The Obama administration’s antitrust enforcement policy has been reminiscent of the marshaling of the local constabulary to engage Gilbert and Sullivan’s conflicted and flummoxed Pirates of Penzance. Urged on by Major-General Stanley’s bevy of daughters to “go to death and slaughter…go ye heroes all and die,” the police temporize their departure to battle in spite of Major-General Stanley’s continuing harangue “yes but they don’t go…oh damn it they don’t go.”
Similarly, the anticipated increase in antitrust enforcement during most of the first three years of the Obama presidency “didn’t go” to the lengths suggested by the candidate’s pre-election rhetoric. The first major antitrust initiative of the Obama Department of Justice was the announcement of a series of workshops addressing the application of the antitrust laws and regulations to the agricultural industry in August 2009.1
During 2010, five workshops were held addressing the seed industry, transparency and buyer power; competitive behavior in the poultry, dairy and livestock industries; and finally, margins in the agriculture supply chain. Neither the Department of Agriculture nor the Justice Department prepared a report regarding the hearings. However, the workshops were transcribed and placed on the public record along with submissions and written comments received.
The Justice Department reached settlements in three industry changing mergers in 2010 and 2011. Consent decrees were entered concerning the merger of Ticket Master and Live Nation after an 11-month investigation;2 Google’s acquisition of travel software developer ITA after a nine-month investigation;3 and Comcast’s assuming control of the NBC Universal programming joint venture after a 14-month investigation.4 All of the consent decrees were unexceptional. The provisions of the decrees addressed mainly the vertical dimensions of the transactions and crafted conduct-related prohibitions associated with the potential foreclosure consequences of the combinations.
It wasn’t until May 2011 that the Justice Department started to increase the level of its merger enforcement efforts. In April 2011 NASDAQ joined with the IntercontinentalExchange and announced its unsolicited bid to acquire the NYSE. Six weeks later, the Justice Department advised NASDAQ that it would oppose the transaction in court. NASDAQ abandoned its acquisition efforts after receiving the Justice Department’s decision.5 Five months later the Justice Department filed an action in the D.C. District Court seeking to enjoin H&R Block’s proposed acquisition of TAXACT, a direct competitor in the marketing and sale of digital do-it-yourself tax preparation software.6
The Justice Department prevailed in its first litigated merger challenge since its 2004 court loss in United States v. Oracle.7 The Justice Department also filed a preemptive challenge to AT&T’s proposed acquisition of T-Mobile. The parties abandoned the wireless merger before Christmas.8
Intermixed with its revived merger enforcement, the Justice Department challenged Blue Cross Blue Shield of Michigan’s contracting practices with health care providers containing most favored nation clauses. Specifically, the complaint alleges that the MFNs unreasonably restrain trade in violation of §1 of the Sherman Act, as well as §2 of the Michigan Antitrust Reform Act, because these clauses (i) reduce the ability of other health insurers to compete on price with Blue Cross and (ii) raise prices Blue Cross’ competitors pay for health care services and, ultimately, the prices consumers pay for insurance.9 The litigation is pending.
Most of the recent aggressive initiatives were led by Acting Assistant Attorney General Sharis Pozen. Pozen left her position effective as of April 30, 2012. President Barack Obama nominated William Baer to the position of Assistant Attorney General in charge of the Justice Department’s Antitrust Division on Feb. 3, 2012.10 The timing of Baer’s Senate confirmation is uncertain.
The FTC continued its efforts to oppose generic drug “pay for delay cases”11 and allegedly anticompetitive hospital mergers.12 The FTC has been more successful in the latter than in the former category.
The most aggressive FTC antitrust action during the Obama administration was the FTC’s administrative complaint against Intel under Section 5 of the FTC Act in December 2009.13 The FTC’s complaint alleged that Intel violated Section 5 by engaging in certain acts that thwarted competition and prevented the adoption of non-Intel products in certain markets for central processing units (CPUs) and graphics processing units (GPUs).14 Eight months later, the FTC and Intel entered into a proposed consent order that has a term of 10 years, and seeks to restore competition in the markets for CPUs and GPUs in a number of ways.
