Federal/State Antitrust Cooperation Continued in 2010

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

In 2010, the states joined with the federal antitrust agencies to challenge anticompetitive conduct in some of the year's most high profile antitrust enforcement actions.

Restrictive Credit Card Rules

A total of 20 states have now joined the Department of Justice Antitrust Division in challenging the allegedly restrictive rules of the three largest credit and charge card transaction networks in the United States. The Department of Justice and seven states originally filed their civil antitrust suit against Visa, MasterCard and American Express in October 2010. The complaint was amended in December to add the additional states. Visa and MasterCard have entered into proposed settlements; however, American Express has announced its intention to defend itself in court.

Acquisitions and Mergers

Illinois, Michigan, and Wisconsin also joined forces with the U.S. Department of Justice in an action against Dean Foods Company—the nation’s largest dairy processor—to undo the company's 2009 acquisition of Dean Foods and Foremost Farms USA's Consumer Products Division. The case is ongoing.

In other merger news, Ohio Attorney General Richard Cordray, co-chair of the Antitrust Committee of the National Association of Attorneys General, announced in September plans to open a preliminary review of the combination of Southwest Airlines and AirTran Airlines.

Health Care

The State of Michigan and the U.S. Justice Department filed suit in October against Blue Cross Blue Shield of Michigan, the largest provider of commercial health insurance in Michigan, over its use of “most favored nation” (MFN) clauses in contracts with hospitals across the state. The suit alleges that Blue Cross’s contracting practices violated Sec. 1 of the Sherman Act and Sec. 2 of the Michigan Antitrust Reform Act.

Also in the health care area, the State of Nevada reached a settlement with Universal Health Services, one of the nation’s largest hospital management companies, over its proposed acquisition of Psychiatric Solutions, Inc. Under a final judgment resolving the state's antitrust concerns, Universal Health Services was required to divest two local psychiatric hospitals, which also had to be divested under a separate FTC consent order.

Price Fixing

In 2010, the states resolved a number of price fixing actions. In September, a $25 million multi-state settlement involving an alleged price fixing conspiracy in the vitamins industry was announced. The suit, brought in 2009, asserted that 12 vitamin manufacturers had schemed to inflate the prices of 16 vitamins, causing government health care programs to overpay for those vitamins. Resolution of a long-running price fixing action brought by 33 states was announced in June. Six of the world’s top manufacturers of dynamic random access memory (DRAM) computer chips agreed to a $173 million settlement. The proposed settlement would resolve both of these litigations, as well as lawsuits by private plaintiffs

Antitrust Division Active in Health Care, Financial Sectors in 2010

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

With the nation focused on government efforts to overhaul the health care and financial services sectors in 2010, it is not surprising that two of the Department of Justice Antitrust Division's most notable enforcement actions last year were in these industries.

In October, the U.S. Justice Department and the Michigan Attorney General filed a civil action in the federal district court in Detroit against Blue Cross Blue Shield of Michigan, the largest provider of commercial health insurance in Michigan, over its use of “most favored nation” clauses in contracts with hospitals across the state.

Also in October, the U.S. Justice Department and seven states filed a civil antitrust suit in the federal district court in Brooklyn, New York, against the three largest credit and charge card transaction networks in the United States, challenging rules that allegedly restrict price competition at the point of sale.

MasterCard and Visa agreed to settle the charges under the terms of a proposed consent decree; however, American Express announced that it had no intention of settling the case.

The government’s investigation into anticompetitive and fraudulent conduct in the municipal bond industry continued in 2010 as well. Among the most recent developments in the investigation, the Justice Department announced in December that Bank of America agreed to pay a total of $137.3 million in restitution to federal and state agencies for its participation in a conspiracy to rig bids in the municipal bond derivatives market. The restitution was a condition of the bank’s admission into the Justice Department’s antitrust corporate leniency program.

Employee Recruiting, Agriculture

Jobs were also a major issue for Americans in 2010, and the Department of Justice took action to prohibit a number of high-tech companies from conspiring to restrict employee recruiting. In September, the Justice Department announced a settlement with six firms that allegedly agreed not to cold call any employee at the other company, a practice which prevented the companies from directly soliciting each other’s employees. In late December, a seventh company agreed under a proposed U.S. consent decree to refrain from engaging in similar practices.

The livelihood of farmers, ranchers, and other participants in the agricultural industry were considered at a series of workshops exploring competition issues in agriculture. The workshops, which were announced in August 2009 and held throughout 2010, included Department of Justice and Department of Agriculture leadership.

