Antitrust and Unfair Competition Law

Antitrust and Unfair Competition Law: E-Briefs, News and Notes, May 2021

Welcome to the May E-briefs, News and Notes. We hope you find this edition useful. Please get in touch if you have any suggestions for new features or you wish to help with the publication.  I want to thank the authors of this month’s e-briefs: Anthony Léon, in-house counsel, Lesley E. Weaver and Matt Melamed, Bleichmar Fonti & Auld LLP; and Kerry C. Klein, Farmer Brownstein Jaeger Goldstein & Klein. If you would like to author an e-brief, please let me know. Volunteers are always welcome.  Bob Connolly, bob@reconnollylaw.com.

E-Briefs

U.S. Supreme Court Rules That FTC Is Not Authorized to Seek Equitable Monetary Relief Directly Through Federal Court for Any Alleged Law Violation AMG Capital Management, LLC, Et Al. V. Federal Trade Commission, 593 U.S. _ (2021) | Anthony Léon

By Anthony Léon

On April 22nd, 2021, the United States Supreme Court unanimously ruled against the Federal Trade Commission’s (FTC) argument that it is authorized to seek directly through federal courts equitable relief for any alleged law violation, AMG Capital Management, LLC, et al. v. Federal Trade Commission, 593 U.S. ___ . Authored by Justice Breyer, the opinion overturns a precedent that courts have followed for decades and resolves a circuit split.

Petitioner is AMG Capital Management, LLC, one of convicted racketeer Scott Tucker’s payday loan services companies. Tucker’s businesses were misleading borrowers in charging excessively high interest rates and undisclosed fees, causing them to pay about three times the amount of their original loan. In 2012 the FTC brought a civil suit against Tucker and all his companies, including Petitioner, for engaging in “unfair or deceptive acts or practices in or affecting commerce” in violation of §5(a) of the Federal Trade Commission Act (FTC Act). 15 U. S. C. §45(a)(1).

The path the FTC chose to challenge the practices is essential here. Instead of using its administrative proceedings, the FTC directly filed a lawsuit against Petitioner in federal court, asking for a permanent injunction as well as restitution and disgorgement. As it did many times before, the FTC relied upon Section 13(b) of the FTC Act to seek this relief. AMG, Slip Op. at 2.

After a summary judgment granted by the District Court, the Ninth Circuit denied Petitioner’s appeal, including on their argument that Section 13(b) does not authorize the monetary relief the District Court had granted. As Petitioner came across a Seventh Circuit precedent ruling differently, they sought certiorari to the United States Supreme Court. The nine Justices were therefore asked whether Section 13(b)—in authorizing the FTC to obtain a “permanent injunction” in federal court against “any person, partnership or corporation” that it believes “is violating or is about to violate any provision of law”—authorizes the Commission to seek, and a court to award, equitable monetary relief such as restitution or disgorgement. Id. at 1.

The United States Supreme Court aligned with Petitioner. It ruled that Section 13(b) does not authorize the FTC to seek equitable relief directly through federal court when a person, partnership, or corporation has allegedly violated any provision of law.

A provision historically interpreted extensively by the Federal Trade Commission.

Congress added Section 13(b) to the FTC in 1973. As summarized by the Supreme Court, Section 13(b) authorizes the FTC to “proceed directly to court (prior to issuing a cease and desist order) to obtain a ‘temporary restraining order or a preliminary injunction,’ and also allows the [FTC], ‘in proper cases,’ to obtain a court-ordered ‘permanent injunction.’” Id. at 4. Before this addition, the FTC could only rely on administrative proceedings, as described in Section 5. Along with this addition, Congress amended Section 5 to ‘authorize district courts to award civil penalties against respondents who violate final cease and desist orders, and to “grant mandatory injunctions and such other and further equitable relief as they deem appropriate in the enforcement of such final orders of the Commission.” In 1975, Congress also added Section 19 to the Act, which authorizes district courts to grant “refund of money or return of property” from a person against whom the FTC has issued a final cease and desist order for any unfair or deceptive act or practice.

The Supreme Court noted that the FTC used the words “permanent injunction” within Section 13(b) to seek and obtain from courts various remedies since the late 1970s, such as court orders for redress and monetary rewards in antitrust cases—including restitution and disgorgement. Id. at 4.  In most cases, the FTC was doing so without prior use of traditional administrative proceedings. Although the FTC limited its use of Section 13(b) to “exceptional cases” involving a “clear violation” between 2003 and 2012, it “presently uses it to win equitable monetary relief directly in court with great frequency.” Id. at 5. To this day, the FTC admitted that “there [is] no question that the agency brings far more cases in court than it does in the administrative process.” Id. at 6.

Section 13(b) focuses upon prospective relief, and a plain meaning reading produces a coherent enforcement scheme.

Justice Breyer centers his opinion on the language of Section 13(b) in light of an enforcement scheme described within the FTC Act. Siding with Justice Breyer, the entire Court found that Congress could not have intended to allow the FTC to use Section 13(b) to bypass Sections 5 and 19.

