provide Aerotec an end run around the obligation to first show that express or implied contractual terms in fact substantially foreclosed dealing with a competitor for the same good or service.”

As to the Section 2 claim, Aerotec first argued that Honeywell had engaged in an unlawful refusal to deal with a competitor. This claim failed because even a monopolist has no general duty to deal, and Aerotec’s allegations did not fit within the “narrow exception” recognized in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). Aerotec “simply did not like the business terms offered by Honeywell, especially after things began to change in 2007. But this ‘business pattern’ can hardly be characterized as so onerous as to be tantamount to the conduct in Aspen Skiing.” Aerotec’s “vague requested remedy” that the court order Honeywell to provide parts, data and prices like it did before 2007 “reveal[ed] the problem with Aerotec’s refusal to deal claim: providing any meaningful guidance to Honeywell and ordering it to artificially create pre-2007 market conditions would require the courts to play precisely the kind of ‘central plan[ing]’ role that courts are ‘ill suited’ to play.”

Aerotec also argued that it had presented sufficient evidence of a Section 2 essential facilities claim, reasoning that APU parts are an essential facility without which repairs are impossible. The Ninth Circuit explained that it has treated essential facilities as a basis for a Section 2 claim even though the Supreme Court has never recognized the doctrine. Even so, the court said that this claim failed for an “obvious” reason—a facility is only “essential” where it is otherwise unavailable. The evidence showed that Aerotec had access to parts from sources other than Honeywell itself.

Aerotec’s bundled discount claim under Section 2 also failed because of a lack of credible evidence that Honeywell priced repair services below cost. Emphasizing that low prices benefit consumers regardless of how they are set, the Ninth Circuit refused to apply the discount attribution test of Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008), because that test does not apply where the parties offer the same bundle of good and services, and Aerotec offered both APU parts and services (just like Honeywell). On a bundle-to-bundle comparison, Aerotec could provide services more efficiently than Honeywell, which would enable it to avoid selling parts at cost. Aerotec’s argument that Honeywell was unlawfully charging it high wholesale prices for APU parts while it was charging low (but above-cost) prices for repair bundles was foreclosed by the Supreme Court’s decision in Pacific Bell Tel. Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009), which held that “price-squeeze” claims are not actionable.

Finally, the Ninth Circuit affirmed the summary judgment for Honeywell on Aerotec’s Robinson-Patman Act price discrimination claim. While Honeywell gave its affiliates with long-term contracts better pricing, Honeywell received benefits under those long-term arrangements, including substantial obligations imposed on affiliates such as payment of license/royalty fees, maintenance of insurance, exclusive use of Honeywell parts, and compliance with policies, regulations, and procedures promulgated by Honeywell. These obligations made spot sales to Aerotec and affiliate sales not comparable for Robinson-Patman purposes. Cf. our recent blog posts on Robinson-Patman Act issues.

Aerotec stands as a further reminder that antitrust law is designed to protect competition, not competitors. If a plaintiff fails to marshal evidence of anticompetitive harm, and instead relies on generalizations and speculation and attempts to stretch existing antitrust categories beyond their limits, the plaintiff’s claims should and likely will fail.

Third Circuit Rules that Antitrust Standing Is Properly Challenged Under Rule 12(b)(6) for Failure to State a Claim, Not Under Rule 12(b)(1) for Lack of Subject Matter Jurisdiction

shutterstock_281324159

On September 7, 2016, the Third Circuit ruled that a district court erred in granting a Fed. R. Civ. P. 12(b)(1) motion to dismiss federal antitrust claims for lack of subject matter jurisdiction, because the court conflated the analyses for Article III standing and antitrust standing. Hartig Drug Co. Inc. v. Senju Pharmaceutical Co. Ltd., No. 15-3289 (3d Cir. Sept. 7, 2016).

Hartig Drug Company Inc. (“Hartig”), an Iowa-based drug store chain, sued pharmaceutical manufacturers alleging that they suppressed competition for medicated eyedrops through a variety of means, which resulted in higher prices for the eyedrops. Hartig purchased the eyedrops from a distributor, AmerisourceBergen Drug Corporation (“Amerisource”), which purchased the eyedrops from the manufacturers. Hartig’s claim as an indirect purchaser from the defendant manufacturers was barred by Illinois Brick v. Illinois, 431 U.S. 720 (1977), so it alleged that Amerisource had assigned its claim to Hartwig, which enable Hartwig to sue as a direct purchaser.

