Monopolization/Dominant Firm Conduct

New Anti-Monopoly Regulations in Force in China

September 1, 2019 may be seen as a new starting point for the enforcement of China’s antitrust and competition laws. On this date, three new sets of rules and regulations (the “Three New Regulations”) took effect, which were issued by China’s newly formed competition authority, the State Administration for Market Regulation (“SAMR”): [1]

  • the Interim Provisions on Prohibiting Monopoly Agreements (“IPP-MA”),
  • the Interim Provisions on Prohibiting Abuse of Dominant Market Positions (“IPP-AD”), and
  • the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power (“IPP-AAP”).[2]

The Three New Regulations are expected to provide clear guidance for the SAMR and the provincial market supervision departments in their enforcement of China’s Anti-Monopoly Law (“AML”).[3]

Main Contents of the Three New Regulations

The IPP-MA (36 Articles in total), the IPP-AD (39 Articles in total), and the IPP-AAP (25 Articles in total), are all for implementing the relevant sections of the AML (respectively, “Monopoly Agreements,” “Abuse of Dominant Market Position” and “Abuse of Administrative Power to Eliminate or Restrict Competition” sections), and have similar structures. Basically each of the Three New Regulations has the following main contents:

  1. Systematic provisions on AML enforcement mechanisms against relevant acts in violation of the AML. They are to:
    • Establish the two-level law enforcement system involving the national level and provincial level enforcement departments;
    • Set up working mechanisms, including general authorization to provincial level enforcement departments, designation of enforcement powers, commissioned investigations, and cooperation in investigations;
    • Set up the reporting system for the provincial enforcement department to initiate and handle an investigation into relevant AML violation acts; and
    • Urge the SAMR to strengthen guidance and supervision of provincial-level market regulation departments, and to unify the standards of law enforcement.
  2. Detailed provisions on law enforcement procedures:
    • The procedural regulations for each of the main stages of case handling, including whistleblowing, case-filing, investigation, case disposition, publicity, etc. are provided; the IPP-MA and the IPP-AD also clarify procedures regarding commitment proposal and handling.
    • The IPP-MA and the IPP-AD also incorporate by reference the procedural regulations promulgated by SAMR earlier this year in April, i.e. the Interim Provisions on the Procedures for Administrative Punishments for Market Supervision and Administration, and the Interim Measures for the Hearings for Administrative Punishments for Market Supervision and Administration.
  3. More details in implementing relevant sections of the AML:
    • Each of the Three New Regulations specifies the conditions or factors for finding violations of the AML, and clarifies the specific manifestations and constituent elements of violating acts. On one hand, they are expected to facilitate the implementation of the AML by not only providing guidance to AML enforcement agencies but also restricting those agencies’ discretions, and on the other hand, they may serve as clear guidelines for compliance by the parties subject to those regulations.
    • Each of the Three New Regulations provides details on how to deal with illegal acts. The IPP-MA and the IPP-AD specify the types of penalties, the factors to be considered for determining the amount of fines, and the content of administrative penalty decisions; they further clarify that a business operator shall still assume legal responsibility for reaching a monopoly agreement or abusing the dominant market position by passive compliance with administrative orders, but the responsibility can be lightened or mitigated according to law. The IPP-AAP distinguishes the action types in different case situations and clarifies the specific content of an administrative proposal after the investigation.
    • The IPP-MA also specifies the exemption and leniency system. For instance, it clarifies the conditions for applying for exemptions/leniency treatments, the consideration factors for the AML enforcement agencies to determine granting exemptions/leniency treatments, and the content of the exemptions/leniency treatments.

It is believed that the Three New Regulations will further enhance the fairness, standardization and transparency of AML enforcement.