Specifically, the provision only refers to the ability for the FTC to obtain from a court a “permanent injunction.” However, Supreme Court precedents have shown that an “injunction” significantly differs from “equitable relief.” While the first focuses on prospective relief, the latter is a retrospective relief. This reading is also confirmed by the structure of Section 13(b), which addresses the issue of “stopping seemingly unfair practices from taking place while the Commission determines their lawfulness.” Therefore, a plain meaning reading of Section 13(b) shows that FTC’s interpretation goes “beyond the provision’s subject matter.” Id. at 8.

A plain meaning reading of Section 13(b) also creates a coherent enforcement scheme. When seeking monetary relief, the FTC should first invoke its traditional administrative procedures described in Section 5. It can then utilize Section 19’s redress provisions, which require to fulfill a few express conditions. Section 13(b) could then be used to seek a permanent injunction while administrative proceedings are foreseen or in progress, or when the FTC only seeks injunctive relief.

As such, per the Supreme Court, it is unlikely that Congress intended Section 13(b) to be a way to bypass, on the one hand, the agency’s traditional administrative proceedings, and on the other hand, the conditions set forth in another section that addresses explicitly monetary relief.

Supreme Court rejects FTC’s arguments towards an extended interpretation of Section 13(b).

The Supreme Court then rejected a series of arguments brought by the FTC supporting their interpretation of Section 13(b).

The Court recognized that, in two previous cases, it interpreted provisions authorizing injunctive relief to authorize equitable monetary relief as well. However, in both cases, the text and structure of the statutory scheme were restricting a court’s jurisdiction in equity. The Court also reminded that these two cases were not creating a “universal rule.” Instead, “the scope of equitable relief that a provision authorizes ‘remains a question of interpretation in each case.’” Id. at 11 (citing Mertens v. Hewitt Associates, 508 U.S. 248, 257). Here, as other provisions in the FTC Act allow to seek monetary relief, the court’s jurisdiction in equity is not restricted. 

The Court also rejects FTC’s contention that Congress created two enforcement paths: one administrative and the other judicial. If both Section 13(b) and Section 19 can reach the same result, it is unlikely that Congress enacted the latter as a more onerous alternative than the first one enacted two years before. AMG, Slip Op. at 12.

The Court disagrees with FTC’s reasoning that Section 19’s saving clauses save its ability to use §13(b) to obtain monetary relief because a saving clause could only save a remedy provision that was given in the first place. Id. at 13.

FTC mentioned precedents from courts of appeals having consistently accepted their interpretation of Section 13(b), and Congress having “twice ratified that interpretation in subsequent amendments to the Act.” Id. at 13. The Court rejects that argument. Isolated amendments of a statute do not allow to “assert with any degree of assurance that congressional failure to [revise a statutory scheme] represents affirmative congressional approval of [a court’s] statutory interpretation.” Id. at 13 (citing Alexander v. Sandoval, 532 U. S. 275, 292 (2001)). Specifically, neither amendments did modify Section 13(b)’s remedial provisions.

Finally, the Court is sensitive to “the policy-related importance of allowing the Commission to use §13(b) to obtain monetary relief” and that it is “undesirable simply to enjoin those who violate the Act while leaving them with profits earned at the unjustified expense of consumers.” However, the Court’s interpretation does not prohibit the FTC from using Section 5 and Section 19 to seek equitable relief in the current state of the law. AMG, SlipOp. at 14.

Conclusion

Section 13(b) does not authorize the FTC to seek equitable relief directly through federal court when a person, partnership, or corporation has allegedly violated any provision of law. In Justice Breyer’s words, allowing FTC’s interpretation of this provision “would allow a small statutory tail to wag a very large dog.” Id. at 8.

 This opinion will have a considerable impact on the numerous cases brought by the FTC under Section 13(b). While inviting the FTC to use from now on the administrative proceedings of Section 5, and then Section 19 to seek equitable relief, it also invited the FTC to ask Congress to “grant it further remedial authority.”  FTC’s acting Chairwoman Rebecca Kelly Slaughter took on Supreme Court’s invitation. In a statement issued on April 22, 2021, Slaughter declared that “this ruling . . . has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”

Further developments are to be expected.

Predominance by the Numbers Only Analysis of Olean Wholesale Grocery Coop V. Bumble Bee Foods, 993 F.3d 774 (9th Cir. 2021) | Lesley Weaver and Matt Melamed, Bleichmar, Fonti & Auld LLP

By Lesley Weaver and Matt Melamed, Bleichmar, Fonti & Auld LLP[1]

In Olean Wholesale Grocery Coop v. Bumble Bee Foods, 993 F.3d 774 (9th Cir. 2021), the Ninth Circuit vacated and remanded a district court order certifying three classes in an antitrust case involving an admitted price-fixing conspiracy by producers of packaged tuna.  Most notably, the panel stated that, in order for statistical evidence to establish Rule 23(b)(3) predominance, a district court must conclude the percentage of uninjured class members must be de minimisOlean,Slip Op. at 32.[2]  This high standard pushes class certification ever closer to demanding detailed discovery far beyond establishing mere predominance.

The de minimis holding drew a dissent, and at least one judge called for a vote to determine whether the case should be reheard en banc.  On April 28, 2021, the Court asked the parties to brief whether Rule 23(b)(3) “requires a district court to find that no more than a ‘de minimis’ number of class members are uninjured before certifying a class.”  The briefs are due May 19, 2021.   

