Background
The pricing algorithm at issue in Dai is used in revenue management and profit optimization software (“RMS”). According to IDeaS Inc. (“IDeaS”)—the maker of the software and an additional defendant in the case—RMS “uses artificial intelligence (AI) to help hospitality professionals optimally price rooms, event spaces, and more” by “processing vast sums of data related to factors like supply and demand, local events, and historical records.” The software “automatically consider[s] all the circumstances that go into setting room prices on a given day” and then “automatically set[s] prices intended to maximize revenue.” According to the Dai plaintiffs, hotel chains enter into contracts with IDeaS to receive recommended prices, and generally implement those prices or else “use the pricing recommendations as a starting point to set prices.” See Complaint, ECF No. 1 ¶ 86, 24-CV-02537-JSW (N.D. Cal. April 26, 2024).
Allegations of Agreement
The Dai plaintiffs alleged that the defendant hotel chains conspired with IDeaS to fix hotel room prices nationwide. The complaint asserted a “hub-and-spokes” conspiracy wherein the hotel chain competitors make up the rim, with each forming a spoke through its vertical agreement with IDeaS—the hub of the conspiracy. See id. ¶¶ 96, 107, 24-CV-02537-JSW; see, e.g., In Re Musical Instruments & Equipment Antitrust Litig., 798 F.3d 1186, 1192 (9th Cir. 2015). Plaintiffs argued in opposing defendants’ motion to dismiss that the hotel chains had engaged in parallel conduct, with certain “plus factors” “support[ing] the inference of conspiracy.” ECF No. 105 at 15, 24-CV-02537-JSW (N.D. Cal. Oct. 28, 2024).
Specifically, the plaintiffs claimed that the hotel chains used IDeaS’s technology and charged supra-competitive rates based on its recommendations in parallel with each other, adopting the technology’s recommendations “in nearly every instance.” Dai, 2025 WL 2078835, at *4. As plus factors, plaintiffs claimed that the hotel chains would have been motivated to collude in this way by the economic pressures of the COVID-19 pandemic, IDeaS’s advertisements touting that the tool increases revenue by 8-15%, and the “inelastic” nature of the hotel market. Id. The plaintiffs also alleged that the hotels acted against their own economic interests by giving IDeaS confidential commercial information, knowing it would be shared with their competitors.
Analysis
The court rejected these allegations, finding them insufficient to support a hub-and-spokes theory of liability. Citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the court explained that a Section 1 complaint must include “enough factual matter (taken as true) to suggest that an agreement was made,” such that allegations “of parallel conduct and a bare assertion of conspiracy will not suffice.” Dai, 2025 WL 2078835, at *3 (quoting Twombly, 550 U.S. at 556) (cleaned up). Applying this standard, the court found the plaintiffs’ allegations of parallel conduct implausible because the complaint did not specify when any of the hotel chains began using IDeaS or when they began changing their pricing. Moreover, the facts and citations included in the complaint did not support the proposition that the hotels adopted these recommendations “in nearly every instance,” as the plaintiffs claimed. Id.
Nor was the court persuaded by the plaintiffs’ alleged plus factors. With the exception of their allegations regarding the constraints associated with the hotel market, the court found the plus factors too general and conclusory to support a reasonable inference of conspiracy. The court acknowledged that “high barriers to entry [into the hotel market] and expansion and demand for hotel rooms” “c[ould] be indicative of collusion,” but concluded that this factor was not “strong enough on its own to nudge Plaintiffs’ claims of a horizontal agreement across the line from possible to plausible.” Id. at *4.
Noting that courts analyzing similar claims have treated “the exchange of confidential information to be a decisive [plus] factor,” the court distinguished the complaint from those that survived motions to dismiss in In re RealPage, Inc., Rental Software Antitrust Litig., 709 F. Supp. 3d 478 (M.D. Tenn. 2023) (which we have previously covered here), and Duffy v. Yardi Systems, Inc., 758 F. Supp. 3d 1283 (W.D. Wash. 2024)—based on “more [extensive] detail[]” with respect to information sharing. Dai, 2025 WL 2078835, at *4. RealPage, a multidistrict litigation, initially involved two categories of plaintiffs: those alleging illegal conduct in the multifamily housing market (the “Multifamily Plaintiffs”) and those alleging illegal conduct in the student housing market (the “Student Plaintiffs”). The Multifamily Plaintiffs’ complaint survived; the Student Plaintiffs’ complaint did not. As the RealPage court put it in declining to dismiss the Multifamily Plaintiffs’ complaint, a two-way exchange of commercially sensitive information is highly persuasive indirect evidence of horizontal agreement because:
It would clearly not be in any individual Defendant’s economic self-interest to contribute its data to [the software] without knowing that it would benefit from its horizontal competitors doing the same. Put another way, the contribution of sensitive pricing and supply data for use by [the software] to recommend prices for competitor units is in Defendants’ economic self-interest if and only if Defendants know they are receiving in return the benefit of their competitors’ data in pricing their own units.
709 F. Supp. 3d at 512.
Indeed, the surviving complaints in RealPage and Duffy specifically pleaded that the subject software worked both by inputting nonpublic competitor data into the software and by generating recommendations based on that same data—thereby ensuring that the competitor-defendants benefitted from the otherwise economically irrational act of sharing their private commercial information with competitors. See Duffy, First Amended Complaint, ECF No. 113 at 71, 23-cv-1391-RSL (W.D. Wash. Nov. 3, 2023) (alleging that users of the subject software “appreciated the fact that if they shared data, they would get data from other clients . . . so that everybody was benefitting from the data”) (emphasis added); RealPage, Second Amended Complaint, ECF No. 530 ¶ 13, 23-md-03071 (M.D. Tenn. Sept. 7, 2023) (alleging that the defendants “provide[d]” software “with vast amounts of their non-public proprietary data” which “[wa]s fed into a common data pool” used to train the software’s algorithm and make pricing recommendations).
The plaintiffs in Dai tried to analogize those cases to theirs, quoting a 2017 statement by former Acting Chair of the Federal Trade Commission Maureen Ohlhausen claiming that antitrust law “prohibits using an intermediary”—whether in the form of a third party, or an algorithm—“to facilitate the exchange of confidential business information.” However, the court found that concept inapposite, as the complaint only alleged that the subject software “plugs” such information “into its algorithm,” without specifying whether or how this information is incorporated into the pricing recommendations used by competitors. Dai, 2025 WL 2078835, at *5. Absent such allegations, the Dai court found the plaintiffs’ more general allusions to the software’s use of confidential information insufficient to support a Section 1 claim.
Other Dismissals of Alleged AI Price Fixing
Dai is consistent with a growing body of precedent largely rejecting allegations of collusion and anticompetitive harm in the context of AI pricing software in the housing and hotel industries. For example:
As previously mentioned, In re RealPage, Inc., Rental Software Antitrust Litig., 709 F. Supp. 3d 478 (M.D. Tenn. 2023), dismissed the Student Plaintiffs’ complaint even though the Multifamily Plaintiffs’ complaint survived. The court rejected the Student Plaintiffs’ complaint not because of any deficiencies related to the alleged parallel conduct or plus factors, but because it failed to plausibly allege market power over 27 alleged regional submarkets throughout the United States. Id. at 530. While the Multifamily Plaintiffs’ case has continued to move forward, on August 8, 2025, one of the defendants, Greystar Real Estate Partners, LLC, announced that it reached a settlement in principle with the Multifamily Plaintiffs, as well as with the Department of Justice with respect to a lawsuit alleging similar Section 1 violations that is currently pending in the Middle District of North Carolina.
Conclusion
Given that the above cases all concerned similar software and overlapping alleged markets, yet saw different outcomes, the Dai dismissal highlights the level of detail required to successfully plead a “hub-and-spokes” conspiracy in the algorithmic-pricing context. Plaintiffs may need to include detailed allegations about how the technology at issue works in order to plead parallel conduct and plus factors that take it across the line to plausibility.
]]>Background
Both Edwards and JenaValve are currently developing transcatheter aortic valve replacement devices to treat patients with aortic regurgitation (“AR”). According to the Complaint, over 8 million Americans over age fifty suffer from AR, and about one in four people diagnosed with severe and symptomatic AR will die within a year if untreated. Complaint at 3. Currently, the only FDA-approved treatment for AR is surgical valve replacement through open heart surgery, called surgical aortic valve replacement. This treatment is not recommended for high-risk patients, including patients who are older, frailer, or have certain co-morbidities. Beyond this surgery, according to the FTC, “there is no suitable treatment option available for people with AR.” Id. at 4.
