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.

Thomson Reuters, the worldwide provider of business and financial information, has offered to settle an EU antitrust probe.  The two-year old investigation is focused on the company’s system of requiring customers to use Reuters Instrument Codes (RICs) to access financial data.  The codes are used to identify financial instruments and indices for which a consumer wants to retrieve data.

The European Commission began the investigation in November 2009.  The ongoing proceedings are aimed at examining a possible abuse of Thomson Reuters’ dominant position.  The Commission noted that the use of RICs makes it difficult for consumers to cross-reference data with other providers.  Further, RICs could lock in customers due to the length of time and high costs involved with reconfiguring software applications to replace RICs with a competitor’s product.  If a violation is found, the Commission is able to fine Thomson Reuters up to 10% of the company’s annual turnover.

The settlement offered by Thomson Reuters would allow customers to license additional user rights for a monthly fee.  These licenses would permit customers to use RICs with the codes used by other data suppliers, increasing the number of providers a customer could access.  Thomson Reuters stated it would supply all the information needed for customers to link RICs with those used by rival data suppliers.

The proposed settlement has not yet been accepted.  Competitors, customers, and other third parties will have until January 25, 2012 to comment on the proposal.  The Commission will then determine if it will make the offer binding and terminate the investigation.

The Eleventh Circuit recently affirmed the decision of the U.S. District Court for the Middle District of Georgia to dismiss the FTC’s antitrust challenge to the proposed acquisition of Palmyra Park Hospital, Inc. (“Palmyra”) and the subsequent lease of Palmyra to Phoebe Putney Health System, Inc. (“PPHS”) or one of its subsidiaries.  As the district court did, the Eleventh Circuit predicated its decision on the state-action doctrine.

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.

On December 9, Chief Judge Christina Reiss of the District of Vermont denied the plaintiff dairy farmers’ motion for class certification in Allen v. Dairy Farmers of America, Inc., 2011 WL 6148678 (D. Vt. Dec. 9, 2011).  However, Judge Reiss invited plaintiffs to renew their motion after addressing issues with their expert report. 

Plaintiffs are New York and Vermont dairy farmers.  Defendants are Dairy Farmers of America, Inc. (DFA) and Dairy Marketing Services LLC (DMS).  (Dean Foods was originally a defendant but it settled in May for $30 million.)  DFA is the largest dairy cooperative in the United States, and it not only produces, but also processes, markets and distributes raw Grade A milk.  DMS is a milk marketing agency allegedly created, owned and controlled by DFA and certain other cooperatives.  Some of the plaintiffs are members of DFA.  All of the plaintiffs have, at some point since 2002, sold their milk to processors through DMS. 

Plaintiffs sued DFA and DMS in October 2009 on behalf of all similarly situated dairy farmers in New York, Vermont and ten other Northeast states – an area designated by the USDA as “Federal Milk Market Order 1.”  Order 1 also is the relevant geographic market alleged by plaintiffs. 

Plaintiffs claim that defendants have conspired to fix and suppress the prices plaintiffs receive from cooperatives and processors for their raw Grade A milk, in violation of Sections 1 and 2 of the Sherman Act.  As damages, plaintiffs seek the amount they have been underpaid.  As injunctive relief, they seek to enjoin the alleged conduct and require divestiture of defendants’ processing plants.  

Judge Reiss evaluated plaintiffs’ motion under In re IPO, 471 F.3d 24 (2d Cir. 2006), which requires a “rigorous analysis” of the Rule 23 requirements and “enough evidence” that each of them has been met.  Where plaintiffs lost the motion was on Rule 23(a)(2)’s commonality requirement, specifically as to impact.  Commonality was satisfied as to “the formation, duration and implementation of the alleged conspiracy.”  However, as to adverse impact, Judge Reiss said there was “a clear failure of proof” with respect to plaintiffs’ expert report:  (1) adherence to opinions that plaintiffs had conceded were incorrect; (2) apparent use of incorrect prices in calculating damages; and (3) failure to consider the existence of either non-conspirator processing plants or class members who benefited or broke even from the alleged conduct. 