This e-brief focuses on three problems – one grammatical, and one precedential, and one practical –  with the panel’s de minimis requirement.

First, the grammatical problem: Rule 23(b)(3) requires that “questions of law or fact common to the class predominate over any questions affecting only individual members.”  Thus, predominance concerns “questions of law or fact common to the class” as a whole.  But Olean considers the predominance inquiry in the context of a single question of law or fact – whether the class includes too many people who cannot be conclusively determined to be injured – and ignores that the vast majority are, even according to defendants’ expert. Olean suggests that, no matter how many other common questions exist, and no matter how instrumental those common questions are to the action, the risk of including more than a de minimis number of uninjured class members is sufficient on its own to demonstrate that common legal and factual issues do not predominate case-wide.  Indeed, Olean does not consider whether there exist any other factual or legal questions, let alone whether they are common.  Further, even as to that single consideration, it suggests a class with as few as 10% uninjured members is may be enough to defeat certification, even though injury would be established for 90% of the prospective class, and even when millions of class members are affected. That appears to conflict with the Rule’s plain text.

Second, the precedential problem: Olean appears to create a new standard that impermissibly conflicts with an earlier one issued by the a panel of the same court.  See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (holding that a published circuit opinion may only be overruled by a subsequent panel when it is clearly irreconcilable with intervening higher authority).  While Olean finds that predominance may not be met if no more than a de minimis number of class members are uninjured, an earlier panel looking at the same issue reached a different conclusion.  In Torres v. Mercer Canyons, Inc., 835 F.3d 1125 (9th Cir. 2016), the Ninth Circuit held that “the court’s task at certification is to ensure that the class is not defined so broadly as to include a great number of members who for some reason could not have been harmed by the defendant’s allegedly unlawful conduct.”  Id. at 1138 (citations and internal quotation marks omitted). 

Requiring a district judge to ensure a class does not include “a great number” of members who “could not have been harmed” is quite different than requiring the judge to ensure the class excludes all but a de minimis number of those who were not harmed.  To be sure, both are framed as qualitative, not quantitative, determinations that require consideration of the unique facts of each case.[3]  But they offer competing guidance to district court judges evaluating the effect of uninjured class members on predominance – not too many (Torres) versus vaninshingly few (Olean).  The majority opinion in Olean gestures towards aligning the two opinions, “agree[ing] with Torres . . . that the mere presence of some non-injured clss members does not defeate predominence,” but merely clarifying that “the number of uninjured class members must be de minimis.”  Slip Op. at 32 n.12.  But the effort at alignment is unsuccessful.  Torres didn’t merely hold that the presence of “some” non-injured class members would not defeat predominance, it also held that only “a great number” would.

One of the first-class certification opinions after Olean was issued acknowledges that Torres remains the law.  In Bailey v. Rite Aid Corp., Case No. 4:18-cv-06926-YGR (N.D. Cal. Apr. 28, 2021), the district court judge certified a class that had alleged violations of California’s False Advertising Law, Unfair Competition Law, Consumer Legal Remedies Act, and common law unjust enrichment.  Though the court acknowledged Olean, it quoted Torres for the law regarding the effect of non-injured class members on predominance.  “The Court’s task at the class certification stage is to ‘ensure that the class is not defined so broadly as to include a great number of members who for some reason could not have been harmed by the defendant’s allegedly unlawful conduct.’”  Bailey v. Rite Aid Corp., Case No. 4:18-cv-06926-YGR, Slip Op. at 27 (N.D. Cal. Apr. 28, 2021) (emphasis in original) (quoting Torres, 825 F.3d 1138).  Implicit in this decision to follow Torres, not Olean, is the recognition that, since a later panel can’t overrule an earlier one, the earlier opinion remains controlling.

Third, the practical problem: the de minimis requirement risks leaving many people harmed by wrongdoing without remedy.  Olean itself provides an example.  The plaintiffs’ case rested on criminal investigations into the three largest domsetic producers of packaged tuna products ­– Bumble Bee, Chicken of the Sea, and StarKist.  By the date the district court granted plaintiffs’ motions for class certification, each of the three companies had pled guilty to criminal price fixing.  In re Packaged Seafood Prods. Antitrust Litig., 332 F.R.D. 308, 317 (S.D. Cal. 2019).  So, too, had one of StarKist’s senior executivies, and Bumble Bee’s CEO had been federally indicted.  Id.  Since that opinion was issued, Bumble Bee’s CEO was sentenced to a 40-month prison sentence for his role in the price fixing conspiracy.[4] 

Millions of people – anyone who purchased canned tuna at prices inflated due to the price fixing scheme – were harmed by defendants’ price fixing scheme. If Plaintiffs are unable to winnow all but a de minimis number of uninjured people from the class, the overwhelming majority of class members who were harmed won’t have access to a remedy.[5]  As Judge Posner observed, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”  Carnegie v. Household Intern., Inc., 376 F.3d 656, 661 (7th Cir. 2004) (emphasis in original).  Above all, this leaves individual consumers with no redress, even in a case with admitted criminal conduct.  If the class is not certified, the substantial majority of class members will not be reimbursed for the harms they suffered. 

