Orrick partner Jay Jurata has published an article in Competition Policy International weighing in on the important issues raised in the closely-watched trial now under way in FTC v. Qualcomm. This article analyzes important developments in the case as it has proceeded – including the significant motion to dismiss and partial summary judgment rulings – and offers thoughts on the just commenced trial. To read the full article, please visit here.
The FTC has long asserted it has the authority to bring actions in federal court to obtain injunctive relief and equitable monetary remedies (e.g. disgorgement, consumer redress) for unfair and deceptive practices. This view of the agency’s scope of authority has stood for years without much question or challenge. But two recent district court decisions may change all that by limiting the agency’s ability to petition a federal court to those situations in which it can demonstrate a defendant is “about to violate” the law. On December 11, 2018, the United States Court of Appeals for the Third Circuit Court heard oral argument in one of the district court cases – FTC v. Shire ViroPharma, Inc. – with a decision expected in the first half of 2019. If the Third Circuit upholds the district court’s ruling, it will complicate FTC enforcement efforts and push more cases into the agency’s administrative process.
The FTC’s Enforcement Powers
The FTC can initiate an enforcement action if it has “reason to believe” that the consumer protection or antitrust laws are being violated. Before 1973, the FTC could exercise its enforcement powers only through administrative adjudications, which do not allow for financial relief or an immediate prohibition on future wrongdoing. While the FTC has the power to seek financial remedies through its administrative process, the penalties are limited by a three-year statute of limitations, and the FTC must demonstrate that the conduct was clearly “dishonest or fraudulent.”
In 1973, Congress amended the FTC Act to add Section 13(b) and give the FTC the authority to (1) seek injunctive relief in federal court pending the completion of the FTC administrative proceeding when the FTC “has reason to believe” that a person or entity “is violating, or is about to violate” any law enforced by the FTC, and (2) seek a permanent injunction “in proper cases.” Following the enactment of Section 13(b), the FTC adopted an expansive view of its power to bring federal court enforcement actions, and started bringing cases in federal court seeking monetary relief under equitable doctrines such as restitution, disgorgement, and rescission of contracts. The FTC also asserted that its statutory power to seek a “permanent injunction” was a standalone grant of authority that entitled the FTC to bring a federal court action irrespective of whether a defendant “is violating, or is about to violate” the law. By tying its theories to these doctrines, the FTC took much of its enforcement activity outside otherwise applicable requirements, including the three-year statute of limitations and proof of a defendant’s dishonesty or fraud. Until this year, courts universally accepted the FTC’s expansive view of its authority under Section 13(b). As a result, it is the FTC’s policy that “[a] suit under Section 13(b) is preferable to the adjudicatory process because, in such a suit, the court may award both prohibitory and monetary equitable relief in one step.”
Two recent court decisions have raised questions about the FTC’s view of its authority to sue in federal court solely over a defendant’s prior conduct. In FTC v. Shire ViroPharma, Inc., the FTC sued the defendant in the U.S. District Court for the District of Delaware, alleging that between 2006 and 2012 ViroPharma had engaged in an anticompetitive campaign of repetitive and meritless filings with the FDA to delay generic competition and therefore maintain its monopoly on its branded drug. ViroPharma moved to dismiss the FTC’s complaint, arguing that the FTC had exceeded its authority under Section 13(b). Specifically, ViroPharma asserted that Section 13(b) does not provide the FTC with independent authority to seek a permanent injunction under Section 13(b), but rather limits permanent injunction actions to those cases where the FTC can show that a defendant “is violating or is about to violate” the law. On March 20, 2018, Judge Richard Andrews granted ViroPharma’s motion to dismiss, and rejected the FTC’s long-held assertion that Section 13(b) provides it with the independent authority to seek permanent injunctive relief in federal court, including relief for past violations of the FTC Act and regulations. Judge Andrews held that the FTC’s authority to seek permanent injunctive relief is dependent on the FTC alleging facts that plausibly suggest a defendant is either (1) currently violating a law enforced by the FTC or (2) is about to violate such a law. Because the FTC’s complaint against ViroPharma was based on conduct that occurred five years before the filing of the complaint, the court found that the FTC failed to plead facts that demonstrate that ViroPharma was either violating or “about to” violate the law.
