Articles Posted in Per Se Antitrust Violation

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

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

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

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

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

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

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

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

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

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

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LIBOR Antitrust MDLThe US Supreme Court just issued its decision in an antitrust case called Ellen Gelboim v. Bank of America Corporation. This case arises out of major multi-district litigation (an MDL) centered on allegations that major banks conspired to manipulate the London InterBank Offered Rate (which you probably know as LIBOR) to lower their interest costs on financial instruments sold to investors.

For purposes of Gelboim, the intricate details of the alleged conspiracy are not relevant, but you should know that it led to over 60 actions filed in federal court against the banks.

That sounds like a lot of cases and you might infer from the large number that the defendants must have done something wrong if so many people are suing them. But that isn’t necessarily true.

What happens is that a government agency announces an investigation (or it leaks) or someone has the idea that there is price-fixing, market-allocation, bid-rigging or some related horizontal per se antitrust violation going on.

There are plaintiff law firms all over the country that specialize in bringing these types of lawsuits and when one appears, you see many more very quickly. They follow each other and an antitrust blizzard ensues. It is, in fact, an extremely competitive market among plaintiff firms. And when a big set of cases develop, the plaintiff lawyers are often fighting each other for bigger pieces of the pie more than they battle defendants’ attorneys.

Fortunately, there is a set of procedures that deal with such a situation—Section 1407. This statute created the Judicial Panel on Multidistrict Litigation (JPML), which may transfer the many related actions “involving one or more common questions of fact” to one district court for coordinated or consolidated pretrial proceedings.

Importantly, as the Supreme Court points out, this does not mean that all of the cases are transferred forever into the one district court. They are just there for pre-trial proceedings. Of course, practically speaking, they rarely leave that court as most of these cases are either dismissed or settled. If not, the statute requires that each individual action “shall be remanded by the panel at or before the conclusion” of the pretrial proceedings to the original district court.

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real estate agent antitrustI’ve often written about real estate on this blog. There are two reasons for this.

The first and most important reason is because my wife and I invest in real estate and thus talk about real estate, so it is on my mind. In fact, I have my California real-estate license. Bona Law PC also offers real-estate litigation services.

The second reason is that real-estate, in addition to its many advantages, creates many unique competition issues. Real-estate agents often engage in cut-throat competition with each other, sometimes even within the same brokerage firm. Yet, the nature of their job requires them to work together for almost every transaction.

In addition, the markets to sell real-estate are primarily local, even though national brokerage firms may dominate each individual geographic area. Within each locality, there are often a handful of large brokerage firms.

Finally, the market for real-estate services and commissions suggests some supra-competitive pricing in that most firms in a certain area will charge approximately the same commission. And the splits between the buying and selling agents are often equal as well. In the Minneapolis, Minnesota area for example, at least as of a few years ago, selling agents would often receive 3.3% and buying agents 2.7% of the purchase price. In my current market, a small village in North San Diego County, the buying and selling agents typically split the 5% commission.

Suspiciously, while technology and other competition has reduced relative prices for many professionals, commission percentages have held relatively steady for real-estate agents, despite the fact that buyers and sellers (especially buyers) can do much of their own homework online. How many of you have purchased a house without spending a lot of time online yourself looking at listings?

So does that mean that real-estate brokerage firms and agents are violating the antitrust laws all over the country? Should we coordinate a dramatic—made for the movies—event whereby federal agents knock down the doors of real-estate firms all over the country one morning, handcuffing and booking the agents that would do anything to get you in their car to show you some houses?

Probably not yet.

In November of this year, the Sixth Circuit decided a case called Hyland v. Homeservices of America, Inc. that nicely illustrates the line between antitrust violation and what is often called conscious parallelism or oligopolistic price coordination.

In Hyland, a class of people who sold residential real estate in Kentucky and used certain real-estate agents sued several real-estate brokerages as a class action under Section 1 of the Sherman Act. Plaintiffs alleged that defendants participated in a horizontal conspiracy to fix the commissions charged in Kentucky real-estate transactions at an anticompetitive rate.

