FTC, EC Approve Universal’s Acquisition of EMI Recorded Music

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

The FTC announced on September 21 that it had closed its investigation of the proposed acquisition by Vivendi, S.A., parent company of Universal Music Group, of EMI Recorded Music without taking any action. Universal is the largest recorded music company in the world. EMI is the fourth largest.

On the same day, the European Commission (EC) also approved the transaction; however, approval was conditioned upon the divestiture of EMI's Parlophone label and numerous other music assets on a worldwide level. The EC focused its investigation on the markets for digital music and had concerns that the transaction, as originally proposed, would have allowed Universal to significantly worsen the licensing terms it offers to digital platforms that sell music to consumers. Universal’s commitments resolved the EC concerns.

The proposed merger would bring together two of the four so-called global "major" record companies, leaving only three majors, the EC said in a statement. The EC was concerned that, following the merger, Universal would enjoy excessive market power vis-à-vis its direct customers, who sell physical and digital recorded music at retail level. In particular, the EC focussed its investigation on the markets where record companies license their music to digital retailers such as Apple and Spotify.

The EC found that the proposed transaction could have increased Universal's size in a way that would likely have enabled it to impose higher prices and more onerous licensing terms on digital music providers. This could have negatively affected the possibilities for innovative providers to expand or launch new music offerings and would ultimately have reduced consumers' choice for digital music, as well as cultural diversity in Europe.

Neither the FTC nor any commissioner commented publicly on the matter; however, FTC Bureau of Competition Director Richard Feinstein issued a related statement. “After a thorough investigation into the likely competitive effects of the merger, Commission staff did not find sufficient evidence that the acquisition would substantially lessen competition in the market for the commercial distribution of recorded music,” Feinstein concluded.

The statement noted that, while "the Commission did not conclude that a remedy was needed to protect competition in the United States … the remedy obtained by the European Commission to address the different market conditions in Europe will reduce concentration in the market in the United States as well."

FTC Order Dissolving Merger of Battery Separator Makers Upheld

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

More than four years after Polypore International Inc. acquired rival battery separator manufacturer Microporous Products L.P., the U.S. Court of Appeals in Atlanta has determined that the transaction was anticompetitive.

The appellate court affirmed a December 2010 opinion (2010-2 Trade Cases ¶77,267) of the FTC, which held that the merger of the two producers of battery separators for flooded lead-acid batteries was illegal in three of the four North American markets identified in the agency’s complaint. A Commission order requiring Polypore’s divestiture of Microporous also was upheld.

Decreased Competition, Higher Prices

According to the FTC’s 2008 complaint, the consummated transaction led to decreased competition and higher prices in several North American markets for battery separators, a key component in flooded lead-acid batteries. The four markets identified were: (1) deep-cycle separators for batteries used primarily in golf carts; (2) motive separators for batteries used primarily in forklifts; (3) automotive separators used in car batteries used for starter, lighter, and ignition (SLI) power; and (4) uninterruptible power supply (UPS) separators used in batteries that provide backup power in the event of power outages.

The complaint stated that Polypore’s acquisition of Microporous left only two flooded-lead acid battery separator companies in North America—Polypore and Entek International, LLC—and that Entek operates only in the automotive separator market.

Merger of Competitors

Before the acquisition, Polypore and Microporous were competitors in each relevant market, and Microporous was uniquely situated to compete with Polypore for North American customers due to its location and the breadth of product offerings. Polypore and Microporous were alleged to be direct competitors in the deep-cycle battery separator market, and the acquisition was purportedly a merger to monopoly in that market.

Similarly, the companies were alleged to be direct competitors in the North American motive separator market. Thus, the merger led to a monopoly in that market. Polypore and Entek were direct competitors selling SLI separators, but Microporous was preparing to enter the automotive separator market, it was alleged.

The Commission decided that the transaction reduced competition in three of the relevant markets—SLI, motive, and deep-cycle—but not for the fourth, UPS batteries. On appeal, Polypore contended that the Commission improperly analyzed the transaction’s impact in the those three alleged markets.

Presumption of Illegality

The court rejected Polypore’s argument that the Commission should not have applied a presumption of illegality and should not have treated Microporous as an actual competitor. Polypore had contended that the Commission should have used only the potential competition doctrine, and not the presumption of U.S. v. Philadelphia National Bank (1963 Trade Cases ¶70,812) because the acquired firm had not entered the SLI market at the time of the acquisition.

However, Microporous was already making similar separators and had purchased a new production line that could produce the SLI separators. It had begun discussions with several companies, had produced a sample product, and had even submitted quotes and entered into memoranda of understanding with one large customer.

Polypore considered the acquisition as a way to remove a competitive threat in the market. In order to overcome the Philadelphia National presumption, Polypore would have had to show that the merger to duopoly did not have an anticompetitive effect. It failed to do so. Thus, the Commission correctly found that the merger substantially lessened competition in the SLI market.

Product Market

The Commission also properly found that the two firms’ separator products for deep-cycle batteries were part of the same product market. Polypore argued that the Microporous’s pure rubber separators were recognized as being superior in deep-cycle applications and that customers were willing to pay a premium for that superiority. However, customers were willing to substitute Polypore’s product when they could in order to keep prices lower.

Although there were distinct prices, there were not distinct customers. The products were used for slightly different purposes, but both were used in deep-cycle applications and both were made in the same type of production facilities.

The Commission did not err when it held that Polypore had not shown that Entek was a participant in the motive battery separator market or that it had plans to enter it to counteract any anticompetitive effects of the merger to monopoly in that market. It was not enough that Polypore contended that Entek could easily adjust its production line to manufacture motive battery separators or that Entek produced motive separators in the past and had expressed interest in resuming that role.

Divestiture Order

The court upheld the FTC order of complete divestiture of the acquired assets. It rejected Polypore’s contention that the divestiture order was too extensive because it included an Austrian plant. The company argued that the relief was beyond the authority of the agency, noting that the Commission had specifically limited the relevant markets to North America. The FTC had broad authority in fashioning relief and justified the divestiture of the Austrian plant. The Commission reasoned that the Austrian plant needed to be divested to restore the competition eliminated by the acquisition and provide the acquirer with the ability to compete.

FTC Reaction

“The U.S. Court of Appeals decision affirms that Polypore's acquisition of Microporous was anticompetitive, and it ensures that consumers will benefit from continued vigorous competition in the market for battery components,” said Commissioner Edith Ramirez in a July 12 statement following the issuance of the decision. “Requiring Polypore to divest its former rival Microporous means there will be more opportunities for consumers to buy quality products at a lower cost.”

The decision is Polypore International, Inc. v. Federal Trade Commission, 2012-1 Trade Cases ¶77,970.

Senator Kohl Warns FTC About Proposed Express Scripts-Medco Merger

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

The proposed combination of Express Scripts and Medco, two of the nation’s largest pharmacy benefits managers (PBMs), “has the potential to have profound effects on the ability of both community and chain drug stores to compete,” according to Senator Herb Kohl (D-Wisconsin).

Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, sent a letter to FTC Chairman Jon Leibowitz on February 2 expressing his concerns. The FTC is currently reviewing the merger.

The letter summarizes findings of a subcommittee investigation that included a December 6, 2011, hearing. Kohl said that the subcommittee received extensive testimony from both independently owned community pharmacies and chain drug stores regarding what they believe to be the dangers to competition from the merger.

