BLOGS: Antitrust and Distribution Law Blog
Sunday, April 30, 2006, 10:45 AM
Thursday, April 27, 2006, 6:00 AM
HSR Gun-Jumping Case Results in $1.8 Million Fine
On April 13, 2006, the US Department of Justice ("DOJ") charged two companies with unlawful premerger coordination in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). In announcing a case settlement that requires the companies to pay $1.8 million in civil penalties, Thomas O. Barnett, Assistant Attorney General in charge of the DOJ's Antitrust Division, stated that "merging parties must continue to operate independently until the end of the premerger waiting period" under the HSR Act. He added that the DOJ "will vigorously enforce this requirement" against any company that prematurely attempts to assume "operationally control of a business that it is acquiring" (conductThe client alert continues to describe the actions scrutinized by the DOJ, including several negative covenants customarily found in merger and acquisition agreements as well as other actions including coordination of marketing and pricing, the related exchange of information, and assumption of key decision-making.
commonly referred to as "gun-jumping").
The DOJ's complaint charged QUALCOMM Incorporated ("QUALCOMM") and Flarion Technologies Inc. ("Flarion") with gun-jumping based on the terms of their merger agreement and certain conduct by the parties prior to the closing of the transaction. It is noteworthy that the DOJ brought this suit even though it concluded after its HSR premerger review that the proposed merger itself did not raise competitive concerns.
The client alert concludes:
Typically it is not just one contractual provision or action that creates the problem, but a series of smaller things that ultimately add up to gun-jumping. By working with antitrust counsel, a company involved in a merger or acquisition transaction can develop a plan that properly balances business needs with antitrust concerns.
To read more, click here.
Wednesday, April 26, 2006, 11:37 AM
FTC Summary Of Agreements Filed By Generic And Branded Drug Manufacturers And Commissioner Leibowitz's Speech On Pharmaceutical Patent Settlements
[S]tarting in the late 1990s, the Commission began to see pharmaceutical patent settlements in which brand firms paid generics to stay off the market. This conduct stopped, though, after we challenged several such agreements.
Having said that, recent appellate decisions that sanction this type of conduct are threatening the core of Hatch-Waxman. If the Supreme Court -- or Congress -- doesn't reverse this trend, the result could be a substantial increase in drug costs -- and substantial harm to the consumers who pay for these drugs.
The unquestioned vitality of that statute [Hatch-Waxman], though, is being threatened by the Schering and Tamoxifen decisions.
Sadly, these appellate decisions are affecting behavior in the market -- we believe adversely. We are seeing far more settlements today that potentially raise competition concerns than before these decisions.
In addition to seeing more settlements with payments today, we are also seeing another interesting trend. Brand firms are not stopping after settling with the first ANDA-filer; in some instances, they are settling with most or all subsequent filers to guarantee no generic entry by anyone until a date certain -- one that's usually near patent expiration.
Why are we seeing these settlement trends? First of all, pharmaceutical firms recognize that the Commission's view in Schering is under attack, and thus they believe they have less to fear from potential antitrust enforcement. If I were in-house counsel at a pharmaceutical company, that might be the way I'd view the world too.
Second, the growing threat of authorized generics may diminish a generic's
incentive to fight. If a first-filer believes that the brand will sponsor an authorized generic -- something that many expect today on any significant drug -- the profits to be made in the 180-day exclusivity period are reduced substantially, perhaps even cut in half. So the generic firm's calculus in the fight-versus-settle equation may now be more heavily weighted towards settling.
Rather than gamble on winning in court, a generic may decide that a fixed entry date and guaranteed revenue stream is a better value than rolling the dice. Indeed, by settling under terms that include the brand's promise not to launch an authorized generic -- the generic can even assure itself of some exclusivity down the road.
Tuesday, April 25, 2006, 1:59 PM
President Asks Federal And State Regulators To Investigate Illegal Price Manipulation In Gasoline Industry
You can read more about this story here, here, or here.
Saturday, April 22, 2006, 4:26 PM
How Many Chicago School Economists Does It Take To Change A Light Bulb?
Friday, April 21, 2006, 3:52 PM
FTC To Study Competitive Effects Of Authorized Generics Under Hatch-Waxman Act
The FTC notice explains:
In certain circumstances, the Hatch-Waxman Act allows the first-filing generic competitor of a branded drug a 180-day marketing exclusivity period. This marketing exclusivity period granted to certain generic first-filers, however, does not preclude competition from "authorized generics" that have an approved New Drug Application (NDA) on file with the FDA. Recently, brand-name drug makers have begun marketing authorized generics at exactly the same time the generic first-filer is beginning its 180-day marketing exclusivity period, leading to questions about the effects of authorized generics on pharmaceutical competition.
