February Antitrust Update For In-House Counsel

Transcription

1 Corporate Counseling Committee February Antitrust Update For In-House Counsel February 12, 2013

2 Discussion Agenda Mergers and Acquisitions Non-Merger Civil Enforcement Cartel Enforcement Private Litigation International Developments

3 Mergers and Acquisitions

4 FTC Issues Revised HSR Thresholds 4 On January 10, 2013, the FTC announced revisions to the HSR Act thresholds and the Section 8 interlocking directorate thresholds. The revisions became effective on February 11, The revisions to the HSR thresholds include the following: The size of transaction threshold has been increased from $68.2 million to $70.9 million. The size of person thresholds have also been revised. Acquisitions valued over $70.9 million but not over $283.6 million in value will generally trigger the HSR Act requirements if one of the parties has assets or annual net sales of at least $141.8 million and the other party has total assets or net sales of at least $14.2 million. Section 8 thresholds were also updated. New threshold for Section 8(a)(1): each corporation has combined capital, surplus, and undivided profits of $28,883,000 or more New threshold for Section 8(a)(2)(A): each corporation has competitive overlapping sales of at least $2,888,300

5 FTC Proposes Rules on Withdrawal of HSR Notifications On February 1, 2013, the FTC announced that it was seeking public comment on proposed rule changes related to withdrawal of HSR Filings. The proposed rules would formalize the FTC PNO s informal procedure for companies to voluntarily withdraw HSR filings, as well as for re-filing (within two business days) without paying an additional fee. The proposed rules also would result in the automatic withdrawal of an HSR filing if the parties make filings with the SEC announcing that a transaction has been terminated. According to the FTC, the purpose of this rule is to save agency resources once a transaction undergoing antitrust review becomes hypothetical. Commissioner Joshua Wright issued a concurring statement expressing concern that the automatic withdrawal of HSR filings based on separate SEC filings could make corporate takeovers more expensive. Comments will be accepted through April 15,

6 FTC Horizontal Merger Investigation Data, Fiscal Years On January 4, 2013, the FTC released an updated staff report on the agency s major investigations of horizontal mergers occurring in FY Original report issued in 2004; updated in 2007 and Report looked at a number of variables and how often merger challenges were brought when these variables were present: Market Structure Variables: HHIs and Changes in HHIs, Number of Significant Competitors Hot Documents Customer Complaints Entry 6

7 US v. Bazaarvoice, Inc. On January 10, 2013, DOJ filed lawsuit challenging Bazaarvoice Inc. s $168.2 million consummated acquisition of PowerReviews, Inc. Transaction was not reportable under HSR and was consummated in June After a six-month investigation, DOJ concluded that the transaction would substantially reduce competition in the market for product ratings and reviews (PRR) platforms. DOJ cited numerous internal company documents in the complaint. DOJ seeking divestiture of sufficient assets whether possessed originally by PowerReviews, Bazaarvoice, or both, to establish a viable competing business that would replace PowerReviews competitive significance in the marketplace. 7

8 US v. Anheuser-Busch InBev and Grupo Modelo On January 31, 2013 the DOJ filed a lawsuit seeking to block Anheuser-Busch InBev s (ABI) proposed $20.1 billion transaction to acquire total ownership and control of Grupo Modelo. DOJ alleged that the transaction would substantially lessen competition for beer in the US as a whole and in 26 metropolitan areas, resulting in higher prices and fewer new products. At time of transaction, ABI already held significant ownership interest in Modelo. ABI had US market share of 39%, Modelo had US market share of 7%. Parties attempted to fix the competitive issues in advance: ABI agreed to sell Modelo s 50% interest in Crown Imports, which currently is the sole importer of Modelo beer into the US, to Constellation Brands, which currently owns the other 50% of Crown. DOJ complaint also included numerous quotes from the parties documents. 8

