The European Commission is engaging in a little spring cleaning as it opens the window on how the European Union calculates fines, and cleans up a price-fixing cartel of laundry detergent producers.

The EU’s drive for greater transparency in how it sets fines was announced by Competition Commissioner Joaquin Almunia, who revealed that the Commission will be adding a section on fines in its Statement of Objections, which is sent to companies under investigation.  This new section will “indicate … the elements for the calculation of the fine such as the value of the cartelized sales – which is a critical factor – but also, for example, an indication of the gravity” and whether they have breached rules previously, he said.

The announcement comes in the wake of criticism from businesses that the fines are too high, especially in difficult economic times.  Almunia said the change should “open a channel for dialogue with the parties and will give them a better idea, at an early stage, of the size of the fines” they are facing. 

“In the last few years, we have been refining our fining guidelines to achieve optimal deterrence – which is our ultimate goal – and we will continue do to so,” he said.  Almunia defended the high fines by saying, “Our fines must remain large, because companies need to understand that cartels do not pay.”

The announcement came a day after the Commission fined two household products companies – US-based Procter & Gamble Co. and British-Dutch company Unilever NV – a total of $456 million as part of a settlement for fixing prices of laundry detergent powder in eight European Union countries.

Germany’s Henkel AG, one of the leading producers of laundry detergent in Europe, blew the whistle on the cartel in 2008 when it detected the conduct during an internal audit.  Henkel got immunity and was not fined because it informed regulators of the price fixing. 

In a press conference, Almunia said the cartel began when the companies, through a trade association, began an environmental initiative which focused on methods to reduce the weight of detergent powders and reduce packaging waste.  “They agreed to protect their respective market shares, they agreed also not to decrease prices when decreasing the size of the packages, and afterwards they even agreed on a price increase,” Almunia said.

The cartel operated from January 2002 until March 2005, and affected the price of laundry detergents in supermarkets in Belgium, France, Germany, Greece, Italy, the Netherlands, Portugal and Spain. 

As part of the Settlement, both Unilever and Procter & Gamble admitted that they participated in the cartel in exchange for a 10 percent reduction in fines.  The fines were also reduced as part of the Commission’s leniency program because both companies cooperated with the investigation.

The European Commission, which can fine companies as much as 10 percent of global yearly sales, imposed 12 billion Euros in fines from 2005 to 2010.  In 2010 alone, the Commission imposed fines of 3 billion Euros in the seven cartel decisions it made.  The Commission is currently investigating more than 25 cartel cases.

The European Commission may use antitrust law to enforce new “net neutrality” rules, according to an administrator who has directed both antitrust and telecommunications regulation for the 27-country European Union.

New EU rules on non-discrimination by Internet service providers go into effect on May 25, 2011 and, like the rules enacted last year by the U.S. Federal Communications Commission, they represent a compromise that appears to satisfy neither ISPs nor “open Internet” advocates – the two vocal sides of the net neutrality debate.

In a speech on April 19, Neelie Kroes, the European Commissioner for Digital Agenda, suggested that the European Commission may also use antitrust law to enforce net neutrality.  Kroes was, until 2010, the Commissioner for Competition, tasked with enforcing EU antitrust law.

Although there is no generally accepted definition of net neutrality, specific ISP policies and actions are often included.  In Europe, many mobile Internet providers and some wired providers block their customers from making voice-over-Internet-Protocol phone calls using services like Skype which compete with wired and wireless phone companies.  Also, as in the U.S., some European ISPs have proposed charging popular websites for “priority” access to their networks.  

The upcoming May 25 telecom rules, which are based on a 2009 EU directive, require that ISPs allow all Internet users to “access and distribute information or run applications and services of their choice” in a way “that ensures open and neutral Internet principles are respected in practice.”  The rules are vague, though, and leave tricky questions of definition and implementation to the member countries.

In what many commentators described as a wait-and-see attitude, Kroes proposes to pay close attention to ISPs’ compliance with the new rules for six months before considering further measures.  She did suggest that antitrust enforcement could work alongside telecom regulation where blocking or “traffic-shaping” policies distorted competition.  Such behavior by ISPs could theoretically favor content and services that are allied with, or vertically integrated with, the ISP, at the expense of independent competitors.

