Articles Posted in Antitrust Counseling

Articles about antitrust counseling and training.

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Author: Molly Donovan

If I Were You is a new Bona Law podcast that gives in-house lawyers the essential 5 bullets they need to explain real-world antitrust and competition risks to their business teams. This podcast is a quick 10 minutes or less, easily digestible during a commute or errand, and we hope it becomes a practical resource for in-house lawyers.

I’ll be the regular host of the podcast, which was inspired by one of my favorite in-house friends who said, “A good way to talk to the business side is to say something like, ‘I’m not saying don’t do it, but if I were you, I would do x, y, and z to mitigate the risk.’” And—tah dah—this podcast was born.

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Author: Molly Donovan

Every spring, the Trooper Girls sell cookies in their town. Although they’re all members of the same group, the girls compete against each other to be the top cookie seller of the season. The girls hold regular meetings with rules set by the troop leader based on an antitrust course she took in law school:

  1. Discussions should stay focused on personal safety guidelines for selling cookies, and how cookie sales are going generally.
  2. No agreements to fix cookie prices—each girl is supposed to price her own cookies individually. That’s part of the fun of competing.
  3. No agreements to divide markets—deals along the lines of “you take this street and I’ll take that street” are prohibited. Members should vigorously compete in all relevant locations.
  4. Any applicant under the age of 15 can be a member of Trooper Girls upon completing the online forms and having them signed by a parent or guardian.

[“I like these rules,” thinks the antitrust lawyer. The membership criteria are clear and can be fairly and objectively applied, and the meeting discussions seem appropriately restricted to legitimate subjects]

At the first meeting of cookie-selling season, the Trooper Girls were in distress.  Practically no cookies had been sold because, unforeseeably, the Ranger Boys had started selling ice cream—a treat much more popular than cookies of late given the unseasonably warm weather.

The de facto ringleader of Trooper Girls—Tina—announced at the meeting, “We all know cookie sales aren’t going well and we all know why. We need to get on the same page, and reconsider cookie prices until the weather returns to normal and this crisis is over.”

The troop leader interrupted, “Tina, I think that’s enough on that. Let’s change the subject.”

[“Uh oh,” thinks the antitrust lawyer. Tina’s comments sound like an invitation to collude. I’m glad the troop leader spoke up, but the damage may be done.]

Tina winked at her Trooper Girl friends and they all basically knew what to do. Meanwhile, the specifics were worked out in whispers during social time after the meeting, and during one-on-one phone calls and text exchanges. Of course, nobody said exactly what price to charge and nobody wrote down any sort of formal agreement—the rules clearly don’t allow that.  Instead, the discussions were more along the lines of “let’s think about a 10%-20% discount,” which can’t constitute an “agreement,” right? Specific prices weren’t even discussed.

[“Wrong,” says the antitrust lawyer. “Agreements” don’t have to be explicit at all. A wink and a nod could suffice. Similarly, specific prices need not be discussed—agreements about the general direction of pricing could raise antitrust scrutiny.]

The next day, each member of Trooper Girls cut their cookie prices, all in the 10-20% range, though some a little bit more and some a little bit less.

Suddenly, the weather cooled again and cookie sales took off. The Ranger Boys went out of business completely, unable to compete with the reduced price of the Trooper Girl treats.

Immediately thereafter, the Trooper Girls communicated to one another—in various ways—that it was no longer necessary to keep prices low, each member could do as she pleased, though continued cooperation to return to normal prices was appropriate.

And that’s what happened.

[“Oh no, again.” This could be deemed another anticompetitive agreement, now with indefinite and potentially long-running effects.]

Rick, a member of the Ranger Boys was very sad. For one thing, he was left with a freezer full of ice cream—couldn’t give the stuff away. For another, he had nothing to do on weekends with the Ranger Boys now essentially defunct.

Wisely, Rick did two things. He called an antitrust lawyer, suspicious that something unfair had occurred. And he petitioned the Trooper Girls to join their group.

Although the girls initially refused the application, the antitrust lawyer changed Rick’s life (as antitrust lawyers do) by threatening to sue the Trooper Girls and their individual members for violating the Sherman Act, including by refusing Rick’s application for anticompetitive reasons contrary to the membership criteria.

The Trooper Girls relented—paid Rick not to sue and admitted him in the group. Rick used the settlement money to start his own business making ice cream sandwiches. He used the ice cream leftover in his freezer and Trooper Girl cookies for the sandwich ends (genius!). In the process, Rick sold a lot of ice cream and a lot of cookies—everyone was happy.

THE MORALS OF THE STORY:

*For the Trooper Girl Types and Their Associations:  In addition to having clear membership criteria, have a written antitrust compliance policy and train all members to issue spot.

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Author: Molly Donovan

Crises that disrupt distribution chains and cause supply shortages tend to prompt discussions among competitors about how to survive. Discussions may begin as relatively innocuous information exchanges but become risky when they turn to coping strategies. This topic can sometimes lead to conversations amongst competitors such as, “We’re all in the same boat, so joint efforts ought to be made to stabilize prices,” or “We, as an industry, should stay on the same page and base future price increases on the rising costs of material costs and/or distribution downstream.” As we know from history (earthquakes, tsunamic, floods), those sorts of discussions are real and prompt DOJ investigations. As difficult as it has been for some businesses, the COVID-19 pandemic will not be a defense to cartel conduct.