Community pharmacies asserted that their ability to stay in business was seriously threatened by the danger of the combined Express Scripts/Medco reducing reimbursement rates. PBMs set the reimbursement rates that pharmacies receive when they dispense drugs to patients covered by health plans administered by those PBMs.

Kohl urged the FTC to carefully evaluate whether it was likely that the combined PBM would pass on to plan sponsors any reduction in reimbursements paid to pharmacies as a result of the deal.

“In brief, without reaching any final judgment as to the legality of this proposed merger under the antitrust laws, I believe this proposed merger presents serious competition concerns which should be examined carefully by the FTC, and that your agency should approve this merger only if you find that it is not likely to substantially harm competition in the markets affected,” Kohl said.

Acting Antitrust Chief Defends U.S. Challenge to AT&T/T-Mobile Merger

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

Sharis Arnold Pozen, Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division, discussed civil antitrust enforcement efforts at the 38th annual Fordham Competition Law Institute’s international antitrust law and policy conference on September 7.

In what panel moderator A. Paul Victor called her “maiden speech” as newly appointed acting antitrust chief, Pozen talked about how civil non-merger enforcement was "alive and well" at the Antitrust Division.

Pozen had intended to focus her comments on non-merger enforcement, saying that she had said a lot about mergers recently. A week earlier, Pozen had delivered remarks at a press conference on the filing of the U.S. suit challenging AT&T Corporation’s proposed acquisition of T-Mobile USA Inc. Moreover, a trial had just begun in the Justice Department’s action to halt H&R Block Inc.’s proposed acquisition of 2SS Holdings, Inc., the maker of TaxACT do-it-yourself tax preparation software.

Horizontal Merger Guidelines

The official took issue with the suggestion that the Justice Department’s complaint in the AT&T/T-Mobile case did not reflect recent changes to the joint FTC/Justice Department Horizontal Merger Guidelines. Commentators have suggested that the Justice Department’s complaint in the case relies too heavily on market share analysis and structural presumptions.

In her remarks at Fordham, Pozen said that the complaint in the AT&T/T-Mobile case does in fact represent the approach taken in the Horizontal Merger Guidelines and current Antitrust Division practice. She reiterated that the combination is a four-to-three merger that takes out an innovator.

The Horizontal Merger Guidelines (CCH Trade Regulation Reporter ¶13,100), which were revised in August 2010, recognize the continuing need for market definition in merger analysis; however, the focus is on the competitive effects of a transaction. The analysis need not start with market definition, according to the revised guidelines.

There has also been speculation that Sprint Nextel’s private suit challenging the AT&T/T-Mobile transaction could represent an effort by Sprint to bolster a weak Justice Department case. Pozen refused to comment on the Sprint suit other than to say that Sprint’s case was also before Judge Ellen Huvelle. Pozen did not know whether the suits would be combined.

Further information about the Justice Department’s lawsuit to block the AT&T/T-Moble deal appears here in an August 31 posting on Trade Regulation Talk.

Non-Merger Enforcement

With respect to civil, non-merger enforcement, Pozen discussed a number of recently-filed cases in sectors that “affect consumers’ pocketbooks.” In the health care industry, she explained that the Antitrust Division filed its first lawsuit since 1999 challenging a monopolist with engaging in traditional anticompetitive unilateral conduct. United Regional Health Care System of Wichita Falls—the largest hospital in Wichita Falls—agreed to settle allegations that it unlawfully used contracts with commercial health insurers to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act.

Another action noted in the health care area was the Antitrust Division’s ongoing lawsuit against Blue Cross Blue Shield of Michigan, challenging the health insurer’s use of most favored nation (MFN) clauses in its provider agreements with various hospitals. The insurer has appealed a federal district court’s denial of its motion to dismiss (2011-2 Trade Cases ¶77,568), and the Justice Department has asked for dismissal of the appeal.

In another “key industry for consumers,” the Justice Department is pursuing claims against American Express, challenging payment card rules that allegedly restrict price competition at the point of sale. MasterCard and Visa have agreed to settle similar civil charges (2011-1 Trade Cases ¶77,529).

Pozen noted that the Antitrust Division is “vigilantly watching for signs of anticompetitive conduct across the economy.” She also pointed out that the Antitrust Division was willing to litigate to judgment if necessary. This point is reflected in the ongoing litigation against Blue Cross Blue Shield of Michigan and American Express.

International Cooperation, Coordination

The acting antitrust chief said that she worked closely with her predecessor, Christine Varney, setting antitrust priorities. Among these priorities is a commitment to international cooperation, which she intends to carry forward.

The recent Memorandum of Understanding between the Antitrust Division and FTC and China’s three antitrust agencies (CCH Trade Regulation Reporter ¶13,512) is a first step towards an enduring relationship, said Pozen. She noted that the federal antitrust agencies were pursuing a similar agreement with India, as that country develops its competition regime.

Pozen reminded practitioners that antitrust agencies around the globe are talking to each other. She noted that many parties recognize the benefits of international coordination in investigations and suggested that permitting the agencies to share information can be beneficial to all who are involved.

Sprint Files Own Antitrust Suit to Block AT&T/T-Mobile Combination

This posting was written by John W. Arden.

In the wake of the Department of Justice’s filing of an antitrust lawsuit to block AT&T Corp.’s proposed acquisition of T-Mobile USA Inc. on August 31, mobile wireless carrier Sprint Nextel brought its own antitrust action today, seeking to prohibit the acquisition as a violation of Section 7 of the Clayton Act.

Sprint filed the lawsuit against AT&T Corp., AT&T Mobility, T-Mobile USA Inc., and Deutsche Telekom (T-Mobile’s parent) in the federal district court in the District of Columbia as a related case to the Department of Justice’s lawsuit.

The suit alleged that the proposed $39 billion acquisition would harm consumers and competition in the market for mobile wireless services. Specifically, Sprint claimed that completion of the transaction would:

• Harm retail consumers and corporate customers by causing higher prices and less innovation.

• Entrench “duopoly control” by “Ma Bell” descendants AT&T and Verizon of the almost quarter of a trillion dollar wireless market.

• Injure Sprint and other independent wireless carriers.

According to Sprint, a combined AT&T and T-Mobile would control more than three-quarters of the wireless market and 90 percent of the profits. The combined companies would be able to use its control over backhaul, roaming, and spectrum and its increased market position to exclude competitors, raise their costs, restrict their access to handsets, damage their businesses, and ultimately less competition, Sprint charged.

According to last week’s Department of Justice complaint, the four nationwide providers of mobile wireless service—Verizon, AT&T, Sprint, and T-Mobile—account for more than 90 percent of the national market. T-Mobile, the smallest of the four, has historically challenged the top three competitors by providing value, innovation, and aggressive pricing.

The elimination of T-Mobile as an independent, low-priced alternative rival would therefore “remove a significant competitive force from the market” and “substantially reduce competition,” the Justice Department claimed.

On August 31, Sprint issued a statement supporting the Department of Justice lawsuit, but did not hint that it was considering filing an action of its own.

