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Wednesday, March 16, 2016, 5:46 PM

If Republicans Allow A Hearing on Merrick Garland's Nomination, They Should Ask Him About Teeth Whitening

Authored by: Jason Hicks
Let me stipulate that trying to evaluate a Supreme Court nominee based on a 30-year old law review article is a bad idea.  That said, some of the issues that Obama nominee Merrick Garland wrote about in the mid-1980s are still relevant today.  These issues have surfaced, surprisingly enough, in cases involving occupational licensing and teeth whitening.

Before becoming a judge on the D.C. Circuit, Merrick Garland was an attorney at Arnold & Porter and a professor at Harvard Law School, where he taught antitrust law.  He wrote several articles for the Harvard Law Review and Yale Law Journal on the scope of judicial review for administrative regulations and the state action doctrine.  In the articles, Mr. Garland argued for a deferential, non-intrusive role for the judiciary.  Courts should review administrative regulations to ensure fidelity to the intent of Congress and should not preempt the policy decisions of states through antitrust law or by restricting the state action doctrine.

The state action doctrine immunizes state regulations from challenges under the Sherman Act.  In order to receive immunity, the challenged restraint must be "clearly articulated" as state policy and "actively supervised" by the state.  California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).  At the time Garland wrote his article, some had argued that the state action doctrine should be narrowed to allow for the preemption of "economically inefficient" state regulations, especially when the regulations originated from the political efforts of private parties who stand to benefit from the restraint.

Garland, however, argued against such a revision, explaining:
The judiciary should not interfere under the aegis of the antitrust laws with a state's political decision, however misguided it may be, to substitute regulation for the operation of the market.  Despite protestations, the revisionist proposal is little more than a return to the era the Court left behind when it repudiated Lochner v. New York.  The substitution of 'antitrust' for 'due process' and 'economic efficiency' for 'liberty of contract' does not make the assault on democratic politics any more palatable.
Garland, Antitrust and State Action: Economic Efficiency and the Political Process, 96 Yale L.J. 486, 487-88 (1987).

Thirty years later, this same debate about economic liberty and the state action doctrine has resurfaced in the context of occupational licensing--specifically teeth whitening.

Like many professionals, dentists are licensed and regulated by state dental boards.  Those who are not licensed are prohibited by state law from practicing dentistry.  There is some dispute, however, about whether teeth whitening procedures -- i.e. shining an LED lamp into the mouth of a patient after application of a peroxide-based whitener -- can be performed by non-dentists.  Not surprisingly, dentists say no.

The North Carolina State Board of Dental Examiners, for example, issued cease-and desist letters to non-dentists offering teeth whitening services.  When the Federal Trade Commission brought a lawsuit against the Board claiming that it was improperly seeking to protect its members from competition, the Board argued it was immune under the state action doctrine because it was a government agency.

The case went all the way to the United States Supreme Court, which held in a 6-3 decision that the Board was not immune because it was not "actively supervised" by the state.  North Carolina State board of Dental Examiners v. Federal Trade Commission, __ U.S. __, 135 S.Ct. 1101 (2015).  In clarifying and narrowing the state action doctrine, the Court explained: "When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest."

In another case decided a few months later, teeth whiteners challenged a ruling by the Connecticut State Dental Commission that only a licensed dentist could shine the LED light into the mouths of customers during teeth whitening procedures.  Instead of an antitrust case, this was a constitutional challenge based on the Equal Protection and Due Process Clause.  The Second Circuit Court of Appeals rejected the challenge, however, finding that there was a rational basis to uphold the regulation because, however tenuous, there was at least some evidence that LED lights may cause some harm to some consumers.  Sensational Smiles, LLC v. Jewel Mullen, 793 F.3d 281 (2015).  

