Non-Merger Civil Enforcement: an Overview of Recent DOJ and FTC Federal Court Litigation
Total Page:16
File Type:pdf, Size:1020Kb
Antitrust , Vol. 32, No. 1, Fall 201 7. © 2017 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Non-Merger Civil Enforcement: An Overview of Recent DOJ and FTC Federal Court Litigation BY SONIA KUESTER PFAFFENROTH ECENT YEARS HAVE SEEN THE As a result, there are now a significant number of career attor - Department of Justice and the Federal Trade neys and economists with recent federal trial court experience, Commission appearing with regularity in fed - which they will bring to future cases at the investigative phase eral district court, with the agencies demon - with an eye towards potential litigation. strating a willingness to litigate in both the Rmerger and non-merger context and with a number of high- DOJ Litigation profile trials now in the rearview mirror. Because the DOJ has no administrative adjudicative process, While the majority of civil conduct enforcement actions its civil enforcement cases, whether they are settlements or continue to be filed concurrently with settlements—which contested litigation, are filed directly in federal district court. provide significant insight into the government’s theories— In recent years, the DOJ has litigated a number of cases alleg - both agencies have seen an uptick in the number of contest - ing Section 1 violations and one case alleging a Section 2 vio - ed cases filed in federal district court since the beginning of lation. The Section 1 cases can be divided into those like 2009 than over the similar time period immediately preced - United States v. Apple , which involved an alleged restraint of ing. Put differently, both agencies had approximately twice trade that was primarily horizontal in nature, and others, like as many contested actions filed in federal district court in the ongoing litigation against the Carolinas Health Care the 2009 –201 7 time period as compared to 20 01–2008. System, which are primarily vertical in nature. The final case, Although the absolute number of contested cases is limited— challenging a sale of take-off and landing slots by Delta to typically no more than one or two cases per year—this reflects United at Newark Airport, was noteworthy as a rare case a noticeable increase in the number of contested cases filed alleging a Section 2 violation. by the DOJ and a shift for the FTC toward filing a larger pro - Section 1: Horizontal Restraints. The DOJ’s recent portion of its contested actions in federal court rather than challenges to horizontal agreements include cases involving through its administrative process. 1 allegations of price fixing, market allocation, and information This article focuses specifically on the agencies’ non-merg - sharing. Three of the cases—alleging price fixing and market er federal court litigation during the last eight years. 2 Chal - allocation—asserted that the restraints in question were per lenges have involved a wide variety of industries. The DOJ has se unlawful, illustrating the DOJ’s consistent position that actively litigated cases relating to conduct affecting competi - agreements between competitors which the government tion in high tech, health care, airline, and financial services views as having no purpose other than to restrain competi - markets while the FTC has continued its ongoing focus on tion will be treated as per se unlawful. This focus on per se the pharmaceutical space. Both agencies have brought chal - conduct seems likely to continue—with a current senior lenges involving telecommunications. These cases provide DOJ leader recently pointing to past enforcement actions— visibility into the agencies’ priorities, views, and approaches. like the e-books case discussed below—while emphasizing the importance of bright line rules in providing guidance to the 3 Sonia Kuester Pfaffenroth is a Partner in the Antitrust Group at Arnold & business community. Only the last case, alleging information Porter Kaye Scholer LLP and an Associate Editor of A NTITRUST . The author sharing, was alleged to be a violation under the rule of rea - held several positions in the Antitrust Division of the U.S. Department of son, which followed the DOJ’s stated position that infor - Justice between 2013 and 2017, including, most recently, Deputy Assis - mation sharing agreements between competitors—standing tant Attorney General for Civil and Criminal Operations. In those posi - alone—are not subject to per se treatment. tions she worked on several of the matters discussed in this article. The author thanks Dylan S. Young, an associate at Arnold & Porter Kaye Per Se. In April 2012, the Antitrust Division filed suit Scholer LLP, for his contributions to this article. against Apple and five publishers alleging that they had con - spired, in response to the threat posed by the rapid increase FALL 2017 · 21 COVER