At Bona Law, nobody owns any ideas. If I come up with an argument for a brief, it isn’t the Jarod-Bona idea. If a client or a paralegal or a junior attorney or my six-year-old son tells me that the strategy that I have set on a complex antitrust case has a flaw, he or she is not criticizing my idea or strategy.

When someone owns an idea they have a stake in defending it, even if new or different ideas or new information makes the old idea not worth supporting. If you want to optimize strategy, arguments, or anything else when you represent a client, you can’t cling to ideas or theories that no longer represent the best thinking.

That is why at Bona Law, I strongly encourage and remind everyone to criticize current ideas and to present new ones. Each person has a unique life experience, perspective, and focus, so anyone on the team can improve any aspect of a case, from the grammar, formatting, or punctuation of a sentence, to the overall strategy of a series of complex antitrust actions. Each person is welcome to support or criticize any idea because none of us owns any of them.

That approach is also important because we all have blind spots such that someone else’s fresh perspective will see a large smudge that you might miss on a paper that you have been staring at all day. That is part of why I recommend that you hire a separate appellate attorney.

But changing your mind isn’t just about a fresh perspective to something you may have missed, though that is significant. Sometimes new information should cause you to rethink your initial idea, even if your convictions were firm. Even better, with time you should develop greater knowledge, wisdom, and insight. You should also be exposed to the perspectives of more people, whether through actual interaction, literature, podcasts, biographies, and everything else.

Anyone that clings to a past idea when new information and their own development makes that idea foolish is, in fact, a fool.

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Antitrust Pleading StandardsI won’t hide the ball; I’ll just tell you the answer: Federal district courts deciding motions to dismiss an antitrust case too often apply the summary-judgment standard to conspiracy allegations, particularly when confronted with non-parallel-conduct cases.

This isn’t scientific or empirical—it is my observation and is enough of an issue that more than one federal appellate court has complained about it over the last few years.

The motion to dismiss standard for antitrust conspiracies is, to be fair, somewhat confusing thanks to a case called Bell Atlantic v. Twombly. You can read my prior article about Twombly and pleading standards here.

Before the US Supreme Court decided Twombly in 2007, courts applied a very deferential standard to antitrust motions to dismiss, including conspiracy allegations.

Courts used to follow an old Supreme Court case called Conley v. Gibson (1957) (which you will find cited in many, maybe even most, motion-to-dismiss decisions preceding Twombly). Under Conley, a complaint satisfied specificity requirements if it stated facts that made it “conceivable” that plaintiff could prove its legal claims. A court could only dismiss a claim if it appeared that a plaintiff could prove—the famous phrase—“no set of facts” in support of his or her claim that would entitle the plaintiff to relief.

The Twombly Decision

I remember when I read the Supreme Court’s Twombly decision for the first time. Justice Souter wrote the majority opinion. At the time, I was with DLA Piper and represented a defendant in the In re Insurance Brokerage Antitrust Litigation (Here is an article about the litigation from Bill Kolasky, who was one of the joint defense group leaders). The case was still with the trial court during one of the motion-to-dismiss briefing rounds. (Usually when a court dismisses an antitrust complaint for the first time, it will do so without prejudice and with leave to amend, which leads to another round of motion-to-dismiss briefing).

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Supreme Court amicus briefAs an attorney defending an antitrust class action, your job is to get your client out of the case as expeditiously and inexpensively as possible. There are several exit points.

For example, with a little help from the US Supreme Court’s Twombly decision, you might find your way out with a motion to dismiss, asserting (among other potential arguments) that plaintiffs fail to allege sufficient allegations that a conspiracy is plausible. This is usually the first battle.

Next, you could reach a settlement with class-action plaintiffs (and have it approved by the Court). This could happen at any point in the case. Oftentimes, case events that change expectations will prompt a settlement—i.e. a Department of Justice decision to drop an investigation or an indictment.

Third, you might prevail on summary judgment (or at least partial summary judgment). One means to winning on summary judgment is to disqualify plaintiff’s expert with a Daubert motion.

Fourth, you can win at trial.

Fifth, if you lose at trial, it is time to find a great appellate lawyer.

So far, these methods to get out of court look just like any other antitrust case (or commercial litigation matter). An attorney defending an antitrust class action, however, has extra way to get its client out of the case: Defeating Class Certification.

Defense attorneys are increasingly turning to class certification as a primary battle point to get their clients out of federal antitrust class actions.

