AAI’s Bert Foer and CFA’s Steve Brobeck contributed a chapter on “Antitrust Advocacy” in the new volume: Watchdogs and Whistleblowers, a Reference Guide to Consumer Activism (Greenwood, 2015), Stephen Brobeck and Robert N. Mayer, eds. Read the chapter here.
Farm, Consumer and Competition Groups Oppose JBS-Cargill Pork Merger Deal Would Concentrate Buyer and Seller Power in Pork Industry
Today, American Antitrust Institute, Food & Water Watch, Iowa Farmers Union, Missouri Rural Crisis Center and National Farmers Union demanded that the U.S. Department of Justice (DOJ) investigate the proposed JBS-Cargill pork packing acquisition. The proposed $1.45 billion acquisition would create the second largest pork processing company in the U.S. The groups are concerned that increased concentration in the pork packing industry would harm hog farmers and consumers.
“The wave of mega-mergers sweeping the food and agribusiness industries encourages a cascade of consolidation throughout the supply chain,” said Wenonah Hauter, Food & Water Watch executive director. “The rampant consolidation is raising consumer prices, reducing consumer choices and undermining the economic livelihood of farmers.”
Food & Water Watch, Iowa Farmers Union, Missouri Rural Crisis Center and National Farmers Union also submitted a joint white paper documenting the anticompetitive effects of the proposed JBS-Cargill acquisition. The proposed deal would significantly increase the pork packing industry’s power over hog farmers.
A combined JBS and Cargill would accelerate vertical integration and reliance on hog production contracts. It would also, the white paper concludes, concentrate the wholesale pork product market, disadvantaging grocery stores and restaurants and ultimately raising pork prices for consumers. Post-merger, the largest two pork packing firms operating in the U.S. — Smithfield and JBS — would be controlled by foreign companies.
“The JBS-Cargill merger would combine the third and fourth largest pork packing companies in the United States, further concentrating an industry that is already run by just a handful of firms,” said National Farmers Union President Roger Johnson. “The rapid consolidation of market power in the hands of just a few pork processors has resulted in the loss of more than 90 percent of all hog farms since 1980. The JBS-Cargill merger certainly warrants further investigation by the Department of Justice and should be stopped.”
If the proposed acquisition were approved, the four largest pork packers would slaughter about three-quarters of hogs, up from about two-thirds today. The white paper extensively examines how the proposed acquisition would increase the economic market power of pork packers over farmers in the Midwestern hog belt. The proposed merger would reduce the number hog buyers and marketing options for hog farmers. After the proposed acquisition, the top four pork packers would control 94.5 percent of the market in Iowa alone, 85.5 percent in Iowa and surrounding states and 82.3 percent in Illinois-Indiana and surrounding states.
“The JBS-Cargill merger would reduce the number of hog buyers in the Midwest and allow the pork packers to further depress the prices farmers receive for their hogs,” said Rhonda Perry, Program Director at Missouri Rural Crisis Center and livestock and grain farmer in Howard County, Missouri. “The pork packing monopoly has already driven almost all the independent hog farmers out of business. The Justice Department has to stand up for America’s farmers and rural communities and block this merger.”
Rapid consolidation in the food and agriculture sectors has been of rising concern to farmers, consumers and federal regulators. Since the economy began to recover from the recession, the pace of mergers has accelerated and threatens to increase concentration in the already over-consolidated food and agriculture sectors.
AAI’s President, Diana Moss, explained “This merger could also create ripple effects throughout the food chain by spurring additional mergers to push back against the greater market power of JBS and Cargill. With less and less competition, we should be gravely concerned about the safety and stability of our important food supply chain.”
# # #
The letter to the U.S. Department of Justice is available here.
The Anticompetitive Effects of the Proposed JBS-Cargill Pork Packing Acquisition white paper is available here.
For more information, contact:
Diana Moss, President, American Antitrust Institute, (202) 536-3408, dmoss@antitrustinstitute.org
Kate Fried, Food & Water Watch: (202) 683-4905, kfried@fwwatch.org
Andrew Jerome, National Farmers Union, (202) 314-3106, ajerome@nfudc.org
Tim Gibbons, Missouri Rural Crisis Center, (573) 449-1336, timgibbons@morural.org
Commentary by Grimes and Sagers: Regulators Approve AT&T’s Acquisition of DIRECTV — A Step Backward for Competition
In a brief one-page announcement, the Chairman of the Federal Communications Commission announced that he has circulated an order to the Commission calling for approval, with conditions that sacrifice competition for difficult-to-enforce regulation, of AT&T’s acquisition of rival DIRECTV. In an even shorter three-sentence statement, the head of the U.S. Department of Justice (DOJ) Antitrust Division announced that the acquisition would “not pose a significant risk to competition” and would not be opposed.
