2017 antitrust year in review - wsgr.com · including a high-profile vertical merger challenge by...

2017 ANTITRUST YEAR IN REVIEW

AUSTIN BEIJING BOSTON BRUSSELS HONG KONG LOS ANGELES NEW YORK PALO ALTO SAN DIEGO SAN FRANCISCO SEATTLE SHANGHAI WASHINGTON, DC WILMINGTON, DE

WSGR 2017 Antitrust Year in Review

Introduction ......................................................................................................................................................... 1

Mergers ............................................................................................................................................................... 2

U.S. Merger Trends ...................................................................................................................................... 2

HSRActEnforcement:ExercisingBeneficialOwnership,FailuretoFile,and Post-HSRClearanceMergerChallenges ................................................................................................ 2

ShiftingApproachtoVerticalMergers ..................................................................................................... 3

CivilLitigationWinsShineSpotlightonDifficultyofMergerDefenses ...................................................... 4

DOJApproachtoEnforcementofMergerSettlements ........................................................................... 5

InternationalInsights ..................................................................................................................................... 5

Europe ................................................................................................................................................... 5

China ..................................................................................................................................................... 7

CivilAgencyInvestigations ................................................................................................................................... 8

U.S.CaseDevelopments ............................................................................................................................. 8

FTCComplaintAgainstQualcommExtendsGlobalDisputeoverLicensingPractices ............................. 8

DOJAnti-SteeringCasesMoveTowardResolution................................................................................. 9

United States v. American Express ................................................................................................... 9

CarolinasHealthCare........................................................................................................................ 9

FTCandDOJContinuetoPursueRestraintsonTradeinHealthcareandHealthProducts

1-800Contacts ................................................................................................................................ 9

OFTACOOP ................................................................................................................................... 10

PayforDelay/ShamPetitions ......................................................................................................... 10

ContinuedDOJ/FTCFocusonInformation-SharingAgreements .......................................................... 10

GuidelinesforHRProfessionals:Information-SharinginLaborMarkets .......................................... 10

DIRECTV ........................................................................................................................................ 11

AmericanGuildofOrganists ........................................................................................................... 11

LouisianaRealEstateAppraisersBoard ......................................................................................... 11

NationalAssociationofAnimalBreeders ........................................................................................ 11

Europe ....................................................................................................................................................... 12

GoogleShoppingandAdSense ........................................................................................................... 12

Intel–DecisionoftheECJ .................................................................................................................... 12

Excessive Pricing ................................................................................................................................. 13

EUAspenPharmaInvestigation ...................................................................................................... 13

UKPharmaceuticalCases .............................................................................................................. 13

“Distribution”Cases ............................................................................................................................. 13

TableofContents


TableofContents (cont.)

Amazone-Books–MFNClauses ................................................................................................... 13

Coty–SelectiveDistribution ........................................................................................................... 13

LuxuryBrandWatchMakers .......................................................................................................... 14

LithuanianRailwayOperatorCase ........................................................................................................ 14

EUDoubleJeopardy ............................................................................................................................ 14

Criminal ............................................................................................................................................................. 15

NotableDevelopmentsintheDOJ’sCriminalAntitrustEnforcementProgram ............................................. 15

NotableProsecutionsin2017:CorporationsandIndividuals....................................................................... 16

DOJPolicyInitiatives .................................................................................................................................. 19

RevisedLeniencyProgram:FrequentlyAskedQuestions ...................................................................... 19

AntitrustGuidelinesforInternationalEnforcementandCooperation ...................................................... 20

AdvocacyforPerSeStandard ............................................................................................................. 21

AntitrustGuidanceonDisasterReliefEfforts ......................................................................................... 21

GuidelinesforHRProfessionals:CriminalEnforcementforCollusioninLaborMarkets ......................... 21

EnforcementAgainstCollusiveConductOutsidetheU.S. .......................................................................... 21

CivilLitigation .................................................................................................................................................... 24

ThisYearinShermanActSection1and2Litigation ................................................................................... 24

Price-FixingLitigation ........................................................................................................................... 24

MonopolizationandSingle-FirmConductLitigation .............................................................................. 26

ImmunityfromAntitrustLiability ............................................................................................................ 27

TrendsinPharmaceuticalLitigation ............................................................................................................. 28

Pay-for-Delay ....................................................................................................................................... 28

OtherGenericEntryIssues ................................................................................................................... 29

Product-Hopping ........................................................................................................................... 29

RiskEvaluationandMitigationStrategy(REMS) .............................................................................. 30

CitizenPetitions ............................................................................................................................. 30

SovereignImmunity ........................................................................................................................ 30

ClassCertification ....................................................................................................................................... 31

ClassCertificationinPay-for-DelayCases ............................................................................................ 31

IndirectPlaintiffs’FailuretoSurviveClassCertification .......................................................................... 31

DifferentStandardsforAscertainabilityRequirement ............................................................................. 31

Conclusion:Outlookfor2018 ............................................................................................................................ 32

AboutWSGR’sAntitrustPractice ....................................................................................................................... 33


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WilsonSonsiniGoodrich&Rosati(WSGR)ispleasedtopresentits2017 Antitrust Year in Review.Inthisreport,wesummarizethemostsignificantantitrustmattersanddevelopmentsofthepastyear.Webeginwithalookatmergersandacquisitions,andwediscusstheshiftswehaveobservedasU.S.agenciestransitionedwiththeTrumpadministration,includingahigh-profileverticalmergerchallengebytheU.S.DepartmentofJustice(DOJ)anda1-1splitbetweencommissionersattheFederalTradeCommission(FTC)thatresultedintheclosingofaninvestigation.WethenexamineinternationalmergersanddiscussnoteworthyshiftsintheEuropeanCommission’spractice.As2017wasanactiveyearforU.S.andEuropeanagencyinvestigations,ourreportdiscussesthe

expandedfocusoncompaniesthathavesignificantintellectualpropertyportfoliosandotherfactorsenforcersviewasanindicatorofdominanceinmarkets.

Inthelasttwosectionsofourreport,wefocusoncriminalcartelandcivillitigationmattersthatimpactedbothU.S.andglobalentities.ThecriminalsectionprovidesanoverviewoftrendsintheDOJ’scriminalenforcementprogram,includingclarificationstoleniencyprogrampolicies,andalowerlevelofoverallcorporatefinesthaninprioryearsastheagencyconcludesmanylargemulti-yearinvestigationsandbeginsseveralnewdomesticandglobalinvestigations.WealsohighlightcartelinvestigationsinactivejurisdictionsoutsideoftheU.S.,includinginCanada,theEU,Japan,Korea,andChina.Finally,inthecivillitigationsection

ofourreport,wediscusskeycasesthatfollowedontheheelsofgovernmentinvestigations,aswellasunilateralconductcasesbroughtbycompetitorsandotherprivateparties.Wedevotespecificattentioninthislitigationsectiontodevelopmentsinthepharmaceuticalsandlifesciencessectors,whichweseeasacontinuingfrontforcomplexandhigh-stakesdisputes.

Wehopeyoufindour2017 Antitrust Year in Reviewtobeausefulresourceonthemostmeaningfuldevelopmentsfromthepastyear.Asalways,shouldyouhaveanyquestionsorcommentsonanyofthematters,trends,orcontroversiesdiscussedinthereport,pleasecontactyourregularWSGRattorneyoranymemberofthefirm’santitrustpractice.

Introduction


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Mergers

U.S. Merger TrendsAntitrustenforcementgenerallyisbipartisan,withoutdramaticswingsineitherpoliticaldirection.Enforcementdecisionsarebasedonfacts,economics,andthelaw—andultimately,whenlitigated,determinedbythecourts.Still,withincreasedpublicattentionfocusedonantitrustenforcement,thishasbeenanareatowatchastheFederalTradeCommission(FTC)andtheAntitrustDivisionoftheU.S.DepartmentofJustice(DOJ)(collectively,theagencies)transitionedunderanewRepublicanadministration.

In2017,PresidentTrumpannouncedhisnomineestoleadtheAntitrustDivisionoftheDOJandtheFTC.TheSenateconfirmedPresidentTrump’spick,MakanDelrahim,astheAssistantAttorneyGeneral(AAG)fortheAntitrustDivisiononSeptember27,2017.1DelrahimwasaDOJofficialintheBushAdministrationandservedintheTrumpWhiteHouseuntilhisconfirmationasAAG.ThenewDOJleadershiphasalreadymadeitsmark,challengingAT&T’sacquisitionofTimeWarner.ThetrialisscheduledforMarch2018.ThelawsuitcameontheheelsoftheDOJ’sannouncementthattheagencygenerallyisnolongeramenabletomergersettlementsunlessthoseresolutionsinvolvesellingoffalineofbusinessthatisthesourceofthecompetitionconcerns.

AttheFTC—abipartisan,five-personcommission2—PresidentTrumphasnominatedJosephSimons(aRepublican)asFTCChairman,3aswellasNoahPhillips(aRepublican)andRohitChopra(aDemocrat)asFTCCommissioners.4 UntilthesenomineesareconfirmedbytheU.S.Senatesometimein2018,theFTCwillcontinuetobeledbytwo

commissioners—ActingChairmanMaureenOhlhausen(aRepublican)andCommissionerTerrellMcSweeny(aDemocrat),bothofwhomneedtovoteinfavorofanenforcementactioninordertosuetoblockatransaction.

TheFTC’s1-1splitisunprecedented,andtheFTC’sreviewofWalgreensBootsAlliance’s(Walgreens)acquisitionofRiteAidstoresshowshowthisunusualscenariocanplayout.OnOctober27,2015,WalgreensannounceditsintentiontoacquirecompetingretailpharmacyRite Aid.5Inearly2017,afteranin-depthinvestigationbytheFTC,Walgreensofferedtosell865drugstorestoFred’sInc.inordertoresolvetheFTC’santitrustconcerns.6Thepartiescouldnotobtaintherequiredunanimousvotetoapprovethesettlement,and,attheendofJune,thecompaniesabandonedtheinitialtransaction.7Walgreensthenproposedanewtransactionthroughwhichitwouldacquireonly2,186(orfewerthanhalfof)RiteAid’sstores,whichwasalsorejected.WalgreensultimatelysatisfiedActingChairmanOhlhausen’sconcernsbypurchasingonly1,932stores.8Thisrevisedtransactionwasclearedwithoutfurtherinvestigation.CommissionerMcSweenyissuedastatementexpressingherdisappointmentabouttheresult,sayingthatataminimum,theFTCshouldhavefullyexaminedthereviseddeal.9 Acting ChairmanOhlhausenissuedherownstatement,statingthatthoseconcernswereunfounded.10BecauseActingChairmanOhlhausenhasthesoleauthoritytodeterminewhethertoconductaninvestigation,whenshedeclinedtolaunchsuchaninvestigation,thedealclosed.

Inspiteofthissplit,theFTCmaintainsthatitisbusinessasusualduringthetransitionperiod.11Bothcommissionersvoted

togetherinfavorofchallengingtwootherproposedtransactions.12Nevertheless,untilthereisafullcomplementofFTCcommissionersin2018,asinglecommissioner’svotecan,asitdidintheWalgreens/Rite Aidcase,resultinnoaction.

HSR Act Enforcement: Exercising Beneficial Ownership, Failure to File, and Post-HSR Clearance Merger Challenges

TheHart-Scott-RodinoImprovementsActof1976(HSRAct)mandatesthattransactionsthatmeetspecificthresholdsbenotifiedtotheantitrustagenciesforreview.If,aftera30-daywaitingperiod,therelevantagencystillhasdoubtsaboutthecompetitiveeffectsofthenotifiedtransaction,theagencywillissueaRequestforAdditionalInformationandDocumentaryMaterials(knownasaSecondRequest),openinganin-depthreviewintothetransaction.TheFTCandDOJ’srecentlyreleasedFY2016AnnualHSRReport13showedthatbothfilingsandSecondRequestsincreasedoverFY2015.14

ThedeterminationofwhetheratransactionrequiresafilingundertheHSRAct—andtherestrictionsthatapplytocompaniesduringtheHSRwaitingperiod—isimportant.TheagencieswillbringenforcementactionsagainstcompaniesandindividualsforHSRActviolations,and2017wasnodifferentinthatrespect.

InJanuary2017,theDOJannouncedanenforcementactionagainstDukeEnergyCorporation(Duke)for“gun-jumping”inconnectionwithitsacquisitionofOspreyEnergyCenter(Osprey).15UndertheHSRAct,acquirersmaynotobtainbeneficialownershipoftheacquiredcompany’s


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assetsorvotingsecuritiesduringtheHSRwaitingperiod.Apartymaybeviewedasprematurelyobtainingbeneficialownershipofabusiness(orengageingun-jumping)byassumingtheriskorpotentialbenefitofchangesinthevalueofthebusinessorexercisingcontroloverday-to-daybusinessdecisions.Inthiscase,theDOJallegedthatDukeenteredintoatollingagreementthatimmediatelygaveDukecontroloverOsprey’soutputaswellastherighttoreceiveday-to-dayprofitsandlossesfromOsprey’sbusiness,therebyremovingOspreyasanindependentcompetitor,beforeexpirationoftheHSRwaitingperiod.16Dukeagreedtopay$600,000toresolvetheDOJ’scomplaint.17

Theagenciesalsopursuedtwofailure-to-filecasesin2017.InApril2017,entrepreneurMitchellP.Ralesagreedtopay$720,000toresolvechargesthatheviolatedtheHSRAct18byfailingtoreporthispurchasesofsharesinamountsabovetheapplicablefilingthresholdswhenheandhiswifepurchasedsharesinColfaxCorporationandDanaherCorporationin2008and2011.19Ralescontendedthattheviolationswereinadvertent,buttheFTC,inseekingpenalties,notedthatRaleshadpaidcivilpenaltiestosettleanHSRenforcementactionin1991.20AlsoinApril,hedgefundfounderAhmetH.Okumusagreedtopay$180,00021toresolvechargesthatheviolatedtheHSRActbyfailingtoreporthispurchasesofvotingsecuritiesinWeb.comGroupInc.,aninternetservicescompany.22PurchasersshouldbemindfuloftheHSRrulesthatrequireafilingfortransactionsresultinginthevalueofthepurchaser’svotingsecuritiesexceedingannuallyadjustedvaluethresholds.ItisimportanttoseekcounseltodeterminewhetheranHSRfilingisrequired.

Asageneralmatter,oncepartiescleartheHSRwaitingperiod,theycanclosetheirtransactionwithoutexpectingtheagencieswillchallengetheirtransaction—butnot

always.OnSeptember26,2017,theDOJfiledsuitagainstindustrialequipmentmanufacturerParker-Hannifin,lookingtopartiallyunwinditsconsummated$4.3billionacquisitionofrivalCLARCOR.23ThepartiesannouncedtheirtransactiononDecember1,2016,andParker’spublicfilingsindicatethattheHSRwaitingperiodexpiredonJanuary17,2017,withoutaSecondRequestforinformation.24TheDOJthenreceivedacomplaintaboutthetransactionandopenedaninvestigation,ultimatelysuingtoblockthedeal.25 In apressreleaseregardingitscomplaint,theDOJstatedthat“Parker-Hannifinfailedtoprovidesignificantdocumentordataproductionsinresponsetothedepartment’srequests”anddidnotenterintoa“satisfactoryagreementtoholdseparatethefuelfiltrationbusinessesatissueandtomaintaintheirindependentviabilitypendingtheoutcomeoftheinvestigation.”26Parker-HannifinlateragreedwiththeDOJ,insettlingthecase,todivesttheaviationfuelfiltrationbusinesstoresolvetheagencies’concerns,aninsignificantpartofthe$4.3billiondeal.27 WhiletheDOJalwayshasmadeclearthatitcanandwillchallengemergersthatdonotrequireanHSRfiling,itismoreunusualforittochallengeatransactionthathadalreadyclearedagencyreview.Thiscasemayultimatelyprovetobeanoutlier;however,itisareminderthatbothagencieshavebroadpowerstochallengeanytransaction.

Shifting Approach to Vertical Mergers

Transactionsinvolvingbusinessesoperatingatdifferentlevelsofasupplychain(verticaltransactions)areanareatowatch,withtheAT&T/Time Warnertrialinthespotlightin2018.Verticalmergersdonoteliminatehead-to-headrivalrybetweenexistingfirms,butoftenhelpfirmsalignincentivesandreducecosts—andhavegenerallybeenviewedasofferingatleastsomeefficienciesthatbenefit

companiesandimportantly,consumers.Antitrustagencieshave,generally,resolvedcompetitiveconcernsinverticalmergers,throughbehavioraldecreesthatenablethetransactiontoproceedwhiletargetingspecificconductthatisthesourceofpotentialcompetitiveharm.TheDOJ’sRemedyGuideissuedin2010statesthatbehavioralremediesmaybeavaluabletoolinalleviatingcompetitiveharmthatmayresultfromamergerwhilepreservingitspotentialefficiencies.28 Forexample,wheretheagencieshaveaconcernaboutthemergedentitywithholdingacquiredassetsfromrivals,transactingpartiesmayberequiredtocontinuetolicenseorselltheirproductstothirdparties.Themergedcompanymayalsoberequiredtoestablishfirewallsthatpreventthesharingandmisuseofinformationnewlyaccessibleasaresultofthetransaction.

Inanotabledeparture,inoneofhisfirstspeechesasAAG,MakanDelrahimexpressedhissignificantskepticismaboutbehavioralremedies,describingthemas“overlyintrusiveandundulyburdensomeforbothbusinessesandgovernment.”29 HenotedthattheDOJwill“returntothepreferredfocusonstructuralrelieftoremedymergersthatviolatethelawandharmtheAmericanconsumer.”30

Fourdayslater,onNovember20,2017,theDOJfiledacomplaintchallengingAT&T’sproposedacquisitionofTimeWarner—averticalmergercombiningAT&T’svideodistributionbusinesswithTimeWarner’scontentbusiness.31TheDOJ’scomplaintallegesthatAT&T,adistributorofcontent,willhavetheincentivetowithholdTimeWarner’scontentfromitsvideodistributioncompetitors.32TheanswerfiledbyAT&TandTimeWarnernotesthatTimeWarner“formallyandirrevocably”offeredthird-partydistributorslicensingtermssimilartothoseacceptedbytheDOJin2010whenitconsideredasimilarverticaltransactionthatcombinedComcast


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andNBCUniversal.33Thecaseremainsongoing,and,inthenearterm,thereislikelylittleroomforthepartiestoproposeconduct-focusedsettlementstotheDOJ.

ItisunclearwhethertheFTCwilltakeasimilarapproach.InJuly,theFTCacceptedabehavioraldecreetoremedyconcernsthatBroadcom’sacquisitionofBrocadeCommunicationsSystemswasanticompetitive.34Pursuanttothedecree,BroadcomagreedtosetupafirewalltopreventtheexchangeofCiscoSystems’confidentialbusinessinformationtoBrocade.35IftheFTCcontinuestobeamenabletobehavioralremediesin2018,thefateofpotentiallyproblematicverticalmergersmayhinge,inpart,onwhethertheFTCortheDOJreviewsthedeal.

Behavioralremediesalsohaveattractedattentionmorebroadly.InDecember2017,U.S.SenatorElizabethWarrendeliveredaspeechattheOpenMarketsInstitutecallingformoreaggressiveantitrustenforcementandcommendingtheDOJ’ssuitagainstAT&TandTimeWarner.36SenatorWarrennotedspecificallythatinorder“torevivecompetitioninoureconomy,verticalmergers,particularlymergersinalreadyconcentratedindustries,shouldbeviewedwiththesamecriticaleyethat’sneededformergersbetweendirectcompetitors.”37SenatorWarren’sremarksalsocalledouttechcompaniesspecifically,warningthatthereis“noexceptioninantitrustlawsforbigtech.”38

Civil Litigation Wins Shine Spotlight on Difficulty of Merger Defenses

Thisyear,theagenciesaddedtotheirmergerlitigationrecords,includingtheDOJ’ssuccessfullitigationofthreemajormergersin2017—twomergersinthehealthinsuranceindustryandEnergySolutions’acquisitionofWasteControlSpecialists.

Inlate2016,theDOJ,11states,andtheDistrictofColumbiasuedinfederaldistrictcourttoblockthe$54billiondollarcombinationofhealthinsurersAnthemandCigna.39ThecourtenjoinedthismergerinFebruary2017,findingharmintwooftheallegedfivemarketswherethegovernmentallegedharm,includinginthesaleofhealthinsuranceandthepurchaseofhealthcareservicesbycommercialhealthinsurers.40 AdividedpaneloftheU.S.CourtofAppealsfortheD.C.CircuitaffirmedthisdecisioninApril,findingthatcompetitiveharmforthesameofhealthinsurancetonationalaccountssufficedtoenjointhemergerandthatthecompaniesefficienciesclaimsfailedtooffsetthelikelyharmfromthemerger.41OnMay12,2017,AnthemannouncedthatitwouldnolongerseektoacquireCigna.42

InanothercasefiledthesamedayastheAnthem/Cignachallenge,theDOJ,eightstates,andtheDistrictofColumbiachallengedthe$37billionmergerofAetnaandHumana,allegingtheeliminationofcompetitioninboththesaleofhealthinsuranceandthepurchaseofhealthcareservices.43TheDOJ’scomplaintallegedthatthetwomergers“wouldreshapetheindustry,eliminatingtwoinnovativecompetitors...atatimewhentheindustryisexperimentingwithnewwaystolowerhealthcarecosts.”44 In January2017,theU.S.DistrictCourtfortheDistrictofColumbiasidedwiththeDOJ.45InFebruary,AetnaabandonedthetransactionandpaidHumana$1billioninbreak-upfees.46

Anthem/Cignamaybethemoreinstructivecasebecauseitservestoremindpartiesthatitisdifficulttoproveinlitigationthatanticompetitiveeffectsmaybeovercomebyefficiencies.Agenciesgenerallyrecognizethatevenmergersofhead-to-headcompetitorscanleadtoefficienciesthatresultinlowerprices,qualityimprovements,andinnovation.

