FTC

Merger Non-Compete Clauses – Be Lawful or Be Gone

Non-compete clauses are commonly included in M&A agreements. Although generally recognized as lawful, non-competes must fulfill certain requirements to comply with antitrust and competition laws. A recent FTC enforcement action further clarifies these requirements for the U.S., and serves as a reminder that U.S. antitrust authorities are actively reviewing these provisions.

In January 2019 NEXUS Gas Transmission LLC entered into a Purchase and Sale Agreement (PSA) to acquire Generation Pipeline LLC, a 23-mile natural gas pipeline in the Toledo, Ohio area, from a group of sellers for $160 million.

In the Complaint and Proposed Consent announced on September 13, 2019, the Federal Trade Commission (FTC) took issue with the non-compete clause in the PSA, which would have prohibited one seller, North Coast Gas Transmission (NCGT), from competing with the Generation Pipeline for three years. NCGT not only holds a minority interest in the Generation Pipeline, but also holds the North Coast Pipeline, a 280-mile natural gas pipeline partially serving the same region. In the FTC’s view, the non-compete clause was effectively an agreement by two competitors to cease competition for a period of time. As a condition to receiving antitrust clearance to proceed with the transaction, the parties were required to amend the PSA to eliminate the non-compete clause, enabling NCGT’s North Coast Pipeline to continue competing with the Generation Pipeline. The parties will also be subject to various reporting and compliance requirements for ten years.

It is important to note that even where a transaction does not itself raise antitrust issues – as here, where the FTC did not find any issues with NEXUS’s acquisition of the Generation Pipeline – the antitrust agencies may nonetheless take issue with the ancillary agreements to a transaction. Here, the FTC looked beyond the competitive implications of the primary transaction and investigated the impact of the non-compete clause. Parties should carefully draft and negotiate all M&A agreement clauses that may impact competition, and consult with antitrust counsel as needed.


Companies, Board Members and Officers Take Note: U.S. Antitrust Agencies Are Focused on Interlocking Directorates

The FTC and the DOJ Antitrust Division have again warned companies, along with their board members and officers, of the legal prohibition on interlocking directorates: when an individual, or an organization’s agent(s), simultaneously serves as an officer or director of two competing companies. In a recent FTC blog, and prior post, the agency flagged the importance of monitoring for interlock issues during standard antitrust compliance. The DOJ Antitrust Division likewise recently made clear in remarks by Assistant Attorney General Makan Delrahim and Principal Deputy Assistant Attorney General Andrew Finch, that it, too, is closely monitoring interlocks, particularly during transaction reviews. In-house counsel, board members and executive officers must routinely monitor interlock issues, or risk an independent government investigation or side investigation to an M&A review.

The Law

Section 8 of the Clayton Act, 15 U.S.C. § 19, prohibits “interlocking directorates.” The concern is that officer or director interlocks between competitors could result in inappropriate coordination or the sharing of competitively sensitive information, in violation of antitrust laws. The purpose of Section 8 is therefore to “nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.” U.S. v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953).

Q: Which positions are covered?

A: “Director” means a member of the board of directors, and “officer” means a position elected or chosen by the board. The prohibition applies not only to the same individual serving as an officer and/or director of two competing companies but also to entities (like private equity firms) that have their agent(s) or representative(s) serving in these roles.

Q: Which entities are covered?

A: While the statute specifically refers to interlocks among “corporations,” DOJ Antitrust Division AAG Delrahim recently signaled a willingness to enforce Section 8 against unincorporated entities such as LLCs, as the potential harm is “the same regardless of the forms of the entities.” The FTC has taken similar positions in, for example, investigating interlocks involving banks, which Section 8 exempts, and competing non-bank corporations.

Q: What are “competitive sales”?

A: “Competitive sales” are “the gross revenues for all products and services” sold by one company in competition with the other, “determined on the basis of annual gross revenues for such products and services in [the company’s] last completed fiscal year.” Companies are “competitors” if an agreement between them would violate antitrust laws. 15 U.S.C. § 19(a)(1)(B), (a)(2). The FTC has advised companies to look at their ordinary course business documents and to speak to knowledgeable employees in determining if two companies compete.

Q: Is there a grace period for compliance?

A: If an interlock did not violate Section 8 at the time it was established but, later, changed circumstances cause a prohibited interlock (such as two companies that previously did not compete becoming competitors), the companies or individuals will have one year to cure. During that time frame, parties must remember that other antitrust laws still apply.