The Antitrust Spring Meeting
So what will happen in the area of antitrust enforcement between now and the presidential election in November? Usually, the Antitrust Section of the American Bar Association’s annual spring meeting offers a short-term antitrust forecast of agency and private party activity. This year the spring meeting showcased a wide range of antitrust topics, from very broad topics, such as antitrust fundamentals, to very narrow ones. (One presentation asked the specific question, “Can One Balance the Increasing Importance of Public Interest Considerations in South Africa (and Sub-Saharan Jurisdictions) with the Quest for Multi-Jurisdictional Merger Control Certainty?”). 15
We have selected a few issues that are particularly timely, sort of an informal “what’s hot” in antitrust law. Our “what’s hot” list can be categorized broadly as encompassing antitrust developments in health care, unilateral refusals to deal, so-called judicial activism in criminal sentencing, merger litigation and policy, and Internet privacy.
Health Care. The Patient Protection and Affordable Care Act has been a topic of national discussion since its passage, and that is especially the case given the recent challenges to the act’s individual mandate. One aspect of the act that has garnered little attention in the public dialogue, but could have major antitrust implications, is the act’s requirement that the Department of Health and Human Services (HHS) establish a program to allow providers to form accountable care organizations (ACOs).16 The ACO establishes a framework through which providers can work together and coordinate care for Medicare beneficiaries in order to reduce costs. Not only does the act allow ACOs, it grants incentives to providers to establish them.
Though the act grants HHS the responsibility for implementing ACOs for Medicare beneficiaries, the FTC and Justice Department have announced that they may challenge the formation and conduct of ACOs that present competitive concerns. Proposed regulations that would have required mandatory antitrust review for certain ACOs were not included in HHS’s final regulations, which instead encouraged ACOs that might create competitive concerns to seek voluntary antitrust review.
The FTC and Justice Department issued a final policy statement on ACOs at the same time that HHS published the final rule implementing the ACO program; however, it appears that both antitrust enforcement agencies are still grappling with how to address ACOs that want to operate outside HHS’s approval process. To that end, representatives of the FTC noted at the spring meeting that ACOs want to become a part of the commercial market and revealed that both the FTC and Justice Department continue to develop the processes that each will use to review ACOs.17 In its presentation touching on ACOs, the FTC noted that “[p]arties increasingly attempt to defend mergers to FTC on grounds of healthcare reform” and stressed that its “fundamental approach to hospital merger analysis [is] unchanged.”
In another area with implications for the health care industry, spring meeting participants were updated on the use and utility of the most-favored-nation clause (MFN).18 MFNs have been around for a long time and have been challenged in the health care context since the 1980s,19 but the Justice Department’s October 2010 suit, challenging Blue Cross and Blue Shield of Michigan’s MFNs has in part reignited discussions centering on the utility of MFNs. It appears that the Justice Department’s suit may be part of a broader government initiative to contain health care costs, and there was speculation at the spring meeting that MFNs in other states may be under investigation. However, several papers at the spring meeting noted the efficiency justifications for MFNs, suggesting that MFNs may have an important role to play in certain contexts.20
Unilateral Refusals to Deal. The unilateral refusal to deal made an appearance at this year’s event as antitrust practitioners pondered whether the Supreme Court’s decision in Aspen Skiing21 continues to have validity, particularly in light of the Supreme Court’s decision in Trinko22 and subsequent lower-court decisions.23 The discussion appeared to conclude that Aspen Skiing’s survival, at least in some very limited form, is a safe bet, but examination surrounding the magnitude of that survival suggests that a lot of life support equipment is involved.
We are confident that Aspen Skiing does not today stand for the court’s endorsement of an essential facilities doctrine—that is, to the extent that it ever did stand for such an endorsement, which is highly doubtful. But all is not lost for those who would argue that Aspen Skiing remains good law— it does appear to survive in the limited situations where a firm with market power terminates a pre-existing relationship and engages in post-termination bad conduct and there is an administrable remedy for the court to impose.24 What that means as a practical matter is still not completely clear.