The agency decisions are short sighted. They will ensure a world of less competition and more regulation. Because competition is by far the best way of assuring meaningful choices, effective service, and low prices, the decisions are bad news for consumers.
When a merger this large is proposed, the deck is stacked against vigilant enforcement. The firms and their top executives have invested reputation and tens of millions of dollars in putting the deal together. The private lawyers representing the firms, often attorneys who were former enforcers, stake their reputations on getting the deal done.
The regulatory agencies tend to be risk averse. They often prefer to negotiate a settlement that at least partially addresses competitive concerns rather than risk a resolute stand protective of competition that could be attacked in court. More often than not, what ensues is compromise that sacrifices the public interest. Compromise in maintaining competition cannot be an acceptable way of enforcing the antitrust laws, particularly in a critical industry such as telecommunications.
Of course, the telecommunications industry today is nowhere near the competitive ideal. The 100 million subscribers to cable TV pay ever-increasing monthly fees for enormous bundles of channels, only 17 or 18 of which the average household watches. Roughly half of the revenue goes to pay for sports programming that most viewers don’t watch. Meanwhile, cable cord cutters (or those who never subscribed) are increasingly turning to Internet streaming.
Some Americans, however, have no access to high speed Internet. Most do, but have only one or two choices for this service. That’s not adequate competition. The same firms that distribute cable programming are also providing Internet service. They are raising prices on Internet service in an effort to make up for some of the loss from those who shun the highly inflated costs of a cable subscription.
A competitive telecommunications industry would provide meaningful choices to consumers, including multiple firms offering: (1) access to cable TV programming; and (2) high speed access to the Internet. In addition, the noxious channel-bundling practices would end, allowing consumers to choose what they want to purchase. Consumer sovereignty would not necessarily lower costs for everyone. But competition, not abusive conduct by power-wielding firms and not government regulation, would best ensure the proper mix of programming and the proper distribution of wealth.
The conditions that the FCC would impose on AT&T are a decidedly mixed bag, and a clear step toward more regulation, not toward more competition. For cable TV subscribers, there is a clear loss. For any consumer currently served by AT&T’s U-verse cable service, the deal will decrease by one (typically from 4 to 3) the number of available distributors. That undermines consumer choice and makes lock-step packaging and pricing by distributors all the more likely. In a modest way, DIRECTV has been a force for independent packaging, refusing, for example, to carry the Pac-12 network and saving a $2 monthly fee that otherwise would have been forced on subscribers in the western United States.
The FCC would require AT&T to expand its fiber optic network to include 12.5 million potential subscribers, allowing each a possible second choice (beyond their cable carrier) for high speed Internet access. This is a positive step, given the increasing reliance of Americans on high speed Internet access. There is, of course, an irony in having a regulator “order” more competition. Competition ordered by regulation is industrial policy. There is sound reason to wonder how genuine that competition will be when AT&T did not choose that route, arguably one that has long been available to it.
There re already millions of Americans that have two choices for high speed Internet access, and most have found that prices for Internet service continue to climb as the two rivals price in lock step. Meaningful competition almost certainly requires more than two choices, and the settlement offers no promise of achieving that.
In other respects as well, the decree is a step toward more regulation. The FCC would place further restrictions on AT&T to make sure that it does not discriminate against non-affiliated video providers. Any data caps on video providers would have to apply equally to all firms. AT&T would also be required to report to the Commission any interconnection agreements. And an independent “officer” would be appointed to ensure compliance with these conditions.
Absent from the decree are any steps that would genuinely allow smaller distributors to compete. There is no requirement that AT&T wholesale at competitive rates an unbundled high speed Internet service.
FCC Chairman Wheeler says the Commission’s “strong measures will protect consumers, expand high-speed broadband availability, and increase competition.” Any competition that will result from the regulatory decree will be comfortable, oligopolistic pricing and service that will enhance AT&T profits. Yes, some regulation can increase competition, but the history of government regulation is laced with examples of evasions and abuses.