If successful, the transcatheter aortic valve replacement devices (“TAVR-AR” devices) that Edwards and JenaValve are developing would provide an alternative to open heart surgery and create treatment opportunities for high-risk patients. Id. at 4, 11. Treatment through TAVR-AR devices would offer a new and much less invasive procedure that only requires a small incision in the patient’s groin. Id. at 11. Other TAVR devices are commercially available, but those devices treat diseases other than AR. Id. at 12.
The FTC’s Lawsuit
The FTC alleges that Edwards and JenaValve are the “only two companies that are currently conducting clinical trials on TAVR-AR devices” and are “the only two competitive participants in the TAVR-AR device market” in the United States. Id. at 2, 15. The FTC argues that this competition “generate[s] superior clinical outcomes,” which ultimately benefits consumers. Id. at 21. For example, the FTC alleges that the companies currently compete in “clinical trial sites at major medical research institutions” and compete for the best “TAVR specialists to serve as principal investigators for their clinical trials.” Id. But if the proposed acquisition were “consummated,” the FTC claims, “the number of competitors in the TAVR-AR device market would shrink from two to one.” Id. at 16. The FTC alleges that the “relevant product market” is TAVR-AR devices that “are designed specifically to treat AR.” Id. at 14. The FTC also alleges that Edwards and JenaValve “cannot demonstrate that entry of other TAVR-AR device companies would be timely, likely, or sufficient to offset the anticompetitive effects” of the proposed acquisition. Id. at 22. Further, the FTC asserts that Defendants cannot show any “merger-specific efficiencies that would offset the likely and substantial competitive harm” from the proposed acquisition. Id.
As a result, the FTC argues, the proposed acquisition would “substantially lessen competition or tend to create a monopoly in the TAVR-AR device market in the United States by eliminating vigorous head-to-head competition between” Defendants, in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act. Id. at 16. According to a statement by the Director of the FTC’s Bureau of Competition, Daniel Guarnera, “Edwards’ attempt to buy the U.S. market for TAVR-AR devices would eliminate the head-to-head competition that has spurred innovation for lifesaving artificial heart valves . . . The FTC is taking action to stop this anticompetitive deal and ensure that JenaValve and Edwards . . . continue competing to innovate, expand treatment eligibility, and keep down costs.”
On the other hand, according a statement by Edwards, the FTC’s lawsuit will “limit the availability of an important treatment option for patients suffering from aortic regurgitation” and the proposed acquisition “will accelerate the availability, adoption and continued innovation of a life-saving treatment for patients suffering from AR.” Edwards “intends to continue to pursue regulatory approval of the acquisition.”
To succeed on its motion for a preliminary injunction, the FTC must show that it is likely to succeed on the merits of its claim, it is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in the FTC’s favor, and that an injunction is in the public interest. E.g., Starbucks Corp. v. McKinney, 602 U.S. 339, 346 (2024).
Following the Complaint, the FTC filed an unopposed temporary restraining order preventing the proposed acquisition until after January 9, 2026, or the fifth business day after the Court rules on the FTC’s motion for a preliminary injunction, whichever occurs earlier in time. United States District Court Judge Rudolph Contreras granted the FTC’s motion. FTC v. Edwards Lifesciences Corp. et. al., No. 1:25-cv-02569, ECF No. 8, at 2 (D.D.C. 2025 August 7, 2025).
Edwards and JenaValve’s answer to the Complaint is currently due on October 6, 2025. FTC v. Edwards Lifesciences Corp. et. al., No. 1:25-cv-02569, ECF No. 30, at 1 (D.D.C. 2025 August 12, 2025).
The FTC intends to begin administrative proceedings on the merits of its in-house claim on January 7, 2026.
]]>In denying the FTC’s motion for a preliminary injunction, the Ninth Circuit held that the FTC failed to make an “adequate showing as to its likelihood of success on the merits as to any of its theories” to block the merger. Opinion at 38. This allows the merged company to continue, since the acquisition was completed on October 13, 2023.
Background
In 2024, U.S. consumers spent $58.7 billion on video games. This sum includes sales of video games created by game developers, consoles that play games, and in-game transactions. Three primary manufactures create consoles: Microsoft, Sony, and Nintendo. Beyond consoles, consumers can play games on their computers, mobile devices, and tablets. The three primary console manufactures are vertically integrated. They create both games and consoles, while many more companies only develop games for consoles and non-consoles. For example, Microsoft manufactures its Xbox console that operates games created by both Microsoft and other developers. In contrast, Activision only develops games, such as the Call of Duty franchise, which is played on multiple consoles, including Xbox, Sony’s PlayStation, and other non-console platforms. The Call of Duty franchise has been the highest-selling game in every year but one since 2014.
Traditionally, game developers and console manufacturers generated revenue when selling physical copies of games or consoles. The three primary console manufactures often differentiated themselves by exclusively offering games on its console. Historically, consumers could only play multiplayer games with others playing on the same console.
Today’s video game market is more fluid. Many games, such as the Call of Duty franchise, offer cross-console gaming—i.e., a consumer playing Call of Duty on Xbox could play with another Call of Duty gamer on PlayStation. A new “library subscription” model has emerged, in which gamers pay a subscription fee to access a catalogue of games instead of individually purchasing each game. Some game developers also generate revenue through in-game micro-transactions.
In July 2023, Judge Corley of the Northern District of California denied the FTC’s bid for a preliminary injunction to stop the merger, holding that the merger was not “likely to substantially lessen competition.” District Court Opinion at 51. Judge Corley rejected the FTC’s theory that Microsoft would foreclose access to Call of Duty to its competitors and found that the “evidence points to more [as opposed to less] consumer access to Call of Duty and other Activision content.” Id. at 53. Judge Corley reasoned that consumers’ ability to play Call of Duty across multiple consoles “is critical to its financial success.” Id. at 36.
The Ninth Circuit Denies The FTC’s Appeal
The Ninth Circuit denied the FTC’s emergency motion for an injunction on July 14, 2023 and Microsoft officially completed the merger with Activision in October 13, 2023. See Fed. Trade Comm’n v. Microsoft Corp., No. 23-15992, ECF No. 25 (9th Cir. July 14, 2023).
In May 2025, a panel of the Ninth Circuit affirmed Judge Corley’s decision to deny the preliminary injunction. Opinion at 38.
In brief, as before the district court, the FTC argued that if Microsoft acquired Activision’s gaming content, including the Call of Duty franchise, it would foreclose Activision’s content to competitors, substantially reducing competition. Opinion at 24. According to the FTC, that would violate Section 7 of the Clayton Act (15 U.S.C. § 18), which requires showing that the acquisition “may substantially . . . lessen competition, or . . . tend to create a monopoly” in the relevant market, which is determined by product and geography. Id.
The Ninth Circuit rejected this argument, affirming the district court’s finding that the FTC failed to show it was likely to succeed on the merits of its Clayton Act claim, as required for an injunction. The district court had not abused its discretion, the panel found, because Call of Duty’s cross-console gameplay is central to its success; indeed, the record showed that Microsoft’s revenue from Call of Duty gameplay on its competitors’ console (PlayStation) was about double the revenue from the gameplay on Microsoft’s own console (Xbox). Further, the Ninth Circuit cited Judge Corley’s finding that cross-console multiplayer gameplay is wildly popular, and that Microsoft has a disincentive to limit Call of Duty to only Xbox players or it would risk financial and reputational harm from stripping access from millions of gamers of the nation’s most popular gaming franchise. The Ninth Circuit stressed that the FTC had not identified any instance in which an established multiplayer, cross-console game has been withdrawn from millions of active gamers. Opinion at 25.
The Ninth Circuit also highlighted Microsoft and Activision’s concessions throughout the years of this, and other, litigation. Since the merger was announced in 2022, Microsoft entered into agreements making the Call of Duty franchise available to its primary competitors—Sony and Nintendo. Id. at 15, 26-27. Microsoft also entered agreements with other competitors to bring Activision’s gaming content to platforms where it had been previously unavailable. Id. at 15. Further, in the mobile/tablet market, Activision divested its rights in non-European jurisdictions and granted its rights to a competitor game developer for all past games and all future games for the next fifteen years. Id. at 16. As such, Activision’s U.S.-based mobile/tablet games would be directly controlled by its competitor. Id. at 16.
The Ninth Circuit further rejected the FTC’s claim that the acquisition would lessen competition in the new “library subscription” market. The FTC again argued that Microsoft would foreclose access to Activision’s gaming content to its competitors in this market. Id. at 32. The Ninth Circuit disagreed, finding that Activision had long opposed offering its content in the library subscription market. Id. at 32-33. The Ninth Circuit further reasoned that foreclosing some access to competitors “after a vertical merger does not, without more, establish . . . that competition will be substantially lessened” as prohibited by the Clayton Act. Id. at 33; 15 U.S.C. § 18.