Subsequently, on October 15, 2018, Judge Timothy Batten, in the Northern District of Georgia, cited the ViroPharma decision in finding that the FTC’s permanent injunction authority under 13(b) authority is limited to situations where a defendant is “about to” violate the law. In FTC v. Hornbeam the FTC brought a federal court enforcement action alleging that the defendants were marketing memberships in online discount clubs to consumers seeking payday, cash advance or installment loans, in ways that violated the FTC Act, the FTC’s Telemarketing Sales Rule, and the Restore Online Shoppers’ Confidence Act. The court rejected the FTC’s argument that courts must defer to the FTC’s determination that it has “reason to believe” that the defendants were about to violate the law. Rather, the court – citing the decision in ViroPharma – held that when the FTC exercises its Section 13(b) authority it must meet federal court pleading standards and set forth sufficient facts that each defendant is “about to” violate the law.
If followed, the ViroPharma and Hornbeam decisions could significantly limit the FTC’s ability and willingness to pursue claims in federal court, and shift enforcement actions to the FTC’s administrative process. It is unclear how such a shift to administrative enforcement will impact how the FTC approaches enforcement actions and negotiates consent orders to resolve its investigations. On the one hand, companies may be hesitant to go through the FTC’s administrative process given that it is a notoriously slow process over which the FTC Commissioners exercise the final decision-making authority. On other hand, the FTC’s limited ability to seek financial remedies through the administrative process may provide companies greater leverage in negotiating consent decrees.
The FTC is acutely aware of the potential threat posed by these decisions, as evidenced by its decision to forgo filing an amended complaint in favor of immediately appealing the court’s ruling in ViroPharma to the Third Circuit. In its appeal to the Third Circuit, the FTC stated that if the ViroPharma holding had been applied in past cases it “would likely have doomed hundreds of other Section 13(b) actions that the FTC has filed over the years – cases that collectively have recovered many billions of dollars for victimized American consumers.”
On December 11, 2018, the Third Circuit heard oral argument in ViroPharma. During oral argument the three-judge panel expressed skepticism at the FTC’s argument that Judge Andrews applied the wrong pleading standard by requiring that the FTC plead sufficient facts to show that a violation of federal law was “imminent.” A decision by the Third Circuit is expected in the first half of 2019. The Hornbeam case is still pending in the Northern District of Georgia as the FTC decided to amend its complaint following the court’s ruling on the motion to dismiss.
 15 U.S.C. § 45(b).
 15 U.S.C. § 57b.
 FTC v. Shire ViroPharma, Inc., No. 17-131-RGA, 2018 WL 1401329 (D. Del. 2018).
 FTC v. Hornbeam, No. 1:17-cv-03094-TCB (N.D. Ga. Oct. 15, 2018).
 FTC v. Shire ViroPharma, Inc., No. 18-1807, Document No. 003112960825 at 47 (3d Cir. June 19, 2018).
The German Federal Cartel Office (FCO) has opened abuse proceedings against Amazon for practices related to the German marketplace amazon.de. This move comes not long after the European Commission initiated a preliminary investigation into Amazon’s use of transaction data.
In both the German and the EU case, the competition concerns appear to be linked to Amazon being not only the largest online retailer but also the largest online marketplace for competing retailers. There are, however, important differences between the two investigations: While the Commission is looking at “exclusionary abuse,” i.e. conduct hindering the competitive opportunities of its rivals, the FCO investigates potential “exploitative abuse,” i.e. imposing conditions that are significantly more onerous for retailers using the marketplace than they would be in a competitive environment (see the FCO’s press release).