After noting that this was not an antitrust case, the Second Circuit explained that even if the true purpose of the regulations was naked economic protectionism, that still would be constitutional.  
Much of what states do is to favor certain groups over others on economic grounds.  We call this politics.  Whether the results are wise or terrible is not for us to say, as favoritism of this sort is certainly rational in the constitutional sense...
To hold otherwise would be to interpret the Fourteenth Amendment in a way that is destructive to federalism and to the power of the sovereign states to regulate their internal economic affairs. As Justice Holmes wrote over a century ago, “[t]he 14th Amendment does not enact Mr. Herbert Spencer's Social Statics.” Lochner v. New York, 198 U.S. 45, 75, 25 S.Ct. 539, 49 L.Ed. 937 (1905) (Holmes, J., dissenting)
The Second Circuit's Sensational Smiles decision has been criticized, particularly from the right.  A few weeks ago, George Will devoted an entire column attacking the teeth whitening cartel and arguing for more aggressive judicial review of economic regulations.  If the Supreme Court refused to take the appeal, Will argued, government would have "an unlimited licence ... to impede access to professions, reward rent seekers and punish consumers, thereby validating Americans' deepening disdain for government."

While the Supreme Court recently declined the cert petition in Sensational Smiles, this issue is likely to come before the Court in the next few years because there is a clear Circuit split between the Second and Tenth Circuit on one side and the Fifth, Ninth and Sixth Circuits on the other side, who reject economic protectionism as a rational basis for regulation under the Fourteenth Amendment.

While I do not presume to know how Judge Garland would answer these questions today, it is noteworthy that he previously argued that courts should defer to state policy decisions even if the decision was economically inefficient and the product of political pressure from market participants.  Both the Second Circuit's opinion and Garland's law review article argue that scrutinizing these types of economic regulations would lead to a return of the discredited "Lochner era," where a conservative Supreme Court invalidated New Deal legislation based on notions of economic liberty.

This would be an ideal avenue of questioning for Judge Garland as a Supreme Court nominee:
  • "Do you agree that naked economic protectionism is a legitimate basis for government action?" 
  • "Have your views on the state action doctrine changed since you wrote that law review article?"
  • "What role does economic theory have in the judicial review of state or federal regulations?"
  • "Do you think the current Supreme Court is in danger of returning to the Lochner era?" 
  • "Where do you get your teeth whitened?" 
But since the Republicans do not appear willing to hold a hearing, all that we can do is read a 30 year-old law review article and speculate as to how Judge Garland would answer these questions.

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Monday, March 14, 2016, 11:13 AM

Law360.com Publishes Jason Hicks Article on Twombly Motion to Dismiss Standard

Authored by: Jason Hicks
Law360.com published an article that I wrote about a recent divided Fourth Circuit decision on the pleading standard for a motion to dismiss an antitrust conspiracy.  In the article, I ask whether Twombly's "plausibility" standard is a type of Rorschach test that reveals a judges preconceived notions.  Is there an objective standard that can be consistently applied?  Or is "plausibility," like beauty, in the eye of the beholder.  Lastly I offer some practical advice for antitrust litigators when drafting a complaint or asserting/opposing a motion to dismiss.

Click here to read the Law360.com article.

Click here to read the blog post.

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Tuesday, February 02, 2016, 11:51 AM

Is "Plausibility" a Rorschach Test? The Fourth Circuit's Divided Opinion on Twombly's Motion to Dismiss Standard

Authored by: Jason Hicks
A recent Fourth Circuit cases demonstrates the inherently subjective nature of the "plausibility" standard used to evaluate a motion to dismiss under Rule 12(b)(6).  This standard, first articulated by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), requires a district court to look beyond the face value of allegations in a complaint to determine if they are, in fact, "plausible."  The Supreme Court recognized that determining "plausibility" would be a "context-specific task that requires the reviewing court to draw on its own judicial experience and common sense."  The problem, however, is that different judges have different "experiences" and different notions of "common sense."

Those differences are on full display in the Fourth Circuit's opinion in SD3, LLC v. Black & Decker (U.S.) Inc. et al., 801 F.3d 412 (4th Cir 2015).  The opinion is worth reading both for its in-depth analysis of the "plausibility" standard and for the pithy back-and-forth attacks between the judges.

In this antitrust case, the plaintiff alleged that all of the major table-saw manufacturers conspired to boycott plaintiff's "SawStop" safety technology to keep it off the market.  The district court granted defendants' motion to dismiss, finding that the complaint did not plausibly allege an "agreement" or "conspiracy," a necessary element under Section 1 of the Sherman Act.

