Three Antitrust Bills Are Among First Introduced in New Senate Session

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

Senator Herb Kohl (D, Wis.), chairman of the Judiciary Committee's Antitrust, Competition Policy and Consumer Rights Subcommittee, on January 25 introduced three pieces of legislation that would impact the antitrust laws. Each of the measures has been reintroduced in the 112th Congress, after failing to pass in earlier legislative sessions.

Resale Price Fixing

Senator Kohl introduced a bill to restore the rule of per se illegality for minimum resale price fixing. The proposed “Discount Pricing Consumer Protection Act” (S. 75) would reinstate a rule that was overturned by a 5-4 decision of the U.S. Supreme Court in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007-1 Trade Cases ¶75,753). Under Leegin, resale price fixing agreements must be judged under the rule of reason.

The measure is identical to legislation introduced in the last two Congresses. It would amend Sec. 1 of the Sherman Act by adding after the first sentence the following:

“Any contract, combination, conspiracy or agreement setting a minimum price below which a product or service cannot be sold by a retailer, wholesaler, or distributor shall violate this Act.”

Senator Kohl first introduced the legislation in 2007, not long after the Supreme Court decision was handed down. “The experience of the last three years since the Leegin decision has begun to confirm our fears regarding the dangers from permitting vertical price fixing,” Senator Kohl said introducing the measure.

“Pay-for-Delay” Pharmaceutical Settlements

Another antitrust measure introduced on January 25 by Senator Kohl is the proposed “Preserve Access to Affordable Generics Act.” The bill (S. 27) is aimed at so-called “pay-for-delay” agreements between brand name and generic drug companies that delay entry of low-cost generic competition.

Under the proposal, agreements under which brand-name drug companies compensate generic drug companies to delay the entry of generic drugs to the market, a practice known as an “exclusion payment settlement,” would be presumed illegal. The FTC would have the authority to challenge such an agreement as a violation of Sec. 5 of the FTC Act, and the drug companies would have an opportunity to convince a judge why the agreement was not anticompetitive.

If an agreement is found illegal, the FTC could assess civil penalties up to three times the profits gained by the drug companies. The current legislation includes changes made by the Judiciary Committee when it approved similar legislation in the 111th Congress.

Railroad Antitrust Exemption

The proposed “Railroad Antitrust Enforcement Act of 2011” (S. 49) would repeal the antitrust exemption enjoyed by freight railroads. The legislation is identical to a bill that was unanimously approved by the Judiciary Committee in the last Congress. That measure was
never voted on by the full Senate.

“Consolidation in the railroad industry in recent years has resulted in only four Class I railroads providing nearly 90 percent of the Nation's freight rail transportation, as measured by revenue,” according to Senator Kohl. “The ill-effects of railroad industry consolidation are exemplified in the case of ‘captive shippers’—industries served by only one railroad. Over the past several years, these captive shippers have faced spiking rail rates.”

The measure would bring railroad mergers and acquisitions under the purview of the Clayton Act, allowing the federal government, state attorneys general, and private parties to file suit to enjoin anticompetitive mergers and acquisitions. Moreover, it would eliminate the exemption that prevents FTC's scrutiny of railroad common carriers and the antitrust exemption for railroad collective ratemaking.

Some Administration Officials Oppose DOJ's Antitrust Enforcement Efforts: News Report

This posting was written by John W. Arden.

Christine Varney, who has pledged stricter antitrust enforcement during her tenure as chief of the Department of Justice Antitrust Division, is “finding some resistance from officials within the administration,” according to a front page story in the Sunday, July 26, New York Times.

Varney has begun investigations in the telecommunications, agricultural, and pharmaceutical industries and is examining the competitive effects of the Google book search settlement agreement, according to Times reporter Stephen Labaton.

However, some of these efforts are being opposed by administration officials who “fear that the crackdown is coming at a bad time, as corporate America is reels from the recession” or believe that “larger companies and industry alliances can provide consumer benefits by making their businesses more efficient,” the story said.

One example of the differences in opinion cited by the story involved Continental Airlines’ attempt to join the Star Alliance, a global airline network. Against some of the Antitrust Division’s recommendations, the Transportation Department granted antitrust immunity to Continental to join the alliance and approved a new joint venture among four of the alliance’s members.

The Antitrust Division had filed comments indicating that the applicants failed to demonstrate the required elements for the broad immunity sought and suggesting that the Department of Transportation grant a more limited immunity.

This conflict “became so heated that the president’s chief economic adviser, Lawrence H. Summers, was called in to mediate,” the article stated.

Proposed legislation to eliminate the antitrust exemption for commercial railroads (The Railroad Antitrust Enforcement Act of 2009) also was referenced as the subject of potential disagreement. Although the proposal (H.R. 233, S. 146) is supported by senior Democrats, the administration has not taken a position.

In addition, the administration’s proposal to overhaul financial regulation rejected antitrust enforcement “as a way to reduce the size of large companies considered too big to be allowed to fail,” Labaton wrote.

The article (“Antitrust Chief Hits Resistance in Crackdown”) appears here on the New York Times website.

