2016 ANTITRUST YEAR IN REVIEW

AUSTIN BEIJING BOSTON BRUSSELS HONG KONG LOS ANGELES NEW YORK PALO ALTO SAN DIEGO SAN FRANCISCO SEATTLE SHANGHAI WASHINGTON, DC WILMINGTON, DE WSGR 2016 Antitrust Year in Review

Table of Contents

Introduction...... 1 Mergers...... 2 U.S. Trends...... 2 Hart-Scott-Rodino (HSR) Act Compliance...... 2 Lessons from the Merger Year in Review...... 3 Merger Enforcement Under the Trump Administration...... 4 International Insights...... 5 European Union (EU)...... 5 China...... 7 Agency Investigations...... 7 Agency Litigation and Investigations...... 8 Expanded Agency Focus on Marketing and Bidding Restrictions...... 8 1-800 Contacts...... 8 DirecTV...... 8 Hospital Advertising Collusion...... 9 ASCAP/BMI Consent Decree Review...... 9 AmEx...... 9 Statement on Competition in the Defense Industry...... 10 Statement on the Sharing Economy...... 10 Intellectual Property...... 11 Federal Trade Commission (FTC) Study on Patent Assertion Entities...... 11 Proposed Update to the Joint Guidelines for the Licensing of Intellectual Property...... 11 EU ...... 12 General Court in Lundbeck...... 12 Cross-Border Access to Pay-TV (Paramount Commitments)...... 12 Google Investigations...... 12 Search...... 12 AdSense...... 13 Android...... 13 Advocate General Wahl in Intel...... 13 WSGR 2016 Antitrust Year in Review

Table of Contents (cont.)

Morningstar...... 13 Essential Facilities and Remedies...... 14 International...... 14 China...... 14 Hong Kong...... 14 Korea...... 15 Brazil...... 15 Conclusion...... 15 Criminal...... 15 Notable Trends in the DOJ’s Criminal Antitrust Enforcement Program...... 16 Notable Cases in DOJ Criminal Antitrust Enforcement...... 16 Corporate Prosecutions...... 16 Individual Prosecutions...... 17 The DOJ’s Focus on Compliance...... 19 DOJ Policy Initiatives in 2016...... 20 Guidance for HR Professionals: Criminal Enforcement in Labor Markets...... 20 International Criminal Enforcement Efforts...... 20 Cartel Enforcement by Competition Agencies Outside the U.S...... 21 Outlook for 2017...... 23 Civil Litigation...... 23 Antitrust Law Background...... 23 Unilateral Conduct...... 24 U.S...... 24 International...... 26 Coordinated Conduct...... 26 U.S...... 27 International...... 28 Outlook for 2017...... 29 Conclusion...... 29 About WSGR’s Antitrust Practice...... 30 WSGR 2016 Antitrust Year in Review

Introduction

Wilson Sonsini Goodrich & Rosati is interest in patent assertion entities and the increased costs of pursuing litigation pleased to present its 2016 Antitrust Year proposed updates to antitrust guidelines and the related discovery processes in Review. In this report, we summarize for IP licensing. In addition, we look have spawned “me-too” actions in which the most significant antitrust matters beyond the U.S., primarily to Europe, parties hope to leverage investigatory work and developments of the past year. We where we saw the EC’s pursuit of abuse already done by government agencies. begin with a look at the mergers and of dominance cases and its prosecution We examine the high-profile class action acquisitions arena, where we discuss of allegedly anticompetitive behavior in the cases that made headlines throughout the trends that characterized the FTC’s and pharmaceuticals and television licensing year, as well as analyze the types of cases DOJ’s aggressive approach to U.S. sectors. Further, we examine notable that were focal points in different court antitrust enforcement in 2016. We also recent activities of antitrust authorities in jurisdictions, including the Second Circuit’s contrast enforcement during the final other key jurisdictions, including China, landmark ruling that clarified jurisprudence year of the Obama administration with Hong Kong, Korea, and Brazil. regarding the territorial scope of the the prospective shifts expected with the Sherman Act. onset of the Trump administration. We In the last two sections of our report, we then examine international mergers and cover criminal and civil litigation matters In each section, we also preview important discuss noteworthy shifts in the European that resulted in developments affecting pending outcomes and expectations for Commission’s practice. both U.S. and global entities. The criminal 2017. section looks closely at trends in the

Our report also summarizes how 2016 was DOJ’s criminal enforcement program in an active year for agency investigations 2016, significant prosecutions during We hope you find our2016 Antitrust and discusses a series of cases that the year, the DOJ’s continued focus on Year in Review to be a useful resource illustrate the expanded agency focus compliance, DOJ-driven policy initiatives for insightful perspectives on the most on marketing and bidding restrictions. and priorities, and key cartel enforcement meaningful developments from the We summarize significant statements matters outside of the U.S. Finally, in past year. As always, should you have on defense contracting and the sharing the civil antitrust section of our report, any questions or comments on any of economy, as well as the DOJ’s appeal we note the majority of actions in which the matters, trends, or controversies of an order striking its interpretation private plaintiffs sought damages based on discussed in the report, please contact of consent decrees. In the intellectual wrongdoing previously alleged in separate your regular WSGR attorney or a member property area, we address U.S. agency government investigations. As we explain, of the firm’s antitrust practice.

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Mergers

acquisition activity. However, total HSR of both companies; (2) sought information U.S. Trends filings may not represent the agencies’ regarding the Baker Hughes-Haliburton workload or enforcement trends, because merger; (3) influenced decisions about In 2016, the Federal Trade Commission the proportion of Second Requests that the transaction; and (4) positioned itself (FTC) and the U.S. Department of Justice result from the total number of HSRs filed to assist in potential restructuring in order (DOJ) (the “agencies”) continued to is typically only around 5 percent of the to gain regulatory approval. Documents take an aggressive approach to U.S. total. created by ValueAct also allegedly antitrust enforcement. This is reflected evidenced an intent to play an active role in four notable trends: (1) prosecution Continued Enforcement for Failure to in merger integration and in the combined against companies for failure to notify Report post-merger entity. In July 2016, ValueAct the agencies of reportable transactions agreed to an $11 million settlement—the and the investigation of non-reportable The DOJ and the FTC continued to bring highest fine paid for an HSR violation to transactions; (2) continued willingness enforcement actions for failure to file HSR date.6 to go to court to block transactions; (3) notifications in reportable transactions. intense scrutiny of parties’ efficiency In particular, enforcement focused on Also in 2016, the FTC reached a claims and proposed remedy packages; improper reliance on the “investment-only” settlement of $720,000 with investor and (4) focus on vertical transactions exemption, which exempts from HSR Fayez Sarofim for failure to notify certain that historically have been viewed as notification requirements transactions in acquisitions of voting securities.7 This procompetitive. It is unclear whether these which: (1) the acquirer holds less than appears to be the first fine ever imposed trends will continue under the Trump 10 percent of the voting securities of a on an investor for an inadvertent violation administration. corporation; (2) that acquisition is made of the HSR Act where the investor has self- “solely for the purpose of investment”;3 reported the violation and has committed Hart-Scott-Rodino (HSR) Act and (3) the investor has “no intention no prior violation of the act. It also appears Compliance of participating in the formulation, to be a deviation from the agencies’ determination, or direction of the basic longstanding “one strike” policy, under The HSR Act mandates that transactions 4 business decisions of the issuer.” which investors who self-report are not that meet specific thresholds be notified typically fined for their first HSR violation. to the antitrust agencies for review. If after In April 2016, the DOJ filed a complaint a 30-day waiting period the pertinent against ValueAct Capital, arising out of Continued Investigation of Non- agency still has doubts about the antitrust the acquisition of shares of both Baker Reportable Transactions impact of the transaction, the agency Hughes and Haliburton in late 2014 and will issue a “Second Request,” opening early 2015.5 ValueAct, which describes While the HSR Act forms the “backbone of an in-depth review. In August 2016, the itself as an “activist” investment firm, the government’s merger review process,”8 FTC and the DOJ released the fiscal year purchased shares in both Baker Hughes the agencies continue to challenge non- 2015 HSR Report (covering October 1, and Haliburton at the time the two reportable transactions. Transactions 2014, through September 30, 2015). In companies were planning to merge in that do not meet the thresholds for fiscal year 2015, 1,801 transactions were a $35 million transaction (which was HSR notification can still be challenged reported under the HSR Act, representing later abandoned after challenge by the under the antitrust laws. For example, an 8.3 percent increase from the 1,663 DOJ). ValueAct’s acquisitions met HSR in 2016, the FTC challenged Valeant transactions reported in fiscal year 2014.1 thresholds, but ValueAct relied on the Pharmaceuticals International Inc.’s 2015 Second Requests were issued in 47 of “investment-only” exemption to avoid non-reportable acquisition of Paragon these transactions.2 Fiscal year 2016 filing HSR filings for the share acquisitions. Holdings I, Inc.9 The FTC alleged that the volumes, which are approaching pre-2008 The DOJ filed a complaint in April 2016 acquisition would harm competition in the financial crisis levels, are expected to show alleging that ValueAct did not qualify for production of gas-permeable “buttons” further increase. The number of HSR filings the investment-only exemption because used to make contact lenses. Pursuant to is a guide to measuring overall merger and it: (1) gained access to senior executives a settlement, Valeant will divest Paragon

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as a standalone entity, and Paragon will Defenses Unlikely to Save in late 2015, the DOJ successfully sued acquire the assets of Pelican Products Problematic Deals to block AB Electrolux’s bid to acquire LLC—a contact lens packaging company General Electric’s appliance business that Valeant acquired after its purchase Two defense arguments that parties often after rejecting the parties’ arguments of Paragon, the sole producer of FDA- make in response to agency concerns that expansion from non-U.S. firms (e.g., approved vials used for shipping certain about a deal are: (1) the efficiencies Samsung, LG) was likely to address the gas-permeable lenses.10 The agency’s generated by the merger will offset competitive concerns related to the deal.15 challenge of Valeant’s acquisition serves any competitive harms; and (2) any In contrast, the DOJ under the Bush as an important reminder of antitrust risks competitive harm resulting from the deal administration unconditionally cleared regardless of whether a transaction is will be short lived because competition the acquisition of Maytag by Whirlpool in HSR-reportable. from new firms entering the market and 2006 based, at least in part, on similar expansion from existing firms will replace entry/expansion arguments.16 Staples/ Lessons from the Merger Year any lost competition. In 2016, parties to Office Depot also highlighted a failed entry/ in Review problematic deals found little success in expansion argument. Despite the fact making either of these arguments. that the FTC had recently acknowledged The final year of the Obama administration the increasingly competitive landscape was arguably among the most aggressive The agencies’ skepticism towards claimed for the sale of retail office supplies,17 the to date—in keeping with the general trend efficiencies arguments took center stage in FTC rejected the parties’ arguments that towards more litigation and skepticism that their litigation challenge to Staples/Office online providers such as Amazon Business otherwise problematic mergers could be Depot. Office supplies retailer Staples and regional providers such as W.B resolved through remedies. agreed to buy competitor Office Depot Mason could replace any lost competition for $6.3 billion in February 2015. The resulting from the merger for the sale of Litigation Remains a Focus FTC challenged the transaction in court, office supplies for business-to-business claiming a reduction of competition in the accounts. In 2016, the antitrust agencies successfully market for “consumable” office supplies challenged 32 mergers. Of those, 21 sold to large business customers. At trial, Agencies Require Clean and Effective were settled prior to litigation, four were the FTC stated, “No court has ever relied Remedies abandoned prior to or during litigation, and on efficiencies to rescue an otherwise seven were fully litigated in court (in each, unlawful transaction.”12 In defending their In 2016, the FTC and the DOJ also the agency won or the deals were later transaction, Staples and Office Depot continued to closely scrutinize the abandoned). claimed that the merger would generate effectiveness of proposed remedy $1 billion in annual synergies from packages. For example, Halliburton In spite of the proportionally greater reductions in expenses and optimization abandoned its bid to acquire rival oilfield number of settlements, the agencies of retail stores.13 The FTC dismissed these services provider Baker Hughes after the continued to assert that they are prepared arguments, noting that: (1) many of the DOJ sued to block the deal. Halliburton to go court rather than agree to ineffective cost savings could be achieved without and Baker Hughes offered to divest remedies. As the head of the DOJ’s the merger; (2) the projected efficiencies assets across different business lines, Antitrust Division, Renata Hesse, stated were based on speculation and business including assets from Halliburton’s drilling earlier this year: “Antitrust enforcers at judgment, not rigorous data analysis; and and drill bits businesses and assets from the Antitrust Division and the FTC have (3) the projected efficiencies were unlikely Baker Hughes’ fluids, completions, and become justifiably more skeptical about to be passed on to consumers.14 cementing businesses. But the proposal the promise of procompetitive benefits did not allay the DOJ’s concerns and of mergers and of the likelihood that Parties have historically had greater the DOJ criticized that even with the remedies solve the competitive concerns. success with entry and expansion proposed remedy: (1) the company would As a result, we are more and more arguments than with efficiencies retain the most valuable assets; (2) many litigating to challenge mergers we see as arguments, but the antitrust agencies of the divested assets would require a fundamentally problematic and difficult, if in recent years have tended to discount buyer to reach support agreements with not impossible, to fix.”11 these arguments as well. For example, Halliburton to successfully operate them,

