As the story goes, Ford Motor Co. almost never got off the ground because of a monopolist. In 1903, the Association of Licensed Automobile Manufacturers (ALAM) tried to stop Henry Ford from building his first gasoline-powered four-stroke automobile. The ALAM was composed of 11 car manufacturers, including, at the time, Cadillac, Winton and Packard. Its goal was to keep “unreliable upstarts” out of the car market. At that time, the relevant market was mainly targeted at providing luxury cars to the rich and famous of the Gilded Age. The ALAM wanted to keep demand high and supply limited so as to drive prices up, which the elite of society were all too willing and able to pay for their toys—classic monopolist conduct the Sherman Act had just been passed to stop. The means by which the ALAM fueled its anti-competitive engine was through a registered patent. The patent had been applied for and issued to one George Baldwin Selden of Rochester, N.Y. Selden was a patent lawyer by trade and proclaimed inventor of the internal combustion engine powered by gasoline for the sole purpose of propelling a car. His patent application was filed in 1879 for a “road engine.” Through continuous revisions to his claims, he kept the application pending for 16 years. In 1895, Selden was finally granted a patent for a three-cylinder gas-powered car. Selden himself did not build a prototype of his invention until much later, but the patent nevertheless allowed him to collect royalties from all American car manufacturers. Selden formed a holding company called the ALAM to handle the licensing of the patent to the car manufacturers in the United States. The licensing fees started at $10,000 and in time increased, as did the holding company to include rival car competitors, including those, like Winton, that had been successfully sued for the licensing fees. Licenses were not easily granted. Vowing to protect the public from shoddy car makers, the ALAM held all the cards and let only the chosen few join its vaunted club.
The Antitrust Review of the Americas 2015 features a chapter by BakerHostetler antitrust partner Edmund W. Searby entitled, “United States: Private Antitrust Litigation – Class Actions.” He wrote:
“As many appreciate, two Supreme Court decisions in the last seven years have assisted the defense of antitrust class actions. The first and most significant is the enhancement of pleading standards. Second, the Supreme Court addressed the standards for class certification in terms that at the very least require greater rigour in class certification. While neither Supreme Court decision is new, we review in this article recent cases to see how these decisions have affected the prosecution of antitrust class actions.”
The chapter includes sections on motions to dismiss antitrust class actions under Twombly, trends involving the application of greater rigor by courts in assessing antitrust class certifications, and patterns in antitrust class action filings by judicial circuit. Read the chapter.
The 18th annual edition of The Antitrust Review of the Americas covers hot topics in the U.S., Canada and Brazil including: Cartels, Energy, Foreign Investment, Joint Ventures, IP & Antitrust, Mergers, Private Enforcement, Private Equity, Technology and Vertical Restraint. Government officials discuss current enforcement and priorities for the year ahead in the U.S., Canada, Barbados, Brazil, Colombia, Mexico and Nicaragua.
Extracts from The Antitrust Review of the Americas 2015 – www.GlobalCompetitionReview.com
Editor’s Note: This blog post was originally published to BakerHostetler’s Health Law Update blog.
In a recent blog post, three Federal Trade Commission (FTC) economists splashed some cold water on advocates of “reference pricing” that seem to imply that such pricing “will increase competition between providers.” In the FTC economists’ view, “reference pricing does not and cannot create provider competition[,] because [it] is simply a tool health insurers and employers can use to harness whatever provider competition may already exist.” So, what is “reference pricing,” how does it work, and why are these three FTC economists throwing the cold water?
“Reference pricing” is “a type of health benefit design that gives consumers seeking healthcare services an incentive to shop around for the best deal.” Here’s how it works. A health insurer sets a “reference price” for an elective procedure (a knee replacement is a common example) that represents the most the insurer will pay for the procedure no matter the provider chosen by the patient. If the patient chooses a provider that has negotiated a price with the insurer that is equal to or less than the reference price, the patient pays nothing. If the patient instead selects a provider that charges more than the reference price, the insurer pays that price and the patient is left to pay the difference. As the FTC economists put it, reference pricing “can be a powerful tool for health insurers and employers to promote higher quality at reduced prices by giving patients an incentive to ‘vote with their fee,’ and giving providers an incentive to improve the value of their services.”
