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AAI Asks Third Circuit to Apply Practical Approach to Ascertainability Requirement for Class Cert.

On May 15, 2023, AAI filed an amicus brief in the Third Circuit in support of Appellants’ request for reconsideration or rehearing en banc in a case alleging brand and generic manufacturers of Niaspan, a lipid disorder treatment, engaged in an illegal pay-for-delay agreement. After a district court decision denied certification of a proposed class of health insurers and health plans, a Third Circuit panel affirmed. The panel cited the Third Circuit’s heightened “ascertainability” requirement, which requires an “administratively feasible mechanism” for identifying class members as well as an objective class definition. The Third Circuit’s administrative feasibility test is controversial and arguably grafts extra-legal requirements for class certification onto the requirements set forth in Rule 23. The Third Circuit test is at odds with several other Circuits that have rejected any “ascertainability” requirement.

In the brief, AAI identifies two grounds for reconsideration. First, the brief argues the Third Circuit panel erred by deviating from the practical approach to the “administrability” requirement that other Third Circuit decisions apply. Second, the brief notes that the Third Circuit failed to give due weight to the extensiveness of prescription drug data in considering whether a person or entity meets the class definition.

On the first issue, AAI identified that the Third Circuit panel incorrectly required a “systematic” approach that meant that Plaintiffs would need to identify a single set of data could “feasibly identify and filter out” entities that appear in the data and were not class members. AAI argued that this additional requirement created a bright line that does not exist in Third Circuit precedent, and the panel’s failure to apply the less demanding practical approach necessitates panel reconsideration or rehearing en banc.

Second, AAI argued that the Third Circuit panel failed to give sufficient weight to the extraordinary amount of data in the prescription drug industry and the ways that data could be used to identify class members in conjunction with the practical aims of the administrative feasibility requirement.

The brief was written by an AAI Board of Director Joshua Davis, with assistance from Scott Grzenczyk.

Read the full brief here.

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AAI Issues New White Paper: Competition Enforcement, Private Actions and the Shipping Act

This white paper by J. Wyatt Fore of Constantine Cannon, together with Kathleen Bradish of AAI, introduces readers to the specialized area of private antitrust enforcement under the Shipping Act. The authors draw attention to the serious competition issues facing the ocean shipping sector and discuss how private enforcers can use the competition provisions of the Shipping Act to help address some of those problems. The authors take a critical look at the current enforcement framework and offer proposals about actions Congress and the Federal Maritime Commission can take to promote competition in ocean shipping by making private actions under the Shipping Act more common and more effective.

Read the white paper here: AAI White Paper – Competition Enforcement, Private Actions and the Shipping Act

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A “Mixed Bag” for Antitrust Enforcement in the Tech Space: Implications of the Ninth Circuit Decision in Epic v. Apple

On April 24, 2023, the Ninth Circuit issued an opinion largely upholding the district court decision in Epic v. Apple. Although the decision is overall disappointing for antitrust enforcement, it also provides important corrections to some of the district court holdings, including points addressed in AAI’s amicus on appeal. We summarize both aspects of the opinion below.

There are considerable downsides in the opinion for antitrust enforcement efforts, especially in the tech space, where it has the potential to increase the evidentiary burden on plaintiffs in significant ways. Following are major takeaways from the opinion.

  • Single-brand relevant market: The opinion affirms a high bar for showing a “single-brand” relevant market. The Ninth Circuit adopts a reading of the Supreme Court’s Kodak case that requires the plaintiff show that restrictions are not “generally known” by customers before they make their purchase and provide evidence of the “magnitude” of the switching costs. The Court agreed with the district court that Epic failed to provide sufficient evidence on these points. This articulation of “required” showings is particularly important for enforcement in the tech space. Being able to show a single-brand market is vital in a space where a small number of large tech companies have created broad, multi-level proprietary ecosystems to protect their market positions.
  • Less restrictive alternative standard: The opinion describes a relatively onerous standard for plaintiffs to rebut a claimed procompetitive benefit by showing a less restrictive alternative. The Ninth Circuit finds that plaintiffs’ proposed alternative must be “virtually as effective in serving the defendant’s procompetitive purpose” as the challenged restriction. This demanding standard led to leaving in place the district court’s rejection of Epic’s alternative even though it was based on a system Apple already had in place for its computer-based app distribution. This part of the opinion may have the most significant negative consequences for future enforcement, especially in the tech space where the knowledge and evidence of available alternatives is likely to lie with the defendant and there may be unresolvable uncertainty about how alternatives could be implemented.

