Articles Posted in Antitrust News

Three Strikes But Not Out: Antitrust Enforcers Swing and Miss in Recent Merger Challenges: Illumina/Grail; UnitedHealth/Change Highlights; and U.S. Sugar Corp/Imperial Sugar

October 7, 2022 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

Hard times for the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”). In the last few weeks, the Biden Administration has suffered three significant antitrust loses. This is the result of the Government’s determination to try to block mergers that, despite their size, were found by courts to not hinder competition.

Below is a short summary of the three merger cases with some final remarks on what to expect from the Government moving forward.

Illumina/Grail

In March 2021 the FTC filed an administrative complaint to block Illumina’s $7.1 billion proposed acquisition of Grail. Grail is a maker of a non-invasive early detection (MCED) test to screen multiple types of cancer using DNA sequencing, known as next generation sequencing or NGS.

In its complaint, the FTC alleged that the proposed transaction would substantially lessen competition in the U.S. MCED test market by reducing innovation and potentially increasing prices and diminishing the choice and quality of MCED tests. According to the FTC, Illumina, as the dominant provider of NGS––an essential input for the development and commercialization of MCED tests in the United States––would have the ability to foreclose or disadvantage Grail’s rivals while having at the same time the incentive to also disadvantage or foreclose firms that pose a significant competitive threat.

In September 2022, Chief Administrative Law Judge D. Michael Chappell dismissed the complaint in an unexpected decision ruling for the first time against the FTC in a merger case. In a nutshell, Judge Chappell concluded that the FTC failed to prove that Illumina’s post-acquisition ability and incentive to advantage Grail to the disadvantage of Grail’s alleged rivals would likely result in a substantial lessening of competition in the relevant market for the research, development, and commercialization of MCED tests.” On September 2, the FTC Complaint Counsel filed a Notice of Appeal.

Of interest is the fact that shortly after Judge’s Chappell ruling, in parallel the European Commission decided to block the acquisition under the EU Merger Regulation using similar antitrust arguments as the FTC. And that was despite the fact that the transaction did not initially trigger EU merger control thresholds and that the parties closed the acquisition during the investigation. The stakes are also high on that side of the Atlantic.

UnitedHealth/Change Highlights

In February 2022, the DOJ, together with Attorneys General in Minnesota and New York, filed a complaint to stop UnitedHealth Group Incorporated (UHG) from acquiring Change Healthcare Inc. According to the complaint the proposed $13 billion transaction would harm competition in commercial health insurance markets, as well as in the market for a vital technology used by health insurers to process health insurance claims and reduce health care costs.

In the complaint the Government argued that the proposed acquisition was (i) an illegal horizontal merger because it would create a monopoly in the sale of first-pass claims editing solutions in the U.S., (ii) an illegal vertical merger because UHG’s control over a key input—Change’s EDI clearinghouse—would give it the ability and incentive to use rivals’ CSI for its own benefit, which in turn would lessen competition in the markets for national accounts and large group commercial health insurance; and (iii) an illegal vertical merger because United’s control over Change’s EDI clearinghouse would give it the ability and incentive to withhold innovations and raise rivals’ costs to compete in those same markets for national accounts and large group plans.

In its press release, the DOJ also stated that the proposed transaction would give United access to a vast amount of its rival health insurers’ competitively sensitive information. Post-acquisition, United would be able to use its rivals’ information to gain an unfair advantage and harm competition in health insurance markets. The proposed transaction also would eliminate United’s only major rival for first-pass claims editing technology — a critical product used to efficiently process health insurance claims and save health insurers billions of dollars each year — and give United a monopoly share in the market. It further claimed that the proposed acquisition would eliminate an independent and innovative firm, Change, that today supports a variety of participants in the health care ecosystem, including United’s major health insurance competitors, with vital software and services.

To tackle DOJ’s three theories of harm, UHG agreed to divest Change’s claims editing business, ClaimsXten, to TPG upon consummation of the proposed acquisition. The divestiture package included all four of Change’s current claims-editing products. In May 2022, UHG also issued its “UnitedHealth Group Firewall Policy for Optum Insight and Change Healthcare,” addressing the sharing of customers’ competitively sensitive information (CSI) following the transaction.

In September 2022, U.S. District Judge Carl J. Nichols, after a two-week trial concluded that the Government was not able to meet its burden of proving that the transaction would substantially lessen competition in the relevant markets, which allowed the deal to move forward.

First, on the horizontal theory of harm, Judge Nichols determined that UnitedHealth’s proposal to divest ClaimsXten to TPG, allowed TPG to adequately preserve the level of competition that existed previously in the market for claims-editing software. In other words, the DOJ failed to show that the proposed merger was likely to substantially lessen competition in the market for first-pass claims-editing solutions in the U.S. Thus, the Court required UHG to divest ClaimsXten to TPG as proposed.

