Antitrust and Unfair Competition Law

E-Briefs, News and Notes: July 2023

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WELCOME to the JULY 2023 edition of E-Briefs, News and Notes.

This edition has a variety of content:

  • In SECTION NEWS, we feature:
    • Update on the New Proposed HSR Premerger Filing Requirements
  • E-BRIEFS features three significant cases: first, an insightful summary distilling the ninety page pre-trial decision in Broiler Chicken to its essential components; second, a contextual review of the final decision dismissing the FTC’s long running challenge to Altria’s acquisition of a 35% stake in Juul as anticompetitive; and third, an analysis of the partial dismissal in Amazon’s latest motion to dismiss a consumers’ class action for violations of state and federal antitrust laws.  
  • IN CASE YOU MISSED IT re-posts numerous articles and other matters of interest to antitrust and unfair competition lawyers. Curated by Bob Connolly.  

Thanks to all the contributors to this edition. If you have any suggestions for improvement, or an interest in contributing to E-Briefs, please contact Editors Betsy Manifold (Manifold@whafh.com) and James Dallal (JDallal@cpmlegal.com).

Section News

FTC and DOJ Issue New Proposed HSR Premerger Filing Requirements

By Lee F. Berger and Andrew Magloughlin, Steptoe & Johnson LLP

Lee F. Berger
Lee F. Berger
Andrew Magloughlin
Andrew Magloughlin

On June 27, the Federal Trade Commission (FTC) released a Notice of Proposed Rulemaking that would significantly expand the scope of information required for an initial premerger notification under the Hart-Scott-Rodino Antitrust Improvements Act (HSR).  If adopted, the proposed modifications would require extensive information-gathering and analysis prior to filing a premerger notification. Even by the FTC’s likely conservative calculations, the changes would add up to 222 hours of preparation time per filing. While the FTC’s interest in additional information at the outset of a transaction review is understandable, the magnitude of the additional work and associated costs that would be required to comply with the proposed rules may be disproportionate—antitrust enforcers issued Requests for Additional Information in only two percent of HSR filings and took enforcement action in less than one percent of notified transactions in the most recent fiscal year.

The new burdens would be generated through additional requirements for narrative responses, documentary submissions, and other information requirements.

Narrative responses would be required to describe the parties’ businesses, to detail each strategic rationale for the transaction, and to identify the horizontal overlaps between the parties and any supply relationships between the parties or a party and a competitor of the other party.  Each party also would need to identify its top customers and provide information regarding prior acquisitions over a ten-year period.

Additional documentary submissions required by the proposed rules would include all deal documents, including all schedules and exhibits, and, to the extent a definitive agreement has not been executed, the most recent term sheet or draft agreement that provides “sufficient detail” about the transaction – casting doubt on whether parties may continue to file, as they may today, on the basis of a bare-bones term sheet.

The proposed rules modifications would also require the submission of all deal analyses with antitrust-sensitive content, including drafts, prepared by or for directors, officers, or the supervisory deal team lead – a significant expansion on the current requirement to provide only final copies of such documents prepared by or for only officers or directors. In addition to documents prepared in connection with the proposed transaction, the parties would need to provide certain regularly-prepared periodic plans and reports about markets, competitors, and competition. These requirements will intensify the need for counsel to review documents in advance, to attempt to prevent antitrust problems from arising.

Other information requirements would also significantly inflate the burdens of filing an initial HSR notification; these requirements include:

  • Information on officers, directors, and board observers of each party, including all other entities for which the individual has recently served as an officer, director, or board observer (arising from the heightened enforcement of Clayton Act § 8);
  • Information regarding the parties’ employees, by occupational category and location, as well as any history of worker or workplace safety violations or investigations (arising from the Biden Administration’s interest in labor issues);
  • Information regarding minority owners and others (e.g., creditors or non-voting security holders) who may exert influence over either party;
  • Information about U.S. Defense or intelligence community contracts; and
  • Information regarding subsidies from foreign entities or governments of concern.

