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.

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.

A subsidiary of PPHS currently leases Phoebe Putney Memorial Hospital (“Memorial”), a 443-bed hospital in Albany, Georgia that offers “inpatient general acute-care services.”  Memorial’s “only real competitor”—in the words of the Eleventh Circuit—is Palmyra, a 248-bed hospital offering similar services.  In its opinion, the Eleventh Circuit stated that “Memorial controls 75 percent and Palmyra 11 percent of their geographic market.”

In December 2010, PPHS announced a plan to have a political subdivision, the Hospital Authority of Albany-Dougherty County (“Hospital Authority”), purchase Palmyra and lease Palmyra’s assets to PPHS or one of its subsidiaries.  The City of Albany and Dougherty County authorities created the Hospital Authority in 1941 pursuant to Georgia’s Hospital Authorities Law, in order to address public health needs of the area. 

In April 2011, the FTC brought a federal action to preliminarily enjoin the acquisition pending resolution of the FTC’s related administrative proceeding.  In its complaint for a preliminary injunction, the FTC alleged that the proposed acquisition was practically a “merger to monopoly” that “threaten[ed] substantial harm to competition in the relevant market for inpatient general acute-care hospital services sold to commercial health plans.” 

Defendants took the position that the state-action doctrine immunized the acquisition and planned operation of the hospitals from antitrust scrutiny.  On this point, the FTC alleged that the Hospital Authority was merely a straw-man that was included in the transaction for the sole purpose of shielding the transaction from antitrust scrutiny.  

The district court agreed with the defendants, finding that the state-action doctrine applied and therefore that the defendants were immunized from antitrust scrutiny.  Accordingly, the district court dismissed the complaint with prejudice.  The FTC appealed. 

On de novo review, the Eleventh Circuit agreed with the FTC that “the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.”  However, the court affirmed dismissal on the grounds of state-action immunity. 

The court began its analysis of the state-action doctrine by citing the seminal case of Parker v. Brown, 317 U.S. 341 (1943) and the doctrine’s emphasis on principles of federalism.  The court acknowledged that state-action immunity does not automatically extend to municipalities or political subdivisions.  To resolve whether the Hospital Authority, the political subdivision at issue, was entitled to state-action immunity, the court applied the rule announced in FTC v. Hosp. Bd. Of Dirs. Of Lee Cnty., 38 F.3d 1184, 1187-88 (11th Cir. 1994) (citing Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985)) that “a political subdivision … enjoys state-action immunity if it shows that, ‘through statues, the state generally authorizes [it] to perform the challenged action’ and that, ‘through statutes, the state has clearly articulated a state policy authorizing anticompetitive conduct.’”  Of interest, particularly given the FTC’s straw-man argument, the Eleventh Circuit did not cite or address the “active supervision” element of California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) and its progeny, presumably due to the statement in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 (1985) that “the active state supervision requirement should not be imposed in cases in which the actor is a municipality.”  

Finding first, that Georgia’s Hospital Authorities Law contemplated the anticompetitive effects and conduct alleged in the complaint; second, that the state legislature granted hospital authorities the power to purchase or lease “projects” (i.e., hospitals); and third, that the state legislature “must have anticipated anticompetitive harm when it authorized hospital acquisitions by the authorities,” the court held that state-action immunity protects the proposed plan. 

The appellate court rejected the FTC’s argument that the Hospital Authority acted as a mere straw-man by citing City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 379 (1991) for the proposition that a court cannot scrutinize governmental actions to attempt to uncover “perceived conspiracies to restrain trade.” (internal quotes omitted).

The case is Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-12906, in the United States Court of Appeals for the Eleventh Circuit.

The plaintiffs in The Apple iPod iTunes Antitrust Litigation contend that Apple violated state and federal antitrust laws by monopolizing markets for digital music downloads and portable digital media players, excluding competing portable digital media devices, and charging supracompetitive prices for iPods. 

The amended consolidated class action complaint, filed on January 26, 2010, charges that Apple engaged in these alleged suppressions of competition by: (1) offering protected music files encoded with FairPlay, Apple’s proprietary software, thereby rendering music files sold by iTunes inoperable on competitors’ portable digital media devices; and (2) making Apple’s portable digital media devices (e.g., iPod) incapable of playing protected music content sold by competing digital music stores.

