Horizontal Agreements

Does California’s Ban on Non-Competes Apply to Business Agreements? The California Supreme Court May Weigh In Shortly.

The Ninth Circuit recently certified a question to the California Supreme Court regarding the scope of California Business & Professions Code Section 16600.  As readers of the Orrick Trade Secrets Watch blog are likely aware, Section 16600 states that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.”  Pursuant to this statute, California courts have struck down a number of restrictive covenants in contracts with employees in California, including non-compete provisions, customer non-solicit provisions, and certain employee non-solicit provisions.  The Ninth Circuit now wants to know whether the statute should apply to an agreement between two businesses.  The Supreme Court’s answer may have significant effects on business agreements and collaborations in or involving California.

The question arises in a recent case, Ixchel Pharma LLC v. Biogen, Inc., where the plaintiff sought to apply Section 16600 to an agreement limiting a pharmaceutical company’s ability to develop a new drug.  In 2016, Ixchel and a third-party company, Forward Pharma, entered into a collaboration agreement to develop a new and potentially profitable drug.  The collaboration agreement stated that Forward had the ability to terminate the agreement at any time by written notice.

In 2017, Forward entered into a separate agreement with Biogen.  Pursuant to that agreement, Forward agreed to terminate the collaboration agreement with Ixchel, stop development of the new drug, and refrain from entering into any new contracts for the development of the new drug.  In exchange, Biogen agreed to pay Forward $1.25 billion.

Ixchel subsequently filed suit against Biogen asserting claims for interference with contract, interference with prospective economic advantage, and unfair and unlawful business practices.  As a predicate for its unlawful business practices claim, Ixchel argued that Biogen entered into an agreement that violates Section 16600.  Specifically, Ixchel argued that the provision in the agreement with Biogen restricting Forward from working on the new drug violates Section 16600.

According to Ixchel, the statute applies to provisions that restrain “anyone” from engaging in lawful business.   Although “anyone” is not defined in the statute, Ixchel contends it should indeed mean “any” person and that other statutes regulating competition define “person” to include “a corporation, partnership, or other association.”  The district court disagreed.  It found that Section 16600 does not apply outside of the employer-employee context and dismissed the case.  Ixhcel appealed and the Ninth Circuit, after argument, certified this question to the California Supreme Court.

Applying Section 16600 to invalidate provisions in business-to-business agreements could have significant implications for all California businesses and firms doing business in California.  According to Biogen, for example, such a ruling would be contrary to the rule of reason in the federal antitrust context and could jeopardize any joint venture, lease, distribution agreement, or license agreement, as well as other widely used business agreements in which a business voluntarily limits the scope of its operations geographically, by sector, or otherwise.

When the California Supreme Court takes up certified questions, it generally requires separate briefs and oral argument.  The time to resolution varies among cases, but Antitrust Watch will keep an eye on the issue and provide updates as it develops.

DOJ Publishes Statements Clarifying Its Analysis of No-Poach Agreements – But Questions Remain

Since issuing the DOJ/FTC Antitrust Guidance for Human Resource Professionals in 2016, the DOJ Antitrust Division has remained active in enforcing and commenting on agreements among employers not to compete for hiring employees (“no-poach” agreements). DOJ filed several statements of interest in private antitrust suits involving no-poach provisions to provide guidance to the courts on the proper application of the federal antitrust laws to such restraints. Although the statements of interest provided clarity on the analysis of “naked” no-poach agreements, questions remain about the appropriate standard for analyzing no-poach restraints in franchise agreements.

Naked No-Poach Agreements Are Per Se Unlawful

DOJ recently took the unusual step of filing an unopposed motion to intervene in a class action no-poach settlement to enforce the injunctive relief agreed upon by the parties. The proposed class action alleged that a no-poach agreement between Duke/Duke University Health System and UNC/UNC Health Care System harmed competition for skilled medical labor. The named plaintiff alleged she was denied a lateral move to UNC from Duke because of agreements between senior administrators and deans at the institutions. On May 22 the court approved DOJ’s motion to intervene.