These proposed modifications to the HSR regulations, which have only been highlighted here, represent the most fundamental changes to the premerger notification system since the HSR regulations first took effect in 1978. Interested parties – which should include any entity considering any reportable transaction – have until August 28, 2023, to submit comments.

E-Briefs

Illinois Federal Court Carves Broiler Chicken Case Before September Trial By Amar S. Naik
Amar S. Naik
Amar S. Naik

By Amar S. Naik

On June 30, 2023, U.S. District Judge Thomas Durkin in the Northern District of Illinois dismissed two theories of liability and seven defendants from cases brought by three separate classes and opt-out plaintiffs against producers of broiler chickens (“broilers”) and an agricultural statistics company.[1] The decision narrows the issues for an upcoming September trial and shows the importance of having both documentary and economic evidence to support Section 1 claims when direct evidence of a conspiracy is lacking.

In this sprawling litigation, plaintiffs allege that defendants engaged in an unlawful conspiracy to decrease output and increase prices, entered into an unlawful agreement to reduce supply through early slaughter of breeder hens, and participated in a coordinated effort to manipulate a key price index. Defendants filed motions for summary judgment arguing that their actions were not collusive, but were the byproduct of market conditions and independent reactions to those conditions. They also argued that the plaintiffs’ theories of liability were not supported by sufficient documentary and economic evidence.

Judge Durkin rejected many of defendants’ arguments—notably their Daubert motions against plaintiffs’ economic experts—but he agreed to eliminate two theories of liability. First, he held that there was insufficient evidence to show that defendants agreed to reduce supply by slaughtering breeder hens at an earlier age between 2015 and 2016. Even though success is not an element of a conspiracy claim, the increased output of broilers during this time period undermined the ability for any jury to infer the existence of an agreement to reduce supply. Second, the judge concluded that it would be unreasonable for a jury to infer the existence of an agreement by defendants to manipulate the “Georgia Dock,” a key broiler price index. Even though some economic evidence suggested that this index was artificially high during the period at issue, plaintiffs presented scant evidence suggesting that defendants agreed to act together to manipulate this index.

The court also determined that plaintiffs failed to provide sufficient evidence regarding the participation of six producers in the alleged unlawful conduct. For example, even though one defendant received an invitation to “join together” with another producer, plaintiffs presented no evidence that the defendant accepted that invitation. Further, the court held that Agri Stats, an agricultural statistics company used by defendants to obtain certain industry information, could not serve as a conduit for any conspiracy because the company never exchanged production or pricing information among the producers. Even if some of the exchanged information could facilitate unlawful coordination, plaintiffs presented no evidence that the company encouraged or participated in any conspiracy itself. And because the company did not itself sell broilers and therefore did not stand to benefit directly from any decreased output or increased prices, the economic evidence presented by plaintiffs was irrelevant.


[1] The case is captioned In re Broiler Chicken Antitrust Litigation, Case No. 16-cv-08637 (N.D. Ill.).

In the Matter of Altria Group, Inc. and Juul Labs, Inc., Docket No. 9393, Order to Return Case to Adjudication, Vacate Initial Decision, and Dismiss Complaint (F.T.C. Jun 30, 2023) By Cheryl Johnson
Cheryl Johnson
Cheryl Johnson

By Cheryl Johnson

Background and Initial ALJ Decision

In 2018, Altria Group, the parent to Phillip Morris, and Juul Labs, the market leader in vaping e-cigarettes, entered a series of agreements in which Altria acquired a 35% stake in Juul and agreed to cease competing in the e-cigarette market. Both parties alleged that Altria’s decision to not compete in e-cigarettes was independent of its investment in Juul.  The FTC disagreed and challenged the transactions as an anticompetitive agreement not to compete in violation of the Sherman, Clayton and FTC Acts.