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Fair to Say Robinson-Patman No Longer “Forgotten”?

October 4, 2022 | Bona Law PC

Author: Steven Cernak

Recently, FTC Commissioner Bedoya made one of his first speeches and called for a “return to fairness” when enforcing the antitrust laws. In particular, he called for renewed enforcement of the Robinson-Patman Act. This speech is just the latest reason why businesses need to prepare for a new antitrust landscape. But Commissioner Bedoya and anyone else calling for drastic basic changes in antitrust enforcement need to be prepared to patiently work for such change with a skeptical judiciary.

In the speech, Bedoya argued that all the antitrust statutes were passed with the intention of improving the “fairness” of markets, not necessarily their “efficiency,” as the laws have come to be interpreted. Therefore, he wants the FTC to focus the interpretation of all the antitrust statutes on fairness, not efficiency, which he claims to be unambiguous: “People may not know what is efficient — but they know what’s fair.” Specifically, Bedoya called for a rejuvenated enforcement of the Robinson-Patman Act and its prohibitions on various types of discriminations, usually against smaller competitors.

On Bedoya’s Robinson-Patman point in particular, please allow me a short “I told you so.” In a prior post, I explained that Robinson-Patman was forgotten but not gone, still affecting negotiations and leading to a few private suits each year. I have insisted on teaching my Antitrust students about the basics of the law, warning them that it is still alive and was unlikely to ever be repealed. If the FTC were to begin actively enforcing the statute after a couple decades, all that knowledge will come in handy once again for many more lawyers.

More generally, it is not clear that interpretation of antitrust law would need to jettison “efficiency” or consumer welfare and move to “fairness” to reach a different result in some of the anecdotes covered in Bedoya’s speech. At least some of the matters might have come out differently with a longer-term view of competition and consumer welfare. In my view — a view that I know Comm. Bedoya does not share — such a standard would be less ambiguous than trying to figure out what “fairness” requires in any situation.

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Altria Group/JUUL Labs: An Antitrust Violation for Antitrust Clearance Strategy and Transaction Non-Competes?

September 11, 2022 | Bona Law PC

Authors: Steven Cernak and Luis Blanquez

The FTC’s challenge of Altria Group’s proposed minority investment in JUUL Labs, Inc. (JLI) in April 2020 generated attention in both the mainstream media and the competition law press. Press coverage since that time has hit the latest developments but often missed the important issues this challenge raises: When can parties reach an anticompetitive agreement before they sign their official merger documents? Non-compete agreements have been pilloried lately, but are they anticompetitive even in a partial merger situation like this one?

This summary should help you prepare for the September 12 oral arguments in front of the Commissioners. You can read Steve Cernak’s more detailed article on these issues for the Washington Legal Foundation here.

The Parties and the Transaction

Altria, together with its subsidiaries, is the largest and one of the oldest cigarette companies in the U.S. In addition to its other products, it also sold e-cigarettes during the relevant period. JLI, is a smaller, newer company focused only on e-cigarettes.

As with most antitrust matters, especially merger investigations, market definition was contentious. Generally, e-cigarettes are electronic devices that aerosolize nicotine-containing liquid using heat generated by a battery as the user puffs. Open system e-cigarettes contain a reservoir that a consumer can refill with their choice of a nicotine-containing liquid. Closed system e-cigarettes have a container that already contains that liquid. Closed systems include cig-a-likes, which mimic the shape and look of a traditional cigarette, as well as pod products that have various shapes, including a shape like a USB thumb drive.

The e-cigarette category began growing rapidly about ten years ago. A few companies offered different options. Altria offered cig-a-like products and then pod products, but JLI offered only pod products. At the time of the challenged transaction, pods were the dominant choice of consumers, with JLI’s product the market leader.

While sales of pods, especially JLI’s pods, grew strongly at the end of 2017, Altria was only selling cig-a-likes and their sales fell. For regulatory reasons, Altria sought to purchase an existing pod product because it couldn’t develop its own product in a reasonable timeframe. In late 2017, it licensed the rights to a Chinese pod product and rushed it to market in early 2018.

Altria then approached JLI in early 2018 about an acquisition. By the end of July, the up-and-down negotiations centered around a multi-billion-dollar investment by Altria in exchange for a minority interest in JLI, possibly a non-voting interest convertible to voting after antitrust clearance. (An acquisition of non-voting securities does not require Hart-Scott-Rodino approval; conversion of such securities does.) At this point, the parties were far from reaching a deal, but began to discuss two other items that would lead to the FTC’s challenge of the eventual transaction.