In its statement of interest, DOJ argued that such restrictions on hiring are per se unlawful market-allocation agreements between competing employers. These agreements harm consumers (employees) by depriving them of the benefits of competition that may lead to better wages or terms of employment. A court or agency will not evaluate the competitive effects of a per se unlawful agreement. Unlike such “naked” restraints, agreements that are ancillary to a separate, legitimate competitor collaboration are not considered per se unlawful and are analyzed under the rule of reason. In this case, DOJ argued that Duke had not presented evidence to show that the restraint was ancillary to a legitimate collaboration. DOJ’s analysis of the alleged agreements in its statement further cements the agency’s stance that “naked” no-poach agreements are per se unlawful. DOJ’s statement of interest sends a strong signal that it is actively monitoring no-poach cases and will readily offer its views where a party is making arguments inconsistent with the agency’s interpretation of the law. DOJ’s intervention will also deter the parties from violating the settlement and send a clear signal to others that DOJ will aggressively pursue firms that enter into naked no-poach agreements.

Questions Remain as to the Appropriate Standard for Analyzing Employment Restrictions in Franchise Agreements

Also making their way through the courts are several cases against fast-food chains alleging that franchisor agreements prohibiting poaching among franchisees are unlawful. For example, a complaint against Jimmy John’s alleged that Jimmy John’s orchestrated no-solicitation and no-hire agreements between and among franchisees. Similar claims were made against Auntie Ann’s, Carl’s Jr., Domino’s Pizza and Arby’s, among others, with some food chains settling.

DOJ filed a statement of interest in Harris v. CJ Star, LLC, Richmond v. Bergey Pullman Inc., and Stigar v. Dough Dough, Inc. In its statement, DOJ took the position that most franchisor-franchisee restraints should be analyzed under the rule of reason. It reasoned the agreement was vertical in nature because it is between a franchisor and a franchisee (parties “at different levels of the market structure”). By way of example, DOJ pointed to territorial allocations among franchises that restrict intrabrand competition but increase interbrand competition (i.e. competition among other food chains). Such restraints are evaluated under the rule of reason.

DOJ also argued that where there is “direct competition between a franchisor and its franchisees to hire employees with similar skills, a no-poach agreement between them is correctly characterized as horizontal and, if not ancillary to any legitimate and procompetitive joint venture, would be per se unlawful.” But then DOJ stated that the hub-and-spoke nature of the franchise agreement was an ancillary restraint because “the typical franchise relationship itself is a legitimate business collaboration in which the franchisees operate under the same brand.” According to DOJ, if the no-poach agreements are reasonably necessary to the franchise collaboration and not overbroad, they constitute an ancillary restraint subject to the rule of reason.

By contrast, the Attorney General of Washington took the position in an amicus brief that franchise agreements that “restrict solicitation and hiring among franchisees and a corporate-owned store” should be analyzed as per se unlawful, at least under state law. The AG argued that these agreements have both vertical and horizontal characteristics. Given the horizontal component, the AG took the position that such agreements do not warrant analysis under the more lenient rule of reason. The AG further argued that franchisors have “a heavy burden” in showing that these restraints can be justified as ancillary to a legitimate collaboration. The American Antitrust Institute similarly critiqued DOJ’s approach in a letter. It argued that the franchise no-poach agreements at issue are not ancillary because “[a]greements that have no plausible justifications or cognizable efficiencies are never ancillary” since they “do not hold the promise of procompetitive benefits and are not ‘necessary’ to the broader integration.”

Courts hearing the fast-food cases will have to resolve these conflicting arguments as they consider various motions to dismiss. In late May, a judge refused to grant Domino’s Pizza’s motion to dismiss concerning a no-hire provision that was included in the chain’s franchise agreements. The clause prohibited franchisees from recruiting or hiring other Domino’s franchisee employees without prior written consent. The judge found that plaintiff had sufficiently pled a horizontal restraint between franchisees and did not need to decide at the motion to dismiss stage which standard should ultimately be applied. The court reasoned that more factual development would be needed to decide that issue, unpersuaded by Domino’s Pizza’s reliance on summary judgment and trial decisions that contained a more robust factual record. A recent order by a district court evaluating similar claims against Jimmy John’s highlighted the varying positions emerging, referring to a “dichotomy” between DOJ’s position and the American Antitrust Institute. Although it acknowledged that DOJ is a “titan in this arena,” the court stressed that the agency is “not the ultimate authority on the subject.”

