Mergers Reported under HSR Act Down Slightly in FY 2012

This posting was written by Tobias J. Gillett, Contributor to Wolters Kluwer Antitrust Law Daily.

The number of mergers reported under the Hart-Scott-Rodino (HSR) Premerger Notification Program between October 1, 2011 and September 30, 2012 decreased approximately 1.4% from the previous fiscal year, according to the Hart-Scott-Rodino Annual Report for fiscal year 2012, issued on April 31 by the FTC and Department of Justice Antitrust Division.

The report states that 1,429 transactions were reported under the HSR Act during FY 2012, down from the 1,450 reported in FY 2011, but still significantly more than the 1,166 reported in FY 2010 and the 716 reported in FY 2009.

During FY 2012, the FTC brought 25 merger enforcement actions, including three in which the Commission initiated administrative litigation; 15 in which it accepted consent orders for public comment; 14 which resulted in final orders (with one still pending); and seven in which the transactions were abandoned or restructured as a result of antitrust concerns raised during the investigation.

The Antitrust Division also challenged 19 merger transactions that it concluded might have substantially lessened competition if allowed to proceed as proposed. These challenges resulted in seven consent decrees, seven abandoned transactions, two restructured transactions, and three transactions in which the parties changed their conduct to resolve Justice Department concerns. In addition, the agencies brought two actions against parties for failing to comply with the HSR notification requirements, resulting in a total of $1.35 million in civil penalties.

Other highlights of the report include a 10.9% decline from FY 2011 in the number of merger investigations in which second requests were issued, from 55 in FY 2011 to 49 in FY 2012. The number of transactions in which early termination was requested decreased from 82% (1,157) of reported transactions to 78% (1,094) of such transactions, while the number of requests granted out of the total requested increased from 77% in fiscal year 2011 to 82% in fiscal year 2012.

The report also discusses recent developments in HSR enforcement, including the FTC’s August 2012 issuance of a Notice of Proposed Rulemaking proposing changes to the premerger notification rules. The changes would revise the rules to provide a framework for determining when a transaction involving the transfer of rights to a patent in the pharmaceutical industry is reportable under the HSR Act. The FTC also published adjustments to its reporting thresholds, as required by the 2000 amendments to Section 7A of the Clayton Act, that increase the threshold from $66 million to $68.2 million.

The report contains descriptions of various FTC and Antitrust Division enforcement actions and includes appendices with tables of statistics summarizing transactions from fiscal years 2003-2012, as well as tables regarding the number of transactions reported and filings received by month during that period and data profiling Hart-Scott-Rodino premerger notification filings and enforcement interests. The report concludes that the HSR Act continues to do "what Congress intended, giving the government the opportunity to investigate and challenge those relatively large mergers that are likely to harm consumers before injury can arise."

The HSR Act requires certain proposed acquisitions of voting securities or assets to be reported to the FTC and the Antitrust Division prior to consummation. It imposes a waiting period, usually of 30 days (15 days in the case of a cash tender offer or a bankruptcy sale), before the parties may complete the transaction. The FTC and DOJ can issue second requests for more information, which will extend the waiting period for 30 days (10 days in the case of a cash tender offer or a bankruptcy sale) after compliance with the request. The FTC and DOJ may challenge the transaction in federal district court or in administrative proceedings.

Brewers Resolve U.S. Concerns over Merger, Agree to Divest Modelo’s U.S. Business

This posting was written by Jeffrey May, Editor of Trade Regulation Reporter.

Anheuser-Busch InBev SA/NV (ABI) has resolved Department of Justice Antitrust Division concerns over its proposed acquisition of the remaining stake in Grupo Modelo S.A.B. de C.V.

A proposed final judgment was filed in the federal district court in Washington, D.C. that, if approved by the court, would resolve a civil antitrust complaint challenging the combination, which was filed on January 31, 2013.

The Justice Department had contended that the $20.1 billion transaction would substantially lessen competition in the market for beer in the United States as a whole and in 26 metropolitan areas across the United States. ABI’s global brands include Budweiser, Bud Light, Stella Artois, and Beck’s. Modelo’s Corona Extra brand is the top-selling import in the United States.

Under the proposed final judgment, the companies would be required to divest Modelo's entire U.S. business to Constellation Brands Inc. or to an alternative purchaser if for some reason the transaction with Constellation cannot be completed. It is intended to create an independent, fully integrated and economically viable competitor to ABI, according to the Justice Department.

The divestiture assets include Modelo's newest, most technologically advanced brewery (the "Piedras Negras Brewery"), which is located in Mexico near the Texas border; perpetual and exclusive U.S. licenses of the Modelo brand beers; Modelo's current interest in Crown—the joint venture established by Modelo and Constellation to import, market and sell certain Modelo beers into the United States; and other assets, rights and interests necessary to ensure that Constellation is able to compete in the U.S. beer market using the Modelo brand beers, independent of a relationship to ABI and Modelo.

Further, Constellation was added as a defendant for purposes of settlement and would be required to expand the capacity of Piedras Negras in order to meet current and future demand for the Modelo brands in the United States.

The settlement comes after initial attempts of the parties to remedy the potentially anticompetitive aspects of the transaction were rejected by the Justice Department as inadequate. An original proposal to sell Modelo's stake in Crown to Constellation and enter into a 10-year supply agreement to provide Modelo beer to Constellation to import into the United States was rejected on the ground that it would have eliminated the Modelo brands as an independent competitive force in the U.S. beer market. The federal district court stayed proceedings in the case multiple times while the parties attempted to reach a resolution.

"This is a win for the $80 billion U.S. beer market and consumers," said Bill Baer, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "If this settlement makes just a one percent difference in prices, U.S. consumers will save almost $1 billion a year."

According to an ABI statement, with this proposed resolution of the Justice Department suit, all necessary regulatory hurdles have been cleared. The Mexican Competition Commission approved the revised transaction with Constellation earlier this month. As a result, the transaction is expected to close in June 2013.

The case is U.S. v. Anheuser-Busch InBEV SA/NV, Civil Action No. 13:127 (RWR).

T-Mobile/MetroPCS Merger Receives Regulatory Approval

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The combination of T-Mobile USA Inc. and MetroPCS Communications Inc. has been approved by both the Federal Communications Commission (FCC) and the Department of Justice Antitrust Division without divestitures or similar conditions. Today, the FCC released its Memorandum Opinion and Order, finding the transaction to be in the public interest. The Antitrust Division also issued a statement, saying that it had closed its investigation after concluding that the combination was unlikely to harm consumers or substantially lessen competition.