On May 19, 2011, the court granted summary judgment for Apple on plaintiffs’ claims relating to iTunes 4.7 and denied summary judgment for Apple on plaintiffs’ claims relating to iTunes 7.0. 

The court’s certification order dealt with the issue of whether to certify a putative class consisting of “[a]ll persons or entities in the United States (excluding [certain individuals and entities]) who purchased an iPod directly from Apple between September 12, 2006 and March 31, 2009.”  Specific models of iPods covered by the class definition are provided in the court’s November 22, 2011 Order and include iPod Standard, Classic, and Special Models; iPod shuffle Models; iPod touch Models; and iPod nano Models. 

Quoting the recent Supreme Court opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), Judge Ware applied the applicable – albeit ambiguous – standard for deciding a motion for class certification: “A trial court’s ‘rigorous analysis’ under Rule 23 will frequently ‘entail some overlap with the merits of the plaintiff’s underlying claim.’”  Judge Ware held that the court’s earlier decisions that the plaintiffs met the certification requirements of Rules 23(a) and 23(b)(3) still stand.  Therefore, the balance of the certification order focused on two issues: (1) whether the plaintiffs provided sufficient evidence to establish that antitrust impact and damages may be shown through accepted class-wide methodologies; and (2) whether resellers—as opposed to end-user consumers—should be included in the class.  

First, with respect to the plaintiffs’ methodologies to prove impact and damages on a class-wide basis, the court considered whether the plaintiffs intended to use “generalized proof common to the class” and whether the common issues would “predominate.”  The court relied on its previous determination that the plaintiffs offered an adequate method of proof and, in particular, found the three methodologies offered by plaintiffs sufficient, at least for class certification purposes. 

Second, with respect to the inclusion of resellers, the court was persuaded by plaintiffs’ arguments that resellers should be included in the certified class.  The court relied on Meijer, Inc. v. Abbot Labs., 251 F.R.D. 431, 433 (N.D. Cal. 2008) and Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 489-92 (1968) for the proposition that a reseller’s ability to raise prices and effectively pass the overcharge to its customers is irrelevant as to whether the reseller suffered an injury.  Since the possibility that resellers may pass on any overcharge was found to be irrelevant to the issue of injury, the court included resellers in the class.

Judge Robinson has denied the defendants’ motion to dismiss the complaint in Wallach v. Eaton Corp.

The class action, brought by Mark S. Wallach, the bankruptcy trustee for Performance Transportation Services Inc., and Tauro Bros. Trucking Co., alleged that defendants conspired to create and maintain Eaton’s monopoly in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act.  Defendant Eaton is a manufacturer of heavy duty truck transmissions.  The other named defendants are original equipment manufacturers (OEMs) that purchase transmissions.  It is alleged that all defendants shared in the increased profits earned by Eaton.

The complaint alleges that in response to both a downturn in the market for heavy duty trucks and increased sales by Eaton’s competitor, ZF Meritor, the OEMs and Eaton conspired to remove ZF Meritor from the transmission market.

The alleged monopolization was enacted through the use of long term agreements.  Under these agreements, Eaton gave discounts and rebates to the co-defendants in exchange for their purchasing of transmissions exclusively from Eaton.  The agreements were allegedly de facto exclusive dealing contracts that forced ZF Meritor to leave the market for heavy duty truck transmissions.  According to the complaint, this enabled Eaton to charge higher prices to OEMs that were not members of the conspiracy.

Ruling that there was sufficient evidence to suggest both a conspiracy and the maintenance of increased prices, Judge Robinson ruled that the Sherman Act claims should proceed, though she dismissed the Clayton Act claim.

This litigation follows a suit in front of Judge Robinson in which ZF Meritor successfully proved antitrust violations by Eaton.  However, no damages were awarded in that case.