Indeed,transactionsareoftenclearedonthebasisofsuchefficiencies.However,inlitigation,partiesaremuchlesssuccessfulinpersuadingcourtsoftheseefficiencies.In Anthem,thepartiesarguedthatthecombinationwouldgenerate$2.4billioninmerger-specificefficienciesonanannualbasisandthatthemergerwouldresultinreducedprovidercoststhatwouldmakehealthcaremoreaffordableforcustomers.47Thedistrictcourtdisagreed,decliningtocredittheclaimedefficiencies,andAnthemappealedthisissuetotheD.C. Circuit.48Themajorityopinionofthethree-judgepanelsidedwiththeDOJandthestates,questioning(butnotresolving)theavailabilityofanefficienciesdefenseinthecontextofanillegalmerger,49andholdingthatevenwithsuchadefense,Anthemfailedtorebutthegovernment’scase.50Theappellatecourtagreedwiththelowercourt’sholdingthat,amongotherthings,theefficiencieswerenotmerger-specific,werevagueandnotverifiable,andwouldnotbepassedthroughtoconsumersattherateclaimedbytheparties.51

Another2017DOJlitigationwinrevealsanotherdifficultmergerdefense—thefailingfirmdefense.InJune2017,theDistrictofDelawareruledinfavoroftheDOJintheagency’schallengetoanacquisitionbyEnergySolutionsofWasteControlSpecialists(WCS),bothofwhichprovideradioactivewastedisposaltocommercialcustomers.52TheDOJallegedthatthetransactionwouldbeamergertomonopolyinonemarket.Thedefendantsassertedafailingfirmdefense,whichispermittedwhen“thepossiblethreattocompetitionresultingfromanacquisitionisdeemedpreferabletotheadverseimpactoncompetitionandotherlossesifthecompanygoesoutofbusiness.”53 However,thecourtinthecaseexplainedthatdefendantsmustshow:“(1)thattheresourcesof[WCS]were“sodepletedand


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theprospectofrehabilitationsoremotethatitfacedthegraveprobabilityofabusinessfailure,”and(2)thattherewasnootherprospectivepurchaserforit.”54

ThecourtultimatelyrejectedfailingfirmdefensebecausethedefendantsfailedtodemonstratethatEnergySolutionswasthe“onlyavailablepurchaser”ofWCS.55Inthiscase,thecourtfoundtherewasnogoodfaithefforttofindotherreasonableoffers.Instead,theparentcompany“essentiallyengagedinasinglebidderprocess”andthenreliedondealprotectiondevicesthatmadeitimpossibletoentertainotheroffers.56Thecourtruledinfavorofthegovernmentandenjoinedthe$367millionmerger.57 EnergySolutions/WCSshowsnotonlythehighburdentoestablishthattheacquiredcompanyisingraveprobabilitya“businessfailure,”butalsotheneedtocarefullyevaluatetheapproachtosellingassetsifafailingfirmdefensewillbeadvanced.

DOJ Approach to Enforcement of Merger Settlements

TheDOJ’smergersettlementsalsoofferguidepostsforpartiesanalyzingantitrustrisk.InJune2017,GeneralElectric(GE)reachedasettlementwiththeDOJ,agreeingtodivestitsWaterandProcessTechnologies(GEWater)toSUEZS.A.bytheendofSeptember2017,asaconditiontoacquiringBakerHughes.58AlthoughGEdivestedassetsaccountingfor90percentofGEWater’srevenues,asofOctober2017,ithadnotyettransferredlegaltitleofcertainGEWaterassetsincertaininternationaljurisdictions,andinformedtheDOJthatadministrativehurdleswouldlikelydelaycompletionofthedivestmentinto2018.59Inresponse,theDOJandGEenteredamodifiedfinaljudgmentwherebyGEagreed:(1)tomakedaily“incentivepayments”totheDOJforeachdayin2018thatthedivestitureisnotfullycompleted;and(2)toreimbursetheU.S.forattorney’sfeesandcostsincurred

inaddressingdelaysandenforcingtheoriginalconsentdecree60—featuresthat,accordingtotheDOJ,wouldbecomemoreregularcomponentsofconsentdecreesmovingforward.61

Inanothercase,theDOJ’sconsentdecreerelaxedthestandardforanysubsequentcontemptactionforfailuretocomplywithsettlementterms.InCBS/Entercom, theDOJrequiredEntercomtodivest13radiostationsinthreecitiestoprotectcompetitionforlocalbusinessesthatsoughttoadvertiseonradiostationsinthoseparticularmarkets.62Typically,acivilcontemptactionmustbeprovenbyaclearandconvincingevidencestandard,63 butunderthetermsoftheCBS/Entercom decree,anyallegedviolationbythepartieswillbeevaluatedundera“preponderanceoftheevidence”standard.64

InlightoftheGEandEntercomsettlements,partiesshouldthinkcarefullyaboutalltermsinaDOJmergersettlementandidentifyanyareasinadvancewherecompliancemaybedifficult.TheDOJmaynotbeflexibleinamendingorextendingsuchtermsonceasettlementhasbeenreached.

InternationalInsightsEurope

Focus on Innovation in Merger Reviews

ThemergerbetweenE.I.duPontdeNemoursandCompany(DuPont)andtheDowChemicalCompanywasconditionallyapprovedbytheEuropeanCommission(EC)onMarch27,2017.65ItwasthefirstofatrioofmegadealsintheagrichemicalsindustrytoobtainclearanceinEuropethisyear.TheECanalyzedwhetherthecombinationmightreducecompetitionwithrespecttocropprotection(pesticides)andsomepetrochemicals,focusingonconcernsthatthemergerwouldreducetheparties’incentivetocompetethrough

innovation.ThemergerwasultimatelyapprovedafterthepartiessubmittedcommitmentstodivestasignificantpartofDuPont’sexistingpesticidebusinessincludingitsR&Dbranch.Thesecondmergerinthetrio,ChemChina/Syngenta, wasconditionallyapprovedbytheEConApril5,2017,basedonaseriesofdivestituresofferedbyChemChinaintheirAdamaandSyngentaproductswithinthepesticideandplantgrowthmarkets.66Inthiscase,theECconsidered,butultimatelydismissed,theconcernthatcompetitionforinnovationwouldbeimpacted.67

Thethirdagrichemicaldealisstillpending.AfterrejectingPhaseIcommitmentssubmittedbytheparties,theECannouncedinAugust2017thatitwasopeninganin-depthinvestigationintotheproposedacquisitionofMonsantobyBayer,adiversifiedGermanpharmaceuticals,consumerhealth,agriculture,andanimalhealthcompany.68 Ifapproved,thetransactionwillleadtothecreationofthelargestintegratedcompanyintheindustry,withthelargestportfolioofpesticideproductsandapowerfulglobalmarketpositioninthemarketsforseedsandtraits(plantcharacteristicssuchasheight,herbicidetolerance,andinsectresistance,whichcanbedevelopedinlaboratoriesandintroducedintocertainplantvarieties).TheEC’spreliminaryconcernsarethattherecouldbeareductionofcompetitioninthemarketsforpesticides,seedsandtraits,leadingtohigherprices,lowerquality,lesschoice,andlessinnovation.Critically,however,theECisalsoinvestigatingwhethercompetitors’accesstodistributorsandfarmerscouldbecomemoredifficultifBayerandMonsantoweretobundleortietheirsalesofpesticideproductsandseeds,notablewiththeadventofdigitalagriculture,withsignificantinvestmentbyBayerandMonsanto.Digitalagricultureinvolvesthecollectionofdataand


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informationaboutfarmstoprovidefarmerswithtailoredadviceoraggregateddata.TheEChasuntilMarch5,2018,tomakeadecision.69

WhiletheEChaslookedattherelationshipbetweenpipelineproductsandproductsonthemarketinanumberofpharmaceuticalmergers,theemphasisoninnovationinanindustry,ratherthaninaspecificantitrustmarket,isnewandcontroversial.CommissionerforCompetitionMargretheVestagerseemsdeterminedtoexplorethisarea.Shehasmadeseveralhigh-profilespeechesthisyearfocusingontheimportanceofinnovationforthecompetitiveprocess,andcaseteamsarenowsystematicallytestingtheincentivestoinnovateinmergerinvestigations.70

Penalties Imposed for Procedural Violations

Gun-Jumping

Thisyear,theECsentseparateStatementsofObjectionstotwocompanies,telecommunicationscompanyAlticeandimagingequipmentmanufacturerCanon,forallegedgun-jumping.Theseactionswereinlinewithageneraltrendofincreasedenforcementinthisareaacrosstheglobe.

InFebruary2015,AlticenotifiedtheECofitsintentiontoacquirecontrolofPortugal’slegacytelecomsoperator,PTPortugal.InaStatementsofObjectionsissuedtothecompanyinMay2017,theECtakesthepreliminaryviewthatthroughaseriesofactions,AlticeimplementedtheacquisitionpriortotheadoptionoftheEC’sclearancedecision,andinsomeinstances,priortoitsnotification.71Inparticular,theECallegesthatthepurchaseagreementbetweenthetwocompaniesputAlticeinapositiontoexercisedecisiveinfluenceoverPTPortugalbeforenotificationofthetransaction,andthatincertaininstances

AlticeactuallyexerciseddecisiveinfluenceoverPTPortugal.72ThisisnotthefirsttimeAlticehasbeeninvolvedinagun-jumpinginvestigation.InNovember2016,Alticewasfinedarecord-breaking€80million($88million)forgun-jumpingbytheFrenchnationalcompetitionauthority.73 An EC officialsaidataconferenceinOctober2017thattheECisanalyzingcarefullythecovenantsinthesharepurchaseagreement,andthetypeofrightsthatweregrantedtothepurchaserbetweensigningandclosing.74

Intheothergun-jumpinginvestigation,theECislookingintoCanon’sacquisitionofToshibaMedicalSystemsCorporation(TMS).TheEC’spreliminaryconclusionisthatCanonacquiredTMSbywayofatwo-steptransactionstructureinvolvinganinterimbuyer,whichessentiallyallowedittoacquirecontrolofTMSpriortoobtainingmergerapproval.75 In Canon/TMS,asafirststep,theinterimbuyeracquired95percentofthesharecapitalofTMSfor€800(approximately$940),whereasCanonpaid€5.28billion(approximately$6.2billion)forboththeremaining5percentandshareoptionsovertheinterimbuyer’sstake.ThisfirststepwascarriedoutpriortonotificationtotheEC.Asasecondstep,followingapprovalofthemergerbytheEC,theshareoptionswereexercisedbyCanon,givingitcontrolover100percentofthesharesofTMS.76

Asmergerproceduresinmanymajortransactionsbecomelonger,mergingpartiesareconstantlyexploringtheboundarieswithinwhichtheyarepermittedtoworktogetherpriortoclosing.TheAlticecasemayultimatelyprovideclarityonwhatpre-closingcovenantstheECconsidersunacceptable,whiletheCanoncasemayprovideimportantguidanceonhowtheECviewstransactionsstructuredinstages.However,ifmergingpartieswerehopingforguidancefromtheGeneralCourt (GC) in Marine Harvest/Morpol,

thishasnotbeenparticularlyfavorable.InOctober2017,theGCdismissedtheappealfiledbyaNorwegianseafoodcompany,MarineHarvest,againsta€20million(approximately$25.3million)gun-jumpingfinein2014—thefirstofitskindimposedbytheEC.77WhiletheGCacknowledgedthatthecompletetakeoverofMorpol,aNorwegiansalmonproducer,occurredinthreestagesinvolvingvarioussellers,itagreedwiththeECthatMarineHarvesthadacquireddefactosolecontroloverMorpolduringthefirststepofthetransaction,andthatthenotificationobligationwastriggeredatthatstage.78

Providing Misleading Information

Focusingonotherproceduralbreaches,inMay2017,theECfinedFacebook€110million(approximately$122million)forprovidingmisleadinginformationduringits2014reviewofFacebook’stakeoverofWhatsApp, anunprecedentedfineforsuchinfringements.79DuringtheEC’sreview,Facebookhadexplainedthattheautomatedmatchingbetweenthetwocompanies’useraccountswasnotyetreliableandwasinfactimpracticable.80 Twoyearslater,Facebook’stermsofserviceandprivacypolicyevidencedthattheautomatedmatchingbetweentheseparateaccountshadinfactbeenachieved.TheECreactedbysendingFacebookaStatementofObjectionsallegingthat,contrarytoFacebook’ssubmissionsduringthemergernotificationprocess,automatedmatchingwasalready arealityatthattimeandFacebook’sexpertswereawareofit.TheECfinedFacebooklessthanthemaximumfineof1percentofitsaggregateturnover,butthefinecouldhavebeenhigherhadFacebooknotcooperatedfullywiththeEC’sinvestigation.81Announcingthefineinapressrelease,CommissionerVestagerreiteratedherviewthatevenbreachesofthemergercontrolproceduralruleswillnotbetolerated:“Today’sdecisionsends


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aclearsignaltocompaniesthattheymustcomplywithallaspectsofEUmergerrules,includingtheobligationtoprovidecorrectinformation.”82

TheECalsosentaStatementofObjectionstoMerckthisyear,forallegedly(intentionallyornegligently)supplyingincorrectormisleadinginformation.InJune2015,theECclearedtheMerck/Sigma-Aldrichmerger,providedthemergingpartiesdivestedcertainSigma-Aldrichassets.83Merckhadnotdisclosedtheexistenceofanimportantinnovationprojectconcerningcertainlaboratorychemicals,whichwouldhavebeenrelevanttotheEC’sassessment.Subsequently,theECwasmadeawareofthisbyathirdparty.HadtheR&DprojectbeendisclosedtotheEC,theremedypackagewould,itisalleged,haveincludedit.Therelevantinnovationwascloselylinkedtothedivestedbusinessandhadthepotentialtosubstantiallyincreaseitssales.Bynotincludingit,theviabilityandcompetitivenessofthedivestedbusinesswasimpaired.AlthoughMerckhassinceagreedtolicensetherelevanttechnologytoHoneywell—thebuyerofthedivestedbusiness—thishappenedalmostoneyearafterthedivestment.84

Similarly,thisyeartheECopenedaninvestigationregardingallegationsthatGEprovidedmisleadinginformation.AccordingtotheEC’sallegations,whentheagencyfirstreviewedGE’sacquisitionofLMWind,GEhadfailedtodiscloseinformationtotheECconcerningitsR&Dactivitiesandthedevelopmentofaspecificproduct,whichwereimportanttotheEC’sassessmentofGE’spositionontheonshoreandoffshorewindturbinemarkets.TheECviewedthisomissionascriticalnotonlytothistransaction,butalsototheEC’sassessmentofSiemens’acquisitionofGamesa,aseparatetransactioninthewindturbinemarket,beingreviewedatthesametime.The

EChasstatedthattheinformationwasnecessarytoproperlyassess,inbothcases,thefuturepositionofGEandthecompetitivelandscapeonthemarketsforwindturbines.GEwithdrewitsnotificationandre-filed,includingtherelevantinformationinthesecondfiling,andissuedapublicstatementthatithadnointenttomisleadtheEC.Notwithstandingbothmergers (GE/LM WindandSiemens/Gamesa)beingclearedunconditionallyinMarch2017,GEisnowfacingtheprospectofaproceduralfine.85

TheEC’srecentpushonproceduralbreachinvestigationshasnothadanimpactontheEC’sdecisionsapprovingthoseparticularmergers,whichremaineffective.ThefactthattheECisusingitsresourcestopursuecompanieswherethoseinvestigationsdonothaveanimpactontheoutcomeofthemergerapprovalshighlightstheEC’stoughstanceonproceduralbreachesandservesasaremindertobusinessesthattheECcanrevokeaclearancedecisionifitisbasedonincorrectinformationforwhichoneofthemergingfirmsisresponsible.

EC’s Ongoing Consultation on Merger Control Thresholds

In2017,theECconsultedonplanstomodifytherulesthattriggeramandatoryfilingwiththeECtocatchtransactions,whicharelikelytohaveanimpactintheEuropeanmarket,butdonottriggerthecurrentturnover-basedthresholds.Anychangeislikelytobeparticularlysignificantforthedigitalandpharmaceuticalindustries,wherethetargetcompanymayhavemodestsalesinEurope,butholdcommerciallyvaluabledata,orhaveconsiderablemarketpotentialforotherreasons.86Forexample,indigitalmarkets,manycompanies’businessmodelinvolvestheownershipandcurationofdataanduserrelationships,whichwillonlybemonetizedsubsequently.Since

manysuchbusinessesdonotnecessarilygeneratesignificantturnoverintheirfirstfewyears,theirsalesmayfallbelowthecurrentmergercontrolregimethresholds.GiventheEC’sfocusonpreventingmergersthatmightharminnovationinthefuture,achangeinthejurisdictionalthresholdswouldprovidetheECwithanadditionaltooltoreviewmergersthatarenotcaughtunderthecurrentrules,butwhichtheECconsidersmayhaveanimpactoncompetition.TheECpublishedasummaryoftherepliestoitsconsultationinJuly2017,87butasofthedateofthispublication,noevaluationhasyetbeenmadepublic.

China

In2017,China’sMinistryofCommerce(MOFCOM)issuedanumberofconditionalapprovaldecisionsforlargeinternationalmergersrequiringtheirclearance,bothstructuralandbehavioral.Forexample,inAugust2017,Broadcom’stakeoverofBrocadeCommunicationsSystemsreceivedapprovalfromMOFCOMontheconditionthatBroadcommaintaintheinteroperabilitybetweenitsownswitchesandthirdpartyhostbusadapters(HBAs), andneverdiscriminateagainstthird-partyHBAs.88ThecompanywasalsorequiredtoinstallfirewallsakintothoserequiredbytheU.S.andEuropeanagencies,andtorefrainfromengaginginanytie-insaleorbundlinginanyform.89Likewise,inMay2017,MOFCOMgrantedregulatoryapprovalofDuPontandtheDowChemicalCompany’sproposedmerger,conditionedonDuPontandDowdivestingcertainpartsofDuPont’scropprotectionportfolio,itsR&Dpipelineandorganization,andDow’sglobalethyleneacrylicacidcopolymersandionomersbusinesses.90

TheChineseauthoritiesalsoissuedanumberofproceduralfinesthisyearforcompanies’failurestonotifytransactions.91 OneimportantdeparturefortheChinese


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authoritiescameonJanuary4,2017,whenMOFCOMpublisheditsdecisiontofineJapanesefirmCanonInc.forfailuretonotify,underChina’sAnti-MonopolyLaw(AML),itsacquisitionofToshibaMedicalSystemsCorporation,aJapanesemedicalequipmentcompany,fromToshibaCorporationinatwo-stepmerger.92 MOFCOM—liketheEC—essentiallyregardedbothstepsofthetransactionaspartofthesametransactionandconcludedthatCanonshouldhavenotifiedthetransactionbeforecompletionofthefirststepofthemerger.Failuretodoso,accordingtoMOFCOM,meantthatCanon

hadjumpedtheguninimplementingatleastpartsofthetransactionbeforeobtainingMOFCOMclearance.MOFCOMfinedCanonRMB300,000(approximately$43,000)foritsfailuretonotify,despitethefactthatthetransactionraisednosubstantivecompetitionconcerns.93

OnSeptember8,2017,MOFCOMpublishedreviseddraftmergerreviewmeasures,whichwillamendChina’sAML,forpubliccomment.94Itisexpectedthatsomeamendmentswillbemadeinordertosupplementandclarifythecurrentlaw,forexample,clarifyingtherules’

conceptof“control.”95Inaddition,thedraftmeasuresclarifythelaw’streatmentofinter-dependenttransactions;makesomechangesregardingthecalculationofturnoverinthecaseofathresholdsanalysis;andsetoutanewprocedureforMOFCOMtoinvestigatenon-reportabletransactionsthatdonotmeetthestatutorythresholds.96Notably,ithasalsobeenproposedthatthestatutorypenaltyforfailuretonotifyanotifiableconcentration,currentlycappedatRMB500,000(approximately$76,000)wouldbeincreased.97

Antitrustagenciesworldwidelaunchedinvestigationsintonewareasofallegedlyanticompetitivebehaviorin2017,whilecontinuingtofocusonprioritiessetinpreviousyears.IntheU.S.,theFederalTradeCommission(FTC)joinedotherjurisdictionsinlaunchingasuitagainstQualcommoveritssmartphoneIPlicensingpractices,whiletheU.S.DepartmentofJustice(DOJ)continuedtopursueitslandmarkcreditcardanti-steeringcasedespiteasetbackattheCircuitCourtlevel.TheU.S.agenciesalsodrilleddeeperintoinformation-sharingandotherallegedlycollusivepractices,particularlyinkeyindustries—likehealthcare—thatarethesubjectofheightenedconcernsoverconsumerwelfare.

