This is a six-part series on the antitrust analysis of joint ventures, which will cover why and how antitrust law applies to joint ventures and how to properly structure them to avoid antitrust liability.
Joint Venture Series
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Antitrust Analysis of Joint Ventures: An Introduction
Joint ventures (“JVs”) can require navigation of a potential minefield of antitrust issues, which we’ll explore in a series of six blog posts beginning with this introductory post. Not all of the law in this area is entirely settled, and there remain ongoing debates about some aspects of the antitrust treatment of JVs. Indeed, arriving at a coherent and unified view of JV law is like putting together a jigsaw puzzle with missing and damaged pieces.
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Antitrust Analysis of Joint Ventures: Structural Considerations
In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In this installment, we will unpack some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. In particular, we will first try to separate the analyses of, on the one hand, JV formation, and on the other, JV operation and structure. Then we will consider whether a JV (i) constitutes a “naked” agreement between or among competitors which is per se unlawful, (ii) presents no significant antitrust issue because there is only a single, integrated entity performing the JV functions, or (iii) involves restraints within the scope of a legitimate collaboration that are virtually per se lawful.
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Antitrust Analysis of Joint Ventures: Ancillary Restraints
In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. This third post in the series discusses ancillary restraints—what they are and how they are analyzed. (more…)
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Antitrust Analysis of Joint Ventures: How Big Is Too Big?
In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether a JV is a legitimate collaboration. The third post in the series discussed ancillary restraints–what they are and how they are analyzed. (more…)
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Not Subject to Per Se Analysis – Sixth Circuit on Plausibly Procompetitive Activity in Connection with a Joint Venture
In The Medical Center at Elizabeth Place, LLC v. Atrium Health System, Case No. 17-3863 (6th Cir. Apr. 25, 2019), the Sixth Circuit held that activity in connection with a joint venture that is plausibly procompetitive is not subject to per se analysis or condemnation. In doing so, it aligned itself with the Second, Seventh, Eighth and Ninth Circuits, and against the minority approach taken by the Eleventh Circuit.
The Medical Center at Elizabeth Place (MCEP) was a physician-owned, for-profit hospital in Dayton, Ohio. It failed as a physician-owned enterprise and was sold to Kettering Health Network. MCEP alleged that it failed because of the anticompetitive efforts of Premier Health (Premier), a dominant healthcare network in the Dayton area comprising four hospitals. In an earlier opinion, 817 F.3d 934 (6th Cir. 2016), the Court held that Premier comprised multiple competing entities and, therefore, could engage in concerted action.
On remand, the plaintiffs pursued only a per se claim and eschewed a Rule of Reason claim. The trial court granted the defendants’ motion for summary judgment, finding that the defendants’ behavior had plausible procompetitive effects and so was not subject to per se analysis.
The Sixth Circuit affirmed. “[A]t the summary judgment phase,” the court held, “the right question to ask regarding per se claims is whether the plaintiff has shown that the challenged restraint is so obviously anticompetitive that it should be condemned as per se illegal. If, in spite of the plaintiff’s efforts, the record indicates that the challenged restraint is plausibly procompetitive, then summary judgment for the defendants is appropriate.” Slip. Op. at 10.
Under Texaco Inc. v. Dagher, 547 U.S. 1 (2006), there are three types of joint venture restraints: (1) those core to the venture’s efficiency-enhancing purpose (such as setting prices for venture products); (2) those ancillary to the venture’s efficiency-enhancing purpose; and (3) restraints nakedly unrelated to the purpose of the venture. Only the last of these three justifies per se treatment. See id. at 7-8; see also Medical Center at Elizabeth Place, Slip. Op. at 11.
The Sixth Circuit held that, in the case of ancillary restraints, defendants need not show that the restraints are necessary to the venture’s efficiency-enhancing purposes. Instead, there only need be a plausible procompetitive rationale for the restraint. See id. at 12-13. “We follow the majority of Circuits and hold that a joint venture’s restraint is ancillary and therefore inappropriate for per se categorization when, viewed at the time it was adopted, the restraint ‘may contribute to the success of a cooperative venture.’” Id. at 14 (cit. omit.).
The Court also rejected MCEP’s argument that the defendants had the burden of proving that a challenged restraint is procompetitive and therefore ancillary. For a per se claim, whether challenged conduct belongs in the per se category is a question of law. See id. at 15.