9 Non-Merger Civil Enforcement

10 In re Oltrin Solutions, LLC, et al. 10 On January 18, 2013, the FTC announced that it was requiring Oltrin Solutions, LLC to release JCI Jones Chemicals, Inc. from a non-compete covering the sale of bulk bleach in North Carolina and South Carolina. According to the FTC, in 2010, Oltrin paid JCI $5.5M in exchange for a list of bulk bleach customers from JCI s Charlotte, North Carolina plant and an agreement that JCI would not sell bulk bleach in North Carolina or South Carolina for six years. FTC alleges that the transaction violated Section 7 of the Clayton Act and Section 5 of the FTC Act by eliminating competition between Oltrin and JCI, increasing market concentration for bulk bleach sales in the relevant geographic market, and increasing Oltrin s ability tor raise bulk bleach prices. Alleged product market is bulk sales of bleach delivered in quantities of at least 4,500 or 4,800 gallons. Alleged geographic market is no broader than southern Virginia, North Carolina, and South Carolina potentially limited to North Carolina and South Carolina. The proposed settlement requires Oltrin to: Release JCI from the non-compete agreement; Transfer several of its bulk bleach contracts to JCI; Enter into a short-term agreement to supply JCI with bulk bleach; and Notify recent customers that JCI is supplying bulk bleach in the relevant market.

11 11 U.S. v. Oklahoma State Chiropractic Independent Physicians Association, et al. On January 10, 2013, the DOJ announced a settlement with the Oklahoma State Chiropractic Independent Physicians Association (OSCIPA) resolving charges that OSCIPA and its executive director violated the Sherman Act by jointly determining prices and negotiating contracts with insurers on behalf of competing chiropractors in Oklahoma. OSCIPA negotiated the rates and price-related terms for at least seven contracts with insurers on behalf of its members. According to the DOJ, OSCIPA s actions were not reasonably necessary to achieve the efficiencies resulting from the arrangement. OSCIPA members did not share any financial risk in providing chiropractic services. OSCIPA members did not significantly collaborate on cost cutting or quality control. OSCIPA members did not integrate delivery of care to patients. Therefore, the DOJ found the actions to be a per se violation of Section 1 of the Sherman Act. Under the proposed settlement, OSCIPA has agreed to stop negotiating contracts on behalf of competing chiropractors and communicating with its members on any aspect of pricing or contracting.

12 DOJ Issues Business Review Letter to Greater New York Hospital Association On January 16, 2013, the DOJ issued a business review letter in response to the Greater New York Hospital Association s (GNYHA) request for guidance regarding a voluntary gainsharing program. According to GNYHA, its proposed program is designed to provide a framework by which participating hospitals can measure physician performance against certain benchmarks and award bonuses to physicians for improvements in quality and efficiency. The DOJ considered whether the program constitutes (1) a horizontal agreement among competing hospitals about compensation levels for physicians or (2) an information exchange among hospitals that would facilitate anticompetitive coordination among hospitals to limit physician compensation. The DOJ concluded it would not challenge the program based, in part, on GNYHA s representations that: Program provisions are reasonably necessary to further the procompetitive purposes of the gainsharing program. The program is built on data that is publicly available and not competitively sensitive. 12

13 In re Motorola Mobility LLC and Google Inc. On February 1, 2013, at the request of several members of the public, the FTC extended the public comment period on its proposed settlement order concerning Google and Motorola through February 22, The FTC challenged Google and Motorola conduct under Section 5 of the FTC Act. The proposed settlement prohibits Google from seeking injunctions to halt sales of products incorporating certain F/RAND encumbered declared essential patents that it acquired from Motorola until a fair and reasonably royalty rate is determined by a court or through binding arbitration. Eight comments have been received to date. Comments have focused on whether: The settlement provides companies with sufficient guidance regarding what type of conduct constitutes an unfair business practice under Section 5 of the FTC Act. (A comment that echoes statements by Commissioners Rosch and Ohlhausen.) The arbitration mechanism in the settlement should be further refined to ensure a more efficient dispute resolution process. Once the comment period is over, the Commission will determine whether to make the proposed consent order final. 13

14 Chairman Leibowitz Announces Departure On February 1, 2013, FTC Chairman Jon Leibowitz announced his plans to step down on February 15, Leibowitz has chaired the FTC since March 2009 and has been a Commissioner since September Commissioners Julie Brill and Edith Ramirez, both appointed by President Obama during his first administration, are rumored to be the leading front-runners to replace Chariman Leibowitz. Other people who are rumored to be candidates to replace Chairman Leibowitz include: current Director of the FTC s Bureau of Economics Howard Shelanski; former DOJ official Philip Weiser; and former FTC general counsel Will Tom. 14

