Antitrust Chief Details Accomplishments of Last Two Years

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

Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, told attendees of a U.S. Chamber of Commerce event on June 24 in Washington, D.C. that after more than two years on the job, "the time is ripe to examine whether the Antitrust Division has been steadfast in ensuring vigorous enforcement of the antitrust law, as I promised upon confirmation." Varney talked about civil merger and non-merger enforcement, among other topics.

Merger Enforcement

With respect to merger enforcement, Varney said the Antitrust Division was committed to going to court “where the parties have been unwilling to resolve the anticompetitive aspects of their transactions.”

Two current merger challenges were cited: H&R Block Inc.’s proposed acquisition of the maker of TaxACT do-it-yourself tax preparation software, and the combination of point-of-sale (POS) terminal sellers VeriFone Systems Incorporated and Hypercom Corporation. She also noted the recent settlement in a third matter involving the acquisition of a Tyson Foods Harrisonburg chicken processing complex by George’s, Inc.

Varney also discussed mergers and acquisitions that involved vertical theories. Among the transactions that have arisen in the past few years were: ticket seller Ticketmaster Entertainment, Inc.’s acquisition of concert promoter Live Nation, Inc.; a joint venture between Comcast Corp. and General Electric Co.’s subsidiary NBC Universal Inc.; and Google’s acquisition of ITA Software Inc.—a company that develops and licenses a search software product used by the travel industry to perform flight searches and offer airfare comparison and booking websites.

The transactions demonstrate that “business is frequently looking for strategic acquisitions that offer the synergies and efficiencies presented by combining various levels of production.”

As with the purely horizontal transactions, the Antitrust Division reviewed these transactions "in light of their specific facts and market conditions and evaluated the competitive harms," said Varney. "In each case, we concluded that the transactions, as proposed, would give rise to competitive harm, and while we were prepared to sue, the parties agreed to consent decrees that addressed our concerns."

Civil Non-Merger Enforcement

Varney also mentioned that the Antitrust Division remained active in civil non-merger enforcement. She pointed to two matters in ongoing litigation—the Antitrust Division’s lawsuit challenging Blue Cross Blue Shield of Michigan’s Most Favored Nation Clauses with hospitals, and the Antitrust Division’s challenge to merchant fees in its lawsuit against American Express.

Another example of civil enforcement was the recent settlement in the Justice Department’s first case since 1999 challenging a monopolist with engaging in traditional anticompetitive unilateral conduct against United Regional Health Care System of Wichita Falls—a dominant health care provider.

Competition Advocacy

The antitrust chief discussed competition advocacy and regulatory outreach across the government. The Division works with a broad range of federal and state agencies to promote competition principles in important industries, including agriculture, telecommunications, energy, financial services, and healthcare.

“Among my competition advocacy priorities when I arrived at the Division was to explore the appropriate role for antitrust and regulatory enforcement in American agriculture, and this required collaboration at many levels,” said Varney, citing a series of workshops hosted by the Antitrust Division and the U.S. Department of Agriculture.

The Division has worked collaboratively with the Department of Transportation, the Federal Energy Regulatory Commission, the Securities and Exchange Commission, and the U.S. Commodities Futures Trading Commission, said Varney.

An example of cooperation with other federal and state agencies has been the ongoing municipal bonds investigation. The Division played a “key role” in obtaining an agreement from Bank of America to pay $137.3 million in restitution and disgorgement to state and federal agencies for its participation in a conspiracy to rig bids in the municipal bond derivatives market and as a condition of its admission into the Department of Justice’s Antitrust Corporate Leniency Program.

Bank of America entered into agreements with the SEC, the Internal Revenue Service, Office of the Comptroller of the Currency, and 20 state attorneys general.

Text of the remarks (“Vigorously Enforcing the Antitrust Laws: Developments at the Division”) appear here on the Department of Justice Antitrust Division website.

Antitrust Division’s Activities Preserve and Promote Competition: Agency Official

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

A report on the Department of Justice Antitrust Division's recent activities was presented by Carl Shapiro, the Deputy Assistant Attorney General for Economics at the Antitrust Division, on November 18 at the American Bar Association Section of Antitrust Law Fall Forum in Washington, D.C.

In prepared remarks entitled “Update from the Antitrust Division,” Shapiro focused on the Division’s attempts to preserve and promote competition through criminal enforcement, civil non-merger enforcement, competition advocacy, and merger enforcement (including an explanation of the new Horizontal Merger Guidelines).