T-Mobile is one of four nationwide providers of mobile wireless services. The three others are AT&T, Verizon, and Sprint.

MetroPCS is the fifth-largest mobile wireless telecommunications provider in the United States; however, it provides services in only certain regions of the country. Each of the markets served by MetroPCS is also served by all four of the national carriers.

Last October, Deutsche Telekom, parent of T-Mobile, and MetroPCS announced that they had signed a definitive agreement to combine T-Mobile and MetroPCS. The parties said the transaction would “create the leading value carrier in the U.S. wireless marketplace.”

The announcement of the T-Mobile/MetroPCS deal came less than a year after plans for AT&T Inc. to acquire T-Mobile from Deutsche Telekom were abandoned in the face of a Justice Department challenge. The FCC staff also had concluded that the AT&T/T-Mobile transaction raised a number of potential public interest harms.

Regulators quickly approved this latest deal. The parties announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on March 5. The wireless license transfer between T-Mobile and MetroPCS was approved before the expiration of the FCC's180-day deadline.

In its statement announcing the closure of its investigation, the Antitrust Division said that it considered whether the proposed combination might tend to lessen competition substantially in any particular local area, for instance by combining the two carriers with the best local coverage. However, it decided that the deal was not likely to lessen competition substantially at local levels.

The Justice Department also noted that many dimensions of competition in the mobile wireless industry take place at a national level, including plan pricing, device offerings, and network technology. “Like many local and regional providers, MetroPCS faces limitations, stemming from its lack of nationwide spectrum, networks and scale, and therefore exerts little influence on these aspects of mobile wireless competition,” the Justice Department said.

The Justice Department went on to say that the proposed combination of T-Mobile and MetroPCS might have a procompetitive impact in that it would improve T-Mobile’s scale and spectrum position, particularly since MetroPCS’s spectrum holdings are compatible with T-Mobile’s existing network. In any event, the Justice Department pledged to continue monitoring competition in the mobile wireless industry and to bring enforcement actions where warranted.

FCC Chairman Julius Genachowski said the agency's approval of the transaction “will benefit millions of American consumers and help the U.S maintain the global leadership in mobile it has regained in recent years.”

In a statement, T-Mobile President and CEO John Legere said that the company “look[s] forward to completing the transaction and delivering the significant customer and stockholder benefits that this combination will make possible.” A special meeting of MetroPCS stockholders to vote on matters relating to the proposed combination is set for April 12.

EC Approves Procter & Gamble Acquisition of Teva OTC Business

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) announced on November 12 that it has cleared Procter & Gamble Company's proposed acquisition of the over-the-counter (OTC) business of the generic pharmaceutical company Teva Pharmaceutical Industries, Ltd. of Israel. The OTC assets had been acquired by Teva from U.S.-based Cephalon, Inc. in 2011. The EC’s investigation focused on topical anti-rheumatics and analgesics, and expectorants, sold in Latvia, Lithuania, and Estonia.

The EC concluded that the current transaction would not raise competition concerns because it would not significantly alter the market structure. According to the EC, the affected market was last examined in October 2011, when Teva acquired Cephalon's then-existing OTC business. The competitive conditions in these markets have not materially changed since then.

In September 2011, the EC cleared Procter & Gamble’s acquisition of “important parts” of Teva’s OTC business, after concluding that the proposed transaction would not raise competition concerns. In its investigation of that transaction, the EC focused on laxatives sold in the Netherlands and antitussives sold in Austria.

Procter & Gamble and Teva had issued a statement in November 2011, announcing plans to create a new partnership and joint venture in consumer health care. The parties said that the venture, PGT Healthcare, was to be headquartered in Geneva, Switzerland, and operate in essentially all markets outside of North America. The partnership between Procter & Gamble and Teva also was to develop new brands for the North American market.

FTC Conditions Watson’s Proposed Acquisition of Actavis on Divestitures

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC announced on October 15 that it has approved Watson Pharmaceuticals, Inc.'s proposed $5.9 billion acquisition of Actavis Inc., subject to the parties' agreement to divest the rights and assets to 18 drugs and to relinquish the manufacturing and marketing rights to three others. When the parties announced the proposed combination in April, they said that the transaction would make Watson the third largest global generics company.

According to the parties, all regulatory approvals required to close the transaction have been received. As a result, the parties anticipate consummating the acquisition in late October or early November. The European Commission cleared U.S.-based Watson's acquisition of the Swiss-based Actavis on October 5.

According to the FTC's complaint, the acquisition, if consummated as proposed, would have lessened current and/or future competition in U.S. markets for 21 generic pharmaceutical products. These products are used to treat a wide range of conditions, including hypertension, high blood pressure, diabetes, anxiety, schizophrenia, nausea, chronic and acute pain, and attention deficit hyperactivity disorder. Seven of the relevant generic drug markets involve generic drugs that are currently sold, and eight of the relevant generic drug markets involve generic drug products that either one or both of the companies currently sell or have in the pipeline. In the remaining six markets, generic drugs are not currently on the market; however, Watson and Actavis are among a limited number of likely potential suppliers of these drugs.

Under the terms of a proposed consent order, Watson and Actavis would be required to divest either Watson’s or Actavis’s rights and assets related to 18 of the 21 products. The majority of the assets in these 18 markets would be divested to Par Pharmaceutical, Inc. Par is a New Jersey-based generic pharmaceutical company selling over 60 prescription drug product families and has an active product development pipeline. Assets related to four of the markets would be divested to Sandoz International GmbH, a subsidiary of Novartis AG. Sandoz is based in Germany and has approximately 200 generic product families in the United States and an active product development pipeline.

 According to the FTC, with their experience in generic markets, Par and Sandoz are expected to replicate the competition that would otherwise be lost with the proposed acquisition. If the Commission were to determine that Par and/or Sandoz were not acceptable acquirers of the divestiture assets, it could require the parties to unwind the sales. The parties are required to maintain the viability, marketability, and competitiveness of the divestiture products.

To remedy the FTC's concerns with respect to the three remaining product markets, the combined entity would be required to amend an existing development and manufacturing agreement between Actavis and Pfizer, Inc. and transfer the manufacturing rights back to Pfizer. For two other drugs, Watson and Actavis would be required to relinquish the marketing rights to another firm.

The case is Watson Pharmaceuticals, Inc., FTC Dkt. C-4373, FTC File No. 121-0132.

Johnson & Johnson Agrees to Spin Off Bone Fracture System to Complete Takeover of Synthes, Inc.