An antitrust class action usually alleges some form conduct that is a per se antitrust violation in which the damages are a small amount for each class member. For example, an antitrust class action plaintiff might allege a price-fixing conspiracy among the major manufacturers in a particular industry. Plaintiffs may allege that the damage is just a few dollars or cents per plaintiff, but collectively the damages are in the millions or tens or hundreds of millions (or more).

Thus, if the Court denies plaintiffs’ motion to certify a class (barring appeal), each individual plaintiff must sue. And since each only has damages of a few dollars or less, litigation just doesn’t make sense. That, in fact, is the point of Federal Rule 23 and class actions generally—to allow relief when the aggregate harm is great but the individual harm is miniscule.

[See this article that I co-authored with Carl Hittinger on the private-attorney general purpose of class actions.]

A defendant that can defeat class certification effectively wins the case.

The US Supreme Court made this task easier for attorneys defending antitrust class actions in the 2013 classic antitrust case of Comcast Corporation v. Behrend, written by the late Justice Antonin Scalia.

Back in my DLA Piper days, I wrote about the Comcast case for the Daily Journal shortly after the Supreme Court published it.

This case involved a class action against Comcast that alleged that Comcast’s policy of “clustering” violated Section 1 of the Sherman Act. Clustering is a strategy of concentrating operations within a particular region. Plaintiffs alleged that Comcast would trade cable systems outside of their targeted region for competitor systems within their region. This would limit competition for both parties, by concentrating the market for each region with fewer cable providers.

But that wasn’t the issue the Supreme Court addressed. The Supreme Court in Comcast v. Behrend instead sought to determine whether the district court properly certified the class action under Federal Rule of Civil Procedure, Rule 23(b)(3), which is known as the predominance requirement.

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Toys R Us Antitrust ConspiracyLike life, sometimes antitrust conspiracies are complicated. Not everything always fits into a neat little package. An articulate soundbite or an attractive infograph isn’t necessarily enough to explain the reality of what is going on.

The paradigm example of an antitrust conspiracy is the smoke-filled room of competitors with their evil laughs deciding what prices their customers are going to pay. This is a horizontal conspiracy and is a per se violation of the antitrust laws.

Another, less dramatic, part of the real estate of antitrust law involves manufacturers, distributors, and retailers and the prices they set and the deals they make. This usually relates to vertical agreements and typically invites the more-detailed rule-of-reason analysis by courts. One example of this type of an agreement is a resale-price-maintenance agreement.

But sometimes a conspiracy will include a mixture of parties at different levels of the distribution chain. In other words, the overall agreement or conspiracy may include both horizontal (competitor) relationships and vertical relationships. In some circumstances, everyone in the conspiracy—even those that are not conspiring with any competitors—could be liable for a per se antitrust violation.

As the Ninth Circuit recently explained in In re Musical Instruments and Equipment Antitrust Violation, “One conspiracy can involve both direct competitors and actors up and down the supply chain, and hence consist of both horizontal and vertical agreements.” (1192). One such hybrid form of conspiracy (there are others) is sometimes called a “hub-and-spoke” conspiracy.

In a hub-and-spoke conspiracy, a hub (which is often a dominant retailer or purchaser) will have identical or similar agreements with several spokes, which are often manufacturers or suppliers. By itself, this is merely a series of vertical agreements, which would be subject to the rule of reason.

But when each of the manufacturers agree among each other to reach the challenged agreements with the hub (the retailer), the several sets of vertical agreements may descend into a single per se antitrust violation. To complete the hub-and-spoke analogy, the retailer is the hub, the manufacturers are the spokes and the agreement among the manufacturers is the wheel that forms around the spokes.

In many instances, the impetus of a hub-and-spoke antitrust conspiracy is a powerful retailer that wants to knock out other retail competition. In the internet age, you might see this with a strong brick-and-mortar retailer that wants to take a hit at e-commerce competitors (I receive many such calls about this scenario).

The powerful retailer knows that the several manufacturers need the volume the retailer can deliver, so it has some market power over these retailers. With market power—which translates to negotiating power—you can ask for stuff. Usually what you ask for is better pricing, terms, etc.

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FTC State Action ImmunityIn early 2015, the U.S. Supreme Court held in North Carolina State Board of Dental Examiners v. FTC that the “active state supervision” prong of the state-action immunity from antitrust liability test applied to state licensing boards controlled by market participants. You can read my analysis of the decision here. And you can read the amicus brief that Bona Law filed in the case here.

(Besides the “active state supervision” requirement, state-action-immunity applicants must also demonstrate that the challenged restraint was clearly articulated and affirmatively expressed as state policy by a state sovereign, like a state legislature. The Supreme Court recently addressed this requirement in FTC v. Phoebe Putney Health System, Inc. I filed an amicus brief in this case, which you can review here.)