Merger Enforcement, Review

As at the FTC, the issuance of the revised joint Horizontal Merger Guidelines (CCH Trade Regulation Reporter ¶13,100) in August was among the major 2010 merger review and enforcement developments for the Antitrust Division. In addition, a number of high profile mergers were reviewed by the Justice Department in 2010.

In January 2010, the Antitrust Division approved the Ticketmaster/Live Nation acquisition, subject to structural and behavioral remedies. Another merger challenge that was filed at the start of the year remains ongoing. Last January, the Antitrust Division, along with state attorneys general from Illinois, Michigan and Wisconsin, challenged Dean Foods Company's April 2009 acquisition of Dean Foods and Foremost Farms USA's Consumer Products Division.

In August, the Justice Department approved the proposed merger of UAL Corporation, the parent of United Airlines, after the parties agreed to transfer slots at Newark Airport to Southwest Airlines. Now pending before the agency is Southwest's proposed acquisition of low-cost rival AirTran.

The Antitrust Division is also currently reviewing the proposed acquisition of U.S. global media and entertainment giant NBC Universal by Comcast Corporation. Regulatory approval of the Comcast-NBC combination was anticipated in January 2011.

Visa, MasterCard Settle U.S./State Antitrust Suit, While American Express Vows to Fight

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and Sarah Borchersen-Keto, CCH Washington Correspondent.

The Department of Justice and seven states have filed a civil antitrust suit against the three largest credit and charge card transaction networks in the United States, challenging rules that allegedly restrict price competition at the point of sale.

MasterCard and Visa have agreed to settle the charges; however, American Express announced that it had no intention of settling the case.

“We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anticompetitive rules, we will accomplish that,” Attorney General Eric Holder said announcing the action on October 4. “We need to ensure that every consumer has access to more choices and lower prices. And that simply will not happen unless, and until, American Express’s restrictive rules are changed.”

The Department of Justice alleges that the credit card companies bar merchants from offering consumer discounts, rewards and information about card costs, which results in consumers paying more for their purchases.

According to the Justice Department, U.S. merchants paid around $35 billion last year in credit card acceptance costs, with American Express charging the highest fees and implementing the most restrictive merchant rules.

The government alleges that the challenged merchant restraints harmed competition in two relevant markets:

(1) The market for general purpose card network services to merchants, and

(2) The market for general purpose card network services to travel and entertainment merchants, where fees are even higher than those charged to general merchants.

MasterCard, Visa, and American Express are alleged to have market power in both markets. “Each Defendant’s vertical Merchant Restraints are directly aimed at restraining horizontal interbrand competition,” according to the complaint. The restraints purportedly prohibit merchants from fostering competition among credit card networks at the point of sale.

Under the proposed settlement with MasterCard and Visa, which is awaiting approval in the federal district court in Brooklyn, New York, the two companies would allow their merchants to offer consumers discounts or rebates for using a cheaper form of payment. Merchants could inform customers as to which cards would result in lower business costs, thereby enabling cost savings to be passed on to the consumer.

Merchants that currently accept only Visa or MasterCard, or both, would benefit as soon as the final judgment became final. However, merchants that accept American Express cards will remain bound by restrictions imposed by American Express pending the outcome of the litigation. With the highest merchant fees of any network, American Express has the greatest incentive to maintain its rules and to prevent merchants from encouraging customers to use lower-cost methods of payment.

State Enforcement

Ohio Attorney General Richard Cordray took the lead on behalf of the seven state attorneys general in the case. The attorneys general of Connecticut, Iowa, Maryland, Michigan, Missouri, and Texas also signed onto the litigation. The states brought the action under federal antitrust law in their respective sovereign capacities and as parens patriae on behalf of their citizens.

American Express Statement

The Justice Department’s actions represent “an extraordinary retreat by the antitrust division,” said American Express chairman and CEO Kenneth Chenault. “Instead of promoting competition, it now seeks to promote regulation that would ultimately limit competition. We will defend the rights of our cardmembers at the point of sale and our own ability to negotiate freely with merchants.”

He added that American Express is “confident” the courts will recognize the “perverse anticompetitive nature of the government’s case, noting that the government’s new approach would give an unfair advantage to Visa and MasterCard.

Asked at a news conference about the possibility of a settlement with American Express, Assistant Attorney General for Antitrust Christine Varney replied, “we remain open at any point in time whenever a party wants to address our concerns . . . there is a settlement that is filed with MasterCard and Visa, so the terms upon which we would be willing to settle will be very clear to everyone.”

Details of the complaint and proposed consent decree, U.S. v. American Express Co., et al., No. CV-10-4496, will appear in CCH Trade Regulation Reporter.