On appeal, a two-judge majority of the Fourth Circuit reversed, finding that the complaint had adequately alleged a conspiracy because plaintiff had alleged parallel conduct among the defendants plus additional factors suggesting an agreement, thus meeting the "parallel plus" standard under Section 1.  The majority criticized the district court for confusing the motion-to-dismiss standard with the standard for summary judgment and, in so doing, applying "a standard much closer to probability" than the "plausibility" standard from Twombly.

In a strongly worded dissenting opinion, Judge Wilkinson attacked the majority for misapplying Twombly.  The vigor of the dissent prompted Judge Wynn, of the majority, to write a separate and equally caustic concurring opinion taking shots back at the dissent.

Apart from the entertaining back-and-forth between the judges, this opinion displays the wide, yet hard to define, difference between something being plausible and implausible.  All three of the judges on the panel read the same complaint, and they all agree as to the elements of an antitrust claim and the standards for analyzing a motion to dismiss.  Although both sides quote the same language from Twombly, the real difference between the dissent and the majority/concurrence is how they apply Twombly to the allegations in the complaint.  This appeal did not involve a legal issue or a disputed fact so much as different perspectives or outlooks.

This case shows that "plausibility," like beauty, is in the eye of the beholder.  One judge looks at the allegations and declares them implausible.  Another looks at the same allegations and sees them as plausible.  When legal standards turn on something as amorphous as "plausibility," it is not surprising that there are such widely disparate opinions from very smart and very well-meaning judges.

It is somewhat surprising, however, that the judges engaged in such heated rhetoric when they all agree on the substantive and procedural rules.  This is not a case where the majority believes in X and the dissent believes Y.  Perhaps it is this inability to precisely describe the difference between believing something plausible and believing it implausible that gives rise to the personal attacks in this case.  One side cannot claim that the other side applied the wrong rule, so they attack each other's judgement, character or motives--sometimes in Latin and sometimes IN ALL CAPITAL LETTERS!

Whatever the reason, the dissent and concurrence are littered with caustic, sarcastic, and pithy attacks at each other.  The criticisms are so well written, that they need to be quoted at length to be fully appreciated:
WILKINSON, Circuit Judge, concurring in part and dissenting in part:
The majority's view of modern commerce is unfortunate...
I would suggest, most respectfully, that the majority has committed basic conceptual errors and that the consequences of those errors, which the majority prefers not to face and to dismiss as policy, are regrettable....
Twombly counsels that we not leap to pejorative explanations when legitimate business considerations are more likely at play....
... we should [not] rush too quickly to drape innocent commercial activity in sinister garb.  
The majority however, adopts the reverse sequence.  It fashions a template for the frustrated market participant: Whenever routine business decisions don't go your way, for whatever reason, simply claim an industry conspiracy under the Sherman Act and the courts will infer malfeasance.... WARNING: HOLDING OR ATTENDING THIS TRADE ASSOCIATION MEETING WILL INCREASE YOUR EXPOSURE TO ANTITRUST SUITS....
The majority's cardinal conceptual error lies in the adoption of an ends-based approach to parallel conduct in a circumstantial antitrust case... The majority thus uses its ends based analysis to reward the least marketable products with the greatest possibility of success.  WARNING: FAILURE TO ADOPT THIS PRODUCT FOR WHATEVER REASON WILL INCREASE YOUR EXPOSURE TO ANTITRUST SUITS....
The majority alights on a minor motif of that Supreme Court decision [Twombly], while leaving its main point wholly unobserved....  Put simply, the majority proceeds as if Twombly were at most persuasive authority, and not very persuasive authority at that....
The majority refuses to undertake this second, more analytical step [i.e., looking beyond the face value of the allegations to  determine if they are "plausible"].  My concurring colleague simply wishes it away.  There is a time warp here, a nostalgia for the old pleading ways and days.  Those earlier standards were easier for us, I admit.  But our nostalgia now flies in the face of a controlling Supreme Court decision....
The majority's assurance that of course district courts can control discovery is the sort of appellate wand-waving that ignores every reality on the ground...
With its its invented version of Twombly, the majority allows plaintiffs to contort normal marketplace behavior into a potential antitrust violation....
The majority's ready acceptance of [plaintiff's] unsupported superiority assumption is part of the fallacy of its ends-based perspective ....
The majority thus sets a nifty trap: if defendants engage in similar means, it's collusion; if they engage in dissimilar means, it's deceit. Given those options, businesses should either keep to themselves or close up shop....
The majority ignores all of this in its rush to flatten pleading standards, make communications perilous, and consign antitrust law to isolationist ends.  It is an odd time for the majority to assume a more isolationist stance.  It raises the risk that antitrust law will render American companies comparatively incommunicative and thus at a competitive disadvantage at the very time global commercial interactions are becoming more commonplace....
If the complaint had spun even a remotely plausible narrative of impermissible collusion, I should have been the first to waive it through the Twombly gates...  But I cannot conspire [pun intended, one must assume] with my colleagues in the demise of the Twombly decision.