As the story goes, in 1902, President Teddy Roosevelt, wanting to make his mark on the presidency as a real deal “trust buster,” took aim at Wall Street by going after financial titan J.P. Morgan. Working with his then-attorney general, Pennsylvanian Philander Knox, Roosevelt decided to file an antitrust suit against the Northern Securities Co., a Morgan controlled trust. The lawsuit under the new Sherman Act accused the holding company of gaining monopoly power through controlling stock acquisitions over two competing railroad companies for the purpose of illegally restraining trade. Wall Street was appalled. Morgan was shocked, claiming that his lawyers had carefully organized the holding company with the new antitrust laws in mind. Moreover, Morgan was dismayed that the president had not even tried to work things out with him before firing off the lawsuit and accusing Morgan of being an illegal monopolist. Morgan reacted by jumping on a train to Washington with a phalanx of politicos to meet with Roosevelt and Knox to straighten things out. Or so he thought he could, as he usually always did with other rivals. However, the White House meeting went from bad to worse.
Roosevelt’s account of the meeting describes how Morgan started by questioning why the president of the United States had not warned Wall Street or, at least him, about the lawsuit in advance. Roosevelt retorted that warning Wall Street was “just what we did not want to do.” Morgan then countered, forgetting that he was in the Oval Office, “If we have done anything wrong, send your man [Knox] to my man [former Vanderbilt lawyer Francis Stetson] and they can fix it up.” The president tersely responded, “That can’t be done.” Knox further fine-tuned the point, “We don’t want to fix it up, we want to stop it.” Morgan then upped the ante by demanding to know how far the president intended to go with his avowed trustbusting, “Are you going to attack my other interests,” including “the Steel Trust and the others?” Roosevelt, acting very presidential, simply responded, “Certainly not, unless we find out … they have done something that we regard as wrong.” As Morgan and his entourage left the White House, the president confided in Knox, “That is a most illuminating illustration of the Wall Street point of view. Mr. Morgan could not help regarding me as a big rival operator, who either intended to ruin all his interests or could be induced to come to an agreement to ruin none.” The antitrust gauntlet had been thrown down and in the end Morgan lost, even after enlisting the quintessential Philadelphia lawyer John G. Johnson to argue the case before the U.S. Supreme Court, which ruled for the president.
Unless you have been in the middle of a bidding war where antitrust concerns are front and center, what is playing out between Dollar General and Family Dollar is probably unfamiliar to you, as it is rarely seen outside of the boardroom.
To get you up to speed, back in July Family Dollar agreed to be acquired by Dollar Tree for $8.5 billion. Not wanting to be left on the sidelines, Dollar General upped the bidding by responding with an unsolicited offer of $8.95 billion. In a matter of days, Family Dollar rejected that offer “on the basis of antitrust regulatory considerations” even though Dollar General committed in its offer “to divest up to 700 retail stores in order to achieve the requisite antitrust approvals” and agreed “to fund the $305 million break-up fee” that Family Dollar would owe Dollar Tree if it terminated the Family Dollar/Dollar Tree merger agreement. Apparently, the 700 stores “is approximately the same percentage of the total combined stores represented by the 500 store divestiture commitment in the Dollar Tree merger agreement.” (A break-up fee is payable by the seller to the buyer where, for example, the seller terminates, because a better deal comes along.)
Dollar General has now upped the ante in a very public and detailed way. In a press release attaching a detailed letter to Family Dollar’s Board of Directors from Dollar General’s Chairman and CEO, Rick Dreiling, Dollar General makes its case for why a Dollar General/Family Dollar combination is doable. Not only has Dollar General upped its offer to $9.1 billion, but it also committed to divest up to 1,500 stores “if ordered by the Federal Trade Commission (“FTC”)” to clear the deal and, “as further evidence of its confidence in its ability to obtain antitrust approval,” Dollar General has “agreed to pay a $500 million reverse break-up fee to Family Dollar relating to antitrust matters.” (A reverse break-up fee is payable by the buyer to the seller where, for example, regulatory approvals are not given.) Continue Reading
Philadelphia, PA – August 13, 2014—BakerHostetler announced that prominent litigator and antitrust counsel Carl W. Hittinger has joined the firm as a partner and litigation coordinator in its Philadelphia office. Hittinger arrives from the Philadelphia office of DLA Piper, where he was co-chair of the firm’s Antitrust and Trade Regulation Group. He is the first non-intellectual property addition to BakerHostetler’s Philadelphia office since the firm combined with leading Philadelphia IP boutique Woodcock Washburn at the start of the year. Hittinger will be tasked with establishing a multidisciplinary litigation practice in Philadelphia and to work with the firm’s 13 additional offices on cases of both local and national importance.