The manufacturers filed a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, and also a Rule 12(b)(6) motion to dismiss for failure to state a claim. For the Rule 12(b)(1) motion, defendants submitted Amerisource’s Distribution Services Agreement (“DSA”) with one of the manufacturers—which was not mentioned in Hartwig’s complaint—to argue that an anti-assignment clause in the DSA prohibited Amerisource from assigning its claim without the defendant’s consent. The District Court accepted that argument and granted the Rule 12(b)(1) motion on the ground that Hartig was actually suing as an indirect purchaser and not as a direct purchaser because the assignment was invalid.

On appeal, several retailers filed an amicus brief arguing that defendant’s anti-assignment argument reached only the issue of antitrust standing, which is different from Article III standing, and the district court erred in ruling that it did not have subject matter jurisdiction. The Third Circuit agreed.

READ MORE

Act of State Doctrine Bars Antitrust Claims Against Private Company’s Minority Owners where Majority Owner is a Foreign Sovereign

Sea Salt Antitrust

A court in the Central District of California recently applied the Act of State doctrine to dismiss a complaint against two private companies that are minority owners of a third company, also a defendant, which is majority-owned by the Mexican government. U.S. District Judge Dolly M. Gee held that the relief the plaintiffs sought would require the court to deem the official acts of a foreign sovereign invalid, and that the private entities had standing to invoke the doctrine.  Sea Breeze Salt, Inc. et al. v. Mitsubishi Corp. et al., CV 16-2345-DMG, ECF No. 45 (Aug. 18, 2016).

READ MORE

Sun Sets on Solar Panel Manufacturer’s Predatory Pricing Claim as Sixth Circuit Affirms Dismissal

shutterstock_242590234

Proving once again that antitrust law protects competition, not competitors, on August 18, 2016 the Sixth Circuit affirmed a decision from the Eastern District of Michigan dismissing a plaintiff’s Sherman Act § 1 predatory pricing complaint for failure to state a claim.  The case, Energy Conversion Devices Liquidated Trust et al. v. Trina Solar Ltd. et al., involved allegations by a US-based solar panel manufacturer that its Chinese competitors had conspired to lower their prices in the US to below cost in order to drive the plaintiff out of business.

Energy Conversion conceded that a predatory pricing claim under § 2 of the Sherman Act requires the plaintiff to plead and prove both that the defendant charged below-cost prices, and that the defendant had a reasonable prospect of recouping its investment.  But it maintained that for a claim brought under § 1, the second element—recoupment—was not required.

READ MORE

Court’s Denial of Summary Judgment on Price Discrimination Claims Reminds Suppliers to Properly Structure Discount Programs

shutterstock_336079028

In a recent decision, the Northern District of California denied Chrysler’s motion for summary judgment to defeat a Robinson-Patman Act price discrimination claim.  Mathew Enterprise, Inc. v. Chrysler Group LLC, 2016 U.S. Dist. LEXIS 108693 (N.D. Cal. Aug. 2, 2016) (opinion filed August 15, 2016 and available here).  The decision serves as a reminder of the relatively low bar for establishing competitive and antitrust injury for Robinson-Patman Act purposes, and counsels in favor of carefully structuring discount programs to avoid any potential litigation down the road.

READ MORE

Seventh Circuit Rules that Offering Different Product Package Sizes Does Not Constitute Unlawful Price Discrimination

pricing discrimination

On August 12, 2016, the Seventh Circuit ruled that a manufacturer’s decision to sell large package products to some retailers but not others does not constitute price discrimination under Section 13(e) of the Robinson-Patman Act.  Woodman’s Food Market, Inc. v. Clorox Co. and Clorox Sales Co. (7th Cir. Aug. 12, 2016) (opinion available here). The decision harmonizes Seventh Circuit law with that of other circuits and clarifies that manufacturers do not violate the promotional services or facilities requirements of the Act when they offer bulk products to some but not all purchasers.

READ MORE

Second Circuit Rules That Judges Can Decertify a Class After a Jury Verdict

shutterstock_435834472_400x300

The Second Circuit recently held that under Federal Rule of Civil Procedure 23, a district court judge can decertify a class after a jury verdict in favor of the class but before entering judgment, upholding a Southern District Court of New York decision granting defendants’ post-verdict motion to decertify the class.  Joseph Mazzei v. The Money Store, TMS Mortgage Inc., HomEq Servicing Corp., No. 15-2054 (2d Cir. July 15, 2016).  The Second Circuit’s decision confirms that after a court certifies a class, defendants should continue to develop evidence to seek to decertify the class even after a jury verdict in favor of the class.

READ MORE

Court Awards $3M Sanction and Adverse Inference for Spoliation in Antitrust Case

shutterstock_155812997_400x300

On July 6, 2016, Judge Leonard P. Stark, of the federal district court in Delaware, ordered a $3 million punitive monetary sanction, and an adverse inference jury instruction, against antitrust defendant Plantronics after finding that a top executive at the company had deleted thousands of potentially relevant emails.  This case is noteworthy both because of the severity of the sanction and the court’s decision to impute the conduct of an employee to the company even though numerous preservation practices were in place and the employee was instructed not to destroy information.