However, Judge Reiss also said that the expert analysis “may ultimately prove to be an acceptable means of analyzing causation and damages in this case,” though it is not “presently sufficient to perform this task because too many uncertainties remain . . . .”  Her other findings also indicate potential for success: Rule 23(a)(1) numerosity was satisfied, with 9,000 class members dispersed throughout several states.  Rule 23(a)(3) typicality was satisfied to the same extent as commonality, i.e., as to formation, duration and implementation but not adverse impact, for the same reasons as commonality.  And the 23(a)(4) adequacy of the named plaintiffs could be satisfied with subclasses represented by separate counsel, which would overcome the potential conflicts.  Given that prerequisite to certification, Judge Reiss declined to reach 23(a)(4)’s adequacy of class counsel.  She also declined to reach Rule 23(b)’s predominance requirement.

In light of the invitation to renew the class motion, defendants sought to extend their time to serve expert reports from December 16 until whenever plaintiffs serve their new report(s) (if they do).  Judge Reiss denied that motion, finding “no good cause to further delay the provision of expert reports in this ongoing litigation.”  No deadline has been set to renew the class motion.

Health insurance giant Aetna, Inc. has filed a complaint in a Michigan federal district court claiming that Blue Cross Blue Shield of Michigan has engaged in a scheme to force Aetna to pay more for hospital services as part of a campaign to limit or reduce Aetna’s presence in Michigan.  The complaint, filed on December 6, 2011, comes just over a year after the U.S. Department of Justice and the state of Michigan commenced a civil antitrust lawsuit against Blue Cross containing similar allegations.

Aetna claims that Blue Cross, the largest insurer in Michigan, has used most-favored nation clauses in deals it has with hospitals to force those hospitals to charge Aetna up to 39 percent more, and in other instances, to require Aetna to raise its rates until they are as high as those charged by Blue Cross.  According to the DOJ’s complaint, roughly half of Michigan’s general acute care hospitals have most-favored nation clauses in their contracts with Blue Cross. 

Blue Cross has denied doing anything wrong, and its Vice President of Corporate Communications, Andy Hetzel, called the complaint “sour grapes from a major national insurance company” trying to take advantage of the DOJ lawsuit.

The DOJ complaint was filed on October 18, 2010.  It has already survived Blue Cross’ motion to dismiss, though Blue Cross has appealed that decision to the Sixth Circuit Court of Appeals.  Trial has been scheduled for February 2013.

Right now, the smartphone patent wars are raging across the globe.

For example, Apple recently prevailed in a skirmish before the International Trade Commission that could theoretically stop the importation into the United States of all smartphones based on Google’s Android mobile operating system.  In Germany, Motorola Mobility, which Google is in the process of acquiring, won a victory against Apple for patent infringement that could lead to the iPhone and iPad being pulled from store shelves in that country.

Could patent pools, a 100-year-old legal device, provide a possible solution? Constantine Cannon recently published an article about the smartphone patent pools in Law360 and whether they would be a good way to foster innovation and protect intellectual property.  Click here to read the article.

The U.S. Department of Justice (the “DOJ”) and the European Commission have announced investigations of the e-book pricing arrangements of several international publishing companies.

The investigations focus on a 2010 change in the way e-books are sold.  Prior to Apple’s introduction of the iPad, e-books were sold though a wholesale method which allowed retailers to purchase books at discount prices and subsequently determine the price charged to consumers.  This model permitted Amazon to sell e-books at a discounted rate, helping to increase sales of its Kindle products.

It is alleged that after the release of the iPad as a competitor of the Kindle, Apple orchestrated an agreement among publishers to sell e-books through an agency model.  This agency model allowed publishers, not distributers, to set prices and impeded the ability of Amazon and other distributers to determine prices. 

The European Commission has initiated official proceedings to determine whether five publishers, aided by Apple, “engaged in anticompetitive practices affecting the sale e-books in the European Economic Area.”  The publishers are Hachette Livre (Lagardere, Publishing, France), Harper Collins (News Corp., U.S.A.), Simon & Schuster (CBS Corp. U.S.A.), Penguin (Pearson Group, U.K.), and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany).  The terms of the agency agreements are alleged to potentially violate Article 101 of the Treaty on the Functioning of the European Union, which prohibits cartels and restrictive business practices.  If these companies are found to have participated in agreements or practices that had the object or effect of restricting competition, they could be subject to liability.