Even well meaning regulators are inevitably many steps behind the firms who are the targets of regulation. The historic AT&T divestiture in 1982 came as a result of former Assistant Attorney General Baxter’s conviction that the vertically integrated firm would continue to abuse rivals and consumers by favoring its own affiliates.
How quickly we forget.
**Warren Grimes and Chris Sagers are Senior Fellows of the American Antitrust Institute and co-authors of the forthcoming third edition of Sullivan, Grimes, & Sagers, The Law of Antitrust: An Integrated Handbook.
Class Action Issues Update Summer 2015
Class actions play a critical role in the enforcement of the antitrust laws, ensuring that the private damages remedy serves its intended function of deterring antitrust violations and compensating victims.[1] Indeed, a large swath of the harm inflicted by cartels would go unremedied (and hence undeterred) without class actions. It is no secret that, for many years, the class-action device has been under assault from certain business groups, and that this assault has resulted in judicial decisions making class actions—antitrust and otherwise—more costly and difficult to bring.
The American Antitrust Institute (AAI) has stood as a counterweight to these efforts, having made it an important priority to defend the ability of private attorneys general to bring antitrust class actions. This update highlights some recent developments in the courts and elsewhere that may threaten the viability of class actions. Many of the issues will be considered at the AAI’s 9th Annual Private Enforcement Conference, which will be held November 18, 2015 at the National Press Club in Washington, DC. Download the Class Action Update.
I. Classes That Include Some Members Who Are Not Injured
The Supreme Court has taken up the question of whether a class may be certified under Rule 23(b)(3) if it includes “members who were not injured and have no legal right to any damages.” Petition for Writ of Certiorari at i, Bouaphakeo v. Tyson Foods, 765 F.3d 791 (8th Cir. 2014), cert. granted, 2015 WL 1278593 (U.S. June 8, 2015) (No. 14-1146). The AAI successfully briefed this issue in In re Nexium Antitrust Litig., 777 F.3d 9, 22 (1st Cir. 2015), in which the First Circuit recognized that “objections to certifying a class including uninjured members run counter to fundamental class action policies” because “excluding all uninjured class members at the certification stage is almost impossible in many cases, given the inappropriateness of certifying what is known as a ‘fail-safe class’—a class defined in terms of the legal injury.” Further, including uninjured members in a class need not increase a defendant’s damages and does not raise due process issues, particularly not ones a defendant should have standing to raise.[2]
Tyson Foods is a Fair Labor Standards Act case (with a cognate state law claim) that resulted in a plaintiffs’ verdict. It also raises the question of whether class-wide liability and damages can be determined by statistical techniques based on averages. Also pending before the Court (and presumably being held pending Tyson), is a certiorari petition challenging class certification in a price-fixing case, which raises the related question of whether class-wide harm can be demonstrated when prices are negotiated. In re Urethane Antitrust Litig., 768 F.3d 1245 (10th Cir. 2014), petition for cert. filed, 2015 WL 1043612 (U.S. Mar. 9, 2015) (No. 14-1091).
II. Offers Of Judgment And Mootness
In the upcoming term, the Supreme Court will also consider whether defendants can defeat class actions by “picking off” the proposed class representatives with an offer of complete relief for the representative’s individual claim, even when the offer to settle is rejected. Campbell-Ewald Co. v. Gomez, 135 S. Ct. 2311 (May 18, 2015) (No. 14-857) (granting certiorari petition). Specifically, the Court will consider whether a class representative’s claim is mooted by an offer of complete individual relief before the class is certified, an issue left open in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013). For the reasons stated in Justice Kagan’s dissent for four justices in Genesis Healthcare, an unaccepted offer is a legal nullity that should not moot a class representative’s claim, let alone the claims of the class. Campbell-Ewald involves statutory damages under the Telephone Consumer Protection Act for unwanted text messages.
III. Ascertainability
Some courts have adopted a demanding “ascertainability” requirement as a precondition for class certification, requiring not only that the class definition be based on objective criteria, but also that an “administratively feasible” method exists for identifying individual class members and ascertaining their class membership. The heightened ascertainability requirement has no basis in Rule 23 and poses a particular threat to consumer class actions.