So now that at least some aspects of business have returned to normal, it’s an excellent time for in-house counsel to survey the relevant business units to assess whether any potentially anticompetitive conduct occurred over the last couple of years. Counsel can do this inquiry with minimal cost and minimal disruption to business: a few key interviews, a high-level but strategic sweep of emails, and a big picture look at pricing and production figures. Top leadership can deliver messages that make it clear that whistleblowers will be protected (consistent with federal law). Companies can set up a message box so employees can self-report anonymously.

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Author: Molly Donovan

Antitrust for Kids is a new blog series designed to explain complex principles of U.S. competition law to practitioners and business people in plain English. Meant to be fun, and tongue-in-cheek, the series will serve as a useful primer to help the audience issue spot and better understand antitrust concepts like price discrimination, vertical restraints, tying, tacit agreements, and more.

Max and Margie are next-door neighbors on Lemon Lane. They both operate competing lemonade stands in their front yards all summer. And, both shop at the same grocery stores to purchase the same three ingredients necessary for making their finished drinks:  fresh lemons, sugar, ice.

While they’ve been frenemies for years, casually exchanging pleasantries at times, this summer the weather is very hot, and so is competition in the local lemonade market. In fact, Max and Margie barely acknowledge each another, unless it’s to bad mouth the other—each complaining that the other makes inferior lemonade.

One day, Margie announces a breakthrough that she’s made in the lemonade space:  STRAWBERRY LEMONADE. It’s a hit. Margie begins charging 2 times over cost for her strawberry drink, and the demand for plain old lemonade (sans strawberries) stops cold.

Max is incensed, naturally, and hatches a scheme to bring Margie down.

Max heads to the largest grocery store in town. There, he tells George (the grocer) that unless George stops selling lemons, sugar and ice to Margie, Max—and more importantly, Max’s dad—will pull all their business from George immediately.  EEEK!  That would be a real problem for George because Max’s dad buys nearly all his ingredients to operate the town’s most popular restaurant from George, which is a serious portion of George’s business.

George feels he has no choice.  He agrees with Max to stop selling lemons, sugar and ice to Margie.

[“Oh no,” thinks the antitrust lawyer, “that’s a vertical agreement, i.e., an agreement between a purchaser and a supplier, to restrain competition for the purchase of lemonade ingredients.”]

“But,” says George, “I don’t want to see all of my business with Margie go to the other grocers in town.  Hear what I’m saying?”  “Good idea,” thinks Max.

Max promptly visits the two other grocers in town, telling them that they’d better not sell lemonade ingredients to Margie, or else Max will boycott and so will his dad, both of whom provide a steady stream of business to these grocers as well (whenever George faces supply issues). Max takes care to add: George already agreed, so all of you grocers need to get on the same page.”

Not sure what else to do, these two additional grocers respectively agree to Max’s proposal. While the idea seems contrary to their individual interests, they can see Max means business and independently decide it’s easiest to comply.

Max circles back with George, telling him that all the grocers in town are on board. George nods.

[“Oh no,” thinks the antitrust lawyer, “now there’s a potential horizontal agreement, i.e., an agreement among competitors in the same level on the supply chain—in this case, the 3 grocers. Such an agreement could be implied even though the grocers never actually spoke to one another.”]

As a result of Max’s scheming, Margie can’t buy the ingredients she needs, and goes out of business. Max never can figure out how to add strawberries to his classic recipe for straight lemonade, so the town is left without strawberry lemonade indefinitely.

Margie’s very upset until she meets an antitrust lawyer to whom she tells her story. The antitrust lawyer explains to Margie that she’s the victim of a hub-and-spoke conspiracy—with Max at the hub, 3 separate vertical agreements between Max and each of the grocers (the spokes), and the 3 grocers all implicitly agreeing with one another, forming a horizontal agreement to boycott Margie on the “rim.” While courts may analyze the arrangement differently depending on the jurisdiction, it’s certainly an antitrust concern anywhere.

With her lawyer’s help, Margie files an antitrust claim, wins trebled damages, and lives happily ever after selling her strawberry lemonade, now world famous.

Max becomes a white-collar lawyer specializing in the defense of executives who allegedly violate the criminal antitrust laws. He’s still single.

THE MORALS OF THE STORY:

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Author: Molly Donovan

Yesterday the DOJ’s Antitrust Division announced updates to its Leniency Policy and issued nearly 50 new FAQs, and related responses, regarding its leniency practices. One welcome development is that the new FAQs clarify some the DOJ’s positions concerning ACPERA—the statute designed to limit an amnesty company’s potential exposure in civil lawsuits. Previously, guidance on ACPERA was almost non-existent, yet seriously needed to curb the unreasonable demands that plaintiffs were placing on amnesty companies relative to their co-defendants, making ACPERA not particularly incentivizing, at least at times. Even worse, plaintiffs could continually threaten expensive litigation over the satisfaction of ACPERA, undermining its incentive powers even more. Now, the FAQs make the DOJ’s view clear that an applicant who chooses to pursue ACPERA benefits need not be at a plaintiff’s beck and call regardless of plaintiff’s reasonableness, or lack thereof.