The plaintiff in Sterling Merch., Inc. v. Nestlé S.A. et al. is a distributer of ice cream in Puerto Rico.  Nestlé S.A. manufactures ice cream that is sold and marketed in Puerto Rico by Nestlé PR.  Prior to the 2003 merger, Payco was a competitor of both Sterling and Nestlé PR.  Sterling alleged that Nestlé abused its market power to gain exclusive contracts, favor Payco in distribution agreements, and reduce competition in the Puerto Rican market.

The court of appeals affirmed the district court’s dismissal of plaintiff’s complaint on grounds of lack of standing based on an inability to prove antitrust injury.  Antitrust injury under Zenith Radio Corp. v. Hazeltine Research Inc. must “reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.”

According to the holding, Nestlé neither restricted output nor increased prices.  The court found that the price paid by many consumers fell after the merger and that Nestlé’s market share fell by 15% in the 4 years following the merger.  Sterling was unable to demonstrate antitrust injury due to its success in the same market.  While suffering from declining financial performance prior to 2003, Sterling’s post-merger net sales grew at an average of 11% per year with market share growth over 6% during the five years immediately following the merger.  The injury alleged by Sterling was that “in a but-for-2003-merger world,” its market share would have grown more than 6%.  In the court’s view, Sterling was unable to substantiate this claim.

Both the U.S. Department of Justice (DOJ) and the European Commission maintain ongoing antitrust investigations – sparked by the complaints – into a possible monopoly IBM holds in the mainframe computer market.

In a filing with the U.S. Securities and Exchange Commission (SEC), IBM stated that two providers of IBM compatible emulator software, Neon Enterprise Software LLC and T3 Technologies Inc., have withdrawn their complaints filed with the European Commission.

Turbo Hercules SAS, a company providing similar products, has also dropped all complaints against IBM.  IBM has stated that the settlements did not involve any monetary compensation.

In addition to dropping their European Commission complaints, Neon and T3 are also dropping their antitrust lawsuits filed against IBM in the U.S.

The three companies that had lodged complaints against IBM were providers of emulator software used on mainframe computers.  This technology allows mainframe operating systems and applications to run Windows, Linux, Mac OS, or Solaris as the host environment, thereby bypassing the need for IBM’s proprietary mainframe software. 

The withdrawal of the complaints has not ended the regulatory scrutiny, however.  Neither the DOJ nor the European Commission has concluded its antitrust investigation of IBM.

These investigations came as the result of numerous complaints filed by mainframe emulator software producers.  While the complaints have been withdrawn, the DOJ has requested the documents pursuant to the settled cases.

Judge Jose Linares has dismissed the second amended complaint in Marchese v. Cablevision Systems Corp., but given plaintiffs leave to replead their allegations that Cablevision’s requirement that subscribers to advanced interactive services use set-top boxes provided by that cable operator constitutes both an illegal tie under Section 1 of the Sherman Act, and monopolization under Section 2.

According to Judge Linares, plaintiffs’ latest complaint failed to adequately allege that Cablevision had market power over “Two Way Services.”  The judge also faulted the complaint for attempting to treat set-top boxes programmed for use on Cablevision’s system alone as a relevant market.  Plaintiffs’ pleading difficulties in this case illustrate the difficulty of defining relevant antitrust markets in media entertainment industries.

Premium digital cable services often include features that require two-way communication, such as interactive program guides, video-on-demand, and remote recording functions.  To access these features, consumers need to lease a set-top box from the cable operator.  Although most set-top boxes in the U.S. are built by two manufacturers (Motorola and Cisco), only boxes leased from the cable operator are programmed to work with that operator’s systems.

Consumers can access some one-way, non-interactive digital cable channels without a set-top box, using a small device called a CableCARD, which can be plugged into home equipment, to descramble the channels.  CableCARD-reliant devices offered by sellers not affiliated with the cable operator are not licensed to support two-way services.  In Marchese, the plaintiffs claimed that by requiring two-way customers to rent set-top boxes, Cablevision compelled its customers to pay for a product they don’t want – a Section 1 tying claim.