15 Cartel Enforcement

16 Cartel - Agency Developments DOJ Office Closures: DOJ closing criminal enforcement field offices in Atlanta, Cleveland, Dallas and Philadelphia 2012 Agency Fines Record 2012 DOJ fines: $1.1 billion (up from $524 million in 2011) mainly from foreign auto parts and technology manufacturers EC fines EUR 1.8 billion (approx. $2.4 billion) JFTC fines JPY 1.9 billion (approx. $215 million) DOJ filed 67 criminal cases in 2012 Average prison sentence for violator was 25 months in

17 Cartel Enforcement - China LCD fines China issues a record $56 million fine to Taiwanese and Korean LCD makers L.G., Samsung, AU Optronics, Innolux, Chungwha Picture Tubes & HannStar Display. The first time the NDRC has exclusively fined international companies outside of mainland China. $56 million consisted of restitution of past overcharges to domestic TV makers, confiscation of unlawful gains, and the agency s fines. Although AU Optronics was reportedly the first company to report the cartel to the NDRC, it was only exempt from paying the fine portion of the penalty. The 5 other companies also self-reported to the NDRC. 17

18 Cartel Enforcement Germany & Africa Germany Germany fines 11 chocolate and confectionary companies, including German subsidiaries of Kraft Foods, Nestle SA, & Mars Inc., $81.5 million. The Federal Cartel Office s investigation began in 2008 after Mars reported the cartel. Candy makers allegedly formed cartel in response to sharp increase in the price of ingredients in Africa Eastern and Southern African countries form regional competition authority COMESA to regulate anticompetitive conduct and monitor notifications of merger transactions. Foodcorp agreed to pay South African Competition Commission $10.3 million for agreements to fix prices of milled maize and wheat products, in exchange for testifying against other cartel members. 18

19 Litigation Criminal Antitrust Hitachi-LG settles MDL over optical disk drives, agreeing to pay direct purchaser class $26 million. Hitachi-LG is the first defendant to settle the MDL, which is consolidated in N.D. Cal. Hitachi-LG previously entered a plea bargain and paid the DOJ $21.1 million. The EC has issued formal statements of objection to more than 12 optical disk drive suppliers. 19

20 Private Antitrust Litigation

21 Litigation Supreme Court 21 American Express v. Italian Colors Restaurant Putative class of merchants sued American Express for alleged unlawful tying arrangement resulting in higher fees. American Express sought to compel arbitration based on its agreement with merchants that contained an express class action waiver. Issue: whether the Federal Arbitration Act permits courts to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim, such as under the Sherman Act? DOJ/FTC submit amicus curiae brief in support of merchants: The United States has a substantial interest in ensuring that arbitration agreements are not used to prevent private parties from obtaining redress for violations of their federal statutory rights. Effective vindication rule should apply, i.e., an arbitration agreement will not be enforced if, in a particular case, enforcement would prevent the effective vindication of the plaintiff s federal statutory rights. Merchants have established that the arbitration agreement at issue here operates as an impermissible prospective waiver by foreclosing them from asserting their current antitrust claims. Oral argument: February 27, 2013 (Docket No )

22 Litigation Supreme Court 22 FTC v. Watson Pharmaceuticals FTC challenged a settlement between a brand name drug manufacturer (Solvay) and generic drug manufacturers (Watson and Paddock/Par) involving AndroGel that resolved a patent infringement lawsuit The settlement was a so-called reverse payment deal The brand paid the generics and the generics agreed not to enter the market for some time, but prior to expiration of exclusivity under the brand s patent (assuming it was valid, infringed and enforceable). Issue: what is the proper legal standard for analyzing reverse payments? FTC filed its merits brief on January 22, Advocating for a quick look rule of reason analysis where the burden shifts to drug makers to rebut the presumption of illegality. Oral argument: March 25, 2013 (Docket No ) Other notable developments related to reverse payment settlements: FTC study: 40 settlements of patent disputes between brand and generic drug companies that may involve so-called pay-for-delay payments in FY 2012 (28 in FY 2011), covering 31 products and over $8.3 billion in annual U.S. sales. Proposed legislation introduced in the US Senate on February 5, 2013 to codify pay-fordelay settlements as presumptively anticompetitive.