What explains the panel’s willingness to overlook these issues?  Despite upholding the possible use of statistical, aggreagate expert reports to determine predominance, the Olean majority does not appear to like class actions that depend on such evidence.  The opinion indicates concern that such evidence can lead to the “‘delegation of judicial power to the plaintiffs.’”  Olean, Slip Op. at 33 (quoting West v. Prudential Sec., Inc., 282 F.3d 935, 938 (7th Cir. 2002)).  And it expresses worry that “‘savvy crafting of the evidence’” by plaintiffs and their experts will “guarantee predominance.”  Olean, Slip Op. at 33 (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 103 (2009)).  But the very point of statistical evidence is to address problems of proof inherent in aggregating small claims. To be sure, courts should closely scrutinize the evidence presented in favor of certification.  Notably absent, however, is any parallel concern with savvy crafting of the evidence by lawyers seeking to defeat certification.  Class certification often requires judges to evaluate sophisticated presentations of aggregate proof.  But the answer is to treat all parties’ presentations, not merely plaintiffs’, with appropriate scrutiny.  While plaintiffs bear the burden of demonstrating predominance on a motion for class certification, determining whether they’ve met that burden requires the close evaluation of defense expert reports, too.

Moreover, the Olean majority’s concern with the delegation of power to the plaintiffs conflicts with the district court’s actual searching review of both sides’ experts.  Though Olean asserts the district court “gloss[ed] over the number of uninjured class members” (Slip Op. at 33), the assertion is unmeritied.  The district court conducted three days of hearings on the class certification motions, focuing the hearing on the experts’ competing models, hearing testimony from each of the experts, and permitting cross-examination aimed at demonstrating each expert’s findings unreliable.  Packaged Seafood Prods., 332 F.R.D. at 317.  No matter how savvy plaintiffs’ – or defendants’ – expert reports, judicial power was retained and exercised by the district court.    

To be sure, criticism of Olean should not be understood to mean class actions needn’t be concerned with non-injured class members.  Counsel and courts already engage in a rigorous process to do what they can to eliminate non-injured individuals from classes.  Efforts such as precision in class definitions, close monitoring of the claims process, and, when necessary, severance of the liability and damages phases of class actions help limit classes and damages to those injured.  One unintended consequence may be to substantially increase the discovery obligations on defendants by requiring that they immediately preserve and provide highly detailed records about everyone who may be affected by alleged wrongdoing in putative class actins.  Given the data collection practices of many companies, this new high standard may trigger a new front in ESI negotiations and disputes. 

As Torres holds, there is certainly a point at which the presence of non-injured class members is so great that the class cannot be certified.  But Olean’s imposition of a de minimis rule is impractical, ungrammatical, and inconsistent with circuit precedent. 



[1]  The authors represent a plaintiff whose action was consolidated into Olean Wholesale Grocery Coop v. Bumble Bee Foods.

[2] Though the case has been published, pagination is not yet available on Westlaw.  Thus, citations are provided to the slip opinion. 

[3] Even so, Olean suggests that 5% to 6% may be the outer limits of a de minimis number. 

[4] https://www.justice.gov/opa/pr/former-bumble-bee-ceo-sentenced-prison-fixing-prices-canned-tuna.

[5] This issue may be resolved on remand in Olean, as the district court may conclude that the plaintiffs’ model, which calculated that 5.5% of class members were uninjured, is better than defendants’ model, which posited 28% of class members were uninjured, and that 5.5% is sufficiently de minimis to meet the predominance requirement.  It is worth noting, however, that even the defendants’ model indicates that 72% of the class members were harmed by defendants’ price fixing.

Fifth Circuit Affirms Federal Trade Commission Decision Finding a Reverse Payment Settlement Anticompetitive in Impax Labs., Inc. V. FTC | Kerry C. Klein, Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP

By Kerry C. Klein, Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP

The Court of Appeals for the Fifth Circuit handed the Federal Trade Commission (“FTC”) a victory in a case regarding so-called “reverse payment settlements” in Impax Labs., Inc. v. FTC, No. 19-60394, 2021 U.S. App. LEXIS 10555 (5th Cir. April 13, 2021). The is the first court of appeals decision concerning a reverse payment settlement since the United States Supreme Court decided FTC v. Actavis, 570 U.S. 136 (2013), which held that such settlements that extend the brand drug’s monopoly can have anticompetitive effects that violate the antitrust laws.

BACKGROUND

The Hatch-Waxman Act

Judge Costa, writing for a unanimous panel, opens the opinion by noting that, “[n]ormally, when lawsuits settle the defendant pays the plaintiff. That makes sense as the defendant is the party accused of wrongdoing. But when a generic drug is poised to enter the market and threaten the monopoly enjoyed by a brand-name pharmaceutical, federal law can incentivize a different type of settlement.” Id. at *2.  The court described the perverse incentives provided by several provisions of the Hatch-Waxman Act (“Act”). The Act promotes entry for generic drugs by allowing: (1) generic drug makers to file for an abbreviated approval process if the drug is biologically equivalent to a brand drug already approved; and (2) the first generic drug applicant to market its generic drug for 180 days without competition from any other generic manufacturer. Id. at *4-5.