Judicial Activism. Judicial activism has been in the news quite a bit lately, with Republican presidential candidates and the president raising concerns about so-called activist judges. Talk of judicial activism made its way into the spring meeting’s discussions, albeit with a uniquely antitrust focus. For some time now, the Justice Department has been pushing for stiffer sentences for those convicted of price-fixing. In 2004, Congress enacted the Antitrust Criminal Penalty Enhancement and Reform Act of 2004, which increased maximum fines and penalties for antitrust offenses.25
Though the Justice Department has sought tougher sentences, it has at the same time emphasized that the sentences it seeks are proportional to sentences for similarly situated defendants in other cartel cases. However, to the extent that this means tougher sentences, it appears that not all judges agree. In a few cases, judges have refused to impose the sentences that the Justice Department has requested. Judges have used their discretion under 18 U.S.C. §3553(a) to vary the sentences under Rule 11(c)(1)(B) pleas and have in some cases refused to accept Rule 11(c)(1)(C) pleas.26
Nevertheless, for all the talk about potential judicial activism, it appears that today’s sentences are far tougher than they were a decade ago. In fact, one paper noted that the average prison sentence during the last four fiscal years was three times greater than the average of the 1990s, with over 76 percent of defendants receiving prison time between 2007 and 2010, as opposed to only 37 percent in the 1990s.27 Moreover, while there have been isolated instances of courts refusing to accept “C” pleas, “there does not appear to be an emerging trend of judicial hostility to ‘C’ agreements.”28
Merger Litigation. The rise in merger litigation has taken center stage over the past year, with several big cases including United States v. H&R Block29 and the Justice Department’s and Sprint’s challenges to AT&T’s proposed acquisition of T-Mobile making headlines. (The authors’ firm was legal counsel to Sprint Nextel Corporation in its lawsuit that opposed the transaction.) At this year’s spring meeting, James Tierney from the Justice Department gave a presentation that interpreted H&R Block as a success for the 2010 Joint Merger Guidelines, with the court accepting the Justice Department’s argument that the “effects of a merger should be analyze [sic] in the smallest market that satisfies the hypothetical monopolist test.”30
The court’s treatment of the loss of a “pricing maverick” and of unilateral effects, both as described in the 2010 joint merger guidelines, were characterized as an important endorsement of those changes to the guidelines. Matthew J. Reilly of the FTC noted in his presentation an “unprecedented level of merger litigations by the antitrust agencies” with health care-related mergers seeing a “substantial increase.”31 His prediction was that there is no end in sight for such litigation.
Antitrust and Privacy. Perhaps the most highlighted presentation of the spring meeting, and certainly one receiving wide coverage in the media, was Senator Al Franken’s speech that focused on privacy as an antitrust issue.32 Franken pointed out that online companies Google and Facebook accumulate and maintain large amounts of private data from their users, stating that “accumulating data about you isn’t just a strange hobby for these corporations. It’s their whole business model. And you are not their client. You are their product.”
Franken noted that the market exerts pressure on companies to protect that data. Asserting that “we rely on the market to hold these corporations accountable,” he asked the question “what if a company is able to establish a dominant market share and insulate itself from that pressure?” In that situation, Franken asserts, the dominant firm will be unaccountable: “when companies become so dominant that they can violate their users’ privacy without worrying about market pressure, all that’s left is the incentive to get more and more information about you.”
Spring Meeting Postscript
Three events occurred after the spring meeting that are consistent with an uptick in agency antitrust enforcement. First, Fiona Scott-Morton, the deputy assistant attorney general in charge of the Justice Department’s economic analysis group, delivered a speech highlighting the potential competitive effects of “contracts that reference rivals.”33 Such contracts include “a purchase agreement containing a market share discount: the buyer will receive a discount on incremental units, or perhaps all purchased units, if it buys 90 percent or more of its needs from one seller,” “exclusive-dealing transactions depend[ing] on whether there have been any purchases from rival sellers,” and contracts including most-favored nation or meet-or-release provisions.
The most controversial statement included in her remarks is that “the economics literature has identified many circumstances where CRRs have the potential to harm consumers and competition, particularly—but not always—when they involve firms with market power.”34 The Justice Department may want to pause a moment to consider excluding judicially imposed elements of antitrust causes of actions before it launches complaints alleging anticompetitive effects arising from CRRs where none of the participants possess market power.
The second event of note was the FTC’s appointment of an aggressive, experienced outside litigator, Beth Wilkinson, to take the lead on the Google investigation.35 While the FTC has used outside litigators before, Wilkinson’s joining the investigation well before its conclusion may portend a long contentious road ahead for the parties.
Pozen’s finale36 was the Justice Department’s filing of the e-books case alleging a conspiracy to prevent pricing freedom of e-books among five book publishers and Apple.37 As Skadden Arps (including Shepard Goldfein), represents one of the book publishers, we cannot comment on the Justice Department’s case. However, we trust that our readers will arrive at their own unbiased opinions.