WYNN, Circuit Judge, concurring:
"Judges ought to remember that their office is jus dicere, and not jus dare--to interpret the law, and not to make law or give law." ... Respectfully, the dissenting opinion strays beyond our limited review here and encroaches on policy issues best left to other branches of government...
First, rather than confront the issues actually in play, the dissenting opinion dresses up points of agreement as dire rifts.  The dissent asserts, for example, ... [listing things asserted by the dissent] ... Nonsense....
Second, rather than address [plaintiff's] complaint as it is written, the dissenting opinion employs verbiage like "commercial interactions" to revise the complaint so as to omit the allegations of a secret agreement to refuse to deal.  Again sounding in policy, the dissenting opinion asserts ...  Thus, the dissenting opinion editorializes ...  Yet, when read with a judicious eye, [plaintiff's] complaint clearly alleges ...
Ignoring such specific allegations to [plaintiff's] detriment is nothing shy of an all-out perversion of the generous lens through which we must view the complaint...
Finally, the dissenting opinion focuses on its own policy preferences, thereby abandoning this Court's limited role--which is simply to assess whether [plaintiff] plausibly alleges the elements of its Section 1 claim....
The dissenting opinion embarks on yet another odyssey into policy, as well as assumptions untethered to reality, must less the complaint at issue here ...
In sum, courts exist to resolve disputes, not to pervert procedural rules into swords with which to fight policy battles...  Accordingly with all due respect for the dissenting view, I joint in the judicious and well-reasoned majority opinion.

This does not sound like two judges who agree on both the procedural and substantive law, yet they do.  The difference is one of perspective, which probably explains the heated rhetoric.

Interestingly, the Fourth Circuit's panel opinion may not be the last word on this case.  A petition for certiorari is currently pending with the the United States Supreme Court.  Will the Supreme Court want to weigh in on the proper way to apply the "plausibility" standard it articulated in Twombly?  If so, will the Supreme Court be able to clarify the standard to assist lower courts?  Or is "plausibility" really just a Rorschach test that reflects back on the subjective beliefs of the judge?  Is there an objective standard here, or is "plausibility" merely in the eye of the beholder?  It will be interesting to watch how this dispute over civil procedure develops...

DISCLAIMER: Womble Carlyle represented one of the defendants in the district court case, prior to the Fourth Circuit appeal discussed in this post.

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Monday, August 17, 2015, 9:03 AM

FTC Issues Guidance on Scope of "Unfair Competition" Under Section 5 of FTC Act

Authored by: Amanda Norris Ames
In a short statement issued yesterday, the FTC issued guidance regarding how it will interpret Section 5 of the FTC Act. Section 5 is a little-used antitrust statute for which the FTC has issued no guidance in the Act’s 100-year history. It states that “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce” are unlawful. When drafting the statute, however, Congress did not define specific acts or practices which would constitute unfair competition, leaving considerable uncertainty in the interpretation of the law. 

While most of the Commission’s enforcement actions have been brought pursuant to the Sherman or Clayton Acts, Section 5 prohibits acts and practices which fall outside the scope of those statutes. In other words, Section 5 is broader than the Sherman and Clayton Acts, but the boundaries of “unfair competition” under the FTC Act have never been clearly defined.

The FTC’s new one-page policy statement describes three principals to which the Commission will adhere when enforcing Section 5 on a “standalone” basis. First, the guidance calls on the FTC to promote “consumer welfare,” which is the “public policy underlying the antitrust laws.” Second, the statement provides that any act or practice challenged under Section 5 will be evaluated under a framework “similar to the rule of reason,” meaning that the practice must “cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.” Finally, the guidance notes that the FTC will be less likely to challenge an act or practice under Section 5 if such practice can be addressed through enforcement under the Sherman Act or Clayton Act. 

