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.

Patented Grape Varieties Were Not Relevant Markets for Monopoly Suit

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

A claim by table grape producers in California that the state's table grape commission violated federal antitrust law through a scheme involving the bad faith licensing and enforcement of alleged patent rights on grape varieties was properly dismissed for failure to identify a valid relevant product market, the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. has ruled.

Dismissal of the producers’ Sherman Act, Sec. 2 claims (2009-1 Trade Cases ¶76,522) was affirmed.

Relevant Product Market

The producers claimed that the relevant product market consisted of several distinct patented varieties of table grapes and that the existence of the plant patents limited the myriad other varieties of table grapes from being substitutes for the patented varieties in the worldwide markets.

The complaining producers could not rely on the naked assertion that non-infringing grape varieties were not an adequate substitute for a patented product, especially when it was undisputed that other vines possessed at least some of the relevant characteristics that defined that product, the court reasoned.

The grape producers needed—but failed—to make some allegation that, if proved, would define the market or submarket with reference to consumer demand for the product and consumer demand for its reasonable substitutes.

The aspects of an invention that may have led the Patent and Trademark Office to issue a patent were not per se coterminous with the features of the patented product that may lead consumers to select that product over other similar ones, the court concluded.

The decision is Delano Farms Co. v. The California Table Grape Commission, 2011-2 Trade Cases ¶77,578.

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.

Product Market Rejected in FTC Merger-to-Monopoly Case

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

The U.S. Court of Appeals in St. Louis has upheld dismissal of an action brought by the FTC and the State of Minnesota against global pharmaceutical company Lundbeck, Inc., challenging a 2006 acquisition. Judgment in favor of the drug company (2010-2 Trade Cases ¶77,160), based on the government’s failure to identify a valid relevant product market, was affirmed.

In December 2008, the FTC and Minnesota filed a complaint against Ovation Pharmaceuticals, Inc., which was later acquired by Lundbeck. The suit challenged the company’s 2006 acquisition of the rights to market NeoProfen (injectable ibuprofen)—a drug used to treat premature infants with a heart condition known as patent ductus arteriosus (PDA)—as a merger to monopoly.

The transaction purportedly resulted in a single firm’s control of the “practicable alternatives” for the treatment of PDA. According to the government, the drug company began charging “dramatically higher prices” for its PDA drugs following the acquisition.

The district court determined that the FTC and state failed to identify a relevant market. It concluded that the government did not meet its burden to prove that NeoProfen was in the same product market with the acquiring company’s drug Indocin IV.

In its fact-findings, the district court concluded that neonatologists “ultimately determine the demand for Indocin IV and Neoprofen,” and that these treatment decisions were made “without regard to price.” Thus, an increase in the price of Indocin IV would not have driven a hospital to purchase NeoProfen, and vice versa.

Considering these facts, as well as testimony by Lundbeck's expert whom the court found “persuasive,” the district court ruled that there was low cross-elasticity of demand between Indocin IV and Neoprofen, and thus the drugs were not in the same product market.

Although the government contended that the district court relied too much on the testimony of the neonatologists and that hospitals—not the neonatologists—were the consumers, it offered no evidence that hospitals would disregard the preferences of the neonatologists and make purchasing decisions based on price, according to the appellate court.

Standard of Review

The appellate court rejected the government’s argument that the district court’s judgment should be reviewed de novo. The government was really challenging the district court’s weighing of the relevant market factors, in the appellate court’s view. Thus, the determination was reviewed for clear error. The district court did not commit clear error in rejecting the proposed relevant market, the appellate court ruled.

The August 19 decision in Federal Trade Commission v. Lundbeck appears at 2011-2 Trade Cases ¶77,570.

A commentary on the decision (“FTC v. Lundbeck: Why, God, Why?” by Christopher Sagers) appears here on AntitrustConnect blog.

Invalid Market Definition Dooms Physicians’ Claim of Exclusion from Network

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

A cardiology practice group and its member physicians could not maintain claims that an operator of several Arkansas hospitals conspired with insurers to restrain trade and monopolized, attempted to monopolize, and conspired to monopolize the market for in-hospital cardiology services in central Arkansas by excluding the group from health insurance network coverage, the U.S. Court of Appeals in St. Louis has decided.

The plaintiffs' relevant market allegations were insufficient as a matter of law, the court said. Dismissal of the claims (2009-1 Trade Cases ¶76,473) was affirmed.

Relevant Product Market

The complaint improperly defined the product market by how consumers paid for cardiology services, in the court's view. A relevant product market could not be defined by reference to whether patients who received services were privately insured. Such a theory "lack[ed] support in both logic and law," according to the court.

The general issue when determining a relevant product market concerned the choices available to consumers. Thus, the plaintiff had to look to alternative patients who were able to pay the required fees, not just those who paid using private insurance.

For purposes of the antitrust claims, it did not matter which kind of insurance the patients had, or whether private insurance and government insurance were reasonably interchangeable, because the lawsuit was not about the options available to patients. Rather, it was about the options available to shut-out cardiologists.

Relevant Geographic Market

The plaintiffs' limitation of the relevant geographic market to a single city was overly narrow. The definition failed to describe the geographic areas where customers could turn for cardiology procedures from the starting point of the defendant's trade area, the court observed.

By limiting the market to a city, the plaintiffs gerrymandered the relevant market to the location where cardiology procedures took place. In so doing, the complaint alleged that a low percentage of patients within the city left the proposed market, but ignored the possibility of a high percentage of patients entering the proposed market from outside the city.

An antitrust plaintiff had to allege a geographic market in which the defendant supplier drew a sufficiently large percentage of its business, the court explained. This failure to allege a coherent relevant geographic market provided an adequate and independent means of affirming dismissal of the claims.

Discovery Costs

The appellate court also ruled that the lower court did not abuse its discretion by declining to tax the defendant's discovery-related copying costs upon the unsuccessful plaintiffs after it had dismissed the suit.

No judicial decision required a district court to tax discovery-related expenses, the appellate court noted. To the contrary, numerous district courts within the appellate circuit had similarly refused to tax such costs.

The decision is Little Rock Cardiology Clinic PA v. Baptist Health, 2009-2 Trade Cases ¶76,849.