In July of 2013, Danny Meyer, the CEO of the Union Square Hospitality Group, tweeted that he was considering eliminating tipping at his restaurants and solicited the opinion of other restaurant owners. Meyer and others eventually followed through on this idea and eliminated tipping at some of their restaurants. Instead, they began charging service fees while also raising menu prices to account for the increase in wages needed to compensate previously tipped employees. A newly filed putative class-action complaint alleges that these no-tipping policies, rather than being undertaken for largely equitable reasons, are in fact a massive antitrust conspiracy among restauranteurs to raise consumer prices.
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Antitrust Update Blog is a source of insights, information and analysis on criminal and civil antitrust and competition-related issues. Patterson Belknap’s antitrust lawyers represent clients in antitrust litigation and counseling matters, including those related to pricing, marketing, distribution, franchising, and joint ventures and other strategic alliances. We have significant experience with government civil and criminal/cartel investigations, providing the unique perspectives of former top U.S. Department of Justice Antitrust Division lawyers from both the civil and criminal sides.
Last week, Sabre filed its principal brief on appeal to the Second Circuit Court of Appeals, seeking to overturn the jury’s verdict of $15 million and find for Sabre or, in the alternative, grant a new trial in US Airways Inc. v. Sabre Holdings Corp. Its primary argument on appeal is that its case should have been governed by United States v. American Express Co., in which the Second Circuit reversed the district court’s finding of anticompetitive harm in a one-sided market because the proper analysis was whether there was anticompetitive harm in a two-sided market.
Last week, a Rhode Island Congressman published a letter he sent to the Chairman of the House Judiciary Committee requesting that the committee hold a hearing on the recently-announced Amazon-Whole Foods merger. This post explores when and why Congress holds hearings on particular mergers and what power Congress has to stop a merger.
Tying is a chameleon in antitrust law. Courts can condemn tying arrangements as either per se violations or as unlawful under the rule of reason. For a per se tying violation, plaintiff must show that the defendant had economic power in the market for the tying item sufficient to enable it to restrain trade in the tied product market. But a rule of reason analysis also requires consideration of the defendant’s economic power in the tying market, since a seller with no power whatsoever will not be able to coerce purchasers to buy the tied product. Thus, in tying cases, the per se and rule of reason analyses tend to bleed together, leaving courts and litigants without a clear analytical pathway.
Last week, the FTC filed a complaint against Qualcomm, a manufacturer of baseband processors, which are chips included in cell phones and other products with cellular connectivity that allow the devices to connect to cell networks. Qualcomm holds patents to technologies incorporated in the standards that allow all cell phones to communicate with one another, referred to as standard-essential patents or SEPs. Qualcomm’s patents mostly relate to older, 3G-CDMA cellular technologies, which are still necessary for modern cell phones to work as consumers expect. As a condition of declaring its patents standard-essential, Qualcomm committed to the telecommunications industry’s standard-setting organizations that it would license its patents on a “fair, reasonable, and non-discriminatory” (FRAND) basis.
In a significant Illinois Brick decision, the Ninth Circuit recently issued an opinion concluding that consumers who purchase apps from Apple’s “app store” directly purchase those apps from Apple, which acts as a distributor. The purchasers therefore have antitrust standing to sue Apple for alleged monopolization of the iPhone app market. The decision could make it easier for consumers to bring antitrust claims against sellers in e-commerce.
The trial over Aetna and Humana's $37 billion proposed merger kicked off today in a Washington, D.C. federal court.
As we’ve written, Uber, the popular app-based car service, has been on the antitrust defensive, facing allegations that its algorithm for calculating prices restricts price competition. In Wallen v. St. Louis Metropolitan Taxicab Commission, No. 15-cv-01432 (E.D. Mo.), however, it’s on offense, joining forces with some of its riders and drivers in a claim that the St. Louis Metropolitan Taxicab Commission’s refusal to allow it and other ridesharing companies to operate in St. Louis is an antitrust violation. The plaintiffs allege that the Commission, composed of active market participants, is precluding competition by denying ridesharing services the ability to operate. The complaint also names as defendants the cab companies with which the Commission’s members are affiliated. The Commission and its members moved to dismiss on the basis that they are immune from antitrust liability, and the cab companies moved to dismiss for failure to state a claim. On October 7, 2016, the court denied the Commission defendants’ motion to dismiss and granted the cab companies motion to dismiss, with leave to replead.