The approach of the FCO is based on special features of German competition law, which facilitate proceedings against abuses of market power:
First, regarding the issue of market power, the German prohibition on abusive market conduct applies not only to companies with a dominant market position (as under EU law) but also to companies with “relative market power,” which is a less demanding standard. A company has relative market power if small or medium-sized customers or suppliers are dependent on it and cannot reasonably switch to other companies for the supply or the sale of a particular type of goods or services. The FCO believes that Amazon may be dominant or may have relative market power because it functions as a “gatekeeper.” In fact, Amazon has become so powerful in Germany that many retailers and manufacturers depend on the reach of its marketplace for their online sales.
Second, regarding the existence of abuse, the FCO suspects that Amazon is abusing its market position to the detriment of sellers active on its marketplace by imposing unfair terms and conditions. Here, the FCO relies on the case law of the German Supreme Court, which has decided that the use of unfair terms and conditions by a dominant firm can constitute an abuse – provided it is because of its dominance or relative market power that the firm is able to impose such terms and conditions. In other words: there must be a causal link between the firm’s market power or dominance and the unfair terms and conditions. It is not yet clear how the FCO will establish such a link.
Regarding the terms and practices that will be scrutinized, the FCO has listed the following provisions as being potentially illegal:
- liability provisions
- choice of law and jurisdiction clauses
- rules on product reviews
- the non-transparent termination and blocking of sellers’ accounts
- withholding or delaying payment
- clauses assigning rights to use the information material that a seller has to provide with regard to the products offered
- terms of business on pan-European dispatch
The FCO’s Amazon investigation shows some similarities to its ongoing proceedings against Facebook (see our previous Blog post). Both cases are focused on the use of unfair terms and conditions. The FCO has said that it will issue its Facebook decision in early 2019. We expect that decision to set the direction for the Amazon investigation.
Orrick Antitrust associate Elena Kamenir published an article in Competition Policy International covering themes and takeaways from the FTC hearings on the intersection of big data, privacy, and competition. To view the article, please visit here.
Since last year’s “Coty” judgment of the European Court of Justice (ECJ), it may have seemed settled that authorized dealers in a selective distribution network can be prohibited from selling products via third-party marketplaces, i.e. online platforms operated by third parties such as Amazon. However, in a recent position paper, the German Federal Cartel Office (FCO) has expressed a much more nuanced view.
According to the Coty judgment, EU competition law generally allows the banning of online third-party platforms in selective distribution systems, especially for luxury goods. First, where such a ban is applied without discrimination and in a proportionate manner to the distribution of luxury goods and with the objective of preserving the luxury image of such goods, the ban is not considered a restriction of competition. Second, in all other cases – for example where the goods in question are not “luxury goods” – the ban may be justified by the Vertical Block Exemption Regulation (VBER), provided the market shares of the parties are below 30 percent.
The FCO, however, makes it clear that there are several issues that remain unsolved, even after the Coty ruling.
First, the FCO points out that the Coty judgment deals with “luxury goods” and that it cannot simply be applied one-to-one to other types of products, including high-quality products. Thus platform bans for non-luxury goods may, in fact, infringe competition law, even within selective distribution systems. In the absence of a clear definition separating “luxury goods” from other (high-quality) branded products, accepting outright bans of online platforms will, therefore, be anything but automatic.
Second, the FCO explains the policy that it proposes to apply outside the (limited) scope of the Coty ruling, i.e. to non-luxury goods, including high-quality branded products: it considers that a general prohibition on using third-party online platforms is likely excessive and that less restrictive measures, such as specific quality requirements, will normally suffice to protect a brand image. For example, the FCO explains that dealers could be required to have their own online shop on the marketplace rather than share a product page with other dealers.
Third, the FCO also puts a question mark over the application of the VBER to third-party platform bans. The ECJ decided in its “Pierre Fabre” judgment that manufacturers generally cannot prevent their distributors from using the internet as a sales channel. An outright ban on internet sales is normally an infringement of EU competition law. However, in “Coty,” the ECJ added that a mere ban of third-party platforms does not amount to a prohibition on using the internet – provided distributors are able to run their own online shops and are unrestricted in using the internet for advertising and marketing purposes so that customers can find their online offers via online search engines. The FCO now points out that consumer preferences and the relative importance of different sales channels may vary between EU member states. According to the FCO, marketplaces and price comparison sites are much more significant in Germany than in other EU member states. In Germany, banning the use of marketplaces could reduce a distributor’s visibility to such an extent that the ban becomes equivalent to a complete ban of online sales and, thus, unlawful.