The New Regime vs. the Old – A Comparison

  1. Each of the Three New Regulations is more comprehensive for including both substantive and procedural provisions. Before the institutional reform, the original AML enforcement agencies issued separate regulations respectively on substantive provisions and procedural provisions. Now each of the Three New Regulations combines substantive and procedural provisions to make the regulations more comprehensive and complete, which could be conducive to the implementation by AML enforcement agencies and compliance by the parties subject to the governance of those regulations.
  2. The Three New Regulations overall may improve the AML enforcement supervision mechanism: Each of the Three New Regulations clearly requires the provincial law enforcement departments to investigate and deal with illegal acts in accordance with the relevant provisions of the SAMR, and the SAMR shall strengthen the guidance and supervision of the provincial law enforcement departments. Moreover, the reporting system and a stricter supervision mechanism are to be established according to each of the Three New Regulations, which could be conducive to the AML enforcement and the formation of a new pattern of AML enforcement with the expectation of comprehensively unified standards and procedures and practice.
  3. Each of the Three New Regulations refines relevant provisions of the AML. The main highlights are:
    • The Interim Provisions on Prohibiting Monopoly Agreements[4]
      • Factors for identifying other monopoly agreements are provided. It clarifies the factors that need to be considered when applying the section “Monopoly Agreements” of the AML to identify other monopoly agreements. It is clarified that other monopoly agreements in the AML can be determined only by the SAMR, which reflects the prudential principle adopted by law enforcement agencies on this issue.
      • Prudence is attached to the application of the commitment system. Where an operator promises to correct his behavior and take the initiative to eliminate the consequences of his behavior, the AML enforcement agency may decide to suspend the investigation. The commitment system is conducive to saving law enforcement resources and improving law enforcement efficiency. At the same time, however, it is also prone to problems such as replacing punishment with suspension. It particularly stipulates that the commitment system shall not be applied to monopoly agreements for (i) fixing prices, (ii) restricting the number of goods produced or sold, or (iii) segmenting market; moreover, if the AML enforcement agency concludes after investigation that a monopoly agreement exists, it shall no longer accept an application for suspension of investigations, which is conducive to maintaining the authority of AML enforcement.
      • Adjustment is made to the leniency system. It sets different levels for the reduction and exemption of penalties, which may make the leniency system produce a better incentive effect, and encourage reporting and surrender. It also increases the number of operators entitled to lenient treatment up to three in a case, and at the same time it adjusts the extents of mitigation or exemption of punishments, which may make the leniency system work better.
    • The Interim Provisions on Prohibiting Abuse of Dominant Market Positions [5]
      • Factors for determining dominant market position of operators in new areas are provided. In recent years, the abuse of dominant market position in the Internet and intellectual property fields has received widespread attention. In response to the concerns of all sectors of society, and in order to strengthen the AML enforcement regarding dominant market position in the above two areas, the IPP-AD clearly clarifies the special factors that need to be considered in determining the dominant market position of operators in these two areas.
        • Prudence is attached to the determination of abuse of dominant market position. In law enforcement practice, it could be a complicated process to determine that the behavior of an operator constitutes such abuse. Although some acts may appear to constitute abuse of dominant market position, they may be actually commercially reasonable and should not be enjoined. The IPP-MD is believed to have fully considered the rationality of the behavior of operators, and clearly enumerates the typical abuse conducts; for instance, it stipulates that when a case involves sales of goods at a price lower than the cost, the analysis should be focused on whether the price is lower than the average variable costs; and in the case of free products provided in emerging areas such as the Internet, an overall consideration of free goods and related paid goods provided by the operator would be needed.
      • Circumstances of “justifiable reasons” are specified. Under AML, the question on whether “justifiable reasons” exist needs to be considered when determining whether a suspected act constitutes an abuse of dominant market position. The IPP-AD, based on enforcement authorities’ relevant experience, enumerates specific possible justifiable reasons for acts like selling goods at prices below cost, refusing to trade, restricting transactions, tying or attaching unreasonable trading conditions, differential treatment, etc. These provisions refine relevant provisions of the AML and are expected to enhance the law enforcement operability and increase the market predictability.
    • The Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power [6]
      • Specific types of acts of abusing administrative power to eliminate or restrict competition are provided. As compared with the old regulations by NDRC and the former SAIC, the new regulations are expected to help accurately identify the violation acts and further enhance the operability in law enforcement practice.
      • Procedures of law enforcement and handling are improved as compared with the old regulations by NDRC and the former SAIC. For instance, it clarifies that the AML enforcement agencies may initiate investigations against suspected violation acts through performing their powers, whistleblowing, assignments by higher authorities, cases transferred by other organs, reports of lower-level organs, etc., and market-level regulatory authorities below the provincial level can also receive whistleblowing materials or discover case clues, which improves the case-filing procedure.

The Three New Regulations further clarify the standards for identifying violation acts and imposing penalties, grant the AML enforcement agencies relatively full power and authority to conduct investigations, collect evidence and sanction violating parties, which is expected to better guide and regulate enforcement activities and more effectively combat monopolistic behaviors.[7]

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[1] Year 2018 is the 10th year of implementation of China’s Anti-Monopoly Law (“AML”), and it is also the year seeing China’s new round of administrative system reform. This round of reform directly led to a major change in China’s AML implementation mechanism, namely the establishment of SAMR, into which the duties of anti-monopoly law enforcement agencies originally dispersed throughout the National Development and Reform Commission (“NDRC”), the former State Administration for Industry and Commerce (“SAIC”) and the Ministry of Commerce (“MOFCOM”) were integrated. The SAMR now assumes the unified functions for AML enforcement.

[2] See the Interim Provisions on Prohibiting Monopoly Agreements, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303056.html, the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303057.html, and the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power, available at http://gkml.samr.gov.cn/nsjg/fgs/201907/t20190701_303058.html.

[3] See Legal Daily, The Three Regulations for Implementing the Anti-Monopoly Law Implemented since September – The Anti-Monopoly Law Enforcement System Now Has “Steel and Sharp Teeth”, 2019-07-19, available at http://www.xinhuanet.com/2019-07/19/c_1124774162.htm.

[4] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting Monopoly Agreements, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306388.html.

[5] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306387.html.

[6] See Anti-monopoly Bureau, A Chart to Understand the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power, August 30, 2019, available at http://gkml.samr.gov.cn/nsjg/xwxcs/201908/t20190830_306386.html.

[7] See Legal Daily, The Three Regulations for Implementing the Anti-Monopoly Law Implemented since September – The Anti-Monopoly Law enforcement system has “Steel and Sharp Teeth”, 2019-07-19, available at http://www.xinhuanet.com/2019-07/19/c_1124774162.htm.

 

No Signs of Slowing Down — Global Antitrust Agencies Focus on Big Tech

Earlier this year, we covered the widespread interest in tech giants among international competition authorities, as well as the potential for divergence in intensity and type of enforcement across jurisdictions. We observed that while the U.S. enforcement agencies did not appear to support a regulatory approach to platforms and the digital economy, others like the Australian Competition and Consumer Commission (ACCC) and the UK Parliament’s Digital Culture, Media and Sport Committee may have a stronger appetite for proactive regulation.