It is not every day that antitrust plaintiff classes fail to win certification due to lack of numerosity under Federal Rule of Civil Procedure 23(a)(1). Yet this week, absence of numerosity was the reason a Third Circuit panel reversed an order from the Eastern District of Pennsylvania certifying a class of 22 plaintiffs. The putative class included direct purchasers allegedly injured by reverse-payment agreements between Cephalon and four generic manufacturers of Cephalon’s narcolepsy drug Provigil.
On August 23, 2016, the District Court for the Eastern District of Missouri allowed claims by a compounding pharmacy to proceed, denying a motion to dismiss filed by the defendant pharmacy benefit manager (“PBM”). In Precision Rx Compounding LLC, et al. v. Express Scripts Holding Co., et al., No. 16-cv-0069 (E.D. Mo.), the plaintiff Precision Rx is a compounding pharmacy and the defendant, Express Scripts, is a PBM that contracts with health plan administrators and insurance payors to manage pharmacy benefit plans.
The Department of Justice and attorneys general from multiple states last week sued to halt two health insurance mergers, each worth billions of dollars.
The challenged deals are Anthem's planned merger with Cigna and Aetna's proposed acquisition of Humana. The deals would whittle down the number of top competitors in the health insurance industry from five to just three: an Anthem-Cigna entity, an Aetna-Humana entity, and the current industry giant UnitedHealth Group. Each would have revenue of more than $100 billion a year.
The Federal Trade Commission has made clear that it considers the regulation of competition in health care markets one of its top priorities, but in recent weeks the FTC has been dealt a string of tough losses in its healthcare merger challenges. Here, we examine some of the key takeaways from the FTC’s recent defeats in this area.
The Penn State Hershey–Pinnacle Merger: A Turning Point in FTC’s Enforcement Authority, or Just a Temporary Setback?
As we have reported previously, the Federal Trade Commission recently has taken an aggressive stance in regulating mergers in the healthcare sector. The Commission has racked up a string of victories, but last week the Middle District of Pennsylvania dealt a blow to that track record by denying the Commission’s request for a preliminary injunction to block a merger of two major healthcare providers in central Pennsylvania: Penn State Hershey Medical Center and PinnacleHealth Systems. The FTC is pursuing an emergency appeal to the Third Circuit, but this loss could signal a waning in the FTC’s enforcement authority in the healthcare sector.
It is plausible that Uber’s CEO, Travis Kalanick, may have violated antitrust law by fixing prices charged to Uber passengers, a judge in the United States District Court for the Southern District of New York concluded last week in denying Kalanick’s motion to dismiss. The lawsuit, Meyer v. Kalanick, is a putative class action initiated by Spencer Meyer, a resident of Connecticut, on behalf of people who, like him, have used Uber car services. The complaint also names a subclass of people who have been charged according to Uber’s “surge pricing” model.
Courts continue to evaluate the degree to which “reverse payments” are permitted post-Actavis. In the latest of these decisions, issued on February 22, 2016, the First Circuit held that non-cash payments may run afoul of the antitrust laws.
We’ve previously written about how the Yates Memo announced an increased focus on individual accountability, and that the DOJ’s broader focus on individual accountability would likely encourage the Antitrust Division to increase its efforts to prosecute individuals for antitrust violations.
MLB Settles, Leaving Unanswered Questions: Do Sports Leagues’ Regional Blackout Agreements Violate Antitrust Laws?
In the wake of Major League Baseball’s settlement of antitrust claims on the eve of trial, the central question from the lawsuit remains: are sports leagues’ exclusive broadcasting territories for live games an antitrust violation? Although suits against the MLB and National Hockey League have both settled, analogous antitrust claims are pending against the National Football League, leaving open the possibility that these issues may be finally resolved in the court room.
In yet another high-profile enforcement action, last week EU Competition Commissioner Margrethe Vestager announced charges against Qualcomm Inc., a world leader in 3G, 4G, and next-generation wireless technologies and the world’s largest supplier of baseband chipsets, for allegedly abusing its dominant position in the baseband chipset market. The Commission preliminarily concluded that Qualcomm illegally paid a major customer to exclusively use Qualcomm chipsets, and also engaged in predatory pricing by selling chipsets below cost with the aim of forcing a competitor out of the market.
FTC Asserts That Its Failure to Object to a “Reverse Payment” Settlement Should Not Be Interpreted as Approval
On November 17, 2015, the FTC submitted an amicus brief to the Third Circuit Court of Appeals in In re Effexor XR Antitrust Litigation, where the district court had dismissed the plaintiffs’ claims of antitrust violations based on an alleged reverse payment under FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013). In its brief, the FTC argues that its failure to object to a pharmaceutical patent settlement should play no role whatsoever in evaluating the legality of alleged reverse payments, and urged the Third Circuit to reverse the district court’s decision to the extent it relied on such considerations.