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC will require Johnson & Johnson to sell its system for surgically treating serious wrist fractures, under the terms of a proposed consent order resolving charges that Johnson & Johnson’s proposed $21.3 billion acquisition of Synthes, Inc. would illegally reduce competition for these systems.

Johnson & Johnson has announced its intention to sell the system, along with the rest of its product line for treating traumatic injuries, to Biomet, Inc.

If the deal were allowed to proceed as originally proposed, the Commission stated, Johnson & Johnson and Synthes together would have more than 70 percent of the U.S. market for the wrist fracture treatment systems.

"J&J and Synthes are direct competitors for these important systems used in the surgical treatment of traumatic wrist fractures," said Richard Feinstein, Director of the FTC's Bureau of Competition. "This order will ensure that the hospitals and surgeons that use these systems to care for consumers will not face higher prices or reduced innovation in the future."

According to the FTC's June 11 complaint, Johnson & Johnson’s proposed acquisition of Synthes would harm competition in the U.S. market for volar distal radius plating systems, internal devices that are surgically implanted on the underside of the wrist to achieve proper alignment of the radius bone following a fracture.

Distal radius fractures, in which a portion of the radius closest to the wrist is broken, typically happen when someone braces for a fall, and are among the most common types of fractures. Such fractures most often occur when an older person falls or when people are playing sports. While many people with distal radial fractures can be treated with conventional casts, if the radius bone is displaced, surgery almost always is required. Volar distal radius plating systems are the primary option for surgeons because they are easy to implant, reduce recovery times, and enable patients to move more freely than casts.

The complaint alleges that the U.S. market for volar distal radius plating systems is highly concentrated. Synthes is the leading maker of volar distal radius plating systems in the United States, accounted for 42 percent of all U.S. sales in 2010, and has a strong clinical reputation in the trauma field.

Johnson & Johnson acquired its system—known as DVR—from Hand Innovations in 2006, and it was among the first anatomically contoured volar distal radius plating system. Many surgeons still consider the DVR system to be the best volar distal radius plating system available, and it accounted for 29 percent of all system sales in 2010.

The proposed order settling the FTC's charges preserves competition in the U.S. market for volar distal radius plating systems by requiring Johnson & Johnson to sell its U.S. DVR assets to a qualified buyer within 10 days of when the deal is consummated.

While the Commission's competitive concern with this transaction is limited to volar distal radius plating systems, Johnson & Johnson has opted to sell its entire trauma portfolio, which includes the DVR assets, to Biomet, a successful orthopedics company with a recognized brand name, an extensive nationwide sales force, and existing relationships with surgeons and hospitals.

Biomet's current volar distal radius plating system is not competitively significant, and the FTC believes that Biomet, once it acquires the DVR assets, will be able to replicate the competition in the U.S. market for such systems that existed before Johnson & Johnson's acquisition of Synthes.

The proposed order will allow the FTC to appoint an interim monitor to oversee the sale of the DVR assets to Biomet, and to appoint a trustee to sell the assets if they are not successfully divested by J&J within the time required.

Details of the FTC's complaint and proposed consent order—In the Matter of Johnson & Johnson, FTC Dkt. No. C-4363—appears here on the FTC website.

Pharmacies Denied Temporary Relief Blocking Integration of Express Scripts, Medco

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In a suit to block the combination of two pharmaceutical benefit management (PBM) companies—Express Scripts, Inc. and Medco Health Solutions, Inc., retail pharmacies and pharmacy trade associations were not entitled to a preliminary injunction holding separate the PBMs, the federal district court in Pittsburgh has decided.

The plaintiffs failed to establish the likelihood of immediate, irreparable harm that could be alleviated by the issuance of the preliminary injunction order holding separate Medco from Express Scripts.

Shortly after the complaint was filed on March 29, 2012, by the National Association of Chain Drug Stores, the National Community Pharmacists Association, and nine retail pharmacy companies, the PBMs consummated their merger in light of FTC approval of the transaction.

The plaintiffs alleged that the merger “would create an immediate and irreversible harm to competition by destroying two significant competitors in the relevant markets.” They argued that, unless a preliminary injunction holding the PBMs separate were issued, Express Scripts would displace Medco’s management and operations personnel, assume Medco’s administrative functions, and learn Medco’s confidential and trade secret information. However, all of the plaintiffs’ fears already had been realized, according to the court.

At the time that the merger was closed, Express Scripts terminated virtually all of Medco’s senior management, as well as its sales leadership and senior supply chain management team. Medco’s confidential and trade secret information already had been provided to Express Scripts. Thus, any hold-separate order would have been ineffective as a means to protect the plaintiffs from the asserted harm.

Furthermore, the plaintiffs did not demonstrate how, if they ultimately were successful in their cause of action, a brief delay in the divestiture of Medco would cause them any additional immediate and irreparable harm.

The April 25, 2012, decision in National Assn. of Chain Drug Stores v. Express Scripts, Inc., Civil Action No. 12-395, appears at 2012-1 Trade Cases ¶ 77,864.

FTC Drops Suit After Healthcare System Abandons Enjoined Takeover

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC announced on April 13 that it has dismissed a complaint it filed against a Rockford, Illinois, healthcare system—OSF Healthcare System—seeking to block OSF's proposed acquisition of rival health care provider Rockford Health System, in light of OSF's decision to abandon the transaction.

OSF arrived at its decision to scrap the deal after the federal district court in Rockford recently granted the agency's motion to preliminarily enjoin it, pending an FTC trial (2012-1 Trade Cases ¶77,850).

The FTC issued the complaint in November 2011, alleging that OSF's proposed acquisition of Rockford Health System would reduce competition in two markets in the Rockford area: (1) general acute-care inpatient services, and (2) primary care physician services. That complaint can be found at CCH Trade Regulation Reporter ¶16,666.

In granting preliminary injunctive relief on April 5, the federal court found that the Commission had made a strong prima facie showing that the combination would have adverse competitive effects. The court rejected arguments by the companies that various competitive considerations and constraints would preclude them from being able to raise prices to supracompetitive levels following the merger, and it further noted and that the companies failed to present sufficient proof of extraordinary efficiencies that would rebut the FTC's case.

"The Federal Trade Commission is gratified by OSF Healthcare's decision to abandon its attempt to acquire rival hospital services provider Rockford Health System," said Chairman Jon Leibowitz.

"As we said in November when we filed our complaint, health care consumers and employers in Rockford would have paid a price had the deal been allowed to proceed. The FTC remains vigilant, and will not hesitate to challenge deals in the health care sector that are likely to decrease competition and lead to higher prices or fewer services."

Further information regarding In re OSF Healthcare System appears here on the FTC website. The order dismissing the FTC complaint will appear at CCH Trade Regulation Reporter ¶16,763.