The goal of the Commission's study will be to assess the likely short- and long-run effects of market entry by authorized generics on generic drug competition. Among other things, the study will examine actual wholesale prices (including rebates, discounts, etc.) for brand-name and generic drugs, both with and without competition from authorized generics; business reasons that support authorized generic entry; factors relevant to the decisions of generic firms about whether and under what circumstances to seek entry prior to patent expiration; and licensing agreements with authorized generics. The data collected will enable the FTC to advance the understanding of the effects of generic entry on prescription drug prices -- in particular, the role of the 180-day exclusivity period in generic competition prior to patent expiration -- beyond what is available in the economic literature today.
Thursday, April 20, 2006, 5:16 PM
Fourth Circuit Affirms Dismissal Of Antitrust Suit Against Microsoft Under Indirect Purchaser And Antitrust Standing Doctrines
Wednesday, April 19, 2006, 12:55 PM
Supreme Court Rejects Presumption Of Market Power In Patent Tying Cases
The Court dismissed Loew's and International Salt as "a vestige of the Court's historical distrust of tying arrangements," which distrust has "substantially diminished" over time. In addition to relying on economic and scholarly criticism, the Court also relied on the Patent Misuse Reform Act and the Department of Justice/Federal Trade Commission's Guidelines for the Licensing of Intellectual Property. Although the Patent Misuse Reform Act was not directly applicable to the antitrust claims at issue, the Court found that the Act "invites the reappraisal of" antitrust doctrine, and that "it would be absurd to assume that" Congress did away with the market power presumption in the patent misuse context but intended the same conduct to constitute a felony under the antitrust laws. The Court's reliance on the Guidelines is also noteworthy because the Guidelines are merely the DOJ/FTC's enforcement policy.
Independent Ink is not likely to have an immediate effect in antitrust law because many of the regional circuits had already rejected the market power presumption. The opinion, however, may highlight the Court's willingness to reverse decades-old precedent when not consistent with a modern view of economics and/or the government's enforcement policies.
Tuesday, April 18, 2006, 1:54 PM
Court Narrowly Interprets "Good Cause" Provision Of State Franchise Statute
The court, however, held that "good cause" under the AFPA is limited to the eight occurrences specifically enumerated in the statute and did not extend to Volvo's stated reasons for termination. Next, the court found that the AFPA's "good cause" provisions, as interpreted by the court, was not per se invalid and did not create an excessive burden on interstate commerce under the Dormant Commerce Clause.
In addition to highlighting the pitfalls of state franchising laws, this case shows the unpredictability of the cannon of constitutional avoidance. Although some courts (including the Supreme Court, see here) have aggressively used this cannon to interpret statutes to avoid constitutional doubts, the Western District of North Carolina interpreted the AFPA without aid of the cannon and addressed the constitutional argument head-on.
Administrative Appeal Saves Client More Than $12 Million In USDA Assessments
Should Vertical Minimum Price Fixing Be Subject To The Rule Of Reason Or The Per Se Rule?
I recently attended a conference on Product Distribution and Marketing which highlighted this debate between government regulators and academic commentators. Professor Kenneth Elzinga, a distinguished Professor of Economics at The University of Virginia, opened the conference with a compelling argument why vertical minimum price fixing should be subject to the rule of reason. I took Professor Elzinga's Introduction to Economics class as an undergraduate at The University of Virginia.
That afternoon, FTC Commissioner Pamela Jones Harbour spoke in defense of the per se rule against vertical minimum price fixing. She pointed to the research of economist Robert L. Steiner and argued that, in her rather extensive experience enforcing antitrust laws (at both the state and federal level), she believed that the per se rule protected consumers. Commissioner Harbour had the last word on the subject, both literally and figuratively.
For a description of Commissioner Habour's reaction to Justice Thomas's "mis"characterization in Texaco, Inc. v. Dagher that all vertical price fixing is subject to the rule of reason, see this post.
Monday, April 17, 2006, 3:29 PM
FTC Proposes New Business Opportunity Rule
Does Dagher Imply That Vertical Minimum Price Fixing Is Subject To The Rule Of Reason?
I recently attended a conference on Product Distribution and Marketing, in which one of the speakers suggested that Justice Thomas's mischaracterization of State Oil may have been intentional and forecast the Court's application of the rule of reason to vertical minimum price fixing as well as vertical maximum price fixing.
At that point, FTC Commissioner Pamela Jones Harbour -- who was sitting a few rows in front of me -- spoke up. A supporter of the per se rule, Commissioner Harbour stated that she contacted Justice Thomas's chambers and pointed out that he had mischaracterized the State Oil holding. According to Commissioner Harbour, Justice Thomas's law clerk indicated that the omission of the word "maximum" was not intentional and that Justice Thomas was considering amending his opinion in Dagher.
For a description of the holding in Dagher, see this post.