Third Circuit Provides Clarity to “Inextricably Intertwined” Basis of Antitrust Injury in Partially Reinstating Claims Against ShopRite
On November 12, 2015, the Third Circuit Court of Appeals issued an opinion partially reversing the dismissal of the plaintiff’s claims in Hanover 3201 Realty, LLC v. Village Supermarkets, Inc., finding that plaintiff Hanover Realty had successfully pleaded antitrust standing with regard to certain of its claims. The Third Circuit clarified—and potentially expanded the scope of—its prior interpretations of the Supreme Court’s seminal standing decision in Blue Shield of Va. v. McCready, 457 U.S. 465 (1982), which held that a plaintiff did not necessarily need to be a consumer or a competitor of a defendant to establish antitrust injury, if it could show that its injury was “inextricably intertwined” with the injury to intended victims of an antitrust conspiracy.
After a near two-week trial in the consumer class action lawsuit against Cox Communications, the jury began deliberations this past Monday to decide whether Cox’s alleged practice of tying premium cable services to rentals of its cable boxes violated the Sherman Act by harming competition in the set-top box market.
We reported earlier today that the jury began deliberations this past Monday in the antitrust class action lawsuit against Cox Communications brought by its premium services subscribers. The jury returned its verdict today in favor of the plaintiffs and found that Cox had violated the Sherman Act by illegally tying its premium cable services to rentals of its set-top boxes. The jury awarded the plaintiffs $6.31 million in damages, which will be trebled to $19 million. The jury awarded damages based on one aspect of the plaintiffs’ claims for fees from set-top box rentals but declined to award damages based on the plaintiffs’ DVR fees. Thus, the damages award came back much lower than the $49 million figure the plaintiffs were seeking.
Earlier this month, Apple signaled its intention to petition for writ of certiorari after the Second Circuit upheld Judge Cote’s decision to apply per se liability in analyzing the firm’s conduct with respect to e-books in United States v. Apple Inc. We have previously reported on the decisions below where both the Second Circuit and the Southern District of New York concluded that per se liability applies because, even though Apple’s contracts with publishers were vertical agreements (and thus would usually require the rule of reason analysis per the Supreme Court’s Leegin decision), Apple’s organization of competing e-book publishers to raise e-book prices created a horizontal agreement.
This is our fourth post on the DOJ’s expanding investigation into possible price fixing by generic drug manufacturers. Since our last update, the DOJ has subpoenaed Allergan Plc’s Actavis unit. In its August 6, 2015, 8-K, Allergan disclosed that it had received a subpoena from the DOJ “seeking information relating to the marketing and pricing of certain of the Company’s generic products and communications with competitors about such products.” As the fourth largest distributor of pharmaceuticals in the U.S., Allergan is the largest company that has been targeted by the DOJ.
We recently wrote about the Second Circuit’s June 30, 2015 decision affirming Judge Denise Cote’s decision that Apple conspired with five publishing companies to raise the price of e-books. As we explained in that post, Judge Dennis Jacobs—who dissented from the opinion—wrote that he would reverse the District Court’s decision because, inter alia, its rule-of-reason analysis failed to consider Apple as a horizontal competitor of Amazon and because Apple’s conduct was “unambiguously and overwhelmingly pro-competitive” in reducing Amazon’s monopoly power in the e-book market.
This spring, the UK Competition and Markets Authority (the “CMA”) published a study on UK businesses’ awareness and understanding of competition law, understanding of anti-competitive behaviors, and penalties for any violations. The study included interviews of more than one thousand senior personnel with responsibility for sales at private sector businesses in the UK. Among other questions, they were asked to answer a series of 10 true/false questions to evaluate their understanding of competition law.
Portions of a reverse payment suit against Endo Pharmaceuticals and others were recently dismissed by Judge William H. Orrick of the Northern District of California. The case was brought by plaintiffs who allege that a settlement agreement resolving a patent dispute over the drug Lidoderm illegally delayed the release of a generic version.
Yesterday, the FTC announced that it reached a settlement in its pay-for-delay lawsuit, FTC v. Cephalon Inc. in the U.S. District Court for the Eastern District of Pennsylvania, with Teva Pharmaceuticals Industries, Ltd., which acquired Cephalon in 2012. This case is the first FTC case to be resolved since the Supreme Court’s 2013 decision in FTC v. Actavis, in which the Court announced that reverse-payment patent settlements could be subject to antitrust challenges.