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leaving the buyer dependent on its rival; fide competitor of the merging parties, and The DOJ’s investigations into several high- (3) the company’s offer of non-exclusive will “step into the shoes” of the eliminated profile media and communications deals licenses for certain intellectual property competitor.24 Behavioral remedies, such highlight the agencies’ commitment in and numerous contractual restrictions as company commitments to act or refrain recent years to heavily scrutinizing vertical would interfere with effective transfer from acting in some fashion, must be easy mergers, albeit allowing them to proceed or assignment of divestiture technology to monitor and enforce.25 subject to conditions. For example, the licenses or customer contracts; and (4) DOJ cleared Comcast’s acquisition of the DOJ would need to remain deeply Identifying acceptable remedies may be NBCUniversal, subject to conditions, but involved for years to come, monitoring particularly challenging for companies in blocked Comcast’s proposed acquisition and enforcing one of “the most complex consolidating industries where the number of Time Warner Cable, where the DOJ and riskiest remedies ever contemplated of buyers for divestiture assets may be alleged the merger would affect distribution in an antitrust case”18 Similarly, in Staples/ limited or in transactions that do not of content.28 In 2016, the DOJ approved Office Depot, the FTC rejected the parties’ allow for straightforward divestitures. The Charter Communications’ acquisitions proposed divestiture of $1.25 billion in agencies’ scrutiny of remedies means that of Time Warner Cable and Bright House corporate contracts and technology companies need to consider early on not Networks, subject to remedies to address assets to wholesaler Essendant for $22.5 only whether remedies may be necessary, vertical concerns.29 million.19 The FTC successfully argued that but also whether the possible remedies will the remedy was inadequate because: (1) be deemed sufficient by the agencies. Merger Enforcement Under the the contracts at issue were short-term (i.e., Trump Administration customers could return to Staples-Office Vertical Deals Remained a Priority Depot in a short time frame); (2) Essendant Merger enforcement has been a priority did not serve the business-to-business Vertical mergers (i.e., mergers between throughout the Obama presidency, but market (i.e., Essendant was not an ideally companies operating at different levels we do not expect that trend will continue positioned purchaser of the assets); (3) of the supply chain) remained a focus under a Trump administration. While the Essendant would be unable to effectively in 2016. Vertical mergers generally agencies will likely continue to conduct compete with the combined Staples-Office receive less attention from the antitrust thorough investigations into mergers, Depot “on day one”; and (4) Essendant agencies because: (1) they typically we do not anticipate that there will be as would continue to rely on Staples-Office involve companies that are not direct much of an appetite for merger challenges. Depot for customer transition services competitors;26 and (2) vertical theories of As Acting Assistant Attorney General post-divestiture.20 harm require evidence that the merger Renata Hesse noted in a recent speech, will give the combined firm the ability during the Obama administration, “a In years past, merging parties often and incentive to foreclose competition total of 40 mergers have been blocked successfully avoided litigation by agreeing (e.g., an input foreclosure theory where by court order or wholly abandoned by to remedy competitive concerns through a manufacturer buys a key supplier and the merging companies in the face of [a divestitures and/or conduct remedies withholds supply from rival manufacturers). DOJ] investigation, a stark increase from (e.g., agreements to license IP or content Although the vast majority of vertical 16 in the [Bush] administration.”30 If there on competitive terms). However, recent mergers do not present serious is a decline in merger enforcement under high-profile failed remedy packages21 have competitive issues, in recent years the the Trump administration, many in the caused the agencies to take a much more antitrust agencies have shown that they business community may wonder how it cautious approach to granting conditional remain committed to investigating and will affect their business. Below are some approval for problematic deals. The challenging problematic vertical deals. tips for companies thinking about doing agencies are scrutinizing any potential As Deputy Assistant Attorney General strategic deals during a Trump presidency. remedies to ensure that divestitures are Jon Sallet recently noted, there is a “limited, discrete, and clean”22 and that misperception that “the division does not Do Not Assume a Free Pass: While the divestiture buyers are not dependent on devote many resources to the review of odds of securing clearance for your deal the merged company in any relevant way.23 vertical transactions, [but] this conclusion may increase, do not expect a rubber The agencies want to ensure that any is belied by the recent work of the stamp from antitrust enforcers. First, divestiture buyer will function as a bona division.”27 investigations are largely driven by staff

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attorneys and economists, and therefore, enforcement at a national level, with the insufficient. Hutchison has filed an appeal Second Requests will remain the norm for French competition agency imposing against the EC’s prohibition decision. problematic deals. Second, though the the highest fine to date worldwide for FTC and the DOJ may be less likely to the implementation of a deal before Earlier in 2016, the EC thoroughly reviewed bring cases under a Trump administration, clearance (“gun-jumping”). In addition, a another telecoms deal and cleared it we do not expect litigation to grind to a number of legislative reforms are being subject to comprehensive remedies. halt. The Bush administration challenged a examined at both European and national The EC approved Liberty Global’s number of mergers that were not obviously (Germany) levels that would plug a acquisition of BASE in February 2016.32 anticompetitive, including Oracle/ possible “enforcement gap” by introducing The merger combined one of the three PeopleSoft (the DOJ lost at trial), Whole new jurisdictional thresholds to capture MNOs in Belgium (BASE) with the Foods/Wild Oats (the FTC lost at trial and transactions where an undertaking may country’s largest mobile virtual network won on appeal), and CCC/Mitchell (the not have significant turnover but controls a operator (MVNO) and largest cable FTC won at trial on a coordinated effects key technology or is particularly innovative company (Telenet, owned by John C. theory, but the court was skeptical of the (such as the Facebook/WhatsApp deal). Malone’s Liberty Global). The EC was FTC’s unilateral effects theory). This has been thrust to the forefront concerned that the transaction would of policymakers’ agendas by growing have reduced competition in the mobile Think About Remedies First for concerns over so-called “big data.” telecommunications market. The $1.4 Problematic Deals: We expect that the billion acquisition was ultimately cleared agencies will be more open to remedies Telecoms Under Scrutiny with a “fix-it-first” remedy (i.e., that required to solve for competitive problems. Thus, a binding sale agreement prior to the giving early thought to potential divestiture The EC’s strict stance on mobile clearance decision). As part of the remedy, packages for deals that raise obvious telecoms deals subject to its review was Liberty Global committed to the divestiture horizontal issues could mean the difference clear when on May 11, 2016—in a rare of an existing virtual operator and between clearance and litigation. move—it blocked the proposed £10.5 customers to a new entrant, on top of a Additionally, remedy packages that may billion acquisition of Telefonica UK by network access agreement. This novelty in have been viewed as insufficient under the Hutchison.31 The proposed transaction the EC’s telecoms merger practice makes Obama administration could be viewed would have combined Three UK’s it clear that network access commitments differently under a Trump administration. (Hutchison) and O2 UK’s (Telefonica) alone may now often be insufficient. Even a relatively weak remedy package mobile businesses in the UK, creating a can enable the agencies to claim new market leader with over 40 percent Negotiation of Complex Remedy victory (and avoid appearing too soft on of the national mobile market, and leaving Packages merger enforcement) without departing only two other mobile network operators significantly from free-market principles (MNOs)—EE and Vodafone. The EC cited The EC’s ability to extract complex and “strong concerns” that the deal would comprehensive remedies to enable a deal have reduced competition in the mobile to be cleared was also evidenced in its International Insights market, as the combined company would reviews of Ball/Rexam and Teva/Allergan have had less incentive to compete with Generics. The EC cleared the proposed European Union (EU) Vodafone and EE. It is the first time that acquisition of Rexam by Ball (valued at the EC has prohibited a telecoms merger over $60 billion) in January 2016,33 subject The year 2016 saw three noteworthy in a major European market. Under to conditions. Rexam and Ball were the shifts in the European Commission’s (EC’s) the previous EU Commissioner for two main global market players (first and practice: a stronger stance on mergers Competition, the EC cleared three second in the European Economic Area in the telecoms sector; the continued comparable deals, but in September 2015, (EEA), respectively) in the manufacturing use of complex and extensive remedy negative EC comments resulted in the of beverage cans. Following an in-depth packages (such as in Teva/Allergan abandoning of a proposed telecoms joint investigation, the EC had concerns that the Generics); and increasing attention being venture in Denmark. In order to address deal, as notified, would have left only two given to dynamic competition and to the EC´s competition concerns in the other competitors in Europe (Can-Pack the incentives of market participants to UK case, Hutchison offered a number and Crown) in an already concentrated innovate post-merger. It also saw strong of commitments, which were deemed market. The EC’s approval of the deal was

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subject to a significant remedy package, While there has been an increase in Commissioner for Competition has warned entailing the divestiture by Ball of 12 of upfront buyer and fix-it-first commitments, that the deals could leave the sector “quite its plants in the EEA (almost the whole the EC has stressed that these remain concentrated.” overlap in Europe). The parties were not the exception in remedy cases. For permitted to close the deal until the EC companies contemplating a complex deal In its Dow/DuPont review, the EC has approved the buyer of the assets (“up- or the acquisition of a competitor with a raised concerns that the combination may front buyer” remedy). The review was particularly strong R&D pipeline, however, reduce competition for crop protection, seeds, and some petrochemicals. Similar conducted in close cooperation with these recent cases illustrate the need to the EC’s focus on innovation in its both the U.S. and Brazilian competition to factor in potential remedy demands review of Teva/Allergan Generics, the EC authorities, in particular for the scope of across jurisdictions when devising their has focused on concerns that the merger the remedy package. transaction timelines, and the importance of engaging in early negotiations with would reduce the parties’ incentive to compete through innovation. The parties The EC required another comprehensive authorities to address any concerns submitted commitments to alleviate the remedies package in Teva/Allergan effectively. EC’s concerns in July 2016, but these Generics, which was cleared subject to were deemed insufficient, and the EC conditions in March 2016. 34 The sheer The EC’s Flexibility in Merger Reviews opened an in-depth investigation into scale of Teva’s $40.5 billion acquisition of The EC’s determination to take a more the deal in August. The EC has already the generic pharmaceutical business of holistic approach in its deal reviews is extended its in-depth investigation, Allergan—resulting in the world’s leading apparent in its treatment of the ongoing and suspended the review twice to maker of generic medicines—posed a consolidation in the agrichemical sector. request more information from the number of interesting challenges. The EC The $60 billion proposed “merger of companies. The parties received a assessed competitive dynamics beyond equals” between Dow/DuPont35 was “Statement of Objections” from the EC product-by-product overlaps at an EU notified to the EC in June 2016, and is in December 2016 that detailed the member state level, and for the first time the first of a trio of mega-deals in the competition concerns to be addressed. A in a generics merger, deemed certain decision is unlikely to be adopted before agrichemicals industry that falls within vertical aspects problematic. Teva offered the end of March 2017. the jurisdiction of the EC. ChemChina/ remedies to address the EC’s concerns, Syngenta is also currently the subject committing to divest a number of assets, The third of the deals in the agrichemical of an in-depth investigation by the EC,36 including the majority of Allergan Generics’ sector, Bayer’s proposed $66 billion and Bayer/Monsanto is expected to business in the UK and Ireland, Teva’s acquisition of Monsanto, has yet to be be notified to the EC in early 2017. It is notified to the EC, but the parties have generic business in Iceland, and certain common practice for the EC to review opened pre-notification talks with the EC.37 overlapping molecules in 24 European transactions on a case-by-case basis countries (including pipeline products). The and in the order in which they have been Strict Application of National Gun- remedy highlighted the EC’s current focus officially notified (the “priority rule”). In Jumping Rules on innovation, and is a prime example 2011, WSGR represented Seagate in of the EC’s ability to clear even complex its acquisition of Samsung’s hard-drive On November 8, 2016, the Altice Group deals at an early review stage (Phase business. By completing its notification and its telecommunications subsidiary, One) if they are properly thought through before the parties to a previously SFR, were fined €80 million ($88 million) by the parties. Implementation of the announced transaction (Western Digital by the French competition authority (FCA) remedy will require significant monitoring buying Hitachi’s hard-drive business) for gun-jumping.38 Altice’s acquisition of due to the scale of the remedy package completed their notification, the EC SFR—France’s second MNO—had been and the complex regulatory framework reviewed Seagate’s deal as though the cleared by the FCA in October 2014, and of the markets. Approval in the U.S. was other deal was not pending (resulting in Altice’s acquisition of Virgin Mobile—one of also subject to conditions, with the FTC divestitures for the other deal, but not for France’s MVNOs—was cleared by the FCA requiring the divestiture of 79 generic Seagate/Samsung). In this case, however, in November 2014. Following clearance, drugs to rival firms (the largest FTC drug there have been suggestions that the EC and acting on tips from the companies’ divestiture order). may not adhere to the priority rule. The EU competitors, the FCA conducted several

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dawn raids on the companies’ premises. jurisdictions and could thus be subject to As of the beginning of the fourth quarter The FCA found that prior to its clearance parallel enforcement actions. of 2016, Anheuser-Busch InBev NV’s decision in Altice/SFR, Altice had interfered $108 billion acquisition of SABMiller PLC in SFR’s management and commercial China was the only merger on which MOFCOM policy, and the companies had exchanged imposed conditions for clearance. In a China’s Ministry of Commerce (MOFCOM) strategic and sensitive information. In July 2016 decision, MOFCOM required continues to strive to improve the addition, the FCA found that Altice and SABMiller to divest its 49 percent interest efficiency of its merger notification and SFR had coordinated their behavior in the in China Resources Snow Breweries to the review process. Since introducing in purchase of Virgin Mobile and engaged in other owner, China Resources Beer.41 implementation prior to clearance in this 2014 a simplified notification and review procedure that draws on the EU model, separate transaction. More specifically, Since 2012, MOFCOM has seen at least MOFCOM has observed that “simple” Virgin Mobile’s CEO had participated in nine merger deals refiled for review. Of cases account for roughly 75 percent the SFR group’s decision-making, and had these nine, two were unconditionally engaged in monthly reporting to Altice of of all reviewed deals, and the majority cleared, five were conditionally approved, Virgin Mobile’s commercial performance. of simple cases are closed at the initial and two lapsed. The two mergers that Among other factors, the FCA took into review stage. The new director general of were unconditionally cleared after refiling account the size of the transactions in MOFCOM’s Antimonopoly Bureau recently were both approved in 2016. In the first determining the fine and the deliberate indicated that MOFCOM would outsource deal, MOFCOM approved computer nature of the gun-jumping, having the economic analysis of complex and manufacturer Dell’s acquisition of data occurred in two separate transactions. significant cases to third-party consulting storage provider EMC Corporation, firms, illustrating that Chinese antitrust To date, the fine is the highest imposed authorities’ current ability to review “non- shortly after the two companies refiled in by any competition agency worldwide simple” mergers is not yet fully fledged and August 2016. In the second deal, Beijing for gun-jumping and comes in the likely to have limitations.39 Zhong Ke San Huan High-Tech and context of the increasing global trend for Hitachi Metals had originally filed their joint competition agencies to impose sanctions During the first three quarters of 2016, venture agreement in August 2015 under for the early implementation of deals. MOFCOM received approximately 286 MOFCOM’s simplified review procedures. While transitional and implementation merger notifications and cleared almost After third parties raised objections during planning is key to a successful merger, 260 of them during the same time a 10-day-long public comment period, the French case highlights the need for period—about a 20 percent increase in MOFCOM asked the companies to refile companies to balance such strategies for comparison to the same period in 2015. through the normal review procedure. The a proposed merger against any antitrust MOFCOM closed 210 deals at the initial deal was ultimately cleared in May 2016.42 limitations, particularly in the context of stage without entering the in-depth stage deals that trigger antitrust filings in multiple (Phase Two) of the review process.40

Agency Investigations

2016 was a highly active year in agency anticipated review of the consent decrees updates to their jointly issued Antitrust investigations in both the United States governing music licensing. Guidelines for the Licensing of and abroad. In the U.S., the FTC and the Intellectual Property. DOJ demonstrated a new willingness to In intellectual property, the ongoing trend pursue companies for allegedly collusive of U.S. agency interest in so-called patent In Europe, the European Commission non-price agreements, especially assertion entities (PAEs) continued, pursued several closely followed abuse agreements not to advertise. The agencies with the agencies seeking to continually of dominance cases, including against also issued significant new statements clarify the line between permissible and Morningstar, Austrian firm ARA, and on defense contracting and the sharing anticompetitive conduct. The agencies Google. The commission also prosecuted economy, and the DOJ completed its long- also considered substantive proposed allegedly anticompetitive behavior in