FTC Approves Merger of Pharmacy Benefits Managers Express Scripts and Medco

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC announced yesterday that it had closed its investigation into the proposed combination of two of the country’s three largest pharmacy benefit managers (PBMs) without taking action to challenge the transaction. On the same day, Express Scripts, Inc. announced that it had completed its acquisition of Medco Health Solutions.

Three of the four commissioners concluded that a violation of Sec. 7 of the Clayton Act neither had occurred nor was likely to occur as a result of Express Scripts’ acquisition of Medco. “While this transaction appears to result in a significant increase in industry concentration, nearly every other consideration weighs against an enforcement action to block the transaction.”

The transaction was not likely to produce unilateral or coordinated anticompetitive effects in the market for the provision of full-service PBM services to health care benefit plan sponsors, including public and private employers and unions, according to the Commission.

In addition to Express Scripts and Medco, competitors in the market included CVS Caremark—the nation’s second-largest PBM—as well as PBMs owned by large national health plans and some smaller standalone PBMs.

After analyzing the market, the Commission concluded that Express Scripts and Medco were not such close competitors that the elimination of one of these firms would allow the merged entity to unilaterally impose anticompetitive price increases. Medco and CVS Caremark focused on serving the nation’s largest employers, while Express Scripts’ customer base was more heavily skewed towards health plans and mid-size plan sponsors. Changes in the industry also meant that smaller PBMs and those owned by health plans were growing competitors for employer business.

Coordinated interaction among competitors in the market also was unlikely following the merger. The PBM industry was not necessarily conducive to coordination, it was noted.

The Commission also considered the concerns of retail and specialty pharmacies and concluded that there was little risk of the merged company exercising monopsony power. According to the Commission, there was no reason to believe that the merger would lead to lower reimbursement rates to retail pharmacies. Even if the transaction enabled the merged firm to reduce the reimbursement it offers to network pharmacies, there was no evidence that this would result in reduced output or curtailment of pharmacy services generally.

Moreover, evidence did not support concerns that the merged entity would exercise market power to demand more exclusive distribution arrangements from manufacturers of specialty drugs used to treat complex and rare conditions.

Dissent

Calling the transaction a “game changer,” Commissioner Julie Brill issued a dissent from the Commission’s decision to close the investigation. While Commissioner Brill expressed “some discomfort about unilateral effects” from the merger, she reserved her sharpest criticism of the transaction for the likelihood of coordinated effects. Pointing to statements of the parties, Commissioner Brill said: “[I]t is not difficult to conceive how the post-merger duopoly could pull its competitive punches when it comes to bidding for one another’s customers.” The commissioner called on the agency to conduct an analysis of the industry in three years to determine the transaction’s impact on prices to employers.

Reaction

Separately, Senator Herb Kohl (Wisconsin) issued a statement on April 2, saying that he expected the FTC “to carefully monitor the market to ensure that consumers are not harmed by loss of community pharmacies.” Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, had sent a letter to FTC Chairman Jon Leibowitz on February 2, expressing his concerns about the proposed transaction.

FTC Conditionally Approves Acquisition in Disk Drives Market

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC will allow Western Digital Corporation’s proposed acquisition of Viviti Technologies Ltd., formerly known as Hitachi Global Storage Technologies, to proceed, subject to divesture of selected Hitachi Global Storage Technologies assets related to the manufacture and sale of desktop hard disk drives to Toshiba Corporation.

A proposed consent decree would resolve FTC charges that the proposed acquisition would likely have harmed competition in the market for desktop hard disk drives used in personal computers.

According to the agency, the deal as originally proposed would have left only two companies, Western Digital and Seagate Technology LLC, in control of the entire worldwide market for desktop hard disk drives—key inputs into computers and other electronic devices that are used to store and allow fast access to data.

“Protecting competition in the high-tech marketplace is a high priority for the FTC,” said FTC Bureau of Competition Director Richard Feinstein. “This order will ensure that vigorous competition continues in the worldwide market for desktop hard disk drives and that consumers are not faced with higher prices or reduced innovation as a result of this deal.”

Timing of Filings

In a March 5 statement accompanying the complaint and proposed consent order, the FTC explained the relationship of its analysis of the proposed Western Digital/Hitachi acquisition to an acquisition by Seagate Technology LLC of Samsung Electronics Co. Ltd.'s hard disk drive assets. The FTC reviewed the Western Digital/Hitachi transaction at the same time as it reviewed Seagate Technology/Samsung transaction. The two transactions were announced within weeks of each other.

“Commission staff reviewed both matters at the same time in order to understand the effects on competition resulting from each transaction on its own, as well as the cumulative effect on the relevant markets if both transactions were allowed to be consummated,” according to the FTC. The agency earlier closed its investigation
of the Seagate Technology/Samsung transaction without taking action.

European Commission

In reviewing the two transactions, the European Commission (EC), on the other hand, followed a priority rule and gave priority to the transaction that was notified first. As a result, Seagate’s planned acquisition of Samsung’s hard-disk operations, which was notified to the EC prior to the planned Western Digital/Hitachi combination, was assessed assuming that Western Digital and Hitachi were still separate competitors. The implications of the second deal were not considered.

In November 2011, the EC announced that clearance of the Western Digital/Hitachi combination was conditioned upon the divestment of essential production assets for 3.5-inch hard disk drives, including a production plant, and accompanying measures. The Seagate Technology/Samsung transaction was approved by the EC without conditions.

The case is Matter of Western Digital Corporation, FTC File No. 111 0122, Docket No. C-4350, CCH Trade Regulation Reporter ¶16,738. The proposed consent agreement appears here at 77 Federal Register 14523, March 12, 2012.

Software Acquisition Could Have Amounted to Monopolization

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A computer software company, Adobe Systems Inc., could have unlawfully monopolized the market for professional graphic illustration software by acquiring a popular software program (FreeHand), effectively removing it from the market by refusing to update it, significantly raising the price of a rival program it owned (Illustrator), and withholding FreeHand’s source code from the open source community, the federal district court in San Jose, California, has ruled. The alleged conduct would not have violated the California Cartwright Act, however.

Therefore, the company’s motion to dismiss putative class action claims asserted by a non-profit group of graphic design professionals and one of its members was granted in part and denied in part.

While each of the alleged manners of anticompetitive conduct may have been lawful on its own, taken together and in context they supported a monopolization claim when read in the light most favorable to the complaining group and its members. Adobe undisputedly possessed monopoly power in the relevant market, the court noted. The company’s ability to maintain its high market share—despite raising prices and ceasing development of FreeHand—undermined its claim that its decision to discontinue the product was "rational and normal business conduct" that increased competition, the court reasoned.