We are confident that many of the above-discussed developments, future developments, and even metaphysical developments in the world of antitrust will continue to make headlines, at least until November. Afterward, only the president knows what direction antitrust enforcement will follow.
Neal R. Stoll and Shepard Goldfein are partners at Skadden, Arps, Slate, Meagher & Flom. David C. Shockley, an associate at the firm in the Washington, D.C., office, assisted in the preparation of the column.
1. Press Release, Department of Justice, “Justice Department and USDA to Hold Public Workshops to Explore Competition Issues in the Agriculture Industry” (Aug. 5, 2009), available at http://www.justice.gov/atr/public/press_releases/2009/248797.htm.
2. See Department of Justice, Antitrust Case Filings, United States v. Ticketmaster Entertainment and Live Nation, http://www.justice.gov/atr/cases/ticket.htm (linking to documents filed in the Justice Department’s action).
3. See id. at United States v. Google and ITA Software, http://www.justice.gov/atr/cases/google.html (linking to documents filed in the Justice Department’s action).
4. See id. at United States v. Comcast, http://www.justice.gov/atr/cases/comcast.html (linking to documents filed in the Justice Department’s action).
5. See, e.g., Press Release, “Department of Justice, NASDAQ OMX Group Inc. and IntercontinentalExhange Abandon Their Proposed Acquisition of NYSE Euronext After Justice Department Threatens Lawsuit” (May 16, 2011), available at http://www.justice.gov/atr/public/press_releases/2011/271214.htm.
6. See Department of Justice, Antitrust Case Filings, United States v. H&R Block, http://www.justice.gov/atr/cases/handrblock.html (providing documents filed in Justice Department’s action).
7. 331 F.Supp.2d 1098 (N.D. Cal. 2004).
8. See, e.g., Press Release, Department of Justice, “Justice Department Issues Statements Regarding AT&T Inc.’s Abandonment of Its Proposed Acquisition of T-Mobile USA Inc.” (Dec. 19, 2011), available at http://www.justice.gov/atr/public/press_releases/2011/278406.htm.
9. Complaint at 1 & 5, United States and Michigan v. Blue Cross Blue Shield of Michigan, (Oct. 18, 2010) (No. 2:10-cv-14155-DPH-MKM), available at http://www.justice.gov/atr/cases/bcbsmfn.html.
10. See, e.g., “Lawyer Nominated to Lead Antitrust Division,” The New York Times, Feb. 3, 2012, available at http://www.nytimes.com/2012/02/04/business/william-j-baer-nominated-to-lead-antitrust-division.html (announcing Baer’s nomination).
11. See, e.g., “FTC Loses Appeal in Androgel ‘Pay-for-Delay’ Patent Case,” BloombergBusinessWeek, April 25, 2012, available at http://www.businessweek.com/news/2012-04-25/ftc-loses-appeal-in-androgel-pay-for-delay-patent-case (quoting FTC Chairman Jon Lebowitz as stating that “[w]e continue to believe this conduct violates the antitrust laws” and that the FTC “will consider all [its] options going forward”).
12. Brent Kendall, “Regulators Seek to Cool Hospital-Deal Fever: Washington Steps Up Merger Challenges, but Firms Say Campaign Ignores Economic Reality of Health-Care Overhaul,” WSJ, March 18, 2012, available at http://online.wsj.com/article/SB10001424052702303863404577286071837740832.html (chronicling the FTC’s recent actions in hospital mergers).
13. See Federal Trade Commission, Actions, In the Matter of Intel (No. 9341), http://www.ftc.gov/os/adjpro/d9341/index.shtm (providing the complaint, motions, and other documents associated with the FTC action).
14. See FTC Administrative Complaint, In the Matter of Intel (No. 9341) (Dec. 16, 2009), available at http://www.ftc.gov/os/adjpro/d9341/index.shtm.
15. John Oxenham, March 28, 2012. The full agenda for the 2012 spring meeting can be found on the ABA’s website: http://www.americanbar.org/calendar/2013/04/antitrust_law_2013springmeeting.html.
16. Richard Raskin, ACOs: An Experiment in Inter-Agency Cooperation and Competition, at 2, March 29, 2012 (citing Sec. 3022 of the act). Much of our textual discussion about ACOs covers information provided in Raskin’s presentation.