“The DOJ today delivered a decisive victory for consumers, competition and our country,” the news release said. “By filing suit to block AT&T’s proposed takeover of T-Mobile, the DOJ has put consumers’ interests first. Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision–one which will ensure that consumers continue to reap the benefits of a competitive U.S. wireless industry. Contrary to AT&T’s assertions, today’s action will preserve American jobs, strengthen the American economy, and encourage innovation.”

A news release on Sprint’s filing of today’s action appears here.

Further information about the Justice Department’s lawsuit appears here in an August 31 posting on Trade Regulation Talk.

Department of Justice Seeks to Block AT&T’s Acquisition of T-Mobile

This posting was written by John W. Arden.

The U.S. Department of Justice filed a civil antitrust lawsuit today to block AT&T’s proposed $39 billion acquisition of T-Mobile USA Inc. from Deutsche Telekom AG.

The deal would combine the second and fourth largest providers of mobile wireless service, substantially lessen competition for wireless telecommunications services across the U.S., and result in higher prices, poorer quality of services, fewer choices, and less innovation for millions of American consumers, according to the Department of Justice news release.

Currently, four nationwide providers of mobile wireless services—Verizon, AT&T, Sprint, and T-Mobile—account for more than 90 percent of the national market. T-Mobile has historically challenged the top three competitors by providing value, innovation, and aggressive pricing, the Justice Department said.

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Attorney General in charge of the Department of Justice Antitrust Division. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”

The complaint, filed in the federal district court in Washington, D.C., alleges that “AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market” and “substantially reduce competition.”

The relevant product market was alleged as mobile wireless telecommunications services and, alternatively, mobile wireless telecommunications services provided to enterprise and government customers. The relevant geographic market was defined as local areas approximating cellular market areas (CMAs) identified by the Federal Communications Commission to license providers for certain spectrum bands. According to the Justice Department, AT&T and T-Mobile compete in approximately 97 of the nation’s top 100 CMAs. Each of these 97 CMAs was alleged to constitute a relevant geographic market.

The case is U.S. v. AT&T Corp., T-Mobile USA, Inc., and Deutsche Telekom AG, 1:11-cv-01560.

In a statement released today, AT&T expressed surprise at the filing of the lawsuit and declared an intention to ask for an expedited hearing, “so the enormous benefits of this merger can be fully reviewed.” The company plans to “vigorously contest this matter in court.”

Further analysis of this development (“AT&T’s Planned Acquisition of T-Mobile Challenged by Justice Department” by Jeffrey May) appears here on the AntitrustConnect blog.

New York City’s Antitrust Challenge to Health Insurance Merger Fails

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

An action brought by the City of New York, seeking to block the merger of health insurance providers, was properly dismissed for failure to define a legally sufficient product market, the U.S. Court of Appeals in New York City has ruled.

Summary judgment in favor of the merging parties—Group Health Incorporated (GHI) and HIP Foundation, Inc. and Health Insurance Plan of Greater New York (HIP) (2010-1 Trade Cases ¶77,053)—was affirmed.

In September 2005, GHI and HIP announced their intent to merge. The U.S. Department of Justice and the New York State Attorney General investigated the antitrust implications of the proposed merger and decided not to challenge it.

In November 2006, the city filed an action under federal and New York State antitrust laws to block the transaction. The city alleged that because plans by GHI and HIP covered a vast majority of city employees, the merger would substantially reduce competition and would result in a monopoly. Moreover, the transaction would allegedly result in an increase in the premiums that the city was required to pay.

Relevant Market


The city’s complaint defined the relevant market as the "low-cost municipal health benefits market." The market included only those insurance plans that were inexpensive and that the city selected for inclusion in its health benefits program.

The city’s proposed market definition was legally insufficient, according to the appellate court, because it was defined by the city’s preferences, not according to the rule of reasonable interchangeability and cross-elasticity of demand.

The city ignored the competition existing among insurance providers for the city’s business, as well as the health insurance market for other large employers in the region. The city did not allege any factor that would prevent insurance companies other than those it selects for the health benefits program from proposing competitive products were the merged firm to raise its premiums to supracompetitive prices.

Despite the city’s argument that the insurance plans it approves constitute a unique market because they reflect its "sound policy choices," it was held that a single purchaser's preferences could not define a market.

Motion to Amend Complaint

The appellate court also ruled that it was not an abuse of discretion for the district court to deny the city’s motion for leave to amend its complaint to add alternative market definitions. The city’s January 2010 motion exhibited undue delay, in the court’s view. Moreover, the proposed amendment would have prejudiced the merging parties by requiring additional discovery on a broader market.

The city sought to add two additional market definitions:

(1) All insurance plans the city selected for inclusion in its health benefits program, not only the inexpensive plans; and

(2) The market for all commercial medical benefits in downstate New York.

The city waited more than three years to seek the amendment and that was only after being confronted with a motion for summary judgment challenging its market definition, the court noted. Although the city’s delay in seeking amendment might not have been evidence of bad faith, it was not an abuse of discretion for the district court to find that the delay, together with the prejudice that would result from the amendment, warranted denial of the city’s motion to amend.

“Upward Pricing Pressure Test”

The appellate court also upheld the lower court’s decision not to permit the city to add the "Upward Pricing Pressure Test." According to the appellate court, “the applicable case law requires plaintiffs asserting a claim under the Sherman Act, the Clayton Act, or the Donnelly Act to allege a market in which the challenged merger will impair competition.”

The city failed to explain how the "Upward Pricing Pressure Test" could substitute for a definition of the relevant market in the pleadings.

The decision is City of New York v. Group Health Incorporated, 2011-2 Trade Cases ¶77,569.

Improperly Defined Relevant Markets Doom Private Merger Challenges

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

Recently, the U.S. Court of Appeals in San Francisco rejected two appeals in private merger challenges based on improper relevant market definitions.

Air Travel

A private suit for a preliminary injunction blocking the merger of United Airlines and Continental Airlines was properly dismissed, the federal appellate court ruled in a May 23 not-for-publication decision.

The plaintiffs—airline travelers and travel agents—failed to define a valid relevant market for purposes of evaluating the competitive effects of the transaction. Denial of the plaintiffs’ motion for preliminary injunction (2010-2 Trade Cases ¶77,187) was affirmed.

Defining and proving the relevant market for antitrust analysis was a “necessary predicate” to the plaintiffs’ success on the merits of their Clayton Act claim, the court explained. The court rejected the plaintiffs’ assertions that the district court erred in rejecting their proposed national market in air travel. The transaction would be more appropriately evaluated using a "city-pair" market. The city-pair market, which was endorsed by the district court, could satisfy the reasonable interchangeability standard.

According to the court, in defining the outer bounds of a relevant antitrust market, “the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it” was considered. To meet this standard, products did not have to be perfectly fungible. However, they had to be sufficiently interchangeable that a potential price increase in one product would be defeated by the threat of a sufficient number of customers switching to the alternate product.

A national market in air travel did not satisfy this standard. A flight from San Francisco to Newark was not interchangeable with a flight from Seattle to Miami, the court noted. No matter how much an airline raised the price of the San Francisco-Newark flight, a passenger would not respond by switching to the Seattle-Miami flight.

The court noted that the Department of Justice endorsed the city-pair market. The Justice Department closed its investigation into the merger after United Airlines and Continental Airlines agreed to transfer takeoff and landing slots and other assets at Newark Liberty Airport to Southwest Airlines (CCH Trade Regulation Reporter ¶50,258).

