Developments in Developments in Antitrust EnforcementAntitrust Enforcement

Organization for International InvestmentOrganization for International InvestmentGeneral Counsel Conference General Counsel Conference

October 18, 2010October 18, 2010

Mark L. Kovner

Kirkland & Ellis LLP

Joseph J. Simons

Paul, Weiss, Rifkind, Wharton &

Garrison LLP

OverviewOverview

• What the new administration said it would do

• What the new administration has done

• What the new administration may do

What the new administration saidWhat the new administration said

• The Bush Administration had “what may be the weakest record of antitrust enforcement of any administration in the last half century.”

• “As president, I will direct my administration to reinvigorate antitrust enforcement.”

• My administration “will step up review of merger activity and take effective action to stop or restructure” anticompetitive mergers

• “We’re going to have an antitrust division … that actually believes in antitrust law.”

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What the new administration said: DOJWhat the new administration said: DOJ

At her confirmation, AAG Varney advocated:

• “Rebalancing” legal and economic antitrust theories

• Improved collaboration between DOJ and FTC

• Improved cooperation among antitrust agencies globally

• Renewed enforcement in monopolization and resale price maintenance areas

In her first major speech as AAG, Varney:

• Withdrew 2008 Section 2 Report

• Called for increased Section 2 enforcement (citing Lorain Journal and Aspen Skiing as models)

• Planned to devote attention to competition in Internet and high-tech markets

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What the new administration said: FTCWhat the new administration said: FTC

• No suggestions that antitrust enforcement is going to increase dramatically at the FTC

• Changes suggested are more at the margins

– Why the difference between DOJ and FTC?

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Why the Difference: Why the Difference: An ExampleAn Example

Why the Difference: Why the Difference: An ExampleAn Example

Year Total Public Merger Challenges (DOJ) Total Merger Enforcement Actions (FTC)

1996 30 25

1997 31 25

1998 51 32

1999 46 31

2000 48 32

2001 32 23

2002 10 24

2003 15 21

2004 9 15

2005 4 14

2006 16 16

2007 12 22

2008 16 21

2009 12 19

2010 n/a 17

What the administration has done: What the administration has done: OverviewOverview

• Continued aggressive enforcement against cartels with focus on international cases

• Civil investigations in the high-tech, telecom, agricultural, and financial industries

• No major DOJ Section 2 case

• Arguably no or minimally more merger challenges, but more flexibility on remedies

• Continued opposition to reverse payment settlements in pharmaceutical patent disputes, despite setbacks in court

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Early Enforcement Records:Early Enforcement Records:Cartel EnforcementCartel Enforcement

• Criminal cartel enforcement remains a top priority

• Scope of conduct being pursued may be widening

• Information exchanges involving price may be treated as price fixing

• Continued coordination with other jurisdictions internationally

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Early Enforcement Records: Early Enforcement Records: Civil Non-Merger Investigations Civil Non-Merger Investigations

• High-Tech

– DOJ IBM mainframe inquiry

– DOJ Google Books settlement

– DOJ Silicon Valley hiring practices

• Telecommunications– Rumored investigation of wireless industry

• Agriculture– Reported inquiry into Monsanto’s genetic seed trait licensing

practices

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Early Enforcement Records: Early Enforcement Records: Civil Non-Merger Investigations Civil Non-Merger Investigations

• Despite rumored investigations, DOJ has not filed any Section 2 case

• FTC monopolization case against Intel

– Brought under Section 5 of the FTC Act

– Consent decree imposes affirmative requirements on Intel, not just negative prohibitions

– Shows willingness of agencies to pursue "regulatory" remedies

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Early Enforcement Records: Hatch-Waxman Early Enforcement Records: Hatch-Waxman “Reverse Payment” Settlements“Reverse Payment” Settlements

• FTC

– Supports legislation barring reverse-payment agreements

– Leibowitz: Eliminate “pay-for-delay”