After conducting a 13 day evidentiary hearing in 2021, Administrative Law Judge (ALJ) Michael Chappell issued a 270-page decision in February 2022 recommending dismissal of the FTC’s complaint.[1] The ALJ decision found that there was insufficient evidence that a) Altria’s 2018 withdrawal from the market was integral to its 2018 investment in Juul; b) the agreements had anticompetitive effects or that there was a reasonable probability that Altria would have competed in the e-cigarette market in the near future; and c) Altria’s retreat from the e-cigarette market caused any anticompetitive effects as the market had become increasingly competitive. The FTC filed a notice of appeal, triggering a review by the full Federal Trade Commission (the Commission). 

Before the Commission ruled on the appeal, Altria advised that it had relinquished its stake in Juul, unwound the agreement and terminated its noncompete agreement.  Juul and Altria then moved to dismiss the FTC’s complaint as moot. Also, in the interim, the FDA had denied marketing authorization for Juul products, though its order was stayed pending the FDA’s final review. Order to Return Case to Adjudication, Vacate Initial Decision, and Dismiss Complaint, June 20, 2023 (“Ord.”) at 2. [2]

FTC Order of June 30, 2023

In light of the full voluntary unwinding of the parties’ agreements and Juul’s ability to market in the US being in flux, the Commission dismissed the FTC’s complaint as its pursuit “no longer serves the public interest.” Ord. at 2-3. The Commission also vacated the ALJ’s Decision rendering it nonprecedential, as it had not yet ruled on the FTC’s appeal.  In so doing, the Commission “clarif[ied] our view of several matters of law” arising from the ALJ’s decision. Ord. at 4.

  1. Per Se. The Commission described an alleged agreement that Altria would exit the market and cede it to Juul as “functionally indistinguishable from a market allocation scheme,” a type of scheme that has long been held per se illegal. Ord. at 4.  A per se claim would not require a showing of anticompetitive effects, and the ALJ who had ruled on a rule of reason theory, “undoubtedly would have addressed certain issues differently under a per se theory.” Ord. at 5.
  • Finding an Agreement. The Commission had numerous “clarifications” as to the ALJ’s conclusion that a noncompete agreement by Altria was not adequately shown. In evaluating an agreement or conspiracy based on circumstantial evidence, no formal agreement is required, and the factfinder must “carefully consider the plus factors”, which may include any “behavior or outcomes inconsistent with independent action”. This evidence is to be viewed not in its separate parts but as a whole to determine whether proof of coordinated conduct renders the conspiracy more likely than not. Ord. at 7.  Further, any post hoc executive testimony must be considered in light of the presence or absence of corroboration. Ord. at 6-7.
  • But-for Analysis. The Commission chided the ALJ Decision for considering the increasing competitiveness of the market post-agreement.  In a merger challenge, the proper comparison is not a before and after view, but one of the actual world and the but-for world in the absence of the transaction at issue. Ord. at 7.
  • HHI Presumptions: The ALJ declined to establish a presumption of illegality despite evidence that the transaction resulted in a HHI of 3276 with an increase of 652 points. Ord. at 8  The Commission stated that the government can establish a prima facie case on HHI numbers alone, and factors claimed to undermine the predictive value of those numbers are properly considered on rebuttal. Ord. at 9.
  • Altria as Competitor: Despite the fact Altria withdrew its e-cigarette products just days before the transaction, the ALJ concluded there was insufficient evidence of Altria’s actual or probable entry or near-future launch of a competing e-cigarette product so as to be a “potential” competitor. The Commission cited the withdrawal as justifying treatment of Altria as a current competitor, however, and stated that to be a “potential” competitor, “clear proof of independent entry” was not required but rather only a reasonable probability of entry. Ord. at 10.
  • Innovation and R&D Losses: The Commission noted that the ALJ essentially disregarded Altria’s agreement to cease its intensive R&D efforts to launch new products, efforts estimated to be worth between $30 to $100 million per year. Ord. at 10-11. The Commission emphasized that the “elimination of ongoing large scale R& D efforts” is a “competitive consequence of concern” and that a merger analysis must “weigh merger-related losses to R&D and the resultant harms to innovation.” Ord. at 11.