InEurope,commissionenforcerssawamajorsetbackwiththeEuropeanCourtofJustice’s(ECJ’s)reversaloftheEuropeanCommission’s(EC’s)previousdecisionagainstIntel.Googlewasalsointhespotlight,withtheECissuingahistoric€2.42billion(approximately$2.91

billion)fineinthelong-runningShoppingcasewhilecontinuingsimultaneousinvestigationsintoGoogle’sAdSenseandAndroidpractices.Beyondthetechsector,theECalsocontinuedtobreaknewgroundthroughinvestigationsintoavarietyofallegedlyharmfulunilateralpractices,includingexcessivepricing,MFNdistribution,andunilateralrefusalstodeal.

U.S.CaseDevelopmentsFTC Complaint Against Qualcomm Extends Global Dispute over Licensing Practices

OnJanuary17,2017,theFTCvoted2-1tofileacomplaintagainstQualcomm.98 TheFTC’scomplaintjoinspendingorconcludedinvestigationsinseveraljurisdictionsaroundtheworld—includingChina,99SouthKorea,100Taiwan,101 Japan,102andtheEuropeanUnion(EU)103—thathavechallengedarangeofQualcommbusinesspractices.TheFTC’s

complaintallegesthatQualcommhasmarketpowerintheworldwidemarketsforCDMAandpremiumLTEchipsetsformobilebasebandcommunications.104 AccordingtotheFTC,Qualcommallegedlyleveragedthismarketpowertosupporta“nolicense,nochips”policywherebydeviceOEMsarerequiredtolicenseQualcomm’sstandard-essentialpatentsatroyaltyratesandlicensetermstheywouldnototherwiseacceptbeforetheyareallowedtopurchasechips.105TheFTCfurtherallegedthatQualcommrefusedtolicenseitsstandard-essentialpatentstocompetingchipsetmanufacturers.AccordingtotheFTC’scomplaint,thesepoliciesallowedQualcommtoimposeananticompetitive“tax”thatmaderivals’chipsetsrelativelymoreexpensiveforOEMs.106Finally,theFTCcontendsthatQualcommcoercedAppleintoenteringanexclusiveagreementformobilebroadbandchipsetsbyofferingpartialrelieffromtheroyaltiesthatQualcommchargedtoApple’scontractmanufacturers(andweresubsequentlypassedthroughtoApple).107 TheFTCallegedthatforeclosingsales

CivilAgencyInvestigations


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toApple,aprominentandhigh-volumepurchaser,hadaparticularlysignificantimpactonthemarketbydenyingopportunitiesforrivalstoachieveefficientscaleandtheexperienceandreputationnecessarytomakefurthersales.108

TheFTCCommissionerssplit2-1invotingtoissuethecomplaint.Inararemove,dissentingCommissionerMaureenOhlhausenissuedastatementexpresslycriticizingthetheoryoftheFTC’scomplaint.109CommissionerOhlhausenstatedthatshefeltcompelledtowritebecauseoftheextraordinarypotentialforthecomplainttoundermineU.S.intellectualpropertyrightsabroad,aswellasbecauseofitsunusualtiming—filedthreedaysbeforetheendoftheObamaAdministration.110 Commissioner OhlhausentookissuewiththefactthattheFTC’scomplaintfailedtoallegethatQualcommchargedsupra-competitive,ratherthanmerelyfair,reasonable,andnon-discriminatory(FRAND)royalties.111 Sheobservedthattherewasnorobusteconomicevidenceofexclusionandanticompetitiveeffects,eitherastothecomplaint’s“taxation”theoryoritsallegationsofexclusivedealing,butinsteadthecomplaintwasbasedonwhatamountedto“simplyapossibilitytheorem.”Finally,CommissionerOhlhausennotedthattheFTC’scomplaintnotablyincludedastandaloneclaimunderSection5oftheFTCAct.112UndertheFTC’s2015GuidanceontheenforcementofSection5,suchclaimswouldordinarilybeevaluatedusingtheframeworkoftheShermanAct,makingthestandaloneSection5claimssurprising.113

QualcommmovedtodismisstheFTC’scomplaint,whichthecourtdeniedinJune2017.114

DOJ Anti-Steering Cases Move Toward Resolution

TwoDOJcivilactionsfocusedontheunilateralimpositionofanti-steeringrulesmovedclosertofinalresolutionin2017.

United States v. American Express

InSeptember2016,theSecondCircuitoverturnedtheU.S.DistrictCourtfortheEasternDistrictofNewYork’sfindingthatAmericanExpress(Amex)hadviolatedtheShermanActbyprohibitingmerchantsthatacceptedAmexcardsfromencouragingconsumerstouseotherpaymentcards,whichoftenhadlowermerchantfees.115 ThedistrictcourthadagreedwiththeallegationsoftheDOJandseveralstatesthatthenondiscriminatoryprovisionsAmexenteredintowithretailersrestrainedcompetitionbypreventingmerchantsfromencouragingcustomerstousealternativeformsofpayment(forexample,byofferingdiscountstocustomersusingothercardsorcash),imposingnon-uniformrestrictionsontheuseofAmexcards,orotherwisecriticizingAmex’sservices.116

TheSecondCircuitheldthatthedistrictcourthadappliedanincorrectmarketdefinitionwhichfailedtoconsiderthefeedbackeffectsinamultisidedplatform,anderroneouslyfoundAmextohavemarketpowerbyfailingtoaccountfortherelationshipbetweencardholderdemandforservicesandmerchantattrition.ByfailingtoaccountforthepotentiallybeneficialeffectthattheAmexmerchantrestrictionscreatedforAmexcardholdersandfocusingsolelyonthemerchantsideoftheplatform,theSecondCircuitfoundthatthedistrictcourthadincorrectlydeterminedthatAmex’snondiscriminatoryprovisionsadverselyaffectedcompetition.117

ElevenstatesappealedtheSecondCircuit’sdecision,eventhoughtheDOJdeclinedtoseekcertiorariwiththeco-plaintiffstates.InOctober2017,theU.S.SupremeCourtgrantedcertiorariandargumentwillbeheardin2018.

Carolinas HealthCare

AfewmonthsbeforetheSecondCircuitissued its decision in American Express, theDOJandtheNorthCarolinaattorneygeneralfiledsuitagainstCarolinasHealthCareSystem(CHS),allegingthatitleverageditsmarketpowertorequireeverymajorinsurertoagreenottointroduceplansthatencouragedpatientstouselower-costhospitals.118Accordingtothecomplaint,CHS,whichcontrolsroughly50percentoftherelevantmarket,exertedthismarketpowerbythreateningtocutofftheircontractswithinsurersthatsteerpatientstolower-costproviders.119

OnMarch30,2017,thecourtdeniedCHS’srequestforjudgmentonthepleadings,preservingthegovernment’slawsuitonthegroundsthattheDOJhadplausiblyallegedthatsteeringrestrictionsdriveupinsurancepricesandreducepatients’optionsforcare.120ThecaseremainspendingintheWesternDistrictofNorthCarolina.

FTC and DOJ Continue to Pursue Restraints on Trade in Healthcare and Health Products

In2017,theU.S.antitrustagenciescontinuedtofocusparticularattentiononanticompetitiveagreementsinhealthcareandhealthproducts:

1-800 Contacts

OnOctober30,2017,anadministrativelawjudge(ALJ)upheldtheFTC’scomplaint


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allegingthat1-800Contactsenteredintoaseriesofanticompetitivehorizontalagreements,whichtheFTCallegedprohibitedcompetitorsfrompresentingpaidadvertisementsonsearchengineresultsthatwereresponsivetosearchesforitsowntrademarkbrands.121

TheFTChadinitiallyfiledsuitagainst1-800ContactsinAugust2016,claimingthattheonlinecontactlensmanufacturerunlawfullyorchestratedanetworkofanticompetitiveagreementswithatleast14competingonlinecontactlensretailerstoeliminatecompetitioninauctionstoplaceadvertisementsononlinesearchengineslikeGoogleandBing.Accordingtothecomplaint,1-800Contactscoercedcompetitorstoenterintoagreementsnottobidoneachother’sbrandnamekeywordsthroughthreatsoflitigation.1221-800 ContactscontinuestheFTC’sandtheDOJ’slongstandingpracticeoftargetingagreementsnottoadvertise,butintroducesanewcompetitivecontext–searchengineadvertising.123

1-800Contactsargued,unsuccessfully,thatthechallengedagreementswerereasonableeffortstoprotectitsintellectualproperty.124TheALJdisagreedandissuedanorderbarring1-800Contactsfromenteringintobiddingagreementsthatrestrictcompetitioninonlinesearchengineauctionsbyprohibitingrivalsfrompayingtoappearwhenausersearchesfor“1-800Contacts”orothercloselyrelatedterms.125 Moreover,theALJ’sorderforbids1-800Contactsfromenteringintoanagreementwithanothercontactlenssellertorestrict,prohibit,regulate,orotherwiselimitthatseller’suseof“truthful,non-deceptive,andnon-trademark-infringingadvertisingorpromotion.”126

InNovember2017,theFTCgrantedajointmotiontoextendthedeadlinesforfilingappeals,answersandrepliesrelatedtothematter.127

OFTACOOP

OnJanuary19,2017,theFTCissuedafinalorderandenteredintoaconsentagreementsanctioningtheCooperativadeMédicosOftalmólogosdePuertoRico(OFTACOOP),aPuertoRicanophthalmologistcooperativeofroughly100members,fororganizinganexclusionarygroupboycottagainsthealthplan,MCSAdvantage(MCS)andnetworkadministrator,EyeManagementofPuertoRico(EyeManagement).128

AccordingtotheFTC’scomplaint,MCSapproachedEyeManagementtoestablishanewreduced-costnetworkofindividualophthalmologists.UponlearningofMCS’sandEyeManagement’sefforts,OFTACOOPcoordinatedaplanamongitsmemberstoboycottthenewnetwork.TheboycottultimatelyforcedMCSandEyeManagementtoabandontheirplansforareducedcostnetwork.129

ThefinalconsentdecreebarsOFTACOOP from entering into or facilitatingagreementsbetweenoramongophthalmologiststorefusetodealwithanypayorregardingpriceoranyotherterm.ThedecreealsobarsOFTACOOPfromfacilitatinginformationexchange,whichmightassistaboycott,orsuggesting,advising,pressuring,inducing,ortryingtoinduceanyonetoengageinanysimilarconduct.130

Pay for Delay/Sham Petitions

TheFTCcontinuedtoprioritizeillegalpay-for-delaypharmaceuticalsettlementsin2017,extendingapatternthathaslastedsincetheFTC’slandmarkActavis victoryin2013.OnJanuary23,2017, theFTCissuedtwoseparatecomplaintsagainstEndoandImpaxallegingthatEndoenteredintopayfordelaysettlementswithImpaxandotherconspiratorstoprevententryofgenericversionsofLidodermandOpanaERwithImpax.131 OnFebruary7,

2017,theFTCfiledacomplaintinfederaldistrictcourtallegingthatShireengagedinshampetitioningoftheFDAasawaytoobstructgenericentry.132

TheFTChasstatedthatpay-for-delayresultsin$3.5billioninhigherdrugcostseveryyear.TheFTCalsosupportslegislationtoendsuchpay-for-delaysettlements.133

Continued DOJ/FTC Focus on Information-Sharing Agreements

ThefocusonanticompetitivecollusionbytheDOJandtheFTChasnotbeenrestrictedtothedrugandmedicaldevicecontext.Theagenciesalsofocusedoninformation-sharingagreements,whichtheagenciesviewashavingastronglikelihoodofrestrictingcompetitionandenablinganticompetitivebehavior.

Guidelines for HR Professionals: Information-Sharing in Labor Markets

Inlate2016,theDOJandtheFTCjointlypublishedapapertitled“AntitrustGuidanceforHumanResourcesProfessionals”(HRGuidance).134AswedescribeinfurtherdetailintheCriminalEnforcementsectionofthisreport,theHRGuidancehighlightedthatcertainformsofhorizontalcollusionandinformationexchangeswithinthelaborandemploymentcontextcouldviolatetheantitrustlaws.Informationaboutwages,employeesalary,orothertermsofcompensation,eitherataspecificlevelorwithinarangeisofparticularconcernbytheagencies.TwoDeputyAssistantAttorneysGenerals(AndrewFinchandBarryNigro)havecommentedpubliclythattheDOJisreadyingcasesagainstsuchagreements.Companiesthathaveengagedinbenchmarkingstudiesandanalysisorhavetradeassociationparticipationonhumanresourcesissueswillwanttopaycloseattentiontothe


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DOJ’spursuitinthisspace,particularlygiventhebroadimplicationsforhiringandthesettingofwagesandcompensationinvariouscontexts.

DIRECTV

InMarch2017,theDOJsettleditsongoingcaseagainstDIRECTVandAT&T.TheDOJhadoriginallysuedDIRECTV(anditscorporatesuccessor,AT&T)inNovember2016,forallegedcollusionandunlawfulinformation-sharingwithcompetitorsduringnegotiationstocarryDodgersbaseballgamesintheLosAngelesarea.ThecomplaintallegedthatDIRECTVcolludedwithcompetitorsCoxCommunicationsandCharterCommunicationstoavoidcompetingforaccesstoDodgersbroadcastrights.135 DIRECTVallegedlykeptitscompetitorsupdatedonthestatusofnegotiations,andmadeassurancesthatitwasnotplanningtobidontherightsatthepricethatTimeWarnerwasdemanding.136

AccordingtotheDOJ,thesettlement“willobtainallofthereliefsoughtbythedepartmentinitslawsuit,”includingrequiringthecompaniestomonitorcertaincommunicationstheirprogrammingexecutiveshavewiththeirrivals,andtoimplementantitrusttrainingandcomplianceprograms.137

TheDOJemphasizedtheparticularimportanceofaggressiveenforcementinmarketslikecabletelevisionbroadcastrights,wherecustomersmayonlyhave“ahandfulofchoicesinthemarketplace.”138

American Guild of Organists

InMay2017,theFTCissuedafinalorderandenteredintoaconsentagreementwiththeAmericanGuildofOrganists(AGO),anationaltradeassociationfororganistsandchoralconductors.139Undertheconsent

agreement,AGOagreedtoeliminaterulesthattheFTCfoundtorestrictitsmembersfromcompetingforopportunitiestoperforminviolationofSection5oftheFTCAct.140

Specifically,theFTCallegedthatAGOrestrainedtradebypromulgatingaCodeofEthicsandmodelcontractsthatlimitedthefreedomoforganistsandchoraldirectorstoseekoracceptengagements.Memberswererequiredtoseektheconsentofanincumbentmusicianatavenuebeforeacceptingtheengagement,forcingconsumerstopayforboththechosenmusicianandtheincumbentmusician(eventhoughonlythechosenmusicianperformsattheevent).141Inaddition,AGOallegedlydevelopedandenforcedascheduletobeusedbyAGOchapterstosetregionallyapplicablecompensationschedules,basedonwhichAGOmemberssettheirfees.142

ThefinalconsentagreementrequiredAGOtostoprestrainingitsmembersfromsolicitingworkorissuingcompensationschedules,guidance,ormodelcontractsbasedonwhichmembersdeterminetheirfees.143Inaddition,AGOisalsorequiredtoimplementanantitrustcomplianceprogramandtostoprecognizingchaptersthatfailtocertifycompliancewiththeorder’sprovisions.

Louisiana Real Estate Appraisers Board

InMay2017,theFTCfiledanadministrativecomplaintchargingtheLouisianaRealEstateAppraisersBoard(LREAB)withrestrainingpricecompetitionamongappraisalmanagementcompaniesbeyondthedictatesoftheDodd-FrankAct,whichrequiresappraiserstocharge“customaryandreasonablerates.”144 Then-ActingDirectoroftheBureauofCompetitionTadLipskynotedthe

significanceofthiscomplaintasthefirstFTCcomplaintagainstastateboardsincetheU.S.SupremeCourt’sdecisionintheNorth Carolina State Board of Dental Examiners case.145

Thechallengedconductwastheboard’spolicythatappraiserssettheirfeesexclusivelybasedonthemethodsprescribedbytheboard.146Further,theboardallegedlycommissionedannualreportsofthemedianfeeschargedindifferentregionsinLouisiana,postedthereportsonitswebsite,andrequiredappraiserstochargefeesthatareequaltoorexceedsuchmedianfees.147Theboardallegedlytookenforcementactionsagainsttheappraiserschargingfeesbelowthepublishedmedianfees,resultinginagreementsbytheseappraiserstoraisethefeessothattheyequalorexceedthemedianfees,aswellaswidepresscoverageoftheboardenforcementactionsandtheiroutcomes.148

TheFTCallegedthattheboard’sconductconstitutedconcertedactionthatunreasonablyrestrainstradeunderSection5oftheFTCAct.149Withrespecttothestateactiondoctrine,theFTCarguedthatneithertheDodd-FrankActnorthestatelawimplementingitrequiredtheboardtosetcustomaryandreasonablefeesatanyparticularlevel.150Further,theFTCarguedthatstatelawdidnotclearlyarticulateanintentiontodisplacecompetitioninthesettingofappraisalfees,andthatstatesmaycomplywithDodd-Frankrequirementswithoutviolatingtheantitrustlaws.151 A motion to dismiss is nowpendingbeforetheadministrativelawjudge.152

National Association of Animal Breeders

InSeptember2017,theFTCissuedafinalorderandenteredintoaconsent


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agreementwiththeNationalAssociationofAnimalBreeders(NAAB)wherebyNAABagreedtorefrainfromadoptingrulesthatstiflecompetitionamongstitsmembersinthebuyingorsellingofdairybullsorbullsemenforartificialinsemination.153

TheNAAB,incooperationwiththeU.S.DepartmentofAgriculture,developedagenomictestingtechnologythatbetterpredictstheabilityofthebulltotransmitcommerciallyimportanttraits,whichissuperiortothetraditionalmethodforpredictingsuchability.154TheFTC’scomplaintchallengedaNAABrulerequiringmemberstoalreadyhaveafinancialinterestinabullinordertousethetechnologyonthebull.TheFTCallegedthatthisresolutionprohibitedmembersfromsellingthetechnologytonon-membersforthenon-members’bullswithouthavinganinterestinthenon-members’bulls,andtherefore“impededthedevelopment”ofthismarket.155TheFTCallegedthataccesstothetechnologywould“tendtodrivethepriceofthebulltowarditstruevalue,”sotheresolutioninjurednon-membersbyrestrainingcompetitionamongNAAB’smembers.156

EuropeGoogle Shopping and AdSense

OnJune27,2017,theECannouncedtheconclusionofitsseven-yearinvestigationintoGoogle’ssearchservice,findingthatGooglehadleveragedadominantmarketpositioningeneralsearchtoadvantageitsowncomparisonshoppingservice(CSS)inviolationofArticle102TFEU.157 TheEC’sobjectionscenteredonthepositionanddisplayofproductsearchresultsandadvertisementsonGoogle’ssearchresultspage.TheECfoundthatGooglegaveprominentplacementtotheProductUniversalandGoogleShoppingAdsonitssearchresultspages.TheECalsofoundthatGoogleapplieddifferentrankinganddisplayalgorithmstotheProductUniversalandShoppingAdsthan

toCSSsitesappearinginGoogle’sorganicsearchresults,whichtheECfoundweresystematicallydemotedbasedonfactorsinherenttoGoogle’sorganicwebsearchalgorithms.158

TheECfoundthatGooglehasbeendominantsince2008in“generalinternetsearch”throughouttheEEAandthatGooglesearchresultsareanimportantsourceoftrafficforrivalCSS.AccordingtotheEC,Google’sconductcausedtrafficfromGooglesearchresultspagestorivalCSStodecline,impairingtheirabilitytocompeteagainstGoogle’sownCSS.TheECfinedGoogle€2.42billion(approximately$3.24billion)—thelargestpenaltyeverimposedbytheEC—andrequiredGoogletomodifyitssearchenginesoasto“applythesameprocessesandmethodstopositionanddisplayrivalcomparisonshoppingservicesinGoogle’ssearchresultspagesasitgivestoitsowncomparisonshoppingservice.”159

Inablogpostfollowingthedecision,GooglearguedthattheECundervalueduserpreferenceforadirectlinktoamerchantsite,likethatprovidedbyitsShoppingAds,ascomparedtoaCSSwheretheusermustrepeattheirsearch.160Googlealsohighlightedintensecompetitionfromglobale-commercegiants,suchasAmazonandeBay,asanalternativeexplanationforsomeCSS’declineinpopularity.161InlateAugust2017,GooglesubmittedaremedyproposalwherebyeachslotintheCommercialUnitwouldbefilledthroughasingleauctionthatrankedproductoffersfromGoogleShoppingandrivalCSSusingthesamecriteria.162GooglefiledanappealoftheEC’sdecisionwiththeEUGeneralCourtthefollowingmonth.163

Intel – Decision of the ECJ

Inamuch-anticipatedjudgmentdeliveredonSeptember6,2017,theEU’shighestcourt,theECJ,setasideaGeneralCourt(GC)rulingthatupheldanEC

decisionimposingfinesof€1.06billion(approximately$1.3billion)onIntel.164

In2009,theEuropeanregulatorfoundthatIntelhadabuseditsdominantpositionbygrantingloyaltyrebatestoPCmanufacturersconditionalupontheirsourcingall,oralmostall,oftheirx86CPUsfromIntelandthusforeclosingacompetitor,AMD,fromthemarket.165TheGC,upholdingthedecisiononappealbyIntel,haddeclaredthatloyalty-inducingexclusivityrebatesgrantedbyadominantundertakingareperseillegal.166

Inoverturningthelowercourt’sruling,theECJembracedaruleofreasonandheldthatitisnotnecessarilyillegalforadominantcompanytograntrebatesconditionalonexclusivity.Adominantcompanymaysubmitevidencetorebutapresumptionofabuseandshowthatitsconductisnotrestrictiveofcompetition.Whereitdoesso,theECisrequiredtoassessthecompany’scapacitytoforeclosecompetitorsthatareatleastasefficientasthedominantfirm.TheECmustalsoassesswhetheranyforeclosureeffectiscapableofobjectivejustificationandmaybeoutweighedbyefficienciesthatbenefitconsumers.

