BakerHostetler antitrust attorneys Carl Hittinger and Jeffry Duffy authored the article, “FTC Section 5 in 2014: An Unexpected Attack, A New Frontier,” published in Law360 on December 22. The authors cover the FTC’s push to exercise its Section 5 authority in new areas; ever since Section 5 of the Federal Trade Commission Act was created more than 100 years ago, there has been controversy over how far the FTC’s jurisdiction extends. Two examples from the past year highlight this controversy and the FTC’s data security settlements despite its source of authority being under attack, as well as its victory in obtaining a first-ever settlement and consent decree with a “patent troll” using Section 5 authority. The two matters, LabMD and LabMD v. FTC and MPHJ Technology Investments are examined in detail before the authors look forward to 2015. There are still unresolved conflicts regarding the adoption of written guidelines for the Section 5 authority as opposed to a case-by-case approach, and the effect of the new Democratic commissioner’s arrival on this dispute as well as other priorities is unknown.
You may be vulnerable to FTC claims of antitrust or consumer fraud violations without realizing it. Learn how to help prevent such potentially damaging issues through a groundbreaking, BakerHostetler-sponsored symposium on Section 5 of the Federal Trade Commission Act on Thursday, Feb. 26, 2015, in Washington, D.C.
8:30 a.m. – 4:30 p.m. – Program
4:30 p.m. – 6:30 p.m. – Cocktail Reception
Invitation with additional event details to follow. Please email Cassie Blaine with questions.
Section 5 broadly prohibits “[un]fair methods of competition” and “unfair or deceptive acts or practices.” It has been aggressively used by the FTC in recent years to challenge sales and marketing conduct by companies as being antitrust or consumer fraud and deception violations. The FTC has challenged conduct that might otherwise be permissible under the Sherman Antitrust Act, an interpretation some courts have endorsed in the past. Recent public investigations against major companies have ensued seeking consent decrees as well as restitution and disgorgement of profits. Congress has also joined the debate about Section 5 calling for guidelines, which some commissioners have proposed. These important developments have thrust Section 5 back into the sphere of antitrust and unfair competition enforcement, thereby compelling companies and their counsel to take prudent steps to protect themselves from Section 5 prosecutions.
This Section 5 Symposium will bring together present and former representatives from the three branches of government to discuss and debate the origins, past and present use, and future parameters of Section 5 as a renewed enforcement vehicle. Presenters at the symposium include:
|•||Joshua Wright, FTC Commissioner|
|•||Maureen Ohlhausen, FTC Commissioner|
|•||Deborah Feinstein, Director of the FTC’s Bureau of Competition|
|•||William Kovacic, former FTC Chairman|
|•||Terry Calvani, former FTC Commissioner|
|•||Significant others who have extensive experience with Section 5|
This all-day symposium, available for CLE credit*, will also be offered via webinar and available afterwards as a webcast. The Section 5 Symposium invitation is forthcoming. If you would like to be included on the list of invitees, please email Cassie Blaine at firstname.lastname@example.org.
*CLE credit is pending in Illinois, Ohio, Pennsylvania, and New York.
Throughout their history, professional sports leagues, including the National Football League, the National Basketball Association, and the National Hockey League, have generated high-profile antitrust litigation. The nascent sport of mixed martial arts now looks as if it will join that list, as two MMA fighters have brought a putative class action in the Northern District of California against Zuffa, LLC, an MMA fight promotion company that does business as Ultimate Fighting Championship (UFC). Le v. Zuffa, Case No. 5:14-cv-05484 (N.D. Cal., filed Dec. 16, 2014).
MMA fighters, like boxers, are represented by promoters who schedule bouts for their fighters, secure a venue to host the bout, contract for television or pay-per-view broadcasting rights, secure advertisers, and market the bout. The promoters then pay the MMA fighters a percentage of the proceeds collected from the bout. According to the complaint, Zuffa has violated Section 2 of the Sherman Act by monopolizing the market for promoting MMA bouts, and monopsonizing the market for representing elite MMA fighters. Thus, the top MMA fighters are forced to contract with UFC to promote their bouts or forgo any chance of becoming successful MMA fighters.
In one form or another, the Federal Trade Commission (FTC) has been banging the drum that there is no inconsistency between antitrust enforcement and healthcare. The latest to pick-up the drumbeat is the chair of the FTC herself, Edith Ramirez.