Professional designers allegedly had no choice other than Illustrator if they wanted to buy professional vector design software that was interoperable with the latest operating systems. Moreover, it was reasonable to infer that Adobe’s discontinuation of FreeHand and channeling of that program’s users to Illustrator made it more difficult for potential competitors who did not have a full array of graphics software to enter the market.

The plaintiffs’ allegations that the conduct allowed Adobe to charge supracompetitive prices for Illustrator, decreased innovation in the relevant market, and rendered the artwork they created on FreeHand obsolete were sufficient to assert antitrust injury, the court added.

California Cartwright Act Claim

The non-profit group and individual member could not maintain a California Cartwright Act claim based on the alleged conduct, the court also ruled. The plaintiffs alleged no agreement, conspiracy, or combination between two or more entities, and the Cartwright Act did not address unilateral conduct.

The law did not contain a provision parallel to the Sherman Act’s prohibition against monopolization. The plaintiffs’ contention that a valid Cartwright Act claim could exist despite unilateral conduct "if a single trader pressure[d] customers or dealers into pricing arrangements" was immaterial because no such coercion was alleged, the court said.

Statute of Limitations

An argument by Adobe that the plaintiffs’ Sherman and Clayton Act claims were time-barred was rejected by the court. The causes of action were tolled under the continuing violation doctrine and the "new use" exception, respectively. Though the plaintiffs’ Sherman Act monopolization claim initially accrued upon the date of the acquisition, more than four years prior to the filing of the suit, their allegations supported a reasonable inference that Adobe perpetuated its monopoly power and caused them new injury after the merger through new and independent acts inside of the limitations period, including the aforementioned cessation of FreeHand’s development, the channeling of existing FreeHand customers to Illustrator, and the bundling of Illustrator with other programs it offered.

These acts were not "mere reaffirmations of the merger such as holding or using assets in the same manner as at the time of acquisition" or "continuing indefinitely to receive some benefit as a result of an illegal act performed in the distant past," in the court’s view. Rather, they were more like an online auction provider’s changes to its electronic payment policy after acquiring an online payment service provider, which had been found to constitute overt acts inflicting new and accumulating harm.

In addition, the plaintiffs’ allegations that Adobe’s conduct with respect to the acquired FreeHand and its Illustrator amounted to a use of FreeHand in a different manner from the way it was used at the time of the merger, and that this new use injured them, were sufficient to allow them to avail themselves of the "new use" exception to the Clayton Act’s statute of limitations, the court concluded.

The decision is Free FreeHand Corp. v. Adobe Systems, Inc., 2012-1 Trade Cases ¶77,811.

U.S., E.C. Clear Google’s Acquisition of Motorola Mobility

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Department of Justice Antitrust Division and the European Commission (EC) on February 13 approved Google, Inc.’s proposed acquisition of Motorola Mobility, Inc., and its patent portfolio.

At the same time, the Antitrust Division announced that it had cleared the acquisitions by Apple Inc., Microsoft Corp., and Research in Motion Ltd. (RIM) of certain Nortel Networks Corporation patents, and the acquisition by Apple of certain Novell Inc. patents.

In its statement announcing the closing of the three investigations, the Justice Department said that the transactions were “not likely to significantly change existing market dynamics.” The agency, however, pledged to continue monitoring the use of standard essential patents (SEPs) in the wireless device industry.

“During the course of the division’s investigation, several of the principal competitors, including Google, Apple and Microsoft, made commitments concerning their SEP licensing policies,” the Justice Department said.

“The division’s concerns about the potential anticompetitive use of SEPs was lessened by the clear commitments by Apple and Microsoft to license SEPs on fair, reasonable and non-discriminatory terms, as well as their commitments not to seek injunctions in disputes involving SEPs. Google’s commitments were more ambiguous and do not provide the same direct confirmation of its SEP licensing policies.”

Google entered into an agreement to acquire Motorola Mobility in August 2011. Google is a provider of Internet search and online advertising services. Google is the developer of the Android open source mobile operating system. At the end of 2011, Google’s Android accounted for approximately 46 percent of the U.S. smartphone operating system platform subscribers.

Motorola Mobility is a manufacturer of smartphones and computer tablets. It is the holder of a portfolio of approximately 17,000 issued patents and 6,800 applications, including hundreds of SEPs relevant to wireless devices that Motorola Mobility committed to license through its participation in standard-setting organizations (SSOs).

Apple, Microsoft, and RIM also have developed mobile operating systems for smartphones and tablets. While Apple and RIM manufacture and sell the smartphones and tablets that run on their proprietary mobile operating systems, Microsoft licenses its proprietary mobile operating systems.

Through a partnership entitled Rockstar Bidco, RIM, Microsoft, Apple, and others sought to acquire patents at the June 2011 Nortel bankruptcy auction for licensing and distribution to certain partners. Nortel’s portfolio of approximately 6,000 patents and patent applications includes many SEPs that Nortel committed to license through its participation in SSOs.

Apple sought approval to acquire patents held by CPTN Holdings LLC, formerly owned by Novell, following CPTN’s acquisition in April 2011 of those patents on behalf of Apple, Oracle Corporation, and EMC Corporation.

FTC Will Not Seek Review in Lundbeck Case

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC will not petition the U.S. Supreme Court for review of a decision of the U.S. Court of Appeals in St. Louis (2011-2 Trade Cases ¶77,570), rejecting a challenge to a 2006 acquisition involving global pharmaceutical company Lundbeck, Inc.

The appellate court affirmed judgment in favor of the drug company (2010-2 Trade Cases ¶77,160), based on the government’s failure to identify a valid relevant product market.

Decision “Profoundly Wrong”

The decision was made not to pursue review, despite a determination that the result in the case “was profoundly wrong, reflecting a serious misunderstanding by the District Court of the dynamics of this market and of the competitive consequences of an acquisition that allowed one company to control the only two pharmaceutical treatments for a life-threatening medical condition and raise prices by nearly 1300 percent,” according to a statement expressing the views of Chairman Jon Leibowitz, Commissioner Edith Ramirez, and Commissioner Julie Brill.

The three commissioners decided that it would be better to “turn our energies to other enforcement priorities.”

Commissioner Rosch’s Views

In a separate statement, Commissioner J. Thomas Rosch outlined the “many reasons for seeking Supreme Court review of the Eighth Circuit’s panel and en banc decisions in the Lundbeck case, which blessed the district court’s decision.”