Accordingly, the Ninth Circuit held that the “FTC fail[ed] to make an adequate showing as to its likelihood of success on the merits as to any of its theories” and therefore “the district court properly denied the FTC’s motion for a preliminary injunction on that basis.” Id. at 38.
The FTC Drops In-House Challenge Following Its Unsuccessful Appeal
Just fifteen days after the Ninth Circuit issued its Opinion, the FTC dismissed its administrative proceedings against Microsoft on May 22, 2025. The FTC’s three-sentence order provides “that the public interest is best served by dismissing the administrative litigation in this case.” That dismissal follows the October 14, 2024 settlement of a private parallel class action challenging the merger.
]]>In the district court action, APL claimed that Matson “abuse[d] its dominant position in the U.S.-Guam shipping market,” “through an array of anticompetitive conduct, including disparaging APL to customers; threatening retaliation against customers who ship with APL; unfairly locking in its Guam customers through exclusionary loyalty programs and long-term contracts; offering APL capacity on its Guam-based vessels in order to force APL out of the market; and refusing to provide services to APL in Alaska, where both companies also operate.” Id. at *1.
Judge Cooper analyzed each form of allegedly exclusionary conduct separately, as he concluded he was required to do by D.C. Circuit precedent, including United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) (en banc). Under this approach, if none of Matson’s acts was exclusionary on its own, then Matson would be entitled to summary judgment. Matson, 2025 WL 870383, at *10 (citing Pac. Bell Tel. Co. v. linkLine Commc'ns, Inc., 555 U.S. 438, 457 (2009) (“Two wrong claims do not make one that is right.”)).
Judge Cooper described APL’s effort to claim anticompetitive conduct as a “blunderbuss approach.” Id. at *11. At oral argument, the court asked APL’s counsel for its best evidence. Counsel identified two things: (1) deposition testimony that Matson had threatened to retaliate against Home Depot, a key shipping customer, if it shipped with APL to Guam and (2) Matson’s allegedly retaliatory actions against APL in Alaska. Id.
The court found that the testimony about threatening Home Depot—which came from APL employees who relayed statements from a now-deceased Home Depot executive—“consist[ed] exclusively of inadmissible hearsay that APL has not shown can be converted into admissible evidence.” Id. at *14. In its reply brief, APL argued that the statements were not hearsay because they are being offered for their effect on the listener or, in the alternative, fall under the state of mind or residual exceptions. Id. at *12.
Judge Cooper rejected each of these arguments. “First, APL’s effect-on-the-listener argument is dead in the water.” Id. APL needed to prove that, in fact, Matson made threats to Home Depot. If APL were offering the threats purely for their effect on the listener and not for the truth of the matter asserted, then APL had no evidence that Matson made the threats. Second, although these statements could be admissible under Rule 803(3)—the state of mind exception—to prove that customers were generally afraid to do business with APL, they could not be admitted under this exception to prove that the event causing the state of mind actually occurred. That is, they could not “prove what Matson said or did to Home Depot, or even that it said or did anything at all.” Id. at *12.
Third, the court held that the Rule 807 residual exception was unavailing to APL. There was no other non-hearsay evidence in the record corroborating that Matson employees threatened Home Depot. Moreover, APL failed to (1) show that it was prevented from discovering admissible evidence of Matson’s threats against Home Depot—indeed, it did not subpoena Home Depot or disclose any potential Home Depot witness—or (2) give reasonable notice to Matson of its intent to offer these statements. Id. at *13-14. Judge Cooper rejected similar alleged evidence as to other customers as inadmissible hearsay, time-barred, or insufficient to show Matson’s conduct was anticompetitive. Id. at *14-16.
“APL’s other ‘best evidence’ of anti-competitive conduct—Matson’s actions in Alaska—also stall[ed] short of the harbor.” Id. at *16. APL alleged that, after it entered the Guam market, Matson retaliated against APL’s Alaska operations by, for example, terminating agreements under which Matson would transport cargo from locations in Alaska to APL’s ships, ending APL’s shop and office leases, and ceasing to share spare parts and a tugboat. Id. at *16. Judge Cooper ruled that APL did not show that Matson’s actions in Alaska harmed competition in the U.S.-Guam market or that Matson’s Alaska conduct was anticompetitive.
The court noted “the general rule that competitors are not obligated to do business with their rivals.” Id. at *18. “Unfortunately for APL, the Supreme Court has recognized just one exception to this rule—and it does not apply here.” Id. In Aspen Skiing Co. v. Aspen Highlands Skiing Corp., the defendant owned three of four ski resorts in Aspen, Colorado and plaintiff owned the fourth. 472 U.S. 585 (1985). For decades, the companies jointly offered customers an all-access pass to all four resorts, but defendant ended this arrangement and made a full effort to block plaintiff from recreating the pass. The Supreme Court allowed plaintiff’s monopolization claim to proceed where a jury could find the defendant “was not motivated by efficiency concerns and . . . was [instead] willing to sacrifice short-run benefits and consumer goodwill in exchange for a perceived long-run impact on its smaller rival.” Id. (citing Aspen Skiing, 472 U.S. at 610-11).
Judge Cooper held that APL was “high and dry” when it came to the “demanding” requirement to establish that Matson’s refusal to deal was irrational but for its anticompetitive effect. Id. at *19 (internal quotation marks omitted). Matson executives testified that the company refused to deal for pro-competitive reasons. That is, Matson terminated or declined to renew agreements with APL because it intended to launch a competing shipping service and needed the facilities it had previously leased to APL for its own purposes. Id. Matson launched that service in 2020. Id. In a similar vein, an executive testified that Matson ended the tug-sharing arrangement based on an incident in which APL’s tug was not available to help Matson dock a ship, which created safety issues. Id. APL argued that “Matson produced no contemporaneous evidence documenting the justifications offered in discovery.” Id. The court held that, “[t]hat may be so, but it does not change the fact that there is no evidence in the record contradicting Matson’s justifications.” Id.
The court was also not persuaded by APL’s other allegations. APL accused Matson of unfairly telling customers that APL depends on certain subsidies to compete in the Guam market and that APL would soon be leaving this market following the end of the subsidies. Id. Yet, this “attack sails off course in several respects,” including that “much of the evidence supporting these allegations runs into a familiar obstacle: the hearsay rule.” Id. at *19-20. Moreover, “firms routinely compete on the merits by criticizing their customers” and “APL has itself repeatedly acknowledged that it needs [the subsidies] to keep serving Guam.” Id. at *20-21. Therefore, “Matson was well within safe harbors.” Id. at *21.
The court also found that APL failed to show Matson’s loyalty program for shippers of household goods was anticompetitive. Id. at *21-23. And it similarly failed to show that Matson’s agreements offering customers negotiated tariff rates in exchange for hitting certain volume thresholds foreclosed APL from accessing the market or caused other anticompetitive harm. Id. at *24-26. Finally, the court granted summary judgment to Matson on APL’s attempted-monopolization claim, holding that APL failed to proffer sufficient evidence that Matson engaged in predatory or anticompetitive conduct with a specific intent to monopolize. Id. at *26-28.
We will monitor APL’s appeal and report on future developments. For now, this case serves as a reminder of the evidentiary headwinds that could leave antitrust litigants in deep water as they chart a path toward trial.
]]>The rejected injunction comes in the context of litigation brought by the Hospital, alleging that the non-solicitation clause violates the Sherman Act and is therefore unenforceable. The Hospital’s claims are part of a wave of challenges to such clauses, and the Second Circuit’s decision may suggest that the tide is moving against them—or at least, that irreparable harm due to violations of such clauses could be difficult to demonstrate.
Background
In 2018, the Hospital entered into a Services Agreement (“Agreement”) with American establishing an exclusive arrangement for provision of anesthesiology services by American’s anesthesiologists and certified nurse anesthetists (“CRNAs”). Under the Agreement, the anesthesiologists and CRNAs were assigned to Hospital patients as needed to support in-Hospital procedures. The anesthesiologists and CRNAs did not care for or admit their own patients to the Hospital. The Agreement contained a non-solicitation clause lasting for two years after its expiration.
As the Agreement’s expiration approached in late 2023, the Hospital informed American that it would not renew the Agreement. Two months later, the Hospital sent offers of employment to American’s anesthesiology providers, notwithstanding the non-solicitation clause.