When an interlock violates Section 8 from the time it was established, there is no grace period to cure.

The Risks

Section 8 violations are inherently illegal and do not require proof that the interlock resulted in harm to competition. The government’s remedy for a Section 8 violation is injunctive relief—elimination of the offending interlock, typically with an officer or director’s resignation. But any interlock — in violation of Section 8 or not—could give rise to claims under other antitrust laws. Section 1 of the Sherman Act prohibits combinations and conspiracies in restraint of trade, and Section 5 of the FTC Act prohibits unfair or deceptive acts in restraint of commerce. The FTC has stated it may use Section 5 to reach interlocks that may not “technically meet” the ban in Section 8 of the Clayton Act but which the agency determines may “violate the policy against horizontal interlocks expressed in Section 8.” Private plaintiffs also could bring a Sherman Act claim for treble damages.

Whistling in the Wind? DOJ’s Unusual Statement of Interest in FTC v. Qualcomm Case Highlights Disparity Between U.S. Antitrust Agencies on FRAND, SEPs, & Competition Law

In a highly unusual move, the U.S. Department of Justice Antitrust Division (DOJ) recently filed a statement of interest in the Federal Trade Commission (FTC)’s unfair competition case against Qualcomm. The statement asks the court to order additional briefing and hold a hearing on a remedy if it finds Qualcomm liable for anticompetitive abuses in connection with its patent licensing program. As the FTC pointed out in its short response to the DOJ, the court had already considered and addressed the question of whether liability and remedies should be separately considered, and the parties had already submitted extensive briefing regarding remedies.

The DOJ’s “untimely” statement of interest, in the words of the FTC, comes three months after a bench trial concluded in January of this year, while the parties are awaiting a decision on the merits from Judge Koh. The DOJ’s filing represents the most direct clash between the DOJ and the FTC on the issue of standard-essential patents (SEPs) subject to a commitment to license on fair, reasonable, and nondiscriminatory terms (FRAND). The two agencies have expressed divergent positions but up until recently had not directly taken any affirmative actions in the other’s cases or enforcement activities.

Though the statement of interest notes that the DOJ “takes no position . . . on the underlying merits of the FTC’s claims,” the DOJ’s views on this subject are well known. Assistant Attorney General for Antitrust Makan Delrahim has been a prominent and outspoken critic of the principal theory of the FTC’s entire case—that breach of a FRAND commitment can amount to an antitrust violation—despite the fact that legal precedent is well-settled in favor of the FTC’s position.

The Filing Represents Another Step by DOJ to Protect SEP Holders

For some time now, the DOJ has articulated a position largely hostile to the FTC’s underlying theory in its case against Qualcomm: the applicability of competition law upon a breach of a FRAND commitment. As background, SEPs are patents that have been voluntarily submitted by the owner and formally incorporated into a particular technological standard by a standard-setting organization (SSO). Because standardization can eliminate potential competitors for alternative technologies and confer significant bargaining power upon SEP holders vis-à-vis potential licensees, many SSOs require that the patent holder commit to license its SEPs on FRAND terms.

Beginning in late 2017, AAG Delrahim made a series of speeches presenting the DOJ’s new position on SEPs, FRAND commitments, and competition law. Among other issues, AAG Delrahim stated that the antitrust laws should not be used to police the FRAND commitments of SEP holders, insisting that such issues are more properly addressed through contract and other common law remedies. This new position by the DOJ was notable not only because it reversed the approach of the prior administration but also because it was largely inconsistent with numerous U.S. court decisions—including Judge Koh’s denial of Qualcomm’s motion to dismiss the FTC’s case. At a conference last week, AAG Delrahim doubled down on the DOJ’s position and stated he is looking for the “right case” to test the DOJ’s views on this issue. But if the DOJ were to press its views in court, it would find itself in a difficult and awkward position of having to argue that other cases that have ruled on these issues were wrongly decided.

In addition to the speeches, the DOJ has taken measures to implement its new approach, which up until recently, stopped short of effectively challenging the FTC. First, the DOJ opened several investigations of potential anticompetitive conduct in SSOs by companies that make devices implementing standards. Second, the DOJ withdrew its support from a 2013 joint statement issued by the DOJ and the U.S. Patent & Trademark Office on remedies for FRAND-encumbered SEPs because of the DOJ’s view, as explained by AAG Delrahim recently, that the policy statement “put a thumb on the scale” in favor of licensees. Third, the DOJ sought to submit another statement of interest in a private lawsuit filed by u-Blox alleging that InterDigital breached its FRAND commitments by demanding supra-competitive royalty rates for various wireless communications SEPs.

