March marked the end of the first quarter of President Obama’s second term, and he has yet to select a nominee for the fifth and final commissioner of the Federal Trade Commission seat. The FTC is composed of five members, nominated by the president and confirmed by the U.S. Senate, who serve staggered seven-year terms. No more than three commissioners can be of the same political party. With former Democratic FTC Chairman Jon Leibowitz’s departure in January, the FTC is currently split with two Democrats and two Republicans.
Howard Shelanski, director of the FTC’s Bureau of Economics, commented at a conference in Washington, D.C., last month that the 2-2 split at the FTC could last “for a long time.” Not only will Obama have to nominate the proposed commissioner, the nominee must be confirmed by the Senate, a sometimes lengthy and controversial process. When Obama nominated William J. Baer to serve as the Department of Justice’s assistant attorney general for the Antitrust Division in February 2012, it took over 10 long months before the Senate finally approved Baer’s nomination.
Shelanski warned, however, that “companies should not assume that the FTC won’t enforce the antitrust laws” in the interim. For instance, the agency is “investigating very intensely right now” a couple of hospital-to-physician group acquisitions, and intends to continue its antitrust enforcement efforts on mergers involving physician groups, among other industries directly impacting the consumer, Shelanski noted. Newly appointed FTC Chairwoman Edith Ramirez echoed Shelanski’s sentiments during a question-and-answer session at the International Association of Privacy Professionals’ annual summit, and publicly commented that the FTC does not intend to back down from the aggressive approach it has taken in recent years to consumer privacy enforcement, which resulted in dozens of settlements with companies like Google Inc. and Facebook Inc. Obama designated Ramirez, an intellectual property attorney by trade, to succeed outgoing Leibowitz in February. Ramirez has served as an FTC commissioner since 2010.
Leibowitz’s departure occurred shortly after the FTC closed its 19-month investigation of Google’s search engine result practices. The focus of the investigation involved allegations that Google unfairly slotted its own content toward the top of its search results page, and selectively demoted its competitors’ content for space much lower down in the results. This alleged practice is referred to by some as “search bias.” The FTC, under Leibowitz’s leadership, decided by a bipartisan and unanimous vote that Google’s conduct was not anti-competitive and negotiated a commitment letter with the company, rather than a formal consent agreement, to conclude the investigation. In the commitment letter, as noted in an FTC press release, Google agreed to “give online advertisers more flexibility to simultaneously manage ad campaigns on Google’s AdWords platform and on rival ad platforms; and to refrain from misappropriating online content from so-called ‘vertical’ websites that focus on specific categories such as shopping or travel for use in its own vertical offerings.”
The FTC’s decision to resolve the matter by way of a commitment letter received criticism, both internal and external to the agency. Many of Google’s rivals expressed disappointment with the FTC’s decision, including local review provider Yelp Inc. Republican FTC Commissioner J. Thomas Rosch believed that ending the investigation with just a commitment letter from Google to amend some of its practices was like the FTC “promising an elephant more than a year ago [and] instead [bringing] forth a couple of mice.” Rosch warned that negotiating a commitment letter with Google to resolve the investigation set a “very bad precedent.”
Before leaving his post, Leibowitz defended the agency’s decision, stating that “every case is different, and the form of the resolution … gives consumers greater relief faster than they otherwise would have gotten,” and that he expects Google to abide by its commitments. Further, Leibowitz said, the agency would be able to hold Google to its promises under authority of Section 5 of the FTC Act to police deceptive acts and practices. Controversy about Google will subside over time, but it could have residual effects inside the agency on how the FTC decides to proceed with investigations and litigation once the fifth and final seat is filled. In the interim, no matter when the fifth seat is occupied, the FTC is sending clear signals that it is poised to be just as active during the remainder of 2013 as it was last year.
DOJ pursues Anheuser-Busch/Grupo Modelo Merger
In January, the DOJ filed a civil antitrust lawsuit against Belgium beer-brewer Anheuser-Busch under Section 7 of the Clayton Antitrust Act to prevent the company’s proposed $20.1 billion purchase of Mexican beer-brewer Grupo Modelo. Currently, Anheuser-Busch holds a 43 percent voting interest and a 50.35 percent economic interest in Grupo Modelo. The proposed acquisition would result in the Belgium brewer taking control of the remaining 49.65 percent economic interest in the Mexican brewer. The DOJ’s complaint alleges that “the elimination of Grupo Modelo would likely result in higher coordinated pricing” and “harm to the consumer through reduced new product innovation and product variety.”
Anheuser-Busch and Grupo Modelo are the largest and third-largest beer brewers worldwide, respectively. Combined, the two companies control approximately 46 percent of annual beer sales in the United States. Anheuser-Busch’s Bud Light ranks as the top selling beer in the United States, with Grupo Modelo’s Corona Extra ranking as the top-selling import. MillerCoors, the second-largest beer producer, accounts for approximately 29 percent of nationwide sales.