The Court then reviewed the two kinds of conduct challenged by MCEP. First were “panel limitations,” wherein the hospital defendants stipulated to payers that if they added MCEP to their networks, the hospital defendants would be able to renegotiate prices. The Sixth Circuit held that these restraints supported procompetitive justifications (helping to ensure patient volume and reduced customer premiums). See id. at 16-17.
Second, MCEP challenged a letter by physicians affiliated with the defendants purportedly threatening a loss of patient referrals to doctors who invested in MCEP as well as terminations of leases of MCEP-affiliated doctors and non-compete agreements. But the letter, the Court held, was not a restraint itself but merely an expression of opinion, while the lease terminations arguably prevented free-riding by the doctors and the non-competes were subject to Rule of Reason review.
MCEP also alleged a conspiracy among payers and a conspiracy among physicians not to deal with it. But the Court held that these conspiracy allegations were new and untimely and therefore not properly before the district court.
The Sixth Circuit’s decision further clarifies the limited applicability of the per se rule in the context of joint ventures, and aligns the Sixth Circuit with the majority approach of the other circuits that have considered the issue. However, the Sixth Circuit’s first decision in the case, reported at 817 F.3d 934 (6th Cir. 2016) – where the Court found that the defendant hospitals could conspire with each other despite the existence of a well-crafted joint operating agreement and based on “intent” evidence – remains somewhat opaque and counsels in favor of careful review of joint venture structure and monitoring of joint venture operations.
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M&A HSR Premerger Notification Thresholds Increase in 2020
Chinese: 美国提高2020年HSR法案并购前申报门槛
Takeaways
- The new minimum HSR threshold is $94 million and applies to transactions closing on or after February 27, 2020.
- The current threshold of $90 million is in effect for all transactions that will close through February 26, 2020.
- Failure to file may result in a fine of up to $43,280 per day of non-compliance.
- The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.
The Federal Trade Commission has announced new HSR thresholds for 2020. Transactions closing on or after February 27, 2020 that are valued in excess of $94 million potentially require an HSR premerger notification filing to the U.S. antitrust agencies. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.
Determining reportability: Does the transaction meet the Size of Transaction test?
The potential need for an HSR filing requires determining whether the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold that is in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. It may also include more than the purchase price, such as earnouts and liabilities. Talk to your HSR counsel to determine what must be included in determining your Size of Transaction.
If the transaction will close before February 27, 2020, the $90 million threshold still applies; closings as of February 27, 2020 will be subject to the new $94 million threshold.
Determining reportability: Do the parties to the transaction have to meet the Size of Person test?
Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after February 27, 2020. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.
Filing Fee
For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.
Failure to File Penalty
Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.
Always consult with HSR counsel to determine if your transaction is HSR-reportable, especially before concluding that a filing is not required. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.
The implications of Brexit on the competition law landscape: Key takeaways from the CMA’s ‘Guidance on the functions of the CMA under the Withdrawal Agreement’
The UK will no longer be a Member State of the European Union (the “EU”) as of 11 p.m. on 31 January 2020 (“Exit Day”). A ‘transition period’ will run from Exit Day until 11 p.m. on 31 December 2020 (the “Transition Period”).
The Competition and Markets Authority (“CMA”) has published a guidance document explaining how Brexit, or “EU Exit,” will affect its ‘powers and processes’ for competition law enforcement (antitrust, including cartels), merger control and consumer protection law enforcement during, towards the end of and after the Transition Period (the “Guidance”). The Guidance also explains how ‘live’ mergers and ‘live’ antitrust cases being reviewed by the European Commission (the “Commission”) or the CMA during and at the end of the Transition Period will be treated.
In this post, we provide an overview of the key takeaways in relation to merger control and antitrust.
Merger control
The implications of EU Exit on merger control need to be considered during three different periods: (i) during the Transition Period; (ii) towards the end of the Transition Period; and (iii) after the end of the Transition Period.
- During the Transition Period: The ‘one-stop shop’ principle will continue to apply. When considering whether the merger control thresholds under the EU Merger Regulation (“EUMR”) are met, the turnover generated by an undertaking in the UK will still need to be included. The CMA will not open an investigation into a transaction unless jurisdiction has been transferred to it under the EUMR’s referral mechanisms. The UK courts and the Competition Appeal Tribunal will not have jurisdiction to review decisions of the Commission or the UK-related aspects of these decisions.