Initiation of the Lawsuit
On the same day, the Hospital sued American and NAPA (together, “Defendants”), for violations of Section 1 of the Sherman Act, 15 U.S.C. § 1 (“Section 1”) and New York General Business Law § 340. The complaint alleged that Defendants “use[d] the [anti-solicitation clause] to impede the free movement of their anesthesia providers so that they c[ould] monopolize the value of the providers’ scarce services,” and sought a declaration voiding the clause. St. Joseph’s Hosp. Health Ctr. V. Am. Anesthesiology of Syracuse P.C., et al., ECF No. 1 ¶ 5 (N.D.N.Y. Feb. 26, 2024).
In response, Defendants counterclaimed for breach of contract and moved for a temporary restraining order and preliminary injunction, seeking to restrain the Hospital from continuing to recruit Defendants’ anesthesiology providers. According to Defendants, American’s anesthesiology providers had become “afraid and concerned about their future employment” and American worried that the Hospital’s “actions ha[d] caused [newly recruited] [providers] to rethink their commitments to join [American].” St. Joseph’s Hosp. Health Ctr. v. Am. Anesthesiology of Syracuse, P.C., No. 5:24-CV-276 (BKS/ML), 2024 WL 3093542, at *6 (N.D.N.Y. May 16, 2024). They also asserted that they stood to lose “goodwill” from the relationships between the anesthesiology providers and Hospital providers. Id.
The District Court and Circuit Decline to Enjoin Hospital’s Recruiting Efforts
The U.S. District Court for the Northern District of New York denied both motions, finding Defendants’ theory of irreparable harm “speculative, conclusory, and unsupported by [the] facts.” Id. The court explained that none of the fears cited spoke to actual or imminent reputational harm for American or NAPA. Id. Moreover, the court reasoned, the relationships between American and Hospital providers did not generate the “type of goodwill sufficient to establish irreparable harm”—namely, relationships that “produce an indeterminate amount of business in years to come, . . . such that the harm caused by the loss of the relationships is not compensable by money damages.” Id. (quoting Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir. 1999)) (cleaned up). Indeed, the court noted the lack of evidence that the anesthesiology providers themselves generated business for American because the Hospital itself assigned them to Hospital patients. Id. at *6-7. Nor was there evidence that the relationships between the anesthesiology providers and Hospital providers otherwise generated business for American. Id.
For similar reasons, the court also found Defendants unlikely to succeed on the merits of their breach of contract claim. The court explained that to be enforceable, restrictive covenants like the one at issue must address “unfair competition . . . that could result where the goodwill developed through a relationship with . . . customers is such that there is a substantial risk that the [recruited] employee may be able to divert all or part of [the employer’s] business.” Id. at *10 (quoting Ticor, 173 F.3d at 72) (cleaned up). The court distinguished the relationships between the Hospital and American providers with those that typically satisfy this standard—where the recruited employees could offer the same services as the employer to its customers and therefore, could use the employer’s goodwill to take these customers away. See id. at *10-11. That is, the court found that the providers associated with American didn’t have relationships with the Hospital such that they could use American’s goodwill to poach its business from the Hospital.
On appeal, the Second Circuit affirmed. The Circuit agreed with the District Court that the anesthesiology providers’ comments do not show that they “came to think less of” American and NAPA as a result of the Hospital’s actions. St. Joseph's Hosp. Health Ctr. v. Am. Anesthesiology of Syracuse, P.C., 131 F.4th 102, 108 (2d Cir. 2025). It further agreed that, even assuming that the anesthesiology providers’ relationships with Hospital providers constitute “customer relationships,” these relationships are not “the sort of relationships that can be the source of irreparable harm.” Id. at 107. The Circuit did not reach the other preliminary injunction factors.
Defendants’ breach of contract counterclaim proceeds, as does a tortious interference counterclaim that they added by amendment based on noncompete clauses in the anesthesiology providers’ employment agreements. The District Court is considering the second of two motions to dismiss that counterclaim, on the grounds that Defendants fail to allege a legitimate business interest supporting enforcement of the noncompete clauses. The Hospital’s antitrust claims also proceed after Defendants unsuccessfully moved to dismiss them based on lack of standing.
Takeaways
The appellate court’s decision not to enforce the non-solicitation clause while the Hospital’s antitrust claims remain pending echoes recent challenges in federal courts across the country to such clauses, as well as no-poach agreements between competitors, as anticompetitive. E.g., Deslandes v. McDonald’s USA, LLC, 81 F.4th 699 (7th Cir. 2023), cert. denied, 144 S. Ct. 1057, 218 L. Ed. 2d 241 (2024). This includes civil and criminal cases brought by agencies such as the Department of Justice, Antitrust Division (“DOJ”) and the Federal Trade Commission (“FTC”) against employers in the healthcare space and a variety of other industries. E.g., United States v. Surgical Care Affiliates LLC et al., 3:21-cr-00011 (N.D. Tex); In the Matter of Axon Enterprise, Inc. and Safariland, LLC, No. D9389 (F.T.C. Jan. 3, 2020). As recently as January of this year, these agencies issued new Antitrust Guidelines for Business Activities Affecting Workers, replacing their 2016 Antitrust Guidance for Human Resource Professionals and explicitly calling out these types of agreements as carrying enforcement risk.
We have previously covered antitrust challenges to no-poach agreements (including here and here), and will continue to monitor this trend.
]]>What is RealPage?
RealPage is a technology company that sells software products, including “revenue management software” (“RMS”). According to RealPage, its software “helps property owners set rents at levels that fill units at rates that renters are willing and able to pay, without overpricing or underpricing.” RealPage claims it doesn’t share competitive data, and rejects the idea that the goal of its software is to “maximize” rent.
But since 2022, RealPage has been sued repeatedly for alleged antitrust violations and anticompetitive conduct. The lawsuits involve three primary RealPage products: YieldStar Housing software (“YieldStar”); Lease Rent Options and Student Lease Rent Options (“LRO” and “SLRO”); and AI Revenue Management (“AIRM”), a combination of YieldStar and LRO.
Ordinance Litigation
In RealPage v. Berkeley, 3:25-cv-03004 (N.D. Cal.), RealPage challenges a City of Berkeley ordinance banning the use of any “coordinating pricing algorithm” by landlords to set rent or occupancy levels.
The ordinance at issue makes it unlawful to “sell, license, or otherwise provide” to Berkeley landlords, and for the landlords to use, any “coordinated pricing algorithm that sets, recommends, or advises on rents or occupancy levels that may be achieved for residential dwelling units in the city of Berkeley.” “Coordinated pricing algorithm” is defined as “any analytical or computation processes that use data to recommend or predict the price of consumer goods or services in direct or indirect coordination with one or more competitors,” including through a software program using algorithms based on competitor data.
The ban, RealPage alleges, is a content-based speech regulation that violates its First Amendment rights and 42 U.S.C. §1983 by prohibiting it from providing “information and advice” to owners through the provision of its software. The ordinance, RealPage claims, is both a content-based and speaker-based prohibition that restricts speech based on whether its content concerns dissemination of rental information or use of that information to give recommendations to landlords. Because the restriction is content-based, RealPage argues that it is subject to strict scrutiny.
RealPage affirmatively alleges that the ordinance is not covered by a “commercial speech” or advertisement exception to strict scrutiny, because the sharing of information is not a “proposal of a commercial transaction.” RealPage avoids taking a position at this stage on whether preventing collusion among competitors on rental prices or reducing rental prices is a compelling interest such that it would satisfy the first part of the strict scrutiny analysis, instead focusing on its argument that the ordinance is not narrowly tailored. Even if the speech were treated as regulating commercial speech, RealPage alleges that it would fail intermediate scrutiny for lack of tailoring. Finally, RealPage also asserts a claim under Section 1983 for unconstitutional lack of vagueness under the Due Process Clause.
Berkeley’s ordinance is not the first of its kind—San Francisco and Philadelphia have both passed similar ordinances, and RealPage does not appear to have explained why it chose the Berkeley ordinance to challenge first. RealPage’s complaint focuses on public statements made by local government officials in Berkeley, including a statement by Office of Vice Mayor and City Councilmember Ben Bartlett that RealPage “is currently under parole and facing sentencing for price-fixing practices,” which RealPage states is factually incorrect. RealPage also noted that it was identified by name in the ordinance itself several times, and that it categorically denied that it engages in, facilitates, or contributes to price fixing. Instead, RealPage accuses an organization called American Economic Liberties Project (“AELP”) of falsely attributing rising rent prices across the country to software products like RealPage’s, making it a “scapegoat” for problems caused by insufficient housing supply.