[1] https://www.ftc.gov/system/files/ftc_gov/pdf/d09393altriainitialdecisionpublic.pdf

[2] https://www.ftc.gov/system/files/ftc_gov/pdf/d09393commissionorderdismissingcomplaint.pdf

Amazon Consumer Antitrust Class Action Partially Survives Motion to Dismiss By Evan Feder and Benjamin Gurvitch

By Evan Feder and Benjamin Gurvitch

Evan Feder
Evan Feder
Benjamin Gurvitch
Benjamin Gurvitch

In a recent ruling from the Western District of Washington, Judge Richard Jones granted in part and denied in part Amazon’s latest motion to dismiss against a group of consumers’ class action for violations of state and federal antitrust laws. In that motion, Amazon argued that the plaintiffs lacked standing and moreover that their Sherman Act Section 1 price-fixing claim, Section 2 monopolization claims, and California Cartwright Act claim all failed. Additionally, Amazon argued that plaintiffs’ alternative Section 1 claim failed. The Court ruled that the plaintiffs did indeed have standing and that the Section 2 monopolization claims and alternative Section 1 claim survived, but dismissed the Section 1 per se price-fixing claim and the Cartwright Act claim.

Facts 

The plaintiffs, a putative class of online goods purchasers, sued Amazon alleging that it violated both federal and state antitrust laws. Amazon, the world’s largest online retailer, uses a “platform most favored nation” (“PMFN”) provision which requires sellers to maintain parity between the products listed on the Amazon platform and those on external platforms. PMFN works by requiring that the price on Amazon is at least as favorable to Amazon customers as the most favorable terms on the sellers’ other sales channels. Although Amazon withdrew this provision in March 2019, the plaintiffs alleged that Amazon’s “fair pricing” provision continues to enforce its PMFN provision. Sales conducted on Amazon account for almost half of all retail e-commerce in the United States. Because many sellers rely heavily on Amazon’s platform for their sales, Amazon is an important element of sellers’ business models. But if sellers intend to raise their prices on Amazon’s platform, they must first raise their prices on other external sales channels to abide by Amazon’s required “fair pricing” provision. The plaintiffs alleged that they as consumers are injured due to the increased prices they paid on external platforms. 

Previously, the Court had denied in part and granted in part Amazon’s motion to dismiss the First Amended Complaint. Specifically, the Court dismissed the plaintiffs’ Section 1 price-fixing claim; state antitrust, restraint of trade, and consumer protection claims; and common law unjust enrichment claims. The Court granted the plaintiffs leave to amend their complaint, and Amazon then moved to dismiss the plaintiffs’ Second Amended Complaint, arguing that (1) the plaintiffs lacked standing, (2) the new allegations concerning Amazon’s Fair Pricing Policy contradicted the Policy’s plain language, (3) the newly amended complaint failed to allege market power or anticompetitive effects, and (4) the plaintiffs failed to ameliorate the previously fatal defects of the Section 1 and Cartwright Act allegations.

Analysis 

Judge Jones found that although Amazon claimed that their latest challenge to the plaintiffs’ standing was based on amendments to the Second Amended Complaint, the plaintiffs’ core allegations remained the same, so the prior ruling holding that the plaintiffs had standing would remain in place. Citing In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 691 F.2d 1335, 1342 (9th Cir. 1982), Amazon claimed that the plaintiffs were required to have joined Amazon’s alleged co-conspirators and third-party sellers to prevent a serious risk of multiple liability. Ultimately, the Court held that the plaintiffs did not need to join Amazon’s co-conspirators because in the case at hand there is no risk of duplicative recovery. Additionally, the Court found that the plaintiffs had adequately alleged that Amazon’s agreements with third-party sellers were designed to maintain market power and violated Section 2, holding that plaintiffs adequately alleged that the required Section 2 specific intent to monopolize element was violated based on the character of the actions taken, including their various agreements. Lastly, the Court held that the plaintiffs had alleged the requisite facts to establish Article III standing. 