• DOJ support

– In amicus brief in In re Ciprofloxacin Hydrochloride Antitrust Litigation, DOJ argued for the first time that reverse settlement agreements “should be treated as presumptively unlawful under Section 1"

• Second Circuit affirmed dismissal of Ciprofloxacin complaint; en banc rehearing denied

• District court (N.D. Ga.) dismissed FTC complaint in Androgel

• Reason to believe DOJ would support Supreme Court review to resolve circuit split

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Early Enforcement Records:Early Enforcement Records:Merger EnforcementMerger Enforcement

• Arguable increase in merger enforcement at both DOJ and FTC

– Depends on how you count; absolute is down but % is up

• DOJ:

– More Second Requests being issued (86% higher frequency than 2008)

– More Second Requests resulting in merger challenges (79% in 2009 vs. 59% in 2000-2008)

• FTC:

– More Second Requests being issued (79% higher frequency than 2008)

– More Second Requests resulting in merger challenges (87% in 2009 vs. 57% in 2008)

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Early Enforcement Records:Early Enforcement Records:Merger Enforcement (cont.)Merger Enforcement (cont.)

• DOJ more flexible on remedies

• E.g., Ticketmaster/LiveNation merger

– Remedy not as harsh as many predicted

– Consent decree included "regulatory" elements:

• Company prohibited from engaging in conduct that would impede competition from non-vertically integrated rivals

• DOJ retains monitoring authority

• Greater flexibility may reflect DOJ reluctance to challenge merger cases in court

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Early Enforcement Records: Challenges to Early Enforcement Records: Challenges to Consummated TransactionsConsummated Transactions

• While still rare, the DOJ and FTC are challenging consummated transactions more often.– DOJ – Challenged Election Systems & Software Inc.’s $5 million

acquisition of Premier Election Solutions, Inc. and PES Holdings, Inc. in 2010.

– FTC – Brought litigation against Polypore’s prior acquisition of Microporous in 2009. The transaction was below HSR thresholds.

– FTC – Brought litigation against prior acquisition by Lundbeck, Inc. (formerly Ovation Pharmaceuticals) of the pharmaceutical product NeoProfen from Abbott Laboratories (complaint dismissed by federal court in 2010).

• Companies should evaluate the potential antitrust risks in advance of any transaction regardless of deal value.

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New Merger Guidelines: change or New Merger Guidelines: change or continuity?continuity?

• New DOJ/FTC Horizontal Merger Guidelines released in August 2010

• Attempt at greater transparency

– Updated market concentration (HHI) thresholds

– Description of evidence that would prove anticompetitive effects

– More detail on market definition

– More detail on the methodology for evaluating the competitive effects of mergers

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New Merger Guidelines: change or New Merger Guidelines: change or continuity?continuity?

• Commissioner Rosch: Guidelines "do not describe the way that the Bureau of Competition and enforcement staff at the Commissioner proceed today" and also "do not reflect the way that courts proceed"– New Guides have "overemphasis on economic formulae and models

based on price theory"– "many of the economic theories in the revised Guidelines are based

wholly or partially on margins and treat margins as a species of empirical evidence"

– “if a firm sets price well above marginal cost, that normally indicates either that the firm is coordinating with its rivals or that the firm believes its customers are not highly sensitive to price.”

• Focus on margins could lead to much narrower market definitions, and support many more merger challenges than in recent decades

• Impact in court?

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International CooperationInternational Cooperation

• “Bringing greater cooperation and convergence to international antitrust enforcement and improving transparency and procedural fairness” is a stated “top priority” of Assistant Attorney General Varney.

• The FTC’s Office of International Affairs supports the FTC’s competition enforcement program by assisting with international aspects of investigations and litigation, promotes cooperation with competition agencies in other jurisdictions, and promotes convergence of international antitrust policies toward best practice.

• Many large transactions are now subject to simultaneous reviews in the EU and U.S., and the FTC and DOJ are in regular contact with the EC or Member States regarding both the pace and the substance of these reviews. 18