A proposed merger of Express Scripts and Medco, two of the largest pharmaceutical benefits managers (“PBMs”) in the United States, is likely to draw a prescription for significant antitrust scrutiny from federal regulators.

PBMs contract with health insurers and employers to manage health insurance plan pharmaceutical benefits, among other ways by negotiating with pharmaceutical manufacturers and pharmacies to lower drug costs.

Express Scripts is seeking to acquire Medco for $29.1 billion in the contemplated transaction, which the FTC will review for compliance with federal antitrust laws.

A combined Express Scripts-Medco company would control at least 30 percent of the drug benefit administration market, followed by CVS Caremark with around 18 percent.  Some estimates place the combined company’s number of covered lives at 135 million Americans.  The transaction would create the largest PBM by far in the U.S., with estimated annual sales of over $100 billion.  CVS Caremark’s PBM would be a distant second at around $60 billion in annual sales, and UnitedHealthcare’s PBM would be far behind the others with only about $30 billion in revenue.

The deal is already drawing fire from pharmacy retailers, who think Express Scripts would use its enlarged market power anticompetitively.  Pharmaceutical manufacturers also have cause for concern given the combined entity’s tremendous market power. 

On the flip side, Medco and Express Scripts almost certainly will attempt to defend the deal by arguing that the combined company will lower health care costs by using its size to push down drug prices, particularly for generic drugs.  The merging parties also are likely to argue that UnitedHealthcare constitutes a fourth big competitor in the market, meaning that the PBM business is shrinking from four to three providers rather than from three to two.

Whether the FTC views a possible post-merger market as being dominated as two or three big players could be crucial to the deal.  As Constantine Cannon partner Ankur Kapoor commented in The New York Times, “[t]hree-to-two mergers have historically been quashed by the antitrust agencies.”

The acquisition agreement requires Express Scripts to take steps to obtain antitrust clearance, including, if the FTC requests such actions, divesting a mail-order dispensing facility, certain specialty pharmacy dispensing or infusion facilities, and certain contracts worth up to $115 million in annual earnings.  The question is whether these steps will be sufficient to satisfy the FTC’s antitrust concerns.

Regulatory review of the proposed merger could take as long as a year because of the size of the deal and its effects on public health.  Thus, there is plenty of time for the different industries and interest groups that may be affected by the deal to make their voices heard.

In a major victory for consumer groups and a substantial blow to deregulation proponents, the U.S. Court of Appeals for the Third Circuit has reined in the Federal Communications Commission (“FCC”) and struck down its revised rules designed to deregulate media ownership.

The Third Circuit’s second major decision in Prometheus Radio Project v. Federal Communications Commission (“Prometheus II”) rejects rules adopted by the FCC in 2007 that would have paved the way to further corporate consolidation of media ownership.  Among other things, Prometheus II blocks the FCC’s attempt to end the 35-year-old ban on ownership by the same entity of a newspaper and a radio station in the same media market.

Rather than a substantive assessment of the FCC’s proposed deregulation of media ownership rules, however, the Third Circuit’s decision was a stinging rebuke of the FCC’s disregard for public notice and comment requirements under the FCC’s then-chairman Kevin J. Martin.

The Third Circuit’s ruling in Prometheus II was not first time the court foiled the FCC’s efforts to lift the cross-ownership ban.  In adopting new rules in 2003, the FCC made its first stab at lifting the cross-ownership ban.

Consumer groups quickly challenged the changes adopted by the FCC in 2003.  In the first round of Prometheus Radio Project v. Federal Communications Commission (“Prometheus I”), the Third Circuit considered consumers’ objections to those revised rules.  The court agreed with the FCC that a complete ban on newspaper/broadcast cross-ownership was no longer necessary to protect media diversity, but held that the regulation of cross-ownership was still in the public’s interest.  Finding that the regulatory mechanism proposed by the FCC in place of the cross-ownership ban suffered a dearth of reasoned analysis, the Third Circuit rejected and remanded the FCC’s 2003 rule changes.

In rejecting and remanding the FCC’s 2003 rule changes, the Third Circuit advised the FCC that “any new ‘metric for measuring diversity and competition in a market be made subject to public notice and comment before it is incorporated into a final rule.”

Despite the Third Circuit’s admonition, the FCC’s July 2006 public notice inviting comment on issues remanded by the court in Prometheus I regarding cross-ownership was vague.  The notice asked only whether limits should vary depending on the characteristics of local markets, and if so, how should they be factored into any limits.  Two Commissioners dissented from the order calling for public notice and comment, complaining that the notice was unclear and open-ended.  Commissioner Michael J. Copps wrote, “I do not see how we can be transparent and comply with the dictates of the Third Circuit [in Promethseus I] without letting the American people know about and comment on any new standards of measurement that we are adopting in developing our ultimate decision.”