In a nutshell, the FCO is not prepared to generally accept the legality of third-party platform bans and it can be expected that it will continue to challenge such prohibitions if they have restrictive effects on competition.
However, the FCO also recognizes that Amazon Marketplace has become increasingly important for manufacturers and that many manufacturers can no longer afford to exclude this particular sales channel from their distribution system. The rising market power of Amazon Marketplace is of particular concern for the authority because of Amazon’s dual business model. Amazon is a “hybrid platform” that acts both as an intermediary for online dealers and as an authorized dealer for the same products. The FCO highlights the risks that follow from this setup: in particular, independent dealers could be disadvantaged or squeezed out of the market. The FCO is very clear about its intention to keep online markets open and that it will closely monitor Amazon’s growing market power with this in mind.
 EU Court of Justice judgment of December 6, 2017, Coty Germany GmbH vs. Parfümerie Akzente GmbH, C-230/16, EU:C:2017:941.
 “Competition and Consumer Protection in the Digital Economy: Competition restraints in online sales after Coty and Asics – what’s next?” published on the FCO website (link).
 Commission Regulation (EU) No 330/2010 of April 20, 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
 EU Court of Justice judgment of October 13, 2011, Pierre Fabre Dermo-Cosmétique SAS vs. Président de l’Autorité de la concurrence a.o., C-439/09,  ECR I-9447.
A recent divesture ordered by the Federal Trade Commission should serve as a reminder that private equity- and venture capital-backed companies need to evaluate the other holdings of their investors and directors to avoid potential antitrust problems.
Red Ventures and Bankrate are marketing companies that connect consumers with providers in various industries. In 2017, Red Ventures entered into an agreement to acquire Bankrate for $1.4 billion. Among other interests, Bankrate operated “Caring.com,” a website used to generate customer leads for providers of senior living facilities. Red Ventures did not offer a competing product in this space, but the FTC nonetheless required the divestiture of Caring.com, citing competitive concerns generated by operations of Red Ventures’ investors and directors.
Specifically, two of the largest shareholders in Red Ventures are private equity firms General Atlantic and Silver Lake Partners, with a combined 34 percent stake, two of seven board seats, and other substantial rights over operations. General Atlantic and Silver Lake separately owned “A Place for Mom” which, like Caring.com, provides an online referral service for providers of senior living facilities. According to the FTC’s complaint, “A Place for Mom” and “Caring.com” were each other’s closest competitors, with the number one and number two positions in the market. Here, the FTC looked behind the actual parties to the transaction to identify potential competitive concerns.
Private equity- and venture capital-backed companies must be aware of the competitive, or potentially competitive, holdings of their investors and directors.
- As in the Red Ventures/Bankrate acquisition, the separate holdings of significant investors may become a focus of the government’s antitrust review of a transaction.
- An investor simultaneously holding seats on the boards of two competing companies may violate the statute prohibiting interlocking directorates.
- Finally, companies should ensure that protections are in place to prevent any scenario – real or implied – where the investor or director could serve as a conduit for the sharing of competitively sensitive information between competing companies.
 See 15 USC § 19.
 See 15 USC § 1.
Margrethe Vestager, head of the European Union’s Directorate-General for Competition (“DG Comp”), recently announced that the EU was once again investigating actions of a high-profile tech company – Amazon.
During a press conference held in Brussels in September, Commissioner Vestager affirmed that DG Comp had already sent questionnaires to market participants and started looking into Amazon’s potential abuse of dominance. However, DG Comp has not yet opened a formal case. As the Commissioner stated, “[t]hese are very early days and we haven’t formally opened a case. We are trying to make sure that we get the full picture.”