While the changes on this front are helpful to potential applicants, the Division could have gone further and some uncertainties for companies contemplating a self-report to the DOJ will remain.

Here are some of the critical bullet points.

Prompt Self-Reporting. To qualify for leniency, a company is required to “promptly” self-report once the relevant conduct is discovered. While there’s no bright-line rule, “promptly” does not appear to mean that an inkling of wrongdoing must be followed immediately by a call to DOJ, as some may have previously thought. Rather, with the new FAQ guidance, the condition of “promptly” appears to be aimed at disqualifying companies whose lawyers or compliance officers investigate and confirm anticompetitive activity, yet purposefully choose not to self-report in hopes that the conduct remains otherwise unearthed.

On the other hand, the DOJ seems to recognize the fact that internal investigations conducted by counsel are typically a necessary step between some indication of wrongdoing and the seeking of a marker, and that cartel investigations in particular often span jurisdictions, and are otherwise complex and take time. This mindset and approach appear to be appropriate to the DOJ in terms of timing.

Relatedly, the FAQs say that an internal failure to appreciate that the activities at issue are illegal (or illegal in the United States) is not a defense to a failure to promptly self-report. Companies (and particularly non-U.S. companies) that are unsure how problematic a particular activity is are wise to seek U.S. counsel as early as practicable.

In any event, the DOJ’s FAQs say that if an organization is too late to obtain leniency, but nevertheless chooses to self-report and cooperate, it may earn credit applicable at sentencing.

Remediation and Compliance. To qualify for leniency, the corporate applicant must now “undertake remedial measures” and improve compliance to prevent recidivism. This requirement, as stated, is new in that “remediation” appears separate and apart from the condition that an applicant make best efforts to pay restitution. While “restitution” is focused on compensating victims, “remediation” appears to be focused mostly on internal efforts to “address the root causes” of the conduct by, for example, recognizing its seriousness, accepting responsibility, implementing measures to prevent similar conduct from reoccurring, and disciplining or firing “culpable, non-cooperating personnel.” What constitutes sufficient remediation will depend on the circumstances, according to the FAQs, but detailed guidance as to compliance can be found in the Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations Guidance (the DOJ’s guidelines regarding effective compliance programs).

What is unclear is what “recognizing seriousness” and “accepting responsibility” mean in this context. For leniency applicants who can admit to a criminal U.S. antitrust violation, but must litigate certain nuances elsewhere in the world, or in civil lawsuits in the U.S., as to the extent of harm, for example, there is a potential tension.

Restitution. The program has long required an applicant to make best efforts to pay restitution to victims where possible. Previously, “where possible” was unclear, and it’s now been clarified to mean that actual payments of restitution will be excused only in relatively narrow circumstances, e.g., “the applicant is in bankruptcy and prohibited by court order from making payments; where such payments would likely cause the applicant to cease operations or declare bankruptcy; or if the sole victim is defunct.”

Absent such circumstances, to receive a final leniency letter, “applicants must actually pay restitution.”  This obviously sounds like a higher burden than merely “making efforts” to pay restitution, and the questions remain who is a “victim,” how that will be decided, and whether 100% of all victims must be compensated before final leniency can be achieved. Assuming a final letter is desired for some practical reason, the situation could be a tough one for applicants who disagree that a particular claimant is an actual victim, or that a particular claimant is owed the full amounts it says it is. In such cases, litigation over these questions could take years, making the quest for a final leniency letter a very long and uncertain one.

The same goes for another new requirement that, to get even a conditional letter, an applicant must “present concrete, reasonably achievable plans about how they will make restitution.” It’s questionable how this would work in practice. At the outset of a cartel investigation, it’s unclear how many claimants will come forward, when they’ll come forward and how much they will claim they are owed. A generic “plan” may be one thing—a prediction about who the bona fide victims are and whether they will claim compensation and how and when they will be paid is another.

As with remediation, there is also tension here for an amnesty applicant that admits to conspiratorial agreements, but will litigate the nuances involved in the complex determination of whether an agreement had full or only partial success. Given all the economic facts, there may be nothing inconsistent with an admission of criminal guilt, on the one hand, and the position that a particular claimant did not suffer.  But determining who is a victim and who is not can be an intensive undertaking.  If the Division is going to require actual competition to all victims, it’s an inquiry they should be willing to look at closely for fairness, particularly where the civil plaintiffs are alleging a conspiracy much bigger in size and scope (and therefore, in damages) than the conspiracy admitted to for purposes of criminal guilt.

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As a regular reader of The Antitrust Attorney Blog, you understand that coordinating prices or allocating markets with your competitor is a terrible idea. Doing so is likely to lead to civil litigation and perhaps even criminal penalties.

Price fixing and market allocation agreements are per se antitrust violations. That means they are the worst of the worst of anticompetitive conduct.