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the pharmaceuticals (Lundbeck) and matters exemplify this trend: the 1-800 Judge in early 2017, continues a trend television licensing (Paramount) sectors, Contacts investigation; the investigation of FTC and congressional attention to and received a substantial setback in its into information sharing by DirecTV anticompetitive behavior in the contact ongoing rebate litigation against Intel. regarding Los Angeles Dodgers broadcast lens industry. rights; and a pair of DOJ enforcement Outside of the U.S. and Europe, 2016 was actions against hospital advertising DirecTV marked by increased sophistication among restrictions. antitrust authorities in key jurisdictions, In November 2016, the DOJ sued with China and Hong Kong both issuing 1-800 Contacts DirecTV (and its corporate successor, significant new antitrust guidelines. Korean AT&T) for illegally sharing information and Brazilian authorities also demonstrated Perhaps the most surprising and with competitors during negotiations to their growing confidence in pursuing potentially significant non-price carry Dodgers baseball games in the aggressive investigations against leading investigation of the year came in August Los Angeles area. The complaint alleges multinational firms, including Apple, 2016, when the FTC filed suit against that DirecTV colluded with competitors Google, and Volkswagen. 1-800 Contacts, alleging that the company Cox Communications and Charter had acted as a ringleader in a series of Communications to avoid competing for agreements by contact lens vendors access to Dodgers broadcast rights, for Agency Litigation and not to advertise on each other’s search which rightsholder Time Warner initially Investigations keywords.43 While agreements not to demanded an extra $4.90 per subscriber advertise have long been targeted by FTC per month.46 In particular, DirecTV is The U.S. agencies were busy in 2016 with and DOJ investigations, the case is one alleged to have kept its competitors both investigations and policy matters. In of the first to touch specifically on search updated on the status of negotiations investigations, the agencies focused on advertising (e.g., on Google, Bing, and with Time Warner, and to have made some new areas, particularly marketing other sites) as a venue for anticompetitive assurances to them that it was not restrictions. In policy, the DOJ completed collusion. planning to bid on the rights at the price its multi-year review of the ASCAP/BMI that Time Warner was demanding.47 consent decrees, and issued new joint According to the FTC’s administrative statements with the FTC on the defense complaint,44 1-800 Contacts entered Ultimately, DirecTV and its alleged co- industry and the sharing economy. into bidding agreements with at least 14 conspirators declined to obtain rights competing online contact lens retailers to the Dodgers games, which had been Expanded Agency Focus to eliminate competition in auctions to previously purchased by Time Warner on Marketing and Bidding place advertisements on online search Cable in a 25-year, $8.35 billion deal. As Restrictions engines such as Google and Bing. The a result, live Dodgers games in the Los complaint alleges that 1-800 Contacts Angeles area were made available only to In the U.S., the past year has been notable threatened competitors with litigation Time Warner subscribers, locking other for the increased willingness of the FTC unless they entered into agreements not consumers out.48 The DOJ’s statement and the DOJ to pursue investigations to bid on each other’s keywords, and that on the suit emphasized the particular against new types of non-price collusion— these bidding agreements unreasonably importance of aggressive enforcement in marketing restrictions in particular. restrained price competition in Internet markets like cable television broadcast While some of the industries targeted— search auctions and restricted truthful and rights, where customers may only have “a contact lenses, hospitals, and television non-misleading advertising to consumers, handful of choices in the marketplace.”49 broadcasting—have seen significant action in violation of federal law. 1-800 Contacts However, some commentators have noted in the mergers and price-fixing contexts of has argued that its behavior is justified to the dearth of similar antitrust complaints late, the DOJ’s and the FTC’s expansion protect its trademarks, which would risk focusing solely on information sharing, into non-price advertising restrictions being diluted if rival firms were able to use and have questioned whether the DOJ will indicates an increased appetite for pushing them to target ads to 1-800 Contacts be able to demonstrate consumer harm, traditional enforcement boundaries in customers.45 The case, which is scheduled given the absence of direct economic defense of consumers. Three recent to go before an FTC Administrative Law damage to subscribers.50 The case will

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also test whether information sharing can consent decrees with a decision not to licensee could perform the song. Fractional support antitrust liability when the core accept the decree modifications and licensing is a deviation from the general piece of shared information—in this case, interpretations proposed by ASCAP and rule that a license from any one co- that DIRECTV did not intend to bid on the BMI, the two largest U.S. performance author would give the licensee the right Dodgers games—was also shared publicly. rights organizations (PROs) administering to perform the work without the need to the licensing of performance rights in obtain separate licenses from the other Hospital Advertising Collusion musical compositions.55 The consent co-authors.While fractional licensing has decrees, which have been in place been used in other licensing contexts, it In the final marketing-related challenge for decades, provide a framework (a was not clear that fractional licensing had of 2016, in April, the DOJ entered into a compulsory license with rate-court been the norm (or would be permitted by consent decree with two West Virginia oversight of pricing) for music users, such the consent decrees) in the case of the hospitals that prohibits the hospitals as digital streaming services, broadcasters, collective licensing of the right to perform from entering into any agreement to limit and venue owners, to obtain “blanket songs under the blanket license that the their marketing or to divide marketing licenses” to perform compositions written Supreme Court approved of in the famous territories, either between themselves or 58 by songwriters who are members of BMI v. CBS case. with any other healthcare provider. The ASCAP or BMI.56 The review began in DOJ’s complaint alleged that the hospitals, In its closing statement, the DOJ— 2014 after songwriters and publishers who Charleston Area Medical Center and St. supported by comments from are members of the PROs argued that the Mary’s, had entered into a “gentleman’s broadcasters, digital music services, and decrees’ licensing scheme had become agreement” not to advertise in each other licensees—stated its view that the obsolete, particularly in light of the rapid other’s geographic territories, in violation consent decrees require ASCAP and rise of Internet music streaming.57 of Section 1 of the Sherman Act. 51 The BMI to offer a 100 percent or “full work” case follows close on the heels of a license for each work in their repertories, ASCAP and BMI had asked the DOJ to similar 2015 DOJ challenge to an alleged regardless of whether all co-authors of a allow their members (which include music territorial marketing agreement among work are members of the licensing PRO.59 publishers and songwriters) to withdraw four hospitals in Michigan.52 In both In addition, the DOJ declined to accept selectively from the two PROs with respect cases, the defendants allegedly engaged the PROs’ partial withdrawal modification to some music users—namely, digital in “soft” market allocation via territorial proposal, leaving open the possibility streaming services like Pandora. If this agreements not to advertise. Three of the that it may agree to the modification at a change—termed “partial withdrawal”—had Michigan defendants settled with the DOJ later date. been accepted, digital streaming services in late 2015; the fourth, Allegiance Health, would have had to obtain licenses directly continues to litigate.53 After the DOJ announced its conclusion from the music publishers that would regarding fractional licensing, BMI sought have opted for partial withdrawal, almost While the hospital sector has been the a declaratory judgment from the court subject of significant DOJ and FTC certainly at higher prices that would not overseeing the BMI decree that the decree antitrust litigation in recent years, the have been subject to rate court oversight. does not prohibit fractional licensing. In willingness of the DOJ to bring these a short opinion, the court concluded that In addition, ASCAP and BMI asked the two cases on non-price collusion alone “the Consent Decree neither bars fractional DOJ to construe the decrees to permit reaffirms that, as Deputy Attorney General licensing nor requires full-work licensing.”60 Baer noted, the DOJ views marketing as “fractional” licensing of multi-authored The DOJ has appealed the decision to the “an important tool that hospitals use to compositions. In many cases, co-authors Second Circuit.61 compete for patients” and a key benefit for of compositions are affiliated with different consumers seeking to make an informed publishers and PROs. Under fractional AmEx healthcare choice.54 licensing, co-authors agree that each author would license only their fractional In September 2016, the Second Circuit ASCAP/BMI Consent Decree share of a co-authored song, meaning that overturned a major DOJ litigation victory, Review a licensee would have to obtain separate ruling that the DOJ could not prove that licenses from each and every co-author the anti-steering provisions of American In August 2016, the DOJ concluded its (or each publisher or PRO representing Express’s (Amex’s) card-acceptance two-year review of the ASCAP and BMI each co-author’s interest) before the agreements with merchants violated the

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62 antitrust laws. The DOJ alleged that Statement on Competition in agencies’ statement, the DOD withdrew Amex had restrained competition by the Defense Industry its legislative proposal, averting a potential preventing merchants from encouraging interagency dispute.74 customers to use alternative forms of In April 2016, the FTC and the DOJ issued payment that carried lower transaction a statement on competition in the defense Statement on the Sharing fees, for example, by indicating a industry71 in an apparent response to the Economy preference for other forms of payment, U.S. Department of Defense’s (DOD’s) unevenly imposing restrictions on the call for legislation that would have allowed In November 2016, the FTC released a use of Amex cards, or criticizing Amex’s it to approve or disapprove of mergers staff report summarizing a June 2015 services or programs.63 After a bench on national security grounds. The DOD’s public workshop and public comments trial, the district court concluded that push for independent review authority is solicited by the FTC to explore the these practices violated Section 1 of generally believed to have been spurred by potential benefits and challenges posed by the Sherman Act.64 The Second Circuit the DOJ’s decision not to seek additional “sharing economy” platforms such as Uber 75 reversed. information on the Lockheed Martin/ or Airbnb. Although largely focused on Sikorsky Aircraft merger last year.72 In consumer protection concerns, the report The Second Circuit’s reversal underscores October 2015 remarks, a DOD official also considers issues arising in the sharing the need for careful consideration acknowledged that the deal did not raise economy that may inform analysis under of interaction between the various traditional antitrust concerns or run afoul the competition laws. The report makes participants in a multisided platform.65 of the DOD’s 2011 statement discouraging clear that the new business model poses The district court focused on a relevant mergers among prime contractors, but complex and challenging public policy market limited to Amex’s provision of argued that the prospect of larger and questions, but does not make specific network services to merchants.66 The fewer prime defense contractors could findings or proposals. Instead, the report Second Circuit faulted the district court have perverse effects on innovation and echoes FTC Chairwoman Edith Ramirez’s for failing to account for “feedback increase costs to the American taxpayer.73 more general remarks that regulation effects” requiring consideration of the must be appropriately targeted to strike platform as a whole, such as reduced The FTC and DOJ statement did not a balance between allowing competition cardholder demand caused by merchants explicitly address the DOD’s proposal, and innovation to flourish while protecting refusing to accept a given payment but affirmed that the agencies already consumers.76 card or increased cardholder demand afford substantial weight to the views of resulting from increased benefits funded the DOD as a significant purchaser—and The report observed that “traditional” by higher merchant fees.67 The Second in many cases the sole purchaser— suppliers may come to supplant individual Circuit found that the district court’s of defense contracting services. The suppliers in sharing economy platforms. narrow focus also critically undermined its agencies account for the kinds of For instance, small businesses are analysis of market power. For instance, industry-specific concerns raised by the increasingly crowding out individual sellers the district court viewed evidence of a DOD, such as “high barriers to entry, the on eBay.77 In addition, the report noted large segment of cardholders who “insist” importance of investment in research and that network effects might lead established on using Amex cards as buttressing development (R&D), and the need for platforms to achieve a dominant position, Amex’s market power over merchants.68 surge capacity, a skilled workforce, and though this risk may be tempered by Focusing on the platform as a whole, the robust subcontractor base.” The statement market forces such as supplier and Second Circuit found that this evidence concluded that the existing antitrust review consumer multi-homing or by beneficial instead showed that benefits funded by system already ensures that mergers “will network externalities. For instance, drivers higher merchant fees effectively made not adversely affect short- and long- in a ride-sharing platform may benefit the card less costly for consumers.69 term innovation crucial to our national from switching to a less crowded platform Ultimately, the government failed to meet security and that a sufficient number of with fewer suppliers.78 Finally, the report its burden because it did not adduce competitors, including both prime and observed that platform providers could reliable evidence that both merchants and subcontractors, remain to ensure that foreclose competition from suppliers cardholders were harmed by current, planned, and future procurement by vertically integrating, but noted that these practices.70 competition is robust.” Following the integration could also help manage

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negative externalities. For instance, a with nuisance litigation intended to force the need for the kinds of reforms proposed vertically integrated Uber might be better settlements based on the cost of litigation by the FTC. able to manage congestion.79 rather than the merits.85 Proposed Update to the Joint The study includes several Guidelines for the Licensing of recommendations described by FTC Intellectual Property Intellectual Property Chairwoman Edith Ramirez as “designed to balance the needs of patent holders In August 2016, the FTC and the DOJ Both agencies and courts have continued with the goal of reducing nuisance jointly issued proposed updates to the to struggle with the antitrust treatment of litigation.”86 Specifically, the FTC 1995 Antitrust Guidelines for the Licensing intellectual property over the past year. recommended:87 of Intellectual Property89 to reflect changes This section discusses two key pieces in the agencies’ approaches to antitrust of agency guidance released in 2016: • developing discovery rules and case enforcement of IP-related issues. To that an FTC study on the activities of patent management practices to reduce end, the update incorporates case law assertion entities and a proposed update the cost and burden asymmetries developments from the past two decades, to the Antitrust Guidelines for the Licensing that PAEs enjoy because they do including the U.S. Supreme Court’s of Intellectual Property jointly issued by not themselves develop patented holding that resale price maintenance is the FTC and the DOJ. Both are helpful technologies or develop products no longer a per se antitrust violation,90 additions to the growing body of guidance that incorporate them; and clarification that intellectual property and experience on this topic, but leave rights do not necessarily confer market some key issues unresolved. • amending the Federal Rules of Civil power.91 The proposed new guidelines Procedure to expand the range of also incorporate statutory updates, such FTC Study on Patent Assertion reportable entities that may have a as changes to the length of copyright Entities financial interest in PAE litigation; and patent terms and the Defend Trade Secrets Act of 2016.92 In October 2016, the FTC released a long- • creating procedures to encourage awaited study on patent assertion entities courts to stay litigation against The agencies generally avoid using the (PAEs) intended to improve the quality customers or end-users where a guidelines to announce new principles of policy dialogue by complementing PAE has also sued a manufacturer or expand the guidelines into new areas. public data with confidential business on the same theory of infringement; 93 Consistent with that practice, the information obtained under Section 6(b) and proposed updates do not provide any 80 of the FTC Act. The study differentiates specific guidance on licensing standards- the behavior of “Litigation PAEs” that rely • continuing to develop plausibility essential patents (SEPs) or on setting on suing potential licensees as a business pleading standards in patent fair, reasonable, and non-discriminatory 81 model. The study found that Litigation litigation that provide defendants (FRAND) licensing terms.94 Although the PAEs accounted for 96 percent of patent with adequate notice of the agencies have addressed these topics infringement lawsuits (but just 20 percent nature and scope of the alleged several times in recent years,95 comments of license revenue)82 and that 93 percent of infringement. on the proposed guidelines indicate that Litigation PAE licenses were preceded by they remain hotly debated. For instance, litigation.83 In addition, Litigation PAEs are The FTC’s PAE study is a valuable addition Nokia argued that there was no need for also more likely to assert claims against to the discussion surrounding PAE SEP-specific guidance,96 while a combined downstream resellers or users of allegedly licensing and litigation behavior and patent statement by 12 technology companies patented technologies.84 Finally, the litigation reform, but many open questions and organizations noted that the agencies licenses ultimately obtained by Litigation remain. As the study itself acknowledges, had elsewhere recognized the “special PAEs are typically simple, narrow, and legal developments that occurred during circumstances attendant to SEP licensing” provide royalties below the lower bound the study period may affect the patent and the “potential ‘hold up’ or other of early-stage litigation costs, consistent litigation landscape,88 potentially limiting abuses that can arise in connection with