This investigation comes only a year after Amazon was found to have received illegal state aid through tax rulings of the State of Luxembourg, which was then ordered to recover more than €250 million.
The Issue at Stake
It is no secret that Amazon wields significant influence in retail e-commerce. The tremendous visibility of Amazon’s platform around the world attracts many third-party sellers and enables the company to act as both seller and host.
The recurrent concerns on the market relate to the dual nature of the Seattle-based company. The issue put forward by Commissioner Vestager concerns the use of third-party sellers’ data by Amazon as a host to increase the efficiency of Amazon as a seller.
How? Easy as pie. When a product sells well, Amazon is immediately informed through the data it collects, and the company then simply needs to adjust its own offerings and lower the price of its similar house-made products.
One could argue that these practices could put third-party vendors at a disadvantage and potentially amount to anti-competitive abuse of a dominant position under article 102 of the TFEU.
Amazon’s Strategy – A Fertile Ground for Global Competition Issues
Because Amazon is active in many different markets – as retailer, book publisher, marketing platform, host of cloud server space and in the television industry – its global strategy is to expand its integration across many business lines, exploiting the data it collects and being aggressive on pricing. The company appears to encourage growth over profits.
Those practices have been questioned over the past years. For instance, Lina M. Khan recently published an article in The Yale Law Journal discussing the alleged predatory pricing behavior of Amazon and related vertical relationship issues. For Ms. Khan, there is an ambient underappreciation of the risk to competition posed by the company, due, maybe, to an outdated vison of market power.
After Commissioner Vestager’s conference, it seems that the EU has taken preliminary steps to assess these risks.
Big Tech Companies – Sources of New Antitrust Challenges
DG Comp has only one toolbox: the EU treaties. Commission Vestager, however, proved to the world that there are many, many tools in this box.
Under Commissioner Vestager’s mandate, Google has been fined (twice) a total of almost $8 billion for abuse of dominance, Apple has been asked to reimburse the Irish State more than $14 billion in illegal State Aid and Facebook was sanctioned €110 million for providing misleading information about the WhatsApp takeover.
In reality, these cases point out the viability of EU competition instruments. The EU State Aid regime is precise and strong enough to catch hidden favorable tax schemes while venerable Article 102 is still able to catch unfair market practices, even those put in place in a new, digital economy.
Last but not least, it seems that EU Commissioner Vestager has found an impromptu ally in the war for fair competition: President Donald J. Trump himself, who recently argued in favor of antitrust actions against Amazon as part of an effort to exert more control over powerful multinationals.
This may be the first time when U.S. and EU antitrust agencies align their views toward a tech giant. That may not be not the kind of first-time attention Amazon would like.
As part of Global Competition Review’s The Antitrust Review of the Americas 2019, Orrick attorneys Jay Jurata, Alex Okuliar, and Emily Luken contributed a chapter titled “IP and Antitrust,” examining three important developments this year evolving from recent trends at the intersection of IP and antitrust law. The chapter is part of GCR’s The Antitrust Review of the Americas 2019, first published in September 2018.
The whole publication can be found here.
Antitrust policy, once relegated to wonk status, has taken center stage in recent years: it seems as if each day there is a new debate over the need – or lack thereof – for more robust competition enforcement in today’s economy. In the past few weeks alone, competition law and big tech have been in the spotlight in both a call to reopen a Federal Trade Commission (“FTC” or “Commission”) investigation into Google and a forthcoming meeting among Attorney General Jeff Sessions, state Attorneys General investigating social media companies and a representative from the Department of Justice’s Antitrust Division (“DOJ”).
The FTC jumped into the fray on September 13, 2018 when it kicked off its hearings on Competition and Consumer Protection in the 21st Century, which had been announced earlier this year. The purpose of the hearings is to utilize the agency’s Section 6 authority “to consider whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection law, enforcement priorities, and policy.” Among the announced topics are issues that have dominated the news lately, including: competition in technology markets, particularly those featuring two-sided “platform” businesses (ones that cannot make a sale to one side of the market without simultaneously making a sale to the other); the intersection of privacy, data and competition; evaluating the competitive effects of vertical mergers (those that join firms at different levels of the supply chain, e.g., the AT&T-Time Warner deal challenged unsuccessfully by DOJ); and the consumer welfare standard, which has served as the economic principle guiding antitrust enforcement since the 1980s. The FTC has accepted more than 500 public comments on 20 announced topics and continues to invite public comment in advance of specific hearing sessions.
