January 24, 2012

FTC Approves Final Order Resolving PoolCorp Antitrust Claims

The FTC has approved the final order resolving claims that Pool Corporation, Inc. (“PoolCorp”) acted anticompetitively in violation of Section 5 of the Federal Trade Commission Act. 

PoolCorp is a major distributor of commercial and residential swimming pool supplies, products, and equipment.  According to the FTC complaint in In the Matter of Pool Corporation, PoolCorp is the “largest nationwide buyer of pool products, commonly representing 30 to 50 percent of a manufacturer’s total sales.”  In local markets, PoolCorp allegedly has had “a market share of approximately 80 percent or higher for at least the past five years.”    

The FTC alleged that PoolCorp “unlawfully maintained its monopoly power by threatening to refuse to deal with any manufacturer that sells its pool products to a new distributor entering the market, thereby foreclosing potential rivals from an input necessary to compete.”  The Statement provided by Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez in support of the Complaint and Order highlights a lack of independent business reasons or efficiency justifications for the alleged conduct. 

Commissioner J. Thomas Rosch provided a Dissenting Statement in which he claimed there was a lack of evidence of any violation.  In particular, Commissioner Rosch noted that “no entrants were actually excluded” from the markets at issue and that there was “no consumer injury” in this case.  Moreover, Commissioner Rosch found “legitimate reasons” for manufacturers not to sell to new entrants, such as a new entrant’s failure to demonstrate that it offers “adequate facilities, a history of successful operations, and a favorable credit history ….” 

PoolCorp has executed a Consent Agreement requiring particular conduct and reporting practices.

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Categories: Antitrust Enforcement, Antitrust Law and Monopolies, Antitrust Litigation

    January 20, 2012

    FTC Revamps Investigation and Attorney Misconduct Rules

    The U.S. Federal Trade Commission (the “FTC”) has issued proposed changes to streamline its rules relating to investigatory procedures and alleged misconduct of attorneys.

    The proposed changes deal with Parts 2 and 4 of the FTC’s Rules of Practice and are designed to improve investigations and to keep up with changes in electronic discovery.

    The agency noted that the Part 2 rules were in need of reform because of concerns that modern discovery has become a source of delay in its investigations, especially because “information is no longer accurately measured in pages, but instead in megabytes” and because “parties can no longer complete searches by merely looking in file cabinets and desk drawers.”  The FTC is re-examining the rules to “not only account for the widespread use of ESI, but also to improve the efficiency of investigations.” 

    Specific changes include:

    * requiring parties to meet and confer with the FTC on an accelerated schedule to resolve electronic discovery issues related to civil investigative demands (“CIDs”) and subpoenas;

    * streamlining the procedure to resolve disputes over FTC subpoenas and CIDs;

    *  expediting the pre-merger review process by authorizing FTC General Counsel to initiate enforcement proceedings when a party fails to comply with the Hart-Scott-Rodino second request process;

    * relieving a party of the obligation to preserve documents for an FTC investigation if a year has passed without any written communication from the FTC.

    The FTC is also proposing to amend Rule 4.1(e) regarding attorney disciplinary procedures by providing additional guidance regarding the appropriate standards of conduct and procedures to address any alleged violations. 

    The proposed rule changes will be published in the Federal Register and subject to public comment until March 23, 2012.

    The FTC has separately approved Rule 2.17 to aid in maintaining the confidentiality of its investigations.  This new rule delays notifying targets of FTC investigations that the FTC has requested information about them from third parties, when such disclosure would tip them off or otherwise jeopardize the investigation.

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    Categories: Antitrust Enforcement

      January 18, 2012

      FTC Charges Pipe Fitting Price Fixing

      The Federal Trade Commission (“FTC”) has filed a complaint alleging price fixing against the three largest U.S. suppliers of ductile iron pipe fittings – Star Pipe Products, Ltd., McWane, Inc., and Sigma Corp.

      The FTC alleges that these three competitors violated Section 5 of the Federal Trade Commission Act (“FTCA”) by conspiring to fix prices for ductile iron pipe fittings, which are used in municipal water systems around the United States.  The FTC’s complaint also charges McWane with illegally maintaining monopoly power in the market for domestically-produced pipe fittings.   Sigma has settled its claims via a consent decree, which does not include an admission of liability or monetary penalties. 

      According to the FTC, “McWane invited Sigma and Star to collude with it” in 2008 by outlining a plan to raise and fix prices for imported iron pipe fittings.  The FTC alleges that the companies agreed, exchanged information through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and subsequently raised their prices in January and June of 2008.

