Monopolization/Dominant Firm Conduct

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.

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[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.

READ MORE

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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Health Check for Hospitals in Germany

Are patients receiving the best care in hospitals? The German competition authority – Bundeskartellamt – has now decided to apply a health check to the German hospitals market.

On May 31, 2016, the German competition authority announced that it was launching a so-called “sector inquiry” into the hospital services market to examine the degree of competition in that sector of the economy.

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

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

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

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

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

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