STORIES in e-book sales and Amazon’s practice of price discounting, no-poach cases, in October 201 6, the antitrust agencies to raise the price of e-books and limit retail competition by announced that, notwithstanding the fact that eBay and other changing the business model governing the relationship “no-poach” cases had been brought civilly in the past, the between the publishers and retailers. Specifically, Apple and DOJ henceforth “intends to proceed criminally against naked the publishers moved from a “wholesale model” to an wage-fixing or no-poaching agreements. ”8 “agency model.” Under the traditional wholesale model, Finally, in June 201 5, the Antitrust Division and the Mich - retailers purchased books from publishers and set price inde - igan Attorney General sued Allegiance Health and three other pendently. Under the new agency model, retailers would act Michigan health systems, challenging agreements between as agents for the publishers, who would set the retail price. defendants not to advertise in each other’s markets. 9 All of Apple vigorously defended the case, arguing that its behav - the health systems other than Allegiance settled. Alle giance ior should be analyzed through the rule of reason framework moved for partial summary judgment against the quick look because (1) its relationship to the other defendants is verti - and per se allegations, arguing that its alleged actions did not cal rather than horizontal—that is, Apple was a distributor constitute the “garden variety” “naked restraints” that are and not a content provider, and (2) the DOJ’s “hub and traditionally judged under per se and quick look frame - spoke” theory was inappropriate as Apple was not a dominant works. 10 The DOJ responded with a summary judgment market actor, which was generally the case with traditional motion of its own. After oral argument, the cross-motions “hub” defendants. for summary judgment were denied. The court found gen - After a three-week trial, the court found that there was a uine dispute over the fundamental question of whether there horizontal price-fixing conspiracy among the publishers to is an agreement and that it could not opine on the proper raise the price of e-books and that Apple was a “knowing and framework under which to analyze the case. 11 The trial is active member of that conspiracy. ”4 The court concluded scheduled to begin March 6, 2018. that, notwithstanding Apple’s vertical relationship to its co- Rule of Reason. On November 2, 2016, the Antitrust defendants, Apple participated in the conspiracy to set hor - Division filed its most recent litigated case under Section 1, izontal prices, which is treated as per se unlawful. Moreover, alleging that DIRECTV violated the Sherman Act by enter - the court found that case law does not require the hub of a ing into unlawful information-sharing agreements with three “hub and spoke” conspiracy to be a dominant player. 5 The competitors relating to L.A. Dodgers telecast rights. The court’s ruling was affirmed by the Second Circuit, and the complaint alleged that DIRECTV engaged in a series of Supreme Court denied Apple’s petition for certiorari. bilateral information-sharing agreements with its competitors Only a few months after filing its suit against Apple, the regarding its negotiations with Time Warner Cable to carry Antitrust Division sued eBay, alleging that its agreement not the “Dodg ers Channel,” which was a partnership between to recruit or hire employees from Intuit Inc. constituted a vio - Time Warner Cable and the L.A. Dodgers that held the lation of Section 1. The lawsuit followed a joint settlement exclusive right to telecast most live Dodgers games in the L.A. with several other companies accused of similar conduct. area. 12 eBay argued that under the Copperweld doctrine, which Unlike the per se cases discussed above, there was no requires two “independent centers of decision making” to allegation by the government that DIRECTV had entered form an antitrust conspiracy, eBay and Intuit could not form into an agreement with any of its competitors not to carry an actionable conspiracy because the DOJ’s allegations rest - the Dodgers Channel—only that DIRECTV had agreed ed entirely on the actions of a single shared director between with its competitors to share information regarding negoti - the two companies. However, the court determined that it ations. In March, after briefing on the defendants’ motion was plausible based on the complaint that the shared direc - to dismiss was complete, but before the court ruled, the tor was acting on behalf of Intuit when negotiating with Department of Justice announced that a settlement had eBay. eBay also argued that an agreement not to solicit been reached in the case. The defendants, without admitting employees did not constitute a “classic” horizontal agree - to any of the conduct in the complaint, agreed to certain ment.