However, the Act also provides that if the brand manufacturer believes the generic drug infringes on a patent, it may file a patent infringement suit. If the brand manufacturer files an infringement suit within 45 days of the generic drug’s application, the FDA is stayed from approving the generic application until either 30 months have passed or the patent litigation concludes. Id. at *5. This delay for the first generic’s entry also postpones the potential entry of other generics. They must wait for the same 30-month stay and then for the expiration of the first generic’s 6-month exclusivity period before entering the market. Id. at *6.

These facets of the Act provide a powerful incentive for the brand maker to pay large sums to delay the entry of the first generic maker. Id. at *6-7.

Factual and Procedural Background

The facts of Impax illustrate these incentives. The drug at issue is a type of opioid made by Endo.  Id. at *7. In late 2007, Impax filed the first application to market a generic version of the drug. Id. Endo then sued Impax for patent infringement, which automatically delayed any FDA approval for 30 months or until the litigation concluded. Id. at *7-8.  In addition to the goal of delaying the generic’s entry into the market, Endo was working on a new brand-name drug which it could patent and thereby prevent competition for years. Id. at *8. This strategy (known as a “product hop”) depended on the reformulated brand drug reaching the market sufficiently in advance of the generic entry of Impax. Id. at *9.

Settlement talks stalled until just before the expiration of the 30-month stay., when Endo restarted settlement negotiations. Ultimately, the parties settled on the following terms: Impax agreed to delay launching its generic for two and a half years. In turn, Endo agreed to not market its own generic version until Impax’s 180-day exclusivity period concluded. Additionally, Endo agreed to pay Impax a credit if sales revenues for the original formulation fell by more than 50 percent between the dates of settlement and Impax’s entry. This credit served as an insurance policy for Impax, preserving the value of the settlement in case Endo undermined the generic market by transitioning consumers to the reformulated brand-name drug. Endo also provided Impax with a broad license to Endo’s existing and future patents covering extended-release oxymorphone. Finally, Endo and Impax agreed to collaboratively develop a new Parkinson’s disease treatment, with Endo paying Impax $10 million immediately and up to $30 million in additional payments contingent on achieving sufficient development and marketing progress. Id. at *10-11.

The FTC brought separate actions against Endo and Impax alleging that the settlement was an unfair method of competition under the FTC Act and an unreasonable restraint of trade under the Sherman Act. Id. at *12. Endo settled; Impax successfully moved the case to an administrative proceeding from federal district court in which it was filed. An Administrative Law Judge determined the settlement was lawful. The full Federal Trade Commission reached a different conclusion, finding that the settlement did not have procompetitive benefits, and any benefits could have been achieved by less restrictive means. Id. Impax petitioned for review of the FTC’s order.

THE FIFTH CIRCUIT DECISION

The Fifth Circuit, reviewing the FTC’s order de novo, analyzed the agreement under the Rule of Reason, using a burden-shifting framework. Id. at *14. The initial burden is on the FTC to show anticompetitive effects. If the FTC succeeds in doing so, the burden shifts to Impax to demonstrate that the restraint produced procompetitive benefits. If Impax successfully proves procompetitive benefits, then the FTC can demonstrate that any procompetitive effects could be achieved through less anticompetitive means. Finally, if the FTC fails to demonstrate a less restrictive alternative way to achieve the procompetitive benefits, the court must balance the anticompetitive and procompetitive effects of the restraint. Id. at *14-15.

As to the first question, the court recognized that paying a potential competitor not to compete is so detrimental to competition that normally it is a per se violation. Id. at *16.  However, the Supreme Court noted in Actavis that reverse payment settlements have the potential to produce pro-competitive benefits, such as allowing generic entry earlier than the patent expiration date, leading to more competition than would have existed absent the settlement. Id. at *17. The court relied on the Supreme Court’s determination that a large reverse payment creates a likelihood of serious anticompetitive effects, but rejected the argument that solely showing a large payment was enough to establish anticompetitive harm. Id. at *17-19. While the court stated that a large reverse payment might be justified if it represents avoided litigation costs or fair value for services, it found no such justification in this case. Id. at *19-20. The court also found it unnecessary to assess the likely outcome of the patent case in order to find anticompetitive effects, reasoning that a large reverse payment itself suggests that the patentee has serious doubts about the patent’s survival. Id. at *22-23.

As to the second questionwhether Impax can show procompetitive impacts (which the FTC decided it could not)—the court decided it need not answer that question, due to the “less restrictive alternative” finding for the third question. Id. at *27. Stating the general rule that a restrain is unreasonable when any procompetitive benefits it produces could be reasonably achieved through less anticompetitive means, the court summarized the question as whether “the good could have been achieved equally well with less bad.” Id. at *28. The court found substantial evidence supporting the Commission’s conclusion that the benefits could have been achieved by less restrictive means, including: (1) the fact that most settlements between brand and generic drug makers do not include reverse payments; (2) the credibility of Impax’s chief negotiator, whose testimony at trial regarding Endo’s desire to prevent a generic entry before 2013 was inconsistent with testimony he provided earlier; and (3) an economic analysis. Id. at *31-34. As to the latter, the court stated, “[i]f everything has a price, then those large payments were the price for Impax’s delayed entry.” Id. at *34.