The Justice Department’s investigation determined that the merger would result in overlap on a limited number of routes where United and Continental offered competing nonstop service. The largest of those routes were between United’s hub airports and Continental’s hub at the Newark airport.

The May 23 decision in Malaney v. UAL Corp., No. 10-17208, appears at 2011-1 Trade Cases ¶77,463.

Pharmaceutical Industry

Just a few days earlier, the same three-judge panel of the Ninth Circuit rejected another private merger challenge. On May 19, dismissal (2010-1 Trade Cases ¶76,988) of a challenge to the 2009 merger of pharmaceutical companies Pfizer Inc. and Wyeth was affirmed. Independent retail pharmacies failed to sufficiently allege a relevant product market to support their challenge, the appellate court ruled.

The failure to allege a product market consisting of reasonably interchangeable goods rendered their complaint “facially unsustainable,” the appellate court explained.

The complaining pharmacies proposed a relevant product market consisting of “the pharmaceutical industry,” including the “manufacture, sale, and innovation of all pharmaceutical products, prescription pharmaceutical products, non-prescription pharmaceutical products, brand name pharmaceutical products and particular pharmaceutical products and therapies specifically noted and identified by Pfizer and Wyeth in their annual reports.”

While the market did not have to be pled with specificity, the complaining pharmacies failed to state any facts indicating that all pharmaceutical products were interchangeable for the same purpose, the court noted.

Pfizer, Inc.’s $68 billion acquisition of Wyeth was approved by the FTC in October 2009. Under the terms of an FTC consent order (CCH Trade Regulation Reporter ¶16,376), the combination was permitted to proceed, subject to divestitures aimed at preserving competition in multiple U.S. markets for animal pharmaceuticals and vaccines.

The May 19 decision in Golden Gate Pharmacy Services, Inc. v. Pfizer, Inc., appears at 2011-1 Trade Cases ¶77,455.

Trade Regulation Tidbits

This posting was written by the editorial staff of the CCH Trade Regulation Reporter.

News, updates, and observations:

 U.S. Senator Herb Kohl (D, Wis.) has announced that he will not seek another term in 2012. Kohl, who is the chairman of the Senate Judiciary Committee’s Antitrust Subcommittee, is currently serving his fourth term in the U.S. Senate, which will expire at the end of the 112th Congress on January 3, 2013. "I have decided that the time has come to give someone else the opportunity to serve," he said in a May 13 statement.

 H&R Block Inc.’s proposed acquisition of 2SS Holdings, Inc., the maker of TaxACT do-it-yourself tax preparation software, has been challenged by the Department of Justice Antitrust Division. Citing a number of internal H&R Block documents, the government’s May 23 complaint—seeking to block the proposed acquisition—contends that the transaction would substantially lessen competition in the growing U.S. digital do-it-yourself tax preparation software market by combining the second and third-largest providers of such products. One H&R Block document cited “Elimination of competitor,” according to the Justice Department. H & R Block believes the transaction is procompetitive. “Contrary to the DOJ’s position, the synergies and enhanced functionalities realized from this merger would create a more competitive landscape for tax preparation,” said William C. Cobb, H&R Block’s president and CEO.

Further information regarding United States v. H&R Block Inc. and 2SS Holdings Inc., Case No. 1:11-cv-00948 (DC D. of C.) appears at CCH Trade Regulation Reporter ¶45,111.

 The on-again, off-again injunction against the National Football League's “lockout” of its players went back off-again on May 16, when the Eighth Circuit reversed a federal district court’s refusal to stay the injunction pending appeal. In a 2-1 decision, the appellate court disagreed with the lower court’s determination that the players—who claimed that the lockout constituted a concerted refusal to deal in violation of Sec. 1 of the Sherman Act—had demonstrated a likelihood of prevailing on the merits of an antitrust claim based specifically upon the lockout. It was the league—not the players—that best demonstrated such a likelihood of success, the appeals court held. The league made a strong showing that the Norris-LaGuardia Act—which restricts the authority of federal courts to issue injunctive relief in labor disputes—applied to the case, in the appellate court’s view. This created serious doubts as to whether the trial court had jurisdiction to enjoin the league’s lockout. The appellate court expressed skepticism toward the reasoning of the trial court that the case did not involve or grow out of a labor dispute, for purposes of the Norris-LaGuardia Act, since the players were no longer part of a union, having decertified it immediately after negotiations for a new collective bargaining agreement broke down. In addition, the players had not established that they would suffer irreparable harm from the lockout that would outweigh any harm suffered by the league and team owners.

The decision is Brady v. National Football League, 2011-1 Trade Cases ¶77,456.

U.S. Approves Unilever, Alberto-Culver Combination, with Divestitures

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

To resolve U.S. antitrust concerns over its proposed $3.7 billion acquisition of Alberto-Culver Co., Unilever N.V. has agreed to divestures intended to preserve competition for value shampoo, value conditioner, and hairspray sold in retail stores.

The Department of Justice Antitrust Division filed a civil antitrust lawsuit on May 6 in the federal district court in Washington, D.C. to block the proposed transaction between three Unilever entities—Unilever N.V., Unilever PLC, and Conopco, Inc.—and Alberto-Culver.

At the same time, the government filed a proposed consent decree that, if approved by the court, would resolve the competitive concerns alleged in the lawsuit. The acquisition was expected to close on May 10.

Lessening of Competition

The government alleged that the transaction, as originally proposed, would have substantially lessened competition in three product markets—value shampoo, value conditioner, and hairspray sold in retail stores. According to the government’s complaint, the proposed acquisition would have eliminated substantial head-to-head competition between Unilever’s Suave Naturals and Alberto-Culver’s Alberto VO5 brands and would have given Unilever a near monopoly in the sale of value shampoo and conditioner in the United States with shares of approximately 90 percent in these two markets.

In addition, the proposed acquisition would have eliminated substantial head-to-head competition between Unilever and Alberto-Culver in the United States for hairspray sold in retail stores. The transaction would have made Unilever the largest seller of hairspray in the United States by increasing its market share from approximately 24 percent to over 45 percent, the complaint alleged.

The proposed acquisition would have enabled the combined firm to unilaterally raise the prices of shampoo, conditioner, and hairspray products above the per-merger price level.

Divestitures

Under the proposed consent decree, the companies would be required to divest Alberto-Culver’s Alberto VO5 brand and Unilever’s Rave brand, as well as associated assets. The Alberto VO5 brand consists of value shampoo and conditioner, hairspray, mousse, and other hair styling products. The Rave brand consists of hairspray and mousse products, according to the Justice Department.

International Cooperation

The Antitrust Division said that during its investigation it cooperated with the United Kingdom Office of Fair Trading, the Federal Competition Commission in Mexico, and South Africa’s Competition Commission. Both Unilever and Alberto-Culver provided waivers, in a timely way, to facilitate the effective international cooperation in this case, the Justice Department said.

The U.K. Office of Fair Trading announced on March 18 that Unilever had agreed to divest the bar soaps business of Alberto Culver—which includes the Cidal, Wright’s, and Simple brands—to resolve competition concerns that the acquisition would result in a substantial decrease in competition in the category of bar soaps.

Competition Can Serve Newspaper Industry, Public Interest: Varney

This posting was written by Mark Engstrom.