Criminal Cases

Shapiro observed that during Fiscal Year 2010, the Antitrust Division concentrated on “rooting out and prosecuting cartels and other collusive agreements.” It filed 60 criminal cases, involving 84 corporate and individual defendants, and obtained fines in excess of $550 million. While the fines obtained were down from previous years, "the Division's commitment to criminal enforcement remains steadfast," Shapiro said.

He added that of the individual defendants sentenced, 76% were given prison time, including an average 10-month prison term for foreign nationals, whose incarceration continues to be a priority of the Division.

Civil Non-Merger Suits

Shapiro stated that reviewing and challenging anticompetitive conduct “is a critical component of the Division’s mission to preserve and promote competition.” During Fiscal Year 2010, the Division resolved competitive concerns with negotiated consent decrees in four civil non-merger cases—U.S. v. Smithfield Foods and Standard Farms LLC (2010-1 Trade Cases ¶76,880); U.S. v. Idaho Orthopedic Society(2010-2 Trade Cases ¶77,142); U.S. v. Adobe Systems, Inc. (CCH Trade Regulation Reporter ¶50,982); and U.S. v. KeySpan Corporation (CCH Trade Regulation Reporter ¶50,975).

In addition, the Division filed civil antitrust lawsuits against Blue Cross Blue Shield of Michigan and (together with seven states) against American Express, MasterCard, and Visa.

In the first suit, the Division challenged “most-favored nations” (MFN) clauses in Blue Cross’s agreements with hospitals that allegedly limit the discounts the hospitals can offer to Blue Cross’s competitors. These MFN clauses raise prices, prevent other insurers from entering the marketplace, and discourage hospital discounts, Shapiro said.

The second suit challenged rules, policies, and practices imposed by the three largest credit and charge card networks in the U.S. These rules “impede merchants from promoting or encouraging the use of a competing credit or charge card with lower acceptance fees,” he explained.

MasterCard and Visa were willing to resolve these antitrust concerns at the time the Division filed the compliant, agreeing to allow merchants to offer consumer discounts and rebates; express a preference for a particular credit card; promote particular cards through communications to customers; and communicate the cost incurred by the merchant when a consumer uses a particular credit card.

Litigation continues against American Express, which has stated its intention to fully litigate the matter.

Competition Advocacy

The official trumpeted the Antitrust Division's recent competition advocacy efforts, involving a wide range of industries and topics, including telecommunications, financial markets, health care, agriculture, and patents.

Shapiro highlighted the agency's involvement in a proposal by Delta and US Airways to swap more than 300 takeoff and landing slots at LaGuardia and Ronald Reagan Washington National Airport.

The Division filed formal comments with the Department of Transportation, supporting a proposed DOT order that would permit the slot transfers, subject to the carriers’ disposal of 14 pairs of “slot interests” at Ronald Reagan Washington National Airport and 20 pairs of slot interests at LaGuardia Airport to “eligible new entrant and limited incumbent carriers.”

The divestiture of these slot interests eased concerns that the transaction would have reduced competition between Delta and US Airways on a number of routes at the two airports, thereby harming consumers.

Merger Enforcement

According to Shapiro, Hart Scott Rodino filings reached only 716 for Fiscal Year 2009, down from 2,201 during Fiscal Year 2007. Newly released figures show a 50% increase in Fiscal Year 2010 to 1,170. About 1.9% of the filings resulted in a Department of Justice Second Request. The Division challenged 19 mergers.

Shapiro discussed the Antitrust Division's recent issuance of revised Horizontal Merger Guidelines. The guidelines were the product of a lengthy and collaborative process with the Federal Trade Commission. The primary motivation behind their creation was to “promote transparency by describing more accurately how the Agencies actually evaluate horizontal mergers.”

He illustrated the principles articulated in the revised Guidelines through an analysis of the agency's investigation into the proposed merger of United Airlines and Continental Airlines and of the agency's complaint challenging the merger proposal between Baker Hughes Inc. and BJ Services Company.

Text of the prepared remarks appears here on the Antitrust Division’s website.

Federal Antitrust Agency Heads Testify at Senate Subcommittee Oversight Hearing

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

The Senate Judiciary Committee's antitrust subcomittee on June 9 held its first oversight hearing to examine antitrust enforcement under the Obama Administration. Subcommittee Chairman Herb Kohl (D, Wisconsin) began the hearing by saying that antitrust enforcement was sorely in need of revival at the beginning of the administration.

Christine A. Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, and FTC Chairman Jon Leibowitz testified on the enforcement efforts of their respective agencies. The FTC prepared statement appears here on the agency website, and the Antitrust Division statement appears here on the Department of Justice website.

Merger Enforcement

“Merger enforcement continues to be a core priority for the Antitrust Division,” Assistant Attorney General Varney told the subcommittee. She cited the Antitrust Division's pending action against Dean Foods—the nation’s largest dairy processor—to undo the company's 2009 merger with Foremost Dairy.

