In January, 32 state attorneys general filed an amicus brief in the U.S. Supreme Court, urging the Court to hear and overturn Arkansas Carpenters Health and Welfare Fund v. Bayer AG (In re Ciprofloxacin Hydrochloride Antitrust Litig.), 05-2851-cv(L) (2d Cir. 2010) (“Cipro”).  In Cipro, the Second Circuit affirmed its legal standard governing so-called “reverse payments,” which are payments by a brand name drug manufacturer to a generic drug manufacturer in settlement of patent infringement litigation brought by the brand name manufacturer against the generic.  In exchange, the generic agrees not to market its allegedly infringing product.  Because the generic product has yet to be marketed, the generic does not face the risk of paying damages if its product is found to infringe.   

The Second Circuit affirmed its previous holdings that such settlements do not constitute a per se antitrust violation, and that patent settlements are presumptively lawful (unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit).  The state AGs argue in their brief that such settlements cost government agencies and consumers billions of dollars per year in the form of higher drug prices, and that “[m]aintaining open competition in pharmaceutical markets is critical to the States’ ability to provide drugs to their consumers at a reasonable cost, and to control escalating drug costs that threaten to swamp already strained budgets.”  Further, “the legal standard as to reverse payment agreements is subject to widely differing interpretations and results, [and] State antitrust enforcers need clear guidance.” 

The defendants opposed the plaintiffs’ petition for certiorari and the attorneys general’s brief, stating that it was principally a patent case that did not involve “any claims under federal antitrust laws,” thereby presenting “a poor vehicle for” the Supreme Court “to construe those laws.”  The defendants further argue that the “petitioners’ rhetoric about the importance of competition is out of place with respect to competition within the scope of a patent, which by definition grants an inventor freedom from competition within that limited scope for a limited time, in order to promote and reward invention.”

For a detailed discussion of the Cipro case, see this blog’s prior entries on the Second Circuit’s opinions.

The Supreme Court case docket is No. 10-762.

An article detailing the history of reverse-payment antitrust litigation is available here.

The Affordable Care Act provides for the creation of Accountable Care Organizations (“ACOs”), organizations of healthcare providers that agree to be held accountable for the cost and quality of care provided to Medicare beneficiaries.  Beginning in January 2012, Medicare will reward ACOs for meeting certain benchmarks set by the Secretary of Health and Human Services.  As a result, many healthcare providers that historically have been competitors are now seeking to join forces as ACOs.

Although the Affordable Care Act promotes the establishment of ACOs, Congress did not carve out an antitrust exemption for them.  Thus, there is a concern in Washington that ACOs, if not properly regulated, could become monopolies that run afoul of the antitrust laws.  J. Thomas Rosch, a member of the Federal Trade Commission, recently expressed such sentiments in letters written to the White House and the federal Medicare agency, according to The New York Times.  Commissioner Rosch notes the concern that ACOs, through their substantial bargaining power, could drive up the price of privately insured healthcare to offset the loss in Medicare revenue.

Commissioner Rosch’s letters also reveal a struggle between the FTC and the Department of Justice over who should regulate ACOs.  The DOJ is generally viewed by healthcare providers as the entity that is more understanding of their efforts to join forces and collectively negotiate with health insurance plans.  Not surprisingly, healthcare providers believe that the DOJ should regulated ACOs and have accused Mr. Rosch and the FTC of attempting to encroach on the DOJ’s territory.

The antitrust concerns inherent in the conduct of ACOs, and the uncertainty over who will regulate the ACOs’ compliance with the antitrust laws, could lead to a delay in the formation of ACOs.  Hopefully these issues will be resolved sooner rather than later, and ACOs will be allowed to operate within a regulatory framework, consistent with the antitrust laws, to allow them to deliver the cost savings and quality improvements as intended.

A judge in the Southern District of New York has approved a settlement agreement between the Department of Justice and KeySpan Corporation (“KeySpan”) in which KeySpan agreed to disgorge $12 million of profits for alleged violations of Sherman Act Section 1.  KeySpan was once the largest seller of electricity generating capacity in New York City and is owned by National Grid, which purchased it in 2007. 

The Department of Justice alleged that KeySpan manipulated New York City electricity prices to the detriment of consumers by entering into a swap agreement that provided it with an interest in the electricity generating business Astoria Generating Company (“Astoria”), its largest competitor.  According to the Department of Justice, KeySpan’s swap agreement with Astoria raised electricity prices for the consumers of New York City.  The swap was especially effective, according the Department of Justice’s complaint, because the New York City electricity market is highly concentrated, with KeySpan, NRG Energy, Inc., and Astoria, “controlling a substantial portion of generating capacity.”  Moreover, the Department of Justice alleged that KeySpan held market power in the New York City capacity market from 2003 to 2008.  The Federal Energy Regulatory Commission (“FERC”) had described KeySpan and its two principal competitors in New York City as “pivotal suppliers” in recognition of their central role in the local electricity market. 