23 Litigation Supreme Court 23 Other Supreme Court Developments Smith v. United States Drug conspiracy case in which the Supreme Court held that a defendant, not the Government, bore the burden of proving a defense of withdrawal from a conspiracy. 133 S.Ct. 714 (2012). Stora Enso North America v. Parliament Paper Inc. Supreme Court denied petition for writ of certiorari. 2 nd Circuit reversal allowing a price-fixing case to go to a jury trial under Matsushita stands. 690 F.3d 51 (2012). Agrium v. Minn-Chem Petition for writ of certiorari put at issue the scope of the Foreign Trade Antitrust Improvements Act of Case settled. 7 th Circuit en banc opinion broadly interpreting reach of US antitrust law stands. 683 F.3d 845 (2012). AU Optronics Corp. v. South Carolina Petition for writ of certiorari seeks puts at issue the scope of the Class Action Fairness Act of th Circuit narrowly construed removal jurisdiction to federal court. 699 F.3d 385 (2012).

24 International Distribution Arrangements In re Sulfuric Acid Antitrust Litig., F.3d, 2012 WL (7 th Cir. Dec. 27, 2012) Canadian mining companies produced excess supply of sulfuric acid and negotiated shutdown agreements with US producers. The US producers stopped their own production and became the exclusive distributors for the Canadian companies. Issue: whether the shutdown agreements are subject to per se or rule of reason scrutiny? Seventh Circuit held that the rule of reason applies. Judge Posner disagreed with the plaintiffs that the only plausible interpretation of the shutdown agreements was to reduce total sales of acid in the US to raise prices. They may have promoted entry into the US market. It is a bad idea to subject a novel way of doing business (or an old way in a new and previously unexamined context, which may be a better description of this case) to per se treatment under antitrust law. 24

25 International Distribution Arrangements 25 Ethypharm S.A. France v. Abbott Labs., F.3d, 2013 WL (3 rd Cir. Jan. 23, 2013) Ethypharm, a French drug company, produced Antara and used Reliant, a third party, to sell the product in the US. Reliant applied for and obtained FDA approval. Abbott, a distributor selling a rival drug, sued Reliant for patent infringement. The case settled and the agreement contained certain restrictions on Reliant s ability to assign its distribution rights. Ultimately, Antara was not as successful in the US market and Ethypharm sued Abbott claiming the patent lawsuit and settlement was anticompetitive. Issue: whether Ethypharm had standing to sue? 3 rd Circuit held that Ethypharm did not have standing. Ethypharm is not a consumer or a competitor in the US market for this drug and its injury is not inextricably intertwined with the challenged conduct by Abbott. Ethypharm wants to have it both ways: It wants to pass on to a licensee the expense and risk of qualifying to compete in the United States pharmaceutical market, but, when that arrangement fails to achieve success, Ethypharm seeks to avail itself of the United States laws protecting fair competition. The rules of antitrust standing do not permit that tactic.

26 International Developments

27 Merger Enforcement European Commission UPS proposed acquisition of TNT Express blocked. This is the fourth deal blocked under the current Merger Regulation, following Deutsche Borse/NYSE Euronext (Feb 2012), Aegean Airlines/Olympic Air (Jan 2011), and Ryanair/Aer Lingus (June 2007). EC found a 3-to-2 combination in the provision of express (next-day) delivery of small packages in 15 national markets (Central-Eastern and Scandinavian countries). Small packages were defined as packages shipped via automated sorting centers, then handled by a single person with a small vehicle. Freight services were excluded given their different infrastructure. Deferred delivery services were excluded because customers pay a substantial premium for express services. 27