Commission Chairman Joe Simons set the stage for the opening session by highlighting the combination of increased economic concentration and decreased antitrust enforcement that has generated calls to reassess the very nature of antitrust policy, noting that he is approaching the discussions “with a very open mind.”
The panel discussions that followed the opening session focused on the current landscape of competition and consumer protection law and policy, concentration and competitiveness in the U.S. economy, and the regulation of consumer data. Key takeaways so far include:
- The Commission is eager to set competition enforcement priorities. Tech companies appear to be in the crosshairs.
- Although there is growing concern about increased concentration in the economy, there is no consensus that big equates to bad. While some panelists cited data linking concentration to income inequality and reduced innovation, others cautioned that protecting less efficient businesses in the name of competition is misguided.
- Effective privacy and data breach enforcement likely require new, modern tools both for detection and regulation. The FTC’s consumer protection mission likely will need to account for changes in federal legislation and/or voluntary rules established by the tech industry.
Videos of past hearing sessions are available online, along with public comments and additional information.
The FTC’s end goal is to produce one or more policy papers, patterned after the fruits of the 1995 hearings hosted by then-FTC Chairman Robert Pitofsky. Those hearings, which focused on global competition and innovation, led to two staff reports on competition and consumer protection policy “in the new high-tech, global marketplace” and helped pave the way for U.S. agency actions blocking mergers primarily based on harms to innovation. The Commission once again is revisiting its approach.
In the interim, stay tuned for additional updates as the hearings continue.
Douglas Lahnborg and Matthew Rose present a comparative discussion on the recently issued National Security and Investment White Paper, which proposes a significant expansion of the UK government’s powers to scrutinize foreign investment beyond those available in other leading economies. The white paper introduces powers to intervene in a broad range of transactions in any sector, regardless of deal value, the transaction parties’ market shares, or their revenues. If the proposals are brought into force in their current form, the UK regime would be one of the most stringent in the world, with wide-ranging implications for foreign and domestic companies and projects in sensitive sectors, including technology, energy, infrastructure, telecommunications, real estate and financial services. Read more here.
In response to a recent article by former director of the U.S. Patent and Trademark Office David Kappos, Orrick Antitrust attorneys John “Jay” Jurata and Emily Luken weigh in with their perspective on the Japan Patent Office’s “Guide to Licensing Negotiations Involving Standard Essential Patents.” While they agree that the Guide provides a balanced approach to the issues, they also provide insight into how the Guide acknowledges and expands upon potential abuses of standard essential patents. Read more here.
Deputy Assistant Attorney General Matthew Miner, head of the DOJ’s Fraud Section, recently discussed the DOJ’s efforts to address corruption discovered during mergers and acquisitions. During his remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance In High Risk Markets, DAAG Miner explained that the DOJ would apply the principles in the FCPA Corporate Enforcement Policy (“FCPA Policy”) to successor companies that disclose and cooperate with the agency after discovering wrongdoing in connection with a merger or acquisition.
The FCPA Corporate Enforcement Policy. The Foreign Corrupt Practices Act prohibits corporate bribery of foreign officials and requires strong accounting practices. Last year, Deputy Attorney General Rod Rosenstein announced a revised FCPA Policy to help companies understand the costs and benefits of cooperation when deciding whether to voluntarily disclose misconduct. Absent aggravating circumstances or recidivism, and provided certain conditions are met, companies that voluntarily disclose, cooperate and remediate misconduct benefit from a presumption that they will receive a declination. (9-47-120 – FCPA Corporate Enforcement Policy.) Where a criminal resolution is warranted and (again) absent recidivism, the DOJ will recommend a reduction in the fine range. (Id.)