For a description of a debate between a noted economist and an FTC Commissioner on whether the per se rule should apply to vertical minimum price fixing, see this post.
Issue Of Contract's Validity To Be Considered By Arbitrator
Buckeye, a class action in Florida state courts, involved contracts which contained a standard arbitration clause but also allegedly charged usurious interest. The trial court denied the motion to compel arbitration because the contract was void ab initio. The Florida Supreme Court agreed stating that to enforce an arbitration clause in an illegal agreement "would breathe life into a contract that not only violates state law, but also is criminal in nature."
The United States Supreme Court, however, reversed based on the Federal Arbitration Act and the "rule of severability" from Prima Paint Corp. v. Flood & Conklin Mfg. Co, 388 U.S. 395 (1967). Under Prima Paint, the arbitration agreement is to be treated as a separate agreement; thus "unless the challenge is to the arbitration clause itself, the issue of a contract's validity is considered by the arbitrator in the first instance." The Buckeye Court emphasized that this rule of severabiltiy is part of federal substantive law and applies in state courts when an agreement is subject to the Federal Arbitration Act.
As a law clerk for the 11th Circuit Court of Appeals, I worked on a similar case. See John B. Goodman, Ltd v. THF Construction, Inc, 321 F.3d 1094 (11th Cir. 2003). In that case, the 11th Circuit held that the arbitrator should decide whether a construction contract (containing an arbitration clause) was void ab initio because it was performed by an unlicensed contractor. The Supreme Court's recent decision in Buckeye reaffirms the Eleventh Circuit's analysis in John B. Goodman and strengthens the enforceability of arbitration agreements in state courts.
Supreme Court Holds Pricing Decisions Of A Joint Venture Not Per Se Illegal Horizontal Price Fixing
Section 1 of the Sherman Act prohibits "[e]very contract, combination ... or conspiracy in restraint of trade or commerce among the several States." 15 U.S.C. 1. Although Courts have long recognized that Congress intended to outlaw only unreasonable restraints of trade, some types of agreements are so plainly anticompetitive that no elaborate study is needed to establish their illegality. Horizontal price fixing -- price fixing agreements between two or more competitors -- is an example of conduct which the Court has labeled per se illegal.
The question in Dagher was whether Texaco and Shell Oil could be found per se liable for horizontal price fixing because they set the prices at which their joint venture, known as Equilon, sold its gasoline. Finding that participants in a joint venture are not per se liable for price fixing, the Court explained: "Texaco and Shell Oil did not compete with one another in the relevant market -- namely, the sale of gasoline to service stations in the western United States -- but instead participated in that market jointly through their investments in Equilon. In other words, the pricing policy challenged here amounts to little more than price setting by a single entity -- albeit within the context of a joint venture -- and not a pricing agreement between competing entities with respect to their competing products." Although this was price fixing in a literal sense, the Court held that it was not price fixing in the antitrust sense.
For a discussion of Justice Thomas's characterization of vertical price fixing in Dagher see this post.
Supreme Court Limits Liability for Price Discrimination
Plaintiff, an authorized dealer of Volvo trucks, sold specialty-ordered trucks through a competitive bidding process. Although Plaintiff complained that Volvo gave other Volvo dealers price concessions greater than the concessions Plaintiff typically received, Volvo's stated policy was to provide the same price concession to dealers competing over the same customer.
Reversing the district court and Eighth Circuit, the Supreme Court held that Volvo was not liable for price discrimination because Plaintiff's comparisons fell short of showing price discrimination for the same customer. The Court noted that Plaintiff did not "even attempt to show that the compared dealers were consistently favored vis-a-vis [Plaintiff]." Rather Plaintiff "simply paired occasions in which it competed with non-Volvo dealers for a sale to Customer A with instances in which other Volvo dealers competed with non-Volvo dealers for a sale to Customer B." The Court "declined to permit an inference of competitive injury from evidence of such mix-and-match, manipulable quality." The Court also noted that the primary purpose of antitrust law is interbrand competition, not intrabrand competition.
Although the full extent of the Court's decision in Volvo Trucks remains to be seen, the decision is a victory for manufacturers and franchisors because it makes it more difficult for a dealer-plaintiff to establish price discrimination, especially in a competitive bidding or special order context.
For a more detailed discussion of this case, see this Client Alert.
Sunday, April 16, 2006, 6:00 PM
Introducing the Womble Carlyle Antitrust and Distribution Law Blog
Blog authors will include Jason Hicks as well as other members of Womble Carlyle's Antitrust, Distribution, and Franchise Law Practice Group. Womble Carlyle attorneys represent clients in a wide variety of matters involving antitrust and trade regulation at the state, federal, and international levels. Members of this practice group regularly counsel clients and litigate cases involving federal and state antitrust laws, unfair and deceptive trade practices, business torts, advertising laws and regulations, unfair competition laws and trade libel.