28 Merger Enforcement European Commission UPS and TNT Express were found to be close competitors of each other given their integrated air-and-ground networks. The other close competitor was market leader DHL. FedEx was discounted given its limited European network. Non-integrated (e.g. national postal) services were discounted given their few cross-border partners and use of commercial air services (deemed to be less flexible, reliable, and efficient than integrators). Possibilities of new entry/expansion were deemed insufficient given the costs of integrating to scale. Parties unwillingness to offer an up-front purchaser commitment for disposal of TNT s overlapping operations made proposed divestitures unacceptable to the EC. 28

29 Merger Related Enforcement Ancillary Restraints: Non-Compete Obligations EC fined Telefónica and Portugal Telecom (the largest telecoms operators in Spain and Portugal) 79 million for each agreeing not to enter the other s home country for 16 months. The agreement, made in connection with Telefónica s acquisition of Portugal Telecom s interest in their jointly-owned mobile operator in Brazil, was not deemed to be reasonably ancillary to that transaction. Compare EC s acceptance of commitments from Siemens and Areva (without fines) to modify their NCO following dissolution of their JV for nuclear power equipment (June 2012): Duration was reduced to three years (from an original 8-11 year term). Product scope was reduced to permit the seller to compete where the purchaser was not active with its own products or had accepted competition from the seller during the life of the JV. 29

30 Competitive Conduct Patent Settlements EC sent S/O to Johnson & Johnson and Novartis challenging a co-promotion deal for sales of fentanyl in the Netherlands. EC alleges that J&J infringed Art. 101 when it delayed entry of Novartis generic painkiller in by paying Novartis monthly for so long as no generic was launched. This follows two similar challenges in 2012 to deals in which originators allegedly shared their rents with rivals in order to delay generic entry: Lundbeck allegedly infringed Art. 101 when it delayed entry of generic citalopram (an antidepressant) through agreements with generics suppliers for direct payments, guaranteed profit-sharing from future distribution, and purchase of existing inventories for destruction. 30 Servier allegedly infringed Arts. 101 and 102 when it delayed entry of generic perindopril (a cardiovascular drug) through patent settlements with reverse payments and no-challenge clauses, as well as acquisition of competing technologies that might be used to produce perindopril.

31 Competitive Conduct Pharmaceuticals in The Spotlight The pay-for-delay cases arise from the EC s pharmaceutical sector inquiry (2009) and monitoring of patent settlements. This sector continues to draw scrutiny in other cases as well: Cephalon/Teva: Ongoing EC investigation into patent settlement terms under which Teva agreed to delay EEA launch of generic modafinil (sleep medication). AstraZeneca v. EC (Dec 2012): Court of Justice affirmed finding that Art. 102 was infringed by mis-use of the regulatory framework to prevent or delay the launch of generic omeprazole (antacid): Giving national patent offices misleading information in order to gain extended patent protection through supplementary protection certificates. De-registering national marketing authorizations with the intent to block or delay parallel trade and generic entry. 31

32 Private Enforcement UK Reforms Move Closer to Reality Government (BIS) has announced that it will introduce legislation making class actions more likely and effective: Empowering the CAT to hear standalone damage actions (rather than only follow-on cases after OFT enforcement). Introducing fast-track procedures for simple claims (primarily for SMEs) with case-by-case cost caps set by the CAT and limiting rules of procedure/evidence. Empowering the CAT to grant injunctions. Creating limited opt-out collective actions (in addition to the current opt-in regime), subject to CAT certification of type. Opt-out aspects of a claim will apply only to UK-domiciled claimants, though others may opt in. 32

33 Private Enforcement UK Reforms Move Closer to Reality Proposals include protection against some perceived abuses: Prohibiting treble and exemplary damages. Retaining the loser pays costs principle. Prohibiting contingency fees (while allowing no win no fee arrangements). 33

34 Private Enforcement UK Reforms Move Closer to Reality UK Government has decided not to legislate in some controversial areas: Will not establish presumptions of loss in cartel cases. Will not address the passing-on defense (allowable at common law) through legislation. Will not make attempts at alternative dispute resolution mandatory. Will not take actions to prevent disclosure of leniency documents, or to protect leniency applicants from joint and several liability in private damage actions, pending EC action in this area (expected this year). 34