The DOJ asserts that the beer industry is “highly concentrated” in the United States, and “the more concentrated a market … the more likely it is that a transaction would result in a meaningful reduction in competition.” In 2011, American consumers spent at least $80 billion on beer. That same year, Anheuser-Busch earned revenues of approximately $39 billion. Grupo Modelo earned $7 billion in revenues in 2011.
Annually, Anheuser-Busch implements price increases in sub-premium, premium and premium-plus segments of the U.S. beer industry. MillerCoors and other brewers have sometimes followed Anheuser-Busch’s price increases, whereas Grupo Modelo has not. Some argue that by pricing aggressively, Grupo Modelo, through its importer Crown Imports, historically pressured Anheuser-Busch to maintain lower price points, and served as an important competitor of Anheuser-Busch in the U.S. beer markets. The argument continues that failure to enjoin the merger would result in the disappearance of that competition.
Perhaps feeling the pressures of litigation, on February 14, Anheuser-Busch announced a revised transaction to its proposed acquisition of Grupo Modelo. Specifically, Anheuser-Busch expressed intent to sell to Constellation Brands, a company mostly known as a wine producer, a Mexican brewery and the U.S. rights to beer brands such as Corona Extra, as part of the merger. As a result, on February 20, the DOJ and Anheuser-Busch filed a joint motion to stay the litigation so that the DOJ could determine whether this revision was sufficient evidence of “good conduct” to abate the alleged competition violations. U.S. District Judge Richard W. Roberts of the District of Columbia granted the stay, and ordered that the parties file a joint status report by April 9.
There is a possibility that if the DOJ is satisfied with Anheuser-Busch’s revision, the parties could request a consent decree at the end of the stay period to resolve the lawsuit, which would require court approval. As of the end of March, the DOJ and Anheuser-Busch attorneys were actively discussing a resolution; however, it remains unclear whether the DOJ will be convinced that Constellation Brands is capable of quickly establishing itself as a viable beer manufacturer and robust competitor of Anheuser-Busch. Some industry experts say no — the DOJ will not be swayed to settle, and will continue its hot pursuit of Anheuser-Busch, using strategies in this litigation similar to what it used to successfully thwart the H&R Block and Intuit Inc., the makers of TurboTax, merger in 2011, such as heavy use of internal company documents and emails to prove anti-competitive actions between the two corporations. The DOJ may also take interest in the private antitrust action filed in California federal court less than three weeks ago, alleging that the Anheuser-Busch/Grupo Modelo merger violates the Clayton Antitrust Act, and align its strategies accordingly. Joseph Alioto, an attorney representing the nine individual-consumer plaintiffs, made a recent press statement that, “If the Modelo merger goes through, beer prices will go through the roof and there won’t be any more quality control … the dam breaks on prices and quality.”
DOJ and FTC’s Enforcement Efforts Are Full Steam Ahead
No matter what develops next in the Anheuser-Busch litigation, and whenever Obama selects his fifth FTC commissioner nominee, one thing is certain: U.S. antitrust regulators have no intention of backing down from the pursuit of perceived competition violations in the marketplace. Obama vowed during his first election to get tougher on antitrust enforcement, and experts say that he has largely followed through on that promise, with renewed focus on litigating mergers and other antitrust challenges. Indeed, some experts believe that the enforcement trends of Obama’s first term are expected to continue full steam ahead. This belief is supported by recent statements made by top DOJ and FTC officials.
Shelanski commented during his public remarks last month that there is no “kind of free pass … staff attorneys will continue to make cases as they are warranted.” Similarly, U.S. Attorney General Eric Holder told the Senate Judiciary Committee during an oversight hearing last month that “we have tried … in the Antitrust Division … to focus our efforts in such a way that we benefit the American people with regard to prices. … Wherever we find instances that there is collusion or inappropriate activity being taken that have a negative impact on the American consumer, we will be there.”
Plans for aggressive enforcement do, however, seem balanced against a pragmatic approach to regulation as expressed by Republican FTC Commissioner Joshua Wright. A recent Obama appointee, Wright encouraged the practice of “evidence-based antitrust,” in his first public address last February, where “antitrust agencies can and should make enforcement decisions based upon sound economic and empirical foundations.” Only time will tell, but a reasonable mix of rigorous, yet measured, “evidence-based antitrust” enforcement may prove to be the favored path for DOJ and FTC antitrust enforcement offices in the days to come during Obama’s second term. Stay tuned. •
Carl W. Hittinger is the chairman of DLA Piper’s litigation group in Philadelphia, where he concentrates his practice in complex commercial trial and appellate litigation with a particular emphasis on antitrust and unfair competition matters. He can be reached at 215-656-2449 or email@example.com.
Monique Myatt Galloway is an associate in the firm’s Philadelphia office, where she concentrates her practice on complex commercial litigation, mass tort, and products liability claims. She can be reached at 215-656-2404 or firstname.lastname@example.org.