Articles Posted in Antitrust News

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Author: Luis Blanquez

The U.S. Department of Justice recently published that the International Competition Network (“ICN”) has approved the Framework on Competition Agency Procedures (“CAP”), for antitrust enforcement agencies around the world to promote fundamental due process principles in competition law investigations and enforcement. This is an opt-in framework, based on the U.S. Antitrust Division’s initial Multilateral Framework on Procedures proposed at the last Council of Foreign Relations in June 2018. On May 1, 2019, the CAP will be open for signature to all competition agencies around the world, including ICN member and non-member agencies. It will come into effect on May 15, 2019, at the up-coming 2019 ICN annual conference in Cartagena, Colombia.

You can read our earlier article about the general ICN guiding principles for procedural fairness previously developed to build up the CAP.

For those of you that may be unfamiliar with the International Competition Network, it is a group that allows antitrust and competition officials from around the world to coordinate and share best practices (which is somewhat ironic). They hold conferences and produce a substantial amount of substantive material that is quite good. Non-governmental members can also participate. Indeed, several years ago, Jarod Bona co-authored a chapter about exclusive dealing for the Unilateral Conduct Workbook.

Competition Agency Procedures Participation

Participants in the CAP will include all competition agencies entrusted with the enforcement of competition laws, whether or not they are ICN members. Participants will join the CAP by submitting a registration form to the co-chairs.

Agencies entrusted with the enforcement of competition laws around the world that do not meet the definition of participant will also be able to participate in the CAP by submitting a special side letter declaring adherence to the principles and participation in the cooperation and review processes. An important question is whether China will participate.

The CAP will be co-chaired by three participants (“Co-chairs”) confirmed by consensus of the participants for three-year terms.

Principles on Due Process and Procedural Fairness

The CAP outlines a list of fundamental principles on due process in antitrust enforcement procedures.

First, with regard to non-discrimination, each participant will ensure that its investigations and enforcement policies afford persons of another jurisdiction treatment no less favorable than persons of its jurisdiction in like circumstances.

Transparency and predictability are also part of the fundamental principles, making sure all competition laws and regulations applicable to investigations and enforcement proceedings are publicly available. Each participant is also encouraged to have publicly available guidance, clarifying or explaining its investigations and enforcement proceedings.

During the investigative process, participants will also: (i) provide proper notice to any person subject to an investigation, including the legal basis and conduct for such investigation, (ii) provide reasonable opportunities for meaningful and timely engagement, and (iii) focus any investigative requests on information they deem relevant to the competition issues under review as part of the investigation.

Other principles outlined in the CAP are as follows: timely resolution of proceedings–taking into account the nature and complexity of the case; confidentiality protections; avoidance of conflict of interests; opportunity for an adequate defense, including the opportunity to be heard and to present, respond to, and challenge evidence; representation by legal counsel and privilege; written enforcement decisions including the findings of fact and conclusions of law on which they are based, together with any remedies or sanctions; and the availability for independent review of enforcement decisions by an adjudicative body (court, tribunal or appellate body).

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Author: Aaron Gott

My morning routine usually begins with reading the news to keep up on current events. As an antitrust lawyer, I often find myself thinking about how stories that were deemed newsworthy for other reasons fail to recognize their often most troubling aspects: the antitrust concerns.

Last week, for example, the news was abuzz with Uber and Lyft drivers going “on strike” to protest their compensation from the companies. The drivers “banded together” in an effort to pressure the companies. Most might see this as a sort of unionization of the gig economy. But I saw it as an antitrust problem: ride referral drivers are independent contractors, so they are not, under well-established federal law, entitled to the union labor exemption from the antitrust laws. They are horizontal competitors who are agreeing to restrain trade. That sort of conduct is called a group boycott, and under these circumstances, it might be per se illegal under Section 1 of the Sherman Act.

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Author: Jarod Bona

It is illegal under the antitrust laws for competitors to agree not to steal each others’ employees. For more about that, you can read our article about how the antitrust laws encourage stealing. Yes, you read that correctly.

But this article isn’t about stealing or even agreeing not to steal employees. Instead, it is about one of our favorite topics: Suing the government under the antitrust laws and the increasingly narrow state-action immunity from antitrust liability.

The FTC and DOJ Antitrust Division can affect antitrust policy beyond just the cases that involve those agencies. They will often file amicus briefs, or in this case, a Statement of Interest of the United States of America. You can read here about how these type of filings have resulted in the FTC seeming like a libertarian government agency.

In Danielle Seaman v. Duke University, a class action alleging that Duke and the University of North Carolina had a no-poaching agreement in violation of the Sherman Antitrust Act, the Department of Justice filed a Statement of Interest on March 7, 2019.