While telecom regulation and antitrust law address the same goal – promoting competition – enforcement mechanisms may be very different in speed, expense, and political difficulty.  In the U.S., the Supreme Court’s 2006 Trinko decision largely precludes antitrust suits against problematic conduct that is also a violation of FCC rules.   In the EU, where “competition” and telecom regulation both flow from the European Commission’s broad regulatory mandate, Kroes’s announcement suggests that regulators will bring both to bear.

A consortium of 130 financial institutions operating the leading interbank network in France is offering to lower most interbank fees for card transactions in order to resolve a price-fixing investigation by the French Competition Authority.

Groupement des Cartes Bancaires (“CB Group”), whose network accounts for more than two thirds of all card transactions in France, are offering to lower the fees to settle the Authority’s investigation into allegations that the fees were the result of anticompetitive price-fixing between member banks.  The investigation was triggered by complaints lodged with the French competition agency in 2009 and 2010 by two leading trade associations representing France’s retail industry.

The Authority stated in a press release that it was not necessarily illegal for the CB Group to collectively set interbank fees for card transactions within its network.  However, the level of these fees must be based on objective justifications, such as security or interoperability requirements.  The competition watchdog noted that the Group had not provided sufficient data to justify the fees’ current levels, and that some of the fees had remained unchanged for over two decades, in spite of changes to the competitive landscape and a vast increase in the use of payment cards over that period of time.

Details of the Group’s proposed commitments have been posted on the Competition Authority’s website to allow interested parties to submit comments, pursuant the so-called “market testing” procedure, which will close on May 5, 2011.  Under the plan, interbank fees for card payments would be cut by 25%, while the fees for withholding cards would be reduced by 50%.  ATM withdrawal interbank fees, however, would remain at their current level.  If accepted by the Authority, the commitments will remain in force for a 5-year period.

American Airlines has filed a lawsuit in the U. S. District Court for the Northern District of Texas against the second-largest online travel website – Orbitz Worldwide – and its largest stakeholder, Travelport, for allegedly engaging in monopolistic acts.

The complaint alleges that Orbitz, based in Chicago, colluded with Travelport, based in the United Kingdom, to block an independent avenue for ticketing created by American Airlines, based in Texas.  Travelport owns 48 percent of Orbitz.

American Airlines contends in its complaint that Travelport and Orbitz violated Sections 1 and 2 of the Sherman Act by using their control over the distribution of air fare information to maintain their monopoly power and to hinder the development of alternative technologies that could help consumers find cheaper fares.

Airlines pay fees to web sites such as Orbitz to include their fares in an on-line forum in which consumers can compare rates with those of other airlines.  American Airlines alleges that Travelport controls 30 percent of all airline ticket sales made by U.S. travel agencies, and used that market power to undermine American Airlines’ “AA Direct Connect” ticketing service through various anticompetitive acts, including:  restrictive terms in agreements with participating airlines; long-term agreements with travel agents that incentivize exclusive use of Travelport; and unreasonable refusals to deal with technology companies whose products threaten to erode Travelport’s market position.  American Airlines contends that such practices have allowed Travelport to double book fees for reservations made outside the United States, and to misrepresent American Airlines’ fares, damaging its relationship with consumers.

Travelport and Orbitz counter that American Airlines filed the lawsuit after contract negotiations between American Airlines and Orbitz broke down and American Airlines is merely using the suit to force better terms with Orbitz and with other similar websites with which American Airlines is negotiating.  American Airlines renewed its alliance with Expedia earlier this month.

The United States District Court for the Central District of California has denied Playtex’s motion for a preliminary injunction to enjoin rival diaper-pail producer, Munchkin, from advertising claims of a superior diaper pail.  

Munchkin is seeking a declaratory judgment in Munchkin, Inc. v. Playtex Products that Munchkin (1) is being truthful in claiming that its Diaper Pail is “The NEW #1 in Odor Control.  Proven Better at Odor Control than Diaper Genie II & Diaper Genie II Elite[, Playtex products,] in a laboratory test”; (2) has not engaged in unfair competition; and (3) has not engaged in deceptive trade practices.  Munchkin also alleges claims of false advertising and unfair competition against Playtex.  Playtex is asserting similar counterclaims.