For now, employers that are members of any no-poach agreement with a vertical component should proceed with caution. Although DOJ’s position is favorable to no-poach agreements they deem vertical in nature, questions remain as to whether these agreements warrant per se, quick look, or rule of reason analysis.[1] Courts are proceeding cautiously, and a consensus has not yet emerged. As the court in Jimmy John’s succinctly summarized: “[T]hese questions here are in their infancy, and this battle looks like one that will make its way through the courts for years to come.”

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[1] A “quick look” analysis is used “when the great likelihood of anticompetitive effects can easily be ascertained.” California Dental Assn. v. FTC, 526 U.S. 756, 770 (1999).

Not Subject to Per Se Analysis – Sixth Circuit on Plausibly Procompetitive Activity in Connection with a Joint Venture

Businessman hand touching JOINT VENTURE sign with businesspeople icon network on virtual screen Antitrust Analysis of Joint Ventures Antitrust Analysis of Joint Ventures – Structural Considerations

In The Medical Center at Elizabeth Place, LLC v. Atrium Health System, Case No. 17-3863 (6th Cir. Apr. 25, 2019), the Sixth Circuit held that activity in connection with a joint venture that is plausibly procompetitive is not subject to per se analysis or condemnation. In doing so, it aligned itself with the Second, Seventh, Eighth and Ninth Circuits, and against the minority approach taken by the Eleventh Circuit.

The Medical Center at Elizabeth Place (MCEP) was a physician-owned, for-profit hospital in Dayton, Ohio. It failed as a physician-owned enterprise and was sold to Kettering Health Network. MCEP alleged that it failed because of the anticompetitive efforts of Premier Health (Premier), a dominant healthcare network in the Dayton area comprising four hospitals. In an earlier opinion, 817 F.3d 934 (6th Cir. 2016), the Court held that Premier comprised multiple competing entities and, therefore, could engage in concerted action.

On remand, the plaintiffs pursued only a per se claim and eschewed a Rule of Reason claim. The trial court granted the defendants’ motion for summary judgment, finding that the defendants’ behavior had plausible procompetitive effects and so was not subject to per se analysis.

The Sixth Circuit affirmed. “[A]t the summary judgment phase,” the court held, “the right question to ask regarding per se claims is whether the plaintiff has shown that the challenged restraint is so obviously anticompetitive that it should be condemned as per se illegal. If, in spite of the plaintiff’s efforts, the record indicates that the challenged restraint is plausibly procompetitive, then summary judgment for the defendants is appropriate.” Slip. Op. at 10.

Under Texaco Inc. v. Dagher, 547 U.S. 1 (2006), there are three types of joint venture restraints: (1) those core to the venture’s efficiency-enhancing purpose (such as setting prices for venture products); (2) those ancillary to the venture’s efficiency-enhancing purpose; and (3) restraints nakedly unrelated to the purpose of the venture. Only the last of these three justifies per se treatment. See id. at 7-8; see also Medical Center at Elizabeth Place, Slip. Op. at 11.

The Sixth Circuit held that, in the case of ancillary restraints, defendants need not show that the restraints are necessary to the venture’s efficiency-enhancing purposes. Instead, there only need be a plausible procompetitive rationale for the restraint. See id. at 12-13. “We follow the majority of Circuits and hold that a joint venture’s restraint is ancillary and therefore inappropriate for per se categorization when, viewed at the time it was adopted, the restraint ‘may contribute to the success of a cooperative venture.’” Id. at 14 (cit. omit.).