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SEP licensing.”97 A separate comment entry by generics in return for payments. that, inter alia, require each pay-TV from The App Association contended that Lundbeck, a pharmaceutical originator, broadcaster to block or limit access to the formal guidance was needed to address and generics producers had entered into studios’ content to consumers outside the “major threat to the competitiveness agreements to settle patent disputes of its licensed territory. In July 2015, the of any industry that relies on standards.”98 relating to Lundbeck’s basic patent for EC sent a Statement of Objections to The guidelines’ silence on these issues citalopram, which had expired. At the Sky UK and six U.S. film studios outlining may indicate that the agencies believe time of the settlement, Lundbeck still its concerns. In July 2016, following more experience is needed before clear held a number of process patents. In commitments offered by Paramount to no guidance can be developed. the settlement agreements, the generic longer include such contractual obligations companies committed not to market in its licensing terms with broadcasters, generic citalopram for the duration of the agency closed its investigation against the agreement in return for financial the studio.102 The commitments have a EU compensation. The EC concluded that duration of five years. Regarding the other this behavior amounted to a restriction of studios and broadcasters, the investigation In 2016, the European Commission (EC) competition by object (where no analysis continues. This case reflects the tough saw several important developments of the actual effects on competition is stand the EC has recently adopted on in its enforcement proceedings. The required) and imposed a fine of €93.8 commercial practices that may hinder agency showed its ability to successfully million on Lundbeck and fines totaling cross-border trade between EU enforce in diverse industries, and signaled €52.2 million on the generic companies. member states. its determination to tackle abuses of a The General Court upheld the EC’s dominant position. In this context, it will decision in its entirety. It is the first time Google Investigations be interesting to see how the Court of an EU court has ruled on the compatibility Justice of the European Union (CJEU) will of patent settlement agreements with EU Search rule on the pending appeal of the EC’s antitrust rules. All parties involved have decision imposing a record fine on Intel appealed the General Court judgments to In November 2010, the EC opened a for its (allegedly) abusive rebate practice. the CJEU. formal investigation into allegations that In procedural terms, the European courts Google had abused its dominant position once again confirmed the EC’s broad Cross-Border Access to Pay-TV in online search.103 Subsequently, Google margin of discretion when it comes (Paramount Commitments) and the EC engaged in commitment to accepting commitments offered by discussions. Having rejected several companies to end investigations. At the In January 2014, the EC opened commitment proposals submitted by same time, the EC demonstrated its antitrust proceedings into licensing Google, in April 2015, the EC sent a general willingness to be flexible in the agreements between several U.S. film Statement of Objections to Google.104 use of its remedy and fines tool box, for studios (including Warner Bros, Sony The EC took the preliminary view that example, by granting a fine reduction Pictures, Twentieth Century Fox, and Google abused its dominant position in outside of a cartel proceeding for the first Paramount) and certain European pay-TV the markets for general Internet search time in over a decade. broadcasters.101 Licensing agreements services by allegedly “favoring” its own are typically concluded by the studios comparison shopping service on its General Court in Lundbeck on a bilateral basis with a single pay-TV general search results pages. As a result, broadcaster per EU country or linguistic according to the EC, Google’s comparison On September 8, 2016, the General Court region. The EC is investigating whether shopping service has grown, to the of the European Union (General Court) these agreements grant “absolute territorial detriment of rival comparison shopping dismissed appeals brought by Lundbeck protection” by preventing broadcasters services. In August 2015, Google and several generics companies99 against from providing their services across submitted its reply. The EC continued its a decision of the EC100 in relation to patent borders, thereby creating barriers to investigation and, on July 14, 2016, issued settlement agreements. The General Court cross-border provision of pay-TV services a supplementary Statement of Objections upheld the EC’s view that the companies within the EU and eliminating competition further elaborating on its allegations.105 had entered into patent settlements to between broadcasters. The licensing In November 2016, Google filed its reply prevent competition by delaying market agreements entail “geo-blocking” clauses contending that its improvements to its

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search results benefit users and have not by: (1) requiring manufacturers wishing competition, and thus an analysis of the harmed competition, as evidenced by the to pre-install Google’s app store for actual anticompetitive effects of Intel’s growth of sites such as Amazon. Google’s Android (Google Play Store) to also install conduct was not required. As part of the response is now being assessed by Google Search and set it as the default process before the CJEU, the Advocate the EC. search engine, and to install Google’s General issues a non-binding opinion Chrome Browser (the “tying claims”); (2) that is often embraced by the court in its AdSense requiring manufacturers wishing to pre- judgment. According to Advocate General install Google’s proprietary apps to enter Wahl, the General Court was wrong in In July 2016, the EC initiated proceedings into an anti-fragmentation agreement its analysis because all rebate schemes to investigate agreements between (i.e., refrain from selling devices running (including the exclusive rebates at issue) Google and partners of its online search on incompatible versions of Android must be evaluated on their facts for anti- advertising intermediation program developed using the open-source competitive effects. Therefore, Advocate AdSense.106 The EC sent a Statement Antroid code); and (3) giving financial General Wahl proposes that the CJEU of Objections to Google alleging that incentives to manufacturers and mobile set aside the judgment and refer the case the company artificially restricts third- network operators conditional upon them back to the General Court to carry out a party websites from displaying search exclusively pre-installing Google search on full assessment of the actual or potential advertisements from Google´s competitors. their devices. effect on competition of Intel’s conduct. According to the EC, Google protects That would mean that the fine of €1 billion its dominant position in online search According to the EC, Google’s practices imposed by the EC,111 and then confirmed advertising by requiring these third parties: may strengthen the company’s market by the General Court, also needs to be (1) not to source search ads from Google´s position in Internet search, restrict re-considered. The CJEU’s judgment is competitors; (2) to take a minimum competition for mobile browsers, and expected in 2017. number of search ads from Google and hinder the development of operating reserve the most prominent space on their systems based on the Android open- Morningstar search results pages for Google search source code. In November 2016, Google ads; and (3) to obtain Google’s approval submitted its reply to the EC emphasizing In September 2016, the General Court112 before making any change to the display of that it disputes the EC’s allegation that ruled for the first time on third-party competing search ads. In November 2016, Apple does not compete in the relevant allegations against a commitment Google filed its reply emphasizing that the market and that its agreements promote decision. Emphasizing the limited review EC failed to consider different types of the manufacture of compatible devices the court is willing to exercise in this advertising that compete with AdSense and promote user choice. Google’s area, the judgment upheld the EC’s 2012 and the lack of evidence of competitive response is now being assessed by commitment decision with Thomson harm. The EC is now assessing the EC. Reuters.113 The EC had conducted an Google’s response. investigation into the potential abuse Advocate General Wahl in Intel of Reuters’ dominant position in the Android market for the provision of real-time Intel appealed a judgment of the General data feeds through the imposition of In April 2015, the EC initiated formal Court109 upholding a €1 billion fine restrictions on licenses regarding the antitrust proceedings against Google imposed on Intel for abusing its dominant use of Reuters Instrument Codes (RICs), with regard to several business practices position by virtue of operating exclusivity thereby foreclosing other providers of related to Android.107 On April 20, 2016, rebate practices to the CJEU.110 The data-feed services.114 The investigation the EC sent a Statement of Objections to fine was the highest single penalty was closed after Thomson Reuters had Google.108 The EC considered that Google imposed on an undertaking for breaching offered commitments. Morningstar, a is dominant in the markets for general EU competition law, and came after a competitor, had argued before the General Internet search services, licensable smart decade-long investigation. The General Court that the commitments were not mobile operating systems, and app stores Court declared that exclusivity rebates sufficient to address the EC’s concerns, for the Android mobile operating system. (unlike other types of rebate schemes) as competing providers remained unable The EC further took the preliminary view granted by a dominant undertaking are to offer a service comparable to Reuters’ that Google abused its dominant position by their very nature capable of restricting service. In its judgment, the General Court

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upheld the decision by confirming that In the unilateral conduct arena, SAIC Reuters’ commitments were sufficient to International ended its four-year investigation of address the concerns raised by the EC Swedish packaging company Tetra Pak, and emphasizing the EC’s broad margin of China imposing a $97 million fine on the basis discretion in commitment decisions. The that Tetra Pak had abused its market judgment thus raises the bar for unsatisfied 2016 has been an active year for Chinese dominance by bundling, tying sales, and third parties to successfully bring a antitrust authorities’ efforts to reform providing loyalty discounts.120 The decision antitrust legislation. China’s National challenge against a commitment decision clarifies SAIC’s approach to bundling and Development and Reform Commission and makes it clear that such challenges loyalty discounts. SAIC found, for example, (NDRC) took the lead on drafting six have a very limited chance of success. that: (1) Tetra Pak’s bundling of packaging antitrust guidelines under the instruction materials as part of providing packaging- of the Anti-Monopoly Committee (AMC). Essential Facilities and equipment and technology services Specifically, the six draft guidelines relate Remedies had no justifiable reasons and damaged to intellectual property, the auto industry, competition in the packaging-materials In September 2016, the EC fined Altstoff leniency, commitment and exemptions, market; and (2) loyalty rebates offered by 116 Recycling Austria (ARA) €6 million for and illegal gains and fine calculation. All Tetra Pak were anticompetitive because abusing its dominant position on the six draft guidelines have been released for they caused customers to become Austrian market for management of public consultation. The NDRC is expected dependent on Tetra Pak’s products.121 to submit, around the end of 2016, all household packaging waste.115 ARA six sets of draft antitrust guidelines to the had developed a nationwide collection Hong Kong Antimonopoly Commission of the State infrastructure, the use of which was Council for final review. Hong Kong’s Competition Ordinance, indispensable for market entry and Hong Kong’s first general and cross- denied potential competitors access to Chinese authorities have continued to sector competition law, went into effect on this infrastructure, thereby foreclosing closely scrutinize the health care and December 14, 2015.122 The Competition the market for waste management. The pharmaceutical sectors following drug- Ordinance is closely modeled on Article EC’s decision entails several procedural price reforms in 2015 that removed 101 and Article 102 of the Treaty on novelties. First, the EC accepted ARA’s maximum retail prices and allowed most the Functioning of the European Union offer to divest the part of the household drug prices to be determined by the (TFEU),123 which also served as the collection infrastructure that it owned market instead. In February 2016, for model for the competition laws of other in order to open up the Austrian waste example, the NDRC fined five Chinese jurisdictions like the United Kingdom and infrastructure to competitors. This is companies for price-fixing and market Singapore. interesting, as the EC considers that sharing of allopurinol.117 In July 2016, eight (voluntary) commitments are generally only Chinese government ministries—including As of June 2016, the Hong Kong appropriate in the context of decisions the NDRC and the State Administration Competition Commission (HKCC) has where no fine is issued. Second, ARA’s for Industry and Commerce (SAIC)— received 1,250 enforcement contacts, fine was reduced by 30 percent due to announced a joint inspection campaign of which 272 related to alleged cartels, its close cooperation, marking the first into the health care sector, focusing on 238 related to alleged resale price time in over a decade that a reduction for conduct by government agencies that maintenance, 267 related to alleged cooperation has been granted outside of led to excessive drug pricing.118 Finally, abusive conduct, and 224 related to cartel proceedings. It will be interesting in December 2016, the NDRC imposed the general state of competition. Out for companies to see whether this more fines totaling approximately $17.2 million of the 1,250 enforcement contacts, the flexible approach to remedies and fines against Medtronic, a multinational medical HKCC has moved 111 cases to the initial that rewards the cooperation of companies device company, for engaging in resale assessment phase. Approximately 10 of under investigation will become a regular price maintenance in the sale of medical these cases are currently under in-depth pattern in the EC’s antitrust practice devices.119 investigation.124

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Korea unlike the European Commission’s recent The case is currently pending before the investigation of Google, the Korean market CADE’s Administrative Tribunal, which will Over the past year, the Korea Fair Trade had not been affected by Google’s alleged issue a final opinion on the matter. Commission (KFTC) has initiated new conduct because Korean customers investigations of international companies prefer local search engines like Naver and such as Apple and Google for allegedly Daum instead of Google.126 The KFTC had Conclusion anticompetitive conduct. The KFTC’s previously investigated Google from 2011 investigation of Apple’s Korean branch to 2013 following similar allegations by Agencies worldwide continued to break was triggered after receiving complaints Naver and Daum, but the KFTC ultimately new ground in 2016 on both the scope that Apple was forcing unfair terms in its cleared Google of any anticompetitive and the intensity of their investigations, contracts with Korean telecom companies, wrongdoing.127 moving both into new areas of conduct such as asking the telecom companies to (advertising) and engaging in extended cover part of the advertising costs for new Brazil inquiries into the behavior of some of iPhones and imposing warranty expenses. the world’s largest companies. While the The KFTC conducted several dawn raids The Administrative Council for Economic of Apple’s Korean premises in mid-2016.125 Defense (CADE), Brazil’s antitrust degree of emphasis on these enforcement enforcement agency, released an Official areas going forward will depend on In July 2016, the KFTC launched an Recommendation asking for investigations national-level political developments, investigation into Google on suspicions to begin on automakers Volkswagen, counsel should be on notice that both that Google forced Android smartphone Fiat, and Ford for refusing to license longstanding competition agencies makers to pre-load Google’s search engine intellectual property rights to independent and their newer peers are looking for onto their devices. At least one source manufacturers to enable them to compete opportunities to break new ground in from the Korean press has observed that, in the replacement auto parts market.128 defense of local consumers.