In its motion for a preliminary injunction, Playtex argued that Munchkin’s superiority claim – and the associated fine print – is literally false as its tests (1) do not support the claim of superiority; and (2) are not reliable.  The court disagreed, finding that Playtex failed to carry the necessary burden of demonstrating literal falsity, thereby failing to establish the likelihood of success on the merits required for a preliminary injunction.

A federal court has decided that Digital Sun’s wireless sprinkler system may be innovative, but its claims of anticompetitive conduct by competitor Toro Company are all wet.

Judge Lucy Koh of the U. S. District Court for the Northern District of California has ruled that that Digital Sun’s antitrust complaint in Digital Sun v. The Toro Company falls well short of pleading standards, and dismissed all claims without oral argument.  Digital Sun, a small Silicon Valley startup that invented and markets a wireless sprinkler system, sued Toro, a worldwide manufacturer of outdoor maintenance equipment and associated products with 2010 net sales of $1.69 billion, for attempted monopolization of the wireless sprinkler market under Section 2 of the Sherman Act, unfair competition under California law, and fraud.

The grounds for this lawsuit can be traced to a proposed deal for Toro to take over Digital Sun.  During negotiations, Toro made a series of loans to Digital Sun and, in return, Digital Sun granted patent licenses (one exclusive license and one nonexclusive license) to its wireless sprinkler technologies to Toro.  When negotiations fell apart, Digital Sun filed this action after it realized that Toro now had patent rights to Digital Sun’s only product line.

In its complaint, Digital Sun alleged that Toro attempted to monopolize the wireless sprinkler market by engaging in bad faith negotiations to take over Digital Sun when all Toro really wanted was patent licenses for Digital Sun’s technologies.

Judge Koh found that Digital Sun failed to sufficiently allege its monopolization claim, including its allegations that Toro possessed market power and engaged in anticompetitive conduct.  The court observed that Digital Sun made no allegations of market share in its complaint other than ownership of patent rights in a particular type of wireless sprinkler technology.  In addition, Digital Sun acknowledged Toro did not hold Digital Sun’s patent rights in their entirety, and the license agreements actually created another competitor in most fields of use.  According to Judge Koh, these facts, as pled, could not give rise to findings of market power or anticompetitive conduct.

The court also found that Digital Sun did not sufficiently plead anticompetitive injury.  Despite the plaintiff’s allegations of bad faith negotiations by Toro, Judge Koh pointed out that Digital Sun was never forbidden from selling its product and was free to negotiate with other potential buyers.  Moreover, in the fields that Digital Sun cannot sell because of Toro’s exclusive license, Toro has simply replaced Digital Sun as the monopolist and, accordingly, the competitive landscape was unchanged.

The claims for unfair competition under California law and fraud likewise failed to pass muster.

This case showcases the challenges plaintiffs face when pleading patent-based antitrust claims, especially under the heightened pleading requirements of Twombly and its progeny.  Nevertheless, Judge Koh allowed Digital Sun to file an amended complaint to cure the pleading defects but cautioned the plaintiff that its “own arguments leave the Court with doubts as to whether these claims can be resurrected.”

Judge Lawrence Piersol of the U.S. District Court for South Dakota has denied a motion by TCF National Bank to preliminarily enjoin the enforcement of anticipated regulations regarding debit card interchange fees.  TCF has appealed the denial of the preliminary injunction to the Eighth Circuit Court of Appeals and has asked for expedited briefing and argument.

The judge took under advisement a motion by the U.S. Department of Justice to dismiss the litigation – with the court anticipating further briefing on the motion after the Federal Reserve issues final rules pursuant to the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Federal Reserve is expected to issue those final rules before July 21, 2011.

TCF National Bank, a unit of Minneapolis-based TCF Financial, filed a complaint last October claiming that the Durbin Amendment was unconstitutional.  TCF’s complaint seeks a declaratory judgment that no set of regulations the Board could adopt could pass constitutional muster.

TCF moved for a preliminary injunction, and was supported by amicus briefs filed by financial institutions.  The DOJ, representing the Federal Reserve and the Comptroller of the Currency, opposed the motion for a preliminary injunction and moved to dismiss TCF’s complaint on the merits.  The Government’s position was supported by amicus briefs filed by merchant and consumer groups.