35 Panelists

36 Steven K. Bernstein Steven Bernstein, a partner in the Washington DC office, focuses on antitrust counseling and litigation, with an emphasis on mergers and acquisitions. He joined the firm in 2004 after serving for more than 12 years at the Federal Trade Commission, most recently as Assistant Director of the FTC s Bureau of Competition, where he oversaw the Bureau s Mergers I Division. Since joining Weil, Mr. Bernstein has represented numerous clients before the FTC and the Department of Justice and has successfully obtained antitrust clearance for major transactions in a variety of industries. Mr. Bernstein has also represented clients in non-merger matters before the antitrust enforcement agencies and in private litigation. While at the FTC, Mr. Bernstein was involved in supervising the FTC s merger enforcement program in a wide range of industries, including aerospace and defense, healthcare, and industrial products. 36

37 Adam C. Hemlock Adam Hemlock is a partner in the firm s Antitrust Practice Group, where he represents clients in a variety of antitrust and commercial litigation matters. Mr. Hemlock specializes in representing clients in cartel matters. He has handled internal investigations of clients involving potential cartel conduct, including the navigation of the ethics, securities and privilege issues that arise in the course of such investigations. He has defended clients under criminal investigation by the United States Department of Justice, and also has experience coordinating multinational cartel defense in jurisdictions including the European Union, Japan, Canada, Mexico, Korea, and Brazil. Mr. Hemlock has also defended clients in United States cartel class action lawsuits and the particular issues that arise in such litigation, including personal jurisdiction, the Foreign Trade Antitrust Improvements Act, class certification and others. Additionally, he has defended clients in private, non-class action antitrust litigations. 37

38 Eric S. Hochstadt Eric S. Hochstadt is a partner in Weil s Litigation Department. Mr. Hochstadt s practice focuses on civil antitrust and other complex litigation, as well as criminal cartel investigations and antitrust counseling. He has represented clients in a broad range of industries, including broadcasting, e-commerce, electronics, financial services, pharmaceuticals, private equity, and transportation. Eric has extensive experience with consumer and antitrust class action litigation in state and federal courts around the country. 38

39 Douglas Nave Doug Nave heads the European competition law practice of Weil s London office. A USqualified partner, he has a broad regulatory practice focusing on the competition laws of the EU and its Member States. Doug has represented companies in numerous economic sectors, including public media, emerging technologies, heavy industrial products, consumer branded goods, defense procurements, and retail/wholesale operations. Doug has acted on a wide range of mergers & acquisitions, with a strong track record of winning unconditional clearances from both the European Commission and the United Kingdom s Office of Fair Trading. He counsels and represents a variety of companies in enquiries regarding their distribution practices, issues arising from potential abuse of dominance, regulatory complaints against problematic practices or transactions by suppliers, customers, or competitors, and licensing of intellectual properties. 39

40 John E. Scribner John Scribner is an antitrust partner in the Washington, DC office. His practice focuses on antitrust counseling and litigation, with a particular emphasis on mergers. Mr. Scribner has played a lead role in obtaining antitrust approval for numerous transactions in a variety of industries. Previously, Mr. Scribner spent five years as a litigation attorney with the Federal Trade Commission where he was actively involved in merger and non-merger investigations in a wide range of industries, including defense, pharmaceuticals, infant formula, aviation, energy, industrial products, medical devices and high technology. He served as lead attorney in the FTC s investigation of Boeing s acquisition of McDonnell Douglas. 40

41 Laura A. Wilkinson Laura Wilkinson is an antitrust partner in Weil s Washington, DC office with a practice focusing on mergers and acquisitions. Ms. Wilkinson has successfully obtained merger clearance from the Federal Trade Commission and Justice Department for clients in a variety of industries, as well as serving as lead antitrust counsel for numerous multi-billion dollar transactions. Prior to entering private practice, Ms. Wilkinson served as Deputy Assistant Director of the Bureau of Competition of the Federal Trade Commission, where she oversaw one of the Bureau s litigation divisions and was responsible for merger enforcement in industries such as defense and pharmaceuticals. She was also responsible for negotiating numerous consent orders, which preserved competition while allowing the mergers to proceed. 41

42 For succinctly presented information and sharp insights on antitrust/competition issues, visit the Weil Antitrust/Competition Site 42