U.S. District Court Judge William H. Pauley III stated in his decision approving the Settlement that whether the Department of Justice could seek disgorgement of profits was a novel legal question.  He stated that the Department of Justice could pursue this remedy, and added that it was the first time a federal U.S. court had approved disgorgement as an antitrust sanction.  The $12 million disgorgement by KeySpan represented 25 percent of its net revenues from the swap transaction at issue in the Department of Justice complaint.

Judge Pauley stated that such a remedy could prove to be a powerful deterrent and a way of punishing past antitrust violations.  He noted that “[d]isgorgement is particularly appropriate where, as where, the anticompetitive conduct has ceased.”  Such a remedy would, in his view, make a potentially valuable addition to the “government arsenal.”

The parent company of the New York Stock Exchange, NYSE Euronext, has agreed to merge with Deutsche Boerse, the operator of the Frankfurt stock exchange.  In an all-stock deal worth more than $10 billion, Deutsche Boerse will own a majority 60 percent of the new company, and NYSE Euronext shareholders will own 40 percent.  The merger, if approved, would create the world’s largest financial exchange operator and have headquarters in Frankfurt and New York. 

The current president and deputy of NYSE Euronext, Duncan Niederauer, would serve as the new company’s CEO.  Reto Francioni, the current chief executive of Deutsche Boerse, would become chairman. 

A merger of this magnitude will certainly face intense scrutiny by U.S. and European regulators, both because of its sheer size and also for its effect on the world’s financial markets.  The U.S. Department of Justice will review potential antitrust issues, and the Securities and Exchange Commission will also need to give the deal a green light.  In Europe, both the European Commission on antitrust, as well as the German state of Hesse’s Economy, Transport and Development Ministry will have to approve the merger. 

The name of the exchange has yet to be decided, but is already becoming a political issue.  U.S. lawmakers, including New York State Senator Charles Schumer, have expressed concern that the deal may hurt New York’s leadership role in the financial world.  Schumer recently said his approval of the merger depends on whether New York gets top billing in the exchange’s new name. 

The firms hope to complete the merger by the end of the year.

California’s largest supermarkets will have another chance to argue that actions they took in response to a labor strike did not violate antitrust laws.  This second bite at the apple comes courtesy of the Ninth Circuit which, on February 11, granted an en banc hearing to reconsider the initial panel’s decision against the supermarkets.

In the case, California sued the state’s three largest supermarkets: Safeway and its Von’s business, Albertsons, and Kroger’s Ralphs and Food 4 Less businesses.  The state charged that the supermarkets violated antitrust law. 

According to California, the supermarkets illegally agreed to split profits in the face of an impending strike that would affect the companies.  Under their “Mutual Strike Assistance Agreement,” the supermarkets agreed to allocate profits to each other during the strike according to a formula that reflected their historical market shares.  California asserted, and the initial Ninth Circuit agreed, that this conduct violated Section 1 of the Sherman Act, which prohibits conspiracies that restrain trade.  The supermarkets argued that labor law excused their agreement, which also enhanced competition.  The initial panel reversed the district court, which had denied both parties’ motions for summary judgment.

The case is California v. Safeway, Inc., No. 08-55671, D.C. No. 2:04-cv-00687, and the new en banc argument will take place the week of March 21, 2011 in San Francisco.

According to media reports, the DOJ Antitrust Division is investigating accusations that UPS and FedEx colluded to freeze third-party shipping consultants out of the their shipping businesses.  The reports indicate that Justice has opened an investigation into possible collusion between FedEx and UPS, the two largest companies in the package shipping world. This investigation would come on the heels of a private antitrust action filed by a shipping consultant.

FedEx and UPS are said to each have complex shipping rates and rules, especially for international shipments.  Comparing their prices, against each other and against other competitors, is said to be difficult.  Some companies use third-party shipping consultants to help find the best shipping rates and to negotiate discounts.  One such consultant, AFSM, has sued FedEx and UPS, claiming collusion, refusal to deal, and group boycott.

The AFSM complaint, filed in the U.S. District Court for the Central District of California, alleges that FedEx and UPS publicly announced that they would no longer deal with shipping consultants, and that the two companies told their customers that their shipping rates would rise if they continued to use consultants.  We will monitor both the civil suit and the DOJ investigation for developments.

The Antitrust Division of the U.S. Department of Justice has given the green light to Swiss engineering giant ABB’s multi-billion-dollar acquisition of the American industrial motors firm Baldor Electric Co.

This regulatory approval paves the way for ABB’s $4.2 billion, or $63.50 per share, all-cash purchase.  The purchase price was a 41% premium over the November 29, 2010, $45.11 closing price of Baldor shares, the day ABB announced the $4.2 billon offer.  Since then, the management of both companies have approved the transaction. 

In general, hype surrounding ABB’s acquisition of Baldor has been positive.  Leading up to the takeover, leaders of both companies touted business efficiencies of the combined company, how Baldor as an ABB subsidiary would not be laying its U.S. workforce, and how the premium share price paid by ABB to acquire Baldor has the potential of making millionaires of many Baldor employees overnight.  Despite the fanfare, the companies’ path to the deal did face obstacles.  In particular, the scruples of both companies were assailed.  In the end, however, either the attacks lacked substance or the attackers couldn’t withstand the companies’ willingness to settle with anyone who might get in the way of their deal. 