TheECJobservedthatthe“asefficientcompetitor”(AEC)testhadplayedanimportantroleintheEC’sassessmentofIntel’sabilitytoforeclose.ThelowercourtwasthusrequiredtoconsiderallofIntel’sargumentsrebuttingtheEC’sconclusionsonthetest,buthadfailedtodoso.Inlightofthisfailure,theECJheldthatthejudgmentshouldbesetasideandthecaseremandedbacktothelowercourtforrehearingonthispoint.

Itcouldbeseveralyearsbeforeafinaldecisionisreachedinthealready18-yearoldsaga,especiallyifeitherIntelortheECappealafutureGCjudgment.However,thecaseindicatesthattheECwillneedtocarefullyconsidereconomiccontextinfutureabuseofdominanceinvestigations.


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Excessive Pricing

EU Aspen Pharma Investigation

TheEChastraditionallybeenreluctanttolaunchexcessivepricingcases,inpartduetothedifficultiesinvolvedinpointingtowhatisagenuinelyexcessiveprice.However,onMay15,2017,theECopenedaninvestigationintoAspenPharmacare’spricingoffivecancerdrugsinthefirstECcompetitioninvestigationintoexcessivepricingpracticesinthepharmaceuticalsector.TheEChasconcernsthatAspenmayhaveabuseditsdominantpositionbyimposingsignificantpriceincreasesofuptoseveralhundredpercent(so-called“price-gouging”)inbreachofArticle102TFEU.TheECwillalsoinvestigateallegationsthatAspen,inordertoimposethepriceincreases,threatenedto(ordid)withdrawthedrugsinsomeEUmemberstates.167

TheEC’sinvestigationcoversalloftheEEAexceptItaly,whereAspen’sconducthasalreadybeenthesubjectofafine.IftheECfindsthatAspenhasimposedexcessiveprices,itcouldfaceafineofupto10percentofitsglobalturnover.Aspencouldalsobesubjecttoprivatedamagesactionsbeforenationalcourts.

Whilecompetitionauthoritiesgenerallydonotwishtobeseenaspriceregulators,theEC’sinvestigation,andthenationalcasesbelow,makeclearthatwhereapharmaceuticalcompanyissuspectedofexploitingthenon-brandedstatusofadrug(meaningitisnolongersubjecttopriceregulation)inordertoincreaseprices,thiscouldconstituteaviolationofEUlaw.PharmaceuticalcompaniesshouldthereforebeextremelyvigilantwithregardtotheirpricingschemesintheEU,particularlywhereoff-patentdrugsareinvolved.

UK Pharmaceutical Cases

InOctober2017,theUK’sCompetitionandMarketsAuthority(CMA)confirmed

thatitwasinvestigatingAspenPharmacareoverallegedanticompetitiveconductinthesupplyofbloodpressureandarthritisdrugs.168TheCMAisalsoinvestigatingActavisUKandConcordia.ActavisisunderCMAscrutinyforallegedlychargedexcessivepricesforhydrocortisonetablets—imposinganincreaseofover12,000percentcomparedtothepreviousbrandedversionsoldbyanothercompany.169Concordia,whichfocusesonoff-patentdrugs,isunderinvestigationforallegedexcessivepricinginthesupplyofdrugsforhypothyroidism,includingtotheUK’snationalhealthservice(NHS).170

ThesecasesbuildontherecordfinesimposedbytheCMAonPfizerandFlynnPharmainDecember2016.PfizerhadsoldtherightstodistributethedrugtoFlynn,whichsubsequentlymadethedruganunbrandedgeneric,meaningthatitwasnolongersubjecttopricecontrols.Thecompanieswerefinedalmost£90million(approximately$120.5million)forchargingexcessiveandunfairpricestotheNHSforanepilepsytreatmentdrug,implementingincreasesofupto2,600percent.171

“Distribution” Cases

Amazon e-Books – MFN Clauses

InMay2017,theECadoptedadecisionformallyacceptingcommitmentsofferedbyAmazoninrelationtotheregulator’se-booksinvestigation.172 TheEC’sinvestigationwaslaunchedinJune2015andfocusedonso-calledmost-favored-nation(MFN)clausesinAmazon’sdistributionagreementswithe-bookpublishersinEurope.TheECwasconcernedthatAmazonwasusingitsdominantpositioninthemarketsfortheretaildistributionofEnglishandGermanlanguagee-bookstomakeitmoredifficultforothere-bookplatformstoinnovateandcompeteeffectivelywithAmazon.

TheseMFNclausesrequiredpublisherstooffersimilar(orbetter)termstoAmazoncomparedtoitsrivalsandtoinform

AmazonaboutmorefavorableoralternativetermsgiventoAmazon’scompetitors.TheclausescoverednotonlypricebutmanyaspectsthatacompetitormightusetodifferentiateitselffromAmazon,suchasdifferentdistributionmethodsorreleasedates,featuresofe-books,orapromotion.

InresponsetotheEC’sconcerns,Amazonofferedtoremovetheoffendingclausesfromitscontractsandrefrainingfromusingsuchclausesforaperiodoffiveyearswithregardtoanye-bookinanylanguagedistributedbyAmazonintheEEA.

Coty – Selective Distribution

OnDecember6,2017,theECJruledthatasupplierofluxurygoodscanprohibititsauthorizeddistributorsfromsellingonlineviathird-partyplatforms.173ThecaseconcernsadisputebetweenU.S.-basedperfumeandcosmeticssupplier,CotyInc.,andoneofitsGermandistributors,ParfümerieAkzente(PA),whichrefusedtocomplywithaclauseinCoty’scontractspreventingitsretailersfromsupplyingCotyproductsviaonlinethird-partyplatforms,suchasAmazonandeBay.AGermancourtsoughtguidancefromtheECJastowhethertheclausewaslegalandenforceableunderEUcompetitionlaw.

TheEU’shighestcourtruledthataselectivedistributionnetwork,designedprimarilytopreservetheluxuryimageofcertaingoods,canbevalidprovidedtwoconditionsaremet:(1)theresellersareselectedonthebasisofnon-discriminatoryandobjectivequalitativecriteria;and(2)thecriteriausedareproportionate.Asforrestrictionsononlinesalesviathird-partyplatforms,theECJfoundthatthesewillnotbedeemedanticompetitivewheretherestrictionisproportionateanddesignedtopreservethegoods’luxuryimage,anditisappliedinanon-discriminatorymanner.

Thecourt’srulingappearslimitedtoprestigeproductswhichcarryanauraofluxury.Companieswithover30percent


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marketshare—i.e.,thosethatareineligibleforsafeharborprotection—willneedtoconsiderwhethertheirproductsmeritsimilarprotectionasprestigegoods.Otherwisetheirselectivedistributionnetworksandrestrictiveclausesriskbeingstruckdown.

Luxury Brand Watch Makers

OnOctober23,2017,theGCaffirmedtheEC’sdecisiontocloseaninvestigationintocertainluxurybrandwatchmakers(includingLVMHMoëtHennessy-LouisVuitton,Rolex,andtheSwatchGroup).174 Theappellant,CEAHR,allegedthattheluxurybrandwatchmakershadabusedtheirdominantpositionsbyimplementingselectivedistributionsystemsforrepairservicesandrefusingtosupplysparepartstowatchrepairersthatwerenotpartoftheirauthorizedrepairandmaintenancenetwork.TheGCnotedthatforarefusaltosupplytoconstituteanabuse,itmust:(1)notbeobjectivelyjustified;(2)berelatedtogoodsandservicesthatareindispensablefortherequestingperson’sactivity;and(3)belikelytoeliminateallcompetition.TheGCupheldtheEC’sfindingthattherewasalowprobabilityofalleffectivecompetitionbeingeliminated.

WhiletheGCdidnotgoasfarastheECJwouldinCotyinstatingthatthepreservationofaluxurybrandimagealonecouldbeajustificationforarestrictionofcompetition,itdidholdthattheobjectivesofpreservingthequalityofproducts,ensuringtheirproperuse,andpreventingcounterfeitingmayjustifysucharestriction.Forcompanieswishingtosupplysparepartsforluxurygoodssolelytoauthorizedpartners,thisjudgmentprovidesaclearframeworkwithinwhichtoimplementapermittedselectivedistributionnetwork.

Lithuanian Railway Operator Case

OnOctober2,2017,theECfinedLithuanianRailwaysalmost€28million(approximately$37.5million)forabusingitsdominantpositionontherailfreightmarketbyremovingpublicrailinfrastructureconnectingLithuaniaandLatvia.175

ComplainantABOrlenLietuva(Orlen)usedLithuanianRailway’srailfreightservicestotransportrefinedcrudeoilproductsfromitsrefineryinLithuaniatoportsinLatvia.AfterOrlenconsideredcontractingwithadifferentrailoperatorin2008,LithuanianRailwaysuseditscontroloverthenationalrailinfrastructuretodismantlea19kmlongsectionofrailtrackconnectingLithuaniaandLatvia,closetoOrlen’srefinery.ThiseffectivelypreventedOrlenfromusinganalternativefreightsupplier,asitwouldneedtotakeamuchlongerroutetoreachLatvia.

FollowingacomplaintbyOrlen,theECopenedformalantitrustproceedingsagainstLithuanianRailwaysinMarch2013.TheECfoundthatLithuanianRailwaysfailedtoevidenceanyobjectivejustificationfortheremovalofthetrack,suggestingthatthedismantlingof19kilometersofrailwaywassolelytopreventamajorcommercialcustomerfromusingtheservicesofacompetitor.

EU Double Jeopardy

InajudgmentissuedonNovember23,2017,theECJruledthatconductthathasledtotheECacceptingcommitmentscanstillgiverisetoparallelnationalproceedings.176

In2006,theECacceptedcommitmentsfromRepsol,anoilandgascompany,inlieuofaformalfindingofinfringement,

bringingitsinvestigationintolong-termexclusivesupplyagreementstoaclose.InsubsequentnationalproceedingsinSpain,Gasorba,oneofRepsol’sservicestationtenants,challengeditssupplyagreementwithRepsol,claimingthatitinfringedArticle101TFEU,whichprohibitsanticompetitiveagreements.TheSpanishSupremeCourtreferredtheissuetotheEU’shighestcourt,requestingguidanceonwhetheranationalcourtisprecludedfromfindinganagreementinfringesArticle101TFEUwheretheEChasalreadyacceptedbindingcommitmentscoveringthatsameagreement.

TheECJruledthatanECcommitmentdecisiondoesnotaffectthepowerofnationalcourtstoapplyEUcompetitionlawtoconductthattheEChasalreadyinvestigated.WhilenationalcourtsareobligednottotakedecisionsthatarecontrarytothoseadoptedbytheEC,thenatureofcommitmentdecisionsissuchthattheydonotestablishwhethertherehasbeenanantitrustviolation.However,thejudgmentclarifiedthatnationalcourtsareexpectedtotreatcommitmentdecisionsasan“indication,”ifnotprimafacieevidence,oftheanticompetitivenatureofanagreement.

CompaniesshouldbemindfulthatchoosingtonegotiatecommitmentswiththeECsoastoavoidapotentialfiningdecisiondoesnotmeanthechapterisnecessarilyclosedontheirEUliability,andtheyarestillopentoprivateenforcementanddamagesclaimsbeforenationalcourts.ThesetwofactorshighlighttheneedforamorenuancedinternalstrategizinginthefutureforcompaniesaccusedofanticompetitiveconductastowhethertonegotiatecommitmentswiththeECorchallengetheallegations.


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CriminalantitrustenforcementremainedacorefocusoftheU.S.DepartmentofJustice(DOJ)in2017.Whilecriminalantitrustfinesforcorporationsweresignificantlylowerthispastyear,theDOJ’scommitmenttovigorouscriminalantitrustenforcementhashistoricallyremainedunchangedinbothRepublicanandDemocraticadministrations.TheDOJdemonstratedthisbyinitiatingseveralsignificantinvestigations,prosecutinganumberofdomesticandinternationalcartelmatters,holdingmoreindividualsaccountable,andadvancingcertainpolicyinitiatives.ThissectionofourAntitrustYearinReview:(i)identifiesafewnotabledevelopmentsintheDOJ’scriminalenforcementprogramin2017;(ii)summarizestheDOJ’ssignificantcriminalprosecutionsofcorporationsandindividualsinthelastyear;(iii)describesrecentpolicyinitiativesandprioritiesintheDOJ’scriminalenforcementprogram;and(iv)highlightssomesignificantdevelopmentsincartelenforcementoutsidetheU.S.

NotableDevelopmentsintheDOJ’sCriminalAntitrust Enforcement ProgramFirst,aswithotherareasofantitrustenforcement,2017wasayearoftransitionfortheDOJ’scriminalenforcementprogramandleadership.UponthedepartureofthepriorActingAssistantAttorneyGeneralRenataHesse,headofCriminalEnforcementBrentSnyderservedasActingAssistantAttorneyGeneral.Uponhisrecentdeparture,MarvinPrice,whopreviouslyservedastheDirectorofCriminalEnforcement,tookoverasthe

headofthecriminalenforcementprogram.MichelleRindone,aformerAssistantChiefintheNewYorkoffice,isservingasActingDirector.TheDOJiscurrentlysearchingtoappointapermanentDeputyAssistantAttorneyGeneralforCriminalEnforcement,andweexpectthissearchwillconcludeinthenearfuture,somorechangesaresoonto come.

Second,thisyearwillendwithloweroverallcorporatefinesforcriminalantitrustviolationsascomparedwithprioryears.InFY2017,theDOJnetted$107.8millionincorporatecriminalfines.Thismarkedasignificantdecreasecomparedtopreviousyears;indeed,itisa73percentdecreasecomparedtoFY2016,a97percentdecreasecomparedtoFY2015,anda91percentdecreasecomparedtoFY2014.Therecouldbeanumberofreasonsforthisdrop,includingthatintheimmediateprioryears,theDOJconcludedsomesignificantprosecutions,whilethenextwaveofinvestigationscommencedin2017,andwilltakesometimefortheDOJtoseetheresultsofthoseinvestigations.Indeed,inFY2016,theDOJinitiated23criminalgrandjuryinvestigations—thehighestnumbersinceFY2009.AnumberofthesenewDOJprobesandgrandjuryinvestigationswerereportedinthepressin2017,includinginvestigationsintoadvertising,Chineseaircargoservices,andmetalpaintsandcoatings.Thesearenewinvestigationstowatchin2018.

Third,insetbacksfortheDOJ,twocorporatedefendantswereacquittedofcriminalchargesaftertrialsin2017.Bothcorporatecasesinvolveddefenseargumentsregarding“ruleofreason”-typeevidencethatisnottypicallyadmissibleinacriminalcaseallegingaperseviolation.Althoughtherearecase-specificreasons

fortheseacquittals,anoverallpointisthatbusinessrationalesthatarenotoftencreditedbytheDOJinthecourseofpleanegotiationsmayresonatewithU.S.judgesandjuries.ThefirstcasewasUnited States v. Kemp & Associates, involvingthesupplyofheir-locationservices.Inthatcase,theDOJallegedthatthedefendantsconspiredwithoneanothertoallocateheirsentitledtoaninheritancefromarelativethatdiedintestate.TheDOJfurtherallegedthatthedefendantswouldsplitthehigherfeestheywereabletochargebyavoidingdirectlycompeting.Thedefendantsfiledamotiontodismiss,arguingthatthecaseshouldnotbesubjecttothepersestandard(andthusnotprosecutedasacriminalcase),butinsteadanalyzedundertheruleofreasonstandard(andthusprosecuted,ifatall,asacivilcase).Thecourtagreedwiththedefendants,observingthatthearrangementwassufficiently“unusual”andmayhavecreatedthepotentialforincreasedefficiencyinestateadministration,sotheperserulemightnotbeappropriate.Thecourtheldthatinanyevent,theactionwastime-barredunderthestatuteoflimitationsandshouldbedismissed.TheDOJhasappealedthatrulingtotheTenthCircuit.

Thesecondcase,United States v. Tokai Kogyo Co. Ltd., et al.,involvedthesupplyofautomotivebodysealingparts(i.e.,weatherproofing)tocertainautomobileOEMs.TheDOJallegedthatTokaiconspiredwithothersupplierstofixpricesandrigbidsonthoseproducts.Inthatcase,theDOJchargessurvivedamotiontodismiss,andthecasewastriedbyajury.AmongthedefenseargumentswasthatHonda,thecustomertowhomautopartsweresold,hadaprocurementprocessthatitselfallocatedsalesand

CriminalCartelInvestigations


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facilitatedtheallegedcollusion.Followinga13-daytrial,however,thejuryacquittedthedefendantsafterlessthanfourhoursofdeliberation.

Fourth,ithasbecomeapparentthattheDOJhasbeenproactivelylookingtoidentifycollusiveconduct(andinitiatecriminalinvestigations)throughsourcesandmeansoutsideofitsLeniencyProgram.AlthoughtheDOJhistoricallyhasstatedthatitobtainsleadsfromothersources(e.g.,investigatingagentsandcomplainingparties),manyofthelargestcriminalinvestigationshavebegunwithacorporateleniencyapplicant.Morerecently,however,oneoftheinvestigatorysourceshasbeenitscivilenforcementprogram.Forexample,theDOJprosecutedthreeexecutivesandonecorporatedefendantin2017forallegedcollusioninthesupplyofpackagedseafood.ThisinvestigationstartedwhentheDOJuncoveredevidenceofpotentiallycollusiveconductwhilereviewingaproposedmergeroftwopackagedseafoodcompanies.Asanotherexample,inMarch2017,theDOJsecureda15-monthprisonsentenceforanexecutivechargedwithconcealinginformation,destroyingdocuments(anddirectingsubordinatestoalsodoso),andmakingfalseandmisleadingstatementsduringaDOJcivilinvestigationofajointventurebetweentwoNewYorktourbuscompanies.Inthepast,theDOJhasbeencriticizedforrelyingtooheavilyonitsLeniencyProgramtodetectcriminalconduct,andwhetherthecriticismiswarrantedornot,itdoesappearthattheDOJisnowlookingbeyonditforevidenceofcartelconduct.TheDOJattorneysarewellattunedtoantitrustviolationsofalltypes,andwhenevidenceisuncoveredevenincivilcontexts,theDOJhasnothesitatedtopursuesuchconductcriminally.

NotableProsecutionsin2017:CorporationsandIndividualsIn2017,theDOJcontinuedinvestigatingandprosecutingcollusiveconductacrossvariousindustries.Asnoted,theDOJnettedapproximately$107.8millionincorporatefinesinFY2017,177 whichrepresentsasignificantdecreasefrompreviousyears.TheDOJ,however,chargedmorethan20individualsduringthepasttwelvemonthsandcontinuedtoseeksignificantsentencesagainstindividuals.Manyoftheindividualssentencedin2017receivedjailtermsofbetween14and24monthsandwereorderedtopaysubstantialfines.TheDOJ’saggressiveapproachagainstindividualsshouldnotcomeasasurprise.TheDOJhasissuedmultiplepolicydirectivesoverthelastthreeyearsdetailingitsintenttoincreaseenforcementagainstindividualsinvolvedincriminalantitrustconduct.178 SomeofthemoresignificantDOJprosecutionsfromthisyeararediscussedbelow.

• Automotive Parts. The DOJ’spursuitofantitrustviolationsintheautomotivepartsindustryisinternationalinscopeandhascovereddozensofcomponentsusedtomanufactureautomobiles.Thoughtheinvestigationscontinuedin2017,ascomparedwithpreviousyears,theinvestigationsseemtobewindingdown.Thisyear,theDOJyielded$61.58millionincorporatefinesfromautopartsmanufacturers,downfrom$270milliontheyearbefore.Mostrecently,andasnotedabove,inNovember2017,afederaljuryinOhioacquittedTokaiKogyoanditssubsidiary,GreenTokai,onchargesoffixingpricesonautomotivebodysealingproducts

andriggingbidsonautomotivesteeltubes.Althoughthetriallasted13days,thejurytookonlyfourhourstodeliberateandreturnitsverdict.TheDOJalsocontinuedtochargeindividuals.InFebruary2017,thepresidentofaU.S.jointventureofanautomotivebodysealingproductssupplierpleadedguiltyandagreedtoserve14monthsinprison,inadditiontopayinga$7,500criminalfine.