Because a less restrictive alternative was available, “the reverse payment settlement was an agreement to preserve and split monopoly profits that was not necessary to allow generic competition before the expiration of Endo’s patent.” Id. at *35. Accordingly, the Fifth Circuit denied Impax’s petition for review.

Tradeline Enterprises Pvt., Ltd. V. Jess Smith & Sons Cotton, et.al. CV-15-08048 JAK (RAOx) C.D. Cal. April 28, 2021 | Bob Connolly, Law Office of Robert Connolly

By Bob Connolly, Law Office of Robert Connolly

Judge grants request requiring unsuccessful plaintiff to produce documents that would reveal the identifies of lenders who funded the suit.

Tradeline, an Indian company, sued several US cotton companies in 2015 seeking $300 million in damages, alleging that defendants conspired to disparage its products.  Tradeline alleged defendants’ conduct caused it to lose major business deals.  US District Court Judge Kronstadt ordered the partiees to arbitrate their dispute under an arbitration agreement to which Tradeline was a party.  In arbitration, the defendants were awarded $8.9 million in litigation costs.  Since the plaintiff is bankrupt the defendants are seeking to obtain costs from the lenders that financed the plaintiff’s suit.

US Magistrate Judge Rozella A. Oliver conducted a Telephonic Hearing on a Motion for Protective Order and Motion to Compel.  The minutes of the hearing are available at Tradeline Enterprises v. Jess Smith & Sons Cotton, LLC, Case No. 2:15-cv-08048-JAK-RAO Dkt. #167, filed April 28, 2021. (“Tradeline”).  Magistrate Oliver granted the U.S. cotton producer’s motion to compel more documents in the litigation funding suit. The Court granted the judgment creditors’ request to compel ACM Managers LLC to provide further responses and responsive documents to its subpoena to ACM.  The Court and the parties had previously modified the requests for production in Boswell’s subpoena to ACM “to include documents and information within ACM’s custody, possession, or control, sufficient to show entities and/or individuals involved in funding any portion of the lawsuit or arbitration, including when, how much, and how.” Dkt. No. 156. The phrase “funding . . . of the lawsuit or arbitration” was understood to mean entities or individuals both upstream and downstream. Id.

The Court’s reasoning in this short Minutes/Order was:

The Court finds that Boswell’s requested discovery is relevant and falls within the scope of discovery authorized by District Judge Kronstadt in his April 15, 2019 order. See Dkt. No. 111. Judge Kronstadt cited Stan Lee Media, Inc. v. Walt Disney Co., No. 12-CV-02663-WJM- KMT, 2015 WL 5210655 (D. Colo. Sept. 8, 2015) in his April 15, 2019 order. See id. at 6. In Stan Lee Media, the court found that the defendant could make a colorable argument that a non- party litigation funder, TAP-SLMI, should be held to be a party to the underlying litigation. 2015 WL 5210655, at *3. The court permitted further discovery so that the defendant could “fully investigate whether a fully viable argument” could be made that TAP-SLMI should be considered a party for purposes of execution of judgments. Id. The court found that certain topics for deposition and document production requested relevant information. See id. Those topics included a deposition topic on “[a]ll of the investors in TAP-SLMI” and a document production topic for “[d]ocuments sufficient to show all the investors in TAP-SLMI.” See id.; Decl. of Randi W. Singer in Support of the Walt Disney Co.’s Opp’n to TAP-SLMI’s Mot. to Quash, Ex. 2, Stan Lee Media, No. 12-CV-02663-WJM-KMT, ECF No. 145-3.

Tradeline at *2-3.

Magistrate Oliver found that Judge Kronstadt had already ruled that the argument for adding Tradelines litigation funder as a debtor was colorable.  There was no dispute that the Arrowhead entities were direct funders of the Tradeline lawsuit and arbitration and therefore the requested discovery regarding the investors or lenders to these Arrowhead entities for funding of the Tradeline litigation and arbitration is within the scope of permissible discovery under Federal Rule of Civil Procedure 69(a)(2). Tradeline at *3.  Magistrate Oliver also found that the protective order in the case would sufficiently address concerns that ACM would be irreparably harmed by disclosure of the identities of its upstream lenders or funders. Id.

The case marks a significant win for parties trying to enforce judgments against litigation funders.

Section News

Inclusion and Diversity Fellowship

The Antitrust and Unfair Competition Law Section is pleased to announce that the inaugural recipient of its Inclusion and Diversity Fellowship is LeeAnna Bowman-Carpio. As part of the Fellowship award, LeeAnna has secured a summer internship at the California Department of Justice’s Antitrust Section and an educational stipend of $10,000. Apart from the internship, LeeAnna will participate in and contribute to the CLA’s Antitrust and UCL Section’s activities and enjoy opportunities to develop relationships with antitrust and UCL practitioners throughout California. For more details and a list of Fellowship Donors click here.

Students Can Join the Section for Free

Law students can join up to three sections of the California Lawyers’ Association (CLA) for free?  We’d love to have you. Find more information here.