READ MORE

ValueAct Settlement Marks Record Penalty in Heightened Agency Efforts Against HSR Act Violations

company

Where is the line drawn between acquisitions of securities made “solely for the purpose of investment” on one hand, and influencing control, thereby requiring regulatory approval, on the other hand? That is the central cautionary question that was reinforced by the July 12, 2016, Department of Justice (“DOJ”) settlement with ValueAct Capital.  The well-known activist investment firm agreed to pay $11 million to settle a suit alleging that it violated the premerger reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”).  ValueAct purchased more than $2.5 billion of shares in two oil companies, Baker Hughes Inc. and Halliburton Co., after they announced they would merge.  The DOJ alleged that ValueAct used its ownership position to influence the proposed merger and other aspects of Baker Hughes and Halliburton, and thus could not rely on the exemption.

READ MORE

FTC Increases Maximum Civil Penalties for Violations of Competition Statutes

shutterstock_179476127_400x300

On June 30, 2016, the Federal Trade Commission (“FTC”) announced increases to the maximum civil penalties issuable for violations of several key competition statutes.  The agency made these changes to comply with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which required the agency adjust penalty amounts for laws it enforces based on a methodology provided for by Congress.

READ MORE

Antitrust Implications of the U.S. Supreme Court’s Decision in RJR Nabisco v. European Community

shutterstock_111655109_400x300

For the past several years, plaintiffs and defendants in international price-fixing cases have battled over the extraterritorial application of the Sherman Act in light of the Foreign Trade Antitrust Improvements Act of 1982 (“FTAIA”), 15 U.S.C. § 6a, and the U.S. Supreme Court’s seminal decision in F. Hoffman-LaRoche Ltd. v. Empagran, S.A., 542 U.S. 155 (2004).  Although the Supreme Court passed on an opportunity to clarify the scope of the FTAIA when it denied petitions for certiorari following decisions in Hsuing v. United States, 778 F.3d 738 (9th Cir. 2014), as amended (Jan. 30, 2015), and Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816 (7th Cir. 2014), as amended (Jan. 12, 2015),[1] the Court’s decision in RJR Nabisco v. European Community—which addresses the extraterritorial application of the federal RICO statute—may provide some insight into how it views antitrust claims based on foreign injuries under the FTAIA.

READ MORE

U.S. District Court Denies FTC’s Motion for a Preliminary Injunction Blocking Chicago-area Advocate Health / NorthShore Hospital Merger

shutterstock_184689941_400x300

On June 14, 2016, U.S. District Judge Jorge Alonso, of the Northern District of Illinois, denied a motion for preliminary injunction by the Federal Trade Commission (“FTC”) and the Attorney General for the State of Illinois, seeking to block the proposed merger between Advocate Health Care and the NorthShore University Health System (“NorthShore”) in the Chicago metropolitan area.[1]  According to Judge Alonso’s opinion released on June 20, the Plaintiffs failed to prove a relevant geographic market, the lack of which the Court deemed fatal to the Plaintiffs’ case.[2]

This loss could be a blow for the FTC’s health care competition enforcement program.  It is the agency’s second loss in district court this year in a hospital merger challenge.  Additionally, as we noted in our May 13, 2016 blog post concerning the FTC’s earlier loss on the Hershey merger—now on appeal to the Third Circuit—both cases reflect push-back by courts against what to this point have been highly successful FTC market definition and consumer harm arguments in hospital merger cases.

READ MORE

Confidential Settlement Amounts Are Not Necessarily Confidential

shutterstock_87844135_400x300

Courts in the Northern District of California, which have been handling price-fixing class actions in the electronics industry for more than a decade, are continuing to develop ground rules about whether defendants in a price-fixing case are entitled to know the amount for which an opt-out Direct Action Plaintiff (DAP) settles its cases against other defendants. On May 27, 2016, Judge Jon S. Tigar overruled objections to a Special Master’s Report and Recommendation compelling two DAPs to disclose settlement amounts in the Cathode Ray Tube (CRT) Antitrust Litigation, No. 3:07-cv-5944 (N.D. Cal.). Judge Tigar compelled both companies to provide that information to a Special Master so he can determine whether the information should be provided to other defendants to facilitate settlements—even though both companies had already settled all of their claims against all defendants.  ECF 4661.