• Electrolytic Capacitors. Sincetheoutsetoftheinvestigationinthecapacitorsindustryin2014,eightcompaniesandtenindividualshavebeenchargedwithparticipatinginanallegedconspiracy.In2017,theDOJcontinuedtoextractguiltypleasfrommanufacturers,includingMatsuoElectricandNichiconCorporation.Totalfinesimposedfor2017exceeded$62million,179 withNichiconCorporation’s$42millionfinemakingupthebulkofthisnumber.InOctober,theDOJsecureditsfirstindictmentofacompanyintheinvestigation,whenagrandjuryindictedNipponChemi-ConCorporation(NCC).TheDOJisexpectedtogototrialagainstNCCinOctober2018.Notably,JudgeJamesDonatooftheU.S.DistrictCourtfortheNorthernDistrictofCaliforniahasbeencarefullysecuritizingandincreasinglycriticizingthepleaagreementsinthiscase.Inthepastyear,JudgeDonatorejectedthreecapacitorcompanies’pleadeals,includingMatsuoElectric’s,findingthatthecriminalfinesweretoolowanddidnotservethebestinterestofjustice.Further,JudgeDonatohasvoicedhisreservationsaboutTypeCpleaagreementsbecausetheytakeawayacourt’sdiscretioninsentencing.


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ThishascausedtwocompaniestoenterintoTypeBpleaagreementswiththeDOJ.ATypeBpleagivesthecourtsignificantlymorediscretioninthesentencethatcanbeimposed.In2017,theDOJalsoturneditsattentiontoindividuals,andinFebruary2017,aMatsuoexecutivebecamethefirsttopleadguiltyinthecapacitorinvestigation,agreeingtoserveaoneyearandonedayprisonsentence.Nineotherexecutiveswerepreviouslyindictedin2016and2015inconnectionwiththeinvestigation.

• Ocean Shipping – Roll-On, Roll-Off.TheDOJhasinitiatedseveralinvestigationsintotheoceanshippingindustry.TheDOJ’s“roll-on,roll-off”cargoinvestigationcontinuedtopickupsteamoverthelastyear,withHöeghAutolinerspleadingguiltyinSeptember2017andagreeingtopaya$21millionfineforallocatingcustomers,riggingbids,andfixingpricesforthesaleofroll-on,roll-offcargoshipments.HöeghAutoliners’pleaagreementbringsthetotalcriminalfinesimposedtoover$255million.Additionally,theDOJannouncedtheindictmentofthreeWalleniusWilhemsenLogisticsexecutivesinJune2017;notably,thisinvestigationhasalreadyresultedinlengthyprisontermsforfourexecutives,whileanadditionalsevenexecutiveshavebeenindictedbutremainfugitives.

• Ocean Shipping – Containers.Alsoinoceanshipping,inMarch2017,theDOJconductedasearchatabiannualmeetingoftheInternationalCouncilofContainershipOperators—knownasthe“BoxClub”—andservedgrandjurysubpoenasonseveralcontainershipoperators,includingMoller-Maersk,

Evergreen,theOrientOverseasContainerLine,andHapagLloyd,aswellasmanyexecutives.Sincemanyofthesubpoenarecipientsarebasedoverseas,theDOJusedtheBoxClubmeetinginSanFranciscoasanopportunitytoservethesubpoenasonforeignentitiesthatmightotherwisebemorechallengingtoreach.Todate,therehavenotbeenanychargesfiledintheinvestigation.

• Packaged Seafood. In its investigationintosuppliersofpackagedseafood,theDOJobtainedaguiltypleafromBumbleBeeFoods,whichagreedtoa$25millionfineforitsroleinaconspiracytofixthepricesofshelf-stabletunafish.BumbleBee’sfinerepresentedareductionfromtheinitialfineofover$136million,becauseofconcernsaboutthecompany’sabilitytopayandremainaviablecompetitor.BumbleBeewasthefirstcorporatedefendanttopleadguiltyintheinvestigation,whichhadalreadyseenseveralguiltypleasfromexecutives.AformerStarkistsalesexecutiveisawaitingsentencingafterpleadingguiltyinJune2017tofixingthepricesofpackagedseafood.Todate,threeindividualshavepleadedguiltytotheirroleintheallegedconspiracy.InSeptember2017,Tri-UnionSeafoods,theU.S.subsidiaryofThaiUnionGroup,disclosedthatitwasthewhistleblowerandhadagreedtocooperatewiththeDOJinexchangeforconditionalleniency.

• E-Commerce: Promotional Products. InAugust2017,theDOJsecuredguiltypleasfrombothCustomWristbandsandZaappaazfortheirrolesinanallegedconspiracytofixpricesforpromotionalproducts,includingcustomizedwristbandssoldonlinetoU.S.customers.

Thecompaniesagreedtopayfinesof$409,342and$1.9million,respectively.TheDOJalsoreportedlyisinvestigatinganOhio-basedpromotionalcompany,Totally-Promotional.Interestingly,theDOJallegedthatthecompaniesprimarilycarriedouttheconspiracyviasocialmediaandmessagingapplications,includingFacebook,WhatsApp,andSkype.InitspressreleaseannouncingZaappaaz’sguiltyplea,theDOJemphasizedthat“criminalscannotevadedetectionbyconspiringonlineandusingencryptedmessaging.”Asforindividuals,in2017theDOJ’sinvestigationnettedtwoguiltypleasfromhigh-levelexecutives.

• Generic Pharmaceuticals. In 2017, theDOJcontinueditslong-runninginvestigationintocollusionamonggenericdrugmanufacturers,buttodate,therehasbeennocorporatechargeorguiltyplea.Aspartofthisinvestigation,theDOJreportedlyconductedadawnraidofgenericpharmaceuticalmakerPerrigoCo.’scorporateofficesinMay2017.Twoformerexecutiveshaveenteredguiltypleasinthecaseforfixingprices,riggingbids,andallocatingcustomersfortwogenericdrugs.Aparallelcivillawsuitconcerningthosetwodrugswasalsobroughtbyattorneysgeneralfrom45statesandtheDistrictofColumbia.InOctober2017,theattorneysgeneralfiledamotionforleavetoamendthecomplainttoincludeanadditional12companiesand13newdrugs.Defendantsopposedthemotioninpart,andadecisionisexpectedinearly2018.

• Real Estate Foreclosure Auctions. TheDOJcontinuedaggressivelytopursueenforcementinthearea


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ofrealestateforeclosureauctionservicesin2017,inaninvestigationthathasresultedinasignificantnumberofchargesagainstindividuals.In2017,nineindividualsinCalifornia,Florida,Georgia,andAlabamawerechargedorsentenced,threeofwhomreceivedprisontermsrangingfrom14to21months.Theinvestigationhasalreadyresultedinover100guiltypleasandconvictionsinthosestates.Notably,JudgeHamiltonoftheU.S.DistrictCourtfortheNorthernDistrictofCaliforniahastakenanarrowapproachtocalculatingthevolumeofcommerceforindividualsentences,findingitshouldbecalculatedtoincludeonlythebidsanagentpersonallybidonandwon.

• Financial Services.Followingrecord-breakingcriminalfinesfrombanksinconnectionwithDOJ’sLondonInterbankOfferedRate(LIBOR)andforeignexchangespotmarket(FOREX)investigationsinpreviousyears,theDOJshifteditsfocustootherbanksandindividualsin2017.InLIBOR,twoSociétéGénéralebankmanagerswereindictedfortheirroleintheconspiracytofraudulentlymanipulatetheLIBORfortheU.S.dollarandseveralothercurrencies.Additionally,DBGroupServices,awhollyownedsubsidiaryofDeutscheBankAG,wassentencedinMarch2017andorderedtopaya$150millionfine.InFOREX,twotraderspleadedguiltyfortheirroleinanallegedconspiracy,andafederalgrandjuryreturnedanindictmentagainstthreeothertraders.TheDOJissettogototrialagainstthesethreeindictedindividualsinJune2018. TheLIBORinvestigationhasinvolvedbothantitrustandfraudcharges,

aswellasparallelproceedingsbyEuropeanauthorities.FollowingconvictionsofseveralindividualsonLIBOR-relatedfraudcharges,theU.S.CourtofAppealsfortheSecondCircuitrecentlyoverturnedthejuryverdictsonthegroundsthatawitnessattrialhadpreviouslyreadtestimonycompelledfromthedefendantsinUKproceedings,inviolationofthedefendants’FifthAmendmentrights.180

• Heir Locators. As discussed previously,theDOJsoughttoprosecuteKemp&Associatesforcollusioninsupplyofheirlocatorservices,butafederalcourtdismissedtheindictment.ThecourtfocusedonwhethertheagreementtheDOJallegedshouldbeanalyzedasperseunlawfulundertheShermanAct.Characterizingtheallegedconspirators’agreementas“uniqueandunusual,”181thecourtdeterminedthatitshouldnotbeviewedasperseunlawfulbutratheranalyzedundertheRuleofReason.Ultimately,however,thecourtfoundthatthecasewasbarredbythestatuteoflimitations;theDOJfiledanoticeofappealwiththeU.S.CourtofAppealsfortheTenthCircuit.

• Public School Buses. Inasmaller-scaleregionalcase,followingaweek-longtrialinJanuary2017,ajuryinPuertoRicoconvictedfourschoolbuscompanyownersofparticipatinginbidriggingandfraudconspiraciesatanauctionforpublicschoolbustransportationservicesinPuertoRico’sCaguasmunicipality.ThisdecisionfollowedacriminalindictmentfiledinMay2015againstfiveindividuals.Thefifthdefendantpledguiltytothechargesbeforegoingtotrial.Nootherchargeshavebeendisclosedsincethattime.

• Obstruction of Justice.TheDOJhascontinuedtovigorouslyprosecuteindividualswhoobstructjusticeduringantitrustinvestigations.Notably,theseindividualsoftenreceiveprisontermsmuchlongerthantheprisontermsimposedforanticompetitiveconductitself.Forexample:

-InFebruary2017,anexecutiveofanautomotivepartscompanypleadedguiltyforhisroleinaconspiracytoobstructjusticeduringthecourseoftheDOJ’sautomotivepartsinvestigation.Theexecutivereceiveda14-monthprisonsentence.

-InMarch2017,aformerCoachUSAexecutivewassentencedto15monthsinprisonforattemptingtoconcealanddestroydocumentsduringthecourseofcivillitigationrelatedtotheNewYorkCityhop-on,hop-offtourbusmarket.

• Diversion of Federal Funds. TheDOJhasbeenactiveinprosecutingindividualsaccusedofmisusingfederalfundsaswell.AssistantAttorneyGeneralMakanDelrahimnotedaboutoneoftheseprosecutionsthatit“demonstrate[d]theAntitrustDivision’scommitmenttopursuingindividualswhoseektoenrichthemselvesbymisusingfederalprogramsattheexpenseoftaxpayers.”182Forexample:

-InApril2017,anofficerofmultipleconstructioncompanieswassentencedtosixmonthsinprisonand24monthsofsupervisedreleasefordefraudingadisadvantagedpersons’businessassistanceprogramoftensofmillionsofdollars.


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-InJune2017,aformerexecutiveofanIsrael-baseddefensecontractorwassentencedto30monthsinprisonforhisroleinmultipleschemestodefraudamulti-billiondollarUnitedStatesforeignaidprogram.

-InOctober2017,theDOJindictedaroofingcompanyownerandaformerfacilitiesmanageratSierraArmyDepotfortheirrolesinaconspiracyto divert government funds intendedtorebuildandrepairtheArmyfacilitytothemselvesandtheircompanies.

DOJPolicyInitiativesRevised Leniency Program “Frequently Asked Questions”

OnJanuary26,2017,theDOJupdatedapolicystatementtoitsLeniencyProgram.Thepolicystatementispublishedas“FrequentlyAskedQuestions”(FAQs)totheLeniencyProgram,andthismarkstheDOJ’sfirstrevisiontotheFAQssincetheywereoriginallypublishedin2008.Inissuingtherevisions,theDOJobservedthatmanyoftheresponsestotheFAQsremainunchanged,andthosethatchangedshouldbeviewedas“clarifications”totheLeniencyPrograminlightoftheDOJ’sexperienceoverthelasttenyears.ThenewFAQs,however,containanumberofsignificantupdates.

First,theDOJ’srevisedFAQsstatethatunderacertaintypeofleniencyapplication(referredtoasTypeBleniency),officers,directors,andemployeesmustseparatelyearnimmunity,i.e.,stressingthatimmunityisnotautomaticforemployeesinTypeB leniencyapplications.183Instead,employeesoftheTypeBcorporate

leniencyapplicantwillbetreated“asiftheyapproachedtheDOJindividually”withtheagencyspecificallyreservingtherightto“exercisediscretiontoexclude”themfromleniencyprotection.184ManypractitionersarguedthatthisisasignificantshiftintheDOJ’spractice.185Inpastpractice,theDOJtendedtograntimmunitytoemployeesofaTypeBleniencyapplicantunlesstheemployeewasuncooperativeintheinvestigation.IntheupdatedFAQs,theDOJstressesthatbecauseTypeBleniencyisdiscretionary,itwillconsideranindividual’slevelofcooperationandculpabilitybeforegrantingimmunitytotheindividualemployee,and“highlyculpable”employeesmaybeexcludedaltogether.PractitionersobservedthattheupdatedFAQsthusleftopenthepossibilitythatindividualsworkingfortheleniencyapplicantmayadmitwrongdoingandfullycooperatewiththeinvestigation,butfacecriminalprosecutionnevertheless.186

Second,andrelatedly,theupdatedFAQsprovidefurtherguidanceontheprotectionofacorporateleniencyapplicant’sformeremployees.Previously,theFAQsnotedthatitwas“advisable”forthecorporationtoseekprotectionforformerofficers,directors,oremployees,andindicatedthattheDOJwouldconsideranumberoffactors,including“mostimportantly”theformeremployees’cooperation.187 TheupdatedFAQsnowclarifythatallformeremployeesare“presumptivelyexcludedfromanygrantofcorporateleniency”butintwoscenariostheycanbeofferedprotection:1)wheretheyprovide“substantial,noncumulative”cooperationagainstotherpotentialtargets;and2)wheretheircooperationisnecessaryforthecompanytoadmititscriminalviolation,anenumeratedrequirementundertheLeniencyProgram.Byoutliningthesetwospecificscenarios,thisnewguidancesignalsastricterapproachbytheDOJas

totheeligibilityofanapplicant’sformeremployeesforleniencyprotection.

Third,theupdatedFAQsmakeclearthattheAntitrustDivision’sLeniencyProgramofferscoverageonlyforantitrustcrimesandnottootherpotentialcriminalconduct.ThepreviousFAQsweremoregenerous,offeringpotentialprotectionforcriminaloffensescommitted“inconnectionwith”thereportedantitrustoffense.ThenewFAQsomitthislanguageandinsteadnotethatleniencyprotectionwillnotextendtonon-antitrustcriminalconductunlesssuchconductwas“integral”totheantitrustcrimeitself.Bywayofexample,theDOJnotesinthenewFAQsthat“emailingconspiratoriallysetbids”mightseparatelyalsobemailorwirefraud,buttheapplicantwillnotbeprosecutedforsuchanoffensecommitted“infurtheranceof”theantitrustviolation.ThisexamplestandsincontrasttotheexampleinthepreviousFAQsofacompanybribingaforeignpublicofficial,inviolationoftheForeignCorruptPracticesAct(FCPA),tosteercontractsaspartofabid-riggingconspiracy.ThepreviousFAQsnotedthatifthosebribeswere“inconnectionwith”thebidrigging,thentheleniencyapplicantcouldbecoveredforthatconductaswell.Indeed,theupdatedFAQsspecificallydisavowthisscenario,notingthatbribespaidinviolationoftheFCPAwouldnotbecoveredeveniftheyweredone“infurtheranceof”theantitrustcrime.Inthisway,theDOJsoughttoemphasizethattheLeniencyProgramisdesignedtoofferleniencytoantitrustoffensesonlyandtoclarifythattheDOJdoesnotexpectittobeavehiclebywhichapplicantscanseekimmunityforothercriminaloffenses.

Fourth,theupdatedFAQsaddanewdiscussionoftheDOJ’sPenaltyPluspolicy,whichprovidesthatifacorporationpleadsguiltytoanantitrustcrimeandthen


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DOJlaterindependentlylearnsthatthecorporationfailedtoreportitsinvolvementinaseparateantitrustcriminaloffense,theDOJwillseekaharsherpenaltywithrespecttothatnewlydiscoveredoffense.Theseverityofthatpenaltywilldependonthefactsofthecase,includingwhythecorporationfailedtoreporttheseparateoffense,buttheFAQsdonotethatin“egregious”cases,theDOJwouldrecommendfinesatthetoporevenbeyondtheapplicablestatutoryrangeandimpositionofanexternalcompliancemonitoratthecompany.

Fifth,theupdatedFAQsclarifiedthattheDeputyAssistantAttorneyGeneralortheDirectorofCriminalEnforcementmustapprovetheissuanceofleniency“markers,”whichholdpotentialleniencyapplicants’placesinlineforimmunity.ThismakesclearthattheDOJ’sstaffattorneysorsectionmanagementcannotfinallyapprovea“marker”decision.

Inadditiontotheabove,theupdatedFAQsprovideawealthofinformationtocorporationsandindividualsabouttheLeniencyProgram,andcompaniesandcounselshouldreviewtheseFAQsindetailwheneverconsideringapplyingforleniencywiththeDOJ.WhethertheupdatemarksasignificantshiftincertainpracticesorsimplyaclarificationofexistingDOJpracticeremainstobeseenintheyearsahead.

Antitrust Guidelines for International Enforcement and Cooperation

Inearly2017,theDOJandtheFederalTradeCommission(FTC)jointlyreleasedupdatedAntitrustGuidelinesforInternationalEnforcementandCooperation,whichshowthecontinuedpriorityofinternationalcriminalcartelenforcement.Buildingonthepreviousguidelinesfrom1995,thenewguidelines

discusstheDOJ’seffortstocoordinatewithforeignauthoritiesincriminalcartelinvestigations.Consistentwithpastyearsofenforcement,theguidelinesnotethatwhereforeigncompaniesandindividualsareinvolvedinconductaffectingmarketsintheU.S.,theDOJwillnothesitatetorelyonanumberofdifferenttoolstoidentifyandprosecutetheconduct.TheguidelinespointtothenumerousMutualLegalAssistanceTreatiesthatobligateforeignauthoritiestoassisttheDOJingatheringevidenceandservingsubpoenasinforeignsignatoryjurisdictions.

ThenewinternationalguidelinesalsohighlighthowtheDOJworkswithforeigncompetitionauthorities,sharinginformationandattimesconductingjointoperations,suchasonsiteinspections,dawnraids,orsearchestogatherevidenceandavoiddocumentdestruction.TheguidelinesmakeclearthattheDOJexpectscooperatingwitnessesandparticipantsintheLeniencyProgramtoprovidedocumentaryevidenceintheirpossession,custody,orcontrol,evenwhensuchevidencemaybelocatedabroadandoutsidetheDOJ’sordinaryjurisdictionalreach.TheDOJ,inturn,seekstocoordinatewithforeignauthoritiestoavoidoverlappingorinconsistentrequestsanddecreasetheburdenplacedonsuchcooperatorswhereverpossible,pertheguidelines.

TheupdatedinternationalguidelinesmakeclearthattheDOJwilluseallavailabletools,includingissuingINTERPOLRedNotices,todetainfugitiveswhohavebeenindictedincriminalantitrustinvestigationsbutwhohavenotappearedintheU.S.tofacecharges.Thosenoticesmaypromptaforeignjurisdictiontoarrestthefugitiveshouldheorsheenteritsterritory,suchasatanairport.Moreover,buildingontheDOJ’sextraditionsuccessesinthepastdecade,theguidelinesmakeclearthat

theDOJwillseekextraditionoffugitivedefendantsfromforeignjurisdictionstotheU.S.,ifnecessary.

Last,theupdatedguidelineshighlighttheexpansiveapproachtheagenciestaketocommerceoutsideoftheU.S.andthereachofU.S.antitrustlaws.TheDOJconsidersnotonlyimportcommerceaffectedbyantitrustconduct,butalsotheeffectofforeigncommerceincludingsalesoccurringwhollyabroad.UndertheForeignTradeAntitrustImprovementsActof1982(FTAIA)ifthoseforeignsaleshavea“direct,substantial,andreasonablyforeseeable”effectonU.S.commerce,theyfallwithinthereachoftheU.S.antitrustlaws.Asaresult,andtheguidelinesmakeclear,evennon-importcommerceorU.S.exportcommerceimpactedbyapricefixingorotheranticompetitiveagreementabroadcanfallwithinthereachofU.S.antitrustenforcers.Emphasizingthattheanalysisishighlyfactual,theguidelinesgivetheexamplethatsalesofprice-fixedcomponentsabroadthataresubsequentlyintegratedintofinishedproductsimportedintotheU.S.couldverywellhavethedirect,substantial,andreasonablyforeseeableeffectonU.S.commercetobeactionableundertheantitrustlaws.AnotherexamplenotesthatevenproductsaffectedbyanticompetitiveagreementssoldexclusivelyabroadandneverimportedintotheU.S.canbesubjecttoU.S.antitrustlawifthefixedpriceaffectstheworldwideorbenchmarkpriceoftheproductandwherethesameproductissoldintheU.S.bynon-conspirators.Whiletheanalysisisveryfact-specific,theguidelinesindicatethatwhereverthereisevenanindirecteffectofsuchanagreementonU.S.commerce,theagencieswillnothesitatetobringanenforcementactionifnecessary.


