January 27, 2011

China Takes Aim At Classic Antitrust Violations

China is beefing up its antitrust laws, and will be taking a closer look at classic antitrust violations such as price fixing and abuse of monopoly power. 

According to a government press release, China is taking the action because “various forms of price collusion and the abuse of monopoly position are seriously harming the legal rights and interests of consumers.”

The measures build on an antitrust law that China implemented in 2008, and China reportedly hopes that the new rules will help combat inflation.

The new gloss on antitrust law was released by China’s National Development and Reform Commission (NDRC), which is somewhat similar to America’s Federal Trade Commission.  According to the NDRC’s web page, that agency’s mission includes “the regulation of the overall price level and the optimization of major economic structures.”

The new regulations will ban competitors from agreeing to fix prices, and prohibits companies with dominant market shares from selling goods at “unfairly high prices” or buying them at “unfairly low prices.”  These amendments supplement the original 2008 antitrust law, which mainly concerned mergers.

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Categories: International Competition Issues

    January 24, 2011

    New York Court Reinstates Reinsurer’s Case, Reaffirming Antitrust Injury Extends Beyond Competitors And Consumers

    The Appellate Division of the New York State Supreme Court has reinstated an antitrust lawsuit against a reinsurer created in the 1990s to rescue underwriters at Lloyd’s of London from soaring asbestos and environmental liabilities stemming from policies Lloyd’s sold before 1993.

    The appellate court opinion reaffirms the principle that antitrust injury can extend beyond simply competitors and consumers of a defendant.

    Global Reinsurance Corp sued Equitas Ltd, alleging that its creation by Lloyd’s underwriters was anti-competitive and was used to the financial disadvantage of reinsurers like Global.  The case, Global Reinsurance Corp. v. Equitas Ltd., 600815/2007, alleges Equitas violated the Donnelly Act – New York’s state antitrust law – by conspiring with Lloyd’s of London to push retrocessional claims payments to reinsurers such as Global below what reinsurers would have received in a competitive market.  Specifically, the suit alleges that Equitas engaged in claims payment activities, such as denying claims and paying less money later, that a company subject to competitive constraints could not have afforded.  Global claims to have suffered millions of dollars in damages as a result.

    New York’s Appellate Division rejected the argument that Global could not prove an injury because the company had not purchased new coverage after the allegedly unlawful 1996 agreement creating Equitas went into effect.  The court emphasized that an antitrust plaintiff “need not be a purchaser at all,” and that there is no reason “grounded in the law or economics for concluding that only a customer injured by a purchase made after the illegal agreement takes effect suffers antitrust injury and is a proper antitrust plaintiff.”  Rather, the court found that Global had sustained antitrust injury, and was therefore a proper plaintiff, because it was “adversely affected by an agreement eliminating competition over claims-handling.”

    The appellate court also held that the Global complaint was incorrectly dismissed because the lower court did not properly consider Global’s claims about the worldwide market for reinsurance and the status of Lloyd’s within that market.  According to the court, despite noting that Global had alleged a worldwide market, the lower court did not discuss whether the allegations of this market were sufficient to support an antitrust claim, and instead dismissed the suit on the grounds that the plaintiff had not sufficiently alleged a submarket for Lloyd’s.  The appellate court held that Global’s complaint undeniably alleged a worldwide market and that the allegations of market power were sufficient for the case to proceed.

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    Categories: Antitrust Litigation

      January 19, 2011

      Transportation Feds Seek To Unplug Railroad Bottlenecks

      The federal transportation agency that oversees regulation of railroads is looking for ways to unplug bottlenecks that may be blocking competition on U.S. railways.

      The U.S. Surface Transportation Board (“STB”) has issued a notice that it “will receive comments and hold a public hearing to explore the current state of competition in the railroad industry and possible policy alternatives to facilitate more competition, where appropriate.”

      The Board is seeking written comments prior to a hearing addressing the legal, factual, and policy matters described in the notice, including whether the STB should amend its earlier decisions concerning so-called “bottleneck carriers.”  A rail bottleneck rate issue arises “when more than one railroad can provide service over at least a portion of the movement of a shipper’s goods from an origin to a destination, but where either the origin or destination is served by only one carrier, i.e., the bottleneck carrier.”

      Under the current rules, a shipper cannot routinely force a bottleneck carrier capable of providing origin-to-destination rail service to quote separate prices for different portions of the route.  According to the STB, shippers do this so they can use a different carrier for those portions of the route served by non-bottleneck carriers.

      The STB will also consider changing its rules on terminal facilities access and reciprocal switching agreements.

      The STB noted that it has not recently examined these issues, and that the railroad industry has changed dramatically since the STB initially adopted its competitive access standards in the 1980s.  Further, it noted that while productivity gains in the railroad sector “appear to be diminishing,” overall rail transportation prices have increased since 2004, suggesting that it is time for the STB to consider competition issues again.