Application in the Mergers and Acquisition Context. With respect to M&A activity, especially in high-risk industries and markets, DAAG Miner explained that application of the FCPA Policy will give companies and their advisors more certainty when evaluating a foreign deal and determining how, and whether, to proceed with the transaction. (Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets.) Recognizing the benefits of having companies with strong compliance programs entering high-risk markets, the DOJ wants to encourage acquiring companies to “right the ship” by enforcing robust compliance. (Id.) Not only does application of the FCPA Policy in the M&A context encourage greater corporate compliance, it also frees up DOJ resources and enables the agency to focus on other matters. (Id.)
If potential misconduct is discovered during due diligence, the DOJ recommends the company seek guidance through its FCPA Opinion Procedures. (Id.) These procedures allow a party to assess the risk by obtaining an opinion about whether certain conduct conforms with the DOJ’s FCPA Policy. (Foreign Corrupt Practices Act Opinion Procedure.) Even for companies that discover misconduct after the acquisition, the DOJ wants to “encourage its leadership to take the steps outlined in the FCPA Policy, and when they do … reward them[.]” (Deputy Assistant Attorney General Matthew S. Miner Remarks at the American Conference Institute 9th Global Forum on Anti-Corruption Compliance in High Risk Markets.)
Takeaways. The DOJ’s approach highlights the need for strong cross-disciplinary team staffing on mergers and acquisitions. For example, white-collar counsel can advise buyers on strategy once misconduct is flagged by corporate or antitrust counsel during the M&A process. Counsel for sellers that learns of misconduct during due diligence can discuss options with the client and coordinate as necessary to take advantage of the DOJ’s policies and guidance in mitigating any issues. Moreover, counsel for either party may uncover conduct from documents reviewed or conversations with the client that should be flagged to further assess whether misconduct has occurred. It is important to keep in mind that some of these documents may get produced to the DOJ or FTC during a merger review. Entities involved in deals in high-risk markets or industries should therefore involve deal, regulatory and enforcement experts where necessary.
Blockchain technology has burst onto the scene and into the public consciousness over the last few years. While the securities and privacy law questions surrounding blockchain technology have received much attention, perhaps less obvious are the potential antitrust issues raised by the technology.
Although these issues are nascent, they are not wholly theoretical. For example, on March 16 the FTC announced that it is creating a Blockchain Working Group to look at, inter alia, competition policy. “Cryptocurrency and blockchain technologies could disrupt existing industries. In disruptive scenarios, incumbent companies may sometimes seek to hobble potential competitors through regulatory burdens. The FTC’s competition advocacy work could help ensure that competition, not regulation, determines what products will be available in the marketplace” (FTC Blog Post). And in January of this year, the Japan Fair Trade Commission also indicated that it may look into the competition policy issues involving blockchain-based cryptocurrencies.
This blog post briefly discusses some of the potential antitrust issues associated with blockchain technology. READ MORE
Last year on this Blog we wrote about the uptick in enforcement action by European competition authorities against violations of merger control procedure (see here).
Yesterday, the UK Competition and Markets Authority (“CMA”) indicated that this trend is set to continue, issuing a fine of £100,000 for a breach of an Interim Order imposed on Electro Rent in its acquisition of Microlease. This is the first time the CMA has fined a company for such a procedural breach.
On the face of it, the fine seems harsh given that the relevant action – serving notice of termination of a lease without the CMA’s prior consent – was discussed with the appointed Monitoring Trustee prior to coming into effect. Indeed, the European Court of Justice (“ECJ”) recently confirmed that parties may take certain actions without violating the standstill obligation imposed under the EU Merger Regulation – including terminating agreements – where such actions do not contribute to the implementation of a transaction. In doing so, the ECJ’s ruling confirmed the commonly held view that merging parties are permitted to take certain steps allowing them to prepare for implementation of a transaction without violating merger control procedural rules.