There is, however, a limited circumstance in which what would normally be a per se antitrust violation is instead treated under the rule of reason by Courts and government antitrust agencies:

An ancillary restraint.

You shouldn’t put ancillary restraints in your agreements without the help of an antitrust lawyer. That would be like juggling knives that are on fire. You might be able to do it, but if you make a mistake, you won’t like the results.

What is an Ancillary Restraint?

This isn’t an easy question to answer and, in fact, if you can answer it, you will often know whether your restraint will survive antitrust scrutiny.

Let’s back up a little bit.

In a typical situation, if two competitors agree to fix prices or to split a market (perhaps they will agree to limit their competition for each other’s customers), they commit what is called a per se antitrust violation. What that means is that this type of restraint is so consistently anticompetitive that courts won’t even examine the circumstances—it is per se illegal.

Obviously you should avoid committing per se antitrust violations, unless, of course, you want to experience an antitrust blizzard.

Without further context, such a restraint is often called a naked restraint of trade. That doesn’t mean that the cartel meets at a nudist colony; it means that it is an anticompetitive agreement with nothing surrounding it. Such agreements are almost always done to gain supracompetitive profits from the restraint itself.

So what does a non-naked restraint of trade look like? Interesting question. I will answer it, but you have to read through most of this article to get it.

Sometimes two or more parties, even competitors, will put together a joint venture or collaboration that creates what antitrust lawyers often call efficiency. You might normally think of increased efficiency as running more smoothly or at the same or better result with fewer resources.

But when antitrust attorneys use the term “efficiency” or “efficiency enhancing,” they often mean that the venture or combination will create economic value for the marketplace as a whole that wouldn’t exist but for the agreement. The term often comes up in the merger context, as an antitrust analysis of a merger will examine whether the benefits through efficiency and more exceed any potential anticompetitive harm.

An Ancillary-Restraint Example

Sometimes it is easier to understand with an example: Let’s say you have a company called Research that is full of people with PhDs that spend all of their days trying to figure out how to make the world a better place. If someone at Research comes up with a good idea, the company will sometimes manufacture and sell the finished product itself.

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Author: Pat Pascarella

“The blockchain did it” is unlikely to be a winning defense in an antitrust suit.  That, combined with the current enforcement (and legislative) trends targeting digital platforms, counsels that companies choosing to adopt blockchain as, or in, their business, be cognizant of how the antitrust laws may be applied. Perhaps even more so than other technologies since some degree of immutability is a primary feature of blockchain.

Before discussing specific antitrust proscriptions potentially applicable to blockchain, a word about the current rhetoric around the need to amend the antitrust laws to keep up with technology and today’s marketplace. Not the first time this assertion has been made, and certainly not the last. As the use of distributed ledger technologies become more and more prevalent, I am sure we will hear it again directed specifically at blockchain. But the fact is that the current antitrust laws are more than sufficient to deal with anticompetitive conduct involving blockchain or any other new technology.

In the end, antitrust comes down to injury and causation. It is this elegantly simple inquiry that protects the antitrust laws from obsolescence. And while we may debate the appropriate type of harm or injury addressable by the antitrust laws, (see, e.g., the current debate regarding the consumer welfare standard), antitrust asks no more of a court or jury than to determine (1) whether the requisite injury occurred, and (2) how. This may be a tad oversimplistic, but not by much.

Such an analysis can be applied as effectively to matters involving blockchain as it has been to matters involving plastic forks, tuna fish, or search engines. Of course, blockchain will no doubt create some interesting bumps in the road.  Courts may need to assess new theories of relevant markets and measures of market power.  Issues of control for purposes of imposing liability will be debated ala Copperweld.  And there will no doubt be some head scratching over who exactly is liable when a public permissionless blockchain is used to facilitate some anticompetitive outcome, and to who? But these inquiries are only new in the sense that the antitrust laws are being applied to a new set of discernable facts—as they have been countless times already.

Therein lies the first lesson. What makes the application of the antitrust laws to a new technology difficult is not some failing of the antitrust laws, it is the learning curve for attorneys and courts about the new technology itself, the related markets, and the face of future competition to which the laws are being applied—i.e., the facts. (In apparent recognition of this, some Antitrust Division attorneys reportedly have already attended courses regarding blockchain.)

The good news for antitrust practitioners is that blockchain technology and applications are not half as complex as having to learn for the first time how an operating system or search engine works (or perhaps we have just become more tech savvy these past 20 years). And while there have been very few cases to date involving blockchain and antitrust or competition laws, we have decades of cases involving databases, industry organizations, and platforms that we can draw on to identify possible areas of mischief for blockchain.

I would suggest potential antitrust risks involving blockchain can be grouped into three baskets:

  • Blockchain as a facilitating mechanism.
  • Blockchain as a bad actor.
  • Antitrust violations within a single blockchain.

Obviously as the use of blockchain evolves from relatively simple transactions and applications such as cryptocurrency trading or running smart contracts, to supporting all manner of social and business interactions, the factual scenarios falling into these baskets will become more complex.  But the core analysis should remain the same.