For example, a divided Third Circuit endorsed the heightened requirement in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), in which it vacated certification of a consumer class that would have relied on affidavits of class members in the absence of receipts. In In re Wellbutrin XL Antitrust Litigation, No. 08-2433, 2015 WL 3970858 (E.D. Pa. June 30, 2015), a pay-for-delay case, the court decertified the indirect-purchaser class because it was not convinced that sufficient records existed or were obtainable to ascertain whether individual consumers were members of the class. In Jones v. ConAgra Foods, Inc., No. C 12-01633, 2014 WL 2702726 (N.D. Cal. June 13, 2014), the court also found ascertainability was not met in a consumer class that relied on affidavits. But in Byrd v. Aaron’s Inc., 784 F.3d 154, 171 (3d Cir. 2015), the court reversed the denial of class certification, concluding that “Carrera does not suggest that no level of inquiry as to the identity of class members can ever be undertaken.”
IV. Cy Pres
Some “tort reform” groups are on a campaign to eliminate or sharply restrict cy pres.[3] While cy pres can be subject to abuse, critics apparently see the elimination or restriction of cy pres as a way to eliminate small-dollar consumer class actions or make them less attractive (for example, by not including a cy pres award in the amount of the recovery for purposes of calculating attorneys’ fees). Perhaps responding to the criticism, some courts have unnecessarily restricted the use of cy pres as part of class settlements.
For example, In re BankAmerica Corp. Securities Litig., 775 F.3d 1060 (8th Cir. 2015), the court held that the district court erred by not requiring that funds unclaimed after two distributions be redistributed to original claimants, because it was feasible to do so even though original claims process was riddled with problems and delays. The Chief Justice has expressed skepticism of cy pres as part of class settlements, noting “fundamental concerns surrounding the use of such remedies in class action litigation,” and that in a “suitable case, this Court may need to clarify the limits on the use of such remedies.” Marek v. Lane, 134 S. Ct. 8 (2013) (Roberts, C.J., concurring in the denial of certiorari). The AAI has been active in urging a responsible approach to cy pres and will continue to do so in the courts and other forums.[4]
V. Class-Action Waivers
The AAI has been active in trying to halt the Supreme Court’s march toward making class-action waivers in arbitration agreements per se enforceable. Our efforts to date have not met with success. After American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), some critics have predicted the eventual demise of direct purchaser antitrust class actions. Professor Elhauge makes the point that “Given the Italian Colors decision, it is hard to see why all businesses would not at least insert arbitration clauses into their contracts that preclude class arbitration.”[5] Others suggest that “producers of almost any product can now bind purchasers to contractual language,” even if the purchasers are indirect, although “empirical evidence does not yet bear out a flight to class action waivers in the consumer and employment context”.[6]
The Supreme Court will take up yet another class-action waiver case, DirecTV v. Imburgia, 135 S. Ct. 1547 (March 23, 2015) (No. 14-462) (granting certiorari petition), which involves the question of whether a class-action waiver is enforceable in an arbitration agreement that incorporates state law where the law would bar enforcement but is preempted.
VI. Proposed Legislation
The U.S. House of Representatives is considering H.R. 1927, the “Fairness in Class Action Litigation Act,” which would effectively eviscerate consumer, antitrust, employment, and civil rights class actions. The bill bars class certification unless proponents demonstrate, based on a “rigorous analysis,” that each person in a class has suffered “the same type and scope of injury.” The AAI has signed on to letters with numerous public-interest groups opposing the bill.
VII. Advisory Committee on Civil Rules
The Rule 23 subcommittee of the Advisory Committee on Civil Rules is considering whether to recommend that work begin on possible class action amendments. Toward that end, in April 2015 the subcommittee presented “conceptual sketches” of some possible amendments, with the intention of presenting drafts for possible amendments to the full committee at its Fall 2015 meeting. The sketches cover settlement approval criteria, settlement class certification, cy pres, objectors, Rule 68 offers and mootness, issue classes, and notice.
As referenced above, the AAI submitted a letter on cy pres to the subcommittee, and is participating with a coalition of like-minded groups to monitor and provide input into the process. So far, the subcommittee’s approach seems even-handed, but critics of class actions have sharply criticized the conceptual sketches.[7]
******
Comments or suggestions for amicus participation should be directed to AAI Vice President and General Counsel Richard Brunell at rbrunell@antitrustinstitute.org or 202-600-9640. For more information about AAI’s Private Enforcement Conference, go to www.antitrustinstitute.org.