Last Thursday, American Express appealed the District Court for the Eastern District of New York’s February ruling that its anti-steering rules violated Section 1 of the Sherman Act. The court entered a permanent injunction in April requiring American Express to change its anti-steering rules and allow merchants to steer customers to use other credit cards or other forms of payment.
On Friday the Solicitor General filed an amicus brief in Kimble v. Marvel Enterprises. As we previously noted, in Kimble, the Supreme Court will consider whether to overturn Brulotte v. Thys Co., a 50-year-old precedent holding that “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.”
Will the European Court of Justice Conclude that Antitrust Law Prohibits Royalties for Invalid Patents?
The European Court of Justice recently announced that it will issue a decision in Genentech Inc. v. Hoechst GmbH, in response to a request from the Paris Court of Appeals for clarification on whether European antitrust law precludes payment of royalties on a patent licensing agreement after the invalidation of the patent. This case could have important implications for European antitrust law, particularly if the ECJ determines that the EU’s antitrust laws must be interpreted as curbing enforcement of private licensing agreements.
Since we last reported on state and federal investigations into recent generic drug price increases, the investigations have moved forward against Philadelphia-based Lannett Co. On November 20, a Senate healthcare subcommittee convened a hearing to address why the prices of certain generic drugs had skyrocketed.
Court Rules Against American Express Based on Both Direct and Indirect Evidence of Harm to Competition
On February 19, 2015, the District Court for the Eastern District of New York issued its ruling on liability in United States v. American Express. Following a seven-week trial, the Court found that American Express violated Section 1 of the Sherman Act by imposing certain restrictions on merchants that prevent the merchants from offering their customers incentives to use competing credit cards with lower retail charges.
On February 16, American Needle Inc. reached an agreement in principle with the National Football League to settle its claims. A settlement between the parties would mark the end of an antitrust litigation that has been pending since 2004.
In July of this year, the European Commission imposed fines on French pharmaceutical company Servier and five generic drug makers, including Lupin Ltd., totaling €427.7 million. The fines were the result of a five-year investigation into alleged anticompetitive agreements that prevented generic versions of perindopril, Servier’s best-selling blood pressure medication, from entering the market.
Court Allows “Product Hopping” Claims to Proceed in Suboxone Litigation Based on Allegations of Removal of Prior Formulation and Disparagement of Generic Competition
We’ve previously discussed antitrust claims related to “product hopping”—allegations that pharmaceutical manufacturers have reformulated or otherwise altered their products to prevent automatic generic substitution. Earlier this week, the district court for the Eastern District of Pennsylvania in In re Suboxone Antitrust Litigation denied a motion to dismiss similar allegations regarding the drug Suboxone, which is used to treat opioid dependence.
On November 21, 2014, professors of antitrust law from 15 universities filed an amicus brief in support of the NCAA’s appeal in O’Bannon v. NCAA. Citing their interest in the “proper development of antitrust jurisprudence,” the professors argue that the district court misapplied the rule of reason analysis under the Sherman Act, and that allowing the trial court’s decision to stand could undermine amateurism in college sports and have a broader impact on antitrust law in general.
Seventh Circuit Affirms Dismissal of 99% of Motorola’s Claims in LCD Case Based on Motorola’s Lack of Standing
On the day before Thanksgiving—less than two weeks after oral argument—the Seventh Circuit issued its ruling on Motorola’s interlocutory appeal in Motorola Mobility LLC v. AU Optronics Corp., affirming dismissal of the vast majority of Motorola’s claims regarding LCD panels.
“Free Sherlock” Litigation Raises Specter of Antitrust Liability for Distributors Cooperating With Intellectual Property Owners
Leslie Klinger, noted Sherlock Holmes scholar and lawyer, has waged a nearly all-out legal offensive against the Estate of Arthur Conan Doyle over the Estate’s assertion of a copyright in connection with certain works featuring the iconic Sherlock Holmes. The lawsuit has been a media darling─reports have appeared in outlets such as Businessweek, The Hollywood Reporter, Reuters, and The New York Times─with the press often emphasizing the David-and-Goliath-like aspects of the litigation. A website entitled Free Sherlock has chronicled the ups and downs of the lawsuit (mostly ups for Klinger), and the litigation also inspired its own Twitter hashtag: #freesherlock. Judge Posner of the Seventh Circuit has stirred the copyright pot with an antitrust analysis that could ensnare distributors that refuse to distribute products that allegedly infringe the rights of an intellectual property owner.