The DOJ’s current position fails to recognize the market distortion that can result when an SEP owner fails to comply with a voluntary commitment to limit those same patents rights—and the market power that is conferred on SEP holders in return for that commitment. It also fails to recognize that such policy actions ultimately will embolden certain SEP owners to engage in even more aggressive behavior at a critical period when innovative companies are beginning to incorporate wireless communications SEPs into entirely new industries, such as automobiles and the Internet of Things.

DOJ’s Filing Is Highly Unusual

The DOJ’s decision to insert itself into a case brought by another enforcement agency is exceedingly rare (although not entirely unprecedented). This is especially true because the FTC is representing the interest of consumers by acting pursuant to its authority under the FTC Act. The timing is also curious because the DOJ waited three months after the bench trial ended to file its statement, likely long after the court began drafting its opinion. The statement could be seen as a warning to the court that if it finds an antitrust violation it should not impose a remedy based on the evidence presented at trial.

The DOJ’s statement of interest further begs the question of why the agency thought it was necessary to bring itself into the case. To the extent that Qualcomm believes that the court should order additional briefing and a hearing on the issue of a remedy, even though the issue has seemingly already been addressed, Qualcomm is perfectly capable of presenting those views to the court on its own. In its response, the FTC made clear that it “did not participate in or request” the DOJ to weigh in on the case.

DOJ’s filing notes it is concerned about the risk that an “overly broad remedy” could “reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology.” But such a statement is remarkable. First, it suggests that the DOJ believes its sister enforcement agency is not concerned about fostering competition and innovation. Second, the statement suggests that the DOJ is willing to second-guess from the sidelines the judgment of both a court and competition agency that have been evaluating in detail the effect of Qualcomm’s business practices. Even if both of those positions are true, it is surprising to see the DOJ submit such a controversial filing in a matter in which AAG Delrahim is recused.

Ultimate Impact of Filing

The DOJ could have had multiple underlying motivations for choosing to submit this filing. Consistent with the split between the DOJ and FTC noted above, the DOJ could be signaling to the court that it disagrees with the FTC’s theory of competitive harm in an effort to influence the outcome on the merits. The DOJ could also be attempting to apply subtle pressure on the FTC to reach a settlement with Qualcomm to avoid drawing further attention to the two agencies’ divergent views on breach of a FRAND commitment. The statement could also be intended to discourage litigants from bringing antitrust cases premised on a breach of FRAND theory, demonstrating that, like in the u-Blox case, the DOJ is not reluctant to intervene.

However, regardless of the DOJ’s intention, its filing is unlikely to achieve any of those objectives. Judge Koh is an experienced judge who is well versed in issues at the intersection of antitrust and intellectual property law and does not shy away from ruling on difficult issues. Notably, when the FTC and Qualcomm jointly requested that she delay ruling on the FTC’s motion for partial summary judgment to pursue settlement negotiations, she denied the request and issued a significant decision holding that Qualcomm’s FRAND commitment means that it must offer licenses to its SEPs to competing chipset suppliers. Judge Koh may also exercise discretion to deny the DOJ’s statement, as the FTC pointed out in its response. More broadly, it is also unlikely that such a public airing of disagreement will go over well with an agency very focused on the state of competition in technology sectors. And the statement is also unlikely to deter private plaintiffs in light of the well-established and increasing body of case law holding that a breach of FRAND can violate competition law. The DOJ’s statement of interest, as unusual as it is, may ultimately amount to nothing more than whistling in the wind.

A Boiling Frog? Merger Enforcement of Early-Stage Tech Companies

Fable has it that a frog placed in tepid water slowly brought to a boil will not perceive danger until it is too late to leap. According to some critics, U.S. high tech merger review has a similar problem insofar as it fails to adequately consider and challenge acquisitions of startups that, on their face, appear to constitute incremental changes to competitive dynamics but that over time may suppress competition. Indeed, a U.S. Federal Trade Commission (FTC) official confirmed last week that the agency faces “withering criticism of antitrust” and its enforcement with respect to competitor acquisitions of startup companies.

The comments were made during a conference in San Francisco by Michael Moiseyev, Assistant Director of the FTC’s Bureau of Competition and a leading enforcer with responsibility for merger and acquisition review. Without identifying particular transactions, he acknowledged that players in the venture capital (VC) space have characterized the U.S. antitrust agencies as “snookered” in permitting certain early-stage companies to be acquired.