17. Matthew J. Reilly, Trends in Hospital Merger Enforcement and Litigation, slides 18-19, March 28, 2012.
18. See supra note 8 and accompanying text.
19. For a discussion of challenges in the health care context, see Neal R. Stoll & Shepard Goldfein, “Challenges to Health Insurers’ Most Favored Nation Clauses,” 244 New York Law Journal, Nov. 23, 2010, available at www.nylj.com.
20. See, e.g., Martha Samuelson, Nikita Piankov, & Brian Ellman, Assessing the Economic Effects of Most-Favored-Nation Clauses, at 2-4, March 28, 2012 (listing potential pro-competitive effects of MFNs); Jonathan M. Jacobson & Daniel P. Weick, Contracts That Reference Rivals as an Antitrust Category, at 10-12, March 28, 2012 (discussing competitive justifications for MFNs).
21. Aspen Skiing v. Aspen Highlands Skiing, 472 U.S. 585 (1985).
22. Verizon Communications v. Trinko, 540 U.S. 398 (2004).
23. See, e.g., Mark J. Botti, “Skiing the Slopes of ‘Aspen’: A Tip for Leading Firms on How to Deal (or Not to Deal) With Their Rivals Without Hurting Themselves,” at 1 & n.2, March 29, 2012.
24. See Mark S. Popofsky, “Unilateral Refusals to Deal: The History and Future of Aspen Skiing,” slides 25 & 28, March 29, 2012.
25. Ray Hartwell, Matthew Modell, & Leslie Kostyshak, “Criminal Antitrust Sentencing of Individuals: Prosecutorial Trends and Judicial Involvement,” at 2, March 29, 2012.
26. Id. at 2 & 4-8 (highlighting cases where courts declined to apply the recommended sentences); Kevin Sullivan, Kate Ball, & Matt Kuskie, “Judicial Activism in Antitrust Cases: Why the Citigroup Case Portends Little for Cartel Litigation,” at 6, March 29, 2012 (noting that courts sometimes give “C” pleas a “chilly reception”).
27. Ray Hartwell, Matthew Modell, & Leslie Kostyshak, “Criminal Antitrust Sentencing of Individuals: Prosecutorial Trends and Judicial Involvement,” at 3.
28. Kevin Sullivan, Kate Ball, & Matt Kuskie, “Judicial Activism in Antitrust Cases: Why the Citigroup Case Portends Little for Cartel Litigation,” at 6.
29. (No. 11-00948-BAH) 2011 WL 5438955, (D.D.C. Nov. 10, 2011).
30. James J. Tierney, “Application of the Revised Horizontal Merger Guidelines in United States v. H&R Block,” at 5, March 28, 2012. Tierney is chief of the Networks and Technology Enforcement Section in the Antitrust Division. We should note that Tierney’s views in this presentation were not meant to reflect those of the Justice Department.
31. Matthew J. Reilly, “Crashing or Swimming With the Tide? The Rise in Merger Litigation,” Matthew J. Reilly, March 28, 2012. Reilly is assistant director at the FTC. His views in this presentation were not intended to represent those of the FTC.
32. Senator Al Franken, address to the American Bar Association Antitrust Section (March 29, 2012).
33. Fiona Scott-Morton, deputy assistant attorney general, U.S. Dept. of Justice, Speech at Georgetown University Law Center: Contracts that Reference Rivals (April 5, 2012), available at http://www.justice.gov/atr/public/speeches/speech-2012.html.
34. Id. at 3, emphasis added.
35. “FTC Brings in Former Government Prosecutor to Dig Deeper into Google’s Business Practices,” Washington Post, April 26, 2012, available at http://www.washingtonpost.com/national/ftc-brings-in-former-government-prosecutor-to-dig-deeper-into-googles-business-practices/2012/04/26/gIQAzRg2jT_story.html.
36. In the interests of equal time, in her remarks to the Brookings Institution, Acting Assistant Attorney General Pozen recounts the Justice Department’s antitrust enforcement efforts since President Obama’s inauguration. Acting Assistant Attorney General Sharis Pozen Speaks at the Brookings Institution, April 23, 2012, available at http://www.justice.gov/iso/opa/atr/speeches/2012/at-speech-120423.html.
37. See, e.g., Department of Justice, Antitrust Case Filings, United States v. Apple, http://www.justice.gov/atr/cases/applebooks.html (providing materials filed Justice Department’s case against the five book publishers).