Can ‘Hijacking’ a Single Cryptocurrency Network Violate Antitrust Laws?

On Jan. 28, a federal judge in Florida dismissed without prejudice the nation’s first antitrust suit involving cryptocurrency. The plaintiff, United American Corporation Inc., (UAC), alleged that five entities and six individuals conspired to hijack and centralize the Bitcoin Cash network by combining their efforts during a crucial software upgrade vote, causing the diminution in value of UAC’s cryptocurrency mining operation. The court’s decision to permit UAC to amend its complaint leaves open the potential applicability of antitrust laws in this already legally opaque industry.

Bitcoin Cash and Blockchain

Bitcoin Cash is a form of cryptocurrency. Cryptocurrencies are peer-to-peer versions of electronic cash. Since there is no central financial intermediary, a decentralized “blockchain” network of ledgers verifies and records the currency’s transactions. Blockchain networks depend upon cryptocurrency “miners” to verify and record new transactions. Miners compete by solving complex mathematical equations and are compensated for their efforts with newly minted currency. UAC and the defendants are participants in the community of software developers, miners and exchanges that supports Bitcoin Cash.

Background of the Case

In 2018, Bitcoin Cash was preparing for a software upgrade, which led to what is known in the industry as a “fork.” Forks allow individual miners to “vote” on the proposed changes in the rules governing aspects of the operation of the blockchain. Miners vote by implementing the relevant upgrade of their choice and then using that upgrade to “mine” the currency – voting by doing, as it were. Disagreements among miners can lead to “hard forks,” where a single currency and corresponding blockchain split into new currencies and new corresponding blockchains governed by their own respective rules.

According to UAC, there were two competing potential upgrades, known as Bitcoin ABC and Bitcoin SV. UAC was a proponent of the Bitcoin SV upgrade. Apparently, some of the defendants were proponents of the Bitcoin ABC upgrade and allegedly rallied others to their cause, similar to how a shareholder might wage a proxy war to install a new director.

In the end, the Bitcoin ABC upgrade won the vote. However, although Bitcoin ABC received more votes than Bitcoin SV, both systems survived the fork and now compete in the market for users and miners. After the vote and subsequent split, some of the defendants associated with Bitcoin ABC installed checkpoints in the software to prevent miners from reversing the software upgrade, in essence locking in the upgrade and irreversibly splitting the two systems. Continue Reading

When Routine Merger Review Opened More Than a Can of Tuna

The shelf-stable tuna industry has been decidedly unstable behind the shelves. In 2014, two of the “big three” industry leaders – Bumble Bee Foods and Chicken of the Sea – announced a proposed merger that would have swamped the then-industry leader StarKist.

The shelf-stable tuna industry has been decidedly unstable behind the shelves. In 2014, two of the “big three” industry leaders—Bumble Bee Foods and Chicken of the Sea—announced a proposed merger that would have swamped the then-industry leader StarKist. Routine HSR (Hart-ScottRodino Antitrust Improvements Act), antitrust scrutiny and the eventual rejection of the $1.5 billion merger by the Department of Justice turned out to be the least of the companies’ problems.

The tuna merger approval process, which traditionally includes turning over both deal and relevant market documents to the Department of Justice or Federal Trade Commission, uncovered a price-fixing scheme that erupted into a subsequent criminal investigation, costly civil lawsuits, crushing criminal fines, a bankruptcy filing and potential lengthy jail time for criminally charged executives. The landscape of the canned tuna industry has now been shaken in ways not predicted when the potential three-to-two merger was announced. Merging companies should pay attention to this tuna tale and go into merger reviews with their eyes wide open.