The ironic first issue was how the parties could obtain antitrust clearance for the entire transaction. The parties’ term sheet described cooperation with the FTC and agreement to any “concessionary requirements of the FTC” related to Altria’s e-cigarette business. That is, the parties agreed that Altria would “divest (or if divestiture is not reasonably practicable, contribute at no cost to [JLI] and if such contribution is not reasonably practicable, then cease to operate” Altria’s e-cigarette business. JLI did not want to compete with Altria because Altria, as a major JLI shareholder, would have access to important JLI information. JLI’s executives later testified that they expected the FTC to oversee this process.

Second, in exchange for regulatory aid, Altria would agree to not compete with JLI’s e-cigarette products. Again, JLI didn’t want Altria’s to access sensitive JLI information when performing these services would allow Altria to improve its current e-cigarette products (before divestiture) or develop better new ones.

While negotiating over financial considerations and Altria’s voting rights, the parties continued to refine these two items. In later term sheets, the requirement that Altria “cease to operate” its e-cigarette assets disappeared while the requirement that Altria either contribute those assets to JLI or divest them remained.

Negotiations broke down in early September, but improved in October as Altria came around to terms much closer to JLI’s proposals. In early December, Altria announced that it was pulling its remaining e-cigarette products from the market, allegedly to conserve costs for product development or to invest in JLI. The parties finally reached an agreement later in December. Altria then ceased its other e-cigarette development efforts.

The Challenge and Initial Decision

On April 20, 2020, the FTC issued a two-count administrative complaint against the parties. Count I alleged an unreasonable agreement by which Altria agreed not to compete with JLI in the e-cigarette market “now or in the future” in exchange for the ownership interest in JLI. Specifically, that agreement took the form of the non-compete provisions of the written agreement as well as an agreement to exit the market reached during negotiations as a “condition for any deal.” Count II alleged that the transaction, including the agreed upon market exit by Altria and the written non-compete provisions, violated Clayton Act Section 7’s prohibition of mergers that “substantially lessen competition” in the relevant market.

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Federal Court Denies Golfers’ Request for Order to Play in the FedEx Cup Playoffs

August 10, 2022 | Bona Law PC

Author: Luke Hasskamp

Two days before the FedEx Cup Playoffs—a federal court in San Francisco denied three players’ requests for an order allowing them to participate in the marquee event. Those three players—Talor Good, Hudson Swafford, and Matt Jones—had asked the court to immediately enjoin their recent suspensions, handed down by the PGA Tour, but District Court Judge Beth Labson Freeman denied the request, holding the players did not meet their legal and evidentiary burden to show that they would be “irreparably harmed” if barred from the sport’s end-of-season playoff series.

By way of background, the PGA has banned from PGA Tour events any player who chooses to participate in events held by rival upstart league LIV Golf.

The ban includes the FedEx Cup Playoffs—a three-tournament series to conclude the PGA Tour’s season. The top 125 tour players are eligible to participate in the playoffs, which represent a significant accomplishment and “gateway” for players. Not only is lots of money at stake in the playoffs themselves, but there are important implications for a player’s future career. After the playoffs, the top 30 players qualify for next year’s Tour Championship and all four Major Championships, while the top 70 players qualify for all Tour events.

Only three of the 11 plaintiffs in the PGA Tour lawsuit—Gooch, Swafford, and Jones—sought the temporary injunction (called a “TRO”) because these three would have otherwise qualified for the FedEx Cup Playoffs but for their suspensions. Indeed, when the players launched the lawsuit, Gooch was ranked 20th, Jones was 62nd, and Swafford was 63rd, all comfortably within required standings.

In considering a request for a TRO, courts generally consider four elements: (1) whether the players are likely to succeed on the merits; (2) whether the players are likely to suffer irreparable harm without injunctive relief; (3) whether the balance of equities tip in the players’ favor; and (4) whether the injunction is in the public interest. The players requesting the TRO needed to establish all four elements to be entitled to the relief.

In general, TROs are hard to get because courts are typically reluctant to grant quick, injunctive relief on a limited evidentiary record. And as to irreparable harm in particular, a loss of money by itself is not considered irreparable harm, meaning if money damages could make a party whole, injunctive relief is not appropriate.

Here, after a hearing lasting more than two hours, featuring extensive argument by attorneys for the players and the PGA Tour, the court found that the players failed to show that they would suffer irreparable harm without immediate injunctive relief.

Although Judge Freeman agreed that the FedEx Cup Playoffs were important, marquee events, she cited, on the other hand, the substantial money that the players were making as part of their contracts with LIV Golf, plus the fact that the players’ contracts with LIV Golf specifically contemplated they would lose significant money if they had to miss out on the FedEx Cup playoffs (and other PGA Tour events). The players understood that risk, and, indeed, it was part of their negotiations with LIV Golf—allowing them (arguably) to extract more money from LIV Golf because of the possibility of a PGA ban. Judge Freeman also noted that the players would make significantly more money as part of the LIV Golf series than they might make in the FedEx Cup playoffs. Thus, she could not see how the players would suffer irreparable harm.