In an article appearing in the prestigious New England Journal of Medicine (NEJM) titled “Antitrust Enforcement in Health Care—Controlling Costs, Improving Quality,” Chairwoman Ramirez responds to “critics” that “question whether promoting competition should still be a central aim of the FTC’s agenda when it comes to health care markets.” Specifically, she takes aim at those who “claim that active enforcement of antitrust laws undermines efforts to contain costs through provider collaboration and is therefore at odds with the policy aims of the Affordable Care Act.” (Given NEJM’s stated goal—to “keep practicing physicians informed on developments that are important to their patients”—one wonders how many of those critics she is likely to convince.)
In doing so, Chairwoman Ramirez questions state legislation aimed at exempting “health care providers that engage in collaborative activity, including joint ventures and mergers, from antitrust review.” In her view, “these bills would encourage providers to negotiate collectively with health plans in order to extract higher rates, in effect allowing providers to fix their prices,” which is “conduct that would ordinarily violate antitrust laws.” Such legislation, she writes, “betrays a misunderstanding of the crucial role that competition plays in the healthcare sector.” Continue Reading
The Federal Trade Commission has recently brought its considerable institutional weight to bear in two developing areas at the intersection of unfair competition and intellectual property law. Continuing its crusade against “reverse-payment” patent infringement settlements in the pharmaceuticals sector, the FTC is promoting—especially in the Third Circuit—a maximalist interpretation of the U.S. Supreme Court’s 2013 FTC v. Actavis, 570 U.S. ___ (2013), decision that may have ramifications in IP-based industries beyond pharmaceuticals. And it scored its first win against another long-term target: a patent assertion entity—pejoratively, a “patent troll”—accused of making misrepresentations to extract money from alleged infringers. Both developments portend a more aggressive use of the FTC’s powers in domains previously reserved to IP law and largely protected from antitrust scrutiny, if political factors don’t blunt its current momentum.
Third Circuit as Antitrust vs. IP Battleground
The FTC has long opposed reverse-payment (or “pay for delay”) settlements, in which a branded drug’s patent holder brings an infringement suit against a generic drug-maker on the verge of market entry, then settles the litigation by paying the purported infringer in exchange for an agreement to delay the generic drug. These anti-competitive settlements, according to the FTC, raise the prices consumers pay for drugs. In 2013, the FTC achieved a partial victory in Actavis, where the Supreme Court held that reverse-payment settlements are subject to a rule-of-reason analysis under which “large” and “unexplained” reverse payments may lead to antitrust liability despite the limited monopoly granted by the patent. That result overturned the decades-old principle, expressed by Chief Justice John Roberts Jr. in dissent, that “a patent holder acting within the scope of its patent has an obvious defense to any antitrust suit: that its patent allows it to engage in conduct that would otherwise violate the antitrust laws.”
The 2015 Antitrust Review of the Americas features a chapter, “‘United States: Private Antitrust Litigation,” authored by BakerHostetler Antitrust Chair Robert G. Abrams, Partner Gregory J. Commins Jr., and Partner and Editor of Antitrust Advocate Danyll W. Foix. They wrote:
“US law is littered with dozens of immunities and exemptions that limit or preclude the application of antitrust laws. While some immunities and exemptions exist by virtue of legislation, many have been created by federal courts. As a result, determining whether the antitrust laws apply to a particular course of conduct frequently requires consideration of potential exemptions and immunities as well as any developments in statutory or case law. The past year has seen developments in several immunities and exemptions, the most significant being the Supreme Court’s ongoing explanation of state action immunity. Other courts are also poised to provide guidance on exemptions for the agriculture and baseball industries. These unfolding developments could affect local governments, businesses, and consumers in the US.”
The chapter includes sections on immunities and exemptions, state action immunity developments, and industry-specific exemptions. 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
Daniel J. Buzzetta has joined BakerHostetler in the New York office as a partner in the Litigation Group. He comes to the firm from Greenberg Traurig and is a complex commercial litigator. Buzzetta has represented the third-largest waste disposal company in North America on antitrust matters, and he recently obtained dismissal on summary judgment of a class action antitrust complaint against his client.
Buzzetta’s practice also includes business contract disputes, business torts, securities, RICO matters, and internal corporate investigations for public and private companies. He earned his J.D. from Fordham University School of Law in 1994, and his B.A. in Political Science and International Relations from Tufts University in 1991. He is a member of The Association of the Bar of the City of New York.
The addition of Buzzetta continues the growth of BakerHostetler’s Antitrust and Competition practice, which now includes more than 40 antitrust lawyers across the firm’s 14 offices and recent recognitions by Chambers USA 2014, Global Competition Review 2013, U.S. News – Best Lawyers®, and The Legal 500.
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.  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 – 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;  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. Continue Reading
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.
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.