China’s antitrust regulators have been on a tear lately. Last year the State Administration for Industry and Commerce (“SAIC”) began its investigation of Qualcomm for allegedly violating China’s 2008 Anti-Monopoly Law. SAIC recently released a statement indicating that this investigation is coming to an end, but Qualcomm may be facing a fine of over $1 billion. Then, in July of this year, SAIC raided offices of Microsoft and its partner Accenture PLC throughout China in connection with an investigation into Microsoft’s alleged anti-competitive bundling of software. And during the last month alone, the National Development and Reform Commission (“NDRC”) accused Chrysler, Mercedes Benz, Volkswagen, and a dozen Japanese auto parts makers of various violations of the Anti-Monopoly law in connection with their pricing of auto parts.
On June 30, 2014, the FTC announced in a series of orders that it would consent to Actavis PLC’s acquisition of Forest Laboratories only under certain conditions. Under a February 2014 Merger Agreement, Actavis plans to acquire Forest for approximately $25 billion. The FTC filed a complaint alleging that the proposed merger would negatively impact the market for four drugs, resulting in violations of Section 7 of the Clayton Act and Section 5 of the FTC Act.
As we noted last month, the DOJ invited public comment last June on whether to modify its consent decrees with the music licensing firms ASCAP and BMI to respond to changes in the digital music business. The DOJ review comes on the heels of decisions issued last year in the Southern District of New York, by Judges Cote and Stanton, holding that the consent decrees did not permit music publishers to partially withhold digital performance rights – which the publishers sold separately, at a premium, to the streaming music service Pandora. The challenge now will likely be convincing the DOJ (and, if necessary, the district court) – that the decrees have already achieved their purposes – or are no longer suited to do so – despite recent finding of coordinated, anticompetitive conduct by some of the key players in the dispute.
Direct Evidence of Patent Holder’s Pricing Power Doesn’t Lead to Summary Judgment on Existence of Monopoly Power
We wrote earlier about the DOJ’s efforts to use direct evidence to show that the rules Amex imposes on merchants harm competition. The district court’s decision denying summary judgment to the plaintiff in Apotex v. Cephalon presents an apparently novel attempt to use direct evidence of market power to prove an antitrust case at the summary judgment stage and avoid tricky issues of market definition.
The Federal Trade Commission has reached a proposed consent agreement with two major propane distributors, Ferrellgas, L.P. (d/b/a Blue Rhino) and AmeriGas Partners, L.P., that would settle an FTC price-fixing investigation into the two companies. The proposed deal was announced by the FTC in an order withdrawing the matter from adjudication so that the proposed agreement could be reviewed.
The intersection of IP and antitrust has always been fraught. The raison-d’être of the Sherman, Clayton, and FTC Acts is to bust trusts and promote competition. Meanwhile, intellectual property laws create lawful exclusionary rights.
This series will explore one particular point of tension: the battle over “reverse payment settlements” pursuant to which the plaintiff in a patent infringement action agrees to “pay” the alleged infringer to keep the infringer’s product off the market for a period of time. In these “pay-for-delay” arrangements, the province of the pharmaceuticals industry, the settling parties are a brand-name drug manufacturer and the maker of a generic equivalent.
The DOJ’s ongoing civil trial challenging American Express’s merchant rules as a violation of Section 1 of the Sherman Antitrust Act may clarify the significance of market share calculations.
At issue in the case are Amex’s rules barring merchants from steering consumers to cards that charge lower merchant processing fees.
We're Passing it Along: One Court’s Treatment of the Upstream and Downstream Pass-On in an Indirect Purchaser Case
In summer 2013, Best Buy faced off against Toshiba and HannStar in a price-fixing trial that was part of the multi-district Flat-Panel litigation, TFT-LCD (Flat-Panel) Antitrust Litigation, 07 MD. 01827 (N.D. Cal.). Although there has been a lot of press about Best Buy’s inability to collect its $22 million verdict due to set offs, and the parties’ protracted battle over attorneys’ fees, there has been little to no coverage of the court’s treatment of the passing on of the overcharge under applicable Minnesota law.
We are pleased to announce the launch of Antitrust Update, Patterson Belknap’s new resource for the latest news and happenings in the antitrust and competition law arena.
On June 27, the trial in O’Bannon v. NCAA concluded following 15 days of testimony. Plaintiffs in this case, former college athletes, including former UCLA basketball player Ed O’Bannon, originally filed in the Northern District of California in 2009. They have challenged the NCAA’s longstanding ban on paying licensing fees to college athletes for the use of their names and images in commercial outlets like broadcasts, merchandise, and video games, asserting that this policy constitutes an anti-competitive restraint of trade devoid of any pro-competitive benefits.