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China Makes Major Changes to its Antitrust Law

July 26, 2022 | Bona Law PC

Author: Yang Yang.

Ms. Yang is an Antitrust Partner at Fairsky Law Firm, which has a New York office. She is also a lecturer and researcher at China University of Political Science and Law. She authored a treatise on China Merger Control and is a member of the expert advisory team for Amendments to China Anti-Monopoly Law (with a total number of 8 members). Indeed, she leads the drafting of an expert report on suggested amendments to China Merger Control regime, Chapter 4 of Chinese Anti-Monopoly Law. She is also a frequent contributor to the Antitrust Report of LexisNexis and Competition Policy International (Asia Column and Asia Chronicle).

On June 24, 2022, the Chinese Standing Committee of the National People’s Congress passed amendments to the Chinese Anti-Monopoly Law, which will come into force on August 1, 2022. These amendments have been the first ones since the first adoption of Chinese Anti-Monopoly Law in 2008.

They cover the following topics: (i) antitrust investigations by the Chinese Antirust Bureau under the SAMR, (ii) merger control review by the Chinese Antitrust Bureau under the SAMR, and (iii) civil litigation or private actions seeking damages or claiming invalidations of contractual provisions based on a violation of Chinese Anti-Monopoly Law. These amendments mark significant changes to China’s antitrust regime.

You might also enjoy the following articles that I’ve authored on The Antitrust Attorney Blog:

Antitrust Merger Control in China: Notifiable Transactions under the People’s Republic of China Anti-Monopoly Law

Draft Amendment to Chinese Antitrust Law Calls for Further Clarifications

Administrative Enforcement by Chinese Antitrust Bureau

With regard to antitrust investigations by Chinese Antirust Bureau under the SAMR, the changes primarily relate to (a) vertical agreements––i.e., RPM; (b) hub-and-spoke agreements, and (c) to the abuse of dominance by internet/technology companies.

Vertical Agreements

These amendments introduce a new “safe harbor” rule for vertical agreements based on the market share of investigated parties in their relevant markets. They now supply more detailed guidance on relevant-market definition, including specific precedents for certain industries. This guidance reduces uncertainty for the investigated parties.

Hub-and-Spoke Agreements

Hub-and-spoke agreements involve manufactures and distributors not entering directly into Resale Price Maintenance provisions (RPM), but rather holding meetings to facilitate horizontal agreements. These fall within the scope of prohibited horizontal agreements in Chinese Anti-Monopoly Law.

For any investigation relating to horizontal or vertical agreements, there is also a new issue of whether any party to such agreements has hosted meetings, organized exchanges of information, or provided substantial facilitation. This also calls for more future guidance from the regulators.

Abusive Conduct by Technology Companies

For internet companies, the provision on prohibiting abusive conduct by algorithms or platform policies is not new. Algorithms and platform policies are commonly used by internet companies. But this new provision may indicate a potential priority from law enforcement. This seems to be consistent with merger control rules and the Chinese Antitrust Bureau’s priority relating to markets impacting the national economy and people’s daily lives, which includes areas of public facilities, pharmaceutical manufacturers and internet platforms.

Merger Control

In the merger control realm, there are three main changes: (i) notification of voluntary transactions, (ii) the introduction of a “Stop the Clock” mechanism, and (iii) a new merger review process by categories and levels. These changes can cause the following uncertainties in practice and may require more detailed guidance.

Notification of Voluntary Transactions

Under this new provision the Chinese Antitrust Bureau has the power to require parties to notify transactions before they are implemented if there is evidence of potential anticompetitive effects. There is no mandatory obligation, however, to notify transactions that do not trigger the relevant merger thresholds before their implementation.

But, despite the new law, current rules do encourage voluntary transactions involving, for example, active pharmaceutical ingredients. These changes create uncertainty on whether the authority has any power to reverse such transactions or impose remedies after their implementation.

In addition, under the new law, the authority must first require the parties to notify the transaction. If the parties do not comply with the notification request, the authority will initiate an official investigation. This process allows the parties to provide evidence and prove that the transaction does not have anticompetitive effects. The authority then has the power to approve (with or without remedies), or prohibit the transaction.

“Stop the Clock” Provision

The new “Stop the Clock” provision grants the authority more time to review the transaction if the notifying parties fail to provide documents on time. At the same time, the notifying parties will now have more time to respond to the authority and to other parties’ concerns. But under the current law and rules, the authority usually requires the parties to withdraw and refile a notification if the review process has reached the 180-day deadline. Therefore, the new law may restrain the Chinese Antitrust Bureau from extending an investigation longer than 180 days. We will have to see what happens.

New Merger Review Process by Categories and Levels

Finally, the new merger review process by categories and levels calls for more detailed rules on implementation and policies and creates uncertainty as to whether some industries will have higher scrutiny than others.