There are, however, also some important bright spots in the opinion. The Ninth Circuit corrected mistakes of the district court that would otherwise have been a significant step backwards for antitrust enforcement in the tech sector. This did not affect the outcome of the case, however, as the panel found these mistakes to be harmless, given the other facts.

  • Contract under Section 1: The Court rejected the district court’s notion that a contract willingly entered into by plaintiff was not a contract covered by Section 1. The Court followed other precedent and affirmed that Section 1 covers every contract, even if a plaintiff had begrudgingly accepted the restrictive terms.
  • Market definition: The Court rejected the district court’s holding that a product market must be defined around a product that the defendant licenses or sells. Instead, the Court affirmed that market definition must be based on market realities, and could include, for example, markets based on products that are free or “vertical” products.

Although this view is consistent with other precedent, it is an important point for tech markets, where products are often offered for free to one side of the market in exchange for access to data.

  • Two product requirement for tying claim: The Ninth Circuit rejected the district court’s conclusion that Epic failed to show that there were two different products for purposes of a tying analysis. The Ninth Circuit here was consistent with AAI’s arguments in its amicus. It further helpfully emphasized that the burden for this showing should be light because it is only a preliminary question, not the substance of the analysis.
  • Scope of Ohio v. Amex: The opinion finds that the district court took the analysis of Ohio v. Amex too far when it claimed that a two-sided market could not be broken up into multiple products for purposes of an antitrust analysis. The circuit court instead emphasized the need to consider market realities in platforms just as in other areas. The Ninth Circuit’s conclusion here seems to have stemmed some of the overbroad readings of Ohio v. Amex that could have led to immunizing a broad swath of platform conduct. This is consistent with AAI’s amicus arguments. Compared to the approach advocated by AAI, though, the Ninth Circuit missed an opportunity by not going further in cabining Amex than it did.
  • Need for balancing test under rule of reason: The Ninth Circuit agreed with Epic and several amici that precedent requires a balancing of procompetitive and anticompetitive effects, even if plaintiff does not offer sufficient proof of a less restrictive alternative. The benefit of the holding is dampened, however, because it is clear the Court is dubious that adding a balancing test will change the outcome in any similar situation and seems to suggest that the last step is a matter of form rather than substance.

Finally, the Court raises the important question of whether cross-market rationales (i.e., weighing benefits in one market against harms in another) are cognizable. It seems to be leaning in favor of allowing such rationales based on precedent but sidesteps the issue in Epic v. Apple by finding instead that the harms and the benefits are in the same market. As a result, it leaves that question for another future case.

In short, the Ninth Circuit’s decision reins in some of the pro-defendant excesses of the district court decision against Epic, but it leaves intact questionable standards that can increase the challenges faced by plaintiffs in similar cases. Hopefully, future decisions will be clearer about the limits, not just the lower bounds, of what showings are required of plaintiffs.

 

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Powerful Buyers and the Grocery Supply Chain: What Does it Mean for the Independent Grocer?

On this episode of Ruled by Reason, AAI President Diana Moss hosts David Smith, CEO of Associated Wholesale Grocers, and Chris Jones, SVP of Government Relations and Counsel for the National Grocers Association. They take up a front-line issue: consolidation in the retail grocery supply chain and the threat it poses to smaller independent grocers. The accumulation of market power has spurred an ongoing cycle of bulking up to gain bargaining leverage over suppliers and customers, with significant effects on smaller players in the supply chain, including farmers and ranchers, small food brands, regional dairy and protein processors, food wholesalers, and independent grocers. The conversation focuses on how powerful retail grocers engage in various methods to exercise their buyer power, often at the expense of independent grocers; what enforcement and policy tools are available to combat it; and what further consolidation in retail grocery means for competition and security of the food supply chain.

moderator:

Diana Moss, President, American Antitrust Institute

GUESTS:

David Smith is the CEO of Associated Wholesale Grocers, the largest cooperative food wholesaler in America. Throughout his long career, David has focused on the development and success of independent supermarket operators. He grew up in the retail side of the grocery business in a family-owned independent multi-store operation and later worked in management and leadership roles for regional wholesalers Malone and Hyde and later for Fleming Companies, Inc.