Market power is essential to tying claims.  A plaintiff has to show that the defendant has power in the market for a “tying” product – here, two-way cable services – and used that power to compel customers to pay for a “tied” product – the set-top box.  Plaintiffs’ pleading difficulties began when they originally defined the tying product as digital cable service generally.  The court dismissed that complaint because Cablevision’s subscribers could access some aspects of digital cable – basic one-way service – without a set-top box, and were not compelled to lease a box.  In response, plaintiffs amended their complaint to define the tying product market as two-way service.

This, too, created a pleading problem: to show that Cablevision had market power in two-way services, plaintiffs relied on statistics about Cablevision’s market share and prices for digital cable generally – the broader market definition that they were forced to abandon.  But, said the court, Cablevison’s clout in digital cable service generally didn’t establish that it had power in the narrower market for two-way cable service.  Because of this, the judge dismissed the Section 1 claim, giving plaintiffs one more opportunity to re-plead.

The court also dismissed a claim that Cablevision was monopolizing the market for set-top boxes that can be used on its systems by preventing other set-top boxes from working.  Here, Judge Linares found that set-top boxes programmed for use on Cablevision’s systems could not be a relevant market because the same set-top box hardware was also used for some other cable systems.

Generally speaking, a single company’s product cannot be a relevant market for antitrust purposes.  The court analogized this to “aftermarket” cases such as Kodak v. Image Technical Services, in which the Supreme Court ruled that parts and service for a particular brand of copier cannot be a relevant market unless some special circumstances are present.  Because Cablevision’s set-top boxes were also used on some other cable systems, albeit with different firmware, the court ruled that set-top boxes that run on Cablevision’s systems was not a legally relevant market that could be monopolized.

Cypress is one of the major players in the market for static random access memory SRAM market, while GSI is a much smaller producer. 

The complaint filed in the U.S. District Court for the Northern District of California claims that Cypress took advantage of the unique features of the SRAM market.  GSI alleges that the computer memory industry relies on standardized products based on customer insistence.  According to GSI, the customer demands that memory modules conform to the same interchangeable structure.

GSI alleges that since 1999 Cypress has violated Section 1 of the Sherman Act by monopolizing the market for SRAM.  GSI claims that Cypress entered into a collusive consortium with certain competitors, including Hitachi and Samsung, in which they shared confidential data such as design simulations and test vectors.  According to GSI, this consortium secretly developed an industry standard for SRAM, to the exclusion of other competitors.  GSI contends that this broke with the previous industry policy of an open marketplace in which competitors had access to the same information at the same time.

According to GSI, the Cypress consortium developed evolutionary product changes confidentially and then released information about these products to customers under non-disclosure agreements.  This meant that competitors could not learn about the new standards until the product was released.  GSI contends that this was a crippling blow in a market where early entry can define success or failure for up to 10 years at a time.

In an article for Law360, Constantine Cannon’s Mitch Stoltz reflects on the long-term impact on antitrust in the software industry of the Justice Department’s 1999 monopolization suit against the software giant.

The historic case was resolved in 2001 with a settlement that provided for a decade of government oversight of Microsoft, which ended in May 2011.

The DOJ and state attorneys general had claimed that Microsoft’s use of contracts with PC manufacturers to control which programs could appear on the Windows “desktop” violated Section 2 of the Sherman Act as a form of monopolization or attempted monopolization.  They also claimed that Microsoft’s commingling of the computer code for the Windows operating system and the Internet Explorer browser was a form of tying that illegally excluded other browsers, such as Netscape Communicator, from the market. 

Microsoft and its supporters claimed that its restrictive contracts were not anticompetitive because, despite its very high market share in the PC operating system market, the possibility of rapid innovation by competitors like Netscape effectively checked any Microsoft attempt to wield market power.  They also argued that combining the browser with the operating system was innovative and that to punish it as tying would bring the courts into the business of judging technological merit.

After a bench trial and appeal, the Court of Appeals for the D.C. Circuit ruled that Microsoft possessed and abused monopoly power in violation of Section 2 through its manufacturer contracts.  The court also ruled that the “tying” of two software programs technologically must be evaluated under the rule of reason, taking into account procompetitive and anticompetitive effects, rather than being declared per se illegal.

In other words, the court held that lower courts can and should look into the technological merit of combining two software programs to see if the combination truly benefits consumers rather than simply locking out competitors.