31st Annual Golden State Institute | November 17-18, 2021

Please save the date for the 31st Annual Golden State Institute on November 17-18, 2021!

This annual marquee event sponsored by the Antitrust and Unfair Competition Law Section promises expert panels on front page issues and cutting-edge legal developments, along with the unrivaled socializing and networking opportunities the Antitrust and Unfair Competition Law Section is renowned for. 2021 also marks the return of the Section’s star-studded California Antitrust Lawyer of the Year events. Don’t miss out!

For major sponsorship options, please email Antitrust@CAlawyers.org.

Webinar: Meet the Competition Enforcers | May 11 @ 12 p.m. – 1 p.m.

This lunchtime program features leaders of the DOJ Antitrust Division, FTC, and California DOJ for a briefing on the priorities and activities of the principal agencies charged with enforcing the competition laws.

For more information and registration information, click here.

A Deeper Dive: A Look at Possible Antitrust Policy in the Biden Administration

By Bob Connolly and Trevor V. Stockinger

This note outlines some trends in antitrust enforcement that will continue and may accelerate under the Biden administration.  Also included is a roster of federal, state, and local antitrust/consumer protection agencies that may be useful if you have issues in those areas.

A.        Some Thoughts on Antitrust Enforcement Under the Biden Administration

The Biden Administration has been slow to appoint top people to lead the administration’s antitrust policy, but all indications are to expect more aggressive and well-funded competition agencies. Rebecca Kelly Slaughter is still the Acting Chairwoman of the Federal Trade Commission, though she is in contention to be nominated to take the position.  Ms. Slaughter will pursue an aggressive path. She dissented from the Vertical Merger Guidelines adopted by the previous administration (here) and in testimony before the House antitrust subcommittee she pledged “to strongly enforce existing antitrust law to protect Americans from rising monopoly power and anticompetitive mergers.” (here).  President Biden is already filling key positions in the White House (Timothy Wu, National Economic Council) and at the FTC (Lina Khan, nominee for commissioner) with lawyers who have advocated for increased antitrust enforcement, especially against “big tech companies.”

There has not been a nomination to lead the Antitrust Division.  The selection process has been difficult as progressives push back against potential candidates who have represented Google, Facebook, Amazon and other high profile, high tech companies.  On the other hand, ethics questions arise with anyone who has aggressively attacked Google, Facebook, Amazon, etc.  Whomever is selected, he/she may well be recused from the high-profile Google case or other future high-tech actions the Antitrust Division may bring.  It is hard to find a qualified leader who has not been either involved in litigation or outspoken about concentration issues in high-tech.

Congress, especially the House, is expected to push for more aggressive antitrust enforcement–backed by increased funding.   The House and Senate antitrust subcommittees have held four hearings since February 25, 2021.  Even without leadership set in place, there are some predictions that can be made with a fair degree of confidence about antitrust enforcement going forward.

Criminal Enforcement

Criminal antitrust enforcement is handled exclusively by the DOJ’s Antitrust Division.  The prosecution of price fixing and bid rigging cartels enjoys bi-partisan support and there is generally a continuity in the criminal enforcement program between administrations.  The criminal enforcement case filings/fines were significantly down during the Trump Administration but there are a number of factors that contribute to that–including the pipeline left by the previous administration.  The Antitrust Division has recently stated that in the last year they have opened the most grand juries than they have in almost 20 years. The Antitrust Division received a 10% budget increase last year, and current proposals in Congress would further increase the budget in a major way.  The FTC is also likely to receive a major increase in funding.

Two trends started under the last administration will continue.  Healthcare is a primary focus of the Antitrust Division, particularly violations in health care labor markets including prosecution of wage fixing and no-poach agreements not to hire employees from a competitor company.  The Antitrust Division has recently filed several criminal antitrust wage fixing and no-poach cases.  The Division has indicated there are many more active grand juries on these topics.  The last administration established the Procurement Collusion Strike Force to concentrate on bid rigging involving government contracts for construction, supplies and other goods.  This will likely continue and, with increased budgets, enforcement in this area may pick up.

Merger Enforcement

Merger enforcement is handled by both the FTC and Antitrust Division. Which agency reviews a particular matter is decided by a tug of war more formally known as the “clearance process.”  It is likely that mergers will receive greater scrutiny in a Democratic administration.  The shift is usually not dramatic, but Democrats are more willing to use government intervention in the market to correct perceived problems.  One area of merger enforcement that has already increased under the prior administration is to challenge “nascent” mergers.  On January 12, 2021 Visa Inc. and Plaid Inc. abandoned their planned $5.3 billion merger after the DOJ filed a civil antitrust lawsuit on Nov. 5, 2020, to stop the merger.  The challenge was based on the allegation that Plaid was an innovative and nascent competitor that would have been eliminated before it had a chance to succeed.  See the DOJ press release here.  On January 5, 2021, the FTC announced that the Procter & Gamble Company abandoned its proposed acquisition of Billie, Inc.  On December 8, 2020, the Commission had voted to file a complaint against the proposed merger. The FTC charged that the acquisition would allow Procter & Gamble, the market-leading supplier of both women’s and men’s wet shave razors, to eliminate growing competition from Billie.  See the FTC press release here

Further, we may see increased enforcement of vertical mergers – mergers between companies at different distribution levels in the market. The FTC recently filed a complaint to block the merger of Illumina Inc., a DNA sequencing company, and GRAIL, Inc., a developer of an innovative cancer test that uses Illumina’s technology. The FTC asserts the merger would incentivize Illumina to cut off potential GRAIL competitors from sequencing technology necessary to develop competitive cancer tests. The FTC press release can be found here.