[1] See generally Joshua P. Davis & Robert H. Lande, Defying Conventional Wisdom: The Case for Private Antitrust Enforcement, 48 Ga. L. Rev. 1 (2013); Antitrust Modernization Commission, Report & Recommendations 241 (2007).
[2] See Joshua P. Davis, Eric L. Cramer & Caitlin May, The Puzzle of Class Actions With Uninjured Members, 82 Geo. Wash. L. Rev. 858, 868-81 (2014).
[3] See U.S. Chamber Institute for Legal Reform, Cy Pres: A Not So Charitable Contribution to Class Action Practice, Oct. 2010; Lawyers for Civil Justice, Comment to the Advisory Committee on Civil Rules and its Rule 23 Subcommittee, April 7, 2015, (“LCJ Comment”) (urging Rules Committee not to enshrine cy pres in the civil rules).
[4] See, e.g., Letter from Diana Moss and Albert Foer to the Members of the Advisory Committee on Civil Rules and the Rule 23 Subcommittee, March 16, 2015, (endorsing ALI principles on cy pres, with some caveats and additions).
[5] Einer Elhauge, How Italian Colors Guts Private Antitrust Enforcement by Replacing it With Ineffective Forms of Arbitration, 38 Fordham Int’l L. J. 771, 775 (2015).
[6] Brian F. Fitzpatrick, The End of Class Actions?, 57 Ariz. L. Rev. 161, 177, 191 (2015).
[7] See LCJ Comment at 1, supra note 3 (sketches “seem aimed at enshrining into the Federal Rules of Civil Procedure (FRCP) several inventions that have enabled the metamorphosis of class actions into the form they have taken today.”).
AAI Asks FTC for Deep Dive into Staples/Office Depot Merger, Says Proposed Deal Raises Significant Competitive Issues
The American Antitrust Institute (AAI) today issued a white paper titled The Proposed Merger of Staples and Office Depot: Lessons from History and New Competitive Concerns. The paper urges the Federal Trade Commission (FTC) to carefully scrutinize the competitive impact of the proposed Staples/Office Depot merger.
“This is a watershed deal for antitrust,” said AAI President Diana Moss. “The proposed merger raises a number of threshold questions. If the government is faced with a merger to monopoly of the office supply superstores, the AAI wants to make sure those get addressed.”
The AAI white paper warns that the deal’s biggest threat could be to the merging firms’ biggest customers: national and multi-regional businesses that buy office supplies through negotiated long-term contracts. The AAI’s analysis shows that the two merging firms dominate this market for “enterprise” contract customers, and many of these large customers have no viable alternatives to Staples or Office Depot.
“While the deal deserves a lot of attention on retail market issues, we highlight that competition for the largest customers in the contract market is basically on life support,” said AAI Associate General Counsel Randy Stutz, who authored the white paper. “We don’t see any companies left in the enterprise contract market that can mount a serious challenge to Staples or Office Depot.”
The white paper explains that a merger to monopoly in office supply superstores (OSSs) would threaten enterprise contract customers not only with higher prices and diminished service, but also the loss of competition to provide the best cyber security in keeping sensitive customer data safe. Because the deal eliminates all redundancy in the OSS supply channel, it also puts these customers at risk of having no supply options in the event of a disruption to the merged firm.
“Leaving large customers to internalize significant risk of a shock to a merged Staples/Office Depot should be considered an adverse effect of the merger,” said Moss. “Whenever you get down to a few firms or a single firm, you should be asking what happens if these guys get hit by another cyber attack or some other unforeseen disruption, especially when Staples/Office Depot is the only competitor capable of serving a huge swath of customers.”
The AAI white paper also notes that there are serious concerns to be addressed in the retail channel. “The fact that consumers buy office supplies on Amazon and at Walmart should be the beginning of the analysis, not the end,” explained Stutz. “Three-to-one consolidation among OSSs should prompt the FTC to consider whether a merged Staples/Office Depot could use price discrimination or dynamic pricing strategies to harm consumers in local geographic regions that are underserved by such alternatives.”