Criminal

The DOJ’s criminal antitrust enforcement hesitated to pursue extradition of foreign prosecute collusive conduct and also offer program remained very active in 2016. nationals. immunity to the first to report. The DOJ’s final statistics for the year were not published as of the date of this The DOJ’s continued vigor in criminal This section: (1) identifies a few notable writing; however, we estimate that the antitrust enforcement reinforces the trends in the DOJ’s criminal enforcement DOJ’s criminal program netted significant importance of monitoring operations program in 2016; (2) summarizes sanctions again during the government proactively and ensuring that employees the DOJ’s more significant criminal fiscal year 2016. Perhaps most notable have not crossed a line—or even appeared prosecutions in the last year; (3) offers is the DOJ’s emphasis on prosecuting to do so. This is particularly important insight into the DOJ’s continued focus individuals—the agency charged or given that early detection can mean the on compliance; (4) describes recent received sentences against well over difference between complete immunity policy initiatives and priorities in the 50 individuals during 2016. And in the from prosecution under the DOJ’s leniency DOJ’s criminal enforcement program; past five years, the DOJ has prosecuted program and hefty criminal sanctions and (5) highlights some significant almost three times as many individuals as (jail and fines) if prosecuted. This need developments in cartel enforcement corporations for antitrust crimes, has been is not limited to the U.S., as several outside the U.S. seeking longer jail sentences, and has not foreign competition agencies aggressively

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and worldwide), so long as there is an Since first bringing charges in this industry Notable Trends in the effect in the U.S. in 2011, the DOJ has secured more DOJ’s Criminal Antitrust than $2.9 billion in criminal fines from 47 Enforcement Program Finally, the DOJ continues to push new different companies (and 65 executives). initiatives and policies in its criminal Over the past year, the DOJ’s long-running enforcement program, despite an already The DOJ’s definition of “criminal” antitrust investigation into various segments of aggressive track record of enforcement. conduct continues to expand. While the automotive parts industry continued For example, the DOJ announced in the Sherman Act—the core antitrust unabated. In total, the DOJ netted over 2016 that going forward it will prosecute statute in the U.S.—allows for criminal $270 million in corporate fines from auto criminally certain “wage-fixing” and “no prosecution of an antitrust violation, the parts manufacturers in 2016. For example: poaching” agreements that traditionally DOJ has traditionally reserved criminal had been pursued civilly. As another prosecution for “hard-core” violations, • In March 2016, Omron Automotive example, the DOJ announced that it will such as “naked” price-fixing, bid-rigging, Electronics Co., Ltd. agreed to pay issue revised guidelines for prosecuting and market-allocation conspiracies $4.55 million for rigging bids for conduct outside the United States. As among competitors. The DOJ traditionally power window switches that were described below, the DOJ takes an has sought only civil penalties for used in Hondas sold to U.S. buyers. aggressive position on how broad it will anticompetitive conduct falling outside of interpret the extra-territorial reach of these categories. But in recent years, the • In May 2016, Corning International the Sherman Act in order to prosecute DOJ’s definition of “hard-core” conduct (or Kabushiki Kaisha pled guilty to the antitrust “conspiracy”) has expanded conduct criminally. fixing prices, rigging bids, and and become somewhat blurred; this trend allocating the market for the sale of was particularly apparent in 2016. As a ceramic substrates that are used in result, it is often difficult for companies Notable Cases in automobile catalytic converters. and individuals involved in competitor collaborations to know exactly when DOJ Criminal Antitrust • In June 2016, two Japanese conduct might cross the line and trigger Enforcement companies, Tokai Kogyo Co., Ltd. criminal prosecution. and Maruyasu Industries Co. Ltd., Corporate Prosecutions as well was their respective U.S. In the recent past, some have criticized subsidiaries, were indicted by a the DOJ for focusing on prosecuting only As previously noted, the DOJ has not federal grand jury in the U.S. District conspiracies involving large, multinational hesitated to prosecute corporations of Court for the Southern District of companies supplying commodity all sizes and in all industries in 2016. The Ohio for fixing prices on automotive components (primarily from Asia). In 2016, DOJ has also continued to look beyond body sealing products and rigging however, the DOJ continued its trend the stereotypical smoke-filled hotel room bids on automotive steel tubes. of prosecuting conduct in a broad array to detect antitrust “cartels.” Many of the of industries, including technology, auto DOJ’s corporate prosecutions in the last • In July 2016, Nishikawa Rubber Co. parts, transportation, financial services, year appear to stem from competitor Ltd. pled guilty to fixing prices and pharmaceuticals, and online retail, to name collaborations that might have at one point rigging bids for automotive body a few. The DOJ also has not shown any served a legitimate purpose (e.g., a joint sealing products. reluctance to pursue smaller enterprises venture), but ultimately became a vehicle in smaller markets, such as technology for anticompetitive conduct. Some of the • In August 2016, Hitachi Automotive start-ups. For example, the DOJ recently more significant prosecutions in 2016 are Systems pled guilty to allocating investigated sellers in the online wall décor noted below. markets, fixing prices, and rigging market after discovering that sellers of bids for shock absorbers used in prints and posters used a sophisticated Automotive Parts. The DOJ’s pursuit of automobiles that were sold in the pricing algorithm to coordinate prices antitrust violations in the automotive parts United States, agreeing to pay a on e-commerce sites. Additionally, 2016 industry is international in scope and $55.48 million criminal fine. That showed the DOJ’s continued pursuit of covers a broad swath of components plea followed on the heels of a 2013 conduct in various geographies (domestic used in the manufacture of automobiles. plea where Hitachi Automotive pled

16 WSGR 2016 Antitrust Year in Review

guilty to fixing the price of starters, conspiring to fix prices for liquid Individual Prosecutions alternators, and other electrical parts aluminum sulfate, a chemical used used in automotive applications. in water treatment processes by This last year was particularly notable both municipalities and private for the DOJ’s prosecution of individuals. • Also in 2016, Alpha Corporation pled industry. Indeed, the DOJ brought charges against guilty to price-fixing and bid-rigging a significant number of individuals (at least in the market for automobile access • In pharmaceuticals, the DOJ has over 50) in 2016 and sought increased mechanisms and Usui Kokusai been investigating potential collusion sentences in many instances. This trend Sangyo Kaisha Ltd. pled guilty to is consistent with the instruction issued among generic drug manufacturers. fixing prices, allocating customers, by U.S. Deputy Attorney General Sally As discussed below, the DOJ and rigging bids for automotive steel Yates in September 2015 in the policy has begun bringing individual tubes. paper entitled “Individual Accountability indictments, but no charges have for Corporate Wrongdoing” (often referred Electrolytic Capacitors. In 2016, the yet been filed against any generics to as the “Yates Memo”). The DOJ DOJ made significant progress in manufacturers. management has embraced the Yates an investigation involving electrolytic Memo, encouraging DOJ staff to remain capacitors, which are electronic • In financial services, the DOJ aggressive in prosecuting individuals. components found in a substantial number continues its investigations into of consumer and industrial products, collusion over LIBOR rates and in In early 2016, the DOJ’s Deputy Assistant including mobile devices, computers, and the foreign exchange market, which Attorney General in charge of the criminal household appliances. The DOJ’s first yielded billions of dollars in criminal enforcement program, Brent Snyder, successful prosecution in this investigation fines in 2015. In 2016, it appears stated that the DOJ would “do even was of NEC Tokin Corporation in 2015; the focus has been on prosecuting better” to identify potentially culpable NEC pleaded guilty and agreed to pay individuals early in the investigation to individuals. a fine of $13.8 million. In 2016, the DOJ minimize the risk of prosecutions against secured pleas from four other companies: individuals being time-barred. Snyder “Smaller” Innovative Markets. The DOJ Rubycon Corporation, Elna Co. Ltd., further noted that the DOJ would focus has not shied away from prosecuting Hitachi Chemical Co., Ltd., and Holy Stone on identifying “all senior executives conduct in smaller, innovative markets. For Holdings Co., Ltd. who potentially condoned, directed, or example, the DOJ continued to pursue participated in the criminal conduct.” Ocean Shipping, Chemicals, anticompetitive conduct in the “online wall Testifying before the Senate Judiciary Pharmaceuticals, and Financial Services. décor” industry, charging Trod Ltd., an Committee, Deputy Attorney General In 2016, the DOJ has been busy in a e-commerce merchant, for conspiring with for Antitrust William Baer echoed this variety of industries beyond auto parts and competitors to adopt sophisticated pricing message, stressing that the DOJ will hold electronic components. For example: algorithms to coordinate or stabilize prices “senior executives accountable for criminal of posters sold through web retailers. antitrust misconduct” and will seek jail • In ocean shipping, the DOJ Trod agreed to plead guilty after being sentences. reached a plea deal with Wallenius indicted in 2015 by a federal grand jury in Wilhelmsen Logistics AS, a The numbers bear out these statements San Francisco. As another example, the Norwegian company, for conspiring on the DOJ’s increased focus on individual DOJ advanced its investigation into the to fix cargo prices in international prosecutions. Indeed, the charges that the “heir location services” industry in 2016, ocean shipping services; that DOJ has announced against individuals charging Kemp & Associates, Inc. with company agreed to pay a fine of in 2016 compared to 2015 indicate that conspiring to allocate customers. The DOJ $98.9 million. the DOJ remains determined to hold had previously brought charges against individuals accountable. In the past • In chemicals, the DOJ secured a Brandenburger & Davis in the same year, we have also observed the DOJ $5 million fine and guilty plea from industry, and that company agreed to pay targeting more individuals “tangentially GEO Specialty Chemicals Inc. for a criminal fine of $890,000. involved” in the conduct when compared

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to prior years; we have also observed the Electrolytic Capacitors. Most recently, the ongoing bid-rigging and price- DOJ pursuing potential charges against DOJ announced a grand jury indictment fixing investigation into the power individuals with less evidence than in prior against eight executives, mainly foreign generation industry. years. It is still a bit early to tell whether this nationals, in connection with an alleged uptick in enforcement against individuals price-fixing conspiracy of capacitors. • A former senior investigator for the is a new norm, but we expect that it Nine individuals have been indicted in this New York Power Authority (NYPA) will become one if the DOJ succeeds in investigation, and none have entered was prosecuted for conspiring to prosecuting many of these individuals. into plea agreements or been sentenced defraud the NYPA through a scheme thus far. that skimmed government funds Below are some examples of the DOJ’s from multimillion-dollar landscaping enforcement efforts against individuals in Real Estate. In addition to corporate and maintenance contracts. This the past year: officers and executives, the DOJ has was the result of a joint investigation indicted a large number of individual with the New York State Inspector Financial Services. The DOJ’s ongoing real estate agents for potential antitrust General and the DOJ involving investigations into financial benchmarks violations this year. The DOJ announced bid-rigging, fraud, and tax-related resulted in several significant individual indictments of more than 20 individuals offenses. prosecutions this year. In March 2016, a as a result of its ongoing investigation into New York federal district court sentenced bid-rigging and fraud at public foreclosure • Four executives were charged with three former Rabobank derivatives traders auctions throughout Alabama, California, obstruction of justice in separate to prison for their roles in a scheme to and Georgia. Among those indicted, antitrust investigations. In June manipulate Japanese Yen and U.S. Dollar 10 real estate agents received prison 2016, a former officer of the MCC LIBOR benchmark interest rates. The sentences of up to seven months and construction company was charged sentences ranged from three to twenty- were ordered to pay up to $1 million in in connection with attempts to four months. Additionally, two former criminal fines. circumvent federal contracting rules Deutsche Bank employees were indicted to divert contracts to his business as part of the DOJ’s ongoing LIBOR Pharmaceuticals. The DOJ brought the by concealing information from investigation this year. first charges stemming from its ongoing a regulatory agency. A former cartel investigation into the generic executive at Coach USA Inc. Automotive Parts. The DOJ has brought pharmaceutical industry against two was charged in October 2016 65 charges against individuals in the executives for conspiring to fix prices, rig for concealing and attempting to course of its auto parts investigation. At bids, and allocate customers of certain destroy documents relevant to a least eight of these occurred in the 2016 generic drugs. civil antitrust investigation related calendar year, including the following: to the joint venture formation in the Non-Antitrust Charges. One of the risks New York City hop-on, hop-off tour • A former president of an automotive of an investigation is that the DOJ might bus market. In September 2016, body sealing products supplier pled find other misconduct apart from an two executives were charged in guilty and received an 18-month antitrust violation. DOJ attorneys have connection with the auto parts sentence in a U.S. prison for become very well equipped to spot other investigation for allegedly conspiring his participation in a price-fixing potential violations and either refer them to delete and destroy documents conspiracy. to the appropriate enforcement agency or referring to communications with prosecute the conduct themselves. For their competitors. • Five executives were charged with example, in the last year: conspiring to fix prices for automotive “No Jail” Sentences. It has been the steel tubes. • The owner of a New Jersey- DOJ’s longstanding policy to pursue jail based industrial pipe supplier was sentences when prosecuting an individual • A former executive was also charged sentenced to 32 months in prison for an antitrust violation. In December for his alleged participation in a for conspiring to commit fraud and 2016, it appears the DOJ might have conspiracy to fix prices, rig bids, pay bribes to a purchasing manager departed from this policy when it entered and allocate the market for ceramic at Consolidated Edison of New York. into a plea with an individual from Bumble substrates. These charges arose from the DOJ’s Bee for his involvement in collusion