According to Rosch, the courts erred in determining the product market. The first error of law was that, in holding that the two drugs at issue in the case—Indocin and NeoProfen—did not compete with each other in the same relevant product market, the district and appellate courts interpreted “cross-elasticity of demand” to mean exclusively cross-price elasticity of demand. Second, by erroneously focusing only on cross-price elasticity of demand, the district court allowed an economic expert’s opinion to trump the record facts regarding how the products were being marketed, purchased, and used in the real world.

Rosch also questioned the district court’s failure to consider the parties’ own business documents, as well as a hypothetical market.

The statement on the closing of the investigation of Lundbeck, Inc., Dkt Nos. 10-3458, 10-3459, FTC No. 0810156, appears at CCH Trade Regulation Reporter ¶16,711.

FTC ALJ Finds Ohio Hospital Acquisition Likely Anticompetitive, Orders Divestiture

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

An FTC administrative law judge has ordered ProMedica Health System, Inc., a non-profit healthcare system headquartered in Toledo, to divest a recently-acquired hospital.

The ALJ concluded that there was a reasonable probability that ProMedica’s consummated acquisition of rival St. Luke's Hospital will substantially lessen competition in an already highly-concentrated market for the sale of general acute-care
(GAC) inpatient hospital services to commercial health plans in the Toledo area. It violated Sec. 7 of the Clayton Act.

The FTC had alleged that the transaction reduced the number of competitors from four to three in the GAC inpatient hospital services market. The agency also challenged the transaction on the ground that it reduced from three to two the number of providers in the inpatient obstetrical (OB) services market.

The ALJ concluded, however, that the FTC failed to prove a separate relevant product market for the sale of inpatient OB services—procedures relating to pregnancy, labor, and post-delivery care—to commercial health plans or managed care organizations (MCOs) in Ohio’s Lucas County. The hospital did not refute the GAC inpatient hospital services market or the geographic market limited to Lucas County.

Defenses, Efficiency Justifications

Although St. Luke's was struggling financially prior to the acquisition, the hospital could not defend the transaction based on St. Luke's weakened financial condition, the ALJ determined. Moreover, the claimed efficiencies, such as capital avoidance savings and related operating cost savings, resulting from the combination, did not support the merger.

“The hospital did not meet its burden of showing ‘extraordinary’ procompetitive benefits or of demonstrating that the asserted efficiencies offset the likely anticompetitive effects of the increase in market power produced by the joinder,” the ALJ concluded.

Remedy

The ALJ ordered divestiture of St. Luke's to a willing acquirer, since the hospital failed to meet its burden of proving that an alternative remedy would be superior. The hospital contended that the anticompetitive effects could be remedied if it were permitted to retain St. Luke’s, but create a second “firewalled” negotiation team to negotiate and administer MCO contracts exclusively for St. Luke's, independent of Pro Medica's other Lucas County hospitals.

The proposed remedy was patterned after a remedy ordered by the FTC in a challenge to Evanston Northwestern Healthcare Corp.'s acquisition of Highland Park Hospital in Illinois in 2000. The ALJ explained that the conduct remedy in the Evanston matter was based largely on the long period of time between the closing of the transaction and the conclusion of the litigation. Because of a hold-separate agreement, the extensive integration that occurred in Evanston case had not occurred in this case.

The decision is In the Matter of ProMedica Health System, Inc., Docket No. 9346. Text of the decision will appear at CCH Trade Regulation Reporter ¶16,700.

AT&T Abandons Planned Acquisition of T-Mobile

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

Facing an antitrust challenge from the Department of Justice and regulatory hurdles raised by the Federal Communications Commission (FCC), AT&T Inc. on December 19 abandoned its planned acquisition of T-Mobile USA Inc. from Deutsche Telekom AG. AT&T said that it decided to call off the acquisition “after a thorough review of options”

The Justice Department Antitrust Division, seven states, and the Commonwealth of Puerto Rico alleged in a complaint filed in the federal district court in Washington, D.C. that the combination of two of the four largest providers of mobile wireless telecommunications services would violate the antitrust laws. (See “Department of Justice Seeks to Block AT&T’s Acquisition of T-Mobile," Trade Regulation Talk, August 31, 2011.)

The FCC staff had reviewed the transaction and found a number of public interest harms. The staff found that the deal would substantially lessen competition in ways that no conditions would appear to remedy. The staff concluded that removing T-Mobile as a competitor would create the incentives for AT&T and other competitors to raise prices.

Government Response

“Consumers won today,” Sharis Pozen, Acting Assistant Attorney General in charge of the Antitrust Division, said in a written announcement. “Had AT&T acquired T-Mobile, consumers in the wireless marketplace would have faced higher prices and reduced innovation. We sued to protect consumers who rely on competition in this important industry. With the parties’ abandonment, we achieved that result.”

The Federal Communications Commission agreed. “The FCC is committed to ensuring a competitive mobile marketplace that drives innovation and investment, creates jobs and benefits Consumers,” FCC Chairman Julius Genachowski said in a brief statement. “This deal would have done the opposite.”

AT&T Statement

In a December 19 press release, AT&T said that it agreed with Deutsche Telecom AG “to end its bid to acquire T-Mobile USA, which began in March of this year.” However, the actions of the Department of Justice and FCC to block the transaction do not change the realities of the U.S. wireless industry, according to the company. “It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to this spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled.”

AT&T Chairman and CEO Randall Stephenson reaffirmed the company’s commitment to "lead the mobile Internet revolution."

“To meet the needs of our customers, we will continue to invest. However, adding capacity to meet these needs will require policymakers to do two things. First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the needs of the U.S. wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC. Second, policymakers should enact legislation to meet our nation’s long-term spectrum needs.”

Other Voices

The American Antitrust Institute congratulated the U.S Department of Justice Antitrust Division and the FCC for “bringing to a swift end AT&T’s adventurous test of U.S. merger controls.” Companies planning highly-concentrating horizontal mergers will have to think twice “no matter how much political clout they think they can bring to the table.” Preventing this merger saved many jobs, according to the AAI. “It is an important victory for antitrust and American consumers.”

Georgia Hospital Combination Was Immune from FTC Challenge

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The effective merger of two Georgia hospitals was immune under the state action doctrine from an FTC challenge, the U.S. Court of Appeals in Atlanta has ruled. Dismissal of the Commission’s complaint for injunctive relief pending the completion of an administrative proceeding (2011-1 Trade Cases ¶77,508) was affirmed.

In an April 2011 administrative complaint, the FTC alleged that a local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System, Inc.—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Georgia’s Dougherty County and surrounding areas.