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Advocacy for Per Se Standard

TheDOJhasrecentlygivenrenewedattentiontotheimportanceoftheperselegalstandardinantitrustcriminalenforcement.188OnSeptember12,2017,AndrewFinch,theActingAssistantAttorneyGeneralatthetime,deliveredaspeechdiscussingtheimportanceofthepersestandardinantitrustenforcement.Inthatspeech,Finchobservedthatthepersestandardprovidesmuch-neededclarityforbusinessesaswellastoregulators.HefurtherdeclaredtheDOJ’scommitmentto“continuetoadvocateforaclearperserule”toapplytoallsortsofagreementsamonghorizontalcompetitors,includingthoseinthelabormarketthatrestrictthehiringorcompensationofemployees.189 Notably,thisspeechfollowedthefederaldistrictcourt’sdecisioninUnited States v. Kemp & Associates.Asdescribedabove,thefederalcourtinthatcasequestionedwhethertheperseruleshouldapplytotheconductatissue,describingtheallegedagreementamongthecompetitorsas“unusual”suchthatitshouldnotbesubjecttoaperseanalysis.

Antitrust Guidance on Disaster Relief Efforts

ManypartsoftheU.S.anditsterritoriesweredevastatedin2017byhurricanesandwildfires.OnSeptember12,2017,theDOJandtheFTCreleasedajointmemorandumprovidingguidanceoncompliancewiththeantitrustlawsinconductingdisasterreliefefforts.Whiletheguidanceismeanttoapplygenerallytovariousconduct,itislargelyfocusedonremindingcompetitorstoavoidimpropercollusion,whichcanleadtocriminalexposure.TheDOJhaspreviouslybeenactiveininvestigatingprocurementfraudandbid-riggingviolationsonitsownandinconnectionwithmulti-agencytask

forces.Withsimilarfocus,theDOJandtheFTCcautionedinthejointmemothatbusinessesshouldavoidpricefixing,bid-rigging,andmarketallocationagreements,andnotedthattheDOJremainedpoisedtocriminallyprosecutesuchviolations.Atthesametime,theDOJandtheFTCrecognizedthattheantitrustlawswere“sufficientlyflexible”andthatcompetingfirmsmayneedtocooperateduringtherecoveryefforts.190Theagenciesstatedthat“jointeffortsoflimiteddurationbybusinessestorestore[critical]servicesmoreeffectivelyandtoassisttheaffectedcommunitiesinrecoveringfromthedevastationmaybebeneficial”andrecognizedhowcompetitorsmayenterintojointventures,jointlicensing,andothercontractualarrangementsduringtherecoveryprocess.Theagenciesnotedhow“[a]ntitrustanalysisofthesecollaborativearrangementscan—andwill—takeintoaccountthechangesinmarketconditionsasaresultofthehurricanes”andsignaledtheircommitmentto“reasonableandresponsible”antitrustenforcementunderthecircumstances.Theguidelinesservedasaremindertocompaniesthatblatantviolationsoftheantitrustlawswouldnotbetolerated,butthattheagenciesrecognizedthedifficultiesinvolvedindisasterrelief,andthefactthatcompetitorsmayneedtocollaborateandsupporteachother’seffortstorebuildandrestoreaffectedareas.

Guidelines for HR Professionals: Criminal Enforcement for Collusion in Labor Markets

Inlate2016,theDOJandtheFTCjointlypublishedapapertitled“AntitrustGuidanceforHumanResourcesProfessionals”(HRGuidance).191ThisHRGuidancehighlightedthatcertainformsofhorizontalcollusionand

informationexchangeswithinthelaborandemploymentcontextcouldviolatetheantitrustlaws.Ofparticularconcerntotheagenciesareinformation-sharingand/oragreementsregardingemployeesalaryorothertermsofcompensation,eitherataspecificlevelorwithinarange(so-calledwage-fixingagreements),orcollectiverefusalstosolicitorhireothercompanies’employees(so-called“nopoaching”agreements).Further,theHRGuidanceservedtoputcompaniesandindividualsonnoticethatDOJmightprosecutesuchconductcriminally.Inthepast,theDOJhasbroughtanumberofcivil“nopoach”casesregardingallegedcollusionbycompaniesinlabormarkets,butnotcriminalcharges.Althoughnocriminalcaseswerefiledin2017,twoDeputyAssistantAttorneysGeneral(AndrewFinchandBarryNigro)commentedpubliclythattheDOJisreadyingcasesregardingsuchagreements.CompaniesthathaveengagedinbenchmarkingstudiesandanalysisorhavetradeassociationparticipationonhumanresourcesissueswillwanttopaycloseattentiontotheDOJ’spursuitinthisspace,particularlygiventhebroadimplicationsforhiringandthesettingofwagesandcompensationinvariouscontexts.

EnforcementAgainstCollusiveConductOutsidetheU.S.CompetitionagenciesoutsidetheU.S.alsocontinuedtobeactiveagainstcollusiveorcartelconductin2017.Whilesomedonotpursuesuchconductcriminally,theygenerallyviewtheconductsimilarlytotheDOJandimposeharshciviloradministrativesanctionsagainstcompaniesengagedinsuchconduct.Belowaresomeofthemorenotableenforcementactionsandpolicyupdates


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takenbycertainagenciesagainstcollusiveconduct in 2017.

Canada.TheCanadianCompetitionBureau(CCB)recentlyreleaseda“RevisedImmunityProgram.”Someofthekeyprovisionstotheprograminclude: (i)allowingtheCCBtorecordoralproffersprovidedduringaninvestigation; (ii)reinforcingthatindividualswillnotbeautomaticallycoveredundercorporateimmunity;(iii)introducingan“InterimGrantofImmunity”stageintheleniencyprocessthatclarifiesthatfullimmunityiscontingentoncooperationbytheapplicant;(iv)allowingfortherecordingofwitnessinterviews;and(v)requiringapplicantstodisclosecertaintypesofmaterials,includinginternalinvestigativerecordsunlessprivileged.TheimplicationsforthesepotentialmodificationstotheImmunityProgrammaycomplicatetimingandprocessassociatedwithcross-borderinvestigationsandadduncertaintytodiscoverablematerialstocivilproceedings.

China.CompetitionauthoritiesinChinahaveremainedveryactiveinthepastyear,bringingenforcementactionsagainstcollusiveconductinanumberofindustries.ThisisparticularlynotablegiventhatChina’sprimarycompetitionlawisrelativelynewcomparedtoothercountries(i.e.,China’sAnti-MonopolyLawisinitstenthyear).Chinahasdemonstratedthatitisdevelopingasophisticatedenforcementprograminaveryshortperiodoftime.Asanexample,in2017,oneoftheChineseagenciesresponsibleforenforcingthecompetitionlaws,theNationalDevelopmentandReformCommissionofthePeople’sRepublicofChina(NDRC),imposedfinesonacompanyforobstructingoneofitsinvestigations,markingthefirsttimeacompanyhasbeenfinedforobstructioninacompetitionlawinvestigationinChina.OnFebruary13,2017,theNDRCannouncedthatit,alongwiththelocalbranchofShangdong

PriceBureauandthePriceSupervisionandAnti-MonopolyBureau,finedWeifangLongshunePharmaceuticalRMB120,000forobstructingjustice.Allegedly,certainWeifangemployeesthrewawayUSBflashdrivesandsecretlyreplacedthemduringadawnraid.ThisactionreflectshowChina’scompetitionagenciesareemployingallmeansnecessarytoensuretheintegrityoftheirinvestigations.

European Union. TheEuropeanCommission(EC)haslongbeenactiveinitsenforcementagainstcollusiveconduct.Belowareafewdevelopmentsfrom2017:

• Trucks.InJuly2016,theECimposeditshighestevercartelfine,amountingtoapproximately$3.2billion,onseveraltruckmanufacturersforalong-standingcartelthataffectedthemajorityoftruckssoldintheEuropeanEconomicArea(EEA)between1997and2011.192InSeptember2017,anadditional$1billionwasimposedonafifthtruckmanufacturer,Scania,thatrefusedtosettlewiththeECandcontestedthecharges.193 Aside fromthe$4.2billionaggregatefine,thecartelistsfacetheprospectofsignificantprivatedamagesclaimsbeforenationalcourtsgiventhescopeofthecartel.UndertheEUDamagesDirective,claimantscannowrelyonthefinaldecisionofacompetitionauthorityasprimafacieevidenceofaninfringement,makingiteasiertobringfollow-ondamagesclaimsandpotentiallymakingcartelconductconsiderablymorecostly.SeveralclassactionsandindividualclaimsareongoinginIreland,Germany,theNetherlands,andtheUK.

• Automotive Industry.Therehavebeenwide-rangingautomotivepartscartelinvestigationsbytheECin

recentyears,andtheECissuedfourinfringement decisions in 2017:

-InFebruary2017,a$75millionfinewasimposedforanticompetitivepracticesconductedbyaso-called“buyer’scartel.”Unlikemostcartelparticipantswhocolludetoincreasetheirsaleprices,inthiscasefourrecyclingcompaniescolludedtoreducethepurchasepricepaidtoscrapdealersforrecycledcarbatteries.194

-InMarch2017,sixcarairconditioningandenginecoolingsupplierswerefinedatotalof$163millionfortheirparticipationinfourdifferentcartelsfocusedonthecoordinationofpricesandmarketsaswellastheexchangeofcompetitivelysensitiveinformation.195

-InJune2017,theECimposeda$30millionfineontwocompanies,HellaandAutomotiveLighting,forcoordinatingtheirpricingstrategiesforthesaleofvehiclelightingsystemstocarmanufacturers.Athirdcompany,Valeo,receivedimmunityfordisclosingthecarteltotheEC.196

-InNovember2017,theECfinedfivecarsafetyequipmentmanufacturers$40millionfortheirparticipationinfourdifferentcartels.Thecartelaffectedsalesofseatbelts,airbagsandsteeringwheelstoJapanesecarmanufacturersToyota,Suzuki,andHonda.197


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• Airfreight.InNovember2017,theEuropeanCourtofJustice(ECJ),theEU’shighestcourt,confirmedafineimposedonBritishAirwaysforparticipatinginapricefixingcartelforfuelandsecuritysurcharges.198 BackinNovember2010,theECfined11airlines$1.1billionforsuchconduct,howevertheGeneralCourt(GC)overturnedthefinein2015onproceduralgrounds.199Unliketheotherairlinesinvolvedintheappeals,BAhadsoughtonlyapartialannulmentofthedecision.Asthe2015reversaldidnottouchuponthesubstantiveissuesofthecase,theECdidnotappealandinsteadadoptedanewcorrecteddecisioninMarch2017thatre-establishedfinesofapproximately$829million.200Thematterisnotover;severalappealsagainstthesecondECdecisionarenowpendingbeforetheGC.201

• Cathode Ray Tubes.OnSeptember14,2017,theECJrejectedappealsbroughtbyLGandPhilipsagainsttheGC’s2015judgments,whichhadconfirmedtheEC’s2012infringementdecisioninthecathoderaytubecartels.202Thetwocartelsconsistedofpricefixing,allocationofmarkets,customersandsalesvolumesandimproperexchangesofinformation.Indismissingtheappeal,theECJprovidedusefulguidanceontwoissues:(1)“valueofsales”includessalesoffinishedproductsincorporatingthecartelizedproductsintheEEA,evenwhentheproductwassoldfirsttoentitiesoutsidetheEEAviaintragroupsales;and(2)salesofcartelizedproductsbetweenajointventureanditsparentswillbeconsideredas“intragroupsales”whichcanbetakenintoaccountbytheECforthecalculationoffinesfortheentiregroup.

• New EC Whistleblowing Tool. Untilnow,mostcartelsintheEEAweredetectedthroughtheEC’sleniencyprogram,whichallowedcompaniestodivulgetheexistenceofacartelandadmittheirparticipationthereininexchangeforimmunityorareductioninfines.InMarch2017,theECintroducedanewwhistleblowingtoolthatenablesindividualswhomighthaveinformationregardingtheexistenceofasecretcartel(orothertypesofantitrustviolations)toanonymouslyinformtheEC.203ThisnewtoolunderlinestheneedforcompaniestohavetheirowninternalcompliancereportingtoolssothatemployeescanraisepotentialantitrustviolationsinternallyinsteadofescalatingthematterthroughtheEC’swhistleblowingtool. Japan.TheJapanFairTradeCommission (JFTC) continued its aggressiveenforcementregardingcollusionin2017aswell.Inthelastyear,therehavebeenacoupleofnotabledevelopmentsthatcouldsignificantlyaffecthowcompaniesapproachinvestigationsofpotentialcollusion.

•First,onApril25,2017,theJFTCpublishedareportfocusingonthecurrentsurchargesystemofimposingfinesundertheAntimonopolyAct,andproposingcertainrevisionstothesystem.Thecurrentsystemprovidesleniencyapplicantsautomaticdiscountsoncetheinitialeligibilitycriteriabytheapplicantaresatisfied.TheJFTCisnotaffordedthediscretiontoadjustthesurchargeorleniencybenefitsaccordingly,whichitisreportedmaynotprovideanincentiveforapplicantstocontinuecooperationintheinvestigation.Theproposed

revisionstothesurchargesystemwillprovidetheJFTCwithmoreflexibilityanddiscretiontoimposesurchargepaymentstomotivateanapplicanttocooperatethroughouttheinvestigation.

•Second,inthesamereport,theStudyGroupontheAntimonopolyActfurtherdiscussedwhethertorecognizecertainlegalprivilegesinJFTCinvestigations.InJapan,theattorney-clientandattorneyworkproductprivilegesarenotrecognizedasbroadlyasinotherjurisdictions.Therehasbeenanongoing discussion since 2014 of introducinglegalprivilegesintheJFTCinvestigations,andin2017theStudyGroupreexaminedtheissue.TheStudyGroupobservedthatundertheproposedrevisedleniencysystem,consultationwithattorneyswouldbecomeindispensableforleniencyapplicantsifcontinuouscooperationisincentivized.Withouttheprivilegeprotection,leniencyapplicantsmightdeterconsultationwithattorneysandrestrainthefact-findingeffortsduringtheinvestigation.TheStudyGroupconcludedthatitisanoteworthyconcern,andwilltaketheissueintofutureconsideration. South Korea.TheKoreanFairTradeCommission(KFTC)strengtheneditsenforcementprogrambyintroducinganamendmenttoitscompetitionlawsthatwouldincreasethefinancialpenaltiesforlong-termorrepeatviolations.Specifically,theamendmenttotheMonopolyRegulationandFairTradeActandNotificationonImpositionofPenaltySurchargewouldallowtheKFTCtoincreasetheadministrativefinesforillegalanticompetitiveconductwithanadditionalmultiplierofupto


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ThisYearinShermanActSection1and2LitigationThisyear,large-scalecivilantitrustlitigationcontinuedtobeextremelyactive,withdevelopmentsinbothSection1andSection2cases.Casesinvolvingallegationsofcompetitoragreementsand/orothercollusionhavebeenbroughtagainstcompaniesintechnology,chemicals,electronics,andpharmaceuticalsectors.Thesecasesaretypicallybroughtonbehalfofpurchasersinfederalclassactions,aswellasbycompetitorsorotherentitiesinnon-classcases.Manyofthemostsignificantcasesare“followon”civildamageclassactions,i.e.,arecasesseekingmonetarydamagesthatfollowgovernmentantitrustenforcementactionsorinvestigationsbytheU.S.DepartmentofJustice(DOJ)ortheFederalTradeCommission (FTC).

Price-Fixing Litigation

U.S. Supreme Court Petition. In 2017, theU.S.SupremeCourtsolicitedviewsonwhetheritshouldhearargumentinthelong-runningVitaminCcase,inwhichSection1claimswerebroughtagainsttwoChinesemanufacturersforanallegedconspiracytofixthepricesandoutputofVitaminC.207LastSeptember,inanimportantdecisionregardingcomitybetweenU.S.andforeignlaws,theU.S.CourtofAppealsfortheSecondCircuitvacateda$150millionjuryverdictagainstthetwoChinesemanufacturers.208 ThepanelrecognizedtheChinesegovernment’sofficialstatementthatChineselawcompelledtheconductatissue.Findinga“trueconflict”betweenAmericanandforeignlaw,thecourtdismissedthecaseunderthedoctrineofinternalcomityandrecognizedthatthisdisputewouldbetterberesolvedbytheexecutivebranch.DirectpurchaserplaintiffspetitionedtheSupremeCourtto

hearthecasearguingthattheSecondCircuit’scompletedeferencetotheChinesegovernment’sinterpretationofitslawscreatesacircuitsplitwiththeFifth,Sixth,Seventh,Eleventh,andD.C.Circuits,wherecourtsmayexerciseindependentreviewofaforeigngovernment’sinterpretationofitslaws.

Attheendofthe2016term,theSupremeCourtcalledfortheviewsoftheSolicitorGeneral,whoagreedthattheCourtshouldgrantcertioraritoreviewwhethertheSecondCircuitgavethecorrectdeferencetotheChinesegovernment’sofficialstatement.TheCourtshoulddecideinearly2018whethertotakethecase.ShouldtheCourtgrantcertiorari,WSGRpartnerJonathanJacobsonwillbearguingthecaseonbehalfoftheChineseVitaminCmanufacturers.

Oligopoly Markets.AmongthemoresignificantantitrustdecisionsoftheyearwastheU.S.CourtoftheAppealsfor

80percentforeitherlong-termorrepeatviolations.Ifbothconditionsofviolationshaveoccurred,thentheincreasecanbeupto100percentincreaseofthebasefinecalculation.Previously,theincreasetothebasefineforlongtermorrepeatviolatorswasonlybyafactorof50percent.TheenactedamendmentnowallowstheKFTCtoimposeahigherincreasetothefineinanefforttodeter recidivism. United Kingdom. Attheendof2016,theUK’sCompetitionand

MarketsAuthority(CMA)disqualifiedthemanagingdirectorofTrodLimited,anonlinepostersupplier,forfiveyearsinconnectionwiththeprosecutionofanonlineposterscartel,whichservesasareminderthatsomejurisdictionsdomorethanseekfinesandjailsentences.204 In2017,theCMAalsopublishedawarninglettertocompaniesinthe“creativeindustries”remindingthemthat,intheUK,themeresharingofsensitiveinformationbetweencompetitorscanviolatethecompetitionlaws.TheCMAissued

thisletterbecauseitperceivedthatknowledgeofcompetitionlawinthatsectorwasespeciallypoor.205TheCMAletterfollowedtheCMA’sinvestigationintoacartelinvolvingfivemodelagencies,inwhichtheCMAimposedfinestotalingapproximately£1.5million(approximately$million)betweenApril2013andMarch2015.206 In additiontocautioningagainstpricefixing,theCMA’sletterremindedbusinessesthattheCMAwillnottolerateeventhesharingofsensitiveinformation.

CivilLitigation


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theThirdCircuit’saffirmationofsummaryjudgmentinfavorofdefendantsinValspar Corp. v. E. I. Du Pont De Nemours & Co.209 Thiscasefocusedonanoligopolisticmarket,i.e.,oneinwhichasmallnumberoffirmsdominatethemarket.TheThirdCircuitheldthat,inanoligopolisticmarket(inthiscase,titaniumdioxide),proofofparallelpriceincreasesandlimitedcircumstantialevidencewasnotsufficientevidencetoestablishSection1price-fixingallegations.Ingrantingsummaryjudgment,thecourtexplainedthatthedemonstratedparallelpriceincreaseswereanexampleof“consciousparallelism,”atheorythatpartiesinanoligopolisticmarketwillraisepricesinresponsetorivalpriceincreases,ifitisbelievedthatdoingsowillmaximizeindustryprofits.Such“parallelism,”however,caninvolveunilateraldecisionandmaynotindicateanyactualcoordinationoragreementtoincreasepricesamongcompetitors.Thecourtthereforefoundthattheplaintiffsfailedtoshowevidenceofanagreementtoraisepricesamountingtoaconspiracy.EspeciallyintheThirdCircuit,whichhasbeenanactivevenueforantitrustlitigation,theValspardecisionisnoteworthybecauseitraisesthebarforaplaintifftoestablishanantitrustprice-fixingclaiminanoligopolisticmarket,absentdirectevidenceofanunlawfulagreement.

Antitrust and Arbitration Clauses.Inaprice-fixingcaseinitiallybroughtagainstUber’sthenfounder,TravisKalanick,andUberdrivers,theU.S.CourtofAppealsfortheSecondCircuitreversedthelowercourt’sdecisionandheldthatUber’stermsofservicerequireconsumerstoarbitratealldisputesbeforeproceedingwithacourtaction.210ThepanelwasconvincedthatconsumersweresufficientlyonnoticeofUber’stermsofservice,whichincludedanarbitrationprovision,basedonthewarningtextusedontheregistrationscreen.Thiscasefollowsafteralonghistoryoflitigationreflectingatensionbetweenupholding

contractualarbitrationclausesandtheabilitypartiestoseekdamagesviacivilclassactions,includingIn American Express Co. v. Italian Colors Restaurant,211 inwhichtheU.SSupremeCourtheldthatanarbitrationprovisioncouldnotbeoverturnedevenifanarbitrationwouldcostpotentialplaintiffsmorethantheycouldrecoverindamages.ManyofWSGR’stechnologyandotherclientsoftenarecalledtodefendtheirtermsofserviceincourt,andthus,theSecondCircuit’sdecisionheremaybefavorableprecedentinfuturedisputes.