Chris Jones is SVP of Government Relations and Counsel for the National Grocers Association. He joined NGA after serving nearly 8 years as a staffer on Capitol Hill. He worked in a senior legislative role from 2010-2017 and managed the agriculture and nutrition portfolio for a senior member of the House Agriculture Committee.

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AAI Tells Second Circuit that Pharma Bro’s Lifetime Ban from the Pharmaceutical Industry is Appropriate and Necessary to Ensure Effective Relief

On March 30, 2023, AAI filed an amicus brief in support of the Federal Trade Commission at the Second Circuit in Martin Shkreli’s appeal of the district court’s injunction in FTC v. Shkreli. At trial in the district court, the FTC and several states succeeded in proving that Martin Shkreli, aka “the Pharma Bro,” violated Sections 1 and 2 of the Sherman Act by a series of exclusionary acts that prevented generic competition to an important life saving drug. Mr. Shkreli’s acts allowed his company to increase and maintain a price increase of more than 5000% per tablet. Mr. Shkreli appealed only the relief granted by the district court, not the underlying finding of liability.

AAI describes why, based on its extensive work on antitrust remedies, it believes the Second Circuit should reject Mr. Shkreli’s request to drastically narrow the scope of his lifetime ban from the pharmaceutical industry and uphold the district court’s injunction in full. The AAI brief identifies a set of factors that caselaw and agency experience have shown to be necessary to an effective antitrust remedy and explains why each of these factors support upholding the injunction as issued, including the lifetime ban. Any effective antitrust relief, the AAI brief explains, must: (1) be broad enough to address future ways in which the defendant might achieve the same anticompetitive goals, (2) make it easy to detect and enforce against violations, and (3) address the incentives that led to the anticompetitive conduct. Any weaker relief than the district court’s issued injunction, the AAI brief concludes, would risk failing on one or more of these points. Further, the AAI brief notes that the district court’s injunctive relief is appropriate and consistent with accepted limiting principles of antitrust relief including ensuring relief flows from the proven harms, keeping relief proportionate with harm, and considering the effect on procompetitive conduct.

The AAI brief also discusses the effect weakening the injunctive relief in this case could have on antitrust enforcement at the FTC, especially in the pharmaceutical industry. The brief describes the FTC’s frontline role in pursuing anticompetitive conduct in the pharmaceutical space and why limiting relief in this case threatens the FTC’s ability to pursue effective remedies against antitrust violations across the pharmaceutical space.

The brief was written by AAI Vice President of Legal Advocacy Kathleen Bradish, with invaluable assistance from AAI Research Fellow Mathew Simkovits.

Read the full brief here: AAI Amicus Brief to Shkreli Motion

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AAI Files Comments in the FTC’s Notice of Proposed Rulemaking on Labor Non-Compete Clauses

On April 3, 2023, the American Antitrust Institute submitted comments in response to the Federal Trade Commission’s Notice of Proposed Rulemaking on the Non-compete Clause Rule in Docket FTC-2023-0007-0001. AAI’s goal in providing comments is to aid agencies in promulgating rules and guidance that support robust competition and make the best use of agency enforcement and policy tools for achieving pro-competition goals. AAI’s comments applaud the FTC for exploring the use of rulemaking to address a major competition concern in labor markets. The initiative is an important part of an enforcement program to expand antitrust’s focus on labor markets.