Making the case that an existing competitor’s acquisition of a nascent, potential rival poses “a substantial lessening of competition” (Clayton Act, § 7) is a high hurdle for the U.S. agencies to clear. Mr. Moiseyev assessed the state of current case law as both “terrible” and “unforgiving.” The agency’s most recent challenge invoking a potential competition theory resulted in a district court concluding that the FTC had failed to provide evidence the target would have launched a new, competing technology. FTC v. Steris Corp., No. 1:2015cv01080 (N.D. Ohio 2015). In that matter, the FTC had sued and invoked the theory that the target, if it were not acquired, was poised to create “actual potential competition” for the U.S. market leader by importing technology currently offered by just one European facility. The merging parties undermined that theory by demonstrating a dearth of customer commitment to using the would-be-imported technology.

Yet criticism of a perceived lack of U.S. agency challenges in the tech sector continues to mount.

Under this pressure, will the U.S. agencies take a fresh lens to acquisitions of new and innovative competitors? The key analytical question is how to evaluate whether those companies would evolve to constrain actual, current competition. This fall, the FTC’s ongoing policy hearings devoted a day to acquisitions of potential competitors in tech markets. Nearly all participants endorsed studies of the effects of past transactions via merger retrospectives. Several panelists advised that the agencies scrutinize more closely transactions involving dominant platforms and whether the underlying deal removes a nascent competitive threat. Other participants in the hearings emphasized that the competitive analysis should focus on harms to innovation but that an information imbalance at times constrains the agencies’ ability to assess emerging industry developments.

We do not know whether a boiling frog is in our midst. Nevertheless, if you are advising VCs or a company that is considering an acquisition involving an innovative, new or potential competitor, reach out to antitrust counsel to consult on these issues.

FTC v. Qualcomm: Trial and Possible Implications

Orrick partner Jay Jurata has published an article in Competition Policy International weighing in on the important issues raised in the closely-watched trial now under way in FTC v. Qualcomm. This article analyzes important developments in the case as it has proceeded – including the significant motion to dismiss and partial summary judgment rulings – and offers thoughts on the just commenced trial. To read the full article, please visit here.

Courts Question FTC Enforcement Method

The FTC has long asserted it has the authority to bring actions in federal court to obtain injunctive relief and equitable monetary remedies (e.g. disgorgement, consumer redress) for unfair and deceptive practices. This view of the agency’s scope of authority has stood for years without much question or challenge. But two recent district court decisions may change all that by limiting the agency’s ability to petition a federal court to those situations in which it can demonstrate a defendant is “about to violate” the law. On December 11, 2018, the United States Court of Appeals for the Third Circuit Court heard oral argument in one of the district court cases – FTC v. Shire ViroPharma, Inc. – with a decision expected in the first half of 2019. If the Third Circuit upholds the district court’s ruling, it will complicate FTC enforcement efforts and push more cases into the agency’s administrative process.

The FTC’s Enforcement Powers

The FTC can initiate an enforcement action if it has “reason to believe” that the consumer protection or antitrust laws are being violated. Before 1973, the FTC could exercise its enforcement powers only through administrative adjudications, which do not allow for financial relief or an immediate prohibition on future wrongdoing.[1] While the FTC has the power to seek financial remedies through its administrative process, the penalties are limited by a three-year statute of limitations, and the FTC must demonstrate that the conduct was clearly “dishonest or fraudulent.”[2]

In 1973, Congress amended the FTC Act to add Section 13(b) and give the FTC the authority to (1) seek injunctive relief in federal court pending the completion of the FTC administrative proceeding when the FTC “has reason to believe” that a person or entity “is violating, or is about to violate” any law enforced by the FTC, and (2) seek a permanent injunction “in proper cases.” Following the enactment of Section 13(b), the FTC adopted an expansive view of its power to bring federal court enforcement actions, and started bringing cases in federal court seeking monetary relief under equitable doctrines such as restitution, disgorgement, and rescission of contracts. The FTC also asserted that its statutory power to seek a “permanent injunction” was a standalone grant of authority that entitled the FTC to bring a federal court action irrespective of whether a defendant “is violating, or is about to violate” the law. By tying its theories to these doctrines, the FTC took much of its enforcement activity outside otherwise applicable requirements, including the three-year statute of limitations and proof of a defendant’s dishonesty or fraud. Until this year, courts universally accepted the FTC’s expansive view of its authority under Section 13(b). As a result, it is the FTC’s policy that “[a] suit under Section 13(b) is preferable to the adjudicatory process because, in such a suit, the court may award both prohibitory and monetary equitable relief in one step.”[3]