The agency has suggested that these short principals will allow it to keep a flexible approach to enforcement of the statute, but some critics argue that the guidance is vague and does not go far enough to address the ambiguities in the law, leaving businesses unsure of what could trigger an investigation. Prior to the announcement of these guidelines, the FTC has used the vague standards of Section 5 to negotiate settlements in several high profile and controversial cases.

The FTC has emphasized that this new guidance does not signal new or increased enforcement priorities. For example, Commissioner Joshua Wright recently stated that the new guidelines would not lead to an “explosion of litigation.” However, Wright’s fellow Republican-appointed Commissioner, Maureen Ohlhausen, dissented from the FTC’s guidelines because of her fears that the FTC’s “unbounded interpretation” of Section 5 “is almost certain to encourage more frequent exploration of this authority,” thus leading to more investigations and enforcement activity.

Given the lack of appellate case law interpreting the scope of Section 5, the FTC’s new guidance will, at the very least, provide a framework for predicting what behavior may constitute “unfair competition.” Going forward, companies will know that the FTC’s analysis of Section 5 will proceed along economic analysis similar to the rule of reason. As Commissioner Wright explained:

“The promotion of consumer welfare is a cornerstone of the FTC’s antitrust enforcement, and these principles reaffirm the agency’s legal framework in carrying out that important mission,” said FTC Chairwoman Edith Ramirez. “The statement formally aligns Section 5 with the Sherman and Clayton Acts.”

“The rule of reason has ambiguity too. Complaints about ambiguity in the rule of reason are really complaints about the antitrust laws generally. The fundamental point is that we now with this statement have a way to resolve those types of disputes grounded in modern antitrust instead of based upon the whims of whatever three commissioners happen to believe that day.”

In addition to providing clarity under federal law, it will be interesting to see whether the FTC’s guidelines will be used by state courts when interpreting the scope of “unfair competition” under state law. Most states have their own “little FTC Act,” which in some cases can be enforced by private parties in civil lawsuits. Some states have existing case law defining the scope of “unfair competition” under state law, which may be impacted by the FTC’s new guidance.

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Monday, August 10, 2015, 3:57 PM

Motorola and the Extraterritorial Application of US Antitrust Laws to Foreign Component Price Fixing Cartels

Authored by: Jason Hicks
Last month the Supreme Court declined to accept an appeal for two related antitrust cases involving an international price-fixing cartel.  The cases come from different circuits, one was criminal and the other civil, but they involve the same scheme by a group of Asian manufacturers to rig the prices of liquid-crystal display screens used in computers and cellphones.

The criminal case resulted in convictions, prison time, guilty pleas, settlements and large fines.  The follow-on civil case, brought by Motorola, was dismissed because the court found that US antitrust law did not allow a suit to recover damages from the high prices charged to Motorola's foreign subsidiaries, despite the fact that a large percentage of the phones assembled overseas were subsequently sold in the United States.

Under the Foreign Trade Antitrust Improvements Act of 1982, US antitrust law applies to anticompetitive activities outside the US when (1) the foreign conduct has a direct, substantial and reasonably foreseeable effect on US domestic commerce or import trade and (2) the effect gives rise to a claim under the Sherman Act.

The Seventh Circuit's decision, authored by Judge Richard Posner, held that Motorola Mobility, LLC, a US-based technology company, could not recover damages incurred on behalf of its foreign subsidiaries given that they were independent legal entities for tax purposes and the foreign subsidiaries were the direct purchasers of the LCD screens under Illinois Brick.  See Motorola Mobility, LLC v. AU Optonics, No. 14-8003 (7th Cir. Nov. 26, 2014).