Pharmaceutical “Follow-On” Litigation. Sincethebeginningoftheyear,thealreadyexpansivelitigationagainstgenericdrugmanufacturers,In re Generic Pharmaceuticals Pricing Antitrust Litigation, hasgrownevenfurther.Theselarge-scaleclassactioncaseswerefirstfiledbyprivateplaintiffpurchasersinparallelwithongoinginvestigationsbytheDepartmentofJusticeandtheStateAttorneyGeneralforConnecticut.InApril2017,theJudicialPanelonMultidistrictLitigation(JPML)consolidatedapproximately70casesagainstthedrugmanufacturersandtransferredallactionstoJudgeCynthiaRufeintheU.S.DistrictCourtfortheEasternDistrictofPennsylvania.212 After consolidation,theprivateplaintiffsinthemulti-districtlitigation(MDL)filedamendedcomplaintsinAugust2017allegingproduct-specificconspiraciesconcerning18drugs:albuterol,amitriptyline,baclofen,benazeprilHCTZ,clobetasol,clomipramine,desonide,digoxin,divalproexER,doxycycline,econazole,fluocinonide,glyburide,levothyroxine,lidocaine/prilocaine,pravastatin,propranolol,andursodiol.Forpurposesofmotiontodismissbriefing,thecourtdividedthe18drugsintothreegroupsofsixdrugs.Motionstodismissclaimsallegingprice-fixingconspiraciesastothefirstgroupofdrugwerefiledinOctober2017,oppositionbriefswere

filedinDecember2017,andreplybriefsaredueinJanuary2018.Themotionswilltestthesufficiencyofthecomplaints,andtheissuesraisedintheValspar decision discussedabovewillberelevanthere.Motionstodismissfortheothergroupswillbefiledlaterin2018.

InDecember2016,attorneysgeneralfrom20statesfiledacomplaintwiththeU.S.DistrictCourtfortheDistrictofConnecticutregardingtwodrugs—aformofdoxycyclineandglyburide.TheJPMLconsolidatedthisaction(whichhadgrowntoincludeoverfortystateattorneysgeneral)withtheclassactionsintheMDLinAugust2017.AttheendofOctober,thestateattorneysgeneralmovedforleavetofileanamendedcomplaintpurportingtoexpandtheircomplainttoincludethirteenadditionaldrugs(noneofwhicharecurrentlyatissueinanyoftheclassactionsuits)andaddingnumerousadditionaldefendants.Notably,theattorneysgeneralproposetoallegeanoverarchingconspiracycoveringmultipledrugs,whereastheprivateplaintiffshavemaintainedindividualdrug-specificactions.Briefingonwhetheramendmentwillbepermittedwillextendinto2018.WSGRiscurrentlyrepresentingMylaninthislitigation.

FTAIA: Litigation Involving Overseas Parties and Commerce.FederalcourtlitigationregardingtheextraterritorialreachofU.S.antitrustlawsincivildamagescasescontinues.Thissubjectmattersinantitrustcaseswhereabroadscopecoulddrawinnon-U.S.defendantsandsignificantnon-U.S.salesorcommerceasdamagesintoaU.S.classactioncase.Inrecentyears,multiplecaseshavebeenarguedinfederalCourtsofAppeal,withafocusontheinterpretationoftheForeignTradeAntitrustImprovementAct(FTAIA).TheFTAIAputslimitsonthereachofU.S.lawtocasesthatprimarilyconcernforeigncommercethatdoesnotdirectlyimpactU.S. consumers.


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Towardstheendof2016,JudgeJamesDonatooftheU.S.DistrictCourtfortheNorthernDistrictofCaliforniaissuedacriticaldecisioninterpretingthecurrentstateofFTAIA.InIn re Capacitors Antitrust Litigation,aSection1classactionlitigationfollowinganumberofinternationalcriminalinvestigationsintoanallegedcartel,JudgeDonatoorderedthatasamatteroflaw,damagesarenotrecoverableonpurelyforeigntransactions(i.e.,transactionsbilledtoandshippedtocustomerslocatedoutsideoftheU.S.)wheretheplaintiffsareclaimingthatforeigncapacitormanufacturersimplementedglobalpricingincreases.213Soonafterthecourt’sorder,allofthepartiesstipulatedthatpurelyforeigntransactionsareexcludedfromthecase.Forthemajorityofthedefendantsinthisclassactionandotherclassactionsinvolvingoverseasconductandparties,includingWSGRclientHitachiChemicalCo.,Ltd.,thisrepresentsasubstantialvictorybecausemorethan90percentofthecapacitorsalestheymadeduringtherelevanttimeperiod(2003-2014)couldnotbeclaimedasdamages.

Monopolization and Single-Firm Conduct Litigation

In re Photochromic Lens Antitrust Litigation. ThisyearbroughtthesuccessfulconclusionofamultiyearMDLfacedbyTransitionsOptical,Inc.(TOI),whichwasdefendedbyWSGR.FollowingaconsentdecreewiththeFTCregardingTOI’sloyaltydiscountsandexclusivedealingforlens-relatedproducts,morethan30lawsuitswerebroughtbyprivateplaintiffs,includingclassactionsonbehalfofdirectandindirectpurchasers,aswellasasuitbroughtbyacompetitor(Vision-EaseLensWorldwide).214

Bothdirectpurchasers215andindirectpurchasers216failedtoobtaincertificationoftheirproposedclassesbasedonextensiveeconomicexpertanalysisdone

byallsides.Ultimately,TOIwasabletodemonstratethattheclassplaintiffscouldnotshowhigherclass-wideprices,andthatconflictsofinterestbetweentheclassmemberswhobenefitedfromtheallegedexclusionarypracticesandthosethatclaimedtohavebeenharmedmeantthattheclassrepresentativescouldnotfairlyandadequatelyrepresenttheproposedclasses.217Thisquestion—whetheraproposedclasscanshowpredominance—arisesineveryantitrustclassactionandrequiresspecializedexpertisebyboththecounsellitigatingthecaseandeconomicexpertscalledupontoanalyzedata,performregressionanalyses,andopineonhighlycomplexstatisticalmodels.

Afterclasscertificationwasdeniedforboththedirectandindirectpurchasers,thelitigationwastransferredtotheU.S.DistrictCourtfortheDistrictofDelawareforresolutionofcompetitorplaintiffVision-Ease’sclaimsagainstTOI.Afteradditionalexpertdiscoveryandbriefing,thecourtfoundthatTOIwasentitledtosummaryjudgmentonVision-Ease’srefusaltodealclaim,duelargelytoTOI’sdemonstrationofitswillingnesstocontractwithVision-EaseandVision-Ease’sfailuretopursuetherelationship.218

PriortoatrialthatwassetforJune2017concerningasingleremainingclaimonexclusivedealingallegations,TOIandVision-Easereachedasettlementtoresolvethelitigation.ThesettlementallowedTOItoavoidfacingajurytrialoncausesofactionforwhichtheplaintiff,Vision-Ease,claimedhundredsofmillionsindamages.

Continuing Litigation Regarding Exclusivity and Exclusionary Conduct.In2017,therewerealsoseveralfederalcourtcasesinwhichdistrictcourtswereunwillingtodismissantitrustcases.InComplete Entertainment Resources LLC v. Live Nation Entertainment, Inc. et al,219the

districtcourtdeniedLiveNationandTicketmaster’smotionforpartialsummaryjudgmentinasuitbroughtbySongkick,aconcertticketingstart-up.Songkickhasallegedavarietyofantitrustviolations,includingamonopolizationclaimunderSection2oftheShermanAct,stemmingfromTicketmaster’scontractswitheventvenues.

Songkick’sbusinessmodelreliedon“providingeventticketingservicesfor‘artistpresales.’”220However,Ticketmasterarguedits(typicallymultiyear)exclusivecontractswithvenuesgaveit“exclusiveticketingrightstoallticketsatthatvenue,includingartistpresales.”221Songkickallegedthatartistshavehistoricallyexpectedacertainvolumeofpresaleticketsthattheycouldcontrolanddistributetofansandpresentedevidencethat“artistsprefertopurchaseticketservicingonanentiretourbasis.”222 As such,accordingtoSongkick’sallegations,Ticketmaster’s“overwhelmingmarketshare”allowsittoexcludeSongkickfrompresalesatvenueswithcontractswithTicketmasterandthusrendersSongkick“effectively...unabletoacquireanybusinessfromartistsforthepresaleticketingservicingneeds.”223

Thecourtfoundthatthereis“noquestion”thatarestraintoftradeisatissueinthelitigation,andstatedforTicketmastertowinatsummaryjudgment,itwill“essentiallyneedtoshowthat[p]laintiffhasfailedtomeetitsburdentoshowananticompetitiveeffectderivedfromtherestraintsatissueeitherasamatterofevidentiaryproductionorasamatteroflaw.”224

Similarly,inarecentdecision,theU.S.DistrictCourtfortheSouthernDistrictofNewYorkissuedanorderdenyingKeurigGreenMountain,Inc.’smotiontodismisstheMDLantitrustclaimsbroughtbydirectpurchasersofK-Cupcoffee


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pods.225Thecommonallegationsacrosstherespectiveplaintiffs’complaintsincludeclaimsthatKeurigforceddistributorsintoexclusiveagreements,improperlyacquiredcompetitors,engagedinshamlitigation,andattemptedtopreventcompetitorsfromenteringthemarket.226 Immunity from Antitrust Liability

Courtscontinuetoexploretheboundariesofimmunitydefensestoantitrustclaims,includingcircumstancesinwhichpartiesareimmunebecausetheyarepetitioningthegovernment(NoerrPenningtondoctrine),filedrateandotherregulatorydoctrines,andsports-relatedantitrustimmunity.

Noerr-Pennington Doctrine. Thispastyear,theNoerr-Penningtondoctrinehasfrequentlybeenusedasadefenseinantitrustlitigationwithvaryingdegreesofsuccess.TheNoerr-Pennington doctrine shieldspartiesfromantitrustclaimswhentheypetitionthegovernmenttotakeaposition.WSGRsecuredanimportantvictoryforAmphastarPharmaceuticals,Inc.inonesuchmatter,Amphastar Pharmaceuticals Inc. v. Momenta Pharmaceuticals, Inc.Amphastar,amanufacturerofgenericenoxaparin,allegedthatitscompetitorsMomentaPharmaceuticals,Inc.andSandozInc.violatedtheShermanActwhenitmisledastandards-settingorganizationcalledtheU.S.PharmacopeialConventionanditsmembersintoadoptingamethodfortestingenoxaparin,ananticoagulantdrug,bynotdisclosingapendingpatentapplicationpotentiallycoveringthattestingmethod.Afterthemethodbecamethestandard,enoxaparinmanufacturerslikeAmphastarallegedthattheywererequiredtouseitfortheirAbbreviatedNewDrugApplication(ANDA)submittedtotheFDA.ShortlyaftertheFDAapprovedAmphastar’sANDA,MomentaandSandoz

suedAmphastarforpatentinfringementandobtainedatemporaryinjunction,whichdelayedAmphastar’sentryintothegenericenoxaparinmarket.

Intheantitrustlitigation,MomentaandSandozarguedthatanydamagesAmphastarsufferedresultedfromthepatentlitigationandthus,theyareimmunefromliabilityunderNoerr-Pennington. ThedistrictcourtagreedanddismissedAmphastar’scomplaintonthisbasis,buttheFirstCircuitreversedholdingthat,“Themereexistenceofalawsuitdoesnotretroactivelyimmunizeprioranti-competitiveconduct.”227Thepanelwentontoobserve,“Inessence,themerefactthatthedefendantsbroughtprotectedpatentlitigationagainstAmphastardoesnotimmunizethemfromliabilityforthefullamountofdamagescausedbytheirallegedantitrustviolation.”228TheFirstCircuitremandedthecasebacktothedistrictcourt,whereadditionalmotiontodismissbriefingispending.

InadditiontotheAmphastarmatter,therewereother importantNoerr-Pennington decisions in 2017. In Polaris Innovations Ltd. v. Kingston Technology Co., Inc.,theU.S.DistrictCourtfortheCentralDistrictofCaliforniadeniedSamsung’smotiontodismissKingston’santitrustcounterclaimsarguingthattheywerebarredunderNoerr-Pennington.229KingstonclaimedthatSamsungfundedPolaris’acquisitionofpatentssoitcouldthenbringshampatentlitigationagainstanyinfringerandbasedonthisshamlitigation,Kingstonsufferedantitrustinjuries.InrejectingSamsung’sargument,thecourtheldthatNoerr-Pennington doesnotapplytoshamlitigation.Butontheotherhand,theFederalCircuitaffirmeddismissalofantitrustclaimsallegingthatSNFfiledbad-faithlitigationagainstitscompetitorstogainmonopolypowerinIndustrial Models, Inc. v. SNF, Inc.230TheFederalCircuitfoundthatIndustrialMotorsfailedtoshow

thatSNFengagedinobjectivelybaselesslitigationorthatSNFengagedinapatternofshamlitigation.231

Filed-Rate Doctrine. Animportantchallengetotheapplicationofthefiled-ratedoctrineiscurrentlypendingbeforetheU.S.SupremeCourt.Thefiled-ratedoctrinegenerallyprotectscarriersfromantitrustlitigationregardingratesthathavebeensubmittedandapprovedbyfederalregulatoryagencies.232Earlierthisyear,theU.S.CourtofAppealsfortheNinthCircuitheldthatthreeairlines(AllNipponAirways,ChinaAirlines,andEvaAirways)cannotescapeanactionalleginganticompetitiveratesthatwerenotfiledwiththeU.S.DepartmentofTransportation(DOT)(e.g.,fuelsurchargesanddiscountfares)underthefiled-ratedoctrine.233Theairlinesarguedthatthesefaresshouldstillbecoveredunderthefiled-ratedoctrinebasedontheDOT’splenaryregulationofairlinefaresandsurcharges,butthepaneldisagreed,notingthatonlythosefaresactuallyfiledwiththeDOTwouldbeexemptfromantitrustclaims.TheairlinesappealedthedecisiontotheSupremeCourtarguingthatthedecisionbelowtramplesontheagencies’exclusiveregulatorypowerandcouldhavesignificantimpactbeyondtheairlineindustryincludingtheenergy,telecommunications,andinsurancesectors.234TheCourtislikelytodecidewhethertohearthecaseinmid-2018.

Sports Litigation. Anotherhistoricalareaofimmunityfromantitrustclaimsarisesinsportscontexts,includingtheSupremeCourt’srecognitionina1922casethatCongressdidnotintendtoregulateprofessionalbaseballundertheantitrustlaws.235Courtshavewrestledwiththisholdingeversince,buthaveultimatelyfoundthatanychangetotheexemptionmustcomefromCongress.MajorLeagueBaseball’s(MLB’s)antitrustexemptionwasunsuccessfullychallengedonnumerous


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occasionsin2017,includinginaSection2caseagainsttheChicagoCubs,broughtbybuildingownerswhoseviewofgameswasobstructedbynewvideoboards.236 TheU.S.CourtofAppealsfortheSeventhCircuitaffirmeddismissalofthecasepursuanttotheantitrustexemption.Intwoothercasesbroughtin2017byminorleagueplayersandscouts,allegingsuppressedwages,theNinthCircuitandSecondCircuitrejectedargumentstooverturntheexemption.237ItisunlikelythatprivatelitigantswillsurmountMLB’santitrustexemptionincourt,butinsteadwillhavetopetitiontheirlawmakersforanymeaningfulchangetooccur.

Trends in PharmaceuticalLitigationLitigationrelatedtopharmaceuticalissuesisoneofthefastestgrowingandmostquicklyevolvingareasoflaw.Thereareseveraltypesofantitrustclaimsthatareuniquetothepharmaceuticalsector,andthesecasesareparticularlycomplexduetoFDAandgovernmentregulatoryrequirements,aswellaspatentandintellectualpropertyrightsthatareoftenimplicated.In2017,anumberofdevelopmentsareworthnotingconcerning:(1)“pay-for-delay”or“reversepayment”casesinwhichcompaniessettlepatentlitigationswithanagreementtodelaygenericentry;and(2)casesinwhichgenericdrugmanufacturerscryfouloverallegedtacticsusedbymarketparticipantstodelayorforecloseentry.

Pay-for-Delay

TheU.S.SupremeCourt’s2013decisionin FTC v. Actavis,238holdingthatreverse-paymentagreementscanviolateantitrustlawsincertaincircumstances,spurredanumberofprivateandgovernmentreverse-paymentlitigationsinrecentyears.

Areversepaymentoccursinapatentlitigationwheretheplaintiffmanufacturerofabrand-namedrugagreestocompensateoneormoremanufacturersofthedefendantgenericdrugs(theallegedinfringers)inexchangeforapromiseofdelayedgenericentryinthemarket.TheSupremeCourtheldthatsuchagreementscanbeunlawfulifthecompensationwas“largeandunjustified”andresultsinharmtocompetition.

First Pay-for-Delay Jury Trial.Sincethe2013 Actavisdecision,plaintiffsinpay-for-delaycaseshavefacedanumberofobstaclesinlowercourts.InIn re Nexium Antitrust Litigation,theonlypay-for-delaycasetriedtoajuryverdictthusfar,defendantsprevailedafterthejuryfoundthatplaintiffsfailedtoproveantitrustinjury(actualharmcausedbythedefendants’conduct),eventhoughthereversepaymentsettlementitselfwasfoundtobeanticompetitive.Specifically,thejuryconcludedthateveniftheanticompetitivesettlementhadnotoccurred,genericentrystillwouldnothaveoccurredanysooner,whichmeantplaintiffswerenotinjuredbythesettlement.Nexiumplaintiffs’2016appealand2017requestforhearingenbancbeforetheU.S.CourtofAppealsfortheFirstCircuitfailedaswell.239

Highly Fact-Specific Inquiries Post-Actavis. Other2017casesillustratethatthesuccessofapay-for-delayclaimunderfederalantitrustlawsisahighlyfactualinquiry,onissuessuchascausationofantitrustinjuryandthevalidityoftheunderlyingpatent.In re Lidoderm Antitrust Litigation,240amultidistrictlitigationbeforetheU.S.DistrictCourtfortheNorthernDistrictofCalifornia,isacasetowatchasitheadstotrialin2018.InNovember2017,thedistrictcourtdenieddefendants’motionforsummaryjudgment,rulingthereisenoughevidencethatgenericentrycouldhavehappenedsoonerhaddefendantsnotsettledtheirpatentlitigation

witha$266millionreversepayment.Intheirmotionforsummaryjudgment,LidodermdefendantsunsuccessfullyarguedthatplaintiffsmustprovedefendantWatson,thepharmaceuticalcompanywhosoughtgenericentry,wouldhavewonthepatentlitigationhaddefendantsnotsettled.Thecourtdisagreed,callingdefendants’positionthatthepatentlitigationbere-litigatedwithintheantitrustcasea“turducken”thatis“notonlyunappetizingasamatterofjudicialefficiency”butalso“notrequired(orevensuggested)bytheActavisopinion.”241 Todefeatsummaryjudgment,thecourtstated,itissufficientthatplaintiffsputforth“someevidence”thatthegenericcouldhavewonthepatentlitigationoronappealbeforetheFederalCircuit,aburdenthatLidodermplaintiffshavesatisfied.242

In re Lidodermhighlightsthatakeyissueinpay-for-delaycasesisthevalidityofthepatentunderlyingthepatentlitigationthatgaverisetothereversesettlementatissue.Forexample,inIn re Wellbutrin XL Antitrust Litigation,theU.S.CourtofAppealsfortheThirdCircuitaffirmedthatplaintiffsfailedtoallegestandingintheformofanticompetitiveharmcausedbydelayedgenericentryasaresultofthereversepaymentagreementatissue.Wellbutrin defendantssuccessfullyraisedpatentvalidityasadefensebyshowingthat,becauseakeypatentunderlyingthechallengedsettlementagreementwaslikelytobefoundvalid,genericcompetitorswouldnothavebeenabletotheenterthemarketanywaybeforethepatentexpired.243

Butforplaintiffsinpay-for-delaycaseswhowanttoarguepatentinvalidityintheThirdCircuit,theyshouldbewarethatatleastonedistrictcourthasruledplaintiffscouldnotusethefactthatapatentwasfoundinvalidpost-settlementtosupportafindingthatthereversepaymentatissuewasanantitrustviolation,244consistentwiththe


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generalapproachthatinpay-for-delaycases,thecourtevaluatesthereversepaymentsettlement’sreasonablenessatthetimeitwasenteredinto.

Pleading Causation. In re Actos End-Payor Antitrust Litig.245demonstratesthatinpay-for-delaycases,pleadingcausationwithsufficientfactualallegationscanmakeorbreakplaintiffs’survivalofamotiontodismissforfailuretostateaclaim.There,theU.S.CourtofAppealsfortheSecondCircuitrevivedaproposedclassactionbypurchasersofActos(adiabetesdrug)butlimiteditsscope,allowingplaintiffstopursuetheirallegationsthatdefendantTakedadelayedgenericdrugmakerTeva’smarketentry,butnottheentryofanyothergenericdrugmaker.