Next, the Court again granted Amazon’s motion to dismiss Plaintiff’s Section 1 claim, which the plaintiffs argued should be evaluated as a per se claim. The Court held, however, that even if the agreements between Amazon and third-party sellers were found to contain both vertical and horizontal elements, they should be analyzed under the rule of reason based on the Supreme Court’s caution that “the per se approach is not to be readily expanded to new arrangements or to business relationships with which the Courts are inexperienced.” American Ad Mgmt., Inc. v. GTE Corp., 92 F.3d 781, 784 (9th Cir. 1996). The plaintiffs had also relied on Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990) to support their contention that Amazon’s agreements are per se illegal, but the Court found that case distinguishable because it concerned a relatively straightforward market allocation scheme, whereas the facts alleged against Amazon are considerably more complex. Additionally, the plaintiffs cited Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., 9 F.4th 1102 (9th Cir. 2021), which only subjected the undisputed horizontal restraint to a rule of reason analysis because it was found to be “ancillary to the parties broader agreement.” The Court noted that because the plaintiffs did not argue that the allegedly anticompetitive aspects of the agreements are “ancillary” to the co-conspirators’ agreements, Aya Healthcare’s applicability was limited.

Furthermore, the plaintiffs alleged that Amazon’s “Fair Pricing Policy” is a whitewashed version of their prior PMFN provision and that it is ultimately anticompetitive, thus violating Section 2 of the Sherman Act. The Court held that the plaintiffs’ allegations are plausible on their face, although Amazon can argue that it may have procompetitive justifications once a prima facie case has been established. 

The Court denied Amazon’s motion to dismiss the plaintiffs’ alternative claims. Plaintiffs argued that if the conduct at issue was not a Section 1 per se violation, then it should be brought in the alternative. Amazon claimed that the plaintiffs must allege that each third-party seller has market power and each agreement with a third-party seller is likely to result in an anticompetitive effect and that the Second Amended Complaint failed to do so. The Court found the Ninth Circuit’s holding that the Court may consider “the overall effects of a defendant’s conduct in the relevant market” was applicable in this case. Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291 (9th Cir. 1982). The Court also found that the allegations of the Second Amended Complaint regarding the overall effects of Amazon’s conduct in the market were sustainable on their face. Additionally, the Court was not convinced by Amazon’s contention that the plaintiffs were required to allege that each third-party seller had market power in the markets for the specific products it sells. 

Finally, Amazon sought dismissal by arguing that the aforementioned reasons for the dismissal of their Section 1 claim applied equally to their Cartwright Act claim. The Court agreed and held that just as the plaintiffs’ Section 1 per se claim had failed, so too did the plaintiffs’ Cartwright Act per se claim. All in all, this ruling acknowledges the potential antitrust implications of Amazon’s practices while also recognizing the need for further examination of specific legal arguments presented by both parties.

In Case You Missed It

Curated by Bob Connolly

  • FTC chair defends track record on antitrust challenges, says big isn’t categorically bad
    By Lauren Feiner, CNBC, July 24, 2023
    Federal Trade Commission Chair Lina Khan discussed her approach to antitrust enforcement at an event Monday.  “The role of the FTC is not to have our own personal philosophical beliefs about the virtues of big versus small. It’s really about the statutes,” Khan said during a Q&A session at The Economic Club of New York.
  • Why We’re Updating the Government’s Merger Guidelines
    By Jonathan Kanter and Lina M. Khan, Wall Street Journal, July 23, 2023
    When markets are competitive and companies jostle to win business, everyone benefits. Consumers pay lower prices and get better service. Workers have more options to earn higher wages and get better working conditions. And we all benefit from the breakthrough innovations and diverse views that flourish when markets are open and the best ideas win.
  • Beef, cattle groups talk competition at White House
    Tri-State Livestock News, July 21, 2023 
    The White House convened a listening session with representatives from 16 food and agriculture advocacy organizations to discuss the need for more competition in agricultural markets. According to a White House brief, senior White House and Department of Agriculture officials told attendees that promoting competition is a priority for President Biden and went on to explain to the panel “how industry consolidation—whether in meat and poultry processing, ocean shipping, or other fields—can decrease options for inputs like seeds, fertilizer, and farm equipment and limit channels for selling products.”
  • Microsoft-Activision Antitrust Win Raises M&A Revival Hopes
    By Emily Birnbaum and Michelle Davis, Bloomberg, July 21, 2023
    Article opines that Microsoft Corp.’s success fighting the Federal Trade Commission’s challenge to its $69 billion Activision Blizzard Inc. acquisition could ease the path to more deals at a time when Wall Street has been confronting a severe merger drought.
  • New antitrust merger guidelines could have significant chilling effect on healthcare deals
    Rebecca Pifer, HealthCareDive July 21, 2023
    Federal antitrust agencies have proposed updates to U.S. merger guidelines that, if finalized, could free up regulators to more successfully crack down on consolidation in the healthcare industry, according to antitrust experts.