Media Contacts:
Diana Moss, President, American Antitrust Institute
(202) 536-3408
dmoss@antitrustinstitute.org
Randy Stutz, Associate General Counsel, American Antitrust Institute
(202) 905-5420
rstutz@antitrustinstitute.org
CORRECTION: In a previously posted version of this white paper, the discussion of remedies beginning at page 17 relied on the merging firms’ global sales and global distribution facilities rather than their domestic sales and domestic distribution facilities for purposes of comparing divestitures with Sysco/US Foods. This version relies on domestic sales and domestic distribution facilities. Information in this version was taken from the merging firms’ 10-K filings.
AAI Continues to Request U.S. Sentencing Commission to Double Cartel Fines
In a letter to the United States Sentencing Commission pursuant to its request for public comment on possible priority policy issues, the American Antitrust Institute (AAI) calls for the Commission to reconsider a crucial empirical finding it made in 1987 that has become a lynchpin of the formula used to calculate fines for collusion offenses. Read the letter here.
In July 2013, the AAI submitted a Comment to the Commission that the evidence warranted at least a doubling of its cartel overcharge presumption. In 2014 – apparently in response to the 2013 AAI suggestion, and for the first time since 1991 – the Commission said, in its request for public input, that re-examining the level of cartel fines would be among it’s “tentative priorities”.
In August 2014, the AAI submitted a second Comment asking the Commission to reconsider and double a key portion of the formula it uses to calculate fines for antitrust offenses. This reconsideration would have caused the current fines for illegal price fixing and similar collusion offenses to double. The AAI attached two documents in support of its 2014 Comment: an article by John M. Connor and Robert H. Lande, “Cartels As Rational Business Strategy: Crime Pays,” from 34 Cardozo L. Rev. 427 (2012); and an article by John M. Connor, “Cartel Overcharges,” from 29 Research In Law & Economics 249 (2014). In their paper, Connor and Lande conclude that raising the presumption of illegal overcharge to 20 percent would result in a considerable increase in the funds available to the Crime Victim’s fund for compensating victims of violent crimes, as well as lead to more nearly optimal deterrence of price fixing and other cartel behavior.
Media Contacts:
Robert Lande
301-585-5229
John Connor
317-219-9981
Diana Moss
202-536-3408
Donald Baker’s Antitrust Enforcement: From Sunlight to Shadows
Today, the American Antitrust Institute (AAI) posted the seminal article “Antitrust Enforcement: From Sunlight To Shadows,” by Donald I. Baker. Mr. Baker is the 2015 recipient of the AAI Alfred E. Kahn Award for Antitrust Achievement. The article is the basis for his acceptance speech at AAI’s June 16th annual conference – Antitrust and the 2016 Presidential Transition – in Washington D.C.
The article notes the now familiar swing of the ideological pendulum in antitrust enforcement over the last 50 years, from the “’Government always wins’ era of unvarnished populism in Von’s Grocery to an era of economic fundamentalism found in, e.g., Pacific Bell v. linkLine.” Mr. Baker explains that “globally, we have gone from U.S. antitrust enforcement being the only game that mattered, to today’s complicated, multi-polar enforcement world where Brussels and Beijing, often seeming to be more activist than we are, thus periodically becoming bigger sources of U.S. clients’ antitrust concerns than Washington is.”
Baker’s focus in “Antitrust Enforcement: From Sunlight to Shadows” is the two enforcement choices that have made U.S. antitrust enforcement “less visible to the public and hence less important politically than it was when [he] was in the Government four decades ago.” One is the emergence of the plea bargain, or a “no prosecution” decision, on the criminal cartel enforcement side. The second is the use of a consent decrees or other agreement to allow a competitively sensitive merger to proceed, subject to some token divestitures.
The practical result of these choices, Mr. Baker explains, is that that the business community, their legal advisers, the general public, and interested journalists no longer see an “uncompromised version of what enforcers believed to be illegal in the context of a particular factual context that had been alleged.” In merger and cartel investigations, the Federal Trade Commission and U.S. Department of Justice seldom explain why they decided not to take any enforcement action. As a result, key questions go unanswered, including, for example: why the Government allowed a merger between major direct competitors with only minimal divestitures (or none at all), and why the DOJ charged some individuals who seemed central to the conspiracy covered by a corporate plea agreement, but not others.