The agency sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding.

The appellate court agreed with the Commission that the joint operation of the two Albany, Georgia, hospitals—Phoebe Putney Memorial Hospital and Palmyra Park Hospital—“would substantially lessen competition or tend to create, if not create, a monopoly.” However, the question was whether the anticompetitive conduct was immunized by the state-action doctrine.

The FTC alleged that the acquisition included three stages:

(1) The local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA using Phoebe Putney’s money,

(2) The hospital authority’s immediate provision of control of the hospital to Phoebe Putney under a management agreement, and

(3) Phoebe Putney’s entry into a lease with the hospital authority to grant the local hospital operator managerial control of Palmyra Park Hospital’s assets for 40 years.

The FTC contended that the private parties used the hospital authority to shield the transaction from antitrust scrutiny.

State Action Immunity

While the doctrine of state action immunity protects the states from liability under the federal antitrust laws, the same protection does not extend automatically to political subdivisions, such as the hospital authority, the appellate court explained.

In order for the hospital authority to enjoy state-action immunity, it had to show that the state generally authorized it to perform the challenged action and clearly articulated a state policy authorizing anticompetitive conduct.

The acquisition of Palmyra Park Hospital, Inc. from hospital operator HCA Inc. and its subsequent operation by Phoebe Putney Health System, Inc., at the behest of the Hospital Authority of Albany–Dougherty County, were “authorized pursuant to a clearly articulated state policy to displace competition, the court held.

Through the Hospital Authorities Law, the Georgia legislature clearly articulated a policy authorizing the displacement of competition. The Georgia legislature granted local hospital authorities the power to acquire hospitals. In granting the power to acquire hospitals, the legislature must have anticipated that such acquisitions would produce anticompetitive effects, the court reasoned. “Foreseeably, acquisitions could consolidate ownership of competing hospitals, eliminating competition between them.”

The appellate court rejected the Commission’s argument that it could dispose of the immunity issue because the plan at issue constituted only private action, since it was formulated by Phoebe Putney Health System and HCA, Inc. and presented by Phoebe Putney Health System to the hospital authority.

FTC Bureau of Competition Director’s Reaction

“The Eleventh Circuit agrees with the Commission that this deal will create a monopoly and eliminate competition,” said FTC Competition Bureau Director Richard Feinstein in response to the decision. “We remain very concerned that it will raise healthcare costs dramatically in Albany, Georgia. We are considering all our options.”

Details of the December 9, 2011, decision in FTC v. Phoebe Putney Health System, Inc., No. 11-12906, will appear in CCH Trade Regulation Reporter.

U.S. Closes Investigation into Google’s Acquisition of Online Advertising Service Provider

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Google Inc.’s proposed acquisition of Admeld Inc., an online display advertising service provider, will not be challenged by the Department of Justice Antitrust Division. The Justice Department has closed its investigation into the transaction.

In a December 2 statement, the Antitrust Division said that the transaction was not likely to substantially lessen competition in the sale of display advertising.

According to the statement, the Antitrust Division’s investigation focused on the potential effect of the proposed transaction on competition in the display advertising industry. Both Google and Admeld provide services and technology to web publishers that facilitate the sale of those publishers’ display advertising space, the Antitrust Division noted.

The government also evaluated whether Google’s acquisition of Admeld would enable Google to extend its market power in the Internet search industry to online display advertising through anticompetitive means.

The division said it will continue to rigorously enforce the antitrust laws to ensure that transactions affecting evolving markets such as display and other forms of online advertising, as well as search, do not inhibit competition or innovation in any way.

Competitor Could Not Join State's Antitrust Challenge to Hospital Acquisition

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A private medical center did not have the right to intervene in an enforcement action by the State of Maine, challenging a proposed acquisition of two cardiology practices by the state's largest health system and its affiliated hospital, Maine's Supreme Court has held. Denial of the medical center's motion to intervene was therefore affirmed.

The medical center seeking to intervene asserted that it was the defending hospital's principal competitor and would potentially be driven from the market as a result of the proposed merger. However, the medical center failed to show that the disposition of the action would impair or impede its ability to protect its interests through independent litigation.

Maine law authorized only the state attorney general—not private parties—to institute proceedings in equity to prevent and restrain antitrust violations, the state's high court explained.

Because private parties were not bound by the government litigation, any liability to private parties could be determined separately under Maine's statutory framework. Thus, there was no entitlement in a private party to intervene as of right in a state antitrust enforcement action in Maine without evidence of bad faith or malfeasance on the part of the government such that intervention was necessary to protect the public's interests. The medical center made no such evidentiary showing, the court said.

The private medical center also was properly refused permissive intervention into the matter, in the court's view. Such a joinder would have unduly burdened the proceedings, and the medical center had been given an adequate alternative method to participate in the enforcement action—the submission of oral and written comments to the trial court overseeing the action.

The case, State of Maine v. MaineHealth, appears in the CCH Trade Regulation Reporter at 2011-2 Trade Cases ¶77,702.

FTC Should Attempt to Block Express Scripts’ Acquisition of Medco: Antitrust Institute

This posting was written by John W. Arden.

The American Antitrust Institute (AAI) has asked the Federal Trade Commission to seek an injunction against Express Scripts’ acquisition of Medco Health Solutions, which “poses a threat to substantially lessen competition in the provision of pharmacy benefit manager services throughout the United States.”

In a November 30 letter addressed to FTC Chairman Jon Leibowitz, the AAI stated that the combination of two of the three largest national pharmacy benefit management services (PBMs)—and the additional vertical integration that such a combination fosters—would threaten competition and raise prices to large plan sponsors and, ultimately, consumers.

The three largest providers of PBM services control more than 80 percent of the “large plan sponsor market,” and the combined Express Scripts-Medco firm would control approximately 50 percent of that market, according to AAI President Albert A. Foer and Advisory Board Member Dan Gustafson. The third of the “big three” PBMs is CVS Caremark.

This market share is particularly concerning because of the structure of the market and the substantial barriers to entry and expansion, the letter said. The three major PBMs already have significant cost advantages from economies of scale and from vertical integration in mail order and specialty pharmacy distribution.

“When faced with these difficult entry and expansion barriers, the remaining second tier PBMs cannot adequately constrain potential anticompetitive conduct because of their smaller size, geographic limitations, lack of buyer power, and, in some cases, perceived conflicts regarding their corporate affiliation with plan sponsors.”

Large Plan Sponsors

More than 40 of the “Fortune 50” corporations rely on the three largest PBM providers. “Not surprisingly, when one of the big three PBMs loses a large plan sponsor, it almost inevitably [goes] to another one of the big three.”