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around the supply of canned tuna fish features, it has made clear that the linchpin with Hitachi Chemical Co., Ltd., a maker of and other pre-packaged seafood. Based of a successful corporate compliance electrolytic capacitors, the DOJ requested on the DOJ’s announcement and the program is corporate culture. The DOJ three years of probation, in part so it could DOJ’s information, it appears that this has stressed that a company must make follow that company’s efforts to shore Bumble Bee executive will need to pay an compliance a priority at the uppermost up its compliance program as required undisclosed fine and cooperate with the levels of management and set the proper under its plea agreement (the judge investigation, but will not face any jail time. tone from the top. The DOJ has also later increased that term to five years). The DOJ has not yet filed a sentencing encouraged: (1) routine training, particularly Similarly, this year the DOJ requested five recommendation and a court will still need for salespeople or others in higher-risk years of probation and annual reporting to enter a sentence, but if the DOJ indeed positions; (2) reporting initiatives, including on compliance efforts as part of a plea does not pursue jail time, it could mark a avenues for concerned employees to deal with Rubycon Corporation, another significant departure from past practice. report potential violations that insulate maker of capacitors, though the court them from retaliation; and (3) discipline has yet to sentence that defendant. The for those found to violate company growing inclusion of compliance program The DOJ’s Focus on compliance policies. implementation requirements in plea agreements across industries, whether Compliance Second, in an effort to deter repeat alone or paired with terms of probation at conduct, the DOJ has recently started sentencing, reflects the DOJ’s commitment As is true with most criminal programs, to reward companies that improve their to fostering compliance. We expect this the DOJ’s aggressive approach to criminal compliance programs by reducing their emphasis on compliance to continue in the enforcement is largely to deter collusive fines when charged. For example, the year ahead. conduct from occurring in the future. DOJ announced in 2015 that it would offer Thus, the DOJ expends significant effort a compliance credit to Barclays PLC for Other divisions of the DOJ have apparently to encourage companies to implement steps taken by that company to improve taken notice of the overall success of the antitrust compliance programs designed its internal compliance program—the first- Antitrust Division’s leniency program at to prevent ill-advised conduct from ever such credit. Later that year, the DOJ’s facilitating detection and enforcement of occurring in the first instance. Over plea agreement with Kayaba Industry Co. past violations. In April 2016, the Criminal the past few years, the DOJ has made Ltd. offered a compliance credit on the Division’s Fraud Section launched a one- compliance one of its top priorities, and basis of the “substantial improvements” to year pilot leniency program with respect 2016 was no different. In fact, in a speech its internal compliance program “to prevent to enforcement of the Foreign Corrupt in November 2016, Acting Assistant recurrence of the charged offense.” By Practices Act (FCPA). Though in its infancy, Attorney General Renata Hesse described offering these two compliance credits, the that pilot program, like the Antitrust how “[c]ompliance and remediation have DOJ has provided the “carrot” necessary Division’s longstanding leniency program, become central to [the Antitrust Division’s] for organizations to take steps to improve seeks to motivate companies to self- corporate resolutions and sentencings.” their compliance programs even if an report violations of the FCPA in return for infraction occurred previously. non-prosecution or a substantial reduction The DOJ has pushed compliance in a in criminal fines. The program includes number of ways. First, the DOJ continues Third, the DOJ is also increasingly using a provision that specifically takes into to encourage companies to implement compliance as a stick in 2016, looking for account an organization’s compliance or and improve compliance programs via ways to fold compliance requirements into remediation efforts in determining whether speeches and statements. In the last plea deals and sentences with defendants. a company qualifies for credit for voluntarily few years, the DOJ made a number While the DOJ has indicated that the disclosing the FCPA violation. It remains of speeches that not only promoted imposition of a compliance monitor is to be seen how successful the FCPA pilot compliance, but also advised on what a reserved for extraordinary cases, it has program will be and whether the Criminal “successful” compliance program might taken other steps to ensure that corporate Division will extend the program following include. While the DOJ has not provided defendants prioritize compliance. In 2016, the initial one-year term. That decision will an enumerated list of compliance program in connection with the DOJ’s plea deal likely fall to the incoming administration.

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hiring and salary/wage decisions. To in other areas of competition law, Hesse DOJ Policy Initiatives illustrate this, the HR Guidelines cite a noted that competition authorities in 2016 case brought against eBay and Intuit unanimously recognize that price-fixing, for agreeing not to solicit each other’s bid-rigging, and market allocation are high Guidance for HR Professionals: employees (among other things). While enforcement priorities. In September 2016, Criminal Enforcement in Labor eBay and Intuit do not compete in the Hesse addressed new initiatives aimed Markets same markets, the DOJ considered them at achieving greater international “competitors” for “specialized computer cooperation—including an international In October 2016, the DOJ and the FTC engineers and scientists,” allowing the DOJ staff exchange program between the U.S. jointly published a paper titled “Antitrust to categorize the no-solicitation agreement and the EC, Japan, and the UK in order to Guidance for Human Resources as “horizontal collusion.” The HR Guidance learn firsthand international investigations Professionals” (“HR Guidance”). This warns that such agreements could result in and strategies. HR Guidance highlighted that certain criminal prosecution in the future. forms of horizontal collusion and Notwithstanding the apparent progress information exchanges within the labor Information Exchanges. The HR Guidance toward a common view on collusion, and employment context could violate also emphasized the potential illegality of the treatment of individuals for collusive the antitrust laws. In particular, the HR sharing competitively sensitive employment conduct remains an area of pronounced Guidance put companies and individuals information, such as salaries or wages, difference among competition agencies. on notice that certain collusion—namely with competitors. Unlike “no poaching” Hesse has vowed that the DOJ will “naked” wage-fixing and “no poaching” and wage-fixing agreements, the DOJ continue to encourage and promote agreements—can subject them to criminal does not prosecute unlawful information individual accountability—whether for prosecution. The DOJ and the FTC have exchanges criminally. However, such foreign nationals or U.S. citizens—despite taken enforcement actions in the past for conduct may still be subject to civil liability some jurisdictions not allowing for conduct that has restrained competition if found to have an anticompetitive effect. individual sanctions. In 2016, the DOJ in labor markets, but all of those actions The HR Guidance again serves to put continued to show its commitment to were brought civilly (typically resulting in companies and executives on notice that holding foreign nationals accountable by agreements to stop the conduct). The HR the DOJ and the FTC will be looking for pursuing extradition and harsh sentences Guidance changes the stakes significantly instances of misconduct in this area. against those individuals. For example, and indicates that the DOJ (and the FTC) a Canadian national, John Bennett, will be looking closely at employment International Criminal who was extradited two years ago, was practices to identify collusive conduct. Enforcement Efforts sentenced this year to serve 63 months in Horizontal Collusion in Labor Markets. In 2016, the DOJ continued to deepen prison and ordered to pay $3.8 million in The HR Guidance highlighted that cooperation efforts with foreign antitrust restitution. Bennett, the former CEO of a both wage-fixing and “no poaching” agencies, as it recognizes that cooperation hazardous waste treatment company, was agreements among competitors violate between agencies has been a key tool found to have conspired to pay kickbacks the antitrust laws. The guidance stressed in prosecuting collusive conduct. The and committed fraud against the U.S., that if such agreements are not related to DOJ has made particularly clear that thwarting the government’s competitive a pro-competitive purpose or necessary prosecuting international cartels through contracting practices. Moreover, the for promoting such a purpose, then joint investigations with its foreign DOJ extradited an Israeli national, Yuval the conduct would be categorized as counterparts is and will continue to be Marshak, from Bulgaria to the U.S. a “naked” restraint subject to criminal a high priority. DOJ Acting Assistant for fraud charges arising from a joint prosecution. Importantly, the DOJ and Attorney General Renata Hesse this year investigation with the Antitrust Division, the FTC clarified that companies can stated in two separate speeches a need U.S. Attorney’s Office, and Israel’s Ministry “compete” for employees even if the for increased international cooperation. of Defense. Marshak’s extradition shows companies do not compete in the In June 2016, Hesse stated that cartel another step forward in the DOJ’s efforts services or products that they supply. enforcement was the “most conspicuous to coordinate investigations with foreign This increases the risk of entering into area of convergence” in international authorities and is further evidence that the agreements with other companies around competition policy. Despite differences Antitrust Division will continue to vigorously

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pursue individuals regardless of where they • The first example involves reside. companies outside the U.S. that Cartel Enforcement by agree to fix prices (or otherwise Competition Agencies Further, in November 2016, the DOJ improperly collude) on component Outside the U.S. and the FTC published proposed parts supplied outside the U.S. The updates to the Antitrust Guidelines DOJ observes that these companies Competition agencies outside the U.S. for International Enforcement and can be prosecuted under U.S. have also remained active against collusive Cooperation (“International Guidelines”). antitrust laws if those component conduct and cartels in 2016. While some These International Guidelines describe parts indirectly enter the U.S.—i.e., of these agencies do not pursue such how the DOJ and the FTC will approach the components are sold outside conduct criminally, they generally view the investigations and prosecutions for the U.S. and are then integrated conduct similarly to the DOJ and impose conduct occurring outside the U.S. In (by other companies) into finished harsh sanctions. Below are some of the particular, the proposed revisions to products sold into the U.S. The more notable enforcement actions taken the International Guidelines provide DOJ observes that the component by certain agencies against collusive an additional chapter on international suppliers need not actually know conduct in 2016. cooperation, addressing the agencies’ that the finished products are investigative tools used with other sold in the U.S. to be subject to Australia. This year marked the first enforcement agencies to detect and prosecution. criminal charge against a corporation prosecute collusive conduct. under the criminal cartel provisions of the • The second example involves Competition and Consumer Act enacted In addition, the International Guidelines companies outside the U.S. that in 2000. The Australian Competition and state the DOJ’s policy on the interpretation agree to fix prices (or otherwise Consumer Commission (ACCC) brought of the Foreign Trade Antitrust improperly collude) on products charges against Nippon Yusen Kabushiki Improvements Act (FTAIA), which is the that never make their way into the Kaisha (NYK) for alleged price-fixing in statutory framework that outlines the U.S. The DOJ observes that these the transportation of vehicles to Australia, extraterritorial reach of U.S. antitrust companies can be prosecuted so with NYK ultimately pleading guilty. The laws. For conduct not involving imports, long as the anticompetitive conduct ACCC brought a second criminal charge a the FTAIA limits the reach of the U.S. influences the “worldwide” price few months later against Kawasaki Kisen antitrust laws to conduct that has a “direct, of a certain product sold (by other Kaisha, Ltd. related to the same shipping substantial, and reasonably foreseeable” companies) in the U.S.—e.g., the cartel conduct. effect on U.S. commerce. The DOJ has fixed price outside the U.S. serves actively advocated that the term “direct” as a “benchmark” for the price of the Brazil. In May 2016, the Brazilian under the FTAIA should be read as product in the United States (again Administrative Counsel for Economic requiring only a “reasonably proximate” supplied by another company not Defense (CADE) published Leniency (rather than a “direct” or “immediate”) part of the collusion). Guidelines and amended certain rules for nexus between the collusive conduct at companies seeking leniency for reporting issue (e.g., price-fixing) and the effect on As of this writing, the proposed guidelines collusion. The Leniency Guidelines U.S. commerce (e.g., increased prices). have yet to be adopted. However the fact provides clarity on how CADE enforces the This reading of the “direct” requirement that the DOJ proposed incorporating its leniency program, emphasizing increased allows the DOJ to establish more easily position on the FTAIA’s “direct” requirement safeguards for ensuring confidentiality. that collusion outside the U.S. had the into the International Guidelines The amendments to the leniency rules: requisite effect in the U.S., allowing the suggests that the DOJ is committed (1) clarify certain proceedings conducted DOJ to prosecute the conduct criminally. to its interpretation of the FTAIA and to before CADE; (2) modify the “marker The DOJ provides two important examples aggressively pursuing conduct outside the system” by allowing applicants to request in the International Guidelines to illustrate United States. CADE to certify in writing the date and time its interpretation. to appear before the agency to protect

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the line order of leniency; and (3) revise • In January 2016, the Court of engaged in rigging contract bids for the calculation of discounts by offering full Justice of the European Union disaster-restoration paving work after the administrative and criminal immunity for the (CJEU) issued a preliminary ruling Great East Japan Earthquake. In addition second cartel offense under the Leniency with respect to the relationship to filing criminal charges, the JFTC issued Plus program and a one-third reduction in between EU and EU member state a cease-and-desist order and a surcharge- fine to the first cartel offense. leniency programs. The CJEU held payment order. that a leniency applicant cannot rely China. In 2016, the National Development on its single application to the EC South Korea. The Korea Fair Trade and Reform Commission of the People’s to receive leniency in every member Commission (KFTC) made efforts Republic of China (NDRC) drafted six state. Instead, a leniency applicant to improve the leniency application antitrust guidelines under the authority must ensure that precise information procedures by amending its Public granted by the Anti-Monopoly Committee covering the scope of conduct and Notification on Implementation of Leniency (AMC). Two draft guidelines, not yet relevant jurisdictions is submitted to Program, effective September 30, 2016. adopted, are particularly relevant to cartel all competent authorities. The amendment declares that submissions enforcement efforts. The first is the draft of the leniency application via email, fax, Guidelines for Applying Leniency Program • In July 2016, the CJEU came down or visiting the Cartel Policy Division are to Horizontal Monopoly Agreements, with a decision that could affect how acceptable formats, providing clarity in which provide further guidance for companies interact with independent determining who is in line for leniency. applying for leniency. The draft guidelines: service providers. The CJEU held Further, the amendments clarify the (1) set forth that leniency is no longer that a company can be liable for reduction in penalty for amnesty-plus applicable to vertical restraints; (2) note collusive conduct of an independent applicants. The KFTC implemented stricter that a preliminary report with only limited service provider if: (1) the service conditions for order of rank succession information as “evidence” is acceptable provider is in fact acting under the by imposing on lower-ranked successors for leniency; and (3) offer protection to direction or control of the company; to contribute to the investigation if the information offered in the administrative (2) the company is aware of the preceding ranked leniency applicant is proceedings. The second is the draft anticompetitive objectives pursued removed in consideration for reduction Guidelines on the Determination of Illegal by its competitors and the service in fines. Last, the amendment stipulates Gains and Fines in Relation to Business provider, and intends to contribute to the removal of leniency benefits for those Operators’ Monopolistic Conduct, which them by its own conduct; or (3) the who have repeatedly engaged in cartel set transparent approaches in determining company could reasonably have activities. penalties in antitrust cases for illegal gains foreseen the anticompetitive acts and fines. The current penalty calculation of its competitors and the service United Kingdom. The UK Competition provides Chinese antitrust regulators with provider, and was prepared to and Market Authority (CMA) has been broad discretion in assessing the fines, accept the risk that entailed. quite active. For the first time, the CMA while the draft proposes a consistent and opened an investigation into whether transparent approach to antitrust fine • In December 2016, the EC imposed the UK modelling agencies and their calculations. a combined €166 million fine on trade association colluded to coordinate Sony, Panasonic, and Sanyo for their prices in 2016. Furthermore, the CMA is European Union. The European involvement in fixing the prices of pursuing a criminal prosecution against Commission (EC) is always active in its batteries used in laptops and mobile directors for their participation in a cartel enforcement against cartel conduct. A devices. in the steel tanks industry. One director few developments from 2016 include the pled guilty and was handed a six-month following: Japan. In February 2016, the Japan Fair suspended prison sentence, while the two Trade Commission (JFTC) filed criminal remaining directors were acquitted. Under • The EC this year imposed a €2.93 accusations with the Public Prosecutor the Company Directors Disqualification billion fine on the main European General against 10 companies and 11 Act, the CMA has the right to apply to the truck manufacturers for their individuals who were found to have been court for an order to disqualify the directors participation in cartel—the highest in violation of the Antimonopoly Act for of the company that had breached such fine it has ever levied. bid-rigging. The parties involved were competition law. The CMA secured its

22 WSGR 2016 Antitrust Year in Review

very first such disqualification, preventing enforcement program. Notably, while any indicator, the DOJ will continue to be an individual from acting as a director to five years have passed since the DOJ aggressive and innovative in its pursuit of any UK company for five years for breach first brought charges in the automotive corporate wrongdoing in the year ahead. of competition law. This disqualification parts industry, the DOJ remained active in We can also expect in 2017 that the DOJ follows the CMA’s investigation into pursuing prosecutions in this investigation will continue its efforts toward holding Trod Ltd.’s anticompetitive conduct in in 2016 and we anticipate this will continue individuals accountable for corporate e-commerce. into 2017. The DOJ also has continued its misconduct. Corporations involved in push into new industries, including ones criminal antitrust investigations can expect Outlook for 2017 operating online and with sophisticated their most senior-level executives and technology. At the same time, the DOJ has former employees to be subject to criminal In 2016, the DOJ secured significant remained active and vigilant in traditional exposure if they condoned, directed, or fines against companies and sentences areas of enforcement, such as the were otherwise involved in the conduct at against individuals as part of its criminal electronic components industry. If 2016 is issue.