Blockchain as Facilitating Mechanism

Most antitrust attorneys’ radar goes off when they hear the term “distributed ledger”—as it should.  They have spent years counseling clients not to share certain competitively sensitive information with certain other market participants (most often rivals). Not because the sharing itself is a violation of the antitrust laws, but because of what the sharing might facilitate – e.g., price fixing, customer allocation, group boycotts, etc.

In a blockchain world, invariably some competitively sensitive data will find their way onto a shared ledger. They may be sufficiently anonymized, or they may not. Perhaps in the future such data milliseconds old will be viewed as sufficiently “historic” to render its sharing of marginal concern—or perhaps not. And there is a good chance that the data will not have been included with the intent of facilitating some conspiracy. Still, the fact that rivals have access to their competitors’ real-time prices, costs, capacity, production levels, or bids poses some risk.

There will, of course, be many blockchain-specific nuances. Is the blockchain public or private?  Permissionless or permissioned? But the operative questions remain constant—will the blockchain give rivals access to competitively sensitive information about their competitors that they would not have but for the blockchain? And does it matter? Any such sharing may or may not be defensible and may or may not render the blockchain itself liable under the antitrust laws. Still, access to such information would seem to be a reasonable plus factor for an antitrust plaintiff to allege.

Relatedly, a blockchain also could be a handy mechanism for policing a price-fixing, production-limiting, or customer-allocation conspiracy. Some have suggested that smart contracts (an unfortunately misleading name), or some application or functionality, could be deployed via blockchain to monitor pricing and sales and react to transactions that fall outside the parameters of the illegal agreement—possibly redistributing profits earned via the cheating. I find this scenario somewhat unlikely as it essentially requires the conspirators to commit their agreement to writing—or in this case coding—both equally discoverable. Let us not forget, that no matter how secret (or encrypted) the plan or related communication, the effect will be necessarily visible enabling both detection and prosecution.

Other areas of potential mischief include:

A blockchain could facilitate the inadvertent (or intentional) creation of a standard—although the creation of a standard via a public permissionless blockchain might have some interesting defenses available.

Caution also should be taken to avoid actions that might support an allegation that the exclusion from a private blockchain amounts to a group boycott or refusal to deal.

The Blockchain as an Actor

Can a blockchain itself violate the antitrust laws much like a firm or company today? Say a blockchain influenced by its founders, developers, and users (and in some instances miners), enables some conduct or practice with the purpose and effect to exclude or raise the cost of a rival entity (e.g., a competing blockchain, or perhaps a competitor relying on a centralized control solution). Or the blockchain is used to implement rules that permit an exchange of data among its users that enables collusion to the mutual benefit of the conspirators and blockchain (a hub and spoke conspiracy).

I think it is safe to assume that the answer to that question is yes. This is not to say however that the prosecution of such claims will not pose some interesting questions. For example, is the blockchain a firm or person like a corporation for purposes of antitrust enforcement? Who is “the blockchain?” Is there some control group and what are its bounds?  (See, Blockchain + Antitrust, Thibault Schrepel (2021) for an interesting and well-informed discussion of this and other potential antitrust-related issues in a blockchain world.) While questions such as these are today unanswered, I would suggest that they will be relatively simple issues for courts to deal with. Contrary to whimsical theoretic discussions, these issues will be decided in the cold light of facts – i.e., who did what to whom.  Nothing courts haven’t been called on to do with every new technology and marketplace. What is the alleged injury? And who caused it?

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Author:  Steven J. Cernak

Recently, I was researching 2021 antitrust developments to update my Antitrust in Distribution and Franchising book and draft a long article for another publication. That research confirmed that new government antitrust enforcers and their actions gathered the most attention last year — but this blog covered those issues already, such as here and here and here. This post discusses the private antitrust litigation developments affecting distribution that I uncovered but that might have flown under your radar.

Refusal to Deal and Predatory Pricing

Despite the impression left by the mainstream media, not all antitrust cases involving claims of monopolization involved Amazon or Facebook.  Other defendants faced claims of gaining or maintaining a monopoly through refusals to deal or predatory pricing schemes.

Careful readers will recall the anticipation last year that Viamedia Inc. v. Comcast Corp. might generate a Supreme Court opinion on refusal to deal issues.  Here, the defendant monopolist had stopped dealing with the plaintiff after years of doing so and, allegedly, caused competitive harm.  The district court had dismissed the refusal to deal claim by explicitly following the Tenth Circuit’s opinion in Novell, Inc. v. Microsoft Corp., authored by then-Judge Gorsuch, because it found that the defendant’s conduct was not “irrational but for its anticompetitive effect.”  The Seventh Circuit reversed, finding the court’s application of the Novell standard inappropriate at the motion to dismiss stage when a plaintiff need only plausibly allege anticompetitive conduct even if the defendant might later try to prove a procompetitive rationale.

The defendant sought Supreme Court review and the Justices asked for the views of the Solicitor General. The Solicitor General did not recommend that the Court hear the appeal. In June, the Court denied the writ of certiorari. After remand, the plaintiff chose to drop its refusal to deal theory of the case and proceed only on a claim of illegal tying. Therefore, the opinion will stand and future monopolist defendants, at least in the Seventh Circuit, will have more difficulty dismissing refusal-to-deal claims. Instead of simply asserting that some rational potential procompetitive purpose or effect is self-evident from the complaint, the defendant will have to show that the allegations do not raise any plausible anticompetitive purpose or effect, a much more difficult burden.