Like agents in many localities, defendants each charged a typical or standard commission rate of 6%, and mostly resist any attempts to negotiate a lower rate. The buying agent’s commission is typically 3%. These numbers may look familiar to you if you bought or sold real estate recently, as real-estate services for most residential real-estate markets are similarly priced.

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White TeethThe trade association necessitates a delicate balancing act between anticompetitive conduct condemned by the antitrust laws and pro-competitive information-sharing and best practices that ultimately help consumers.

Trade associations should have antitrust policies and should consistently consult with an antitrust attorney. Antitrust law reserves its greatest scorn to the horizontal agreements—the deals between and among competitors. And a trade association is, by definition, an entity created to bring these competitors together.

Competition Policy International (CPI) published an Antitrust Chronicle this week about trade associations and industry information sharing and I was fortunate that they invited me to publish an article in this issue. My article is called “’But the Bridge Will Fall’ is Not a Valid Defense to an Antitrust Lawsuit.” I discuss one of my favorite Supreme Court cases of all time: National Society of Professional Engineers v. United States.

There are a couple of ways that trade associations—and, really, any group of industry competitors—harm competition and risk antitrust liability. The first and most obvious concern is that the competitors will conspire against their customers or suppliers (don’t forget that buying conspiracies may be illegal too).

For example, a group of competitors may reach agreements on price, output, geographic or product and service markets, contractual terms, etc. These are per se antitrust violations, condemned with little analysis other than whether there was, indeed, an agreement.

The other conspiratorial harm that trade associations or groups of industry competitors can inflict is on competitors from another industry or profession. In my view, this harm is underrated and under-considered. I discussed this concern in a law review article a couple years ago.

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Ski EquipmentSometimes competition is a real hassle.

If your company has a loyal customer or longtime employee, you feel betrayed when a competitor swoops in to try to “steal them.”

If you are the Miami Heat, you probably don’t like that the Cleveland Cavaliers are trying to hire your best player, LeBron James. Of course, a few years ago, the Heat signed James from Cleveland. (On a side note, this Minnesota Timberwolves fan wonders whether a LeBron James move to Cleveland will lead to a Kevin Love trade for Number 1 draft pick, Andrew Wiggins).

Update: LeBron James is indeed “coming home” to Cleveland.

I just started watching Breaking Bad. (I know, what took me so long?). Anyway, it is apparent in the early episodes that drug cartels shovel heavy resources into extinguishing competition. They certainly don’t seem too happy about this Heisenberg fellow coming in to outcompete them with a superior product. Perhaps in a later season, “Better Call Saul” will help Walter White file a Sherman Act, Section 2 Antitrust lawsuit against some of these monopolists that are restraining him from competing in certain geographic markets?

The bottom line is that as great as competition is—for almost everyone—it isn’t always enjoyable to those that must compete.

It is much easier to complacently offer the same product or service for a highly-profitable price than to constantly refine your wares and cut prices to attract and keep customers.

Perhaps a couple major ski equipment manufacturers were thinking along those lines if we are to believe the FTC’s allegations that ended in settlements approved today?

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Employees and antitrustThat’s right, the antitrust laws care so much about competition that they even prohibit agreements among competitors to not steal. In a society that morally condemns stealing, this is counter-intuitive (and a good reason to learn a little bit about antitrust).

You might wonder now whether I will engage in some philosophy gymnastics to convince you that stealing is okay. No, but I will provide a concrete example, then offer some advice. Not as fun, but perhaps more useful.

So California is abuzz with recently released documents in an antitrust class action by employees against giant Silicon Valley employers like Google, Inc., Apple Inc., Intel Corp and Adobe Systems Inc. The case is scheduled for trial soon and news reports suggest a settlement is likely.

Update: As expected, the parties have reportedly agreed to settle the antitrust case.