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Distribution Agreements: Quick Look at What’s New on Vertical Agreements and Antitrust in the European Union

July 1, 2022 | Bona Law PC

Authors: Luis Blanquez and Steve Cernak

The adoption of the new Vertical Block Exemption Regulation and Guidelines has created a hectic few months in the European Union for those in the world of antitrust and distribution agreements.

1. The European Commission updates existing vertical rules

On May 10, 2022, the European Commission (EC) adopted the new Vertical Block Exemption Regulation (VBER), together with the new Guidelines on Vertical Restraints. The core of applicable rules to vertical agreements––those entered into between undertakings operating at different levels of the distribution chain––remains the same, but the EC has now introduced some significant changes, especially for online sales and platforms. The new VBER entered into force on June 1, 2022, and will expire on May 31, 2034. There is also a transitional period of one year for those agreements already in force that satisfy the conditions for exemption under the old VBER, but do not satisfy the conditions under the new VBER.

Like the old, the new VBER allows parties to vertical agreements to determine their compatibility with Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”), by establishing a safe harbor exemption. In a nutshell, when the share of both buyer and seller does not exceed 30% of the relevant market, and absent any “hardcore restrictions” such as territorial or customer restrictions or resale price maintenance among others, their vertical agreements are automatically exempted. Agreements that do not satisfy the VBER conditions may still qualify for an individual exemption under Article 101(3) TFEU.

a. Dual Distribution

Dual distribution happens when a supplier is both active upstream, at the wholesale level, but also downstream, selling directly to end customers in competition with other retailers. For instance, through its own online shop or a marketplace.

The new VBER––similarly to the old draft––covers dual distribution as a safe harbor, even though it excludes vertical agreements between competitors. But the new draft includes two important nuances:

First, the protection is now extended to cover not only manufacturers, but also importers and wholesalers. With one wrinkle: The so called “hybrid function”. Vertical agreements involving online intermediation services (OIS)––such as those provided by marketplaces or app stores among others––, where the provider acts as both a reseller of the same intermediated goods or services and competes with the same companies to which it provides those OIS, are excluded from the exception.
Second, it introduces a novel two-prong test to determine when information exchanges in a dual distribution scenario are exempted: (i) when they are directly related to the implementation of the vertical agreement; and (ii) they are also necessary to improve the production or distribution of the contract goods or services. The Guidelines also provide (i) a non-exhaustive “white list” of examples that benefit from the exemption, such as technical information, or recommended or maximum resale prices, among others; and (ii) a “black list” of information exchanges not covered––such as information related to future prices downstream, etc…

b. Parity Obligations / MFNs

Parity obligations, also known as Most Favored Nation clauses or MFNs, require the seller to offer to the purchaser the same or better conditions offered: (i) to those on any other retail sales channel or platforms (wide parity clauses), or through the seller’s direct sales channel, usually its own online website (narrow parity clauses).

Under the new VBER, wide parity clauses are not covered anymore, and companies need to assess them under the individual exemption of Article 101(3) TFEU. But there is again one wrinkle: When it comes to narrow parity obligations in vertical agreements involving the provision of OIS, they may be still excluded from the block exemption in highly concentrated markets with cumulative effects and lack of efficiencies.

c. Exclusive and Selective Distribution Systems

The new VBER updates the old definitions of active sales (seller actively approaches a customer) and passive sales (unsolicited request from customer) in light of the new online business environment. For instance, an online website making sales with a domain name from a territory different from the one the distributor is established, or even just using a different language to the one officially established in that territory, is now considered an active sale.

It also introduces what is called “shared exclusivity,” which is the ability to designate up to five exclusive distributors per territory or customer group.

A supplier may also now require exclusive (as opposed to selective) distributors to impose those same restrictions on active sales to their direct (as opposed to indirect) buyers or territories exclusively allocated to other distributors. But a supplier passing on the same restrictions further down the distribution chain is not block exempted. This is a significant difference from selective distribution systems, where the supplier is allowed to impose such restrictions through the whole distribution chain.

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Is the PGA’s Suspension of 17 Players Out of Bounds Under the Federal Antitrust Laws?

June 16, 2022 | Bona Law PC

Authors: Luke Hasskamp and Molly Donovan

We often write about sports and antitrust and have previously written about professional golf, and, specifically, the legal implications of a competitor golf league trying to break onto the scene:

The new league, LIV Golf, seeks to compete with the PGA Tour, as well as the European tour (known as the DP World Tour). Indeed, LIV Golf held its first event this past weekend in London, which included 48 participants. Of those, 17 players were members of the PGA Tour. Charl Schwartzel emerged as the winner of the “richest tournament in golf history,” taking home $4.75 million in prize money, which was more than he won during the last four years combined.