On November 13, 2007, The New York Times published an Op-Ed by then-FCC Chairman Martin disclosing the details of his proposal for a new newspaper/broadcast cross-ownership rule.  The same day, Chairman Martin issued a press release setting a 28-day deadline, not the usual 90-day period, for the public to comment on his proposal.

On November 28, 2007, with more than two weeks before the truncated public comment period was to close, Chairman Martin circulated an internal draft of the rulemaking Order to the other Commissioners.  In an effort to slow down the FCC’s rule-making process to provide for a meaningful notice and comment period, on December 17, 2007, a bi-partisan group of 25 U.S. Senators sent the FCC a letter urging it to delay its vote.  The FCC was unmoved by the Senators’ letter and adopted the new rules by a three to two vote on December 18, 2007. 

In Prometheus II, the Third Circuit vacated and remanded the FCC’s new rule governing newspaper/broadcasting cross-ownership with almost no substantive consideration of the rule.  Rather, the court’s ruling was grounded in what it deemed as the FCC’s failure to comply with the Administrative Procedures Act (“APA”).

The FCC conceded that Chairman’s Martin’s Op-Ed/Press-Release did not satisfy the APA’s notice requirements.  It argued, however, that the two sentences contained in its July 2006 notice requesting general comment regarding whether limits should vary depending local market characteristics, and if so, how, satisfied the APA’s notice requirements.

The Third Circuit disagreed, noting that until Chairman’s Martin’s November 2007 Op-Ed/Press Release, “the public did not know even what options he was considering, let alone the Commission.”  The court found the 28 days Chairman Martin provided for responses to his proposed rule in direct contravention with the APA which requires that the public have a meaningful opportunity to submit data and written analysis regarding a proposed rulemaking.

The Third Circuit issued a clear warning that the FCC comply with the APA’s notice and comment requirements in any future attempt to modify its rules.

As part of an effort to streamline their regulatory review of mergers, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) have made “substantive and ministerial” revisions to the form required for proposed mergers under the Hart-Scott-Rodino Act. 

The Hart-Scott-Rodino Act requires companies to seek prior approval for acquisitions exceeding $65 million.  The DOJ and FTC say the changes will make the form easier to complete and make the review process more effective.

Applicants for merger approval will no longer need to provide documents filed with the Securities and Exchange Commission, “base year” data, or a breakdown of voting securities to be acquired.  The updated form includes new categories such as certain revenue information that will assist the antitrust enforcers in making a ruling. 

The DOJ and FTC developed these modifications after seeking public comment.  Bank of America, JPMorgan Chase & Co., and the Sections of Antitrust Law and International Law of the American Bar Association were among the 11 entities that provided recommendations.

Two major players in the automotive manufacturing industry, Sweden’s Autoliv and Michigan’s TRW, are under investigation by the antitrust divisions of both the U.S. Department of Justice (“DOJ”) and the European Commission (“EU”). 

Both companies are multi-billion dollar corporations that supply safety systems, such as seatbelts, airbags and steering wheels, to automakers.  Autoliv and TRW each operate on a global scale, employing thousands of people worldwide. 

The EU recently conducted surprise visits to Autoliv and TRW manufacturing facilities in Germany.  A spokesman for the Commission said that there “is reason to believe that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices.” 

In the U.S., the DOJ is overseeing a similar investigation and has subpoenaed documents from both TRW and Autoliv. 

In keeping with their policies, neither agency has provided details of these ongoing investigations.

A combination of a failure to pursue discovery and vague allegations have led  Judge Legrome D. Davis of the U.S. District Court for the District of Delaware to grant summary judgment, dismissing price-fixing claims in Superior Offshore Int’l, Inc. v. Bristow Group Inc.. 

Plaintiff Superior Offshore is a purchaser of helicopter services to offshore oil and gas sites.  Defendants Era Helicopters, LLC, Era Group Inc., Era Aviation, Inc., Bristow Group, Inc., PHI, Inc., and Seacor Holdings Inc., provide the helicopter services.  On behalf of all purchasers of defendants’ helicopter services from 2001 to 2005, Superior alleged that defendants had illegally agreed to fix prices in per se violation of Section 1 of the Sherman Act.

Superior’s original complaint was dismissed last year on the ground that Superior had alleged only parallel pricing that did not “justif[y] an inference of conspiracy or state[] a plausible claim of price-fixing.”  Although Superior had failed to conduct discovery, it sought leave to file an amended complaint based on “newly discovered evidence.”  The court permitted Superior to file an amended complaint based on three new paragraphs that alleged that in early 2001, a Bristow sales manager “believed he overheard” a conversation between a Bristow sales VP and competitor PHI’s sales manager in which the two men agreed to a major price increase and noted that the Era defendants had also agreed to the increase.   