Christine A. Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, addressed the Newspaper Association of America on March 21 concerning the role of the antitrust laws and the Antitrust Division in promoting competition in the newspaper industry.

Her remarks, “Dynamic Competition in the Newspaper Industry,” offered a perspective on competition issues for newspapers in light of the technological developments that have accompanied the advent of the Internet.

Preservation of Competition

After reminding listeners that the newspaper industry survived the explosive growth of radio and television through the use of competitive innovations, Varney discussed the Antitrust Division's role in preserving competition in the industry and explained the method of analyzing collaborations and mergers.

According to Varney, “vigilant antitrust enforcement” was needed to ensure that anticompetitive conduct did not “tip the market” in a particular direction. Vigorous competition would best serve consumer interests. Calls for antitrust immunity for news organizations have therefore been rejected.

Immunity for Joint Operating Agreements

Although the Newspaper Preservation Act (NPA) extended antitrust immunity to newspapers that signed joint operating agreements, many newspaper owners still faced significant difficulties.

Indeed, the NPA exemption “may well have contributed to industry sluggishness.” Any new exemption from the antitrust laws would thus appear to be “particularly inappropriate at this point” in time.

Mergers

Addressing the issue of mergers, Varney stated that the goal of the Antitrust Division was to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that were competitively benign.

Merger-specific efficiencies that would offset the potential harm posed by an increase in market concentration would be considered. Further, parties to a merger could defend the merger on the ground that one of them was failing.

Non-merger collaborations among newspapers did not raise competition issues when they enabled newspapers to cut costs, improve services, or offer new or better content, Varney assured.

The Antitrust Division's “agile” approach to newspaper collaborations allowed companies to request a business review by the division if the companies were uncertain about the legality of their collaborative conduct.

The text of the remarks is available here at the Department of Justice Antitrust Division’s website.

FTC Orders Complete Divestiture of Rival in Merger Challenge

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

Polypore International, Inc. has been ordered by the FTC to divest Microporous Products L.P., a rival manufacturer of battery separators, that it acquired in 2008. The Commission on December 13 released a provisionally-redacted public version of its unanimous decision, finding the acquisition anticompetitive.

Polypore previously announced that the FTC had upheld divestiture relief ordered earlier this year by Chief Administrative Law Judge (ALJ) D. Michael Chappell.

The Commission ruled that the merger of the two producers of battery separators—membranes placed between the positive and negatively-charged plates in batteries to prevent electrical short circuits—for flooded lead-acid batteries was illegal in three of the four North American markets identified in the complaint. However, the acquisition was not likely to harm competition in a fourth market for separators used to make batteries for backup power supply.

At the time of the acquisition, only one other firm, Entek International LLC, supplied flooded lead-acid battery separators to North American customers.

Relevant Markets

FTC attorneys established four distinct relevant product markets:

(1) separators for batteries used primarily in golf carts;

(2) motive separators for batteries used primarily in forklifts;

(3) separators used in car batteries for starters, lighting, and ignition (SLI); and

(4) uninterruptible power source (UPS) separators used in batteries that provide backup power in the event of power outages.

The record supported the relevant product markets based on the end use of separators, according to the Commission. Based on design and functionality, a separator manufactured for a particular end use or customer was not reasonably interchangeable with other separators. Moreover, prices were set according to end use.

Hypotehetical Monopolist Test

The FTC's expert applied the hypothetical monopolist test to each market using a critical loss analysis and concluded that a hypothetical monopolist that supplied separators for each end use would lose less than 10% of its sales in response to a 5% price increase.

The Commission noted that, under the 2010 Horizontal Merger Guidelines (Trade Regulation Reporter ¶13,100), a product market is defined by asking whether a hypothetical monopolist of the proposed product market could impose a small but significant and nontransitory increase in price or “SSNIP” without losing sufficient sales to render the price increase unprofitable.

Product Markets

Polypore argued unsuccessfully that two separate product markets existed: (1) a market for polyethylene or “PE” separators and (2) a market consisting only of Flex-Sil, a separator made of rubber, primarily for deep-cycle applications.

The Commission found unpersuasive Polypore's expert's opinions that PE separators belonged in a single relevant market because they were highly differentiated and could be tailored to work across applications and that Flex-Sil constituted a separate relevant market because Flex-Sil had unique performance characteristics and was sold at a premium.

Relevant Geographic Market

The Commission also found a relevant geographic market limited to North America.

Polypore had argued that the market was global in scope. Because battery separators were tailored to a particular customer and type of battery, and sold through individualized negotiations, separator suppliers set separator prices based in part on customer location, according to the Commission.

Moreover, because separators were differentiated along a variety of dimensions according to customer demand, a customer could not easily defeat a discriminatory price increase through arbitrage. Additionally, North American battery manufacturers did not consider foreign supply a reasonable competitive alternative to local supply due primarily to cost and quality.

Analytical Framework

The Commission applied a traditional burden-shifting framework in reviewing the merger. This analytical approach did not, however, exhaust the possible ways to prove a Clayton Act, Sec. 7 violation on the merits, according to the Commission. In a consummated merger, post-acquisition evidence of actual anticompetitive harm could be sufficient to establish Sec. 7 liability without separate proof of market definition.

Under the traditional framework, the FTC attorneys could establish a presumption of liability by showing that the transaction led to undue concentration in the relevant market. The prima facie case could be bolstered based on market structure with evidence showing that anticompetitive unilateral or coordinated effects were likely.

Because the FTC established a prima facie case of probable harm, the burden of production shifted to Polypore to rebut the government's evidence. However, Polypore did not satisfy the burden of production.

The Commission rejected Polypore's argument that market entry by Entek or other manufacturers or the strength of sophisticated power buyers with substantial leverage would counteract any potential anticompetitive effects from the acquisition. Thus, the merger was found to violate Sec. 7 of the Clayton Act.

Remedy

The FTC ordered complete divestiture of all of the acquired assets, including a plant in Feistritz, Austria. Polypore argued that the remedy, and in particular the portion of the order requiring divestiture of Microporous’s plant in Feistritz, was overbroad and punitive. However, the Commission concluded that complete divestiture was necessary to restore lost competition to the relevant North American markets.

“[C]omplete divestiture provides the greatest likelihood that the asset package will restore competition and be sufficiently viable to readily attract an acceptable buyer,” it was decided.

Despite the objections of the merged entity, the final order also included ancillary relief, requiring Polypore to refrain from depleting Microporous’s workforce and to grant to the divestiture buyer a license to certain Polypore intellectual property that was incorporated into Microporous’s operations or battery separators during the course of the FTC investigation, litigation, and pending divestiture.

Concurring Opinion

Commissioner J. Thomas Rosch wrote a concurring opinion, suggesting “an alternate analytical framework that would focus on the competitive effects of this transaction instead of focusing initially on defining the precise contours of the relevant market and only then considering the transaction’s competitive effects.”

Commissioner Rosch concluded “especially where, as here, the merger at issue is consummated, it is generally preferable to determine whether a merger has had anticompetitive effects by reference to the parties’ motives for the transaction and the actual effects resulting from the merger instead of trying first to define with precision the dimensions of relevant market based on the testimony of paid expert economists and the predictive economic tools described in the Merger Guidelines.”