In response, the PGA Tour handed down harsh discipline to those 17 players who joined LIV Golf, suspending them indefinitely. The PGA Tour also promised to suspend any other players that participate in future LIV Golf events. It’s a dramatic step, and surely not the last word on the matter.

Now, let’s say you’re one of those 17 players who has been suspended, or you’re a member of the PGA Tour considering playing for LIV Golf but you’re facing such a ban. There are many things to consider, of course. But let’s focus on your legal options. Would the PGA Tour’s ban of a player that chooses to participate in a competitor’s event be lawful? Do the federal antitrust laws in the United States provide you any remedies? Potentially. Let’s take a closer look.

Section 2 of the Sherman Act – Monopolization

Federal antitrust laws make it illegal for a monopolist to preserve its dominant market position through anticompetitive conduct. Here, the PGA Tour sure looks like a monopoly. It’s the dominant actor in the professional golf market in the United States, with revenues well exceeding $1 billion per year. If you are an elite professional golfer in the United States, it’s pretty much the only place to play. (Actually, the PGA Tour, in this context, looks more like a monopsony, as it’s the dominant purchaser of labor in the professional golf market.)

But being a monopoly is not illegal by itself. Instead, there must be some anticompetitive or exclusionary conduct that harms competition in the market.

Typical examples of procompetitive conduct include lowering prices, improving quality, enhancing services, or, in the labor market, raising wages and improving benefits. Antitrust laws like these types of behavior because they enhance competition and are good for consumers. A monopoly that holds onto its dominant market position by offering the lowest prices and the best product is generally a good thing and something antitrust laws seek to encourage. Similarly, a monopsony employer that attracts and retains the best employees by paying the highest wages, offering the best benefits, and otherwise creating the most attractive work environment is the type of outcome that is perfectly acceptable from an antitrust perspective.

Anticompetitive conduct can be harder to define, but can include things like threatening customers or employees, an exclusionary boycott, bundling, tying, exclusive dealing, disparagement, sham litigation, tortious misconduct, and fraud. We’re looking for improper attempts by a monopolist to box out a competitor.

When we look at the current PGA Tour dispute and its decision to suspend players who play for LIV Golf, it seems at least arguable that the PGA Tour’s conduct is anticompetitive. They are not attempting to retain the best golfers by raising compensation, creating more opportunities, or otherwise enhancing the work environment for its players. Instead, the PGA Tour is punishing players who choose to participate in a rival’s events. The conduct appears designed to stifle a would-be competitor.

Section 1 of the Sherman Act – Agreements

Federal antitrust laws also analyze agreements by two or more parties that restrain trade in the market. And agreements between horizontal competitors are closely scrutinized under the per se standard.

Consider professional baseball’s long and storied antitrust history. Those antitrust disputes started (more than 100 years ago) because teams had collectively agreed not to sign each other’s players. Back then, baseball contracts included a “reserve clause,” which reserved a team’s right to a player in perpetuity. Thus, once a player signed with that team, he was only able to re-sign in following years with that same team (unless the team released him). All teams agreed to honor each other’s reserve clauses by agreeing to not sign another team’s players, even if his contract had expired. The reserve clause intentionally suppressed competition by, in essence, preventing free agency. It suppressed players’ salaries. With only one team competing for a player’s services, rather than a full league, teams avoided bidding wars and players had little recourse but to accept the amount offered by their team.

Here, we’d ask whether the PGA Tour has entered into any agreements (formal or otherwise) with another party that restrain trade in the market for professional golf services. There is at least some indicia of such agreements. The European tour (the DP World Tour) has hinted that it may follow the PGA Tour’s approach to dealing with members would participate in LIV Golf. This may stem from the PGA Tour’s “strategic alliance” with the DP World Tour. This sure looks like it could be a horizontal agreement between competitors. Other entities may also be considering similar agreements with the PGA Tour, including the PGA of America, which runs the PGA Championship, one of golf’s four majors, as well as the Ryder Cup, a wildly popular team competition between players from the United States and Europe. The PGA of America, a separate entity from the PGA Tour, has suggested that it is likely to not permit LIV Golf players to participate in the PGA Championship or Ryder Cup.

Of course, sometimes competitors will follow each other’s policies, prices, or practices without an agreement of any sort. That is called conscious parallelism and is not an agreement in restraint of trade because there is no agreement. We don’t know whether there is an agreement here or the European Tour is merely following the PGA Tour in a round of conscious parallelism.

Remedies

A plaintiff prevailing on an antitrust claim has a right to treble damages, which is three times their actual damages, as well as attorney fees.

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Is Antitrust Litigation the Next Stop in the PGA Tour’s Battle with the Upstart LIV Golf League?

June 5, 2022 | Bona Law PC

Author: Luke Hasskamp

Hello, friends. Let’s talk about some of the latest developments in the world of professional golf, at least from an antitrust perspective.