The Basics of Antitrust Liability and State-Action Immunity for State Regulatory Boards

I have written quite a bit about state action immunity and the NC Dental case, so I won’t give a lot of background here. You can read my prior articles.

But here are the basics: Not surprisingly, state and local governments often engage in anticompetitive behavior. Sometimes this includes conduct that the federal antitrust laws prohibit.

But, owing to federalism and the fact that governments get away with things they shouldn’t, sometimes state and federal governments have a get-out-of-antitrust-liability card called “state-action immunity.” Like all antitrust exemptions, Courts interpret the scope of state-action immunity narrowly.

In most situations, a state or local government seeking state-action immunity must demonstrate that (1) the state sovereign—usually the legislature or state supreme court acting legislatively—clearly articulated and affirmatively expressed the challenged restraint as state policy (See Phoebe Putney); and (2) that the state actively supervises the anticompetitive policy.

Before the US Supreme Court decided the NC Dental case, it was an open question whether state licensing or regulatory boards were required to show both prongs of what is called the Midcal test, or just the first prong. That is, it wasn’t a given that these state boards had to show active supervision. I addressed that very issue in a law review article, which you can read here. But apparently my article wasn’t enough to end discussion on the issue, so the US Supreme Court went ahead and addressed it in the NC Dental v. FTC case.

The Supreme Court in NC Dental went on to hold that a state board on which a controlling number of decision-makers are market participants in the regulated occupation must satisfy the active supervision requirement to invoke state-action antitrust immunity.

(As an aside, certain municipalities do not need to show active state supervision, but I suspect that courts will continue to narrow this exception. Luke Wake and I argued in another law review article that whenever the government entity becomes a market-participant, it should lose its state-action immunity entirely. I mention this here because it is often a local government entity that competes directly in the market and tries to invoke state-action immunity.).

So we now know that anticompetitive conduct by state regulatory boards are subject to antitrust scrutiny unless they can show both prongs of the Midcal test, including active state supervision. But what is active state supervision?

What is Active State Supervision for State-Action Immunity from Antitrust?

Active Supervision is something that the US Supreme Court has on occasion addressed, but there isn’t a clear standard. It simply hasn’t come up enough to create a dense body of law. So the guidance is slim.

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Section 5 of the FTC ActFTC Commissioner Joshua Wright recently announced his retirement from the FTC Commission to go back to George Mason University School of Law. But he did not go out quietly.

Not only was he incredibly productive during his FTC tenure, but he left right after the Federal Trade Commission issued “Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act.” As you may recall, this was one of his express goals when he first began his work at the FTC.

What is Section 5 of the FTC Act?

Section 5 of the FTC Act declares that “unfair methods of competition in or affecting commerce” are unlawful.

What does that mean?

For most of the FTC’s existence, those of us advising antitrust clients had to piece together inferences from a mere handful of cases that have addressed the Act, while at the same time trying to parse speeches and FTC activity by whatever set of commissioners were in power.

There were some cases—mostly decided in the 1980s—that seemed to limit the FTC’s power under the Act, but the authority is sparse. And the FTC seems to change its mind depending upon who is in power.

That is a problem when you have a client that wants to know if they can undertake some sort of activity. It is even more difficult when your client is already under investigation by the FTC and you have to try to explain to them that the standard of whether they have violated the FTC Act—regardless of the legality of their actions under the Sherman and Clayton Acts—would be determined by their adversary, the FTC.

We could advise the client that some prior cases suggested limiting principles, but it was, in reality, entirely unclear how a court would ultimately approach an enforcement action. And many courts might prefer to defer to the governing agency in interpreting the law the agency administrates.

This open-ended statute, of course, offered the FTC great leverage in its investigations and actions because its targets couldn’t effectively predict the likely scope of Section 5 of the FTC Act. This leverage can lead to forced settlements for targets that don’t know the standard by which the agency will judge them.

And the FTC had not issued any significant guidance about how it would enforce Section 5 of the FTC Act. It was clear to most people in the antitrust community that the Act was potentially broader than the Sherman and Clayton Acts—the traditional antitrust statutes—but the extent and scope were unclear.

(As an aside, the FTC does its antitrust enforcement through this FTC Act, even if it involves existing antitrust statutes, so the only real issue is how much broader is the FTC Act than the other antitrust statutes. The FTC refers to this as their “standalone” Section 5 authority).