Given the developing case law on standstill obligations, companies involved in M&A will need to revisit pre-completion protocols, noting that the EU approach seems to be diverging from the CMA’s somewhat more rigid approach to merger control. READ MORE
Rising Interest Rates Likely to Lead to Increased Scrutiny of Variable Rate Loan Marketing
On March 21, 2018 the Federal Reserve lifted its federal funds rate by a quarter percentage point to a range of 1.5% to 1.75%, the highest level since 2008. The Fed also significantly boosted its economic forecast and hinted that it may be more aggressive in its plan to continue to raise rates, signaling that the market should prepare for higher interest rates. For consumers with variable rate loan products, the rise in interest rates will result in the first substantial increase in loan payments in more than 10 years.
If history is our guide, the increase in interest rates will lead to an increase in consumer complaints of deceptive marketing for variable rate loan products. The Federal Trade Commission (“FTC”) takes such complaints seriously and has a history of investigations and enforcement actions based on deceptive marketing of financial products. For newer lenders who entered the lending marketplace after 2008, this may be the first time their variable rate marketing is scrutinized by the FTC. It’s a good time for all lenders to perform a “check-up” of variable rate marketing campaigns for compliance with the FTC’s rules and regulations and avoid allegations of deceptive or misleading ad copy.
To read the full article, click here.
The UK government considers that transactions in the following sectors can raise national security concerns:
1. quantum technology;
2. computing hardware; and
3. the development or production of items for military or military and civilian use.
In order to allow the UK’s Secretary of State to intervene in transactions in these sectors, the UK government has proposed amendments to the Enterprise Act 2002 that would expand the Competition & Markets Authority’s (“CMA”) jurisdiction to review transactions in these sectors from a competition perspective. READ MORE
The requirements of the Hart-Scott-Rodino (“HSR”) Act and Rules are well known to companies that engage in significant M&A transactions. But less well known is their applicability to acquisitions of stock by individuals as part of compensation practices. Especially where relatively young and successful companies are involved, HSR obligations may unexpectedly arise where equity compensation is given to founders, board members, executives, and other employees (whom we will group together and call “Insiders”). Companies and individuals potentially caught in the HSR process for this reason should ensure they are aware of the trigger rules, as a failure to file can result in significant fines.
On February 1, 2018, the Northern District of California court handling the sprawling In re Cathode Ray Tube (CRT) Antitrust Litigation (“CRT”) declined to enter a default judgment against related Chinese defendants, finding the companies had made a sufficient showing of immunity under the Foreign Sovereign Immunities Act (“FSIA”) for the issue to be addressed on the merits more fully. The decision by Judge Tigar turned on the court’s interpretation of the “commercial activity” exception to the FSIA’s general preclusion of jurisdiction against foreign sovereigns and their agencies and instrumentalities, an exception that requires conduct having a “direct effect” in the United States. That statutory construction in turn was drawn from the alternative test for Sherman Act claims under the Foreign Trade Antitrust Improvements Act (“FTAIA”) that requires foreign conduct have a “direct, substantial, and reasonably foreseeable” effect on U.S. commerce. In looking to the FTAIA to interpret the FSIA, the court made a pair of assumptions that are not thought to be correct in all circuits: That the similar (but different) FTAIA and FSIA “direct effect” provisions have the same meaning, and that the correct meaning is one in which a “direct” effect must follow ‘immediately” from the defendant’s predicate act. The court’s decision may have implications for the construction of both the FTAIA and the FSIA, certainly in antitrust cases and, while this remains to be seen, perhaps more broadly. READ MORE
Orrick Antitrust Of Counsel Howard Ullman will present a Practising Law Institute (PLI) One-Hour Briefing on the topic of Antitrust Issues with Joint Ventures. This One-Hour Briefing will analyze the potential antitrust ramifications of joint ventures and other collaborations between competitors and how to balance the pro-competitive efficiencies against the anti-competitive effects of a proposed JV. Registration for the webcast can be found here, and to read Howard’s series on Orrick’s Antitrust Watch Blog analyzing the antitrust effects on joint ventures, click here.