- Towards the end of the Transition Period: The Commission will retain jurisdiction over transactions that have been formally notified to it before the end of the Transition Period or if it has accepted referral requests under the EUMR (or the deadline for Member States to disagree to the request has expired (Article 4(5) of the EUMR)). If the Commission’s clearance decision in a particular case is subject to commitments, the Commission will continue to be responsible for monitoring and enforcing all aspects of these commitments, including any aspects relating to the UK, irrespective of whether the commitments have been agreed before the end of the Transition Period. However, the Commission and the CMA can agree to transfer responsibility for the monitoring and enforcement of the UK aspects of any commitments to the CMA.
- Following the end of Transition Period: The ‘one-stop shop’ principle will no longer apply. The turnover generated in the UK will no longer be relevant for determining whether the jurisdictional thresholds under the EUMR are met. Parallel investigations (i.e. investigations by the Commission and the CMA) can take place with regards to transactions that meet the thresholds under the EUMR and the Enterprise Act 2002. The Commission will continue to be able to investigate the effects in the UK of transactions over which it had already exercised jurisdiction (i.e. because the transaction had been notified during the Transition Period or referral requests were accepted).
Antitrust
As with merger control, the implications for antitrust enforcement should be considered during three different periods: (i) during the Transition Period; (ii) towards the end of the Transition Period; and (iii) after the end of the Transition Period.
- During the Transition Period: Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”) will have full force and effect in the UK in addition to the domestic Chapter I and Chapter II prohibitions. Regulation 1/2003, the EU block exemption Regulations and EU guidance will also continue to be applicable. The Commission will continue to have the power to enforce and investigate suspected infringements of Articles 101 and 102 TFEU in relation to the UK. If the Commission has initiated an investigation into a suspected breach of either Article 101 or Article 102, the CMA and concurrent (sector) regulators in the UK will not be able to launch a parallel investigation. In the event that commitments have been accepted by the Commission before or during the Transition Period, the Commission will continue to have the responsibility for monitoring and enforcement of the UK-related aspects of these commitments. Infringements of EU law are relevant to the disqualification of directors for competition law infringements. This will continue to be the case during the Transition Period.
- Towards the end of the Transition Period: The Commission will retain jurisdiction over cases in relation to which it has formally initiated proceedings before the end of the Transition Period. However, the CMA and the concurrent regulators may be able to obtain jurisdiction over such cases. For instance, if the agreement or conduct under investigation affects trade within the UK and are ongoing at the end of the Transition Period, the CMA or concurrent regulators may investigate facts post-dating the Transition Period. Further guidance will be issued concerning the applicable procedure. If the CMA and the concurrent regulators are investigating conduct that may affect trade between EU Member States and have not issued a decision before the end of the Transition Period and the case is ongoing, Articles 101 and 102 TFEU will no longer be applied.
- Following the end of Transition Period: After the end of the Transition Period, the CMA and the concurrent regulators will only investigate suspected infringements of the Chapter I and Chapter II prohibitions. The Commission will continue to have responsibility for monitoring and enforcing the UK aspects of commitments given or remedies imposed; however, there is an option under the Withdrawal Agreement for this responsibility to be transferred to the CMA and concurrent regulators by ‘mutual agreement.’ Further guidance will be issued concerning the applicable procedure. It is expected that company director disqualification orders will also concern conduct found to have infringed Articles 101 and 102 TFEU during the Transition Period. The EU block exemption Regulations are ‘retained exemptions.’ As such, after the Transition Period, exemptions will operate as exemptions from domestic prohibitions. The Secretary of State, acting in consultation with the CMA, will have the power to vary or revoke the application of the retained exemptions. Businesses entering into agreements after the end of the Transition Period will be able to benefit from the retained exemptions provided they meet the relevant criteria.
The CMA considers the Guidance to be a ‘live’ document subject to change “in light of further political and legal developments.”
The Guidance is available here: https://www.gov.uk/government/publications/uk-exit-from-the-eu-guidance-on-the-functions-of-the-cma-under-the-withdrawal-agreement