The scope of Section 5 of the FTC Act was an important issue because when it comes to competition enforcement there is a very fine line between anticompetitive activity and strong procompetitive activity. Indeed, it isn’t always clear whether a particular type of business practice is either strongly procompetitive or actually anticompetitive.

So if Section 5 of the FTC Act is too broad it might deter conduct that in fact helps competition a great deal, which would undercut the purpose of the statute itself. This is a recurring problem for antitrust enforcement.

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Hospital Antitrust CasesWhat is great about practicing antitrust law is that you take deep dives into the intricacies of different markets from the shelf space in drug stores for condoms—an actual case from several years ago—to insurance brokerage pricing to processed eggs and everything in between.

There are, however, certain industries that repeat themselves in the antitrust world, which isn’t a surprise because some industries are more susceptible to antitrust issues than others. For example, the airline and pharmaceutical industries consistently face antitrust scrutiny because of the nature of their markets and the regulations surrounding them.

But the industry I’d like to discuss here is the health-care or medical industry, and more specifically, hospitals. I’ve found myself with many antitrust and non-antitrust cases involving health-care of one sort or another over the last couple years, so this area has become an interest of mine.

Lately, I have also spent more time than I will publicly admit consuming materials (mostly books, blogs, and podcasts) on health, nutrition, and fitness, which (combined with my health-care cases) has my family often reminding me that I am not a doctor after some well-meaning but often unwelcome advice.

If you follow antitrust, you will notice that there are a lot of cases about hospitals. Why is that? This might seem surprising at first glance because many hospitals are non-profits or government-owned and you probably don’t picture a hospital in your mind when you think of the term “monopolizing.”

(If you can make it through the explanation below, you can read about a recent Department of Justice antitrust action against some Michigan hospitals that apparently agreed not to compete with each other in particular ways).

First, non-profit status is not a defense to the antitrust laws. Whether you have stockholders or owners that keep residual profits or not, you have to play by the antitrust rules. Non-profit entities (and their officers) still seek power, influence and prestige. And, increasingly, state and local government entities are subject to the antitrust laws. I’ve written a lot about that on The Antitrust Attorney Blog; you can access those articles in the State-Action Immunity category.

In fact, after the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC, it seems like many litigants want to go after state boards of various sorts. Anyway, I’ve received many calls about this and there are a few active cases, including one in Texas that I’ve written about.

Second, the health-care industry encompasses a series of narrow product, service, and geographic markets. That is because, except in limited circumstances, most people don’t travel far for medical care. They want to go somewhere near their work or home. So geographic markets are usually regional to a metro area (with some exceptions).

Within each geographic region, there are usually a limited number of hospitals or other medical facilities for particular specialties. Thus, each geographic market, that is each region, has what may be considered an oligopoly, or a handful of competitors that all know and depend upon each other. Whereas the airline industry is effectively a worldwide oligopoly, the markets for hospitals and other medical facilities are often oligopolies within metro areas. From that perspective, it isn’t a surprise that we see many hospital antitrust cases because there are so many different metro areas with oligopolies.

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Teladoc antitrustIt is easier to succeed in business without competition than with it. And if you are used to practicing your profession in a particular way, it is quite uncomfortable when new approaches develop that undercut your business.

(As an aside, Aaron Gott and I just published an article for CIO Story that discussed this idea in the context of the legal profession: Disrupting the Traditional Law Firm Model.)

Indeed, the first reaction is that the “guild” scrambles to find ways to stop the newcomers, often citing health, safety, or consumer protection reasons to cover what are, in fact, really actions of self-preservation. Several years ago, I published a law review article called “The Antitrust Implications of Licensed Occupations Choosing Their Own Exclusive Jurisdiction,” that discussed the antitrust implications of this problem.

North Carolina Board of Dental Examiners v. FTC

More recently, the United States Supreme Court decided a case called North Carolina State Board of Dental Examiners v. FTC. In that case, the Supreme Court held that a state board made up of dentists was not immune from the antitrust laws when it collectively acted to limit the market for teeth-whitening to dentists.

In the NC Dental case, dentists noticed that their high-margin teeth-whitening was facing lower-priced competition from non-dentists. They predictably reacted by citing health, safety, and consumer concerns and did what they could—collectively—to destroy their competitors and thus their competition.

That they did so through what was, in fact, a state board was no concern to the US Supreme Court because when an entity—even a state entity—is made up of a group of competitors it is in many ways just like a private trade association. If the competitors collectively violate the antitrust laws by excluding competition, they must face antitrust liability.