The antitrust chief also noted the recent settlement permitting Ticketmaster—the World’s largest ticketing company—to proceed with its proposed merger with Live Nation Inc.

In response to questioning from Senator Kohl about the way the Antitrust Division handled the Ticketmaster case, Varney said that settling the case was the right thing to do. The proposed relief has both structural and behavioral remedies, Varney noted.

The antitrust chief discussed other enforcement efforts, including anti-cartel efforts during what she described as a remarkable year.

“Pay-for-delay” Agreements

FTC Chairman Jon Leibowitz told the subcommittee that his agency's top competition priority was “stopping `pay-for-delay’ agreements between brand-name pharmaceutical companies and generic competitors that delay the entry of lower-priced generic drugs into the market.”

Section 5 of FTC Act

Leibowitz also discussed how “the Commission is actively considering how it can best use Section 5 of the FTC Act to enhance enforcement in a responsible and transparent manner.”

The chairman noted as an example of the agency's efforts in the Section 5 area its action—announced that same day—against U-Haul International, Inc. and its parent company for inviting it closest competitor, Avis Budget Group, Inc., to fix prices for truck rentals.

Ranking Member Senator Orrin Hatch (R, Utah) questioned the FTC's efforts in these areas. While acknowledging the importance of targeting “pay-for-delay” patent settlement that are anticompetitive, Senator Hatch said that it was important not to impose undue burdens on parties settling patent disputes.

With respect to the FTC's increasing use of Sec. 5 of the FTC Act to combat, Hatch noted that uncertainty inherent in the use of Sec. 5 might lead companies to compete less aggressively. Hatch said there was a need for clear, specific standards.

In response to Senator Hatch's concerns over Sec. 5 enforcement, Chairman Leibowitz agreed that there need to be standards and said that the agency was moving carefully. “Ultimately the courts will decide the outer limits of Sec. 5,” the Chairman said.

Agency Heads Discuss Revisions to Merger Guidelines at ABA Antitrust Meeting

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

Antitrust practitioners reviewing proposed revisions to the federal antitrust agencies’ Horizontal Merger Guidelines should have a better understanding of current agency practice, according to federal antitrust enforcers speaking April 23 at an enforcement roundtable during the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C.

The proposed revisions to the guidelines, which outline how the federal antitrust agencies evaluate the likely competitive effects of mergers in order to determine compliance with U.S. antitrust law, were released on April 20 in anticipation of the meeting. The proposed revised guidelines appear at CCH Trade Regulation Reporter ¶ 50,252.

Reflection of Agency Practice

Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, told meeting attendees at the enforcement roundtable that, while the proposed revised guidelines are not all that different in substance from the current 1992 guidelines, the 1992 guidelines do not reflect the actual practice at the agencies. This latest update is an effort to be transparent, according to Varney.

The antitrust chief reminded attendees that each transaction is viewed on the facts of that transaction. She noted the importance of direct evidence of a potential merger’s competitive effects in evaluating a merger. The role of direct evidence in merger analysis is reflected in the proposed updated guidelines, Varney said.

FTC Chairman Jon Leibowitz also described the proposed revisions to the guidelines as an effort to explain to practitioners and judges what the agencies are doing when evaluating the competitive effects of mergers.

Leibowitz discussed the role of direct evidence of competitive effects in actions challenging Evanston Northwestern Healthcare Corporation’s 2000 acquisition of Highland Park Hospital and Western Refining, Inc.’s proposed acquisition of rival energy company Giant Industries, Inc., in 2007. He suggested that the judge in the latter case took a mechanistic view of the Horizontal Merger Guidelines in rejecting the FTC’s request for a preliminary injunction blocking Western Refining’s acquisition of Giant Industries.

Market Concentration

The proposed updates also raise the Herfindahl-Hirschman Index (HHI) measures for market concentration in order to be more consistent with current agency practice, Leibowitz explained. As a result, mergers that would have appeared to be highly concentrated under the 1992 guidelines, based on HHI measures, would be considered only moderately concentrated under the proposed revised updates.

According to the guidelines, mergers that cause a significant increase in concentration and result in highly concentrated markets are presumed to be anticompetitive.

Merger Enforcement

Both agency heads took the opportunity to tout recent merger enforcement activity. Chairman Leibowitz said that the FTC was on “a little bit of a winning streak” in the merger enforcement area. He pointed to the decision of CCC Information Services Inc. to abandon its merger with Mitchell International Inc., in light of the agency’s challenge to the transaction.