Since that post, competition authorities, both U.S. and other, have intensified their focus, with activities ranging from sector-wide studies to investigations into individual tech companies.

For example, the U.S. Department of Justice Antitrust Division (DOJ) recently announced a broad review of whether online tech companies have harmed consumers or otherwise reduced competition. The probe will cover leading online platforms in “search, social media, and some retail services” and will focus on “practices that create or maintain structural impediments to greater competition and user benefits.”

That DOJ announcement is part of a broader effort by the U.S. antitrust enforcement agencies to address competition in the tech sector. Days later, the Attorney General met with eight State AGs who reportedly are considering opening their own investigations. The FTC launched a tech task force back in February (in addition to its recently concluded hearings on competition and consumer protection) and last month opened a formal antitrust investigation into Facebook (according to a recent press release accompanying Facebook’s Q2 earnings report). Reports also have emerged of FTC information requests to third-party resellers on Amazon. Even the Antitrust subcommittee of the U.S. House Committee on the Judiciary has held a hearing on online platforms and market power as part of its separate investigation.

The U.S. agencies’ overseas counterparts have remained just as active. In Australia, the ACCC just published the Final Report from its Digital Platforms inquiry. The inquiry focused on online search engines, social media platforms and other digital content aggregation platforms with an emphasis on Facebook and Google, and looked into the impact of digital platforms on competition in the advertising and media markets, and on advertisers, media content creators and consumers.

The final report found that Google has “substantial market power” in the supply of general search services and search advertising services in Australia, and that Facebook has “substantial market power” in the supply of social media services and display advertising services in Australia. Both companies were found to have “substantial bargaining power” in their dealings with news media businesses in Australia. The report cautioned that this market power could be used to damage the competitive process, though it did not look at whether these digital players have in fact misused their market power.

The report offered 23 recommendations “aimed at addressing some of the actual and potential negative impacts of digital platforms in the media and advertising markets, and also more broadly on consumers.” The recommendations most directly implicating competition include changing merger law to incorporate additional factors – such as the likelihood that the acquisition would result in the removal of a potential competitor from the market, and the nature and significance of assets, including data and technology, being acquired – and to require advance notice of acquisitions; and creating a new, specialist digital platforms branch within the ACCC to monitor and investigate proactively instances of potentially anticompetitive conduct by digital platforms and take action to enforce competition and consumer laws.

The report also recommended changes to Australia’s Privacy Act, including expanding the definition of “personal information” to include technical data, strengthening notification and consent requirements and pro-consumer defaults, enabling the erasure of personal information, and introducing direct rights of action and higher penalties for breach, as well as establishing an ombudsman scheme to resolve complaints and disputes with digital platform providers. Additional recommendations focused specifically on news media (e.g. creating a code of conduct to promote fair and transparent treatment of news media by digital platforms, improving digital media literacy in schools and the communities, and offering greater funding for public broadcasters and local journalism).

Similar undertakings are in the works around the globe. The ACCC report comes just as the UK Competition and Markets Authority (CMA) announced the start of a formal market study into online platforms and the UK market for digital advertising. The study will examine three potential sources of harm in digital advertising: (1) The market power of online platforms in consumer-facing markets – to what extent online platforms have market power and what impact this has on consumers; (2) Consumer control over data collection practices – whether consumers are able and willing to control how data about them is used and collected by online platforms; and (3) Competition in the supply of digital advertising in the UK – whether competition in digital advertising may be distorted by any market power held by platforms. Platforms not funded by digital advertising are expressly outside the scope of the study.

In keeping with what appears to be a greater openness toward proactive regulation than the U.S. agencies (at least historically), the discussion of potential remedies in the CMA’s Statement of Scope explains that the “current expectation is that any remedies are likely to focus on recommendations to Government for the development of an ex ante regulatory regime … and are likely to require legislative change.” The CMA does not believe that a “one-off” market investigation and intervention is “sufficient to provide a sustainable long-term framework for the sector.” The five main areas in which remedies may be required include: (1) increasing competition through data mobility, open standards, and open data; (2) giving consumers greater protection over data; (3) limiting platforms’ ability to exercise market power; (4) improving transparency and oversight for digital advertisers and content providers; and (5) institutional reform. The CMA plans to publish an interim report with initial findings in January 2020, with a final report to follow no later than July of next year.

Not to be outdone, the EU – which recently has been fairly active in the tech sector, including last year’s highly publicized Google Android decision – recently announced a formal investigation into Amazon. The investigation focuses on Amazon’s role as both a platform provider (through Amazon marketplace) and a participant on that platform (through its first-party retail offerings), asking whether Amazon’s use of sensitive data from independent retailers is in breach of EU competition rules. Specifically, the Commission will look into (1) the standard agreements between Amazon and marketplace sellers, which allow Amazon’s retail business to analyze and use third-party seller data; and (2) the role of data (including competitively sensitive marketplace seller data) in selecting the winners of the “Buy Box,” which allows customers to add items directly to their shopping carts and accounts for the majority of Amazon transactions.