The DOJ has confirmed the existence of its investigation related to e-book pricing practices.  Little additional information was provided on the investigation which has been reported, but unconfirmed, since last year.

State attorneys general in Texas and Connecticut, as well as a class action suit in federal court in the Northern District of California, are also addressing this issue.

Horizon Lines Inc., one of the largest ocean shipping companies in the United States, has entered into a $13.75 million settlement agreement with a group of shippers who had opted out of a class action against the company.

The shippers alleged that Horizon entered into a conspiracy with other carriers, including Sea Star Line, Crowley Maritime Corp. and Trailer Bridge Inc., to fix prices by increasing their rates to supracompetitive levels and by uniformly setting fuel surcharges for freight services between Puerto Rico and the U.S., which are largely controlled by the defendant carriers.

The case is In re: Puerto Rican Cabotage Antitrust Litigation, which was filed in 2008 in the United States District Court for the District of Puerto Rico.

Judge Daniel Dominguez dismissed the claims against Trailer Bridge, holding there was no evidence that it was involved in the price fixing conspiracy.  Horizon and the remaining carriers entered into a settlement with the class in 2009 for $52.25 million, which received final approval in September 2011. 

Several other shippers that had opted out of the class, including Home Depot and Wal-Mart, settled with Horizon earlier this year.

The settlement follows years of civil and criminal litigation.  In February, Horizon pled guilty to conspiring to fix prices and agreed to pay a $45 million fine which was lowered to $15 million to save the company from bankruptcy.  Sea Star agreed to pay a $14.2 million criminal fine in November.  Two former executives of Sea Star and three from Horizon also incurred fines and prison sentences.

Federal Judge James Ware of the Northern District of California has certified a class of iPod purchasers, allowing an antitrust class action to proceed against Apple Computer, Inc. (“Apple”). 

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.

Delaware Judge J. Travis Laster has approved a settlement requiring Del Monte Corp. and Barclays Capital Inc. to pay $89.4 million to Del Monte shareholders to resolve claims relating to the March 2011 acquisition of Del Monte by funds affiliated with Kohlberg Kravis Roberts & Co. L.P., Vestar Capital Partners, and Centerview Partners.

Under the terms of the March 2011 sale of Del Monte, shareholders were entitled to receive $19 for each share of Del Monte common stock held.  The completion of the acquisition prompted investors to file suit in Delaware alleging that they were not being fairly compensated for their shares in the buyout and accusing Barclays of manipulating the acquisition of Del Monte to boost its revenues.  Investors also accused Barclays of not disclosing its conflict of interest in receiving $23.5 million to advise Del Monte on the deal while also receiving up to $24 million for financing the buyers.

Other investors also filed suit in federal court in California alleging that Kohlberg Kravis Roberts & Co. and Vestar Capital engaged in bid rigging and colluded on the offer amount for Del Monte Corp.  In this antitrust suit, shareholders alleged that the two private equity firms originally competed to buy Del Monte before joining forces to artificially drive down the sale price.  Following the filing of this suit, the Antitrust Division of the U.S. Department of Justice launched a probe into the antitrust claims.

The California claimants petitioned Judge Laster to allow an opt-out in order to pursue the federal antitrust claims in California.  Judge Laster refused to include an opt-out provision in certifying the shareholders as a class, noting that the antitrust claims were based on the same facts as those in the Delaware case and had been considered by attorneys for the shareholders in reaching the settlement.  The judge further noted that attorneys in the California case had yet to file an amended complaint following the dismissal of its antitrust lawsuit by a federal judge in August.

As part of the settlement, Del Monte agreed to pay $65.7 million in cash to be released from these and further shareholder claims and Barclays agreed to contribute $23.7 million.  Although the settlement bars shareholders from filing other lawsuits, the judge noted that the settlement will not affect the ongoing investigation by the Antitrust Division.