Constantine Cannon has filed an amicus brief on behalf of the Retail Litigation Center.

An antitrust suit by customers seeking to untangle services provided by their cable company, Insight Communications, has been given a green light by Judge Joseph McKinley of the U. S. District Court for the Western District of Kentucky, who denied a motion to dismiss.

The customers allege that Insight illegally ties two separate products – its interactive cable service and the rental of a set-top box.  The court’s decision rejected Insight’s arguments about the technological linkage between the service and the box, and about FCC regulations trumping the Sherman Act.

Insight’s “Interactive Premium Cable” is available only to subscribers who lease a proprietary set-top box from Insight.  Customers claimed that, were it not for Insight’s preventing its service from working with other hardware, set-top boxes could be available in stores in a competitive market, in the same way that modems and telephones are.  They claimed that by requiring customers to lease the box as a condition of receiving the cable service, Insight had “tied” the two products in violation of Section 1 of the Sherman Act.

The court decided that, based on the customers’ allegations, the service and the box could be separate products – one of the requirements for a tying claim – even though the box is useless without the service.  Customers’ perception of the two as separate products, not their technological linkage, was the controlling factor, said the court.

Another requirement for a tying claim is that the defendant have enough market power to coerce customers into buying the two products together.  The court found that interactive cable service, which includes features like “on-demand programming, the interactive user guide, and pay-per-view,” was a separate product market, because satellite TV does not provide these features, and Web-based video has a much smaller library of shows.  The court concluded that no substitutes for interactive cable existed in the Kentucky, Indiana, and Ohio cities where Insight has service.  The customers alleged that the price of Insight’s interactive cable has increased three times faster than inflation, and that Insight has no close competitors to constrain its price.  This was enough to convince the court that Insight could have power to coerce tying.

Insight also claimed that because the Federal Communications Commission has detailed rules about how cable boxes are to be provided and priced, an antitrust decision by a court could conflict with the FCC’s policy judgment.  Insight cited to Verizon Communications v. Law Offices of Curtis V. Trinko, in which the Supreme Court dismissed a claim that FCC rule violations were also antitrust violations.  The Kentucky court ruled that Trinko did not apply to cases dealing with “established antitrust standards” and did not bar the customers’ suit.

The U.S. Department of Justice and the FTC have issued a Proposed Statement of Antitrust Enforcement Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.

The Proposed Statement was made on the same day that the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, filed its proposed rule regarding Medicare Shared Savings Program Accountable Care. 

The Proposed Statement contains provisions regarding an “Antitrust Safety Zone” for certain Accountable Care Organizations (“ACOs”), defines an expedited review process for ACO antitrust clearance, and identifies materials that must be submitted to the DOJ or FTC in order to receive an expedited review.

The Proposed Statement applies only to groups of competitors formed after March 23, 2010, to participate in the Shared Savings Programs.  The Proposed Statement is also inapplicable to mergers, which will continue to be evaluated under the Horizontal Merger Guidelines of the federal agencies.

Public comments on the Proposed Statement are due by May 31, 2011.

Judge James Ware of the U.S. District Court for the Northern District of California has denied the summary judgment motions of several car insurers in a class action alleging they created a sham organization to eliminate competition in the market for repair parts. 

The plaintiffs in Perez et al. v. State Farm Mutual Automobile Insurance Co. et al. (No. 5:06-cv-01962) are California automobile insurance policyholders who allege that defendant car insurers set up the Certified Automotive Parts Association to provide inferior replacement parts in violation of California’s Cartwright Act and Unfair Competition Law.  Plaintiffs also allege that the insurers unlawfully conspired to stifle competition in the auto repair market by agreeing to offer exclusively policies that provide inferior repair parts and to exclude other insurance companies. 

The original complaint was filed in 2006, and a third amended complaint was filed in November 2010.  Defendants argued that the amended complaint should be dismissed because the plaintiffs did not meet the Twombly standard to establish a conspiracy.  Judge Ware disagreed and held that the facts, if taken as true, were sufficient to show that the insurers conspired to eliminate competition for auto parts.

The defendants include State Farm Mutual Automobile Insurance Company, Geico General Insurance Company, Liberty Mutual Fire Insurance Company, and Allstate Insurance.