In addition to lack of standing under the indirect purchaser doctrine, Judge Posner's opinion discussed the jurisdictional reach of US antitrust law:
The Supreme Court has warned that rampant extraterritorial application of US law "creates a serious risk of interference with a foreign nation's ability independently to regulate its own commercial affairs." [quoting from the Empagran case] ...
Motorola’s foreign subsidiaries were injured in foreign commerce—in dealings with other foreign companies—and to give Motorola rights to take the place of its foreign companies and sue on their behalf under U.S. antitrust law would be an unjustified interference with the right of foreign nations to regulate their own economies. The foreign subsidiaries can sue under foreign law—are we to presume the inadequacy of the antitrust laws of our foreign allies? Would such a presumption be consistent with international comity, or more concretely with good relations with allied nations in a world in turmoil? To quote from the Empagran opinion again, “Why should American law supplant, for example, Canada’s or Great Britain’s or Japan’s own determination about how best to protect Canadian or British or Japanese customers from anticompetitive conduct engaged in significant part by Canadian or British or Japanese or other foreign companies?”
After finding that Motorola's private lawsuit for damages had no merit, Judge Posner noted that the Justice Department filed an amicus brief arguing that the Justice Department would have jurisdiction to investigate and criminally prosecute under US antitrust laws conduct that has a direct, substantial and reasonably foreseeable effect on domestic US commerce.  A price-fixing scheme involving component parts that were assembled overseas with the resultant product sold into the United States may satisfy this jurisdictional test, even if Motorola itself did not have standing to pursue its damges claim.  While the Justice Department may be able to prosecute foreign price-fixing cartels, and indeed did so in the related criminal case, that does not mean the same conduct gives rise to antitrust damages remedy for US-based companies, like Motorola, who were only derivatively injured by the price-fixing cartel.

The bottom line seems to be that the Government can bring some antitrust cases when private plaintiffs cannot, and US companies that chose do to business through foreign subsidiaries cannot "pick and chose from the benefits and burdens of United States corporate citizenship."

The Supreme Court denied to accept the appeals from either the criminal case or the civil case, thus leaving these cases (and the lessons from them) intact.  More information can be found in this New York Times article and Wall Street Journal article.

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Tuesday, April 21, 2015, 4:25 PM

FTC Seeks to Secure First Disgorgement in Nearly a Decade

Authored by: Brian Hayles

The FTC announced yesterday that Cardinal Health, Inc. (“Cardinal”) has agreed to pay $26.8 million to resolve its investigation into the company’s alleged anticompetitive behavior.  If approved by a federal court, the settlement would mark the FTC’s first disgorgement obtained in a competition case in nearly a decade and would stand as the second-highest antitrust disgorgement deal ever.
In a Complaint filed in the Southern District of New York, the FTC outlined a pattern of conduct by Cardinal aimed at monopolizing the market for the sale and distribution of radiopharmaceuticals.  Radiopharmaceuticals -- drugs that are prepared by combining a radioactive isotope with a chemical agent -- are compounded and distributed by radiopharmacies.  These drugs are used in a variety of nuclear imaging procedures, such as cardiac stress tests.  Cardinal became the nation’s largest operator of radiopharmacies following its acquisition of Syncor International in 2003 and Geodax Technology in 2004. 

From 2003-08, Bristol-Myers Squibb (“BMS”) and General Electric (“GE”) were the only producers of heart perfusion agents (“HPA”), an essential input into certain radiopharmaceuticals.  According to the FTC, a radiopharmacy cannot profitably compete without obtaining the rights to distribute an HPA manufactured by either BMS or GE.  Cardinal allegedly engaged in a variety of tactics in order to secure de facto exclusive distribution rights to these BMS and GE products.  Such tactics included, for example, punishing BMS when it launched a plan to distribute its HPA product more broadly across the country.  This conduct, the FTC posited, impeded entry by other would-be radiopharmacy operators in 25 separate geographic markets and constituted a violation of Section 5 of the FTC Act.   
The Commission voted 3-to-2 to authorize the filing of the Complaint and pursue disgorgement.  Commissioners Ohlhausen and Wright issued separate dissenting statements noting their disagreement with the Commission’s approach.  In Commissioner Ohlhausen’s view, the evidence did not establish that Cardinal committed any antitrust violation, much less a clear one that required disgorgement.  Both Commissioners noted that, in 2012, the FTC withdrew its Policy Statement on Monetary Equitable Remedies in Competition Cases, leaving private parties with little meaningful guidance on when the agency would pursue disgorgement.      
Disgorgement has long been viewed as a remedy reserved only for the most egregious antitrust violations, such as price fixing.  In that sense, the Cardinal case could represent a sea change in the remedies sought by antitrust enforcement agencies.  On the other hand, the use of disgorgement here may turn on the unique facts underlying the Cardinal case -- including the fact that the alleged anticompetitive conduct ceased after 2008 -- making other conventional forms of relief impractical.  Time will tell.