The lawsuit does not appear to have deterred local governments from pursuing similar ordinances banning the use of AI software in setting rental prices. On April 15, two weeks after RealPage initiated litigation against Berkeley, San Diego’s city council voted to pass its own ordinance. Associate general counsel for RealPage was at the council meeting and spoke against the ordinance, calling it overly vague and defending the company’s products. However, the office of Councilmember Sean Elo-Rivera cited RealPage’s YieldStar as one of the software programs the ordinance was meant to address, and City Attorney Heather Ferbert cited the federal and state investigations into similar software as one of the rationales for the ordinance.
It remains to be seen whether similar legislation will be enacted on the federal level. In January 2024, Senator Wyden and other senators proposed a bill that would limit the use of algorithms in setting rent, identifying RealPage as one of the driving factors behind the legislation and citing to a 2022 ProPublica article on the company’s software as contributing to higher rent prices. However, the bill has not progressed past its referral to the Judiciary Committee. Amy Klobuchar also introduced proposed legislation in February 2025 to ban the use of algorithms to set lower prices more broadly—while the legislation was not limited to the rental market, her office also mentioned RealPage by name in the press release.
Status of Defensive Suits
Meanwhile, RealPage’s suite of RMS products continues to be the subject of dozens of lawsuits across the country. One of the first suits filed against RealPage was filed in the Southern District of California by a group of renters accusing RealPage and several major landlords of conspiracy to raise and fix the price of rent for apartments nationwide, Bason v. RealPage, Inc, 22-cv-1611 (S.D. Cal.) Bason was dismissed shortly after filing, but the flood of litigation for RealPage had just begun.
In Re RealPage, Inc., Rental Software Antitrust Litigation (No. II)
In April 2023, the panel on multidistrict litigation issued an order consolidating and transferring several dozen cases in which plaintiffs alleged that RealPage and property owners and managers (“Lessors”) colluded to fix, raise, maintain, and stabilize prices through the employment of RealPage’s AIRM software in violation of federal and state antitrust law. The cases were transferred to the Middle District of Tennessee and consolidated before Judge Waverly Crenshaw, under the case caption In Re RealPage, Inc., Rental Software Antitrust Litigation (No. II), Case No. 3:23-md-3071 (M.D. Tenn.).
The MDL initially covered two categories of plaintiffs: those alleging illegal conduct in the multifamily housing market (the “Multifamily Plaintiffs”) and those alleging illegal conduct in the student housing market (the “Student Plaintiffs”). Both sets of plaintiffs alleged in their complaints that the respective rental housing markets were impacted by a price-fixing conspiracy in which the Lessors’ pricing and supply data was collected by RMS, which then used an algorithm to provide price recommendations for individual rental units and took steps to dissuade Lessors from diverging from those recommendations. Plaintiffs’ claims were brought under Section 1 of the Sherman Act.
In December 2023, Judge Crenshaw denied the motion to dismiss the second amended Multifamily Plaintiffs’ Complaint but granted the motion to dismiss the second amended Student Plaintiffs’ Complaint. As previously discussed on this blog, the DOJ filed a statement of interest in the case in support of plaintiffs, taking the position that price fixing via algorithm was prohibited by the per se rule against price fixing generally, and applied in the case. However, for at least the motion to dismiss stage, neither complaint’s theory received per se treatment, as the court found there were no allegations of direct agreement or communications, or of absolute delegation of price-setting functions. The judge instead applied a rule-of-reason analysis, under which the Multifamily Plaintiffs plausibly alleged the existence of a relevant market and anticompetitive effects in that market. Student Plaintiffs, on the other hand, failed to identify plausible geographic markets or the demonstration of market power in the proposed regional submarkets, and had no direct evidence of anticompetitive effects, resulting in the dismissal of their complaint.
Defendants Apartment Income REIT and Pinnacle Property Management Services LLC settled in February 2025. The case is otherwise ongoing.
U.S. v. RealPage, Inc.
In August 2024, the Antitrust Division of the Department of Justice (“DOJ”), along with North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington, brought suit against RealPage in relation to its YieldStar and AIRM products. The DOJ complaint alleged violations of Sections 1 and 2 of the Sherman Act, as well as the laws of the states joining the action, based on what the complaint characterized as unlawful information-sharing and an illegal monopoly in the commercial revenue management software market.
In January 2025, the DOJ and several states filed an amended complaint against RealPage, adding as defendants seven rental companies. The amended complaint also added Illinois and Massachusetts as plaintiffs. While the primary theory remained unchanged, the amended complaint included new allegations regarding the exchange of competitively sensitive information.
On the same day the amended complaint was filed, the DOJ jointly entered a proposed final judgment with and against Cortland, one of the new defendants. On April 10, 2025, defendant Cortland also settled with the states of North Carolina and Colorado, agreeing to stop using non-public data from other landlords either through RealPage or other means to set rent but admitting no liability. California, Connecticut, Minnesota, Oregon, Tennessee, and Washington have also agreed to the settlement. The remaining defendants filed motions to dismiss on April 10, 2025.
Separate State AG Complaints
Prior to the DOJ action, the DC Attorney General filed suit against RealPage and 14 rental and property management companies in November 2023, alleging violation of the D.C. Antitrust Act. The DC AG Complaint claimed that the agreements between the defendant landlords and RealPage as well as among the defendant landlords to use RealPage’s revenue management software, exchange non-public information with competitors, and delegate rent-setting responsibility were illegal restraints of trade. The conduct, the DC AG alleged, was unlawful per se as well as under the rule of reason, and limited competition in the multifamily housing market. An amended complaint was filed in January 2025, and the case is ongoing.
Other states have also chosen to strike out on their own rather than joining the DOJ suit:
Conclusion
RealPage continues to vigorously defend itself in federal and state litigation, and has also created a website that purports to rebut “false and misleading claims about RealPage and its revenue management software.” On the other hand, several rental and management companies appear to have less of an appetite for litigation based on settlements across the various cases. And both state and federal judges may have guidance from the Ninth Circuit on the use of pricing algorithms to set prices in the near future; Gibson v. Cendyn Group LLC, Case No. 24-3576 (9th Cir.), a hotel algorithmic pricing case dismissed in the lower court, is scheduled for argument on appeal on May 12, 2025.
]]>On Dec. 11, Federal Trade Commission and the U.S. Department of Justice's Antitrust Division jointly withdrew the antitrust guidelines for collaborations among competitors.[1] In place since April 2000, the guidelines purported to set forth an analytical framework for the agencies' antitrust enforcement policy under Section 1 of the Sherman Act, with respect to collaborative agreements between actual or potential competitors.[2] Through the collaboration guidelines, the agencies had acknowledged that, although horizontal agreements can threaten to unreasonably restrain competition, nevertheless "[i]n order to compete in modern markets, competitors sometimes need to collaborate."[3] In their joint announcement last month, the agencies stated that the guidelines are no longer reliable because they do not reflect recent case law regarding competitor collaborations; they rely on outdated and withdrawn DOJ and FTC policy statements; and they risk creating safe harbors, which, according to the agencies, have no basis in federal antitrust statutes.[4] Identifying by name a handful of Section 1 cases, including two in circuit courts, the agencies appear to be reserving the authority to continue the trend of antitrust enforcement seen throughout the Biden administration's term. This includes highlighting a more restrictive approach to the ancillary restraints doctrine, a more expansive view of the markets in which anticompetitive collaborations may arise — including labor markets, where the agencies have focused enforcement efforts in the last few years — and significantly, the elimination of safe harbors established by the guidelines.
Applicable Legal Standards Following the Withdrawal
In their announcement withdrawing the guidelines, the agencies clarified the legal standards governing competitor collaborations. They also formally signaled their view that these standards apply to markets beyond those expressly flagged by the guidelines.