The proposed merger between Thai Union Group P.C.L., owner of Chicken of the Sea, with Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States. The parties agreed to drop their plans to merge after the Department of Justice informed them that it had serious concerns that the proposed transaction could substantially harm competition. The DOJ made clear, however, that this was not a standard merger blocked due to potentially negative competitive effects. Assistant Attorney General Bill Baer of the department’s antitrust division said at the time, “our investigation convinced us— and the parties knew or should have known from the get-go—that the market is not functioning competitively today, and further consolidation would only make things worse.” Continue Reading

Antitrust Agency Turf War Over Big Tech Investigations

The Federal Trade Commission and the Department of Justice have found themselves under the microscope as calls for antitrust investigations into “Big Tech” companies escalate.

The Federal Trade Commission and the Department of Justice have found themselves under the microscope as calls for antitrust investigations into “Big Tech” companies escalate. The agencies, which share civil antitrust enforcement authority, are reportedly engaged in a turf war over investigations of companies operating in the social media, online retail, search engine and app store space. In September, FTC Chairman Joseph Simons reportedly sent a letter to Assistant Attorney General Makan Delrahim expressing concern about the agencies’ interactions. Meanwhile, they both appear to be investigating the same Big Tech companies, contrary to a clearance agreement penned by the agencies in 2002 and, reportedly, a more recent agreement concerning Big Tech. What is causing this largely uncharacteristic dispute and what effect will it have on enforcement? Continue Reading

Does Section 2 of the Sherman Antitrust Act Need More Bite?

Last month, two members of Congress introduced the Monopolization Deterrence Act, which would allow the Justice Department and the Federal Trade Commission to seek civil penalties for monopolization offenses under U.S. antitrust law.

After almost 120 years, does the Sherman Antitrust Act need statutory tweaking? Sens. Amy Klobuchar and Richard Blumenthal seem to think so. Last month, they introduced the Monopolization Deterrence Act, which would allow the Justice Department and the Federal Trade Commission to seek civil penalties for monopolization offenses under U.S. antitrust law. The bill would create two versions of a penalty for antitrust violations under Section 2, either 15% of a company’s total U.S. revenue of the previous calendar year or 30% of the company’s total U.S. revenue related to the unlawful conduct during the time it took place – whichever amount is greater. Section 2237 names no particular offenders or recent events as its impetus. Whether such massive civil fines would end up in the hands of the injured or just thrown into the public treasury remains unclear under the language of the bill.

The Sherman Antitrust Act already carries hefty civil penalties in terms of automatic treble damages, injunctive relief and related lengthy consent decrees, reasonable attorney fees and costs and possible disbarment from government contracts. Moreover, criminal penalties are also available for conspiratorial conduct under Section 1, but also arguably for predatory monopoly conduct under Section 2, with fines not to exceed $100 million for a corporation, or $1 million for an individual, and a prison term of up to 10 years. Continue Reading

Private Antitrust Litigation and State Action Immunity in the U.S. since 2015

An article written by Partners Carl Hittinger and Danyll Foix and Counsel William DeVinney was published Sept. 20, 2019, by Global Competition Review. The article, “United States: Private Antitrust Litigation,” reviews private antitrust litigation developments in the five years since the U.S. Supreme Court’s 2015 ruling in North Carolina State Board of Dental Examiners v. Federal Trade Commission, which limited application of state action immunity.

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CLE Webinar Series: Antitrust and White-Collar Investigations – What You Should Know

We invite you to join us for one, two or all three of our upcoming high-level webinars offering vital insights into antitrust issues and white-collar investigations. These CLE webinars will be led by our knowledgeable and experienced attorneys, many of whom are former prosecutors and investigators who worked for the Department of Justice (DOJ) and the Federal Trade Commission (FTC). They will discuss the new FTC, the revamped Trump DOJ and State Attorneys General Offices, the top priorities of those government organizations and best practices for dealing with investigatory agencies at the state and federal levels.

Register now for one or all of the webinars in this series:

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Is Big Chicken Cooked? DOJ Intervenes in Price-Fixing Investigation

Pork is the other white meat, beef is what’s for dinner, and chicken is now under investigation by the Department of Justice for possible antitrust violations. Looks like the DOJ is back in the criminal cartel investigation business.