 

Monday, April 06, 2015, 11:33 AM

Discussion of FCC's Effective Competition Rules

Authored by: Jason Hicks
Womble Carlyle attorney Mark Palchick along with American Cable Association President Matt Polka mull over the FCC’s proposal to make it substantially easier for cable companies to be found subject to effective competition and and thereby avoid rate regulations and its possible impact on cable television companies in the latest edition of Communications Daily. Palchick, who is a communications attorney and well-respected in the cable television industry, shares his thoughts on why changes to the FCC's effective competition rules could have ramifications beyond just rate regulation.

Palchick points out that a cable system that is found subject to effective competition would also have greater control over whether television broadcast stations must be carried on the Basic level of service.

“Sony, CBS, HBO and others are offering programming, including television broadcast programming, on over the top platforms. The proposed rule change will allow cable television operators to better respond to customer needs in this rapidly changing environment” Palchick said.

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Thursday, March 19, 2015, 9:28 AM

March (Appellate) Madness

Authored by: Amanda Norris Ames
It has been a few months since we updated on the O’Bannon antitrust case, where federal judge Claudia Wilken ruled last summer that the NCAA’s amateurism rules violated federal antitrust laws.  (You can read our previous articles here, here, here, and here.)  But this week, as the rest of the country filled out their brackets and geared up for the start of the NCAA tournament, the NCAA was getting ready for another battle – in the Ninth Circuit.  On Tuesday, the appeals court heard oral argument from both the NCAA and plaintiffs’ counsel, as the parties debated the lower court’s decision, which allowed limited compensation for the use of athletes’ name, image, and likenesses.  
Central to the parties’ argument was the interpretation of NCAA v. Board of Regents of the University of Oklahoma, a 1984 case regarding football television rights.  While the NCAA lost that case, one statement in that case has become central to the NCAA’s current “amateurism” defense:  “To preserve the character and quality of the ‘product,’ athletes must not be paid.”  In Tuesday's arguments, some of the judges seemed skeptical of the NCAA’s shifting definition of “pay,” they were also concerned about opening the door to “pay for play.”  (The full arguments can be watched here.)
We can expect a ruling in the upcoming months, though this is unlikely to be the final appeal in the case. 

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Monday, March 16, 2015, 2:58 PM

Jason Hicks, Amanda Norris Ames to Discuss Antitrust Risks in E-Commerce Pricing and Distribution

Authored by: Jason Hicks
With online sales now commonplace, counsel for retailers, distributors and manufacturers must be aware of the increased state and federal scrutiny of e-commerce pricing and distribution practices and take steps to ensure their clients are in compliance with all relevant antitrust laws.
Womble Carlyle attorneys Jason Hicks and Amanda Norris Ames will participate in a Webinar discussion on Antitrust Risks in E-Commerce Pricing and Distribution. The event takes place from 1-2:30 p.m. on Tuesday, March 24th.
The panel will review these and other key questions:
  • What are the challenges for online sellers in distinguishing between advertised prices and selling prices?
  • What is the e-commerce impact of the different state law approaches to the issue of whether minimum RPMs are illegal per se?
  • What steps can companies take to minimize antitrust exposure stemming from Internet distribution?
Jason Hicks, a partner in Womble Carlyle’s DC office, has experience litigating cases and counseling clients in a wide variety of matters involving contract disputes, business torts, federal and state antitrust laws, franchise laws, and unfair and deceptive trade practices.  In that regard, Hicks has represented clients in the manufacturing, defense, pharmaceutical, real estate and gaming industries.
Amanda Norris Ames focuses her practice on white collar criminal defense, antitrust law, complex civil litigation, and government investigations. Her experience includes litigating complex tax, bankruptcy, commercial and criminal matters at the federal level. Prior to entering private practice, Ames worked as a trial attorney in the Tax Division of the U.S. Department of Justice.

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Wednesday, February 25, 2015, 1:35 PM

Supreme Court Rules NC Dentist Board Not Immune From Antitrust Scrutiny

Authored by: Jason Hicks
Earlier this morning, in a 6-3 decision, the Supreme Court ruled that state professional boards comprised of active market participants are not immune from antitrust laws even though the boards are formally designated as a state agency, unless the state also provides active supervision of the boards' actions.