One of Duke’s arguments in defense of the lawsuit is that it is exempt from antitrust liability because it is a state entity. This is called state-action immunity. We write about this doctrine constantly at The Antitrust Attorney Blog.

Anyway, Duke argued that it is Ipso facto exempt from the antitrust laws because it is a “sovereign representative of the state” that is automatically exempt under the Parker doctrine (which is essentially the state-action immunity doctrine). Notably, this argument is flawed already, as the doctrine really only supports automatic exemption for the state acting directly as sovereign, which is typically limited to the state acting in its legislative capacity, or its Supreme Court acting as a legislator (which sometimes happens).

But the Department of Justice, in addition, argued that state-action immunity—or at least Ipso facto immunity—does not apply because Duke University is acting as a market participant, not as a regulator. The DOJ supported this argument with some familiar case law, including the landmark NC Dental case.

It seems that the DOJ market-participant argument is limited here to the point that Duke cannot be automatically exempt from antitrust liability because it is a market participant rather than a regulator, for purposes of the anticompetitive conduct.

But the same reasoning that DOJ makes and the same cases that DOJ cites support a broader market-participant exception to state-action immunity overall. This is an issue that the US Supreme Court expressly left open in its Phoebe Putney decision.

It is a short step from the argument that DOJ makes here to a straightforward market-participant exception to state-action immunity.

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European-Union-Online-RPM-300x225Author: Luis Blanquez

On July 24, 2018, the European Commission fined manufacturers Asus, Denon & Marantz, Philips and Pioneer for over €111 million for restricting the ability of online retailers to set their own retail prices for a variety of widely-used consumer electronics products.

Background

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Author: Jarod Bona

The United States Court of Appeals for the Fifth Circuit agreed on July 17, 2018 to stay the FTC’s Action against the Louisiana Real Estate Appraisers Board.

The Fifth Circuit’s one-line decision rejects the FTC’s opposition to the Board’s requested stay and allows immediate appellate review of the FTC’s significant state-action-immunity rejection.

You might recall that we wrote about the FTC’s state-action-immunity decision the day it occurred, concluding that then Commissioner Ohlhuasen’s opinion was well-reasoned and thorough.

You can review the documents in the FTC administrative action against the appraisal board here.

This FTC administrative action arises out of allegations that a Louisiana board of appraisers required appraisal management companies to pay appraisers what it described as a “customary and reasonable” fee for real estate appraisal services. The FTC argues that this is illegal price-fixing, which, of course, violates Section 5 of the FTC Act.

What is particularly interesting about this case is that it addresses one of the most significant applications of the active supervision prong of the state-action-immunity doctrine since the US Supreme Court decided NC Dental.

You might recall that, in most cases, entities that want to claim state-action immunity must satisfy both prongs of the Midcal test: (1) the challenged restraint must be clearly articulated and affirmatively expressed as state policy; and (2) the policy must be actively supervised by the state itself.

You can read our analysis of active supervision and related FTC guidance on the requirement here.

As we described in our prior article, Commissioner Ohlhausen effectively addressed important factual and legal issues that make up the active-supervision standard, offering useful guidance to boards and those that challenge them under the antitrust laws.

For example, the FTC applied three elements that it held—in this case—form part of active supervision: (1) the development of an adequate factual record; (2) a written decision on the merits; and (3) a specific assessment of how the private action compares with the substantive standard from the legislature.

While the Fifth Circuit’s stay decision is not good news for the FTC’s current action, it may be good news for state boards and others that want guidance on the active-supervision requirements of state-action immunity.

The Supreme Court’s NC Dental decision offered some parameters of what doesn’t constitute active supervision, mostly from prior cases. But at this point, the law is light on the specifics. A federal appellate decision that fully engages on these issues will help state boards, victims of state boards, district courts, and, in fact, the Federal Trade Commission.

Besides the substantive active supervision issue, this case presents the drama of the Louisiana governor trying to get around the state-supervision deficiencies through executive order in response to the FTC’s initial antitrust complaint. The board argued that the executive order made the FTC’s case moot. The FTC, of course, rejected that argument.

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Author: Jarod Bona

In an antitrust case deciding a non-antitrust-specific issue, the US Supreme Court held in Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. (the Vitamin C Antitrust Litigation) that to determine foreign law in federal courts, judges are not strictly bound by that foreign government’s statements.

The judge should “accord respectful consideration to a foreign government’s submission,” but it is his or her call in making the ultimate decision.

The Supreme Court in this case is interpreting Federal Rule of Civil Procedure 44.1, which states that when deciding foreign law—sometimes that is necessary in federal court—a judge may “consider any relevant material or source . . . whether or not submitted by a party.”