READ MORE

Supreme Court’s Request for Views of the United States on Cert. Petition in Lamictal “Reverse-Payment” Case Flags Potential Issues for Practitioners

shutterstock_184787189_400x300

On Monday, June 7, the Supreme Court requested the views of the Solicitor General in connection with a petition for certiorari filed by the U.S. subsidiary of GlaxoSmithKline plc (“GSK”) in SmithKline Beecham Corp. v. King Drug Co. of Florence, No. 15-1055.  The Supreme Court’s request seems less directed to rethinking its seminal ruling in FTC v. Actavis on the lawfulness of “reverse-payment” settlements of Hatch-Waxman cases than to a concern that, in some specific ways, its decision may have created some unintended consequences.

READ MORE

No Easy Answers: Ohlhausen Challenges Notion of “Monopoly Problem” In the US

shutterstock_244750927_400x300

On June 1, 2016, FTC Commissioner Maureen Ohlhausen delivered remarks in Hong Kong, pushing back on recent news reports implying that the United States currently suffers from a “monopoly problem” causing a reduction of competition in the marketplace.  Recent articles and opinion pieces in The Economist and The New York Times suggest that the consolidation of market power, and lack of antitrust enforcement preventing such consolidation, are having a noticeable effect and harming consumers and innovation.  Indeed, the precursor to these reports—an April 14, 2016 report from the Council of Economic Advisers (“CEA”), entitled “Benefits of Competition and Indicators of Market Power,” argues there has been a decline of competition in certain parts of the U.S. economy due the concentration of monopoly power in the hands of a select few players in certain industries (e.g., airlines, cable, networking).  The CEA report suggests U.S. agencies should explore how certain factors—the use of Big Data, increased price transparency, and common stock ownership—affect competition.  As a result of the CEA report, President Obama issued an Executive Order on April 15, 2016, directing antitrust enforcement agencies to use their authority to “promote competition.”

READ MORE

FTC Provides New Guidance on Classifying Foreign Entities Under the HSR Pre-Merger Notification Program

shutterstock_144792703_400x300

On May 19, 2016, the Federal Trade Commission (“FTC)” issued an important clarification regarding how the agency will determine whether a foreign entity is classified as corporate or non-corporate for the purpose of the agency’s premerger notification program.[1]  Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976[2] (also referred to as the “HSR Act”), parties to certain mergers or acquisitions must notify both the Federal Trade Commission and the U.S. Department of Justice prior to consummating the transaction.  Under this program, whether a party to the transaction is a corporate or non-corporate entity (e.g., an LLC, partnership) can have significant implications for determining whether a filing is required and whether an exemption might apply.[3]  While evaluating party status has historically been straightforward for U.S. entities, foreign entities pose a number of challenges.

READ MORE

Third Circuit Rejects Drug Manufacturer’s Single-Product Bundling Claim – But Prescription for the Future Is Unclear

shutterstock_324418343_400x300

You know what they say: one man’s price is another man’s bundle.  No?  Well maybe they should, after this recent decision out of the Third Circuit in Eisai, Inc. v. Sanofi Aventis U.S., LLC involving allegedly exclusionary discounting.  The court ultimately found Sanofi’s conduct was not unlawful.  But the decision raises questions about how such conduct – a hybrid of price discounts and single-product bundling – will be treated going forward, at least in the Third Circuit.

At issue was Sanofi’s marketing of its anticoagulant drug Lovenox to hospitals through its Lovenox Acute Contract Value Program.  Under the Program, hospitals received price discounts based on the total volume of Lovenox they purchased and the proportion of Lovenox in their overall purchase of anticoagulant drugs.  A hospital that chose Lovenox for less than 75% of its total purchase of anticoagulants received a flat 1% discount regardless of the volume purchased.  But when a hospital’s purchase of Lovenox exceeded that percentage, it would receive an increasingly higher discount based on total volume and percentage share, up to a total of 30% off the wholesale price.  A hospital that did not participate in the Program at all was free to purchase Lovenox “off contract” at the wholesale price.

READ MORE

Four Takeaways From the Court’s Decision Blocking the Office Depot-Staples Merger

shutterstock_302066069_400x300

On May 17, 2016, Judge Emmet G. Sullivan (D.D.C.) issued a memorandum opinion explaining his decision to enjoin the Office Depot/Staples merger under Section 13(b) of the FTC Act.  The court conducted a two-week trial in which the FTC called ten witnesses and 4000 exhibits were admitted into evidence, after which defendants opted to rest.  The court found that the FTC “established their prima facie case by demonstrating that Defendants’ proposed merger is likely to reduce competition in the Business to Business (“B-to-B”) contract space for office supplies.”  Defendants largely relied on Amazon’s development of on-line B-to-B services to replace or restore any reduction in competition resulting from the merger, but the court found that argument unpersuasive and enjoined the merger.

READ MORE