The decision is In the Matter of Polypore International, Inc., FTC Docket No. 9327. A news release on the subject appears here on the FTC website. Text of the opinion will appear at 2010-2 Trade Cases ¶77,267.

FTC Conditionally Approves Mall Operator Combination

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

To resolve FTC concerns over its acquisition of a portfolio of outlet centers from Prime Outlets Acquisition Company LLC, mall operator Simon Property Group, Inc. has agreed to divest an outlet center located in Southwest Ohio and to life certain lease restrictions on tenants under the terms of a proposed FTC consent order.

If approved by the Commission, the FTC consent order would resolve allegations that the acquisition would harm competition in the market for outlet centers in parts of Southwest Ohio, Chicago, and Orlando.

Radius Restrictions

In addition to requiring the divestiture of either Prime Outlets-Jeffersonville or Simon’s Cincinnati Premium Outlets in Southwest Ohio, the proposed consent order would require Simon to remove radius restrictions for tenants with stores in its outlet malls serving the Chicago and Orlando markets.

Many of Simon’s leases include radius restrictions that prevent the tenants from opening other stores in outlet malls within a specified distance, according to the FTC. Removing these restrictions will allow competing outlet centers or outlet mall developers wanting to enter the markets to sign leases with tenants that otherwise would have been unable to do so.

Relevant Markets

In defining the relevant markets, the FTC alleged that outlet centers generally attract customers from large geographic areas, often exceeding 60 miles. The agency identified three relevant geographic markets in which to analyze the effects of the acquisition: Southwest Ohio, Chicago, and Orlando.

Prime Outlets-Jeffersonville and Simon’s Cincinnati Premium Outlets are the only outlet centers in Southwest Ohio.

Simon and Prime operate the only outlet centers serving the Chicago metropolitan area. Simon owns Lighthouse Place Premium Outlets in Michigan City, Indiana; Chicago Premium Outlets in Aurora, Illinois; and Gurnee Mills in Gurnee, Illinois. Prime Outlets are located in Huntley, Illinois, and Pleasant Prairie, Wisconsin.

In Orlando, Simon owns one outlet center—Orlando Premium Outlets—and Prime owns two outlet centers—Prime Outlets-Orlando and Prime Outlets-Orlando Marketplace. Three other outlet centers in the Orlando area are owned by neither Simon nor Prime.

The proposed consent order is In the Matter of Simon Property Group, Inc., FTC File No. 101-0061. Text of the Agreement Containing Consent Orders appears here on the FTC website. A news release appears here.

Further details will appear at CCH Trade Regulation Reporter ¶16,519.

Consumers Could Not Pursue Divestiture of InBev’s Acquisition of Anheuser-Busch

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

Missouri beer consumers were not entitled to equitable relief undoing the now-consummated acquisition of Anheuser-Busch Companies, Inc. by InBev NV/SA on the ground that the transaction violated Sec. 7 of the Clayton Act, the U.S. Court of Appeals in St. Louis has decided.

Judgment on the pleadings in favor of the defendants (2010-1 Trade Cases ¶76,900) was affirmed on the ground that the divestiture remedy that the plaintiffs sought would not be appropriate.

The beer consumers had argued that the merger would eliminate InBev, the world’s largest brewer, as a “perceived” and “actual” potential competitor in the U.S. beer market. The district court rejected as conclusory allegations that InBev intended to enter the U.S. market de novo and that any rational market participant had tempered its pricing activities in the existing market because it viewed InBev as a potential de novo entrant.

While the plaintiffs raised the same arguments on appeal, the appellate court “focus[ed] instead on an independent reason why the district court did not err in dismissing the Complaint.”

Approval of Merger, Delay in Filing

The appellate court noted the “unusual posture” of the case. The merger had been approved by the Department of Justice, and the parties had combined their sizeable operations into one corporate entity. Moreover, the plaintiffs’ delay in filing their lawsuit and their motion for preliminary injunction were inexcusable. While divestiture was the only available remedy, it “would not be appropriate as a matter of law,” the court held.

“Fashioning appropriate equitable antitrust relief requires that courts balance the benefit to competition against the hardship or competitive disadvantage the remedy may cause,” the court explained. The remedial equities balanced overwhelmingly in favor of denying the remedy.

The October 27, 2010, decision in Ginsburg v. InBev NV/SA, appears at 2010-2 Trade Cases ¶ 77,205.

Preliminary Injunction Denied in Private Suit to Block Airline Merger
This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

After the merger of UAL Corporation, parent of United Airlines, and Continental Airlines, Inc, received regulatory approvals from the Department of Justice, the Department of Transportation, and the European Commission, the federal district court in San Francisco rejected a request for a preliminary injunction blocking the merger in a private suit.

Forty-nine named plaintiffs who had purchased commercial air travel for personal use, and intended to purchase tickets in the future, sought the temporary relief pending trial on the merits.

A private plaintiff may obtain injunctive relief upon a showing of threatened loss or damage, and only when the antitrust injuries are personal. To advance the requisite showing of an antitrust violation—and thereby warrant injunctive relief—both the existence of a relevant market and the pending acquisition’s likelihood of causing anticompetitive effects had to be established.

Relevant Market

The plaintiffs failed to define a valid relevant market for purposes of evaluating the competitive effects of the transaction. The court rejected the three proposed alternative relevant markets:

(1) A market for business passengers served by “network carriers,” characterized as airlines operating on a “hub-and-spoke” business model;

(2) A market of 13 “airport-pairs,” as opposed to “city-pairs”; and

(3) A market consisting of the United States airline industry as a whole.

“Despite a vigorous and forceful attempt, plaintiffs have not carried their burden, under any injunctive relief merits standard, of demonstrating the existence of a viable relevant geographic and product market,” the court said.

The plaintiffs failed to show why "low cost carriers" or LCCs, which traditionally operate on a point-to-point basis, focus on high density routes rather than small communities, and utilize a single aircraft type, should be excluded from a relevant product market limited to business passengers served by network or legacy carriers. The substantial evidence suggested that the LLCs should not be excluded.

With respect to the proposed market defined by "airport-pairs," the expert for the plaintiffs contended that there were "time-sensitive passengers" who were willing to pay more for access to a preferred airport in a particular metropolitan area. Even if some passengers would not use an alternative airport, city-pairs remained the appropriate market, according to the court. Competition from adjacent airports disciplined pricing and had to be considered when defining the relevant market. According to the defendants' expert, twelve of thirteen airport-pairs cited by the plaintiffs' expert were subject to competition from adjacent airports. The court questioned the plaintiffs' expert's "failure to conduct any significant economic or other analysis."

As for the third proposed market, the court said that it "can be more quickly dispatched than the two previously discussed alternatives." The proposed nationwide market failed to examine individual markets involving passenger origins and destinations. Boundaries of a product market were determined by the reasonable interchangeability for or the cross elasticity of demand between the product itself and substitutes for it. The plaintiffs failed to show how, for example, a flight from San Francisco to Newark would compete with a flight from Seattle to Miami, the court explained.

Standing, Injury

Although the plaintiffs had established standing as consumers of airline tickets, they failed to establish any significant harm they would personally suffer that would warrant preliminary injunctive relief. The plaintiffs failed to demonstrate any irreparable harm as a result of the merger or that the balance of equities tipped at all, let alone sharply in their favor.