In recent years, ABB has been on an acquisition bender.  Baldor is the seventh – and largest – company ABB has acquired since May 2008.

Though U.S. antitrust regulators green-lighted ABB’s acquisition of Baldor with minimal consternation, ABB’s dealings have kept other U.S. regulators busy.  On September 29, 2010, while ABB and Baldor were engaged in merger talks, the SEC announced that it had filed a “settled civil action” against ABB, charging the company with violations of the Foreign Corrupt Practices Act.  Specifically, the SEC alleged that ABB 1) bribed Mexican officials to obtain business with government-owned power companies; and 2) paid kickbacks to the former regime in Iraq to obtain contracts under the U.N. Oil for Food program.   According to the SEC, the bribery in Mexico resulted in contracts that generated $90 million in revenues and $13 million in profits for ABB, while the Iraqi kickbacks resulted in contracts that generated $13.5 million in revenues and $3.8 million in profits. 

Without admitting the allegations, ABB settled with the SEC for $39.3 million.  In related criminal proceedings, ABB reached a settlement with the Department of Justice to pay $19 million in criminal penalties. click here for more »

The FTC has voted unanimously to approve a Federal Register notice announcing revised thresholds for the Hart-Scott-Rodino Antitrust Improvements Act.

The Hart-Scott-Rodino Act requires persons contemplating certain large mergers or acquisitions to notify the FTC and the Assistant Attorney General, and to wait a designated period of time before consummating such transactions.  The threshold for reporting proposed mergers and acquisitions decreased from $65.2 million to $63.4 million.  Several additional thresholds were also revised and can be found in the notice.

The revised thresholds will apply to all transactions that close on or after the effective date of the notice.  According to an FTC press release, the notice will be published in the Federal Register shortly and will become effective 30 days after publication.

The FTC also unanimously approved a Federal Register notice announcing revised thresholds that trigger the prohibition on interlocking directorates under Section 8 of the Clayton Act.  The new thresholds are $25,841,000 for Section 8(a)(1) and $2,584,100 for Section 8(a)(2)(A).  According to the FTC press release, the notice will be published in the Federal Register shortly and will become effective upon publication.

The Clayton Act requires that these thresholds be revised annually by the FTC based on the change in gross national product.

The U.S. Department of Justice’s crusade against anticompetitive employment practices at high-tech companies continues, this time with a settlement with Lucasfilm Ltd.

In a complaint filed with the settlement in federal district court in Washington, D.C., the DOJ alleges that Lucasfilm agreed with Walt Disney’s animation studio, Pixar, as far back as 2005, that neither company would solicit each other’s employees for hire, both companies would give notice before hiring employees away from each other, and in cases where offers were made to each other’s employees, neither would make a higher counteroffer. 

Earlier last year, the DOJ reached settlements with six other high-tech companies – Pixar, Apple, Google, Adobe Systems, Intel, and Intuit – that bars them from entering into anticompetitive agreements to not solicit each other’s employees.  Because the earlier settlement will prevent Pixar from entering into anticompetitive employment agreements, the DOJ announced that its recent complaint did not need to name Pixar as a defendant.

Under the proposed final judgment, which if approved by the court would be in effect for five years, Lucasfilm would be barred from entering into anticompetitive hiring agreements and would engage in affirmative steps to ensure compliance with the settlement. 

This is not the first time these two firms’ names have appeared together; Lucasfilm and Pixar have enjoyed a relatively long history.  Pixar was established after Apple’s Steve Jobs purchased the computer graphics division of Lucasfilm in 1986 and renamed it Pixar.

The four major U.S. music labels have lost their bid to convince the Supreme Court to pull the plug on an antitrust class action under the high court’s Twombly standard for pleading.

The Supreme Court has declined to hear an appeal in Sony Music Entertainment v. Kevin Starr, a price-fixing class action against Warner Music Group, Universal Music Group, Sony, and EMI.  The denial of certiorari leaves standing the decision of the U.S. Court of Appeals for the Second Circuit to let the case proceed to discovery.

This case provides yet another test of the bounds of the Supreme Court’s Twombly standard, which federal courts have struggled to flesh out in their rulings on motions to dismiss antitrust complaints. 

The case arose from the major labels’ early ventures into Internet music, through services called MusicNet and pressplay.  Plaintiffs alleged that these ventures “provided a forum and means through which defendants could communicate about pricing, terms, and use restrictions.”  Plaintiffs also claimed that MusicNet and pressplay charged unreasonably high prices, burdened users with unpopular DRM software, and failed to account for increasingly lower costs in the digitization of music.

The district court dismissed the complaint under the Twombly standard, which requires that complaints state enough facts to “plausibly suggest” a violation of antitrust law.  The Second Circuit reversed in January 2010.  The appeals court reasoned that alleged behavior by the labels – including setting high prices for music and imposing restrictive digital rights management – would not have been in the labels’ self-interest unless their competitors did the same, and this plausibly suggested an illegal agreement.

The Supreme Court’s denial of review means that the case will proceed to discovery and potentially trial, though any trial is unlikely to take place before late 2011.