      The FTC also alleges that McWane and Sigma entered into a separate anticompetitive agreement to restrain trade in the market for domestic pipe fittings.  In 2009, as part of the Stimulus Act, Congress allocated more than $6 billion to water infrastructure projects, with a mandate that only domestic materials – including pipe fittings – could be purchased with the stimulus dollars.  The FTC alleges that McWane illegally maintained monopoly power in this market for domestically-produced pipe fittings by successfully persuading Sigma to “abandon” its efforts to enter the market, agreeing instead to act as a distributor for such materials for McWane.

      The proposed settlement order against Sigma would prohibit Sigma from a variety of anticompetitive activities relating to ductile iron pipe fittings, including: (1) participating in or maintaining any conspiracy to fix, raise, or stabilize the prices of these pipe fittings; (2) allocating or dividing markets, customers, or business opportunities for these pipe fittings; and (3) participating in or facilitating any agreement between competitors to exchange sales information or other competitively sensitive information relating to the price of these pipe fittings.  The proposed settlement order will be subject to public comment for 30 days, after which the FTC will decide whether to make the settlement order final.  The FTC is scheduled to make its final decision on February 6, 2012.

      Although price fixing cases are more commonly prosecuted as criminal violations of the Sherman Act by the U.S. Department of Justice, Section 5 of the FTCA also provides the FTC with the power to bring such cases.  Although uncommon, there is some history of the FTC pursuing price fixing cases, such as the 2001 case against AOL Time Warner and Vivendi Universal for conspiring to fix prices of audio and video recordings of the “Three Tenors” concerts.

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      Categories: Antitrust and Price Fixing, Antitrust Enforcement, Antitrust Law and Monopolies, Antitrust Litigation

        January 13, 2012

        King Pharmaceuticals Hit With Antitrust Headaches Over Its Muscle Relaxant, Skelaxin

        King Pharmaceuticals Inc. begins the new year with another antitrust headache caused by a class action complaint brought in federal court in the Eastern District of Tennessee by two pharmacies alleging that it has unlawfully conspired to suppress competition to its muscle relaxant, Skelaxin.

        According to the complaint in Johnson’s Village Pharmacy, Inc. et al. v. King Pharmaceuticals, Inc., King Pharmaceuticals (which was acquired by Pfizer in 2010) restrained trade in violation of the Tennessee Trade Practices Act and common law by entering into a reverse-payment agreement in 2005 with Mutual Pharmaceutical Company.  In the agreement, Mutual agreed to delay selling a generic version of the drug in exchange for an up-front payment of $35 million and a 10%-30% annual share of King Pharmaceuticals’ sales of Skelaxin.

        The plaintiffs, Johnson’s Village Pharmacy Inc. and Russell’s Mr. Discount Drugs Inc., allege that this agreement forced a class of thousands of businesses that have purchased Skelaxin for resale to overpay by millions of dollars.

        The complaint follows an earlier antitrust action brought under the federal Sherman Act by SigmaPharm Inc. against both King Pharmaceuticals and Mutual.  In that case, SigmaPharm alleged that the King-Mutual agreement eliminated sales of a generic version of Skelaxin to the detriment of SigmaPharm, which had a development agreement with Mutual.

        The SigmaPharm action was dismissed last year because the federal district court found that SigmaPharm did not qualify as a consumer or competitor that could bring suit under the Sherman Act.  The United States Court of Appeals for the Third Circuit affirmed that ruling in December.

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        Categories: Antitrust Litigation

          January 11, 2012

          U.S. Agriculture Competition Rules Get Meat Axed By Industry And Congressional Pressure

          Pressure from the U.S. meat industry and Congress has succeeded in trimming new competition rules designed to help farmers contained in the U.S. Department of Agriculture’s (“USDA”) final regulations for the Grain Inspection, Packers and Stockyards Administration (“GIPSA”).

          The Food, Conservation, and Energy Act of 2008 (the “2008 Farm Bill”) required the USDA to promulgate new, and clarify existing, GIPSA regulations on a wide variety of topics.  The final regulations represent a significant retreat from the proposed rules and demonstrate the political power of large industrial meat companies.

          As directed by Congress in the 2008 Farm Bill, the USDA proposed several changes to the relationship between farmers and meat packagers and processors.

          Many industry observers have long criticized the power imbalance that exists between individual farmers, who have little bargaining leverage in the context of a multi-billion dollar industry, and large corporate meat dealers.  The proposed regulatory changes included rules that were intended to help level the playing field, such as creating definitions of competitive injury, unfair and unjust practices, and undue or unreasonable preferences or advantages. 

          None of those provisions survived a year of heated debate and lobbying by the meat industry.

          In addition to the notice and comment process, Congress intervened before the USDA published its final rule to prohibit the agency from passing most of the competition-related reforms.  The provisions that did make it into the final rule, such as allowing farmers to decline mandatory arbitration provisions in growing contracts, have come under heavy criticism, and the meat industry will likely continue to push for their repeal or modification.

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          Categories: Antitrust Legislation, Antitrust Policy

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