Recent Decisions

Two recent court decisions have raised questions about the FTC’s view of its authority to sue in federal court solely over a defendant’s prior conduct. In FTC v. Shire ViroPharma, Inc., the FTC sued the defendant in the U.S. District Court for the District of Delaware, alleging that between 2006 and 2012 ViroPharma had engaged in an anticompetitive campaign of repetitive and meritless filings with the FDA to delay generic competition and therefore maintain its monopoly on its branded drug. ViroPharma moved to dismiss the FTC’s complaint, arguing that the FTC had exceeded its authority under Section 13(b). Specifically, ViroPharma asserted that Section 13(b) does not provide the FTC with independent authority to seek a permanent injunction under Section 13(b), but rather limits permanent injunction actions to those cases where the FTC can show that a defendant “is violating or is about to violate” the law. On March 20, 2018, Judge Richard Andrews granted ViroPharma’s motion to dismiss, and rejected the FTC’s long-held assertion that Section 13(b) provides it with the independent authority to seek permanent injunctive relief in federal court, including relief for past violations of the FTC Act and regulations.[4] Judge Andrews held that the FTC’s authority to seek permanent injunctive relief is dependent on the FTC alleging facts that plausibly suggest a defendant is either (1) currently violating a law enforced by the FTC or (2) is about to violate such a law. Because the FTC’s complaint against ViroPharma was based on conduct that occurred five years before the filing of the complaint, the court found that the FTC failed to plead facts that demonstrate that ViroPharma was either violating or “about to” violate the law.

Subsequently, on October 15, 2018, Judge Timothy Batten, in the Northern District of Georgia, cited the ViroPharma decision in finding that the FTC’s permanent injunction authority under 13(b) authority is limited to situations where a defendant is “about to” violate the law. In FTC v. Hornbeam the FTC brought a federal court enforcement action alleging that the defendants were marketing memberships in online discount clubs to consumers seeking payday, cash advance or installment loans, in ways that violated the FTC Act, the FTC’s Telemarketing Sales Rule, and the Restore Online Shoppers’ Confidence Act. The court rejected the FTC’s argument that courts must defer to the FTC’s determination that it has “reason to believe” that the defendants were about to violate the law.[5] Rather, the court – citing the decision in ViroPharma – held that when the FTC exercises its Section 13(b) authority it must meet federal court pleading standards and set forth sufficient facts that each defendant is “about to” violate the law.

Takeaways

If followed, the ViroPharma and Hornbeam decisions could significantly limit the FTC’s ability and willingness to pursue claims in federal court, and shift enforcement actions to the FTC’s administrative process. It is unclear how such a shift to administrative enforcement will impact how the FTC approaches enforcement actions and negotiates consent orders to resolve its investigations. On the one hand, companies may be hesitant to go through the FTC’s administrative process given that it is a notoriously slow process over which the FTC Commissioners exercise the final decision-making authority. On other hand, the FTC’s limited ability to seek financial remedies through the administrative process may provide companies greater leverage in negotiating consent decrees.

The FTC is acutely aware of the potential threat posed by these decisions, as evidenced by its decision to forgo filing an amended complaint in favor of immediately appealing the court’s ruling in ViroPharma to the Third Circuit. In its appeal to the Third Circuit, the FTC stated that if the ViroPharma holding had been applied in past cases it “would likely have doomed hundreds of other Section 13(b) actions that the FTC has filed over the years – cases that collectively have recovered many billions of dollars for victimized American consumers.”[6]

On December 11, 2018, the Third Circuit heard oral argument in ViroPharma. During oral argument the three-judge panel expressed skepticism at the FTC’s argument that Judge Andrews applied the wrong pleading standard by requiring that the FTC plead sufficient facts to show that a violation of federal law was “imminent.” A decision by the Third Circuit is expected in the first half of 2019. The Hornbeam case is still pending in the Northern District of Georgia as the FTC decided to amend its complaint following the court’s ruling on the motion to dismiss.

____________________

[1] 15 U.S.C. § 45(b).

[2] 15 U.S.C. § 57b.

[3] https://www.ftc.gov/about-ftc/what-we-do/enforcement-authority.