AAI’s comments applaud the FTC for exploring the use of rulemaking to address a major competition concern in labor markets. AAI’s comments focus on how the FTC can minimize potential setbacks for the proposed rule that could arise on judicial review. One issue is how a final rule could be better supported by additional studies and more sophisticated analysis of economic evidence, including meta-studies, to reinforce the basis upon which a near total ban on non-competes rests. A second issue is how the Commission can and should deploy other policy tools, such as guidelines, to aid transparency and predictability regarding how the agencies will go about evaluating whether non-compete clauses are anti-competitive.

Read the full letter here: AAI Comments FTC NPRM Noncompetes

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Airline Consolidation and Labor: A View From the Cockpit

In this podcast episode, AAI President Diana Moss sits down with two airline pilots, Kelly Ison and Eric McEldowney, to talk about the effect of airline consolidation on labor workforces. There have been almost 20 airline mergers involving U.S. carriers in the last two decades, six of which have involved mergers of major legacy and low-cost carriers. Today, the sector is dominated by a tight oligopoly of carriers. But consolidation continues, with merger proposals such as JetBlue and Spirit, joint ventures like the Northeast Alliance codeshare, and increasing complexity in the international immunized airline alliances. While the effect of consolidation on consumers remains important, not enough has been said about effects on labor. This episode fills this gap. Moss, Ison, and McEldowney do a deep dive into airline consolidation and how it affects pilots. Their discussion ranges from changes in the industry since airline deregulation in the late 1970s, to consolidation and loss of competition, to policy proposals for promoting competition in airlines for the benefit of airline labor forces.

Moderator: 

Diana Moss, President, American Antitrust Institute

Guests:

Kelly Ison began his airline career as a pilot for Piedmont Airlines, serving as Chair of the ALPA Negotiating Committee, and leading high-profile projects for US Airways. Kelly is a Captain for American Airlines on the Airbus 320. He is Chair of the International Alliance Committee for the Allied Pilots Association and a member of APA’s strategic planning team. He lectures on airline economics and competition at the University of Westminster’s Aviation Masters program.

Eric McEldowney grew up wanting to be a pilot. He took his first biplane ride at the Flying Circus in Bealeton, VA at age 10 and was hooked. Eric built his flying experience through instruction, flying air ambulance, and commuter airlines. He has 23 years of experience flying at major airlines and is presently a captain on the Airbus 320. Eric currently serves on the APA’s Strategic Planning Committee.

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AAI’s Diana Moss Testifies at Senate Commerce Committee Hearing, Says Consolidation in the U.S. Passenger Air Transportation Harms Quality, Choice, and Connectivity for Consumers

On March 23, 2023, AAI President Diana Moss testified before the United States Senate Committee on Commerce, Science, & Transportation. The hearing: Enhancing Consumer Protections and Connectivity in Air Transportation “…examine[s] the need to strengthen consumer protections for the U.S. flying public, including bolstering Department of Transportation rules, enhancing accessibility for the disability community and exploring the intersection of competition and customer service. This hearing will also discuss the importance of air service connectivity for small and rural communities. The Committee will hear from witnesses about potential solutions to improve consumer protections and competition across the airline industry.”

Moss’s testimony touched on four major issues:

• A loss of competition in passenger air transportation markets affects airfares and ancillary fees and quality of service. As an important non-price metric of competition, the quality of products and services has only recently gained attention by antitrust enforcers. More attention should be paid to how consolidation in the U.S. passenger air transportation markets reduces competitive pressure to maintain and enhance quality of service.

• Airline mergers and joint ventures are unlikely to produce enhanced “connectivity” for travelers. U.S. air carriers have long justified proposed mergers and joint ventures on the basis of enhanced consumer benefits, or the ability of merged carriers to offer new or more frequent service on combined networks. But analysis shows these claims do not always materialize and, in fact, some mergers actually create inefficiency.

• Competition is essential for consumer choice and the stability and resiliency of the passenger air transportation system. Consolidation in U.S. passenger air transportation markets has reduced choice for consumers. This means fewer options for consumers who want to purchase service that meets their needs. An air transportation system that features fewer rivals is also less likely to withstand shocks such as pandemic and extreme weather and to recover quickly from them.