The plaintiffs did not demonstrate in any way that they themselves would suffer any specific harm were preliminary injunctive relief denied. Because the plaintiffs failed to satisfy their burden on the merits and failed to prove irreparable harm, the court denied the motion for a preliminary injunction.

The decision is Malaney v. UAL Corporation, 2010-2 Trade Cases ¶77,187.

Antitrust Institute to Study Competition, Consolidation in Airline Industry

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

In light of recent consolidation in the airline industry, the American Antitrust Institute (AAI) will undertake a new study on competition in the U.S. airline industry, according to a September 20 announcement.

The study is motivated by the 2008 merger of Delta and Northwest and the recently proposed merger of United and Continental, both of which the AAI opposed.

Significant, Rapid Consolidation

“We have reached the point where the positive or negative effects of significant and rapid consolidation in the U.S. airline industry should be documented,” said AAI Vice President and economist Diana Moss, the lead researcher for the study. “Future merger decisions and aviation law policy can benefit from objective, empirical analysis.”

Consolidation in the airline industry has reduced the number of legacy network carrier systems from six to four, assuming the United/Continental deal is consummated, the AAI noted. The organization believes that American and U.S. Airways might counter the mergers with one or more deals of their own.

The study will assess the effect of recent airline mergers on fares and other fees; quality of service (including flight delays and cancellations); capacity expansions and restrictions; entry by low-cost and other legacy carriers; and choices available to the U.S. travel consumer.

It will attempt to determine whether the claimed cost savings from the mergers are actually realized and the extent to which the savings are passed on to air travelers. The study will also examine the effect of consolidation on low-cost carriers, in particular whether mergers create opportunity for collusion or establish price umbrellas under which low-cost carriers can compete less vigorously.

Justice Department Merger Review

In addition to the mergers themselves, the AAI is concerned with the lack of transparency in the Justice Department’s review of airline mergers. In approving both the Delta/Northwest transaction and the United/Continental combination, the Justice Department issued brief announcements. The AAI is urging the Department of Justice to provide additional statements that will facilitate evaluation of the assumptions and predictions implicit in the Antitrust Division’s analysis.

“The DOJ’s press release approving the United/Continental merger is an example of a common failure to provide sufficient information and explanation to help the public understand the reasoning behind its decisions,” said AAI President Albert Foer. “The public should not be satisfied with an explanation that `The department conducted a thorough investigation.’ Of course we take that for granted.”

In addressing the 2008 Delta/Northwest merger, the Justice Department made no mention of apparent competitive problems, stating instead that the merger would produce “substantial and credible efficiencies.”

The AAI urged the Justice Department to make additional statements that will facilitate public evaluation of the Antitrust Division’s analysis.

Participation in Study

In conducting the study, the AAI will seek input from all affected airlines and related industry groups. Those interested in participating should contact Dr. Moss at aai@antitrustinstitute.org.

Further information regarding the study—and the organization itself—is available here on the AAI website.

The American Antitrust Institute is an independent, non-profit education, research, and advocacy organization based in Washington, D.C. Its stated mission is to “increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy

FTC Requires Dun & Bradstreet to Divest Previously Acquired Marketing Data Firm

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

To settle an FTC challenge to a 2009 acquisition, the Dun & Bradstreet Corporation has agreed to divestitures aimed at addressing the potential competitive harm caused by the transaction.

An FTC consent order resolves a May 2010 FTC complaint against Dun & Bradstreet, over its $29 million acquisition of Quality Educational Data (QED), a division of Scholastic, Inc.

The agency alleged that the transaction combined Dun & Bradstreet’s Market Data Retrieval and QED—the only two significant competitors in the K-12 data market, according to the agency.

As a result of the acquisition, Market Data Retrieval—which describes itself as “the market’s first choice for marketing information and services for the K-12, higher education, library, early childhood, and related education markets"—allegedly holds over 90 percent of the K-12 data market.

The $29 million acquisition was below the threshold that would have triggered pre-merger filing requirements, and therefore the companies were not required to notify the FTC and Department of Justice.

Divestiture, Customer Option

The FTC consent order requires Dun & Bradstreet to divest to MCH Inc.—an institutional and educational data company active in the K-12 data market—an updated K-12 database, the QED name, and certain associated intellectual property.

Dun & Bradstreet has also agreed to offer its customers the option to terminate their contracts with the firm without penalty so that they can consider doing business with MCH and to release certain Dun & Bradstreet employees from restrictions on their ability to work for MCH. In addition, Dun & Bradstreet is required to provide MCH with technical assistance for up to one year. Finally, the order calls for the appointment of a Commission-designated monitor to ensure compliance with its terms.

Expedited Order

To “enable MCH expeditiously to acquire the divested assets and begin to compete during the upcoming back-to-school selling season," the Commission took the unusual step of issuing its final order in advance of the comment period. Dun & Bradstreet was required to complete the divestiture of the QED K-12 data business assets not later than five days after the order became final.

Normally, the agency does not issue a final order until it considers all comments received during the comment period. The agency explained, however, that the settlement remained subject to public comment. The Commission could reopen and modify its Decision and Order or commence a new administrative proceeding if necessary in light of the public comments.

Dun & Bradstreet Response

Dun & Bradstreet said in a September 10 statement that although it did not believe that the acquisition violated the federal antitrust laws, “our agreement to sell a package of assets acquired in the 2009 acquisition of QED preserves important enhancements to MDR’s offerings, while addressing the concerns raised by the FTC.”

The administrative action is In the Matter of the Dun & Bradstreet Corporation, FTC Docket No. 9342. Further details will appear at CCH Trade Regulation Reporter ¶16,497.

Text of the agreement containing the consent order, the decision and order, and a news release appear here on the FTC website.

UAL/Continental Asset Transfer Assuages Antitrust Division’s Merger Concerns

This posting was written by Georgia Koutouzos, Editor of CCH Aviation Law Reporter.

In light of the recent agreement by United Airlines and Continental Airlines to transfer takeoff and landing slots and other assets at Newark Liberty Airport to Southwest Airlines, the U.S. Department of Justice announced on August 27 that it has closed its investigation into the proposed merger of UAL Corporation, United’s parent company, and Continental.

The two carriers entered into the arrangement with Southwest in response to the DOJ's principal concerns regarding the competitive effects of the proposed United/Continental merger.

The Justice Department’s investigation determined that the proposed merger would combine the airlines’ largely complementary networks, resulting in overlap on a limited number of routes where United and Continental offer competing nonstop service.

The largest of those routes are between United’s hub airports and Continental’s hub at Newark Airport, where Continental has a high share of service and where there is limited availability of slots, making entry by other airlines particularly difficult.

The transfer of slots and other assets at Newark to Southwest—a low cost carrier that currently has only limited service in the New York metropolitan area and no Newark service—resolves DOJ's principal competition concerns and is likely to significantly benefit consumers on overlap routes as well as on many other routes, the agency said. The slot transfer is through a lease that permanently conveys to Southwest all of Continental’s rights in the assets, in compliance with FAA rules.

Text of the Department of Justice news release appears here.

In announcing the settlement in an August 27 statement, United and Continental said that the slot pair transfer was expected to have minimal impact on combined carrier's route network.