In another refusal to deal case, OJ Commerce LLC v. KidKraft, LP, the defendant won summary judgment on plaintiff’s refusal-to-deal claim. Plaintiff was a discounting online retailer that had sold defendant’s products, including children’s wooden play kitchens, for years. An affiliate of plaintiff then began making wooden play kitchens that plaintiff also sold on its website.  Defendant objected, claiming that the affiliates’ kitchens were knock-offs of defendant’s products and that plaintiff’s sales of defendant’s products were plummeting. Eventually, defendant terminated its relationship with plaintiff, who then sued alleging illegal monopolization through a refusal to deal.

The court began with the proposition that even a monopolist is not required to do business with a rival. The court recognized that the Supreme Court had found an exception to that proposition in Aspen Skiing Co. but only if defendant’s termination of prior conduct was irrational but for its anticompetitive effect.  The court found “this is hardly the case here” as the defendant had shown several other potential explanations for its termination of plaintiff. As a result, the court granted defendant’s summary judgment motion.

Predatory pricing remains a popular claim by plaintiffs against alleged monopolists, despite the difficult standard for such claims imposed by the Supreme Court. In such claims, the plaintiff alleges that the defendant’s extraordinarily low prices will drive out competitors, which in turn will allow the defendant to later raise prices and harm consumers. In Brooke Group, the Court set a difficult standard to meet because “there is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.” Also, it can be difficult to distinguish low pro-competitive prices from predatorily low ones. Subsequent plaintiffs have found it difficult to successfully allege, let alone win, such claims.

Last year, we described an exception where a defunct ride-hailing company’s predatory pricing claims against Uber survived a motion to dismiss. In 2021, a taxi company was not as successful and its similar claims were dismissed (although other non-antitrust claims survived). In Desoto Cab Co. v. Uber Technologies, Inc., the court dismissed the claim because the plaintiff did not allege barriers to entry or expansion for new or existing competitors sufficient to allow defendant to recoup its losses. Plaintiff’s mere invocation of network effects without any allegations regarding how they might create entry barriers in this market also was not enough. Finally, unlike the plaintiff in last year’s case, this plaintiff failed to allege why Lyft no longer could prevent defendant’s recoupment through higher prices.

Tying and Agreement

2021 also brought opinions on some of the basic elements of a tying claim and what facts amounted to an agreement.

One element of a successful tying claim is that the defendant is selling two separate products, the tying and the tied product.  To make that determination, courts must find that “there is a sufficient demand for the purchase of [the tied product] separate from [the tying product] to identify a distinct product market in which it is efficient to offer [the former] separately from [the latter].”  In AngioDynamics, Inc. v. C.R. Bard, Inc., the court denied competing summary judgment motions from the parties on this question. The defendant had sought and received regulatory approval to sell the tied product separately; however, it had actually made only a few such sales and then just to a single customer. The only other competitor that sold both products did sell them separately; however, it was not clear that its conditions were identical to defendant’s. The court, therefore, could not determine as a matter of law that the consumer demand was sufficient to make it efficient for defendant to offer the tied product separately.   

For every Sherman Act Section 1 case, a successful plaintiff must show an agreement between defendant and some other entity. To meet that burden at summary judgment or trial, plaintiff must present “evidence that tends to exclude the possibility that the [the defendants] were acting independently.” In a typical distribution case, a terminated distributor claims an anticompetitive agreement between its supplier and some other distributor, usually based on some complaints about the terminated distributor to the supplier from the other distributor.

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Author: Aaron Gott

A couple years ago, clamor for antitrust scrutiny of the agricultural industry was growing apace. But then the pandemic happened. Demand bottomed out, processing plants shuttered and everyone feared an unprecedented virus-induced recession. The clamor disappeared. The National Pork Producers Council even won approval from the U.S. Department of Justice Antitrust Division (with some strings) to engage in a coordinated nationwide campaign to reduce output through mass culling.

But now the clamor is back, and the meat and poultry industry appears to be a priority target for 2022.

In a December 21, 2021 letter to U.S. Secretary of Agriculture Tom Vilsack, a broad, bipartisan coalition of fifteen state attorneys general—from AG Keith Ellison in Minnesota to AG Sean Reyes of Utah—urged the USDA to use its powers under the Packers and Stockyard Act to counter rapidly increased concentration among meat processors, vertical integration, exclusive production arrangements, new sales and marketing practices, the emergence of third-party data services as key players in the market, and producer attrition. The letter also invokes the American Rescue Plan Act of 2021 as an opportunity establish a grant to fund state antitrust enforcement efforts in agricultural markets.

The letter did not come out of the blue or raise a novel new idea about using the Packers and Stockyard Act to further antitrust enforcement. Earlier this year, the USDA announced it would conduct rulemakings to address what it described as competition problems in the livestock markets. The coalition is telling USDA that the states agree and want to help, and that they definitely will help if the USDA gives them money to do so.