Judge Davis, however, limited discovery to the allegations in the three new paragraphs.  Specifically, he allowed depositions of only the four individuals involved in or the subject of the alleged overheard conversation, and he permitted the parties to request additional discovery relating only to the new allegations.  Superior ultimately deposed only two of the four permitted witnesses  

Judge Davis granted defendants summary judgment because the sales manager’s testimony about the sole disputed fact in the case – the conversation he allegedly overheard – failed to create a genuine issue of fact.  He could not recall what was actually said, who said it, or whether he heard the entire conversation.  He was also “mistaken in his surmise as to who was on the other side of the conversation” and “who purportedly authorized” the VP he overheard to make the alleged statements.  Thus the manager’s “testimony provide[d] only his personal feelings, beliefs and speculation about the content of the conversation,” which was not enough to withstand summary judgment.

Superior’s cross-motion for additional discovery was denied because Judge Davis saw no reason such discovery would be fruitful.  Superior had identified only “hopes” and “beliefs” about what additional discovery might show, which was “insufficient to establish a cognizable need for additional discovery.”  Further, Judge Davis noted that although “[d]efendants’ motion to dismiss . . . did not prevent Plaintiff from proceeding with discovery [and] put Plaintiff on notice of shortcomings in its proof . . . Plaintiff did not initiate discovery to support its allegations with facts.”  In other words, plaintiff’s its discovery was too little too late.

Finally, Judge Davis found Superior’s broad, 11th-hour request to be a desperate fishing expedition: “The discovery net is cast wide because the foundation for the requests is purely speculative.  No facts have been presented that suggest further discovery would remedy [the sales manager's] conjecture and speculation.”

The moral of this story is directed to plaintiffs:  Begin discovery early, and get as much as you can while you can get it.  Unfortunately, Superior Offshore learned this lesson the hard way.

Apple may be facing an antitrust probe in India due to a consumer complaint urging India’s Competition Commission to investigate whether Apple violated competition laws by partnering with two of India’s largest mobile phone operators to sell the iPhone 4.  

Apple chose two of India’s major carriers – Bharti Airtel and Aircel – as partners to sell Apple’s most recent iPhone model, the iPhone 4, which was unveiled in India on May 27, 2011.  Previously, Apple partnered with Bharti Airtel and Vodafone Essar Ltd. for earlier iPhone models, the iPhone 3G and 3GS.  No consumer complaints were filed in connection with the partnerships for the earlier models.

The iPhone 4 partnerships essentially block rival carriers from selling the iPhone 4 and theoretically may encourage Bharti Airtel and Aircel to artificially increase prices if they face no competition from rival carriers.  India’s antitrust laws bar agreements that are “likely to cause an appreciable adverse effect on competition within India.”

Apple’s practice of partnering with one or two carriers is common in other markets, including other Asian markets. Apple typically partners with only one carrier in other Asian markets and two carriers in the U.S.  In the U.S., Apple initially partnered with AT&T for all iPhone products, adding Verizon as a partner in February 2011 (while maintaining its partnership with AT&T). 

In June, Apple began selling an “unlocked” version of the iPhone 4 in the U.S., meaning that consumers could purchase the iPhone directly from Apple – at list price – and use the phone with other GSM-compatible carriers, such as T-Mobile.

Apple claims that the iPhone 4s sold in India are similarly “unlocked,” allowing consumers to choose among a variety of GSM-compatible carriers or switch carriers at any time. 

As of yet, the Competition Commission has not committed to investigating Apple, saying only that the agency “may examine the complaint to see if [Apple] is violating any law.”

TV network Viacom is suing cable TV operator Cablevision to stop Cablevision from delivering Viacom channels to subscribers’ iPad tablets.

Viacom claims that Cablevision’s iPad app, which works only in a subscriber’s home, violates contractual, copyright, and trademark rights, because the companies’ agreement allows Cablevision to distribute Viacom’s programming via only “cable TV.”  Cablevision has countered that the app is nothing more than “cable TV,” delivered to homes over Cablevision’s equipment and then sent to iPads as a new type of TV set.

Potentially, such litigation may call into question the regulatory, as well as contractual, status of content delivered by a multichannel video programming distributor (“MVPD”) when the transmission is neither within its conventional service footprint nor sent over the “open” Internet.

Viacom is engaged in a similar lawsuit, filed in April, against Time Warner Cable, which also proposed to send cable programming to tablet computers.  That suit may be nearing settlement, as Viacom and Time Warner asked the judge for a “standstill” order while they negotiate, which the court granted on June 22.