What the Supreme Court did not do in NC Dental, however, is determine the scope of what is an antitrust violation. For that, we must turn to basic antitrust doctrine. And like any other antitrust application, doctrine develops around different types of actions and situations.

One pertinent example, of course, is the state board made up of private competitors that seek to exclude their competition. The scope of antitrust liability—separate and apart from any state-action immunity issues—is an underdeveloped area of antitrust doctrine because there weren’t a great many cases of this nature.

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Supreme Court amicus briefAn amicus curiae brief is filed by a non-party—usually in an appellate court like the US Supreme Court—that seeks to educate the court by offering facts, analysis, or a perspective that the party briefing doesn’t present. The term amicus curiae means “friend of the court,” and that is exactly what the parties that file these briefs are. They aren’t objective, but they are—without pay—helping out the court, like a friend might. Well, sort of.

Entities filing amicus briefs do so for a reason and that reason isn’t typically just court friendliness. In fact, as we will discuss below, there are many good reasons for someone to file an amicus brief.

Along with antitrust and commercial litigation, I’ve been an appellate litigator my entire career. I started out by clerking for Judge James B. Loken on the United States Court of Appeals for the Eighth Circuit (in Minneapolis), then moved on to Gibson Dunn’s appellate group in Washington DC. So, as you might imagine, I’ve participated in many appellate matters. And without question some of my favorite briefs to write are amicus briefs. I’ve filed many of them over the years.

Indeed, at Bona Law, we have already filed five amicus briefs (US Supreme Court, Fourth Circuit, Eighth Circuit, Tenth Circuit and the Minnesota Supreme Court).

From the attorney’s perspective what I really like about amicus briefs is that they invite opportunities for creativity. The briefs for the parties before the court include necessary but less exciting information like procedural history, standard of review, etc. Then, of course, they must address certain necessary arguments. Even still, there is room for creativity and a good appellate lawyer will take a thoughtful approach to a case in a way that the trial lawyer that knows the case too well may not.

But what is great about writing an amicus brief is that you can pick a particular angle and focus on it, while the parties slog through other necessary details. The attorney writing the amicus brief figures out—with the client’s help—the best contribution they can make and just does it, as efficiently and effectively as possible.

Because the amicus brief should not repeat the arguments from the parties, the attorney writing the brief must develop a different approach or delve deeper into an argument that won’t get the attention it deserves from the parties. This is great fun as the attorney can introduce a new perspective to the case, limited not by the arguments below, but by the broader standard of what will help the court.

This means that the law review article that the attorney saw on the subject that hasn’t developed into case law is fair game. So is the empirical study from a group of economists that may reflect on practical implications of the decision confronting the court. Or the attorney might educate a state supreme court about what other states are doing on the issue. Often an association will explain to the court how the issue affects their members.

The point is that amicus briefs present opportunities to develop issues in ways that party briefs rarely do. Indeed, that is partly why they are valuable to courts.

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Colgate DoctrineAs an antitrust attorney with an antitrust blog, my phone rings with a varied assortment of antitrust-related questions. One of the most common topics involves resale-price maintenance. “Resale price maintenance” is also one of the most common search terms for this blog.

That is, people want to know when it is okay for suppliers or manufacturers to dictate or participate in price-setting by downstream retailers or distributors.

I think that resale-price maintenance creates so many inquiries for two reasons: First, it is something that a comparatively large number of companies need to consider, whether they are customers, suppliers, or retailers. Second, the law is confusing, muddled, and sometimes contradictory (especially between and among state and federal antitrust laws).

If you want background on resale-price maintenance, you can review my blog post on Leegin and federal antitrust law here, and you can read my post about resale-price maintenance under state antitrust laws here.

Here, we will discuss alternatives to resale-price maintenance agreements that may achieve similar objectives for manufacturers or suppliers.

The first and most common alternative utilizes what is called the Colgate doctrine.

The Colgate doctrine arises out of a 1919 Supreme Court decision that held that the Sherman Act does not prevent a manufacturer from announcing in advance the prices at which its goods may be resold and then refusing to deal with distributors and retailers that do not respect those prices.

Businesses—with the minor exception of the refusal-to-deal doctrine—have no general antitrust-law obligation to do business with any particular company and can thus unilaterally terminate distributors without antitrust consequences (in most instances; please consult an attorney).

Both federal and state antitrust law focuses on the agreement aspect of resale-price maintenance agreements. So if a company unilaterally announces minimum prices at which resellers must sell its products or face termination, the company is not, strictly speaking, entering an agreement.

Update: You can now read this article translated to French at Le Concurrentialiste.

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