Last spring I wrote about the PGA Tour’s response to a potential competitor golf league. The new league promised to shake up professional golf, guaranteeing massive payouts to attract some of the top players in the game and offering unique competitions and tournament formats different from the standard PGA Tour event.

As with many upstart competitors, the new league generated a great deal of controversy. By far, the most controversial aspect is the league’s association with Saudi Arabia. Indeed, the league is mostly funded by the Saudi Arabia government not a golf hotbed. Saudi Arabia’s investments have been criticized as “sportswashing,”—“the practice of investing or hosting sporting events in a bid to obscure the Kingdom’s poor human rights record, and tout itself as a new leading global venue for tourism and events.”

This upstart league has gone through a few iterations and, with it, a few different names. Last spring it was referred to the Premier Golf League, and it has also been called the Super Golf League. The current moniker appears to be LIV Golf. (We’re excited to see what name they come up with next!)

Reports suggested that individual players were being offered substantial sums of money, upwards of nine-figure deals, simply to join the LIV league—including a reported $125 million offered to Dustin Johnson, the most prominent player to announce his intention to play in the LIV league. To put that in perspective, Tiger Woods is the all-time career money leader with $120 million (and only one other player has ever won more than $75 million all time (Phil Mickelson, $92 million).

My last article speculated on whether other actors would join the PGA Tour’s efforts to squelch the upstart league. Well, at least one partner said it would enforce the PGA Tour’s ban. The PGA of America (a separate entity from the PGA Tour) announced that anyone banned from the PGA Tour would also be barred from competing in the PGA Championship (one of golf’s four majors), as well as the biennial Ryder Cup. “If someone wants to play on a Ryder Cup for the U.S., they’re going to need to be a member of the PGA of America, and they get that membership through being a member of the Tour,” PGA of America CEO Seth Waugh said last May.

Waugh added that “the Europeans feel the same way,” suggesting the European tour would also enforce the PGA Tour’s ban at its events. And, indeed, the European tour (the DP World Tour) later issued a “warning memo” to its members against participating in LIV events. And, just recently, the United States Golf Association—the organization that hosts the U.S. Open, one of golf’s four majors—announced that “although the USGA ‘prides themselves on the openness of their tournament,’ they will also make their own decision about the eligibility of players at the upcoming U.S. Open . . . on a case-by-case basis.” This appears to be another not so subtle attempt at dissuading golfers from jumping to the Saudi league.

Along those lines, Phil Mickelson was not a participant at this year’s Masters tournament. Mickelson, as a past champion, has a standing invitation to play in the Masters, part of the tournament’s storied tradition. There was speculation that Masters officials instructed Mickelson not to attend the tournament due to the controversy. But Masters officials denied the report, stating that Mickelson decided not to participate in this year’s event. (Mickelson has not commented publicly on the specifics.) Mickelson also did not participate in this year’s PGA Championship, another major and one where Mickelson was the defending champion.

Sponsors also appear to be siding with the PGA Tour (or, perhaps, simply do not wish to align themselves with LIV and its Saudi connections). RBC announced that it was dropping its sponsorship deals with Dustin Johnson and Graeme McDowell after both golfers were linked to the Saudi league. Similarly, UPS dropped its deals with Lee Westwood and Louis Oosthuizen.

This all comes on the heels of the latest development: the LIV league’s first event is coming to fruition. It is scheduled for June 9-11 in London, at the same time as the PGA Tour’s RBC Canadian Open event. Because these are conflicting events, PGA Tour members needed to obtain express permission from the PGA Tour to participate. But the Tour rejected all requests for an exemption (as did the European tour). But several dozen players announced that they were in the field for the LIV event, a surprising number for an league that seemed on more than one occasion as if it would never get off the ground. (Interestingly, Phil Mickelson has not announced whether he will participate, and he was not listed as one of the 48 participants, although six spots were unannounced so it’s possible he’ll still be in the field.)

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Updates to the DOJ’s Leniency Policy and Related FAQs: Some Changes are Good, Some Don’t Go Far Enough

April 5, 2022 | Bona Law PC

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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State Action Immunity and Active Supervision: The Ninth Circuit Rejects the Board’s Claim for Immunity and SmileDirectClub Wins Again

April 5, 2022 | Bona Law PC

Author: Luis Blanquez

Just weeks before our ABA antitrust panel on State Action Immunity takes place in Washington DC, the Ninth Circuit Court of Appeals has allowed SmileDirectClub to proceed against the members of the California Dental Board for antitrust violations, rejecting the board’s immunity claim on active supervision grounds.

At Bona Law we are no stranger to enforcing the federal antitrust laws against anticompetitive conduct enabled by state and local governments. In fact, we filed an amicus curiae brief in the NC Dental case.

Background of the SmileDirectClub Antitrust Saga

This is part of the antitrust group of cases that SmileDirectClub has filed against dental boards in Alabama, Georgia and California.