Framework for Analyzing Collaborations
The agencies identified five cases that, in their view, "advance[d] the jurisprudence interpreting Section 1" in the years since the guidelines were issued and diminish the utility of the guidelines:
First, the cases highlighted in the agencies' withdrawal announcement underscore the now-familiar sliding scale[6] of scrutiny applied to evaluate whether an agreement or practice constitutes an unreasonable restraint of trade in violation Section 1: (1) the per se rule; (2) the so-called quick look; and (3) the rule of reason.[7] While quick look review is rarely employed, and was only obliquely mentioned in the guidelines, these cases continue to identify it as a distinct component of the sliding scale. Indeed, even while refusing to apply it, the Supreme Court affirmed in Alston that "sometimes we can determine the competitive effects of a challenged restraint in the 'twinkling of an eye.'"[8] Second, the cases identified by the agencies define the contours of two defenses used frequently by collaborators faced with Section 1 claims — namely, the single entity rule and ancillary restraints doctrine. The Supreme Court in the Texaco case, and also in American Needle, clarified that the single entity rule precludes liability where would-be competitors act as a single firm competing with other sellers in the market by, as per the Texaco ruling, "pool[ing] their capital and shar[ing] the risks of loss as well as the opportunities for profit," for example, through a joint venture.[9] As per the American Needle ruling, this is because such entities acting together "do not deprive the marketplace of independent centers of decision making," and as a result, these entities are incapable of conspiring for purposes of Section 1.[10] The ancillary restraints doctrine exempts horizontal agreements from per se illegality if they are ancillary to the legitimate and competitive purposes of a business collaboration.[11] Courts faced with this defense must determine whether the practice at issue qualifies for this exception, or if it is simply a "naked" horizontal restraint of trade — or agreement lacking pro-competitive justification — subject to the per se standard.[12] While the single entity rule governs restraints serving the core activity of a joint venture or business, the ancillary restraints doctrine governs restraints on nonventure activities.[13] The Texaco and Deslandes cases cited in the agencies' withdrawal announcement demonstrate this difference.
In its Texaco ruling, the Supreme Court found the per se rule inapplicable to two oil companies' agreement to sell gasoline at the same price under the single entity rule.[14] This was because the companies were not competing with one another, but rather, were participating in the gasoline market "jointly through their investments" in a third entity, Equilon — in which they had pooled their resources and consolidated their operations.[15] In its Deslandes ruling, the Seventh Circuit revived a challenge to a no-poach clause in McDonald's franchise agreements as per se unlawful under Section 1.[16] The Seventh Circuit rejected McDonald's ancillary restraint defense as a matter of law because the no-poach clause bore no relationship to the legitimate business purpose of the franchises — namely, increasing output by selling hamburgers.[17] Whereas the price-fixing agreement in the Texaco case was subject to the single entity rule because it served the core activity of the joint venture — selling gasoline — in the Deslandes case, the no-poach clause was framed as an ancillary restraint because the clause governed worker employment, a nonventure activity. The agencies' citation of the Deslandes ruling may signal their desire to take a narrower view of the ancillary restraints doctrine moving forward. Indeed, the Seventh Circuit previously held that ancillary restraints must be evaluated under the rule of reason.[18] However, the Deslandes decision suggests that no-poach clauses will be evaluated under the more stringent per se standard, unless the specific clause at issue appears to play a role in increasing output. That stricter approach would be consistent with the agencies' many challenges to employment restrictions in recent years.[19]
Applicability to New Markets
The cases the agencies highlight also suggest that the framework for analyzing competitor collaborations may be applied in markets beyond those explicitly named in the guidelines. The guidelines identified only three types of markets that could be affected by collaborations: goods, technology and innovation, defined as "the research and development directed to particular new or improved goods or processes and the close substitutes for that research and development."[20] But the restraints challenged in the case law cited by the agencies span additional markets, including air travel services[21] and labor markets.[22] This suggests that the agencies view collaborative agreements and other joint ventures as having the ability to affect competition in almost any conceivable market in which competitors contemplate collaboration.
Impact on Future Collaboration: Elimination of Safe Harbors
The guidelines set forth a flexible approach to evaluating competitor collaborations, explaining applicable legal principles in the abstract without consistently providing concrete examples. By uprooting the guidelines, the agencies may have attempted to create clearer parameters by emphasizing case law that evaluates the antitrust implications of specific ventures. That said, the guidelines' withdrawal has the potential to chill some future collaboration, as the agencies disavow previously established safe harbors, as well as endorsements of the potential procompetitive benefits of research and development collaborations that figured prominently in the guidelines. Indeed, the agencies explicitly cited the safe harbors as one reason why the prior guidance was no longer reliable. Ventures previously qualifying for safe harbors included (1) collaborations affecting no more than 20% of the relevant market; and (2) research and development collaborations where at least three independent innovators would be able to engage in a close substitute for the research and development activity of the collaboration.[23] The guidelines also endorsed research and development collaborations as usually procompetitive, given that such collaborations facilitate efficient development or research on new or improved goods, services or production processes.[24] Going forward, collaborators are likely to be more cautious about engaging in activities previously covered by the safe harbors. However, the absence of the safe harbors does not necessarily mean that these activities automatically will be deemed illegal; rather, courts likely will analyze them holistically, consistent with the standards above, probably under the rule of reason.
Remaining Guidance in Effect
The agencies' withdrawal of the collaboration guidelines coincides with a general trend during the Biden administration of withdrawals of numerous other antitrust policy statements and guidelines characterized as overly permissive and obsolete. As but one example, in 2023, the agencies withdrew three healthcare-related policy statements dating back to 1993, thereby ending the agencies' endorsement of safe harbors related to information-sharing.[25] though these remain established in case law.[26] The agencies' remaining antitrust guidance is limited to five subject areas: merger enforcement (2023); guidance for human resource professionals (2016); cybersecurity (2014); international enforcement and cooperation (2017); and intellectual property licensing, and innovation and competition (2007).
Conclusion
The agencies' withdrawal of the guidelines ensures that their stated policy with regard to competitor collaborations is clear and consistent with current law. That said, without the guidelines' finite list of affected markets and safe harbors, businesses likely will analyze potential collaborations more carefully to understand the risks of antitrust scrutiny. Appearing as the agencies prepare for new leadership, this shift dovetails with the agencies' withdrawal of other more permissive guidelines and more stringent approach to enforcement in a variety of new contexts over the last four years.
[1] U.S. Dep't of Just. and Fed. Trade Comm'n, Antitrust Guidelines for Collaborations Among Competitors [hereinafter "Guidelines" or "Collaboration Guidelines"] (2000).
[2] 15 U.S.C. § 1.
[3] Guidelines, at 1.
[4] Joint Withdrawal Statement, U.S. Dep't of Just. and Fed. Trade Comm'n, Justice Department and Federal Trade Commission Withdraw Guidelines for Collaboration Among Competitors (Dec. 11, 2024), https://www.justice.gov/atr/media/1380001/dl?inline.
[5] Id. The cases are NCAA v. Alston , 594 U.S. 69, 88-92 (2021); Am. Needle Inc. v. NFL , 560 U.S. 183, 191, 202 (2010); Texaco Inc. v. Dagher , 547 U.S. 1, 6 (2006); Deslandes v. McDonald's USA, LLC , 81 F.4th 699, 702 (7th Cir. 2023), cert. denied, 144 S. Ct. 1057 (2024); United States v. Am. Airlines Grp. , 121 F.4th 209 (1st Cir. 2024).
[6] Am. Airlines, 121 F.4th at 222 (quoting 11 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 1508 (4th ed. 2022)).
[7] Section 1 prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1.
[8] Alston, 594 U.S. at 88 (quoting NCAA v. Bd. of Regents of Univ. of Oklahoma , 468 U.S. 85, 110, n.39 (1984)); see also Texaco, 547 U.S. at 7 n.3.
[9] Texaco, 547 U.S. at 6 (quoting Arizona v. Maricopa County Medical Soc. , 457 U.S. 332, 356 (1982)).
[10] Am. Needle, 560 U.S. at 194 (quoting Copperweld Corp. v. Independence Tube Corp. , 467 U.S. 752 (1984)).
[11] Texaco, 547 U.S. at 7; see also Polk Bros., Inc. v. Forest City Enterprises, Inc. , 776 F.2d 185, 189 (7th Cir. 1985).
[12] Polk Bros., 776 F.2d at 188–89.
[13] Texaco, 547 U.S. at 7-8.
[14] Id. at 6.
[15] Id.
[16] 81 F.4th at 705.
[17] Id. at 704.
[18] Polk Bros., 776 F.2d at 189.
[19] E.g., United States v. Patel , 3:21-cr-220 (D. Conn.); United States v. Jindal , No. 4:20-cr-358 (E.D. Tex.); United States v. Surgical Care Affiliates LLC, 3:21-cr-11 (N.D. Tex.); United States v. Hee, No. 2:21-cr-98 (D. Nev.); United States v. DaVita, Inc. , 1:21-cr-229 (D. Col.); United States v. Manahe, 2:22-cr-13 (D. Me.); see also FTC Non-Compete Clause Rule, 16 CFR § 910 (2024). The effective date of the FTC Non-Compete Clause Rule is currently stayed pursuant to an enjoinment order issued by the U.S. District Court for the Northern District of Texas in August 2024. See Ryan, LLC v. Fed. Trade Comm'n , No. 3:24-CV-00986-E, 2024 WL 3879954 (N.D. Tex. Aug. 20, 2024).