In June, the DOJ intervened in a class action antitrust lawsuit, filed in the U.S. District Court for the Northern District of Illinois, asking the court to stay discovery for six months while the Antitrust Division pursued potential criminal charges against key players in the chicken industry. Just recently the district court granted the stay, but reduced the request to three months as opposed to six. The class action as filed alleged that the some of the biggest poultry companies, such as Pilgrim’s Pride, Tyson Foods, Sanderson Farms and Perdue Farms, coordinated prices between 2008 and 2016, resulting in a 50% price hike for broiler chicken. The complaint further alleges that they took this action “despite input costs … falling roughly 20% to 23% over the same time period … .” According to the allegations, the poultry industry as it currently exists, is highly consolidated, with just two companies, Tyson and Pilgrim’s Pride, controlling about 40% of the market, and the top 10 poultry companies controlling nearly 80% of the market. Such market power, it is alleged, gives the Big Chicken industry enough power to manipulate pricing and supply.

The major allegation lodged at the defendants in the current lawsuit revolves around a company called Agri Stats, a subscription service that documents production practices across the chicken industry. According to the complaint, it is alleged that chicken companies used the platform to share detailed marketing and supply information, thereby allowing competitors to potentially discover how many chickens its rivals were hatching and then reduce their own production as a result. The lawsuit specifically alleges that “the principal … method by which defendants implemented and executed their conspiracy was by coordinating output and limiting production with the intent and expected result of increasing prices of broilers in the United States. In furtherance of their conspiracy, defendants exchanged detailed, competitively sensitive and closely guarded nonpublic information about prices, capacity, sales volume and demand, including through third party co-conspirator Agri Stats.”

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Carl Hittinger, Jeanne-Michele Mariani Article Takes a Look at Antitrust Division’s Renewed Focus on Bid Rigging

Partner Carl Hittinger and Associate Jeanne-Michele Mariani authored an article published May 8, 2019, by The Legal Intelligencer. The article, “Antitrust Division’s Renewed Focus on Bid Rigging Promises to be Perilous,” focuses on the Department of Justice Antitrust Division’s campaign to investigate and

prosecute criminal cartel behavior relating in particular to bid rigging involving government contracts overseas and in the United States. The division has revealed that there are presently 91 grand juries examining such bid-rigging activities.

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Carl Hittinger, Tyson Herrold Article Examines Antitrust Legacy of Former Chief Judge Dolores Sloviter

Partner Carl Hittinger and Associate Tyson Herrold authored an article published on April 12, 2019, by Temple University’s business law publication, The Temple 10-Q. The article, “Judge Dolores K. Sloviter’s Antitrust Legacy,” discusses the significant antitrust contributions of former Chief Judge of the Third Circuit Sloviter, from her days as an antitrust lawyer to her rulings in the Third Circuit, including her landmark en banc decision in LePage’s Inc. v. 3M.

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Carl Hittinger, Jeanne-Michele Mariani Author Article Examining NCAA’s Monopoly Status

Partner Carl Hittinger, the Antitrust and Competition team leader, and Associate Jeanne-Michele Mariani authored an article published in the March 29, 2019, issue of The Legal Intelligencer. The article, “The NCAA, Which Is Tied to Education, May Be a Necessary Monopoly,” discusses a recent successful challenge made to the NCAA’s governing policies on antitrust grounds. That ruling, now on appeal, upheld the plaintiffs’ argument that the NCAA has a monopoly on the college athletic market and has misused it.

Hittinger and Mariani discuss the potential inequities of permitting player compensation and some of the scenarios that could arise and conclude: “The verdict is still out as to whether a drastic change is necessary or even better, but if the status quo of at least the operation of [Division 1] sports is optimal, then it may be that the NCAA’s monopoly presence remains necessary.”

Read the article.

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