[4] FTC v. Shire ViroPharma, Inc., No. 17-131-RGA, 2018 WL 1401329 (D. Del. 2018).

[5] FTC v. Hornbeam, No. 1:17-cv-03094-TCB (N.D. Ga. Oct. 15, 2018).

[6] FTC v. Shire ViroPharma, Inc., No. 18-1807, Document No. 003112960825 at 47 (3d Cir. June 19, 2018).

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.

Out of Sync? : DOJ’s Policy Reversal Towards SEPs Lacks Legal Support

Jay Jurata and Emily Luken co-authored an article for Global Competition Review about the troubling policy shift by the DOJ’s Antitrust Division regarding the application of competition law to the assertion of standard-essential patents.

Please click here to read the full article.

FTC and DOJ Antitrust Division Request Comments on Proposed Revisions to Antitrust Guidelines for Licensing IP

After several turbulent years of litigation and policy wrangling, many have asked whether the federal antitrust agencies should rewrite their two-decade old Antitrust Guidelines for the Licensing of Intellectual Property (“Guidelines”).  Should they provide clearer guidance regarding thorny questions about licensing standard essential patents (SEPs), patent assertion entities (PAEs), reverse payment settlements, or other matters that have prompted new guidelines from other enforcers around the world?  On August 12, the Federal Trade Commission and US Department of Justice’s Antitrust Division responded with modest updates to the Guidelines, likely setting themselves up for considerable commentary in the weeks to come.

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FTC Provides New Guidance on Classifying Foreign Entities Under the HSR Pre-Merger Notification Program

On May 19, 2016, the Federal Trade Commission (“FTC)” issued an important clarification regarding how the agency will determine whether a foreign entity is classified as corporate or non-corporate for the purpose of the agency’s premerger notification program.[1]  Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976[2] (also referred to as the “HSR Act”), parties to certain mergers or acquisitions must notify both the Federal Trade Commission and the U.S. Department of Justice prior to consummating the transaction.  Under this program, whether a party to the transaction is a corporate or non-corporate entity (e.g., an LLC, partnership) can have significant implications for determining whether a filing is required and whether an exemption might apply.[3]  While evaluating party status has historically been straightforward for U.S. entities, foreign entities pose a number of challenges.

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FTC Settles Charges of Illegal Exclusive Contracts with Medical Device Input Supplier Invibio

On April 27, 2016, Invibio—a supplier of polyetheretherketone (“PEEK”) used in medical implants—agreed to settle charges asserted by the Federal Trade Commission (“FTC”) that its exclusive supply contracts with medical device manufacturers, including some of the world’s largest, violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.[1]  This consent decree may signal a renewed interest at the agency to scrutinize exclusive contract arrangements. The decree also serves as a reminder that, while exclusive contracts are not per se unlawful, companies that have market power and use exclusive contracts face risks under the antitrust and consumer protection laws.

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Cephalon and Teva’s $1.2 Billion Consent Order with the FTC: Is it Really a Harbinger of Things to Come?

On June 17, 2015, the U.S. District Court for the Eastern District of Pennsylvania approved a consent order (the “Consent Order”) between the Federal Trade Commission and defendants Cephalon, Inc. and its parent, Teva Pharmaceutical Industries Ltd.,[1] resolved long-running antitrust litigation stemming from four “reverse payment” settlements of Hatch-Waxman patent infringement cases involving the branded drug Provigil®.  Pursuant to its settlement with the FTC (the “Consent Order”), Cephalon agreed to disgorge $1.2 billion and to limit the terms of any future settlements of Hatch-Waxman cases.[2]  The FTC and its Staff have celebrated and promoted the terms of the settlement as setting a new standard for resolving reverse-payment cases.  But their enthusiasm may be more wishful thinking than reality, and their speculation that the agreement may exert force on market behavior does not appear to be supported by a fair assessment of the state of the law.  First, the restrictions on Cephalon’s ability to enter into settlements of Hatch-Waxman cases exceed anything a court has ever required, and conflict with settlement terms apparently approved in the U.S. Supreme Court’s seminal reverse-payment decision, Federal Trade Commission v. Actavis, 133 S. Ct. 2223 (2013).  Second, the FTC’s use of disgorgement as a remedy remains controversial and Cephalon, despite initial opposition, might have voluntarily embraced that remedy as part of a strategy to achieve a global resolution of remaining private litigation.  We write to put the Consent Order in perspective, so that industry participants can better assess its meaning.

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