As we cautioned previously, with so many competition authorities weighing in on how to assess tech competition, this confluence of inquiries and investigations can pose a challenge for global enterprises operating under an international patchwork of approaches. Technology-focused, data-intensive businesses should consider seeking antitrust counsel to monitor developing competition trends and implications across jurisdictions.

Dusting the Regulatory Framework – French Competition Authority Seeks to Liberalize Distribution of Drugs and Private Medical Biology

On April 4, 2019, just three months after the publication of the European Commission (EC) report on “Competition enforcement in the pharmaceutical sector,” the French Competition Authority (FrCA) issued its report n°19-A-08 on “Distribution of drugs and private medical biology.” While the reports do not have much in common, except maybe the shared concern of excessive prices in the pharmaceutical sector, they both illustrate the keen interest of the European competition authorities in this sector. The focus of the EC report is the market players’ conducts and how they may impede competition. The FrCA report rather focuses on the obstacles to effective competition that may derive from the current legislative and regulatory framework and may translate in a competitiveness gap to the detriment of French-based operators and in higher prices for patients. It deals inter alia with a French “exception”: the monopoly of pharmacies and pharmacists over drug distribution. The report also covers a wide range of French-centric topics from online sales of drugs to capital ownership of private biology medical laboratories and pharmacies, and drug advertisement, as well as the situation of wholesalers-distributors.

Softening the pharmacies and pharmacists’ monopoly over drug distribution

16 of 28 EU Member States have softened the pharmacies’ and/or pharmacists’ monopoly over drug distribution. Among France’s neighboring countries, only Belgium, Luxembourg and Spain have a legislation as restrictive as France, where drugs, whether prescription-only or over-the-counter (OTC), may only be sold in pharmacies by qualified pharmacists.

After noticing the positive effects on prices of the enlargement of the distribution channels for certain medical devices, the FrCA advocates for a liberalization of pharmacies’ monopoly over the sale of OTC drugs, to allow drugstores and supermarkets to sell them as well. For the sake of public health, it is suggested to preserve the pharmacists’ monopoly over their sale, meaning that OTC drugs could be sold in drugstores or supermarkets but only by qualified pharmacists on whom no sales targets may be applied, and in delineated spaces with their own cash point.

Softening the regime applicable to advertising issued by pharmacists

The current regulations provide for a strict framework for advertising issued by pharmacies, be it done in favor of the pharmacies themselves or of any product, drug or other, marketed by them.

According to the FrCA, the way those regulations are currently being construed translates into excessive restrictions and prevents pharmacists from using any form of advertising, including when it does not pertain to medicinal products and therefore does not present any risk to public health.

One of the detrimental consequences thereof is the absence of any real competitive pressure between pharmacies and significant price disparities. For instance, the FrCA has found price disparities between pharmacies ranging from 103.4% to 431% for certain drugs.

The FrCA considers that softening the framework for advertising issued by pharmacists and increasing price transparency would contribute to boost competition between them, and between pharmacists and supermarkets and drugstores commercializing the same personal care products.

One of the recommendations issued by the FrCA in that respect would be to better distinguish between advertisement for drugs and for personal care products: by, for instance, allowing pharmacists to put in place rebates and loyalty programs for the latter.

Softening the rules applicable to online drug distribution

Directive 2011/62/EU obliges EU Member States to allow online sales of OTC drugs and permits online sales of prescription drugs. Implementation of the Directive has noticeably differed between countries. For instance, the UK and the Netherlands have allowed online sales for both OTC and prescription drugs by pure-players. Germany, Portugal, Sweden and Denmark have allowed the sale of any drug (OTC or prescription), but only by websites leaning on a physical pharmacy. Finally, France, Belgium, Spain, Italy and Ireland have limited online sales to OTC drugs and impose a physical pharmacy.

Questioning the effectiveness of the legal framework in France, the report points out that online sales of drugs are not very well developed in France. Most French patients still think the practice is illegal or non-existent. As a result, online sales of OTC represent only 1% of total sales in France vs 14.3% of total sales in Germany. Besides, the French offer of online sales is very limited compared to that of other European countries.

According to the FrCA, the development of online sales is impeded by the numerous legal constraints facing France-based players. In particular, the prohibition of joint websites between pharmacies is being challenged because it prevents them from pooling their resources. Furthermore, the FrCA points out the difficulty for pharmacies to get visibility since the law prohibits advertising of online sales websites, comparison price websites and paid referencing.

Here again, the FrCA considers that the solution would be to soften the applicable legal framework to provide patients with better information on the online sale of medicines, as well as on the actors authorized to do so. This enhanced information would promote the emergence of an economic model better suited to the development of competitive national operators capable of competing effectively with foreign players.

Other issues addressed

The report also points out several improvable aspects that could help balance the market. The FrCA points out the rules of capital ownership of pharmacies and private medical biology laboratories that could be softened to allow better access to financing and, regarding private biology medical laboratories, to put an end to an asymmetry existing as a result of a softening in the rules of capital ownership followed by a step backward, which has created an unjustified difference between laboratories that could benefit from the softening and the ones that were created after the step backward. Finally, the FrCA advocates for a revision of the method of remuneration of wholesalers-distributors, allowing for a fairer compensation of the heavy public service mission weighing on them.

Conclusion

This report is another illustration of what could start to become an interesting trend at the FrCA: using its power to deliver opinion to invite the legislator to tackle the inefficiencies and barriers to competition created by old and sometimes overly rigid rules in regulated sectors. In the same vein, one may mention its report of February 21, 2019, n° 19-A-04, on the broadcasting sector, where the FrCA advocates for a softened regulation of the sector to consider the development of new technologies and market entry of new players.