Around the same time that the USDA announced its plans, the U.S. Senate also held a hearing on concerns in the packing industry.

All this attention comes exactly 100 years after Congress passed the Packers and Stockyards Act. Let’s look at a little background before discussing these recent moves in more detail.

What is the Packers and Stockyards Act?

The Packers and Stockyards Act was passed in 1921 in response to a Federal Trade Commission study concluding that the livestock industry needed more competition. It is administered by the U.S. Department of Agriculture, Packers and Stockyards Division of the Agricultural Marketing Service. The act contains financial protection measures, and prohibits (1) unfair, discriminatory, and deceptive practices and (2) activities that might adversely affect competition. The act has been amended over the years to increase its scope and add additional regulatory powers.

The P&S Act applies to anyone engaged in the business of marketing livestock, meat, and poultry in commerce, which includes not just stockyards and processors, but also commission firms, auctioneers, dealers, buyers, brokers, wholesalers, and distributors. Notably, the act specifically excludes one important category of players: farmers and ranchers who buy livestock for feeding purposes or in marketing their own livestock for sale.

The P&S Act is enforced through administrative actions by the USDA and, on occasion, the USDA refers violations for civil or criminal enforcement by the U.S. Department of Justice through a U.S. Attorney’s office (rather than the Antitrust Division). Penalties and remedies include injunctive relief, business shutdowns, five-figure civil penalties, and additional fines and jail sentences for actions handled by the DOJ.

The Packers and Stockyard Act isn’t the only agriculture-specific antitrust law. Delve into an overview of the Capper-Volstead Act’s farm cooperative exemption next.

What USDA Regulatory Changes Have Already Occurred?

In December 2020, the USDA finalized a new rule addressing “undue or unreasonable preferences or advantages,” but this rule does not focus on core antitrust enforcement or the market concentration issues raised more recently. In fact, the rule was a long time in the making—it was mandated by Congress in the 2008 Farm Bill. It focuses on regulating conduct similar to price discrimination under the Robinson Patman Act. The USDA also put out new guidance on its enforcement policy regarding the rule in the form of a “frequently asked questions (FAQ)” document, which includes industry-specific guidance.

What USDA Regulatory Changes Might Occur in 2022 and beyond?

The USDA’s announcement focused on increasing its P&S Act enforcement efforts and new rulemakings. The proposed rulemakings would clarify key provisions of the law, define prohibited practices, eliminate “oppressive practices in chicken processing,” and reinforce its position that the agency need not demonstrate actual or threatened harm to competition to establish a violation of the act.

The state attorneys general have some additional recommendations:

  • They focus on the P&S Act’s anti-monopoly purpose in a push for the USDA to consider both horizontal and vertical competition implications and to conduct retrospective “academic” merger reviews.
  • They ask the USDA to consider additional reforms beyond those announced to include limits on alternative marketing arrangements that the attorneys general claim have led to “producers increasingly finding themselves at the mercy of the processors” and significantly reduced the number of independent producers in the market.
  • They ask the USDA to closely examine third-party data sharing in agricultural markets, which has already been the subject of private antitrust litigation. The letter asserts that these private, subscription-based data services are so granular that they could facilitate unlawful coordination or lead to market manipulation.

The U.S. Department of Justice Antitrust Division also announced it is working with the USDA and other agencies to fight “excessive concentration” and anticompetitive conduct in agricultural markets with a focus on ensuring the ability of small and independent farmers to compete. This could mean more aggressive merger reviews and stepped up civil and criminal enforcement efforts targeting conduct. In fact, the DOJ already teamed up with the USDA and other agencies to investigate the broiler chicken industry, leading to more than a dozen criminal indictments against companies and their executives. The DOJ also just challenged U.S. Sugar’s proposed acquisition of Imperial Sugar in November 2021.

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NY-Antitrust-Law-Donnelly-Act-300x200

Author: Luis Blanquez

“The legislature hereby finds and declares that there is great concern for the growing accumulation of power in the hands of large corporations. While technological advances have improved society, these companies possess great and increasing power over all aspects of our lives. Over one hundred years ago, the state and federal governments identified these same problems as big businesses blossomed after decades of industrialization. Seeing those problems, the state and federal governments enacted transformative legislation to combat cartels, monopolies, and other anti-competitive business practices. It is time to update, expand and clarify our laws to ensure that these large corporations are subject to strict and appropriate oversight by the state.”  

Self-explanatory, isn’t it? This is just an extract from the draft Act. Indeed, while the antitrust world is watching the U.S. Senate due to the vast reforms going on, and the FTC continues to repeal unilaterally the Hart-Scott-Rodino (“HSR”) merger review process, something is also currently cooking in New York: The New York 21st Century Antitrust Act.