    The new Federal Trade Commission and Department of Justice guidelines include a number of facets that regulators could use to target vertical and cross-market deals. The guidelines are likely to have a chilling effect on merger activity overall — at least temporarily, until corporate America sees how M&A challenges play out in the courts, lawyers said.
  • Biden’s top antitrust cop denies ‘picking winners and losers’ after unveiling new merger guidelines
    By Chris Matthews, Market Watch, July 19, 2023
    The Biden administration unveiled new, tougher proposed guidelines for how it will police against monopoly power Monday.  The article reviews Biden officials’ response to criticisms.  “We’re not picking winners and losers,” Assistant Attorney General Jonathan Kanter said in an interview with CNBC Wednesday. “We’ve gone through painstaking detail to make sure this is not an ideological document…to make sure this is a legally rigorous document.”
  • Acquitted ex-JPMorgan trader sues US Justice Dept over records access
    By Mike Scarcella, Reuters, July 19, 2023
    Usher and his attorneys at White & Case contend the Justice Department’s antitrust division refuses to turn over FBI reports of a prosecution witness who testified as part of an immunity deal. Usher said he wants access to those records, and the ability to disclose them, to rebut claims pending against him in Brazil.

    Usher was acquitted at a jury trial with two other traders on charges of scheming to rig the multi-trillion dollar foreign exchange currency market. In 2021, in a related matter, the U.S. Office of Comptroller of the Currency dropped its case against Usher and another trader.
  • FTC joins DOJ in rescinding healthcare antitrust guidance
    By Kyle Brasseur, Compliance Week, July 17, 2023
    The Federal Trade Commission (FTC) announced the withdrawal of two antitrust policy statements the agency deemed “outdated.”

    The decision targets guidance on antitrust enforcement in healthcare published in August 1996 and on accountable care organizations published in October 2011. The move puts the FTC in line with the Department of Justice, which similarly withdrew its guidance on each matter earlier this year in an effort to strengthen transparency and antitrust enforcement of healthcare groups.
  • F.T.C. Chair Faces Criticism in Congressional Hearing
    By Cecelia King, NY Times, July 13, 2023
    Lina Khan, the chair of the Federal Trade Commission, faced more than three hours of question from Republicans in a House hearing on Thursday. Republicans accused Ms. Khan, who has carried out an aggressive agenda of lawsuits and investigations against tech companies, of “harassing” businesses.
  • Appeals court will not undo US Sugar-Imperial Sugar merger
    By Diane Bartz and Jonathan Stempel, Reuters, July 13, 2023
    A federal appeals court on Thursday refused to undo U.S. Sugar’s $315 million purchase of Imperial Sugar, rejecting the U.S. government’s claim that the merger would violate antitrust law and boost prices for consumers and businesses.
    The 3rd U.S. Circuit Court of Appeals in Philadelphia let stand a trial judge’s findings that the Department of Justice overlooked the ability of distributors to keep prices of refined sugar from getting too high, including by releasing their own supplies or selling to buyers around the country.

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