• Promoting competition and protecting consumers requires strong antitrust enforcement and coordinated regulatory oversight. Historically, there has been less coordination on airline competition matters such as mergers, joint ventures, and slot allocation between the U.S. Department of Justice (DOJ) and Department of Transportation (DOT). Coordination across these two prongs of government is essential for promoting competition and protecting consumers.

Read the full testimony here: Moss / Senate Commerce Committee Hearing – March 23

Watch the full committee hearing here: Senate Commerce, Science, & Transportation Hearing – March 23

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AAI Urges Fourth Circuit to Correct District Court’s Erroneous Readings of Supreme Court Precedent that Risk Giving Free Pass to Monopolists in Regulated Industries

On March 20, 2023, AAI filed an amicus brief in the Fourth Circuit in support of NTE Carolinas’ appeal of the district court’s grant of summary judgment on its Section 2 claims against Duke Energy. The brief argues that the district court made two crucial mistakes in its analysis that mandate reversal — failing to consider the cumulative anticompetitive effects of Duke Energy’s conduct in thwarting development of NTE’s competing electricity generating plant and applying an incorrect and overly stringent test for NTE’s refusal to deal claim.

On the first issue, AAI pointed out that the district court opinion wrongly required that each aspect of Duke Energy’s conduct in obstructing the Reidsville plant individually satisfy the requirements for Section 2 liability. AAI argued that this analysis ignored entirely the cumulative effect of the conduct and thus failed to follow clear precedent from the Supreme Court. AAI noted that the failure to do so in this case was particularly problematic because NTE alleged a series of interrelated and mutually reinforcing actions as part of Duke Energy’s self-described “combat strategy” to “stop the NTE train.”

On the refusal to deal issue, AAI argued that the district court misapplied the Supreme Court precedent in both Trinko and Aspen Skiing by requiring that NTE show a voluntary prior course of conduct at a retail price. In so doing, the district court misread Trinko as granting blanket immunity for monopolists in regulated industries and read unnecessary, fact-specific requirements into the Aspen Skiing analysis of refusal to deal claims. AAI argued that the district court, by making regulation outcome determinative, improperly transformed Trinko from a shield against new kinds of antitrust liability into a sword that attacks even well-established antitrust violations. AAI further noted that the district court’s narrow focus on the “voluntariness” of Duke Energy’s prior course of dealing incorrectly applied the analysis in Aspen Skiing.

AAI noted that these misreadings led the district court to overlook clear evidence of anticompetitive intent and effect. As a result, the district court made no demand on Duke Energy to provide any procompetitive justification for its conduct. AAI argued that, given these mistakes, the grant of summary judgment on NTE’s Section 2 claims should be reversed.

The brief was written by AAI Vice President of Legal Advocacy Kathleen Bradish, with assistance from AAI Research Fellow Mathew Simkovits.

Read the full brief here.

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Second Circuit Agrees With AAI Amicus That a Cartel Cannot Immunize Its Actions by Working Through a Single Entity

On March 8, the Second Circuit released its opinion in Relevent Sports, LLC v. United States Soccer Federation, Inc, et al. The decision vacated a district court decision to dismiss Relevent Sports’ claim that a 2018 policy enacted by FIFA and its national members violated Section 1 of the Sherman Act. Relevent Sports alleged that the policy was an illegal market allocation because it prevented promoters like Relevent from hosting league games outside a team’s home geography.

The Second Circuit’s analysis of the sufficiency of a Section 1 claim reflects the framework AAI advocated in its amicus brief to the court. The opinion affirms that, as AAI argued, an allegation that separate economic actors are restrained from pursuing individual economic interests is sufficient to allege an “agreement” under Section 1. The Second Circuit further agreed that a binding association policy reflecting that competitive restraint is direct evidence of an agreement under Section 1, and there is no need to allege “an agreement to agree” or other circumstantial evidence of agreement.

As AAI emphasized in its amicus, the Second Circuit’s decision is vitally important. The district court standard would have essentially immunized the most durable and harmful type of cartel behavior, allowing cartel members to escape antitrust scrutiny simply by ceding decision making authority on price or output to a single entity, like a trade association.

Read the full amicus brief here.