The Court also rejected MCEP’s argument that the defendants had the burden of proving that a challenged restraint is procompetitive and therefore ancillary. For a per se claim, whether challenged conduct belongs in the per se category is a question of law. See id. at 15.

The Court then reviewed the two kinds of conduct challenged by MCEP. First were “panel limitations,” wherein the hospital defendants stipulated to payers that if they added MCEP to their networks, the hospital defendants would be able to renegotiate prices. The Sixth Circuit held that these restraints supported procompetitive justifications (helping to ensure patient volume and reduced customer premiums). See id. at 16-17.

Second, MCEP challenged a letter by physicians affiliated with the defendants purportedly threatening a loss of patient referrals to doctors who invested in MCEP as well as terminations of leases of MCEP-affiliated doctors and non-compete agreements. But the letter, the Court held, was not a restraint itself but merely an expression of opinion, while the lease terminations arguably prevented free-riding by the doctors and the non-competes were subject to Rule of Reason review.

MCEP also alleged a conspiracy among payers and a conspiracy among physicians not to deal with it. But the Court held that these conspiracy allegations were new and untimely and therefore not properly before the district court.

The Sixth Circuit’s decision further clarifies the limited applicability of the per se rule in the context of joint ventures, and aligns the Sixth Circuit with the majority approach of the other circuits that have considered the issue. However, the Sixth Circuit’s first decision in the case, reported at 817 F.3d 934 (6th Cir. 2016) – where the Court found that the defendant hospitals could conspire with each other despite the existence of a well-crafted joint operating agreement and based on “intent” evidence – remains somewhat opaque and counsels in favor of careful review of joint venture structure and monitoring of joint venture operations.

 

M&A HSR Premerger Notification Thresholds Increase in 2019

Takeaways

  • The new minimum HSR threshold is $90 million and applies to transactions closing on or after April 3, 2019.
  • The current threshold of $84.4 million is in effect for all transactions that will close through April 2, 2019.
  • Failure to file may result in a fine of up to $42,530 per day of non-compliance.
  • The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2019. The thresholds are adjusted annually, and were delayed this year by the government shutdown. Transactions closing on or after April 3, 2019 that are valued in excess of $90 million potentially require an HSR premerger notification filing to the U.S. antitrust agencies. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

The potential need for an HSR filing requires determining whether the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold that is in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. It may also include more than the purchase price, such as earnouts and liabilities. Talk to your HSR counsel to determine what must be included in determining your Size of Transaction.

If the transaction will close before April 3, 2019, the $84.4 million threshold still applies; closings as of April 3, 2019 will be subject to the new $90 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after April 3, 2019. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Always consult with HSR counsel to determine if your transaction is HSR-reportable. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.

Potential Antitrust Issues Lurking in Blockchain Technology

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

Chinese Company’s Use of Foreign Sovereign Immunity Defense Linked to FTAIA Standard for “Direct” Impact on U.S. Commerce

On February 1, 2018, the Northern District of California court handling the sprawling In re Cathode Ray Tube (CRT) Antitrust Litigation[1] (“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[2] (“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[3] (“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

Antitrust Analysis of Joint Ventures: How Big Is Too Big?

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 the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether a JV is a legitimate collaboration.  The third post in the series discussed ancillary restraints–what they are and how they are analyzed. READ MORE

Antitrust Analysis of Joint Ventures: Ancillary Restraints

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 the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. This third post in the series discusses ancillary restraints—what they are and how they are analyzed. READ MORE

Antitrust Analysis of Joint Ventures: Structural Considerations

Businessman hand touching JOINT VENTURE sign with businesspeople icon network on virtual screen Antitrust Analysis of Joint Ventures Antitrust Analysis of Joint Ventures – Structural Considerations

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.