Civil Litigation

Civil antitrust litigation activity continued Internationally, private enforcement under involves an illegal agreement (explicit at the same level as recent years in antitrust laws is relatively new compared or tacit) between a plurality of market 2016, with the majority of actions to its long history in the U.S. and is still participants that ultimately aims to restrict seeking damages for private plaintiffs only permitted in a small—but growing— competition between the players, with a for wrongdoing previously alleged in number of countries and regions of the view to fixing prices or restricting output. A separate government investigations. world. Despite the nascent stage of its textbook example of coordinated conduct As the average cost of litigation and development, international civil litigation is a price-fixing cartel. discovery steadily increases (especially in resulted in a number of significant rulings In contrast, unilateral conduct needs not the U.S.), plaintiffs see great benefits to in 2016. Google successfully fended off involve multiple players. Generally, a firm filing “me-too” actions, hoping to capitalize challenges in the U.K., Germany, and engages in unlawful unilateral conduct on investigatory work already done by France to its allegedly discriminatory practices, while MasterCard and Visa have when two conditions are met: first, the government agencies. A number of class not been as fortunate in ongoing litigation firm has market power (the ability to raise action cases dominated the headlines this in the UK concerning certain interchange prices above those that would be charged year following government price-fixing fees. It is expected that 2017 will continue in a competitive market) and, second, investigations of the LIBOR interest rate to see more private enforcement in the firm willfully acquires or maintains that and the pharmaceutical industry. markets where it has not traditionally power through certain unlawful means. played a significant role, including in China. Unlawful unilateral conduct can take Circuit and district courts wrestled with multiple forms, but the ultimate goal of important issues in both the unilateral a violator is to exclude competitors from and joint conduct arenas. In particular, a market. For example, firms that have exclusive dealing claims were the subject Antitrust Law substantial market shares (or are dominant of multiple decisions by courts in the Third Background participants in a market) may be held liable Circuit, the Fourth Circuit weighed in on for certain business practices, including tying, and the Second Circuit clarified Antitrust law—both in the U.S. and the use of exclusive deals with customers jurisprudence regarding the territorial internationally—generally recognizes two or tying the purchase of one product scope of the Sherman Act in a landmark types of illegal conduct: coordinated and to another. Exploiting market power by ruling successfully advocated by WSGR. unilateral. Coordinated conduct typically charging excessive prices to customers

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may also be actionable in certain non-U.S. the percentage of competitors that were This case advances the jurisprudence jurisdictions. foreclosed. The price-cost test is generally on exclusive practices, but its ultimate more favorable to defendants, who only impact is unclear. In particular, the Third Unilateral Conduct need to show that their prices are not Circuit has confirmed that defendants below costs to overcome allegations of could, in theory, be found liable even if their Defendants prevailed in a number of wrongdoing. Its application is generally discount programs are kept above costs— significant unilateral conduct cases limited to loyalty discounts. although that is unlikely under the equally in 2016. Notably, multiple district and efficient rival test the court adopted. appellate courts dismissed actions In Eisai v. Sanofi,129 the Third Circuit Eisai also confirms that, to avoid liability brought by competitors alleging that provided further guidance on how to safely, it’s important that the defendant’s another company somehow delayed, evaluate these types of arrangements. customers be left with the option to opt in foreclosed, or otherwise prevented full Eisai attacked two of Sanofi’s marketing or out of the discount program on relatively competition in the market. Ultimately, policies for its anticoagulant drug Lovenox: short notice without fear of any retaliatory companies considering bringing plaintiff- volume discounts and prohibiting hospitals actions (beyond loss of the benefits under side actions must be cognizant of the from favoring other drugs over Lovenox the agreement) by the defendant. limits of antitrust law; courts have shown in their formularies (lists of medications Tying: Live Nation. The Fourth Circuit a demonstrable hesitance to extend the approved for use in the hospital). boundaries of liability, especially where addressed another area of unilateral doing so may in fact chill legitimate The district court had dismissed Eisai’s conduct analysis—tying—in It’s My 132 competition. The following cases provide claims under the price-cost test, finding Party, Inc. v. Live Nation, Inc. WSGR examples of courts acknowledging that that Sanofi never priced below costs. successfully represented Live Nation in this action. certain conduct (exclusive dealing, tying, The district court had also found the patent infringement, product hopping, and claim to be without merit even if applying The plaintiff was a concert promoter discriminatory practices disadvantaging the substantial foreclosure analysis. The that operated an outdoor amphitheater competitors) may in fact serve as a basis district court found that Eisai was not near Baltimore, Maryland, and accused for an antitrust complaint, but proving excluded because it could have met or Live Nation (LN) of using its alleged liability requires stronger evidence than the beaten the discounts profitably. The Third market power in concert promotion and plaintiffs set forth in these instances. Circuit affirmed, resting its decision on an amphitheaters to steer artists from the application of the more probing substantial plaintiff’s venue to LN’s amphitheater in the U.S. foreclosure test. The court distinguished same region. LN was accused of forcing its previous decisions in LePage, Dentsply, Exclusive Dealing: Eisai v. Sanofi. artists that hired LN to promote national and ZF Meritor,130 which all applied a Economic analysis has shown that tours to perform at LN’s amphitheater exclusive agreements and loyalty rebates substantial foreclosure test but ultimately (promotion-to-venue tying). LN also may have positive or negative effects on found in favor of the plaintiffs. allegedly told artists that if they wanted to competition depending on the particular perform at LN amphitheaters across the Two key takeaways can be understood facts. Consequently, courts assess these country, the artist had to perform at LN’s agreements on a case-by-case basis from the Third Circuit’s decision. First, local amphitheater and not at the plaintiff’s under the “rule of reason” test. Further, exclusive or quasi-exclusive arrangements venue (venue-to-venue tying). courts generally have applied two types of are unlawful under the substantial “rule of reason” tests to loyalty discounts foreclosure test only if they would exclude The court granted summary judgment and related exclusive practices: a “price- a hypothetical rival as efficient as the for LN because there was no evidence cost” test, or a more comprehensive defendant. Second, the practice of that LN coerced artists to perform at its “substantial foreclosure” test. The price- offering such loyalty discounts may not venue. The court found that LN’s success cost test looks at whether the defendant’s be evaluated under the price-cost test was due to good-faith competition and prices exceed its production costs, because “the price-cost test may be negotiation. The court also stressed that and the substantial foreclosure test utilized . . . only when ‘price is the clearly in the absence of coercion, LN customers considers several factors to determine predominant mechanism of exclusion.’”131 benefitted from LN’s economies of scale

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and scope that allowed LN to offer Second, the court stated that “false In this case, Mylan Pharmaceuticals advantageous products to its customers. advertisement, without more, can[not] claimed that Warner Chilcott introduced support an antitrust claim,” and that the a number of changes to the formulation As in the Eisai case, the Fourth Circuit best antidote to false or misleading and strength of its brand-name Doryx drug sided with the defendant, finding that speech is not antitrust litigation, but “more in order to prevent or delay competition legitimate competitive tactics such as speech --- the marketplace of ideas.” of Mylan’s generic version of Doryx. Most those undertaken by LN could not serve as Finally, the court dismissed the last of significantly, Warner Chilcott switched the basis for antitrust liability. The antitrust RT’s claims, whereby BD would allegedly Doryx from a capsule to a tablet, forcing laws are focused on harm to competition market flawed retractable needles with Mylan to scrap its development of a in the marketplace, not necessarily losses the aim of discrediting RT’s products. The generic capsule and shift to developing by a single market participant, and failing court rejected this argument as having a generic tablet. Mylan alleged that the to show such general market-wide harm is “no direct evidentiary basis,” and as being purpose of the switch was primarily fatal to a claim. “illogical” and “incoherent.” to delay competition and that the change offered no legitimate benefits to Patent Infringement: Retractable Techs. In As with the courts in Eisai and Live Nation, consumers. a recent decision, the Fifth Circuit took the the Fifth Circuit reminded companies opportunity to restate that the infringement that the antitrust laws were created with Despite an amicus curiae brief from the of a competitor’s patent cannot be the the goal to protect “competition, not FTC supporting Mylan’s position, the Third basis for antitrust liability. competitors.” Circuit sided with the defendant, and affirmed the lower court’s decision to grant In 2008, Retractable Technologies (RT) Product-Hopping: Mylan Pharms. Inc. v. Warner Chilcott summary judgment. First, sued its competitor Becton Dickinson Warner Chilcott Pub. Ltd. Co. In Mylan the district court concluded (and the Third (BD) for allegedly foreclosing competition Pharms. Inc. v. Warner Chilcott Pub. Ltd. Circuit agreed) that Doryx, an antibiotic in the specialized market for retractable Co., the Third Circuit contributed to the indicated to treat moderate-to-severe syringes. The broad allegations covered ongoing debate about whether allegations acne, faced sufficient competition from exclusive contracts, loyalty discounts, false of “product-hopping” can constitute a other acne medications such that even if advertisement, patent infringement, and violation of the antitrust laws.134 the product-hopping did foreclose Mylan, unfair competition. In particular, RT alleged the conduct was unlikely to have harmed three unlawful acts to support its antitrust As background, “product-hopping” the broader marketplace for acne drugs. claims: first, BD’s infringement of RT’s in the pharmaceutical industry refers This is a significant ruling because it runs patent; second, BD’s false advertising; and to the strategy of a brand-name drug counter to the FTC’s position in many of its third, BD’s alleged attempt to “taint” the manufacturer to introduce formulation cases in the pharmaceutical arena that a market for retractable syringes. The district changes, modification of dosage, or other single product (and its generic equivalents) court denied BD’s motion for judgment as alterations in order to avoid competition can constitute a relevant antitrust market, a matter of law, and entered a jury’s verdict from typically lower-priced generic drugs. especially where, as here, the defendants’ for RT for more than $300 million in treble Because generic manufacturers must actions made no economic sense absent damages. show that their version of the drug and market power (a point the court did not the currently marketed brand-name address). The court of appeals reversed the drug are bioequivalent (i.e., have a determination of the district court, while similar formulation and effect), a brand Second, the court found that Mylan affirming or remanding other aspects of manufacturer’s alterations to a drug can failed to prove anticompetitive conduct. the case.133 First, the panel held that, force generics to incur costly delays in Although the Second Circuit had held consistent with its case law, “patent development and approval (especially in a 2015 case (Namenda) that a similar infringement cannot serve as a basis to when done just prior to generic entry). product switch was illegal, the Third impose antitrust liability.” In fact, patent Typically, generics are automatically Circuit attempted to distinguish that laws and antitrust laws serve conflicting substituted for the more expensive brand case from Mylan’s.135 The Third Circuit goals, as the infringement of a patent version by pharmacists, so brands are explained that Namenda concerned a increases competition by causing incentivized to delay competition for as different procedural posture—the plaintiff competing products to enter the market. long as possible. was seeking an injunction to prevent a

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forthcoming switch—and involved an In the UK, Streetmap.eu, a provider of discriminatory licensing obligations. Since attempt by the defendant to fend off web mapping services, filed a claim then, Qualcomm has also filed suit against generic competition by pushing back the against Google with the Chancery Division Meizu in the U.S., Germany, and France, expiration of its patent exclusivity period. In of London’s High Court, alleging that exerting significant pressure against the the Mylan action, Warner Chilcott’s patent Google abused its dominant position by Chinese OEM and likely sending a signal to had expired long before the switch, leading introducing the “Maps OneBox” feature. other Chinese manufacturers that refusing the court to conclude that Mylan could Streetmap.eu alleged that Google abused to negotiate will result in costly litigation. have entered with a generic capsule at any its dominant position in Internet searches Whether or not Meizu continues to litigate time between the expiration and the switch by displaying a clickable link to Google’s in 2017 will set the tone for future Chinese to a tablet had Mylan chosen to market map services on top of Google’s search litigants. the product (incurring costs that generics page, and by relegating hyperlinks to generally avoid). Streetmap.eu in the lower part of the Around the same time that Qualcomm page. In February, the court dismissed brought its action against Meizu, Chinese International Streetmap.eu’s claim.137 Judge Roth found technology company Huawei filed a that the introduction of the OneBox likely number of lawsuits against Samsung Much of the private litigation in Europe did not affect competition, and even if it in Chinese courts as well as in the U.S. revolved around the antitrust implications did, Google’s conduct was objectively District Court for the Northern District for the introduction of new technologies. justified. The court further found that any of California, alleging SEP infringements In particular, several players criticized other alternatives to the OneBox would be related to smartphones. The outcomes Google’s business practices in the Internet “disproportionate,” as Google would need of these recent lawsuits by Huawei could search market. These actions developed to implement changes in every territory bring interesting developments at the in parallel to an ongoing investigation by where it has market power. Streetmap.eu intersection of antitrust and IP litigation in antitrust agencies into Google’s promotion appealed the decision, and a hearing China; though Huawei has not raised any of its own shopping and mobile operating before the Court of Appeal is scheduled for claims under China’s anti-monopoly law in system over competing solutions (please February 2017. these litigations, Samsung is likely to do so refer to the Agency Investigations section in response or in counterclaims.139 of this publication). Unilateral Conduct, Vertical Restraints, and IP Litigation: China. Private antitrust The availability of private antitrust Abuse of Dominance: Germany and the litigation, which has only existed in litigation in Chinese courts opens up UK. Google was the object of several China since 2008, continues to increase new possibilities for companies around litigation proceedings in Germany and every year and 2016 was no exception. the world, especially as more and more the UK. In Germany, the Berlin regional Whereas only fewer than a dozen private U.S. companies seek out new business court dismissed 41 complaints of abuse cases were brought when the Chinese opportunities in China. of dominance against Google.136 Following Antimonopoly Law was first instituted, a 2013 law allowing publishers to oppose more than 150 were brought in 2015, and the reproduction by search engines of the number is expected to have risen in their works without payment, Google 2016. In particular, litigation concerning Coordinated Conduct asked publishers to choose between Standard Essential Patents (SEPs) showing snippets of their content for free attracted significant attention in 2016. More often than not, coordinated conduct and displaying only a link to their works. civil litigation follows—or runs parallel The court held that such “ultimatum” Two cases are worth highlighting. First, in to—government investigations into cartel was legal, because—despite Google’s June 2016, Qualcomm filed a complaint activity. In those cases, settlement is alleged dominant position—the search against the Chinese smartphone the likely result, as both the stakes and engine did not discriminate against the manufacturer Meizu in the Beijing the likelihood of liability are high (see publishers. The court further emphasized Intellectual Property Court,138 requesting the case below regarding “no-poaching that Google’s model creates a “win-win” a declaratory ruling that the terms of a agreements”). However, in a number of situation, where each of the publishers, patent license it offered to Meizu comply 2016 cases, including the Actos, Loestrin, customers, and Google benefit from the with Chinese antitrust law and with and Vitamin C litigations described below, system. Qualcomm’s fair, reasonable, and non- the defendants prevailed in coordinated