As mentioned above, the FTC and DOJ updated the Vertical Merger Guidelines in 2020 (here) after having not touched them since 1984. Already there are calls to update them again to support more aggressive enforcement of vertical mergers like that of Illumina and GRAIL.

Monopolization

It is clear that there is an appetite in the FTC and DOJ for alleging monopolization, particularly in the high-tech markets.  These monopoly cases were filed in the previous administration and will be litigated throughout the Biden administration:  FTC v. Facebook, Inc. (FTC press release here) and US v. Google LLC, (DOJ Press release here).  Many states, including California, have joined these suits.

Compliance

The increased budgets for antitrust enforcement should be met by companies by an increase in their antitrust compliance programs. In 2019 the Antitrust Division announced a new policy to incentivize corporate compliance which included a change in policy to recognize that a robust compliance program may merit consideration in charging and/or sentencing decisions (here).  The criminal cases in the wage-fixing/no-poach area show that many senior executives and human resources departments may not be aware of the illegality of certain conduct.  The FTC and Antitrust Division issued a joint statement, Antitrust Guidance for Human Resources Professional (here).

Antitrust compliance training can be crucial even outside the area of collusive agreements between competitors that may warrant criminal prosecution.  Mergers often come under intense scrutiny or are even challenged because an overzealous proponent of the merger writes an email something like “After we buy X corporation, we will dominate the market and can raise prices.” Such emails are actually written and find their way into both government and private antitrust actions.  Executives should be taught to memorialize the procompetitive benefits from their actions.

B.        Federal, State and Local Resources for Antitrust/Consumer Protection Issues

 In California we are fortunate to have regional offices of the DOJ’s Antitrust Division and the FTC in state.  While many matters/investigations will be handled by attorneys in Washington, D.C., questions/complaints about competitive issues can be initially brought to these regional offices.  The government will not get involved in private disputes, but if conduct has broad affect in a market, it may be something the government will look into.

  • Antitrust Division, United States Department of Justice

The Antitrust Division’s regional field office in San Francisco has a long history of successful antitrust enforcement in both criminal and civil matters.  The Antitrust Division’s web page is here.  Contact information for the San Francisco office is:

San Francisco Office
Manish Kumar, Chief | 415-934-5300
Jacklin Lem, Assistant Chief | 415-934-5300
Leslie Wulff, Assistant Chief | 415-934-5300

Phillip Burton Federal Building and U.S. Courthouse
450 Golden Gate Avenue
Room 10-0101
Box 36046
San Francisco, CA 94102-3478

Office Phone: 415-934-5300
Fax: 415-934-5399
E-Mail: SanFran.ATR@usdoj.gov

  • Federal Trade Commission

The Federal Trade Commission has two regional offices in California. The Western Region San Francisco serves the residents of Northern California, Northern Nevada, Utah, and Colorado.

Thomas Dahdouh, Director
Kerry O’Brien, Assistant Director

The Western Region San Francisco handles both antitrust and consumer protection matters. The office works to enforce the federal antitrust laws through merger and anticompetitive conduct investigations and litigation across an array of industries. Western Region San Francisco also stops unfair, deceptive, and fraudulent business practices by conducting investigations, bringing law enforcement actions, building state and local partnerships, and educating consumers and businesses about their rights and responsibilities.

The Western Region Los Angeles serves the residents of Southern California, Southern Nevada, Arizona, Hawaii, Guam, American Samoa, and Northern Mariana Islands.

Maricela Segura, Director 
Faye Chen Barnouw, Assistant Director

The Western Region Los Angeles stops unfair, deceptive, and fraudulent business practices by conducting investigations, bringing law enforcement actions, building state and local partnerships, and educating consumers and businesses about their rights and responsibilities.

  • State of California, Office of the Attorney General, Antitrust and Business Competition

The Attorney General’s Antitrust Law Section enforces California’s antitrust laws both civilly and criminally, and federal antitrust laws civilly, through business merger/acquisition reviews, investigations of potential violations of the law, and, where necessary, litigation.

  • District Attorneys’ Offices

Some  of the larger cities, San Diego, Los Angeles and San Francisco, among others, also have active Consumer Protection Divisions which may be a good resource for consumer/business complaints.

C.        Wrap Up

This promises to be a very active time for antitrust enforcement, both at the government and private level.  The Antitrust and Unfair Competition Section of the California Lawyers Association will have full coverage through various programs, and the Section’s publications: California Antitrust and Unfair Competition Law Treatise; Competition Journal and the monthly E-briefs, News and NotesStay tuned.

Agency Updates

Antitrust Division, US Department of Justice

Federal Trade Commission

California AG’s Office

Other News and Notes

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