As “Antitrust Enforcement: From Sunlight To Shadows” unfolds, Mr. Baker builds out the story behind its premise, including the factors contributing to the shift to pre-filing settlements. He also suggests how U.S. enforcement can become more visible and effective, how the international dimensions of enforcement have become more critical, and his own hopes and goals for enforcement moving forward.
“Antitrust Enforcement: From Sunlight To Shadows” can be downloaded here.
AAI Argues Federal Circuit Should Overturn Precedents That Restrict Patent Exhaustion (Lexmark Int’l v. Impression Products)
The American Antitrust Institute (AAI) filed an amicus brief with 24 law professors urging the Federal Circuit Court of Appeals to reverse two Federal Circuit precedents restricting the patent exhaustion doctrine.
The patent exhaustion, or “first sale,” doctrine provides that the authorized sale of a patented product exhausts the patent holder’s patent rights, and prohibits suits against downstream users for patent infringement.
The AAI has long recognized the important role the exhaustion doctrine plays in facilitating competition in product markets driven by intellectual property, including aftermarkets. In 2007, the AAI filed a successful brief in the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc. urging the Court to reaffirm a robust application of the doctrine.
In the case at hand, the district court held that the patent exhaustion doctrine prevented Lexmark, a printer manufacturer, from bringing patent infringement actions against a cartridge remanufacturer for reusing Lexmark toner cartridges obtained from consumers in violation of Lexmark’s “single use” notice. At the same time, the district court held that patent exhaustion did not apply to Lexmark toner cartridges first sold abroad.
The Federal Circuit ordered the appeal in the first instance to be heard en banc and requested briefs on whether it should reverse prior cases holding that the exhaustion doctrine is not triggered when the first authorized sale is outside the United States and that the doctrine does not apply to “conditional” sales. The amicus brief argues that those cases are inconsistent with recent Supreme Court precedent, including Quanta. The brief maintains that if a conditional sale creates a binding contract then a patent holder may have contractual, but not patent, remedies.
The brief was written by Phil Malone and Jef Pearlman of the Stanford Law School intellectual property and innovation clinic.
AAI Tells First Circuit that Cash is Not King in Reverse Payment Suits (In re Loestrin 24 FE Anititrust Litig.)
In an amicus brief filed with 70 law, economics, and business professors, the American Antitrust Institute (AAI) asks the First Circuit Court of Appeals to reverse a district court’s holding that reverse-payment settlements can only be illegal when the payment is in the form of cash.
The brief presaged today’s ruling of the Third Circuit Court of Appeals holding that a “no authorized generic” promise may be actionable, and reversing the only other lower court decision to immunize non-cash payments. The AAI had also previously filed a brief in the Third Circuit case, King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp. (In re Lamictal), supporting the position adopted by the Third Circuit.
In the First Circuit case, plaintiffs alleged that Warner Chilcott had unlawfully extended its monopoly on the branded drug Loestrin 24 by settling patent litigation with an agreement by generic challengers to delay their entry into the market in exchange for Warner Chilcott’s agreement not to launch an authorized generic version of Loestrin 24 and other non-cash consideration.
The amicus brief argues that the district court’s ruling, if not reversed, will gut the Supreme Court’s Actavis decision, which held that reverse-payment agreements may be anticompetitive and violate the Sherman Act where the payment allows a branded drug maker to protect its monopoly by sharing monopoly rents with would-be generic challengers.
The AAI and the professors argue that by limiting Actavis to cash payments, the district court elevated form over substance and misunderstood the import of the Supreme Court’s ruling, which did not turn on the form of the payment.
The brief was written by Professor Michael Carrier, a member of AAI’s Advisory Board.
Foer Tells Congress No Need for SMARTER Act
AAI Founder and Senior Fellow Bert Foer testified before the House Committee on the Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law today regarding the Standard Merger and Acquisition Reviews through Equal Rules Act of 2015 (SMARTER Act). Foer reiterated concerns that were outlined in an AAI letter to the Committee in April 2014.
Foer told the committee there was no need for differently articulated standards for obtaining a preliminary injunction against a proposed merger, depending on which agency is bringing the action to court. “we do not perceive that the differences addressed by H.R. 2745 are differences that in fact make a difference,² Foer said.
Read Foer’s testimony here.
Read Foer’s response to the Committee’s follow up questions here.