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      Categories: Antitrust Enforcement, Antitrust Policy

        January 13, 2011

        Circumstantial Evidence Batting .500 In Seventh Circuit This Month With Omnicare Defeat

        Proponents of proving antitrust conspiracies with circumstantial evidence are one for two in Seventh Circuit decisions decided in the last two weeks with the plaintiff’s summary judgment loss in Omnicare Inc. v. UnitedHealth Group, Inc.

        The decision by the U.S. Court of Appeals for the Seventh Circuit affirming Judge Rebecca Pallmeyer’s grant of summary judgment to the defendants in Omnicare is that court’s second antitrust opinion in as many weeks that pivots on circumstantial evidence.  As discussed in a previous post, the Seventh Circuit found allegations of a price-fixing conspiracy – based on circumstantial evidence – sufficient to withstand a motion to dismiss at the pleading stage two weeks ago in In re: Text Messaging Antitrust Litigation.

        This week, however, the Seventh Circuit affirmed the district court’s ruling that the circumstantial evidence submitted by OmniCare Inc., an institutional pharmacy, failed to raise any issue of material fact as to whether defendants UnitedHealth Group Inc. and PacifiCare Health Systems Inc. conspired to depress Omnicare’s reimbursement rates.  Omnicare charged that United and Pacific conspired to depress these rates after they entered into a merger agreement, but before the merger was consummated.

        OmniCare sued in 2006 when UnitedHealth, after the merger, scrapped its reimbursement rate contract with the pharmacy company for the more favorable agreement PacifiCare had entered into with Omnicare before the merger.

        In appealing the district court’s grant of summary judgment for the defendants, Omnicare set forth what the Seventh Circuit called a “richly detailed narrative” that was both “complex and compelling.”  Yet the appeals court stated that “Omnicare cannot get to trial based on the elegance of its theory alone.”

        Citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554 (2007), the Seventh Circuit held that the only evidence presented by Omnicare was “circumstantial,” rather than “direct.”  Accordingly, the Seventh Circuit held that, to survive summary judgment, Omnicare had to “show that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed it,” and that Omnicare’s “offer of conspiracy evidence must tend to rule out the possibility that the defendants were acting independently.”

        The court specifically held that pricing and strategy information exchanged between the parties in the context of their merger negotiations did “not tend to exclude the possibility that United and PacifiCare were acting to advance their own legitimate interests,” as opposed to illegally colluding.  Further, the court concluded that “the ample evidence offered by Omnicare does not on the whole tend to negate the reasonable inference of independent action.”

        It is interesting that just two weeks ago, in In re: Text Messaging Antitrust Litigation, the Seventh Circuit rejected defendants’ argument that circumstantial evidence was insufficient to support allegations of a price-fixing conspiracy, noting the court did not need to “decide whether the circumstantial evidence that we have summarized is sufficient to compel an inference of conspiracy; the case is just at the complaint stage and the test for whether to dismiss a case at that stage turns on the complaint’s ‘plausibility.’”

        While the two opinions could be read together as simply reflecting the higher burden imposed on plaintiffs at the summary judgment stage – when they need to come up with evidence to back up the well-pleaded allegations that defeated any motion to dismiss – the opinions could also signal that the Seventh Circuit may be taking a more jaundiced view of circumstantial evidence in general once parties get past the pleading stage.

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        Categories: Antitrust and Price Fixing, Antitrust Litigation

          January 10, 2011

          Judge Posner Texts Twombly No Bar To Texters’ Circumstantial Class Action

          In an opinion written by antitrust expert Judge Richard Posner, the U.S. Court of Appeals for the Seventh Circuit has rejected a bid by defendant cell phone companies to throw out a class action alleging that the companies conspired to fix text message prices.

          The Seventh Circuit held that the plaintiffs’ second amended complaint in In re: Text Messaging Antitrust Litigation contained enough circumstantial evidence to allow the case to proceed to discovery.  The decision a applies – and clarifies – the heightened federal pleading standards laid out recently by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal.

          In rejecting a bid by cell phone companies to throw out a putative class action alleging that the companies conspired to fix text message prices, the Seventh Circuit held that the plaintiffs’ second amended complaint contained enough circumstantial evidence to allow the case to proceed to discovery.

          The ruling is significant because it shows that while direct “smoking-gun” evidence is of course helpful, mere circumstantial evidence of a conspiracy to unreasonably restrain trade can also be sufficient to get past the pleading stage.

          The second amended complaint alleged that the cell phone companies belonged to a trade association and exchanged price information at association meetings.  The complaint also alleged that the defendants went from having different pricing structures to implementing a uniform pricing structure, and then simultaneously increased prices by a third.

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          Categories: Antitrust and Price Fixing, Antitrust Litigation

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