The case arose out of an FTC action against the North Carolina State Board of Dental Examiners ("Board") for issuing cease-and-desist letters to non-dentists offering teeth whitening services.  The Board claimed that the non-dentists were engaged in the unlicensed practice of dentistry.  The FTC, however, claimed that the Board was seeking to protect its members (licensed dentists who performed teeth whitening services) from competition from non-dentists charging lower prices.

The issue on appeal to the Supreme Court was whether the Board enjoyed state action immunity under Parker v. Brown, 317 U.S. 341 (1943), given that the Board was created by and designated as a "agency of the State" under North Carolina law.

The Court explained that "while the Sherman Act confers immunity on the State's own anticompetitive policies out of respect for federalism, it does not always confer immunity where, as here, the State delegates control over a market to a nonsovereign actor."  Although the Board was designated as a state agency under North Carolin law, "[s]tate agencies are not simply by their governmental character sovereign actors for purposes of state action immunity...  Immunity for state agencies, therefore, requires more than a mere facade of state involvement..." 

In this case, the Court was concerned that the Board was controlled by active market participants with a financial interest in the regulation at issue.  (Indeed, the Court noted that 8 out of the 10 Board members earned substantial fees from teeth whitening services.)

The Court explained:

Limits on state-action immunity are most essential when the State seeks to delegate its regulatory power to active market participants, for established ethical standards may blend with private anticompetitive motives in a way difficult even for market participants to discern...  In consequence, active market participants cannot be allowed to regulate their own markets free from antitrust accountability.

Thus, the Court held that state agencies that are controlled by active market participants must meet the two-pronged test set forth in California Retail Liquor Dealers Ass'n v. Midcal Aluminum Inc., 445 U.S. 97 (1980), to be afforded state action immunity.  That test had been created by the Supreme Court to determine whether a private trade association (wine merchants who were delegated price fixing authority under California law) was entitled to state action immunity.  The Midcal test requires that the State (1) articulate a clear policy to allow anticompetitive conduct and (2) provide "active supervision" of the anticompetitive conduct.

Today, the Court held that this "active supervision test is an essential prerequisite of Parker immunity for any nonsovereign entity -- public or private -- controlled by active market participants."  The Court stated:

State agencies controlled by active market participants, who possess singularly strong private interests, pose the very risk of self-dealing Midcal's supervision requirement was created to address...  This conclusion does not question the good faith of state officers but rather is an assessment of the structural risk of market participants' confusing their own interests with the State's policy goals.

In other words, the Court recognized that "specialized boards dominated by active market participants" are "more similar to private trade associations vested by States with regulatory authority," than to the more typical state agencies previously afforded state action immunity.  "When a State empowers a group of active market participants to decide who can participate in its market, and on what terms, the need for supervision is manifest."

Since the Board did not contend that its conduct was actively supervised by the State of North Carolina, the Board was therefore not entitled to Parker immunity.

The dissenting opinion (authored by Justice Alito and joined by Justices Scalia and Thomas) argued that the majority's ruling was an "unprecedented step" that would "create practical problems and have far reaching effects on the States' regulation of professions."  The dissent pointed out that state medical and dental boards are typically staffed by practitioners, and that there is nothing new about the suspicion that such boards were acting out of the interests of their members and not the public.  "As a result of today's decision, States may find it necessary to change the composition of medical, dental and other boards, but it is not clear what sort of changes are needed to satisfy the test that the Court now adopts." 

Among the questions raised by the dissent were:
  • What does it mean that a state agency is controlled by active market participants?  
  • What is a controlling number?  
  • Can something less than a majority suffice? 
  • Who is an active market participant?  
  • What is the scope of the market being analyzed?  
  • Must the market be relevant to the particular regulation being challenged?  
  • How much participation makes a person active?
The answers to these questions may eventually be worked out by lower courts or the FTC.  It will be interesting to see whether and how States change the makeup of professional boards or adopt new procedures to ensure that the actions of such boards are "actively supervised" by a non-market participant. 

In the meantime, I expect there will be an increase in the number of cases challenging alleged protectionist activity by state professional boards.

The Supreme Court's decision is available here:

North Carolina State Board of Dental Examiners v. Federal Trade Commission

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