Rather than teeth-whitening like in NC Dental, the product market in these three cases is teeth-alignment treatments. SmileDirectClub provides cost-effective orthodontic treatments through teledentistry. One of SmileDirectClub’s services is SmileShops. These are physical locations in several states at which they take rapid photographs of a consumer’s mouth. Customers may also use an at-home mouth impression kit, which means that an in-person dental examination is not necessary. Afterwards they send the photographs to the SmileDirectClub lab.

SmileDirectClub connects the customer with a dentist or orthodontist, who is licensed to practice locally but is located off-site (and may be even located out-of-state), who evaluates the model and photographs and creates a treatment plan. If the dentist feels that aligners are appropriate for the patient, she prescribes the aligners and sends them directly to the patient. The patient doesn’t need to visit a traditional dental office for teeth alignment treatment. This results in significant cost savings and greater customer convenience and access.

But the members of the boards of dental examiners in Georgia, Alabama and California have, according to plaintiffs, allegedly conspired to harass the SmileDirectClub parties with unfounded investigations and an intimidation campaign, with hopes of driving them out of the market, while using their government-created power in the marketplace to protect the economic interests of the traditional orthodontia market.

District courts in Alabama and Georgia have allowed all cases to proceed, after the 11th Circuit affirmed. The Alabama case settled in 2021, after that state’s dental board signed a consent decree with the Federal Trade Commission.

**The District Court case in California: Sulitzer v. Tippins, case No. 20-55735**

In California, by statute, the dental board regulates the practice of dentistry. See Cal. Bus.&Prof. Code §§ 1600–1621. It enforces dental regulations, administers licensing exams, and issues dental licenses and permits. Id. § 1611. The Board is made up of fifteen members: “eight practicing dentists, one registered dental hygienist, one registered dental assistant, and five public members.” Id. § 1601.1(a). Since many of its members compete in the market for teeth-straightening services, they allegedly view SmileDirect as a “competitive threat.”

Plaintiffs alleged that certain members of the Board, motivated by their private desires to stifle competition, mounted an aggressive, anticompetitive campaign of harassment and intimidation designed to drive the SmileDirectClub out of the market. The Complaint contended that these actions violated the Sherman Antitrust Act; the Dormant Commerce Clause; the Equal Protection Clause; the Due Process Clause; and California’s Unfair Competition Law. The dental board defendants moved to dismiss SmileDirectClub’s claims for anticompetitive conduct based on a state-action immunity defense.

The district court rejected defendants’ argument that the state action doctrine applied because the defendants––members and employees of the Dental Board of California—largely made up of traditional dentists and orthodontists who have a financial motive to view the newcomers as competition—could not show that they were actively supervised. The court nevertheless held plaintiffs failed to state a Section 1 claim and ended up dismissing the complaint without prejudice.

SmileDirectClub amended the complaint once, but the district court dismissed again the federal claims and declined to exercise supplemental jurisdiction over the state law claim. This time the court held that SmileDirectClub may have pled enough facts to show the existence of an agreement––by way of a theory of the board’s ratification of the investigation––but surprisingly concluded it was nevertheless insufficient to state a Section 1 claim because the agreement was consistent with its regulatory purpose to undertake their delegated authority as members of the board, and thus was not intended to restrict or restrain competition. Make sure you don’t forget this last sentence. The Ninth Circuit hammers this argument down now in its Opinion.

SmileDirectClub appealed the ruling before the Ninth Circuit

The Case on Appeal: SmileDirectClub and Jeffrey Sulitzer DMD v. Joseph Tippins et al., 9th U.S. Circuit Court of Appeals No. 20-55735

I would strongly suggest you read this opinion. It is absolutely worth your time.

First, the Ninth Circuit concludes that plaintiffs sufficiently alleged anticompetitive concerted action to meet the pleading standards of Federal Rule of Civil Procedure 12(b)(6), although it makes no judgment on the merits of the claims and whether those claims will withstand scrutiny in the next phase of the litigation

It further explains that by requiring plaintiffs to plead facts inconsistent with the Board’s regulatory purpose, the district court applied a standard more appropriate at the summary judgment stage, where § 1 plaintiffs must offer “evidence that tends to exclude the possibility” of lawful independent conduct. This is something many district courts do across the country and which we have been writing about at Bona Law systematically.

Second, the court plainly rejects the broad proposition—offered up by the board members and the district court—that regulatory board members and employees cannot form an anticompetitive conspiracy when acting within their regulatory authority.

In its opinion, the court highlights how the Supreme Court has stressed, “[t]he similarities between agencies controlled by active market participants and private trade associations are not eliminated simply because the former are given a formal designation by the State, vested with a measure of government power, and required to follow some procedural rules.” N.C. State, 574 U.S. at 511.

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