Policymakers have expressed concern about a perceived lack of competition among cable operators and other MVPDs such as satellite and fiber-optic providers.

In the past four years, customers have filed antitrust suits against cable operators challenging the parameters of the services they offer.  One suit sought to compel a cable operator to offer channels “a la carte” instead of in bundles.  Another challenged the practice of making interactive cable services available only to those who rent set-top boxes from the cable operator, leaving out those who buy a set-top box from another source.  None of these suits have been successful to date.

In its 2010 “National Broadband Plan,” the Federal Communications Commission stated that encouraging competition in the devices that subscribers can use to view interactive pay television would also promote competition among the MVPDs themselves.  The suits by Viacom bear watching because they could help determine who will decide which devices can receive pay TV service.

The U.S. Court of Appeals for the Sixth Circuit has revived an antitrust suit brought by carpet dealer Watson Carpet & Floor Covering, Inc. alleging rival dealer Carpet Den Inc. and supplier Mohawk Industries Inc. conspired against Watson to harm its business.

In Watson Carpet & Floor Covering, Inc. v. Mohawk Industries Inc. et al., No. 09-6140, the Sixth Circuit reversed the lower court’s ruling that Watson had failed to state a claim under the pleading standard set forth by the Supreme Court in Bell Atlantic Corp. v. Twombly.  According to the appeals court, Watson’s allegations of an agreement to restrain trade and subsequent acts in furtherance of the conspiracy were sufficient to overcome a motion to dismiss.

The Watson decision came on June 22 – just one day after the same court upheld the dismissal of an antitrust complaint on Twombly/Iqbal grounds even though the information needed to establish the plaintiffs’ claims was controlled by the defendants.  In that case, New Albany Tractor, Inc. v. Louisville Tractor, Inc., No. 10-5100, the court’s decision to uphold the dismissal appeared to have been made reluctantly.  The appellate court all but bemoaned the fact that, under the binding precedent of the Supreme Court’s Iqbal decision, no discovery could be conducted in a case such as New Albany Tractor even though the facts necessary to establish the plaintiffs’ claims were solely within the purview of the defendants.

In contrast, Watson was able to allege specific facts surrounding the agreement among the defendants to drive it out of business, including how it was implemented.  Where Watson obtained this information is not clear, although it may have been from discovery in a prior related litigation that predated Twombly.

Without a doubt, future plaintiffs with similar claims based upon information within the exclusive purview of the defendants, and without the benefit of discovery, face significant challenges in the post-Twombly/Iqbal world.

The U.S. Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) plan to sign a memorandum of understanding with China’s three antitrust enforcement agencies, signaling the first formal pact of cooperation between U.S. and Chinese regulators. 

This deal comes on the heels of China’s sweeping antitrust reform, a policy it developed with advice from foreign agencies like the FTC.  The growing number of countries with antitrust laws and agencies, combined with the increasingly global profile of corporations, has made international cooperation extremely important.  Moreover, multi-jurisdiction, transnational antitrust investigations are now common, meaning that different agencies often have overlapping authority. 

A formal memorandum of understanding facilitates agencies’ ability to share information, especially confidential documents.  The FTC hopes this deal will bring international antitrust policy one step closer to a convergent set of global standards with consistent enforcement. 

The U.S. shares similar agreements with a handful of other countries (Russia, Japan, Israel, and the E.U.) and intends to actively pursue new deals, especially with developing countries like India.

Huntsman International LLC, a subsidiary of the chemical giant Huntsman Corp., has agreed to pay $33 million to settle a class action suit alleging anticompetitive practices.

The direct purchaser plaintiffs claim that five major chemical companies, BASF, Dow Chemical, Bayer, LyondellBasell, and Huntsman, colluded to fix the price of feedstock used to make polyurethane foam.  They point to repeated instances of simultaneous and identical price increases as evidence for their claim that a conspiracy to maintain artificially high prices existed. 

These five players allegedly wield exclusive control of the U.S. polyurethane feedstock market.  Plaintiffs alleged that this, combined with high barriers for market entry and feedstock’s status as an undifferentiated commodity, makes the industry particularly susceptible to price-fixing agreements. 

Huntsman’s settlement acknowledges no wrongdoing.  A spokesman for Huntsman said that the company wanted to avoid the expense of complex, long-term litigation and move forward with business.

The plaintiffs are very satisfied with the $33 million agreement, a figure that represents 1.4% of Huntsman’s sales during the contested period.  LyondellBasell and Bayer have reached similar deals. 

Counsel for the plaintiffs say they will continue to pursue the remaining defendants, BASF and Dow Chemical.