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conduct cases, demonstrating that other hand, the defendants in In re Actos The upshot is that 2017 is likely to plaintiffs may face an uphill battle even End-Payor Antitrust Litigation successfully see additional rulings in the reverse- in these types of actions. In other argued that mere agreement between payment arena, as courts continue to coordinated conduct cases, such as a brand manufacturer and a number of interpret Actavis by addressing minimum LIBOR, the generic drug price-fixing generic entrants on a generic entry date pleading standards, damage analysis and actions, and the MasterCard matters, cannot constitute a reverse payment calculations, and theories of causation. the plaintiffs’ claims are still alive and delaying competition, even if a generic defendants in those cases face extremely defendant in the underlying patent litigation International Comity: In re Vitamin C. On high potential damages. may have won and entered earlier.143 September 20, 2016, the Second Circuit issued a watershed decision in a price- U.S. Second, cases in the First and Third fixing case. The court set out the standard Circuits made clear that even if plaintiffs for assessing the liability of foreign Pay-for-Delay: Actavis Decision Spurs successfully defeat motions to dismiss and companies under U.S. antitrust law where on Private Litigation Concerning can show that a reverse payment violated the companies’ government compelled the Pharmaceutical Patent Litigation antitrust law, victory ultimately requires unlawful conduct. Settlements. Several decisions have satisfying traditional antitrust law and expanded on the implications of the class certification standards. For example, In In re Vitamin C Antitrust Litigation,146 2013 U.S. Supreme Court decision the plaintiffs in a reverse-payment case the plaintiffs—two classes of purchasers concerning reverse-payment (also known concerning Nexium lost at trial for failure to of vitamins—alleged that several Chinese as “pay-for-delay”) agreements. In FTC v. prove antitrust injury (actual harm caused vitamin manufacturers had engaged in Actavis,140 the Supreme Court held that by anticompetitive conduct). Their 2016 price-fixing of vitamin C exported from reverse-payment settlements can violate appeal failed as well, as the First Circuit China. WSGR represented two of the the antitrust laws. A reverse payment refused to revive the case on the basis defendants. The defendants pleaded the occurs in a patent litigation where the that even if the reverse payment had not antitrust defense of foreign compulsion, plaintiff manufacturer of a brand-name occurred, the generic company at issue namely that Chinese law and regulations drug agrees to compensate one or more faced other unrelated issues that would compelled the price-fixing conduct. manufacturers of the defendant generic have prevented entry.144 Thus, evidence of The Chinese government made an drugs (the alleged infringers) in exchange an illegal reverse payment is not sufficient; unprecedented appearance in court to for a promise of a delayed entry in the a plaintiff must still show causation and support the position, but the district court market. Following the Actavis decision, injury. still entered a judgment of $150 million for a number of reverse-payment cases the plaintiffs. were filed, and 2016 saw a number of Similarly, private plaintiffs in a case significant rulings in the area clarifying and concerning Provigil also got tripped The Second Circuit reversed the lower interpreting the Supreme Court’s decision. up, despite the FTC having previously court’s decision: the panel held that a U.S. extracted $1.2 billion in a settlement with court is bound to defer to the statements First, defendants challenged the notion the same defendants. In the civil litigation, of a foreign government interpreting its of what type of compensation could the private plaintiffs convinced the district own law, and dismissed the case under constitute an illegal reverse payment with court to certify a class, only to see the the judicial doctrine of international comity. varying success on motions to dismiss. In Third Circuit overturn the certification on The court found that where there is a “true In re Loestrin Fe Antitrust Litigation,141 the the basis that the plaintiffs could not satisfy conflict” between American and foreign First Circuit held that the compensation the “numerosity” requirement. There were law—as was the case here—international agreed upon in the settlement agreement simply too few individual plaintiffs for the comity generally requires that American can encompass transfers of value not court to find (as it must in order to certify a courts should not exercise jurisdiction limited to cash payments (the Actavis class) that joiner was impracticable. Again, of the case, and should certainly do settlement involved cash). In particular, although the plaintiffs may have been able so where a foreign sovereign appears a brand manufacturer’s agreement not to prove that a reverse payment occurred, formally to argue the point. Otherwise, to launch its own generic upon entry by counsel must still carefully litigate a case to American courts may become entangled in other generics was deemed to constitute ensure that all required elements can international affairs, a role that traditionally a payment subject to Actavis.142 On the be met.145 belongs to the executive branch.

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Therefore, the court remanded the case to directed to the U.S. Meanwhile, several Valley companies. On September 2, 2015, the lower court with instructions to dismiss defendants entered into settlement District Judge L. Koh approved a $415 the plaintiffs’ complaint with prejudice. agreements with plaintiffs. In October million class action settlement resolving the The Second Circuit’s decision avoids a 2016, three of the defendants asked the underlying claims.150 scenario where a foreign company can Supreme Court to scrutinize the Second face liability in U.S. courts based on Circuit’s decision. In May 2011, representatives of software conduct that is required by their own laws. engineers sued Google, Apple, Intel, and The Plaintiffs may petition the Supreme Generic Drug Price-Fixing. Following news Adobe, alleging a conspiracy to eliminate Court for review in early 2017. of government investigations into generic competition among the defendants for pharmaceutical pricing, several generic skilled labor. The plaintiffs contended that Antitrust Injury: LIBOR. In 2016, an drug manufacturers were hit by a number the defendants agreed: (1) not to “cold antitrust lawsuit against 16 big banks was of class action lawsuits alleging price- call” each other’s employees; (2) to notify revived by the Second Circuit. In a series fixing of various generic drugs, including the other companies when making an offer of lawsuits currently before the Southern Pravastatin, Divalproex ER, Digoxin, to an employee of the other companies; District of New York, the plaintiffs alleged Doxycycline, and Clobetasol.148 or (3) not to engage in “bidding wars” that 16 major banks conspired to fix the for the same prospective employee. The London Interbank Offered Rate (LIBOR) Although the allegations in each case do unlawful conspiracy would have depressed as early as 2007. The LIBOR is a key not identify specific pricing agreements the employees’ compensation by 10 benchmark interest rate used to set rates among manufacturers, class action to 15 percent. The defendants entered for a series of financial contracts, including plaintiffs have generally claimed “[t]here into a consent decree with the DOJ in mortgage and credit card interest rates. can only be one explanation for such March 2011, following an investigation into The private lawsuits are follow-on actions an extreme, sustained price hike in a similar conduct. to criminal investigations by U.S. antitrust market in which multiple manufacturers agencies that resulted in criminal plea have, for so many years, competed on International deals. price.” The complaints generally allege that the defendants used the Generic UK: MasterCard and Visa. A number of In March 2013, the district court dismissed Pharmaceutical Association—a trade antitrust lawsuits were filed against credit the plaintiffs’ case for two reasons: first, group—as a means to meet and conspire. card giants MasterCard and Visa in 2016. the court found that the LIBOR-setting The plaintiffs also point to the ongoing process was cooperative, not competitive, inquiries by the DOJ, the Connecticut The European Commission (EC) began and thus not actionable under antitrust Attorney General, and Senator Bernie investigating Visa and MasterCard in laws; and second, the plaintiffs failed Sanders and Congressman Elijah the mid-2000s over their multilateral to allege sufficient antitrust injury. In Cummings into the price hikes to support interchange fees (MIFs). MIFs are fees Gelboim v. Bank of Am. Corp.,147 the the price-fixing claims. charged by the card’s issuing bank to a Second Circuit reversed the district court’s merchant’s bank every time a customer decision, explaining that “LIBOR forms The cases, which are currently docketed completes an in-store sales transaction a component of the return from various in the Eastern District of Pennsylvania and with a payment card. The EC found LIBOR-denominated financial instruments, the Southern District of New York, will in 2007 that MasterCard infringed EU and the fixing of a component of price see motions to dismiss filed soon, though competition law by setting a minimum violates the antitrust laws.” Moreover, the the plaintiffs optimistically predict that price for its MIFs. In doing so, MasterCard panel held that a plaintiff alleging horizontal this could be as far-reaching and broad inflated the cost of card acceptance price-fixing is not required to prove as the Auto Parts litigation, so additional by retailers (which increased consumer antitrust injury. On remand, the defendants complaints may be forthcoming.149 prices) without any additional efficiencies further argued that the case was outside of or benefits. Visa had previously avoided a the jurisdiction of U.S. courts, because the No-Poaching Agreements: In re High-Tech liability decision by offering commitments plaintiffs failed to show that the banks sold Employee Antitrust Litigation. The U.S. (i.e., entering into a consent decree-like price-fixed products in the U.S. According District Court for the Northern District of agreement) that eased the EC’s concerns. to well-established case law, U.S. courts California put an end to a longstanding can assert jurisdiction over foreign conduct dispute concerning no-poaching Twelve British retailers—including when the harmful effects are purposefully agreements between a number of Silicon Marks&Spencer and Tesco—filed

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damages claims with the UK High Court under the new UK opt-out class action as it remains to be seen what the new of Justice, Commercial Court against Visa regime in force since October 2015, which government’s position will be with respect in 2013.151 They allege they overpaid on introduced for the first time the possibility to antitrust. A return to conservative credit and debit card transactions for a for U.S.-style class actions to be brought Republican politics may actually result in period going back to 1977. The High Court in the UK. less enforcement of antitrust regulations, struck out claims dating prior to 2007 in which would likely lead to a decrease in applying a six-year limitations statute. A British Airways, Europcar UK, Transport civil antitrust cases. few days before the trial opened with the for London, and Dixons Carphone have In the U.S., district and circuit courts remaining plaintiffs on November 14, 2016, filed similar follow-on lawsuits against will likely wrestle next year with the Tesco reached a settlement with Visa for MasterCard, alleging overpayment of interpretation of recent Supreme Court about £500 million ($630 million). 153 MIFs. cases defining the boundaries of class

action litigation. In particular, courts In September 2016, Walter Merricks, will consider the issue of the use of a former Chief Financial Services Outlook for 2017 representative samples (such as statistical Ombudsman, filed a class action against 154 MasterCard alleging the same violations as We expect that 2017 will likely continue averages) to establish class-wide injury, in the 2007 EC decision.152 Merricks seeks the upward trend in the number of as well as the sufficiency of a violation of to represent a putative class composed of civil antitrust actions filed, especially if a statutory right to satisfy the standing 155 46 million UK consumers that purchased government agencies continue to initiate requirement of injury-in-fact. goods between 1992 and 2008 from broad, industry-wide investigations WSGR represented numerous clients businesses accepting MasterCard as they have, for instance, in generic in landmark decisions in 2016, and will payments. The plaintiffs estimate damages pharmaceuticals. However, with the assuredly be at the forefront of antitrust as high as £14 billion ($18.7 billion). The regime change in the U.S., it is difficult to civil litigation during next year as well. case is the largest collective action filed make sweeping assertions or predictions,

Conclusion As our Antitrust Year in Review illustrates, We anticipate that 2017 may be a year of In closing, we would like to acknowledge 2016 proved to be a very active year for new challenges and continued change, and thank the members of WSGR’s key matters, from U.S. and global mergers both in the U.S. and globally. We look antitrust practice who contributed to to domestic civil and criminal disputes and forward to the opportunity to continue the content of the 2016 Antitrust Year in global cartel matters. To be sure, the past keeping our clients and colleagues Review, including Franklin Rubinstein, year presented antitrust practitioners and updated on the latest developments in the Charles Biggio, Susan Creighton, businesses with a broad range of national areas covered in our report, particularly as Jamillia Ferris, Jonathan Jacobson, Paul and international regulatory challenges, we expect WSGR’s antitrust practitioners McGeown, Chul Pak, Michael Rosenthal, as well as constantly shifting policy and to continue to play a significant role in Mark Rosman, Scott Sher, Seth Silber, enforcement landscapes. Now, as of this matters of importance throughout the year. Jeff VanHooreweghe, Stuart Chemtob, report’s issuance, we witness the close of Joshua Wright, David Reichenberg, Jeffrey an eventful and dynamic period as the U.S. Once again, should you have any Bank, Deirdre Carroll, Justin Cohen, Roisin transitions from one administration questions or comments on any of Comerford, Takeyoshi Ikeda, Yuan Ji, Ben to another. the matters, trends, or controversies Labow, Jack Mellyn, Gabriel Orazi, Ted discussed in the report, we invite you to Serra, Brad Tennis, Bastian Voell, and contact your regular WSGR attorney or a Daniel Weick. member of the firm’s antitrust practice.

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About WSGR’s Antitrust Practice

WSGR’s antitrust attorneys are uniquely Chambers USA characterized them as agencies, antitrust litigation, and issues positioned to assist clients with a “a dominant firm for matters involving the involving intellectual property, consumer wide range of issues, from day-to-day hi-tech sphere, acting for many of the protection, and privacy. We advise counseling and compliance to crucial bet- most prominent technology firms,” with a clients on a full range of issues, including the-company matters. Our accomplished “deep and diverse bench of outstanding pricing, distribution, vertical restrictions, team consistently is recognized among practitioners.” standard-setting activities, joint ventures, the leading antitrust practices worldwide and patent pooling. Working with by such sources as Global Competition Based in New York City, Washington, Fortune 100 global enterprises as well Review, Chambers Global, and Law360. D.C., San Francisco, Silicon Valley, and as venture-backed start-up companies, In fact, Global Competition Review Brussels, our highly regarded antitrust our attorneys have expertise in virtually hailed the group as “perhaps the best attorneys advise clients with respect every significant industry sector, including antitrust and competition practice for to mergers and acquisitions, criminal technology, media, healthcare, services, high-tech matters in the world,” while and civil investigations by government transportation, and manufacturing.

To view the complete listing of endnotes for this report, please visit https://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/antitrust/2016-yir.htm.

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