This decision arose out of the Vitamin C Antitrust Litigation, which is an antitrust class-action lawsuit against four Chinese corporations that manufacturer and export, you guessed it, Vitamin C. Purchasers of the vitamin sued Chinese vitamin C sellers, alleging that they agreed to fix the price and quantity of Vitamin C exported to the United States from China. Price fixing, of course, is a per se antitrust violation.

(Read here if you want to learn more about defending an antitrust class action case.)

The Chinese vitamin C sellers argued that they are shielded from US antitrust law liability by the act-of-state doctrine.

But what is the act-of-state doctrine?

Good question.

US courts under the act-of-state doctrine should not judge the validity of an official act of a foreign government committed within that foreign government’s borders. This is a doctrine that extends beyond antitrust law.

In Animal Science Products, the defendants argued that China law required them to fix prices as part of a “regulatory pricing regime.”

The parties, however, disputed whether China law actually mandated the fixed prices. To help resolve that question, the Ministry of Commerce of the People’s Republic of China filed an amicus curiae brief supporting the Chinese vitamin C sellers’ argument that China law required defendants to fix prices.

(You can read our article here on the many reasons to file amicus briefs).

So the trial court had to figure out whether China law mandated price fixing. And to assist it, China’s Ministry of Commerce weighed in via amicus brief.

What would you do?

Would you just agree with whatever China says about its own law? Or would you do an independent examination and decide?

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Author: Jarod Bona

As you may have heard, the Senate recently approved a new slate of FTC Commissioners. Among them is new Commissioner Rohit Chopra, who is a former assistant director at the Consumer Financial Protection Bureau and former advisor to the Secretary of Education.

Commissioner Chopra was sworn in on May 2, 2018 and quickly announced one of his early priorities: On May 14, 2018, he issued a public memorandum to the other FTC Commissioners and the FTC Staff describing how he believes the FTC should handle repeat offenders of FTC violations.

Let’s dig into this a little bit.

Commissioner Chopra describes the problem of corporate recidivism as generally resulting from significant management dysfunction, which requires “serious remedies that address the underlying issues.”

After describing several non-antitrust examples of this corporate recidivism, particularly involving large financial institutions, Commissioner Chopra points out, bluntly, that “FTC orders are not suggestions.” He says that—“to deter violations and maintain [the FTC’s] credibility as law enforcers”—the FTC “should carefully consider ways to build on its existing enforcement regime to make clear to market participants that our orders are to be taken seriously.”

For flagrant violators of district court orders, he believes that the agency should consider “contempt proceedings, referral to criminal authorities, and remedial injunctive relief.” Companies that violate FTC administrative orders should face additional injunctive relief and meaningful civil penalties.

Notably, Commissioner Chopra expresses a desire to go after individual executives that participate in FTC order violations, even if those individuals weren’t named in the original orders. So if a company is subject to an FTC order and violates that order, Commissioner Chopra would like to target the people that created the violation.

Structural Remedies Following Order Violations and an Important Caution

Finally, in what I believe is the most newsworthy part of this memorandum, Commissioner Chopra describes the structural remedies that he believes the FTC should explore for FTC-order violators.

His purpose in proposing these remedies is to address “the true causes of noncompliance.” Commissioner Chopra believes that certain companies may “engage in risky business practices to demonstrate to investors and capital markets that they are meeting or surpassing expectations for earnings and growth.” He also believes that “executive compensation practices might inadvertently create incentives for practices that might harm consumers or competition.”

We are, of course, treading on dangerous territory here. Businesses necessarily take risk—that is a feature not a bug. What are “risky business practices”? That is for the market—in its brutal truth and honesty—to reveal. It isn’t up to a government official or entity, without Skin in the Game, to make these determinations.

That isn’t to say that the FTC shouldn’t enforce antitrust, competition, and consumer protection laws. Nor is it to say that the FTC shouldn’t raise the penalties for repeat offenders. But protection of competition moves silently and dangerously to market distortion and harm when it decides that it is smarter than the market itself.

Those that enforce the antitrust laws with government power must do so humbly for the line between removing the barriers to competition and, frankly, screwing-up competition is a fine one that we rarely see clearly. It is best that those with power stay firmly on one side, so they don’t cross this line.

With those cautions, here are the structural remedies that Commissioner Chopra proposes the FTC consider invoking in response to order violations:

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Real-Estate-Appraisers-Antitrust-FTC-300x188Author: Jarod Bona

On April 10, 2018—the eve of my panel on state action immunity issues at the ABA Antitrust Spring Meeting in DC, the FTC granted, in essence, partial summary judgment against the Louisiana Real Estate Appraisers Board on state action immunity. You can read the FTC decision—hot off the press—right here.