While this trend is welcome for France-based players and also for consumers in general, it remains to be seen how these recommendations will be used (or not) by the legislator.

 

Agree to Disagree: Competition Authorities Differ on Approach to Digital Platforms

Tech giants have captured the attention of competition agencies around the world. As we have previously shared, the FTC is in the midst of a series of hearings on Competition and Consumer Protection in the 21st Century, including sessions on Big Data, Privacy, and Competition and the Antitrust Framework for Evaluating Acquisitions of Potential or Nascent Competitors in Digital Marketplaces. Multiple European regulators (the EU, Germany and now Austria) recently launched investigations into Amazon. Technology platforms are a priority for many other enforcers as well, from China to Australia to the UK.

With different competition authorities weighing in on how to assess tech competition, there is the potential for divergence in intensity of enforcement as well as whether existing competition doctrine suffices. Disparities are borne out by recent statements emanating from U.S., Australian, and UK competition agencies and officials.

Fresh remarks from the U.S. DOJ Antitrust Division indicate the agency does not support a regulatory approach to platforms and the digital economy. In a speech last week, agency head Makan Delrahim addressed Antitrust Enforcement in the Zero-Price Economy, noting that while zero-price strategies have “exploded” with the rise of digital platforms, “the strategy of selling a product or service at zero price is not new, nor is it unique to the digital economy.” Mr. Delrahim acknowledged the divergent views of how antitrust enforcement should treat such products and services, which range from exemption from antitrust scrutiny entirely to the creation of new, specially crafted rules and standards. Rejecting both of these “extreme views” as “misplaced,” he emphasized the ability of current antitrust doctrine – including the consumer welfare standard – to tackle the issue, stating: “[W]e do not need a wholesale revision of the antitrust laws to address competitive concerns in these contexts. . . . [O]ur antitrust laws and principles are flexible enough to adapt to the challenges of the digital economy.” Mr. Delrahim called for “careful case-by-case analysis” in enforcement. He touted the innovation and benefits that zero-price strategies have brought to consumers, crediting the country’s “pro-market economic and legal structures” and cautioning against “distortions of our antitrust standards” to address issues like privacy and data protection if they do not impede the functioning of the free market.

His speech echoes a view Mr. Delrahim and others at the Antitrust Division have expressed previously regarding the need (or lack thereof) for new rules to address the antitrust implications of “big data.” In an October 2018 speech regarding startups, innovation, and antitrust policy, Mr. Delrahim remarked that “accumulation of data drives innovation and benefits consumers” in many ways (including by enabling zero-price offerings), and that forced sharing risks undermining innovation by reducing incentives for both incumbents and new entrants. Invoking Trinko,[1] he stated that “free and competitive markets” – not antitrust agencies or courts – are best equipped to determine “how much data should be shared, with whom, and at what price.” Deputy Assistant Attorney General Bernard Nigro, Jr. has taken a similar position, stating that “forced sharing of critical assets reduces the incentive to invest in innovation” and that “where benefits to sharing exist, they can be best captured by the parties negotiating in a free and competitive market, not by government regulation.”

By contrast, other jurisdictions and industry observers considering the competitive implications of digital platforms have questioned the status quo. In their view, control of valuable data provides a competitive advantage and raises entry barriers that may entrench a platform’s dominant position and lead to competitive or consumer harm. At a higher level, France and Germany just announced an effort to overhaul competition rules to enable European companies to better develop technologies that compete on the global stage.

For example, last week the Australian Productivity Commission and the New Zealand Productivity Commission released a joint report that reviews how most effectively to address the challenges and harness the opportunities the digital economy creates (particularly for small- to medium-sized enterprises). In a section titled “Existing competition regulation may not be adequate for digital markets,” the report addressed the challenges of applying existing laws to the digital economy, including (among others) that zero-price goods and services complicate the analysis of market definition and market power, and that data “is an increasingly important business input and may be a source of market power” but is not adequately captured in traditional competition policy. Although the report acknowledged that in some cases technological developments might obviate the need for regulation (and in others the mere threat of regulation may be enough), it posited that new regulation might be necessary to maintain competitive markets: “[I]f ‘winner-take-most’ markets do end up prevailing, competition regulators may need to consider extending tools such as essential service access regimes to digital services.” An essential service (or “essential facilities”) regime would treat a digital platform’s data as an input essential to competition and require the platform to provide its competitors with reasonable access to it. In contrast to the Productivity Commissions’ suggestion, U.S. competition enforcers to date have been loath to treat digital platforms as essential facilities.

The Productivity Commissions’ report comes on the heels of the Australian Competition and Consumer Commission’s (ACCC) Digital Platforms Inquiry preliminary findings released in December. The ACCC expressed similar concerns about the rise of digital platforms and the threat they pose to consumers and the competitive process. Addressing what it found to be Google’s and Facebook’s market power in a number of markets,[2] the report encouraged governments to be “responsive, and indeed proactive, in reacting to and anticipating challenges and problems” posed by digital platforms. It offered eleven preliminary recommendations to address these concerns, including: amending merger law to expressly consider potential competition and the data at issue in the transaction, requiring advance notice of any acquisition by a large digital platform of a business with activities in Australia, and tasking a regulatory authority with monitoring the conduct of vertically integrated digital platforms. The report also proposed areas for further analysis, such as: a digital platforms ombudsman, the monitoring of intermediary pricing and opt-in targeted advertising. As such, indications from Australia suggest calls for more competition intervention have some teeth.