[20] Guidelines, § 3.32(c) at 17.
[21] Am. Airlines, 121 F.4th at 209.
[22] Alston, 594 U.S. at 88-92; Deslandes, 81 F.4th at 702.
[23] Guidelines, § 4 at 25-27.
[24] Id. § 3.31(a) at 14.
[25] Press Release, U.S. Dep't of Just. and Fed. Trade Comm'n, Justice Department Withdraws Outdated Enforcement Policy Statements (Feb. 3, 2023), https://www.justice.gov/opa/pr/justice-department-withdraws-outdated-enforcement-policy-statements.
[26] Todd v. Exxon , 275 F.3d 191, 199 (2d Cir. 2001).
To read the article on Law360, please click here.
]]>Consistency with the Prior Guidance
The Antitrust Division first published guidance as to how prosecutors should evaluate corporate compliance programs in the context of charging and sentencing in July 2019. The goal of the July 2019 guidance was to recognize companies’ efforts to create and maintain robust compliance programs and to encourage further investment in compliance efforts, revising the Division’s prior policy that corporations should not receive credit for an antitrust compliance program at the charging stage.
The new Compliance Guidance reiterates many of the same considerations that animated the 2019 guidance. With a few slight revisions, the Guidance continues to advise prosecutors to consider three fundamental questions in evaluating corporate compliance programs:
The new Compliance Guidance instructs prosecutors to consider these questions by assessing the same set of factors outlined in 2019, including the comprehensiveness of the compliance program, the organization’s culture of compliance, risk assessment and monitoring techniques, and reporting and remediation methods. The 2024 Guidance also continues to prompt prosecutors to evaluate whether a company’s compliance program is appropriately tailored to account for the specific antitrust risks the company might face given its lines of business—for example, any legal or technical challenges that may result from the way in which a company enacts pricing changes, participates in industry meetings, or engages in bidding activities.
New in the 2024 Guidance
Application to Civil Actions
While the 2019 guidance focused solely on assessing a compliance program’s effectiveness in the context of criminal antitrust violations, the new 2024 Guidance additionally articulates that similar criteria apply to the assessment of antitrust compliance programs in the civil context. The new Guidance explicitly provides that, “[i]n seeking to resolve investigations into civil antitrust violations, companies asking the Antitrust Division to take notice of existing or improved compliance efforts . . . should expect the civil team to consider many of the same factors when assessing the effectiveness of their compliance program as criminal prosecutors do.”
“Tone from the Middle”
The new Guidance also includes a heightened emphasis on how middle management—in addition to senior leadership—reinforces a culture of compliance across an organization such that there is a “tone from the middle,” not just a “tone from the top”; whether a company allocates adequate resources and staff to compliance functions; and how a company responds to actual or potential violations, including whether the company’s compliance program evolves to prevent future violations and whether the company encourages and protects whistleblowers.
Attention to Developing Technologies
The 2024 Guidance reflects increased attention on how companies are addressing new and evolving technologies within their compliance programs. For example, the new Guidance advises prosecutors to ask whether companies have “clear guidelines regarding the use of ephemeral messaging or non-company methods of communication including the extent to which those communications are permitted and when employees must preserve those communications.” The Guidance additionally encourages prosecutors to explore the extent to which compliance programs engage with, monitor, and train employees on permissible versus impermissible uses of algorithms and artificial intelligence in connection with business functions.
This focus of the 2024 Guidance is consistent with the position the DOJ has taken in litigation in recent years under former Assistant Attorney General Kanter’s leadership. For example, the DOJ has litigated several cases involving claims that pricing algorithms enabled price-fixing conspiracies in violation of the antitrust laws.
Likewise, in 2024, the DOJ and the FTC warned about the dangers associated with ephemeral messaging applications.
In light of these cases, the 2024 Guidance likely reflects the Division’s interest in making sure prosecutors continue to view the use of data by AI tools and algorithmic models as a potential antitrust risk, and continue to ensure that compliance professionals assess these evolving practices for any antitrust risk. This may require robust compliance programs that provide employee training on permissible versus impermissible uses of these technological tools. Finally, the 2024 Guidance also likely suggests that prosecutors will want to see written policies clearly identifying appropriate channels for work-related communications and articulating the organization’s document retention practices.
In sum, the updated 2024 Compliance Guidance reflects the Antitrust Division’s continued focus on not only detecting and reporting antitrust violations but deterring and preventing future violations. The Guidance also reinforces and builds upon the broader initiatives recently pursued by the DOJ to mitigate the risks presented by new and emerging technologies—such as AI, algorithmic pricing, and ephemeral messaging—and to afford increased incentives and protections for whistleblowers. The Guidance further suggests that corporate compliance programs should be tailored to the specific antitrust and technological risks a company is likely to face, be supported and reinforced at all levels of the organization, and respond to evolving risks and known areas of weakness in existing practices.
]]>Background
Prior to August 2020, Bayer Healthcare LLC (“Bayer”) made name-brand versions of over-the-counter imidacloprid topical flea and tick products (‘imidacloprid topicals”) called Advantage and Advantix. In 2019, Tevra filed suit against Bayer, alleging that Bayer engaged in anticompetitive conduct to foreclose sales of Tevra’s generic version of imidacloprid topicals. Specifically, Tevra alleged that Bayer entered into agreements with retailers and distributors of imidacloprid topicals that required the retailers not to carry generic versions of the flea and tick treatments, provided rebates for sales of certain amounts of Bayer products, and tied purchases of and rebates on Bayer’s Seresto flea collar to purchases of Bayer’s Advantix products. Tevra also alleged that Bayer made up approximately 85% of the relevant market and received patent royalties for most of the other 15%, thus dominating the imidacloprid topical market as a monopolist while taking steps to protect its monopoly. The case was assigned to Judge Beth Labson Freeman in the Northern District of California (the “Court”).
Alleged Exclusive Dealing Agreements
Throughout the pleading and summary judgment stages, Bayer argued that its agreements with retailers did not constitute anticompetitive conduct under Omega Env’t, Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir.1997), because they were short-term and easily terminable, both factors that weighed against a finding of exclusive dealing in Omega. Tevra, however, pointed to evidence in the record that Bayer’s contracts were never actually terminated early due to marketplace realities such as annual shelving practices, and punitive measures taken by Bayer in response to actual early termination.
The Court acknowledged in its summary judgment order that on their face, Bayer’s contracts had multiple provisions permitting retailers to opt in or out of its imidacloprid discounts, permitting early termination, and setting short terms, and there were retailers in at least one contract cycle who took advantage of those opt-outs. However, Tevra’s own evidence that Bayer used discounts, monetary levers, and informal avenues such as pitches and presentations to pressure retailers into exclusivity was enough to create a genuine issue of material fact to be resolved by the jury.
The Evolution of Tevra’s Market Definition
At the heart of the dispute from the case’s inception was Tevra’s proposed market definition. A threshold requirement for a plaintiff bringing exclusive dealing and monopoly claims is to define what market the defendant is alleged to be excluding competitors from, which allows the court (and ultimately the jury) to evaluate whether the defendant’s conduct was anticompetitive based on its effect on the defined market. In its summary judgment decision, the Court relied on the 2023 DOJ/FTC Merger Guidelines—which we’ve written about here—for the definition of a relevant market: “an area of effective competition, comprising both product (or service) and geographic elements.”
Tevra proposed a market definition in the First Amended Complaint limited to “[t]opical flea and tick products containing Imidacloprid sold at wholesale by manufacturers to Over-the-Counter retailers in the U.S.” To support its market definition, Tevra relied on a formulation of the hypothetical monopolist test (“HMT”) called the SSNIP test. According to the 2023 Merger Guidelines, the SSNIP test asks (1) whether a hypothetical profit-maximizing firm that was the only present and future seller of a group of products would, if not prevented from doing so by regulation, undertake “at least a small but significant and non-transitory increase in price (‘SSNIP’) . . . for at least one product in the group,” (2) such that the price increase would result in profit for the hypothetical monopolist (rather than a loss of sales as a result of consumers turning to a reasonable alternative product instead).
The Court dismissed with leave to amend because it found that Tevra failed to allege facts that would support defining the market to include only one type of distribution channel and topical products using only imidacloprids, to the exclusion of competitor products such as topical flea and tick medications manufactured by Frontline that use a different active ingredient (fipronil). In the Second Amended Complaint (“SAC”), Tevra broadened its market definition to eliminate the limitations on distribution channels, but Tevra maintained its allegation that the market was limited to the topicals using imidacloprid as the active ingredient.