ThedistrictcourtinIn re Actoshaddismissedthecomplaintin2015afterfindingplaintiffpurchasersdidnotplausiblyshowthatTakeda’sactionsdelayedgenericversionsofActosfromenteringthemarket.WiththeexceptionofTeva,theSecondCircuitagreedwiththelowercourtthatplaintiffs’theoryofdelayedgenericentryisimplausiblebecauseitrestsonthegenericdrugmakershavingknowledgeofTakeda’sdescriptionofitspatentsbeforetheFDA—apremisethatisnecessarybutnotsupportedwithsufficientfactualallegationsinthecomplaint.246Plaintiffs’theorywithrespecttoTeva’sdelayedentry,however,didnotdependonTevahavingsuchknowledgeofTakeda’sconduct,andwasconsidered“highlyplausible”bytheSecond Circuit.247

DefendantsinIn re Loestrin 24 Fe Antitrust Litigation248continuetofacemultidistrictlitigationaftertheU.S. District Court for theDistrictofRhodeIslanddeniedtheirmotiontodismiss.ThecourtfoundthatplaintiffpurchasersofLoestrin(abirthcontrolmedication)sufficientlypleadedtheirallegationsthatdefendantsenteredillegalreverse-paymentagreementstokeepgenericLoestrinoffthemarket,

butfreedtwoofdefendants’parentcompaniesfromthesuitforlackofdirectallegationsagainstthem.Notethatthesamecourthadpreviouslydismissedplaintiffs’claimsin2014,findingthatunderActavis,reversepaymentshavetobecashpaymentstobeconsideredillegal.Onappeal,theFirstCircuitvacatedthedismissalandremandedthecasebacktothedistrictcourt,findingthatthelowercourt’sinterpretationofActaviswastoostrictandthattheActavisprecedentappliestonon-cashpaymentsaswell.249 Alsoworthnotingisthatearlierin2017,theLoestrindefendantshadsuccessfullymovedtocompeldiscoveryregardingthemarketing,pricingandsalesofother oral contraceptives,arguingthatwhenevaluatingmonopolypower,therelevantmarketislargerthana“singledrugmarket”becauseotheroralcontraceptivesaretherapeuticallyinterchangeable.250

Other Generic Entry Issues

Product-Hopping

Fewfederalappellatecourtshaveaddressedwhetherallegationsthatabrand-namedrugmanufacturerengagedin“product-hopping”canconstituteaviolationoftheantitrustlaws.“Product-hopping”inthepharmaceuticalindustryreferstothestrategyofabrand-namedrugmanufacturertointroduceformulationchanges,modificationofdosage,orotheralterationsinordertoavoidcompetitionfromtypicallylower-pricedgenericdrugs.Becausegenericmanufacturersmustshowthattheirversionofthedrugandthecurrentlymarketedbrand-namedrugarebioequivalent(i.e.,haveasimilarformulationandeffect),abrandmanufacturer’salterationstoadrugcanforcegenericstoincurcostlydelaysindevelopmentandapproval(especiallywhendonejustpriortogenericentry).Typically,genericsareautomaticallysubstitutedforthemoreexpensivebrandversionbypharmacists,sobrandsare

incentivizedtodelaycompetitionforaslongaspossible.

Onlytwoappellatecourtshaveweighedinviafairlyrecentdecisions:theU.S.CourtofAppealsfortheSecondCircuit’sNamendadecisioninMay2015,251findingagainstthebrandeddefendant;andtheThirdCircuit’sMylandecisioninSeptember2016,252findinginfavorofthebrandeddefendant.SinceNamendaandMylan, 2017developmentsgenerallyaffirmthattheultimatesuccessofaproduct-hoppingclaimunderfederalantitrustlawsisahighlyfactualinquiry,onissuessuchaswhetherdefendant(s)engagedina“hardswitch”bydiscontinuingtheoldversionofthedrug,versusa“softswitch”bypushing,but not limiting, consumers tothenewversionofthedrugthroughaggressivemarketing.

In In Re Asacol Antitrust Litigation,253 theU.S.DistrictCourtfortheDistrict of Massachusetts’sdecisionhighlightstheimportanceof“hardswitch”evidencesupportingaproduct-hoppingclaim.There,directpurchasersofAsacolallegedthatbeforedefendantWarnerChilcott’spatentonthedrugexpired,WarnerChilcottproduct-hoppedfromAsacol(400mgtablet)toAsacolHD(800mgtablet)andlatertoDelzicol(400mgcapsuleenclosingtheAsacoltablet).ThecourtfoundtheplaintiffshadallegedsufficientfactssupportingtheirDelzicolproduct-hoppingclaimtosurviveWarnerChilcott’smotiontodismiss,butdismissedtheAsacolHDpieceoftheirclaim.Unlikedefendant’s“hardswitch”fromAsacoltoDelzicol,wheredefendantremovedAsacolfromthemarketshortlybeforeitspatentexpiredandgenericscouldenter,AsacolandAsacolHDwereonthemarketatthesametime.Notwithstandingtheplaintiffs’allegationsthatthedefendanthadencouragedconsumerstoswitchfromAsacoltoAsacolHDthrough“softswitch”marketingtactics,thecourtfoundthefact


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thatconsumersstillhadachoicebetweenthetwodrugsprecludedanyantitrustliability.

In In re Suboxone Antitrust Litigation,254 amultidistrictlitigationbeforetheU.S. DistrictCourtfortheEasternDistrictofPennsylvania,thecourtdenieddefendantMonoSol’srequesttotossaproduct-hoppingsuitbroughtbymorethan40states,finding(atthemotiontodismissstage)plausibleallegationsthatMonoSolviolatedantitrustlawsbydelayinggenericversionsofSuboxone(anopioidaddictiontreatment).

Asbackground,theFDAhadgrantedbranddrugmanufacturerIndivioraseven-yearmarketexclusivityafterIndiviorfirstlaunchedSuboxonetabletsin2002.TheplaintiffsallegethatIndivior’ssistercompanysignedanagreementwithMonoSoltodevelopandmarketadissolvablefilmversionofSuboxonethatwouldbeatthemarketentranceofgenerictablets,withtheintentofproduct-hoppingawayfromtabletstofilmandextendingIndivior’smarketexclusivityontheSuboxonefranchise.Thedefendantsallegedlyusedacombinationof“softswitch”(e.g.,marketingthefilmversionas“filmissafer”andpricingitlowertoincentivizeaswitchawayfromtabletsbyhealthcareproviders)and“hardswitch”(e.g.,announcingplantoremovetabletsfromthemarket)tacticsaspartoftheirproduct-hoppingscheme.IndenyingMonoSol’smotiontodismiss,theSuboxone courtfoundthat,atleastatthemotiontodismissstage,allegationsthatMonoSolsuggested“hardswitch”tacticstoIndiviorhelpedtheplaintiffscreateaplausibleinferencethatMonoSolparticipatedintheallegedconspiracy.255

Risk Evaluation and Mitigation Strategy (REMS)

TheIn re Suboxone court denied MonoSol’smotiontodismiss,inpartbecauseIndiviorallegedlydelayed

genericentrybyrefusingtocooperatewithgenericcompetitorsinfinalizingandsubmittingasharedRiskEvaluationandMitigationStrategy(REMS)totheFDA,notwithstandingthefactthattheFDAhadorderedIndiviortocooperateinasharedREMS.256

REMSaresafetyprotocolsthattheFDArequiresthemanufacturertoundertakeaspartoftheapprovalofparticulardrugs,likeSuboxone,thatposesubstantialrisktocertainpatientsandothersthathandlethedrug.Oftentheseprotocolscanincluderestricteddistribution,additionallabeling,orspecializedpatientmanagementdatabases.SharedREMS,likeindividualREMS,areusedtoaddresssafetyconcernsofpharmaceuticalproducts,butaredesignedtocoversituationswheremultiplemanufacturersaremarketingversionsofthesamedrug.

In2017,REMShasbeenoneareaofparticularfocusfortheFDA’seffortstoremoveregulatoryobstaclestogenericcompetitionandaccelerateconsumers’accesstogenericdrugs.WhentheFDA’snewworkinggroupofexpertsmetinAugust2017todiscussincreasinggenericcompetitionandmodernizingtheHatch-WaxmanAct,REMSwasoneoftheissuesthatcameupasneedingimprovement.TheconcernisthatREMSasitcurrentlystandsunnecessarilycomplicatestheFDAapprovalprocessforgenericdrugs.Forexample,underwhichgenericdrugmakersneedtoobtainsamplesfrombranddrugmanufacturerstoprovebioequivalence.FordrugsthataresubjecttoREMS,branddrugmanufacturerscouldarguethattheyarenotallowedtoprovidesuchsamplestotheirgenericcompetitors,orareboundbydistributionrestrictionsundertheREMS.

Moreover,theFDAcurrentlyencouragesbrandandgenericmanufacturerstonegotiateasharedREMS,andbrandmanufacturersoftenprolongthisnegotiationsotheyenjoymarketexclusivity

whilethenegotiationispending.257 CongresshasalsotakenactiontoimprovethecurrentREMSsystem.InApril2017,abipartisangroupofU.S.senatorsintroducedabillintendedtostreamlinethegenericdrugapprovalprocessthat,amongotherthings,allowsgenericdrugmakerstoparticipateinthebranddrug’sREMS.258

Citizen Petitions

Citizenpetitions,whichallowindividualsandorganizationstopetitiontheFDAtomakecertainchangestohealthpolicy,areanothermethodbywhichpharmaceuticalcompaniesallegedlyseektodelayorforeclosecompetition.InFebruary2017,theFTCfiledafirst-of-its-kindlawsuitpertainingto46publicfilings,including24citizenpetitions,thatViroPharmahassubmittedinrecentyearsconcerningasingleproduct.259AccordingtotheFTC,ViroPharmaabusedthecitizenpetitionprocesswithexcessivefilingsthatpurporttoraisescientificconcerns,butwerereallyintendedtodelaygenericversionsofitsbrand-namedrugVancocinfromenteringthemarket.AlthoughtheFDArejectsmostcitizenpetitions,thereviewandanalysisprocesscandiverttheagency’slimitedresourcesandpotentiallycausedelaysinapprovalofproducts.TheFTC,throughitslawsuithopestosignaltopharmaceuticalcompaniesthattheycannolongermanipulatethecitizenpetitionprocesstodelaygenericentrywithimpunity,markingamilestoneforongoingconcernsoverabusivecitizenpetitionsthatdatebackmorethanadecade.260

Sovereign Immunity

SeveralrecentdecisionsbytheUSPTOPatentTrialandAppealBoard(PTAB)indicatethatstateactorsenjoysovereignimmunityprotectionforpatentschallengedinthePTAB’sinter partesreviewprocess.Inabidtostaveoffgenericcompetitiontoitsdry-eyedrugRestasis,thedrugcompanyAllerganenteredadealwith


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theSaintRegisMohawkTribe,aNativeAmericantribeinupstateNewYork.Aspartofthedeal,Allergantransferreditspatentstothetribeandagreedtopaythetribe$13.75millionupfront;inexchange,thetribewouldclaimsovereignimmunityasgroundstodismissgenericdrugmakerMylan’schallengeofthepatents’validitybeforetheUSPTO,leasethepatentsbacktoAllergan,andreceive$15millioninannualroyaltiesaslongasthepatentsremainvalid.

ThisunorthodoxarrangementtriggeredCongressionalinvestigationsoonafter.TheHouseCommitteeonOversightandGovernmentReformsentaletterdatedOctober3,2017toAllergan’sCEO,demandingmoreinformationaboutitstransferofRestasispatentstothetribe,261 andU.S.SenatorClaireMcCaskilldraftedabillinresponseaswell.262AlsoinOctober2017,mereweeksafterAllergan’spatenttransfertothetribe,theU.S.DistrictCourtfortheEasternDistrictofTexasinvalidatedAllergan’sRestasispatentsongroundsthattheclaimsassertedbyAllerganareobvious.263

ClassCertificationClasscertificationhasbecomeacriticalstageofantitrustlawsuitsbecauseitisatthispointofthecasethatthescopeoftheclass—andrelatedly,potentialdamages—isdecided.Successindefeatingclasscertificationmaydrasticallyreducetheoverallexposureadefendanthasinaclassactioncase.Amongthekeydevelopmentsthisyearwere:(a)themotionsforclasscertificationthathavebeengrantedinaseriesofclassactionlitigationsagainstpharmaceuticalcompaniesconcerningpay-for-delayagreements;(b)thedecisionsdenyingmotionsforclasscertificationbyindirectpurchasersduetothefailuretoprovequestionsoflaworfactcommon

totheproposedclass;and(3)sharplydividedviewsfromvariouscircuitcourtsoverwhetherandhowtheplaintiffsmustdemonstrateascertainability.

Class Certification in Pay-for-Delay Cases

Plaintiffsinseveralpay-for-delaycaseswonclasscertificationsin2017.Bothdirectandend-userpurchasersoflidocainepainpatcheswonclasscertificationinamultidistrictantitrustlitigationbeforetheU.S. District Court forNorthernDistrictofCalifornia,aftertheplaintiffssuccessfullyprovedthatthedefendants’reverse-paymentsettlementallegedlyledtoclass-wideinjuriesintheformofinflatedcostsforlidocainepatches.264Directandend-userpurchasersalsowonclasscertificationinIn re Solodyn Antitrust Litigation,anotherpay-for-delaycasebeforetheU.S.DistrictCourtforMassachusetts.265Thesamecourtalsograntedclasscertificationtoend-payorplaintiffsinIn re Asacol Antitrust Litigation,acaseinwhichtheplaintiffsallegethatWarnerChilcottunlawfullyblockedcompetitionforitsAsacolfranchisebyproduct-hoppingandenteringpay-for-delayagreementswithapotentialcompetitor.266

Onecommonissuearguedintheselitigationswaswhethertheplaintiffssufficientlyprovedclass-widecommoninjuryordamagesattheclasscertificationstage.Thecourtsintheselitigationsfoundthattheplaintiffsusedreliableandstatisticallysoundmethodstoshowclass-wideinjuryandthattheproposedclassesshouldnotberejectedatthisstage(whichwouldeffectivelyendthelitigation),becausethedefendantswouldhavetheopportunitylatertochallengepotentialflawsindamagecalculationsorsubstantivemattersbeforethejury.

Indirect Plaintiffs’ Failure to Survive Class Certification

Indirectpurchaserscontinuetohavedifficultyinsatisfyingthetypicalityandpredominancerequirements,especiallyincasesinvolvingcomplicateddistributionchannelsandpricemechanisms.

OnFebruary9, 2017,theU.S.CourtofAppealsfortheThirdCircuitaffirmedtheU.S.DistrictCourtofDelaware’sdecisionin In re Class 8 Transmission Indirect Purchaser Antitrust Litigation,denyingamotionforclasscertificationduetotheproposedclass’sfailuretomeetadequacyandpredominancerequirements.267TheindirectpurchaserplaintiffsclaimedthatEatonCorporationenteredintoexclusivedealingagreementswithseveraltruckmanufacturerstomaintainitsmonopolypoweroverheavy-dutytrucktransmission.TheThirdCircuitagreedwiththedistrictcourtthattheplaintiffsfailedtoshowantitrustimpactwouldatleastbecapableofproofattrialbycommonevidence,andemphasizedthenecessitytoconductarigorousanalysisofplaintiffs’theoryofclass-wideimpactwithsufficientsalesdataonissuessuchasoverchargeandimpactofpass-throughcosts.268

Further,onApril12,2017,theU.S.DistrictCourtfortheNorthernDistrictofCaliforniadeniedmotionsforclasscertificationin In re Lithium-Ion Batteries Antitrust Litigation269bybothindirectanddirect270 purchasersallegingprice-fixingconspiracyamonglithium-ionbatterymanufacturers.Thedefendantschallengedtheabsenceofprerequisitessuchastypicalityandpredominance.Thoughthecourtfoundtheindirectpurchaserplaintiffs“havethesameorsimilarinjurybasedonthesameconduct,”271thecourtfoundthattheIllinois Bricknon-repealerstates’interestsinprecludinganationalindirectpurchaser


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classoutweighedotherinterests.272 As such,theproposednationalindirectpurchaserclasswasdenied.

Different Standards for Ascertainability Requirement

InadditiontotherequirementssetforthinRule23oftheFederalRulesofCivilProcedure,theU.S.CourtsofAppealfortheFirst,Third,Fourth,andEleventhCircuitsrequireplaintiffstoproveanadministrativelyfeasiblewayforthecourttoascertainwhatpersonsorentitiesmakeuptheproposedclass.Incontrast,theSecond,Sixth,Seventh,Eighth,andNinthCircuitshavedeclinedtoadoptadministrativefeasibilityasanindependentrequirement.

ThisCircuitCourtsplitwasondisplayin2017. In In re Domestic Drywall Antitrust

Litigation,JudgeBalysonoftheU.S.DistrictCourtfortheEasternDistrictofPennsylvaniadeniedclasscertificationtotheindirectpurchaserclass,findingthattheindirectpurchasersfailedtopresentareliableoradministrativelyfeasiblemethodforascertainingmembersoftheirclass,sincetheproposeddefinitioncoveredpurchasesdatingbackuptosixyearsandlikelyincludedmillionsofplaintiffssituatedacrossawidevarietyofconsumertypes(includinghomeowners,businessowners,residentialtenants,andcommercialtenants,andinvolvingresidentialhomes,commercialbuildings,andfactories).273 Further,thejudgenotedthattherewasnoevidenceof“proofofpurchase”provingthatindirectpurchaserspurchaseddrywallinanyoftheparticularstatesatissueorthatthepurchaseddrywallwasactuallymanufacturedbyadefendant.274

Bycontrast,theU.S.CourtofAppealsfortheNinthCircuitexplicitlydeclinedtoadoptadministrativefeasibilityasaclasscertificationrequirementin Briseno v. ConAgra Foods Inc.275There,theplaintiffsarguedthattheyweredeceivedormisledbyacookingoilmanufacturer’s“100%Natural”label.TheBriseno court clearlypointedoutthat,unlikesomeofitssisterappellatecourts,“[a]separateadministrativefeasibilityprerequisitetoclasscertificationisnotcompatiblewiththelanguageofRule23”intheNinthCircuit.276 BrisenoconfirmsthatthereappearstobeasplitwithintheU.S.federalappellatecourtsonwhetherascertainabilityisarequirementforclasscertification,whichcanhaveimportanteffectsonthefuturelitigationstrategyofputativeclassactionplaintiffs.

Weexpectthat2018willmirrorthispastyear’supwardtrendinantitrustlitigation,whichoftenfollowsontheheelsofgovernmentinvestigations.TheTrumpAdministration’stransitionattheantitrustagencieswillcontinue,asthereremainmultiplehigh-levelopenpositionsattheU.S.DepartmentofJusticeandtheFederalTradeCommissionthatawaitSenateconfirmationoranappointment.Aswedetailedinthisreport,thefirstsixmonthsof2018willbringahigh-profilemergerchallenge,theU.S.Supreme

Court’sdecisionsonwhethertohearinternationalprice-fixingandairlineantitrustcases,andacorporatecriminaltrialinthecapacitorscartelinvestigation.

ThiscomingyearwillbringnewchallengesandcontinuedchangeintheU.S.andglobally.Welookforwardtotheopportunitytocontinuetokeepourclientsandcolleaguesupdatedonthelatestdevelopments,particularlyasweexpectWSGR’santitrustattorneystocontinuetoplayasignificantroleinmattersofimportancethroughoutthe

year.WeinviteyoutocontactyourregularWSGRattorneyoranymemberofthefirm’santitrustpracticeforadditionalinformationonanyofthematters,trends,orcontroversiesdetailedinthisreport.

Inclosing,wewouldliketoacknowledgeandthankthepartners,attorneys,andstaffofWSGR’santitrustpracticeintheWashington,D.C.,NewYork,SanFrancisco,SiliconValley,andBrusselsoffices,fortheircontributionstothe2017 Antitrust Year in Review.

Conclusion:Outlookfor2018


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WSGR’santitrustattorneysareuniquelypositionedtoassistclientswithawiderangeofissues,fromday-to-daycounselingandcompliancetocrucialbet-the-companymatters.OuraccomplishedteamconsistentlyisrecognizedamongtheleadingantitrustpracticesworldwidebysuchsourcesasGlobal Competition Review, Chambers Global,andLaw360. Infact,Global Competition Review hailedthegroupas“perhapsthebestantitrustandcompetitionpracticeforhigh-techmattersintheworld,”while

Chambers USAcharacterizedthemas“adominantfirmformattersinvolvingthehi-techsphere,actingformanyofthemostprominenttechnologyfirms,”witha“deepanddiversebenchofoutstandingpractitioners.” BasedinNewYorkCity,Washington,D.C.,SanFrancisco,SiliconValley,andBrussels,ourhighlyregardedantitrustattorneysadviseclientswithrespecttomergersandacquisitions,criminalandcivilinvestigationsbygovernment

agencies,antitrustlitigation,andissuesinvolvingintellectualproperty,consumerprotection,andprivacy.Weadviseclientsonafullrangeofissues,includingpricing,distribution,verticalrestrictions,standard-settingactivities,jointventures,andpatentpooling.WorkingwithFortune100globalenterprisesaswellasventure-backedstart-upcompanies,ourattorneyshaveexpertiseinvirtuallyeverysignificantindustrysector,includingtechnology,media,healthcare,services,transportation,andmanufacturing.

To view the complete listing of endnotes for this report, please visit https://www.wsgr.com/PDFs/2018-antitrust-endnotes.pdf.

AboutWSGR’sAntitrustPractice


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