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China’s NDRC Seeks Comments on Draft Guidelines for Price-Related Behavior of Industry Associations

Flag map of People's Republic of China China’s NDRC Seeks Comments on Draft Guidelines for Price-Related Behavior of Industry Associations

On March 24, 2017, the PRC National Development and Reform Commission (“NDRC”) issued draft Guidelines for Price-Related Behavior of Industry Associations (“Guidelines”). The Guidelines encourage industry associations in the People’s Republic of China to engage in price-related behavior that benefits industry development, market competition and consumers’ legal interests; outline the legal risks that may be involved in various price-related behavior by industry associations; and provide guidance for industry associations to assess whether price-related behavior poses legal risk. The NDRC is accepting public comments until April 24, 2017.

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Fine in Phosphates Cartel Case Confirms Need to Carefully Evaluate European Commission Settlement Proposals

Businessman's hands exchanging euro on blue background, closeup shot Fine in Phosphates Cartel Case Confirms Need to Carefully Evaluate European Commission Settlement Proposals

On January 12, 2017, the Court of Justice of the European Union (“CJEU”) dismissed Roullier group’s appeal and thereby confirmed a fine of €59,850,000 imposed by the European Commission (“EC”) in the phosphates cartel case.[1] This blog post summarizes the decision and discusses the CJEU’s reasoning, which provides valuable guidance to a firm in a cartel investigation that is evaluating a settlement proposal from the EC. In particular, the firm must weigh the fact that, pursuant to the CJEU’s decision, the EC may ultimately impose fines greater than those it proposed in a rejected settlement offer, even if it determines that the firm’s cartel participation was significantly less than it thought at the time of settlement discussions.

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DOJ and FTC Stand Their Ground on Comity Policy Despite Second Circuit’s Decision in Vitamin C Case

International Flags on poles DOJ and FTC Stand Their Ground on Comity Policy Despite 2d Circuit’s Decision in Vitamin C Case

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.

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Antitrust Analysis of Joint Ventures: An Introduction

Businessman hand touching JOINT VENTURE sign with businesspeople icon network on virtual screen Antitrust Analysis of Joint Ventures Antitrust Analysis of Joint Ventures – Structural Considerations

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.

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EU Held Liable To Pay Damages As a Result of the “Excessive” Length of Judicial Proceedings for an Appeal Against a Cartel Decision

The possibility for a claim to be brought against the European Union (the “EU”) as a result of “damage” caused by its institutions is enshrined in Article 340 of the Treaty on the Functioning of the European Union (“TFEU”).  In a General Court judgment of 10 January 2017, Case T-577/14 Gascogne Sack Deutschland and Gascogne v European Union (EU:T:2017:1), the appellants successfully brought a claim for material and non-material harm suffered as a result of the “excessive” length of the judicial proceedings in the context of an appeal against a European Commission (“Commission”) decision of 30 November 2005.

The timing of the process was as follows. On 23 February 2006, two entities from the Gascogne group filed appeals before the General Court against the Commission decision of 30 November 2005 finding the existence of a cartel in the plastic industrial bags sector in a number of Member States. The written procedure of the General Court proceedings in each of these cases ended in February 2007 and the oral procedure began in December 2010. The appeal was not dismissed by the General Court until 16 November 2011.  READ MORE

U.S. DOJ and FTC Issue Updated Antitrust/IP Guidelines and International Enforcement and Cooperation Guidelines

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.

DOJ and FTC Set Possible Criminal Liability Trap for HR Professionals

DOJ FTC October 20, 2016 release Antitrust Guidance for Human Resource Professionals application of antitrust laws to employee hiring and compensation criminal liabilty trap for HR professionals

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.

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China’s and Japan’s Antitrust Enforcement Agencies Warm Up To Each Other

Chinese and Japanese crossed flags increased communication, cooperation and coordination among Chinese and Japanese antitrust enforcement agencies

Although China and Japan have very different histories regarding their antitrust laws, antitrust enforcement officials from the two countries have recently taken steps to open a formal dialogue. This is a welcome development for Chinese and Japanese companies, as well as for foreign companies that do business in China and Japan, and it continues the trend of increased communication, cooperation and coordination among national enforcement agencies. There remains an open question, however, as to how convergence among Asian antitrust enforcement agencies will affect possible convergence with agencies in the United States, the European Union and the rest of the world.

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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.

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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).

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

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.

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