Jeff Smisek, Continental's Chairman, president and CEO, described the leasing arrangement as “a fair solution that would allow Continental and United to create an airline that will provide customers with an unparalleled global network and top quality products and services, while enhancing domestic competition at Newark.”

In a further statement, UAL Corporation chairman, president and CEO Glenn Tilton said that he looked forward to the airlines’ stockholders’ votes on September 17 and expected to close the merger by October 1, 2010.

Continental and United announced an all-stock merger of equals on May 3, 2010. In July, the airlines’ proposed merger received clearance from the European Commission, which found that the transaction would not raise competitive concerns in Europe or on trans-Atlantic routes.

Federal Antitrust Agencies Issue Revised Guidance for Merging Competitors

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

The Federal Trade Commission and the Department of Justice announced today the issuance of revised Horizontal Merger Guidelines. The guidelines are intended to outline for merging parties, courts, and antitrust practitioners how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law.

The guidelines have not been thoroughly overhauled since 1992. The 1992 guidelines were updated in 1997 to include a discussion of merger-specific efficiencies that might justify approval of a transaction (CCH Trade Regulation Reporter ¶13,104).

At the outset, the revised guidelines explain that the agencies seek to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral.

The focus is on the competitive effects of a transaction. The revised guidelines detail the categories and sources of evidence that the antitrust agencies consider informative in predicting the likely adverse competitive effects of a merger.

Role of Market Definition, Market Concentration

The analysis need not start with market definition, according to the revised guidelines. “Evidence of competitive effects can inform market definition, just as market definition can be informative regarding competitive effects,” the guidelines explain.

The draft guidelines, which were released on April 20, had been criticized by some commentators for failing to recognize the significance of market definition in merger analysis.

Among the comments from the American Bar Association Section of Antitrust Law in response to the draft guidelines was a suggestion that the guidelines make clear that market definition remained a necessary element of merger analysis under Sec. 7 of the Clayton Act in order to be consistent with judicial precedent.

On the other hand, the American Antitrust Institute concluded that the guidelines draft “rightly downplays the centrality of market definition to the enforcement process.”

Recognizing the continuing need for market definition in merger analysis, the revised guidelines update the thresholds that determine whether a transaction warrants further scrutiny by the agencies. The Herfindahl-Hirschman Index (HHI) measures for market concentration have been raised in order to be more consistent with current agency practice.

Approach of Enforcers

The heads of both the FTC and the Department of Justice Antitrust Division said the revised guidelines more accurately reflect the methods their staffs use to review mergers than the earlier guidelines.

“The revised guidelines better reflect the agencies’ actual practices,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division. “The guidelines provide more clarity and transparency, and will provide businesses with an even greater understanding of how we review transactions.” Text of Varney's statement appears here on the Department of Jusitice website.

In a statement released this afternoon, FTC Chairman Jon Leibowitz called the revised guidelines “a clear and systematic description of the techniques the FTC and the Antitrust Division of the Department of Justice use to review mergers, and a document that has received bi-partisan and unanimous support from the Commission.”

Commissioner J. Thomas Rosch, however, issued a statement saying that the guidelines “are still flawed both as a description of how the staff (at the Commission at least) conducts ex ante merger review and what the Agencies should tell courts about merger analysis.”

“These Guidelines do not describe the way that the Bureau of Competition and enforcement staff at the Commission proceed today,” Rosch continued. “They also do not reflect the way that the courts proceed.”

Rosch questioned an “overemphasis on economic formulae and models.” He expressed concern that the revised guidelines create “the misimpression that non-price factors are far less significant than price factors to the Commission” and “fail to offer a clear framework for analyzing non-price considerations.”

Significant Advancements

Despite the criticisms, Rosch concurred with the issuance of the guidelines in light of significant advancements made by the revised guidelines. Rosch said that the revised guidelines corrected a misimpression of the 1992 guidelines that proof of market structure and shares were “gating items” without which competitive effects cannot be considered.

“The revised guidelines properly consider competitive effects first, and market definition second, thereby making clear that while market definition is important to assessing competitive effects and that the market must be defined at some point in the process, ultimately merger analysis must rest on the competitive effects of a transaction,” the commissioner said.

Rosch also pointed to the revised guidelines’ list of empirical evidence that might illuminate a transaction’s competitive effects as a substantial contribution.

2006 Commentary

The revised guidelines note that the “Commentary on the Horizontal Merger Guidelines,” which the agencies jointly issued in 2006 (CCH Trade Regulation Reporter ¶50,208), remains a valuable supplement to the guidelines. Some of the revisions reflect refinements and changes previously identified in the commentary.

The revised Horizontal Merger Guidelines are available here on the FTC website. They will appear at CCH Trade Regulation Reporter ¶13,100.

Novartis’ Acquisition of Alcon Gains FTC Approval with Eye Care Drug Divestitures

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

Novartis AG has agreed to sell an injectable eye care drug used in cataract surgery as part of a settlement resolving FTC charges that Novartis’s proposed acquisition of Alcon, Inc., would have created a monopoly in the market for injectable miotics.

Novartis and Alcon are the only two U.S. providers of the class of drugs known as injectable miotics.

Injectable miotics are a class of prescription drugs used to induce miosis, or constriction of the pupil. They are used during cataract surgery to shrink the pupil, which helps surgeons determine whether a rupture has occurred in the eye.

Under the terms of a proposed FTC consent order announced today, Novartis has agreed to sell its drug Miochol-E to Bausch & Lomb, Inc. The only other miotics product in the market is Miostat, which is owned by Alcon.

Currently, Swiss-based Novartis owns 25 percent of Alcon, and Swiss-based Nestle holds the controlling interest in Alcon. In January 2010, Novartis proposed to acquire shares that represented approximately 52 percent of the outstanding stock of Alcon for approximately $28.1 billion.

Novartis has reported that closing of its acquisition of 77 percent majority ownership of Alcon should be completed late in the third quarter or in the fourth quarter of 2010.

International Cooperation

The FTC said in an August 16 statement that it cooperated with enforcement counterparts in Australia, Canada, Mexico, and the European Commission (EC) in reviewing the transaction.

Novartis has agreed to a series of divestitures to resolve the Canada Competition Bureau’s concerns over its proposed acquisition of Alcon, according to an August 9 Competition Bureau announcement.

In addition to selling assets and associated licences related to the sale of Miochol-E in Canada, Novartis agreed to divest Solocare Aqua—a multi-purpose contact lens cleaner and disinfecting solution—and Zaditor—an ophthalmic anti-allergy agent.

In Europe, Novartis also agreed to divest several products in the ophthalmological pharmaceutical and consumer vision care areas. The EC’s investigation examined a large number of ophthalmological pharmaceutical markets and consumer vision care markets across Europe.

The EC said in an August 9 announcement that the markets in question were: ophthalmological anti-infective, antiinflammatory/anti-infective combinations, anti-allergics, decongestants, antiseptics, mydriatics and cycloplegics, diagnostic agents, non steroidal anti-inflammatories, injectable miotics, anti-glaucoma products, artificial tears, and multipurpose solutions for contact lenses.

Depending on the product in question, competition concerns arose in either a few or a larger number of EC member states.

The FTC complaint and proposed consent order, In the Matter of Novartis AG, FTC Dkt. C-4296, are available here on the FTC website. Further details will appear in CCH Trade Regulation Reporter.