Hittinger’s practice is focused on complex litigation, with a strong concentration on antitrust and unfair competition matters. He also brings significant experience in complex commercial and intellectual property disputes, healthcare, securities cases, FCPA, products liability and trademark disputes, as well as civil rights and constitutional issues. He has successfully tried numerous jury and non-jury cases before federal and state courts throughout the country. His clients – whom he has represented as both plaintiffs and defense counsel – include major corporations, family-owned businesses, and institutions.
The American Bar Association Journal announced that it is compiling its annual list of the 100 best legal blogs and invites readers to submit a nomination:
Use the form below to tell us about a blog—not your own—that you read regularly and think other lawyers should know about. If there is more than one blog you want to support, feel free to send us additional amici through the form. We may include some of the best comments in our Blawg 100 coverage. But keep your remarks pithy—you have a 500-character limit.
After touting a proposed settlement with Partners HealthCare (Partners) that supposedly would “fundamentally alter [Partners’] negotiating power for 10 years and control health costs across [Partners’] entire network,” Massachusetts Attorney General (AG) Martha Coakley is now playing defense trying to fend off criticism of the deal that just might send the parties back to the drawing board. With the Massachusetts Health Policy Commission (HPC) the latest to cry foul over the deal—a number of Partners’ competitors already have lined up against the deal, including Atrius Health, Beth Israel Deaconess Medical Center, Cambridge Health Alliance, Lahey Health Systems, Tufts Medical Center, and other hospitals and physician groups—the AG’s spokesman recently noted that the AG’s “office always retained the option to seek to renegotiate portions of this agreement.” So, what is it about the proposed deal that is generating such backlash? First some background.
Almost one year ago, Federal Trade Commission (FTC) agreed to settle its antitrust challenge of Phoebe Putney Health System’s (Phoebe Putney) acquisition of Palmyra Medical Center (Palmyra) without requiring divesture or any other remedial relief. That settlement came after the FTC ran the table in the Supreme Court with a unanimous decision, and convinced a district court judge in Georgia to halt further consolidation. Since then, the deadline to finalize the settlement by filing the dismissal papers with the district court has been extended multiple times. Why the holdup then, you may ask? But first, some background.
Before the FTC’s favorable rulings, a district court had dismissed the FTC’s attempt to enjoin the acquisition, which the U.S. Court of Appeals for the Eleventh Circuit affirmed. Phoebe Putney then completed its acquisition of Palmyra, and the Georgia Department of Community Health (DCH) revoked the two existing separate licenses and granted Phoebe Putney a new, single license covering the combined hospitals. Issues with undoing the license granted to Phoebe Putney, or getting a new license, effectively prevent divestiture, according to the FTC. The FTC determined that DCH lacks the ability to revoke the combined hospital license granted to Phoebe Putney. The FTC also determined that DCH could not grant a new license necessary to establish a competing hospital in the area at issue because, among other reasons, an applicant could not prove “unmet need” as required by Georgia law. Due to these “legal and practical challenges,” the FTC concluded that it could not obtain divestiture and decided to forego it as a remedy.
Why the holdup then, you may ask?
After almost half a dozen years of investigating Partners HealthCare’s (“Partners”) contracting practices and its proposed acquisitions of two competing hospital systems, Massachusetts Attorney General Martha Coakley announced a “final resolution” that she says “will fundamentally alter [Partners’] negotiating power for 10 years and control health costs across [Partners’] entire network.” But before you run off thinking what’s happened in Massachusetts is some kind of a road map for you to follow to get your proposed transaction across the finish line, you better think twice. But first, some background.
Back in 2009, the AG’s office began its investigation into Partners’ “ability to extract high prices in contract negotiations with payers,” because of “its effective ability to demand ‘all or nothing’ contracting with the health insurers”—that is, “the payers are effectively required to take the entirety of the Partners network, or take none of it and have no Partners hospitals or providers within the insurer’s network of providers.” The AG’s investigation also focused on Partners’ practice of “joint contracting with certain affiliated providers who are not owned by Partners”—that is, “health care providers who are not owned or employed by Partners but on whose behalf Partners negotiates reimbursement rates with payers.” The AG expanded its investigation to include Partners’ proposed acquisitions of South Shore Health and Education Corp. in 2012 and Hallmark Health Corporation in 2013, each of which operates competing hospitals in portions of Eastern Massachusetts. The AG’s office didn’t go it alone either. It “coordinated” its “investigation with that of the Antitrust Division of the Department of Justice,” and “reviewed hundreds of thousands of documents, compiled and reviewed economic projections, interviewed witnesses, and conducted depositions of relevant market participants.”