In June 2021 New York’s proposed 21st Century Antitrust Act (Senate Bill S933A) passed the State Senate. The remaining steps before that bill becomes law are passage by the Assembly and the signature of the Governor, both of which are expected at some point next year. When that happens, the proposed law will radically amend the long-standing Donnelly Antitrust Act. This is potentially a much bigger deal than it may seem. Not just for the state of New York, but also for the future of U.S. antitrust law more generally. Why? Basically, because if the Act becomes law, it will import the well-known and more far-reaching “abuse of dominance” standard from the European Union ––targeting companies with market shares as low as 30% in NY; and will establish––for the first time––a state premerger notification system in the U.S.

General Scope but with a Specific Focus on Big Tech and Importing the Abuse of Dominant Position Standard

The Donnelly Act applies to any conduct that restrains any business, trade or commerce or in the furnishing of any service in New York. N.Y. Gen. Bus. Law § 340. The New Antitrust Act has the same scope but introduces two important wrinkles.

First, even though it generally applies to all sectors and industries, it expressly addresses and calls out anticompetitive behavior in the Big Tech industry. This is clearly in line with all the recent proposed antitrust bills and monopolization cases at federal level.

Second, it also imports the well-known and more far- reaching “abuse of dominant position” standard from Article 102 the Treaty of Functioning of the European Union. Until now, under the current standards applied by courts under Section 2 of the Sherman Act, Big Tech has been able successfully to challenge or defeat many of the unilateral action complaints filed in federal court. The New Antitrust Act explicitly acknowledges this: “effective enforcement against unilateral anti-competitive conduct has been impeded by courts, for example, applying narrow definitions of monopolies and monopolization, limiting the scope of unilateral conduct covered by the federal anti-trust laws, and unreasonably heightening the legal standards that plaintiffs must over-come to establish violations of those laws.” A good example of such limitations are refusal to deal cases in the U.S. But, if passed, this is going to change next year. NY’s Attorney General is going to have not only the authority to enforce the New Antitrust Act, but also the powers to define what constitutes––under New York Antitrust law––an abuse of a dominant position. As a European antitrust attorney who currently practices antitrust law in the U.S., this is indeed very interesting news.

While NY’s Attorney General will need to provide further guidance, for now the New Antitrust Bill states that a dominant position may be established by direct or indirect evidence.

Direct evidence may include, for example, the unilateral power of a monopolist to set prices, terms, conditions, or standards; unilateral power to dictate non-price contractual terms without compensation; or other evidence that an entity is not constrained by meaningful competitive pressures, such as the ability to degrade quality without suffering reduction in profitability. Under the Act, if the direct evidence is sufficient to show a dominant position, conduct that abuses that dominant position is unlawful without regard to a defined relevant market (or the conduct’s effects in that market). This seems to be––for the first time–– in line with a “per se” analysis under Section 1 of the Sherman Act. How the NY Attorney General is going to determine the existence of a dominant position, without even first defining the relevant antitrust market(s) concerned, remains to be seen.

A dominant position may also be established by indirect evidence. For instance, the Act incudes a presumption of a dominant position when a seller enjoys a market share of 40% or greater and 30% or greater for a buyer. This is a significantly lower threshold than the one currently used in federal cases brought under the Sherman Act. But the determination of a dominant position requires a much more detailed analysis of barriers to entry, potential competition, and purchasing power downstream, among many others. That’s without even considering the special circumstances of all the digital and technological markets where Big Tech companies are present. Once again, we will have to wait until we see further guidance from NY’s Attorney General under the newly acquired rulemaking powers to flesh out the definition of dominant position.

As for the existence of an abuse, the Act enumerates a non-exhaustive list of anticompetitive behavior: conduct that tends to foreclose or limit the ability or incentive of actual or potential competitors to compete, such as leveraging a dominant position in one market to limit competition in a separate market, or refusing to deal with another person with the effect of unnecessarily excluding or handicapping actual or potential competitors. With the new abuse of dominance standard in play, it will be interesting to watch how these theories of harm develop in NY, and how much tension they create with existing federal antitrust case law.

The Act, in a very cryptic one-line paragraph, excludes any procompetitive effects as a defense to offset or cure competitive harm. This seems to create a “per se” liability to any abuse of a dominant position, which would be problematic both under U.S. federal law and EU Competition law.

Under EU Competition law, not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may result in the elimination of less efficient competitors from the market. See for instance C-209/10 Post Danmark I, or C-413/14 Intel. Indeed, aside from very few “by nature” abuses which are considered presumptively unlawful (and even under these the European Commission must still carry out a competition analysis if the dominant firm provides evidence on the contrary), a full-blown effects analysis is always required. See T-201/04 Microsoft.

Not only that, even if a specific conduct is found to constitute an abuse of a dominant position and restricts competition, a person can always attempt to show that its conduct is objectively justified. This applies to any alleged abuse, including “by nature” abuses. More information on treatment of exclusionary conduct in the EU may be found in: Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings.

First State Premerger Notification System in the U.S.

The new Act also will establish a separate premerger notification system in New York where buyers––regardless of where they are incorporated––will have to notify the NY Attorney General sixty days before the closing of any transaction where any of the parties involved exceed the applicable reporting thresholds, set at assets or annual net sales in New York exceeding $9.2 million, which is currently 2.5% of the current federal HSR threshold. The sixty-day notification is double the thirty-day period applicable under the HSR Act.

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