The UK may have a similar appetite, as indicated by a new Parliament publication addressing “Disinformation and ‘fake news.’” The statement calls for increased oversight and greater transparency into “how the big tech companies work and what happens to our data,” highlighting Facebook’s treatment and monetization of user data as an example of why intervention is needed. In addition to recommending a compulsory Code of Ethics overseen by an independent regulator with “statutory powers to monitor relevant tech companies,” the publication advocated for greater competition law scrutiny of and enforcement against digital platforms, including an investigation of Facebook and a “comprehensive audit” of the social media advertising market. Invoking existing “legislative tools” such as privacy laws, data protection legislation, and antitrust and competition law, the report cautioned: “The big tech companies must not be allowed to expand exponentially, without constraint or proper regulatory oversight.”

Operating under an international patchwork of competition approaches can present a challenge to global enterprises. Technology-focused, data-intensive businesses should consider seeking antitrust counsel to monitor developing competition trends and implications across jurisdictions.

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[1] Verizon Communic’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407-08 (2004).

[2] The preliminary report finds that Google has market power in online search, online search advertising and news media referral services, and that Facebook has market power in social media services, display advertising and news media referral services.

The New Madison Approach Goes to Court

On January 11, 2019, the U.S. DOJ Antitrust Division (Division) filed a Notice of Intent to File a Statement of Interest in a lawsuit filed by u-blox against Interdigital in the U.S. District Court for the Southern District of California to obtain a license consistent with Interdigital’s voluntary commitment to license its 2G, 3G and 4G telephony Standard Essential Patents (SEPs) on fair, reasonable, and nondiscriminatory (FRAND) terms. Simultaneous with the filing of its Complaint, u-blox filed a Motion for a Temporary Restraining Order and Preliminary Injunction to prevent Interdigital from further interfering with u-blox’s customer relationships. The Division argued that the Court would benefit from hearing its views on granting a TRO based on u-blox’s claim that Interdigital monopolized the 2G, 3G and 4G cellular technology markets. Intervening in a District Court case is highly unusual and is yet another clear signal that the Division has reversed the Obama Antitrust Division’s antitrust treatment of FRAND violations, despite the disparity between the Division’s current position and numerous well-reasoned U.S. court decisions that have carefully considered these issues and come to precisely the opposite conclusions.

Retro-Jefferson Approach[1]

By way of background, standard setting involves competitors and potential competitors, operating under the auspices of Standard Setting Organizations (SSOs), agreeing on a common standard and incorporating patented technology. Patents that are incorporated into a standard become much more valuable once a standard becomes established and commercially deployed on a widespread level, and it becomes impossible for companies manufacturing devices that incorporate standardized technology to switch to alternative technologies. In these circumstances, patent holders may gain market power and the ability to extract higher royalties than would have been possible before the standard was set. This type of opportunistic conduct is referred to as “patent hold-up.” To address the risk of patent hold-up, many SSOs require patent holders to commit to license their SEPs on FRAND terms. FRAND commitments reduce the risk that SEP holders will exercise market power by extracting exorbitant licensing fees or imposing other more onerous licensing terms. One way to address patent hold-up is through breach of contract and antitrust suits against holders of FRAND-encumbered SEPs.

The Obama Antitrust Division advocated the position that, under appropriate circumstances, the antitrust laws may reach violations of FRAND commitments. This position was, and remains, consistent with applicable legal precedent. For example, in 2007 the Third Circuit recognized in Broadcom v. Qualcomm, 501 F.3d 297, that a SEP-holder’s breach of a FRAND commitment can constitute a violation of Section 2 of the Sherman Act where the SEP-holder makes a false FRAND promise to induce an SSO to include its patents in the standard and later, after companies making devices that incorporate the standard are locked in, demands exorbitant royalties in violation of the FRAND commitment. Numerous other cases similarly stand for the proposition that it is appropriate to apply competition law to the realm of FRAND-encumbered SEPs. See, e.g., Research in Motion v. Motorola, 644 F. Supp. 2d 788 (N.D. Tex. 2008); Microsoft Mobile v. Interdigital, 2016 WL 1464545 (D. Del. Apr. 13, 2016).

The Obama Antitrust Division also took the position that in most cases it is inappropriate to seek injunctive relief in a judicial proceeding or an exclusion order in the U.S. International Trade Commission (ITC) as a remedy for the alleged infringement of a FRAND-encumbered SEP. Injunctions and exclusion orders (or the threat of one) are generally incompatible with a FRAND commitment and unfairly shift bargaining power to the patent holders. In the Obama Antitrust Division’s view, money damages, rather than injunctive or exclusionary relief, are generally the more appropriate remedy. Again, the Obama Antitrust Division’s policy reflected case law recognizing the same principles. See, e.g., Apple v. Motorola, 757 F.3d 1286 (Fed. Cir. 2014).

The Obama Antitrust Division articulated its views on the use of exclusion orders against the infringing use of SEPs in a joint statement issued by the Department of Justice and the U.S. Patent & Trademark Office on January 8, 2013 entitled “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” (Joint Policy Statement). The Joint Policy Statement urged the ITC to consider that “the public interest may preclude issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.”