This time, the market definition survived a motion to dismiss. The Court found that Tevra’s allegations that Bayer had been able to enact a price increase for its brand-name imidacloprid topicals over five years while losing little to no sales plausibly supported Tevra’s allegations that Bayer was able to impose an SSNIP. However, even as it denied the motion to dismiss the SAC, the Court cautioned Tevra that its market definition might face difficulties at the expert stage if it relied on an SSNIP test as currently articulated, and that Tevra had not yet provided persuasive support for differentiating the market based on the difference between the imidacloprid topicals at issue and fipronil topicals.
Battle of the Experts Over the Scope of the Relevant Market
As the Court had predicted, the market definition dispute surfaced once more at summary judgment. After the close of discovery, Tevra’s expert Dr. Paul Wong submitted a report in which he purported to perform an SSNIP test and a “differences-in-differences” regression framework (“DiD”) showing the impact on both Bayer’s product and Frontline’s fipronil topicals when other generic fipronil products were introduced. Dr. Wong explained that because fipronil generic products had been introduced to the market in 2011, it permitted him to do a “natural experiment” as part of his SSNIP test that measured whether customers viewed generic fipronil products as a reasonable alternative. Dr. Wong’s analysis found that while both Frontline and Bayer increased prices during that period, Frontline sales decreased after implementing a slight price increase in fipronil products, while Bayer’s sales increased, suggesting that consumers were willing to substitute one fipronil product for another, but not fipronil products for Bayer’s imidacloprid products. Accordingly, Dr. Wong opined that the market for fipronil products is distinguishable from the market for imidacloprid products.
The Court’s analysis recognized that even if well-established and accepted tests such as the SSNIP test easily pass muster under the portion of FRE 702 requiring use of “reliable principles and methods,” the lack of guidelines for how SSNIP tests should be performed still poses challenges to courts seeking to apply the fourth prong of FRE 702—determining whether the testimony reflects a “reliable application of the principles and methods to the facts of the case.” Given the wide variety of methods for conducting an SSNIP test reflected both in Ninth Circuit case law and authorities such as the Merger Guidelines and law review articles, the Court started its analysis by ruling out what types of SSNIP tests would not suffice.
Specifically, the Court focused on a decision from the Sixth Circuit that addressed an SSNIP analysis that examined only the change in price and sales of a single product over a long period of time. Ky. Speedway, LLC v. Nat’l Ass’n of Stock Car Auto Racing, Inc., 588 F.3d 908, 918 (6th Cir. 2009). In Ky. Speedway, the expert’s SSNIP test examined ticket prices and attendance figures over an eight-year span, and then concluded that both price and demand increased. However, the Sixth Circuit found that such a test was excludable under Daubert because it failed to consider “whether a price increase at a particular point in time would result in consumer substitution of an alternative product.”
The Court distinguished Dr. Wong’s analysis from the one in Ky. Speedway because the “natural experiment” portion of his SSNIP test, the evaluation of the impact that the introduction of generic fipronil topicals had on both Bayer’s product and competitor Frontline’s sales, adequately considered the prospect of consumer substitution of an alternative product. While the Court acknowledged that Bayer had leveled other criticisms at Dr. Wong’s analysis, such as his failure to account for intervening events, inflation, and studies and surveys that Bayer argued showed competition between Bayer and Frontline products, the Court found that the critiques went to the weight, rather than admissibility, of Dr. Wong’s opinion.
Although the Court allowed Tevra’s claims to proceed, it warned Tevra that its market definition was likely to pose significant challenges to Tevra’s ability to prove its case at trial. For example, the Court found that Dr. Wong’s substantial foreclosure analysis was sufficient to create a genuine issue of material fact because Dr. Wong’s approach was consistent with Tevra’s definition of the relevant market as excluding fipronil topicals entirely. However, the Court acknowledged the viability of Bayer’s argument that Dr. Wong failed to consider mass-market retailers of fipronil products as an alternative distribution channel, warning that “it may be no small task for Tevra to prove at trial that other distribution channels were not viable alternatives for selling generic imidacloprid topicals.”
Tevra’s Claims at Trial
Trial began July 22, 2024. Tevra argued that its evidence would show that Bayer planned to keep generic versions of its imidacloprid topicals from the market by offering retailers like PetSmart and PetCo an anticompetitive 2% exclusivity discount. However, Bayer claimed that Tevra’s losses stemmed from Tevra’s competition with other generic flea-and-tick product makers, and that Tevra’s market definition was implausible because consumers do not buy pet medication based on the active ingredient.
The jury instructions, like the evidence at trial, devoted substantial time to addressing how to define the relevant market. The instructions explained that Tevra’s alleged relevant antitrust market was topical imidacloprid flea and tick treatments for dogs and cats, whereas Bayer contended that the “relevant antitrust market also includes other flea and tick topicals, such as those containing fipronil, as well as other types of flea and tick treatments, such as oral medications and flea collars.”
To determine which proposed definition was correct, the Court instructed the jury to use the SSNIP test, explaining that it was required to determine whether enough customers would accept a small but significant, non-transitory increase in the price of one product (approximately 5 percent) such that the price increase would be profitable, or whether so many customers would switch to an alternative produce that the price increase would be withdrawn. If the customers would switch, the product would be in the relevant market; if they would not switch, the alternative product was outside the product market.
The Court’s skepticism throughout the case over Tevra’s proposed market definition ultimately proved prescient. On August 1, the jury returned a verdict finding that Tevra had failed to prove “that the relevant antitrust market is topical imidacloprid flea and tick products for dogs and cats in the United States” by a preponderance of the evidence. Because the jury found that Tevra had not proved the relevant market, it did not reach the remainder of the elements of the exclusive dealing and monopoly claims.
Tevra’s Next Steps
Tevra has not yet filed a notice of appeal or announced whether it intends to do so. However, Tevra filed a new lawsuit on the same day the verdict was issued, this time against Elanco Animal Health Incorporated and Elanco US, Inc. for claims of exclusive dealing and maintenance of a monopoly in the market for flea and tick topicals. Elanco purchased Bayer Healthcare LLC in 2020, but was not a party to the original Tevra lawsuit; Tevra initially sought damages against Bayer even for the period following the sale, but the Court granted summary judgment to Bayer for any damages after Elanco’s purchase of Bayer Healthcare LLC on or around August 1, 2020.
]]>In Cornish, plaintiffs allege that competing casino hotels violated Section 1 of the Sherman Act by, among other things, unlawfully agreeing to use a pricing algorithm platform to set prices for Atlantic City casino hotels which would result in the algorithm helping to set the prices the defendants ultimately charged. Defendants have moved to dismiss the complaint, arguing that plaintiffs’ claims are legally insufficient because plaintiffs do not allege that defendants discussed their choice of pricing software with competitors or agreed to adopt a common pricing platform.
The statement of interest summarizes the views of the Department of Justice and the Federal Trade Commission on the legal principles in play in the case, and addresses two claimed “legal errors” defendants make in their motion to dismiss: “(1) defendants’ suggestion that plaintiffs must identify direct communications between Casino-Hotel Defendants” to plausibly allege a violative agreement under Section 1, and (2) “defendants’ argument that plaintiffs’ price-fixing claim must be dismissed because the recommendations generated by [the pricing algorithm] are not binding.”
According to the agencies, direct communications are not required to show proof of an agreement among competitors, as Section 1 covers tacit as well as express agreements. Further, the agencies argue that Section 1 prohibits competitors from “delegating key aspects of pricing decisionmaking to a common entity, even if the competitors never communicate with each other directly.” Regarding defendants’ argument that there can be no actionable claim of price fixing because the algorithm’s recommendations are not binding, the agencies maintain that “an agreement among competitors to fix the starting point of pricing is per se unlawful, no matter what prices the competitors ultimately charge.”
Along with the agencies’ filings in these cases, regulators have questioned the use of price setting algorithms in public statements. Cecilia Cheng, Counsel to Antitrust Division’s Assistant Attorney General, recently addressed this issue at the American Antitrust Institute’s annual policy conference. Ms. Cheng contended that a price setting tool did not need to rely on confidential pricing information to trigger antitrust liability. It may be sufficient for competitors to recognize that a commonly used algorithm can result in raising prices charged by competitors.
With the agencies’ interest in the potential anticompetitive effects from the growing use of software to assist in pricing decisions, this will likely be an area of ongoing focus for regulators. Companies that are using or contemplating the use of algorithmic pricing tools should continue to monitor the ongoing litigations and the agencies’ views on algorithmic-pricing tools.
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