What happened? The class-action employees accused major Silicon Valley employers of agreeing not to steal each other’s employees. If true, that’s kind of a big deal under the antitrust laws.

It doesn’t sound so bad, right? How can anyone get any work done if everyone is trying to steal everyone’s employees? And it just seems impolite. Competitors are so tough on each other—can’t we have just a little bit of dignity and not try to hire away your competitor’s employees? The sort of war that can ensue among competing employers for a scarce resource—quality technology employees—can make a truce very tempting.

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I recently reported on my client’s antitrust case against the Virginia Board of Medicine. I also mentioned that I argued at the motion-to-dismiss hearing on March 28. I am excited to announce that we received the Court’s decision today rejecting the Board’s Motion to Dismiss.

If you are interested in the case, you can download the complaint and motion to dismiss documents below.

1. Amended Complaint

PillsLast week was a big antitrust week for the new law firm of Bona Law PC. First, it was the ABA Antitrust Spring Meeting, where antitrust lawyers from all over the world descend upon Washington, DC to obsess over antitrust and competition for several days. Second, I was writing an antitrust brief in a significant antitrust case.

Finally, I argued at a motion-to-dismiss hearing in the case Dr. Yvoune Kara Petrie, DC v. Virginia Board of Medicine, et al. I represent Yvoune Petrie, a doctor of chiropractic, in an antitrust lawsuit (Sherman Act, Section 1) against the Virginia Board of Medicine and several of its board members. Update: We survived the motion to dismiss.

With my client’s permission, I thought I’d tell you a little more about it.

As you might recall, I have experience and expertise in antitrust lawsuits against state and local entities, and believe that some of the most pernicious harm to competition comes from government conduct.

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For SaleWhen you think about a government antitrust investigation, you probably picture monopoly accusations against large companies like Microsoft in the 90’s and early 2000’s or AT&T in the 70’s and 80’s. Or perhaps you imagine a global price-fixing cartel like that depicted in the movie The Informant.

In any event, the target in your mind is a big company, along with their officers and executives, and perhaps some sales people.

The Department of Justice actions against individual real-estate investors in Northern California should shatter those preconceptions. Over the last few weeks, the Antitrust Division of the DOJ has announced a series of plea agreements arising out of its antitrust investigations into bid rigging at real-estate-foreclosure auctions for certain Northern California counties.

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The Internet didn’t fall down after my first post, so I thought I’d try another.

In the US, certain conduct is so obviously anticompetitive that antitrust law labels it per se illegal. These restraints lack redeeming pro-competitive value in almost all instances, so the law allows plaintiffs an important short-cut to pleading and proving such a claim.

The short-cut is that a plaintiff asserting a per-se-antitrust claim need not demonstrate anticompetitive harm. The law presumes such harm. This is huge because this element is one of the most difficult and expensive to prove.

Proving anticompetitive harm is often tough. Plaintiffs usually start by defining the relevant product and geographic markets. This is obvious is some cases; difficult and disputed in others.

Within that defined market, the plaintiff will then usually have to show market or monopoly power, then actual competitive harm in that market that exceeds any competitive benefits from the challenged restraint. It doesn’t always go like this, but that is the typical journey.

Proving all of this almost always requires expert economic testimony, which is—again—almost always disputed by defendants’ economic expert.

So this anticompetitive harm element can become quite burdensome and expensive. That is why fitting a case into a per-se-antitrust package is so valuable for a plaintiff, and risky for a defendant.

Price-fixing agreements usually come to mind as the prototypical per se antitrust violation (keep in mind that antitrust views agreements to limit volume as effectively the same thing). Other examples are market-allocation agreements and certain boycotts.

Let’s talk about market-allocation agreements—as price-fixing is a bit too obvious—so we can see how dangerously easy it is for this per-se-antitrust violation to develop.

Market allocation is an antitrust problem because competitors are agreeing not to compete. The most simple market-allocation agreement is geographic—“you take customers West of the Mississippi, and we will take the ones to the East.”

But sometimes it develops more subtly.

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