New Madison Approach

The Division is now of the view that the Obama Antitrust Division’s focus on patent implementers and its concerns with hold-up were misplaced, even though many courts and other regulatory bodies around the world have noted the significance of the hold-up problem. The Division currently does not believe that hold-up is an antitrust problem. According to the Division, the more serious risk to competition and innovation is the “hold-out” problem. The hold-out problem arises when companies making products that innovate upon and incorporate the standard threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met. The Division further has questioned the role of antitrust law in regulating the FRAND commitment, even though the Federal Trade Commission (FTC) – and numerous other competition agencies around the world – has engaged in enforcement efforts to curb allegedly anticompetitive SEP licensing practices, many of which are directed at Qualcomm (which is the subject of an ongoing trial between the FTC and Qualcomm in Federal District Court in California).

Assistant Attorney General Makan Delrahim coined the term the “New Madison Approach” to describe his approach to the application of antitrust law to patent rights.[2] The four premises of the New Madison Approach are:

  • The antitrust laws should not be used as a tool to police FRAND commitments that patent holders make to SSOs.
  • To ensure maximum incentives to innovate, SSOs should focus on implementer hold-out, rather than focus on patent hold-up.
  • SSOs and courts should not restrict the right of a patent holder to seek or obtain an injunction or exclusion order.
  • A unilateral and unconditional refusal to license a patent should be considered per se legal.

The Division has taken at least three concrete steps to implement the New Madison Approach. First, it has opened several investigations of potential anticompetitive conduct in SSOs by implementers, for example to exclude alternative technologies. Second, in a December 7, 2018 speech in Palo Alto, California, AAG Delrahim announced that DOJ was withdrawing its support of the Joint Policy Statement. According to AAG Delrahim, the Joint Policy Statement created confusion to the extent it suggests a FRAND commitment creates a compulsory licensing scheme and suggests exclusion orders may not be appropriate in cases of FRAND-encumbered patents. AAG Delrahim noted he would engage with the U.S. Patent & Trademark Office to draft a new statement. Finally, the Division intervened in the u-blox case.

u-blox v. Interdigital

u-blox presents a fact pattern that commonly arises in FRAND cases. Since 2011, u-blox has licensed Interdigital patents that had been declared essential to the 2G, 3G and 4G standards. U-blox relied on Interdigital’s FRAND commitments, and its devices are now allegedly locked into 2G, 3G and 4G cellular technology. u-blox alleges that in its most recent round of negotiations, Interdigital is demanding supra-competitive royalty rates. Among its various claims, u-blox alleges Interdigital breached its contractual obligation to offer its SEPs on FRAND terms and has monopolized the 2G, 3G and 4G technology markets in violation of Section 2 of the Sherman Act. u-blox also alleges that Interdigital threatened its customers to force u-blox to pay excessive, non-FRAND royalties. u-box has asked the court to set a FRAND rate and filed a TRO to prevent Interdigital from interfering with its contractual relationships.

On January 11, 2019, the Division filed its Notice of Intent to explain its views concerning u-blox’s monopolization cause of action. The Division further explained that due to the partial government shutdown, it was unable to submit a brief before the TRO hearing scheduled for January 31, 2019, and asked that the TRO hearing be delayed until after DOJ appropriations have been restored, or in the alternative, to order DOJ to respond. Although not stated in the Notice of Intent, the Division can be expected to argue that it would be improper to grant a TRO based on a claim of monopolization because the antitrust laws should play no role in policing Interdigital’s FRAND commitment where contract or common law remedies are adequate. On January 14, 2019, u-blox responded that it would withdraw reliance on its monopolization claim to support its request for a TRO and instead rely on its breach of contract and other claims.

Implications of the Division’s Intervention in the u-blox Case

The Division’s filing of a Notice of Interest in the u-blox case is highly unusual. The Division rarely intervenes in district court cases, and it may be unprecedented for the Division to intervene at the TRO stage. It is also difficult to explain why the Division chose to intervene on this motion. While u-blox was relying on its antitrust claim, among several other claims, to support its TRO request, u-blox was only seeking an order to prevent Interdigital from interfering with its customer relationships while the court adjudicated its request for a FRAND rate. It is also notable that the Division put its thumb on the scale in the aid of Interdigital, a company that often finds itself in FRAND litigation.

The Division appears to be attempting to aggressively implement the New Madison Approach that the antitrust laws should protect innovators. The Division’s decision to withdraw its assent to the Joint Policy Statement appears to have been a clear signal to the ITC that it is free to grant an exclusion order in SEP cases. The Division’s intervention in the u-blox case is a clear signal that it is willing to intervene at the district court level to advance its view that the antitrust laws are not an appropriate vehicle to enforce FRAND commitments where there are adequate remedies sounding in contract or other common law theories.

To date, the Division has used speeches to make policy arguments that the antitrust laws should not be used to enforce FRAND commitments. If the Division ever gets the opportunity to present its views to a district court, watch to see what legal arguments it can marshal to support its policy position. Also watch to see whether the Division attempts to participate in other FRAND cases.