Congressional Subcommittees Hear Testimony on Vertical Price Fixing, Railroad Exemption

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

Subcommittees of the U.S. Senate and House Judiciary Committees held hearings May 19 on bills that would, respectively, reinstate the per se rule for resale price maintenance and repeal the antitrust exemption for railroads.

Restoration of Per Se Rule

The Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing entitled "The Discount Pricing Consumer Protection Act: Do We Need to Restore the Ban on Vertical Price Fixing?"

The hearing considered the impact of the U.S. Supreme Court decision in Leegin Creative Leather Products, Inc, v. PSKS, Inc. (2007-1 Trade Cases ¶75,753), which requires that resale price maintenance be scrutinized under a rule of reason standard rather than declared per se illegal under federal antitrust.

Senator Herb Kohl (D-Wis.) said in a prepared statement that manufacturers have begun to set minimum retail prices resulting in higher prices for consumers, as a result of Leegin. Kohl introduced the "Discount Pricing Consumer Protection Act" (S. 148) in January 2009 to overturn the decision.

Among the witnesses was FTC Commissioner Pamela Jones Harbour, who reiterated earlier testimony before a House subcommittee on the same issue. Harbour said that Leegin had the effect of legitimizing minimum resale price fixing, which was "contrary to good economic and legal policy" because it subordinated consumer preferences to the interests of manufacturers and merchants of branded consumer goods.

Jim Wilson, the current Chair of the Section of Antitrust Law of the American Bar Association (ABA), also testified. Wilson said that the "[b]ecause the intention and likely impact of the Discount Pricing Consumer Protection Act would be to effectively overturn the Leegin decision and reestablish a rule of per se illegality, the ABA respectful urges Congress not to enact this legislation."

The rule of reason is the proper standard because minimum resale price maintenance “can stimulate interbrand competition and is not so inevitably pernicious as to warrant per se illegality,” he noted.

Todd Cohen, vice president and deputy counsel, government relations, for eBay, observed that the Leegin decision “is beginning to undermine many of the consumer benefits delivered by innovators using the openness of the Internet. Leegin empowers those who want to curtail the ability of small and mid-size online retailers to communicate and offer lower prices to consumers.” Since the decision was issued, there appears to have been an increase in RPM programs that restrict intrabrand price competition, he said.

“For example, a recent report in the Wall Street Journal details how some businesses limit price competition through continually scanning the eBay platform to identify sellers offering their prices at a lower price,” according to Cohen. “They then use a plethora of tools to identify the seller and enforce their minimum prices.”

Stacy John Haigney, attorney for Burlington Coat Factory, testified that off-price retailers like Burlington would never have gotten off the ground in the 1970s if the Leegin rule had been in effect. During that time, department stores “could not legally coerce their suppliers to impose high-pricing structures through the industry . . . However, post-Leegin, there is no practical way to stop such retailer-imposed price-fixing schemes from being put in place.”

Further details on the hearing—including written testimony and a webcast of proceedings—appear here at the Senate Judiciary Committee website.

Repeal of Railroad Antitrust Exemption

Adversaries and supporters of the proposed "Railroad Antitrust Enforcement Act of 2009" squared off at a Congressional hearing regarding the legislation in Washington D.C. The bill, introduced in both the House of Representatives (H.R. 233) and Senate (S. 146), would repeal railroads' antitrust exemption and provide for numerous means to halt "anticompetitive rail conduct."

Speaking to the House Judiciary Committee's Subcommittee on Courts and Competition Policy, Association of American Railroads officials said that the measure would have harmful impacts on railroad customers—and American consumers in general—by severely distorting the relationship between regulation and antitrust laws.

Union Pacific executive J. Michael Hemmer observed that the bill's potential granting of regulatory authority to the FTC created a glaring conflict with the Surface Transportation Board and that the bill’s proposed retroactive effect could lead to antitrust attacks on the continuing operation of every federally approved transaction in rail history. Hemmer added that the legislation should not be considered in isolation.

"If Congress wants to address rail transportation policies," he said, "it should work with colleagues in other committees of jurisdiction to craft a coherent, national rail policy that integrates regulation with antitrust jurisprudence."

In response, the Consumer Federation of America asserted that the legislation was sorely needed because "rampant consolidation" and a lack of regulatory oversight have "allowed railroads to abuse their monopoly pricing power and overcharge consumers and shippers $3 billion per year."

Shippers without rail-competitive options pay 75 percent to 100 percent more for rail shipments compared with similar movements in competitive markets, the CFA reported. Captive shippers' costs have been rising substantially over the past five years.

Speaking on behalf of the ABA Section of Antitrust Law, M. Howard Morse referred to the group’s frequent opposition to industry-specific exemptions from the antitrust laws. This opposition is based on the belief that “antitrust laws are sufficiently flexible to account for particular market circumstances.”

Accordingly, the Antitrust Section encourages Congress to dismantle the exemption for the railroad industry and to consider additional legislation to eliminate antitrust exemptions in other industries.

Written testimony and a webcast of the hearing appear here on the House Judiciary Committee’s website.