The federal district court in Washington, D.C. had granted the FTC’s request for a preliminary injunction (PI) to block the transaction pending administrative litigation. The 2009 decision was the agency’s first PI win since 2003, according to the Commissioner.

Assistant Attorney General Varney discussed the Antitrust Division’s recent settlement with Ticketmaster Entertainment, Inc. In order to proceed with its proposed acquisition of concert promoter Live Nation, Inc., ticket seller Ticketmaster was required to license ticket software and divest a subsidiary ticketing business. In addition, behavioral remedies were imposed on Ticketmaster.

Varney told attendees that the agency’s preference was for structural relief, but that sometimes there is a need for both structural and behavioral remedies.

Canada Competition Bureau Merger Procedures

Canada Competition Commissioner Melanie Aitken, who was also on the roundtable panel, discussed recent changes to the merger review process north of the border. Aitken said that the changes “make for a far more effective merger review process.”

While she described the process as “Made in Canada,” Aitken noted that the reforms, which have to do with process and not substance, bring the merger review process more in line with U.S. practice. For instance, the two-stage review process replicates the second request process utilized by the federal antitrust agencies in the United States. Aitken said that the changes make coordination with her counterparts in the United States easier.

Continuity and Change Were FTC Themes for 2009

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

In a speech to attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. in March, the newly-appointed FTC Chairman Jon Leibowitz said that he intended to build on the accomplishments of past FTC chairs and that there
would be continuity in enforcement.

The pledge for continuity was reiterated by Leibowitz in September at Fordham University’s annual conference on international antitrust law and policy. At that time, however, Leibowitz said that in addition to continuity, there would be change.

Merger Enforcement

There was continuity in merger enforcement. The agency wrapped up its challenge to specialty grocer Whole Foods Market, Inc.’s acquisition of rival Wild Oats Markets, Inc. in March 2009. The case was originally filed in 2007, when the parties announced their intention to merge.

In addition, the FTC approved two major mergers in the pharmaceutical industry. In October, the FTC conditionally approved Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth, and Schering-Plough Corporation was permitted to proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. Outside the pharmaceuticals sector, the FTC approved the combination of Japanese consumer electronics makers Panasonic Corporation and Sanyo Electric Co., Ltd.

Administrative challenges also led parties to abandon mergers in 2009. The agency blocked the combination of providers of drycast hardscape sold at home improvement centers.

Two mergers in the health care area were abandoned. CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation was called off after the agency challenged the deal on the ground that it would substantially reduce competition in the U.S. markets for plasma-derivative protein therapies. And Thoratec Corporation abandoned its proposed $282 million acquisition of rival HeartWare International, Inc., after the FTC charged that the transaction would substantially reduce competition for left ventricular
devices.

Also in the health care area, Southwest Virginia’s dominant hospital system agreed to settle an FTC challenge to its 2008 acquisition of an outpatient imaging center and an outpatient surgical center.

Monopolization, Unfair Methods of Competition

In discussing change at the FTC in his Fordham address, Leibowitz talked about challenging monopolization and expanding the agency’s use of its authority to prohibit unfair methods of competition under the FTC Act.

The agency’s December complaint against computer chip maker Intel Corporation for monopolization can be seen as an example of change at the agency.

The FTC announced on December 16 that it had issued an administrative complaint against Intel for monopolizing the markets for central processing units and creating a monopoly in the markets for graphics processing units. The vote to issue the complaint was 3-0, with Commissioner William E. Kovacic recused.

Commissioner J. Thomas Rosch issued a separate statement, in which he concurred in part and dissented in part. Commissioner Rosch said that he concurred in the issuance of a complaint based on pure FTC Act, Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 ‘‘tag-along’’ claims.

Justice Department Forces Transistor Maker to Divest Acquired Assets . . .

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

The Department of Justice announced on August 20 that it has reached a proposed settlement with California-based semiconductor device maker Microsemi Corporation, requiring the company to divest all of the assets it acquired from rival Semicoa Inc. in July 2008.

The Department challenged the deal in December 2008, alleging that it eliminated or reduced competition in the development, manufacture, and sale of certain semiconductor devices used in critical military and space programs, thereby resulting in increased prices and slower delivery of components essential to the security of the United States.

The devices at issue—small signal transistors and ultrafast recovery rectifier diodes—are used to control the flow of electric current. Both are used in critical military and civil applications, ranging from satellites to nuclear missile systems.

Prior to the acquisition, Microsemi and Semicoa were the only manufacturers of small signal transistors qualified for these applications and were each poised to become qualified for their ultrafast recovery rectifier diodes, which were in short supply, according to the Department.