Smaller competitors typically lack adequate claims-processing capabilities to serve national accounts and have only limited ability to secure discounts and rebates from drug suppliers and to provide lower dispensing fees from pharmacies.

Specialty and Mail Order Distribution

The proposed combination of Express Scripts and Medco is likely to lead to the merged entity’s exercise of enhanced buyer market power in the market for specialty and mail order pharmacy distribution, according to the letter.

“The proposed merger would heighten the risk that these major PBMs would push compensation to many retail pharmacies below what would be competitive levels, ultimately leading to higher prices and lost jobs. An adverse impact on the delivery of pharmaceutical services at the retail level should be sufficient by itself to raise serious concerns about the proposed merger.”

Exclusion of Rivals in Specialty Pharmacy Services

The merged firm would have the ability and incentive to exclude rivals in the provision of specialty pharmacy services, it was alleged. All of the big three PBMs have acquired specialty pharmaceutical companies recently, reducing the number of independent specialty pharmacies and giving the big three power over the downstream specialty pharmacy distribution chain.

Exclusion of Rivals in Mail Order Pharmacy Services

The merger would create the largest mail order pharmacy in the country, accounting for nearly 60 percent of all mail order prescriptions processed, according to the AAI.

“This poses several potential competitive threats. First, further consolidation of the PBM market would exacerbate the competitive disadvantages that smaller, second tier PBMs without vertically integrated mail order operations already face. Second, consolidation of mail order pharmacies threatens to lead to anticompetitive self-dealing. A vertically integrated PBM can channel prescriptions to its own mail order facilities instead of to retail pharmacy competitors, even if the cost of filling the prescription is more than it would be at a local pharmacy.”

Small community pharmacies may also be threatened by this mail order business, the letter maintained.

In light of these competitive threats, the AAI urged the FTC to seek to enjoin the merger.

Text of the letter appears here on the American Antitrust Institute’s website.

Sprint, Cellular South Allege Injuries from Proposed AT&T/T-Mobile Combination

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A private antitrust suit, seeking to enjoin AT&T Inc.’s proposed acquisition of T-Mobile USA, Inc., is still alive after the federal district court on Wednesday refused to dismiss on the ground that complaining competitors lacked “antitrust standing” to challenge the transaction.

The court found that, under many theories, Sprint Nextel Corporation and Cellular South, Inc., failed to allege antitrust injury. However, the complaining competitors adequately alleged antitrust injury with regard to the proposed acquisition’s effects on the market for mobile wireless devices. In addition, the motion to dismiss was denied insofar as it attacked Cellular South’s antitrust injury as a purchaser in the market for Global System for Mobile Communications (GSM) roaming.

The private actions followed the Justice Department’s filing of a complaint on August 31 to challenge the proposed acquisition—valued at approximately $39 billion. Sprint—the third largest national provider of mobile wireless services, with 50 million wireless customers—filed suit on September 6. On September 19, regional carrier Cellular South, Inc., and its wholly owned subsidiary Corr Wireless Communications, L.L.C., filed their complaint. They serve more than 887,000 customers located in Mississippi, Tennessee, Alabama Florida, and other surrounding states.

AT&T is the second largest national carrier, with 95 million customers. T-Mobile is the fourth largest national carrier, with 34 million customers.

In order to assess antitrust injury at the pleadings stage, the court had to make two distinct inquiries: (1) does plaintiff’s complaint allege a threatened injury-in-fact? And (2) does the threatened injury result from an anticompetitive aspect of defendant’s proposed conduct, i.e., that which would make the transaction illegal under the antitrust laws? The complaining competitors sought relief under § 16 of the Clayton Act, 15 U.S.C. § 26. The court explained that the antitrust standing inquiry under § 16 was “less demanding” than the standard under § 4 because § 16 “provides for injunctive relief, not treble damages.”

The court ruled that both Sprint and Cellular South adequately alleged a threatened antitrust injury with regard to the proposed acquisition’s effects on their access to mobile wireless devices. The complaining competitors alleged a merger-to-monopsony in support of this allegation.

The firms competed horizontally as sellers of wireless services and a broad array of wireless devices, including basic mobile phones, smartphones, tablets, and other products that access their voice and data networks, and as purchasers of wireless devices. Sprint and Cellular South alleged that post-merger, increased market concentration would enable the largest carriers (AT&T and Verizon) to coerce exclusionary handset deals. AT&T’s buying power post-merger could enable it to dictate terms to device manufacturers and otherwise impair the complaining competitors’ access to these necessary inputs. The threatened injury-in-fact was substantiated by the fact that AT&T and Verizon wielded their purchasing power in the past, the court noted.

Moreover, Cellular South alleged that the proposed acquisition threatens its access not only to handsets that are particularly desirable, but also, more fundamentally, to whole “ecosystems” of devices and network infrastructure—and customers. Cellular South claimed that AT&T and Verizon had exercised their purchasing power in the markets for devices and network equipment to propagate “their own separate ‘ecosystems’ of compatible infrastructure . . . that cannot be utilized by other competitors,” and that the proposed acquisition would increase the big carriers’ "incentive and power to exclude competitors from those ecosystems."

Cellular South also adequately alleged an antitrust injury in the market for GSM roaming based on the reduction in the number of potential roaming partners and resulting higher roaming prices, the court held. Cellular South alleged a vertical effect from the merger in that it would pay more to procure necessary inputs. Cellular South’s Corr Wireless subsidiary used GSM transmission technology and had been a roaming customer of T-Mobile and currently is a roaming customer of AT&T. Even if Corr Wireless represented only a small part of Cellular South’s business, Cellular South’s allegations suggested that its threatened loss from the merger was plausible, in the court’s view.

The court determined that Sprint and Cellular South lacked standing to challenge the proposed merger on the ground that it would lead to higher retail wireless rates. The possibility that a post-merger AT&T could raise market prices did not, without more, threaten injury-in-fact to Sprint and Cellular South. Raising market price or limiting output, while causing harm to consumers, would actually benefit competitors, the court explained.

Sprint also was found to lack standing to allege injury in the market for wireless spectrum. The court rejected Sprint’s contentions that AT&T’s acquisition of additional spectrum holdings from T-Mobile would “improperly shift the costs of spectrum development to Sprint and other carriers” and “further weaken their ability to compete on the merits by increasing their costs and delaying their access to new equipment.”

The November 2, 2011, decision in Sprint Nextel Corporation v. AT&T Inc., Civil Action No. 11-1600 (ESH), will appear at CCH 2011-2 Trade Cases ¶77,664.