________________________

[1] Assistant Attorney General Makan Delrahim coined the phrase in his March 16, 2018 speech at the University of Pennsylvania entitled “The ‘New Madison’ Approach to Antitrust and Intellectual Property Law” based on the initial understanding of patent rights held by Thomas Jefferson, the first patent examiner of the U.S. (and a former president and principal author of the Declaration of Independence). AAG Delrahim describes the retro-Jefferson view of patents as conferring too much power on patent holders at the expense of patent implementers and that such power should be constrained by the antitrust laws or Standard Setting Organizations.

[2] The term “New Madison Approach” is based on the understanding of intellectual property rights held by James Madison, the principal drafter of the U.S. Constitution. Madison believed strong IP protections were necessary to encourage innovation and technological progress.

German Competition Authority Investigates Amazon

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.

 

Is Amazon the Next Big Case? – GAFA Under Antitrust Scrutiny

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.

FTC Kicks Off Hearings on Competition and Consumer Protection in the 21st Century

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.

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

Intellectual Ventures Wins Summary Judgment to Defeat Capital One’s Antitrust Counterclaims

Patent License agreement on a table Intellectual Ventures Wins Summary Judgment to Defeat Capital One’s Antitrust Counterclaims

Antitrust partner David Goldstein recently wrote an article for the Antitrust, UCL and Privacy section of the State Bar of California regarding Intellectual Venture’s recent summary judgment win to defeat Capital One’s antitrust counterclaims asserted in response to IV’s patent infringement claims. The decision addresses recurring issues involving patent assertion entities, including the definition of the relevant market, the Noerr-Pennington doctrine, and collateral estoppel. The article can be accessed here.

The Chips Are Down: Intel’s Victory in the European Court of Justice Has Implications on How Anticompetitive Conduct Is Analysed in EU Antitrust Cases

 

On 6 September 2017, the Court of Justice of the European Union (“CJEU”) handed down its long-awaited ruling in Intel v Commission (the “Ruling”).[1] The Ruling, which sets aside the appealed judgment of the EU General Court and orders the case to be re-examined for failing to consider the effects of anticompetitive conduct on competition, has potentially broad implications for how the European Commission (“Commission”) conducts its analysis and reasons its decisions in ongoing and future EU antitrust investigations.

Key Takeaways

  • The Ruling signals a return of “effects-based” analysis in EU antitrust cases and a move away from a “form-based” approach where certain conduct is deemed per se illegal.
  • The Ruling not only clarifies how the General Court should assess appeals of Commission decisions, but is likely to have implications for how the Commission approaches its analysis and reasons its decisions in EU antitrust cases going forward. In particular, the burden of proving that specific conduct or practices have anticompetitive effects is placed firmly with the Commission.
  • Intel’s victory may embolden other entities facing similar allegations to defend their corners more aggressively.
  • This is not the end of the road. It cannot be ruled out that the General Court, when it re-examines the case and applies the appropriate analysis, comes to the same ultimate conclusions and upholds the Commission’s original fine.

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Antitrust Issues on Collection and Use of Big Data in Japan

On June 6, 2017, a committee within Japan’s Fair Trade Commission published a report on competition policy and big data. The report is based on a concern that dominance of big data by certain major technology companies could impede competition and innovation, and addresses how Japan’s Antitrust Act (Act) could be applied in this context.

A main focus of the report is how certain cases of “collection of data” and “use of data” could trigger antitrust issues. 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.

Tenth Circuit Rules That Invocation of IP Rights Is Presumptively Valid Defense to Antitrust Refusal to Deal Claims

Tenth Circuit Rules That Invocation of IP Rights Is Presumptively Valid Defense to Antitrust Refusal to Deal Claims Detail of a pair of aviator sunglasses on a flight planner

In SOLIDFX, LLC v. Jeppesen Sanderson, Inc., Case Nos. 15-1079 and 15-1097 (opinion available here), the Tenth Circuit aligned itself with the First and Federal Circuits to hold that the invocation of intellectual property rights is a presumptively valid business justification sufficient to rebut a Sherman Act Section 2 refusal to deal claim, but left open some questions about when and how the presumption can (if ever) be rebutted.

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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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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).

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

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.

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China’s Fair Competition Review System: China Takes Another Significant Step Eight Years After Enacting the Anti-Monopoly Law

Rshutterstock_99699011-2ecognizing concern that the Chinese government intervenes excessively into markets and private economic activities, the China State Council recently released opinions directing the implementation of a fair competition review system (“FCRS”), which is intended to moderate administrative authorities’ issuance of regulations and minimize the government’s interference in China’s economy. Although the CRS has been hailed as “a key step to establish the fundamental status of competition policies,”[1] its success will depend on how it is implemented.

On June 1, 2016, the Opinions of the State Council on Establishing a Fair Competition Review System During the Development of Market-Oriented Systems (“Opinions”) were promulgated and became effective.  The Opinions note that enforcement of current laws sometimes entails “local protectionism, regional blockade, industry barriers, business monopoly, granting preferential policies in violation of the law or illegally prejudicing the interests of market players, and other phenomena contrary to the efforts of building a unified national market and promoting fair competition.”  These so-called “administrative monopolies,” which often are at issue in cases investigated under the Anti-Monopoly Law (“AML”), are at cross purposes to the AML.  In an effort to reduce or eliminate obstacles to economic development, the Opinions call for limiting the government authorities’ administrative powers, establishing the FCRS, preventing new policies and measures that exclude competition, and gradually revising and ultimately abolishing existing provisions that impede fair competition.

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

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.

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

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.

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