Antitrust Advocate

Antitrust Advocate

News, Developments and Practical Advice from Antitrust Leaders

Clear Expectations: DOJ Outlines Tenets of an Effective Antitrust Compliance Program

Posted in Antitrust Compliance

There has never been a greater emphasis on policing anticompetitive behavior worldwide. Dozens of countries have instituted effective and aggressive cartel enforcement programs following a trend of increased global enforcement, and criminal antitrust fines in the United States alone exceeded $1 billion in both 2013 and 2012. [1] Prison sentences up to 10 years have also been sought. Average jail terms of two years have been imposed since 2010. In this aggressive enforcement environment, an effective compliance program is of paramount importance, especially given the risks of fines, jail time and civil damages that accompany cartel participation.

Any company attempting to structure a compliance program, monitor an existing compliance program’s efficacy or navigate the corporate leniency process faces numerous questions. While the related answers change as the United States Department of Justice (“DOJ”) Antitrust Division’s policies and perspectives evolve – take, for example, an evolving approach to individual executive prosecution[2] – two speeches given recently by Division officials remove some of the related uncertainties.

In a speech on September 9, 2014, Deputy Assistant Attorney General Brent Snyder reviewed the Antitrust Division’s perspective on an effective compliance program; [3] in another speech on September 10, 2014, Assistant Attorney General Bill Baer reiterated many of these points and offered additional thoughts on investigative cooperation and the leniency process.[4] Continue Reading

Gone, Gone, the Damage Done*—Provisions in Transactional Agreements Can Raise Antitrust Risk

Posted in Merger

Soon after someone settles “gun jumping” charges, client alerts and blog posts with informative titles like “DOJ Settlement Resolves ‘Gun Jumping’ Charges” start flying around. These “alerts” and “posts” usually recite facts alleged in a DOJ complaint and then say certain conduct is fine (pre-closing integration planning under the watchful eye of an antitrust lawyer, of course), while other conduct (jointly setting prices before closing) is not. But few (if any) actually say what should be considered when negotiating the actual provisions of the transactional agreement to minimize risk of a “gun jumping” investigation.

First, what is gun jumping? Put simply, for transactions that require a merger filing, a seller cannot simply give the keys to the business to the buyer before the designated waiting period expires and the deal finally closes. The idea is to maintain the seller as an independent business in case the transaction is blocked by the antitrust enforcement agency reviewing the transaction, so that competition does not suffer. Jumping the gun, so to speak, can delay closing and lead to an investigation and fines. (As an aside, for transactions that do not require a merger filing, turning over the keys to the business before closing poses most of the same risks.)

What is clear is that the seller needs to be free to operate its business independently and in the ordinary course, while the buyer needs assurances that the seller’s conduct between signing the purchase agreement and closing does not diminish the value of what is being bought. This is why transaction agreements frequently contain provisions specifying that the seller must operate “its business in the ordinary course consistent with past practice prior to” closing the deal. Such agreements also frequently list things the seller cannot do—to preserve the value of the deal for the buyer—by saying, to quote an actual example, that the seller cannot “directly or indirectly acquire…assets, rights or properties except…purchases of inventory, raw materials or supplies, and other assets up to $2,000,000 in the aggregate, in the ordinary course of business consistent with past practice.” These types of provisions usually go on to direct the seller to seek the buyer’s consent (not to be withheld or delayed, of course) before doing what is prohibited.

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A History of American Monopolists: Being a Good Corporate Citizen

Posted in Articles

As the story goes, the tragic Johnstown Flood of May 1889 almost sunk the ascendency of future monopolists Andrew Carnegie and Henry Clay Frick. Both were members of the infamous South Fork Fishing and Hunting Club that factored heavily in the history of the tragic flood that claimed the lives of over 2,200 unsuspecting residents of Johnstown and Woodvale, Pa. Those towns bore the brunt of the onslaught of raging waters when a dam broke upstream. The dam was constructed to create a lake for use by the private club where many of the industrial tycoons of the day from Pittsburgh could rough it and relax. Unfortunately, the earthen dam was badly rebuilt and maintained by the club, including allowing the lake waters to rise to within a few feet of the brim of the dam as well as blocking the safety spillway with fencing intended to keep the big bass in the lake for members to catch.