The proposed settlement—which has been filed but not yet approved by the federal district court in Santa Ana, California—would resolve the lawsuit.

The action is U.S. v. Microsemi Corp. A news release on the settlement appears here. Other documents can be found here on the Department of Justice Antitrust Division website.

. . . While Approving Oracle’s Takeover of Sun Microsystems

Oracle Corporation and Sun Microsystems Inc. announced on August 20 that the Department of Justice has approved their proposed combination and terminated the waiting period under the Hart-Scott-Rodino Act.

The deal—valued at approximately $7.4 billion, or $5.6 billion net of Sun’s cash and debt—was approved by Sun’s shareholders on July 16. Closure awaits certain other conditions, including clearance by the European Commission, which has until September 3 to decide whether to allow the acquisition or launch an investigation into its legality.

Sun and Oracle initially announced the proposed acquisition in April. According to company statements, the deal is aimed at combining “best-in-class enterprise software and mission-critical computing systems” so that Oracle could engineer and deliver an integrated system—applications to disk—to its customers.

A press release on the Department of Justice’s approval of the deal appears here on the Oracle website.

New FTC Chair Promises Continuity in Enforcement Activity

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

FTC Chairman Jon Leibowitz told attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. that they can expect continuity at the agency as he begins his term as chairman.

Speaking at the enforcement roundtable on March 27, Leibowitz said that he intends to build on the accomplishments of past FTC chairs. He said that there will be continuity in merger enforcement and health care enforcement.

Leibowitz discussed a number of merger successes, including the blocked merger between two hospital providers in Northern Virginia and the preliminary injunction against the combination of CCC Information Services Inc. and Mitchell International Inc.—the first preliminary injunction won by the agency in six years.

Pay-for-Delay Drug Agreements

One of Leibowitz’s highest priorities will be stopping pay-for-delay agreements between brand name drug makers and generic competitors. The use of these agreements under which brand name companies pay generics to stay out of the marketplace will be stopped either through litigation or legislation, according to Leibowitz.

The chairman noted that Christine Varney, the nominee for Assistant Attorney General in charge of the Department of Justice Antitrust Division, considers pay-for-delay agreements to be anticompetitive. He predicted that that the two federal antitrust agencies will be much more in sync going forward.

Standard Setting

The Commission will continue to stay active in challenging anticompetitive standard setting activity. The agency suffered a significant defeat before the U.S. Court of Appeals in Washington, D.C. in this area. The appellate court vacated a Commission decision finding that technology company Rambus Inc. engaged in deceptive conduct as a participant in the standard setting process.

Consumer Protection

On the consumer protection front, Leibowitz forecast that the Commission would continue to be active, especially with respect to sub-prime lending. He noted that the FTC action against Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation for allegedly engaging in unlawful practices in servicing consumers’ home mortgage loans. The companies agreed to pay $28 million to settle to settle the FTC charges.

Two of Chairman Leibowitz’s collegues—Commissioners Paula Jones Harbour and J. Thomas Rosch—also spoke during the Spring meeting.

Competition/Privacy Nexus

Commissioner Harbour said that one of her priorities for the remainder of her term will be developing an understanding of the interplay between privacy and competition. Firms compete on price and nonprice dimensions, and privacy could be one of those dimensions.

Harbour discussed the issue during a March 25 program, entitled “Section 2 and Article 82 Circling the High-Tech Sector: Will They Coordinate or Collide.” She also discussed datasets as antitrust markets, referring to her dissent in the Commission’s 2007 decision not to challenge the Google/DoubleClick combination. In the dissent, she questioned the impact on competition from the combination of the two companies’ datasets and the corresponding privacy concerns.

Roles of Federal Antitrust Agencies

Commissioner J. Thomas Rosch defended the FTC’s record—as well as Section 5’s prohibition on unfair methods of competition—during a March 25 program, entitled “FTC’s Section 5 Hearings: New Standards for Unilateral Conduct.”

Rosch answered the question of why there are two federal antitrust agencies by distinguishing the FTC from the Department of Justice Antitrust Division. Rosch said that the Department of Justice is an arm of the Administration. By contrast, the FTC is: (1) independent and not beholden to the Administration; (2) an expert agency; and (3) a prosecutor and a judge.

Commission’s Partiality?

Responding to criticism of the Commission’s record of siding with complaint counsel, Rosch remarked that he had some concerns with what could appear to be a lack of impartiality. However, he noted that Commission opinions were appealable to federal appellate courts, and that this appealability prevented the commissioners from “indulging themselves.”

In addition to making these comments, Rosch gave an update on the agency’s progress in issuing a report on unilateral conduct. He said that it was coming and was about three-quarters finished.