I won’t go into a lot of detail here as you can read the decision, but here is short summary:

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For the third time in recent years, the US Supreme Court decided to review an antitrust case involving state-action immunity.

Unlike the first two cases, however, the primary issue in this case is procedural: The petition requesting review fairly described the issue as “Whether orders denying state-action immunity to public entities are immediately appealable under the collateral-order doctrine.”

The case at issue is a Ninth Circuit case called SolarCity Corporation v. Salt River Project Agricultural Improvement and Power District. SolarCity, of course, is now a unit of Elon Musk’s Tesla.

You can read our more complete analysis of the upcoming SolarCity case here.

Update: The parties reached a settlement and jointly dismissed the case from the US Supreme Court.

The substantive case underneath the procedural issue involves a monopolization lawsuit by SolarCity against a public entity power company in Arizona, which is the only supplier in that area of traditional electrical power.

Here is what they did: SolarCity, like other solar-energy-panel companies, was having success in selling and leasing rooftop solar panels to customers, especially in sunshine places like Arizona (and Southern California, of course). Instead of viewing the move toward solar power as good for the environment and peoples’ pocketbooks, the power company—a public entity—viewed it as a threat. And, like many government entities that view private enterprise as a threat to their budgets and influence, the power district changed the rules.

That is, the power company changed the pricing structure so customers that acquire power from their own system—a solar-panel system, for example—must pay a prohibitively large penalty. The government entity’s rule change had its intended effect: SolarCity received ninety-six percent fewer applications for new solar-panel systems in that territory.

This is, of course, one of the grossest forms of government abuse and a disgrace to competition. It is also one of the reasons why Luke Wake of the NFIB Small Business Legal Center and I argued both as an amicus in Phoebe Putney and in a law review article that the Supreme Court should adopt a market-participant exception to state-action immunity. If a government entity is a commercial participant in a market, it shouldn’t be immunized from cheating in that market.

Bona Law currently has another case pending in the Ninth Circuit in which government entities that compete in the market violated antitrust laws and are using the shield of state-action immunity to try to get away with it.

The Collateral Order Doctrine

In the SolarCity case, the trial court rejected state-action immunity at the motion-to-dismiss stage. Typically, a defendant that loses a motion to dismiss cannot appeal the issues until later in the case, sometimes after trial. The plaintiff gets to take a shot at proving its case.

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Antitrust News is a new feature at The Antitrust Attorney Blog. We will periodically report on and address new developments in the antitrust world, from FTC or DOJ guidance to important court decisions to relevant legislative developments to worldwide antitrust issues.

Although some of our prior articles involve antitrust developments, most of these posts consist of content that is less timely and more evergreen. Our intent is to help our readers by describing Antitrust News through the filter of our antitrust expertise.

On November 16, 2017 in Washington, DC, Deputy Assistant Attorney General Donald G. Kempf, Jr. made news about antitrust merger review at the American Bar Association’s Antitrust Fall Forum.

Kempf said—simply—that the DOJ will try to shorten the time it takes it to review mergers for antitrust and competition issues. In 2011, the average merger took just over 7 months to review. In 2016, the review time increased to 11.6 months on average.

That is unacceptable. Companies that want to merge should not have to wait almost full year to do so. A lot can happen in a year, particularly now where technology and low entry barriers mean that entire markets often change in a short period of time.

How did the excess delays happen?

To explain, let’s back up and explain—briefly—how an antitrust merger review works:

The merging parties begin by completing what is called a Hart-Scott-Rodino (HSR) filing. Either the DOJ or FTC has 30 days to decide whether to issue what is called a second request. If one of the antitrust agencies thinks that there could be genuine competition issues for the merger, they may issue this second request, which opens up a heavy set of fact-finding, including document production.

At some point, the antitrust agencies may either approve the merger, reach an agreement with the parties to approve the merger with certain requirements (like selling assets) or (in the case of the DOJ) to seek a preliminary injunction stopping the merger.

According to Kempf, over time the second request period increased in scope and complexity and the preliminary injunction hearings became mini-trials. Indeed, they often have the same effect as a trial on the merger because if the DOJ wins, the parties often abandon the merger. If the DOJ loses, it often halts the challenge.

Kempf went on to articulate why shortening merger review time is so important. His best line was that “delaying competitive mergers is anticompetitive, and that’s not the business the Antitrust Division wants to be in. Just the opposite.”

He offered five suggestions to shorten antitrust merger reviews: Continue reading →