In the aftermath of the flood, government investigations were commenced and lawsuits were brought, including against the club itself, but not its members. Not a single penny was ever recovered in the lawsuits. The investigation found fault and cast blame but no person was really ever held accountable. The public and press outcry was terrific. While the club was in their crosshairs, the members of the club were able to keep a safe distance. Carnegie generally talked about the flood but not his membership in the club, which was not disclosed until months later. Fellow club member Frick never made any public statement about the flood then or ever. Frick and Carnegie had their hands full at the time trying to quash union organizing at their Pittsburgh coke and steel plants, including the infamous Homestead labor riot in 1892 where workers were killed by hired Pinkerton guards in a shootout.

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What is the CFIUS: Information to Know When Doing Transactions with Foreign Parties

Posted in Government Investigations, Merger, Merger Review, Premerger Notification

U.S. Senator Debbie Stabenow’s recent and much publicized unveiling of legislation to expand the CFIUS review process of transactions likely caused businesspeople everywhere to ask: “What’s the CFIUS?”

In short, the Committee on Foreign Investment in the United States (“CFIUS”), comprised of high-level Washington bureaucrats, reviews certain domestic transactions involving foreign parties and determines or recommends whether the U.S. President should disallow transactions. Over the last five years, the CFIUS has reviewed more than 500 transactions and investigated almost 170 – and the proportion of investigations has sharply increased in recent years. Senator Stabenow’s legislation (and similar legislation recently introduced in the U.S. House) would expand the scope of review by the CFIUS.

Given the increasing relevance of the CFIUS, even before the recent legislation, over the next weeks we will be posting a series of articles that summarize: (1) the organization of the CFIUS and its review process; (2) recent CFIUS investigations, trends, and court decisions; and (3) the potential effect of the recent legislation on transactions going forward.

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Mushroom Court Ruling Sprouts Controversy on Whether Reliance on Lawyer Advice Maintains Affirmative Defense to Antitrust Claims

Posted in Agriculture, Antitrust Exemptions & Immunities, Antitrust Litigation

A federal district court recently ruled that claims of “good faith reliance on counsel” were not sufficient to maintain a Capper-Volstead affirmative defense to the antitrust laws – a result that may soon collide with rulings by other courts considering the same issue.

Several years ago, a Pennsylvania mushroom cooperative, its members, and various other entities, were sued for allegedly violating Sherman Act § 1 by launching a “supply control” campaign that used member funds to acquire and then dismantle other mushroom operations in order to maintain artificially high mushroom prices.  See In re Mushroom Direct Purchaser Antitrust Litigation, MDL 0620 (E.D. Pa.).

In response to the suit, mushroom cooperative defendants claimed Capper-Volstead exemption based, among other reasons, on their good faith reliance on counsel’s advice that the cooperative was organized and operating in a manner compatible with the Capper-Volstead Act.  The Act provides certain agricultural cooperatives with a limited exemption from the Sherman Act.  The trend, reviewed here, is for courts to treat the Capper-Volstead exemption as an affirmative defense – meaning the party asserting the defense must prove that they are eligible for Capper-Volstead’s protection.  The defense of “good faith reliance on counsel” can shield defendants from liability to the extent they were acting willfully and in good faith reliance on advice of counsel.  See Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F. 3d 851 (3d Cir. 1994). Continue Reading

A History of American Monopolists: Remembering One’s Non-Monopoly Roots

Posted in Articles

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.

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BakerHostetler Antitrust Lawyer Examines Recent Developments in Antitrust Class Action Litigation

Posted in Articles, BakerHostetler, Class Action Litigation

GCR 2014The 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

Provider Competition Matters—Even for “Reference Pricing”

Posted in Healthcare

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.”

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A History of American Monopolists: Lessons Not Easily Learned

Posted in Articles, BakerHostetler

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.

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Dollar General—“Setting the Record Straight” on Antitrust for Family Dollar

Posted in FTC Act, Government Investigations, Merger, Merger Review

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