Reckless Abandon and the Mongol Rally

Womble Carlyle is a proud sponsor of Team Reckless Abandon in the Mongol Rally. The Mongol Rally is a diminutive-car road rally that begins in Europe and ends in Ulan Bator, Mongolia. Our support of Team Reckless Abandon benefits Water.Org, a U.S.-based nonprofit organization committed to providing safe drinking water and sanitation to people in developing countries. The organization seeks to create a global awareness of the water supply crisis and to help people respond. They carefully invest donors’ funds in only the highest quality projects through locally-based water development organizations. Water.org’s most prominent spokesperson is the actor Matt Damon.

Follow Team Reckless Abandon, learn more about the race or make a charitable donation at http://www.wcsr.com/mongolrally or on Twitter at http://twitter.com/#mongoliaorbust.

California Court Relies on “Common Sense” in Rejecting Twombley Challenge

Perhaps there is life for conclusory antitrust claims after Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). On May 24, the United States District Court for the Central District of California denied a motion to dismiss allegations that Duro Bag Manufacturing Company (“Duro”) put one of its primary competitors−plaintiff Western Pacific Kraft, Inc. (“WPK”)−out of business. WPK−which is also supplied by Duro−alleged that by raising its prices to WPK, and concurrently lowering its own prices to WPK’s customers, Duro violated the California Business and Professions Code provision that prohibits secretly extending special privileges to certain purchasers. In other words, WPK alleges that Duro implemented a “price squeeze.”

Citing Twombly and Ashcroft v. Iqbal, 129 U.S. 1937 (2009), Duro countered that WPK’s allegations did not plead sufficient factual allegations to show that Duro’s price discriminations were “secret.” However, the Court acknowledged that even if Duro informed WPK it would no longer adhere to the old pricing arrangement, it still acted “secretly” by surreptitiously raising its prices to WPK’s customers. The Court also rejected Duro’s argument that WPK failed to adequately allege how it was injured: Because “virtually all of the plaintiff WPK’s major customers began buying paper products directly from defendant Duro,” Duro allegedly effectively ran WPK out of business.

Many would argue that WPK’s allegations are of the “conclusory” nature that Twombly proscribes. Nevertheless, the Court held that WPK’s allegations were sufficiently “plausible” to pass muster. The Court emphasized the need to rely on “judicial experience and common sense” in measuring a Twombly challenge, suggesting that courts should look outside the verbiage of Twombley and Iqbal. Is this “common sense” standard any different than Twombly’s “plausibility” standard? Both seem equally ambiguous. Moving forward, it will be interesting to see if other courts adduce similar reasoning in handling the litany of Twombly challenges that have become a staple in judicial dockets.

Google Investigation

After months of a rumors about government action against Google, there are reports that government agencies are begining to take action. On June 24, the Wall Street Journal reported that the FTC is primed to serve subpoenas on the internet giant.

A July 19, 2011 Bloomberg article states that DOJ and FTC (the two federal agencies charged with enforcing antitrust law) have agreed to divide responsibilities related to Google. The DOJ will review any planned acquisitions by Google for their possible effects on competition and the FTC will conduct a broad investigation of the company's dominance of Internet search. The European Union and various state Attorney Generals are conducting their own independent investigations.

Google's critics claim that it unfairly utilizes its search engine to advance its own services over those of rival providers. For example, the FairSearch Coalition, an organization of Google competitors, asserts that “Google engages in anti-competitive behavior across many vertical categories of search that harms consumers by restricting the ability of other companies to compete to put the best products in front of Internet users, who should be allowed to pick winners and losers online, not Google.” Google maintains that users can easily locate other service providers on its website, which was “built for users, not websites.”

Policy watchers believe the FTC probe could be the most important antitrust investigation since the Justice Department’s investigation of Microsoft in the 1990s. Since then, however, courts have significantly narrowed the scope of antitrust law. See, e.g., Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438 (2009); Fed. Trade Comm’n v. Rambus Inc., 522 F.3d 456 (D.C. Cir. 2008), cert. denied 129 U.S. 1318 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007). Therefore, it will be very interesting to see how the Google investigation is resolved. Stay tuned ...

FTC Announces Major Changes to Disclosure Requirements under HSR Antitrust Improvements Act

On July 7, the Federal Trade Commission (“FTC”) announced major changes to disclosure requirements under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”). Although intended to reduce the burden on the filing parties by eliminating certain disclosure requirements, the updated rules are likely to increase drastically the expense of HSR filings for most companies. The changes should take effect in mid-August, 30 days after they are published in the Federal Register.

The most significant changes include:

--Introduction of the concept of “associates,” which will now require companies to make disclosures for all “managed” entities;
--Additional requirements for offering memoranda and related materials; and
--Changes to required revenue data, specifically revenues derived from products manufactured outside the United States and sold into the country.

Associates: Perhaps most significantly, the changes to the rules introduce the new concept of “associates,” which the FTC defines to include entities under common management of the acquiring party, as well as all entities controlled or managed by these entities. Under the revised rules, acquiring parties must report information about associates’ significant minority holdings (defined as more than 5 percent, but less than 50 percent) in entities with revenues in North American Industry Classification System (NAICS) codes that overlap with the acquired business.

This change will affect hedge funds and private equity firms, which were not previously required to disclose information about holdings of affiliated companies with no direct involvement in the acquisition. For example, under the old rules two investment funds managed by a single organization would have been treated as separate entities, requiring that competitive information be provided only for companies held by a single fund.

Under the new rules, the acquiring fund would be required to make disclosures for all qualifying companies held by the second fund as well. Although this broader disclosure requirement may aid the FTC in assessing competitive interaction between companies held by commonly managed funds, the burden on the organization to prepare disclosures for each of its individual funds will likely result in significantly increased costs.

Increased Offering Document Requirements: The current rules require submission of documents prepared by or for an officer or director “for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets.” The new Item 4(d) formalizes the FTC’s practice of requiring parties to submit offering memoranda and other materials prepared by investment bankers up to one year before the date of filing. Required submissions include: all Confidential Information Memoranda prepared by or for any officer or director, and all surveys, studies, analyses, and reports prepared for any officer or director (whether for analyzing or evaluating synergies and/or efficiencies, or for analyzing or evaluating market shares, competition, competitors, markets, potential for sales growth, etc.). Item 4(d) will not only increase the cost of preparing HSR filings, but will also require companies to ensure that appropriate preservation policies are in place at the outset of any acquisition activity.

Revenue Data: Under current rules, both base-year (currently 2002) and current year revenue derived from domestic operations must be provided by means of a seven-digit NAICS code; revenue derived from foreign operations need not be reported. The revised rules eliminate the base-year reporting requirements, potentially reducing the disclosure burden for some parties. The revised rules also add a reporting requirement for revenue from products manufactured outside of the United States and sold into the country. This new requirement is likely to create a substantial amount of work for companies with extensive overseas manufacturing operations. In addition, companies must now make revenue disclosures using a more detailed 10-digit NAICS code. Although this latter change may eventually bring more consistency to HSR filings, it will likely create significant short-term burdens as companies are forced to re-categorize revenue.

This post is a reprint of a Womble Carlyle Client Alert written by David Hamilton, Brent Powell and Jacob Hansen. Click here for a printable version of this client alert.