E-Briefs, News and Notes: November 2023

Colleen E. Huschke, with the Consumer Protection Unit of the San Diego District Attorney’s Office provided an update on statutory developments and new case law. 

Ms. Huschke highlighted recent statutory enactments of note including the newly enacted:

• Digital Financial Assets Law, AB 39 (Grayson); Financial Code § 3101 et seq.; SB 401 (Limón) Financial Code § 3901-3907, providing regulatory oversight of digital financial asset businesses;

• New regulations concerning the Consumer Financial Protection Law, Cal. Code of Regulations tit. 10 § 1060-62, expanding the definition of unfair, deceptive and abusive acts and practices;

• Cal. Streets & Highways Code § 36538; Cal. Veh. Code § 11713.27; 11713.28, prohibiting “drip pricing” under the CLRA;

• SB 727 (Limón) Cal. Civil Code § 52.5, placing restrictions on debt collection of coerced debt, including debt from human trafficking;

• AB 1414 (Kalra) Cal. Code of Civ. Proc. § 337a; § 425.30, prohibiting the pleading of common counts to collect consumer debt; and

•  SB 365 (Wiener) Cal. Code of Civ. Proc. § 1294, eliminating the automatic stay while a motion to compel arbitration is appealed. 

Ms. Huschke also discussed case law opinions under California state competition law over the past year. 

Kate Patchen, with Covington & Burling, LLP and Ryan Sandrock, with Shook, Hardy & Bacon, provided an update of case law developments under federal competition law.  Both the state and federal decisions have been the subject of prior E-Briefs.  For further analysis of the statutes and case law, you are encouraged to download the materials from the 2023 Golden State Institute and attend the upcoming 2024 UCL Institute, to be held on Jan. 18, 2024 at the City Club in Los Angeles. 

The Big Stakes Trial panel featured lawyers who faced off in a seven-day evidentiary hearing before the Northern District of California’s Judge Edward Davila in Federal Trade Commission v. Meta Platforms Inc., et al. The FTC brought suit challenging Meta’s plan to acquire Within Unlimited, the maker of leading virtual reality fitness app Supernatural. FTC Attorneys Jeanine Balbach and Timothy Singer offered their personal views from having worked on the case. Silicon Valley-based Weil Gotshal & Manges partner Bambo Obaro described his experiences defending the case for Meta and D.C.-based Hogan Lovells partner Charles Loughlin offered his views regarding defending on behalf of Within.

Jessica Leal, a DOJ Antitrust Division counsel, moderated, and began by noting that although Judge Davila dismissed the case, certain commentators summarized the outcome as “how the FTC won when it lost.”

Ms. Balbach noted that when it agreed to acquire Within, Meta already owned virtual reality assets, had invested billions in VR technology, and appeared to view fitness as an avenue for expanding its VR business beyond games through a strategy of “buying rather than building.” The FTC pursued the dual theories of actual potential competition and perceived potential competition. Mr. Singer soon added that there exists a distinct market for VR fitness offerings which is different from fitness solutions such as Peloton, and different from gaming. The VR fitness market skews older and more female, and it runs off monthly subscriptions unlike conventional apps with download fees and in-app purchases. VR systems are also portable, and subscriptions are often cheaper than physical gym equipment.

Mr. Loughlin summarized three primary defense arguments advanced by Within.  First, Meta had no plans to enter the VR fitness space on its own. Second, Within was not concerned by competition from Meta, but rather focused its competitive efforts on fitness more generally, including Peloton. Third, it competed in a market for fitness products, not VR technology.

In discussing expert work, Mr. Obaro described how Judge Davila mostly rejected the FTC expert’s consumer survey due to flawed methodologies involving paid respondents and screening questions that denied the respondents payment if they answered that they did not use Within’s products. Ultimately the decision did not turn on the expert work, however. The panelists also shared thoughts on strategy and what they might have done differently if they had it to do again.

And they differed somewhat in their views of how influential the decision will be in the end. Mr. Obaro noted that it may not stand for very much that’s lasting given that there was no appeal, and the Court ultimately held that subjective evidence should be considered in assessing potential competition. Ms. Balbach, meanwhile, pointed to the holdings that oligopolistic or parallel conduct are not required for a merger to be found anticompetitive, and that the FTC should continue to have a role in regulating new markets, not just established ones.

Cheryl Johnson, formerly of the Cal. DOJ and Cal. AG’s  Office (AG) moderated a panel which included Josh Davis, of Berger Montague and UC Law San Francisco,  Kathleen Foote formerly of the Cal. DOJ and Cal. AG (Ret.), Sam Miller of Sidley Austin (Ret.) and UC Law San Francisco, and Aaron Chiu of Latham & Watkins LLP.

Prof. Miller emphasized the Cartwright Act as the main antitrust law in California, but noted it requires concerted action. (See State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147 (Texaco).) Prof. Miller questioned whether it should be amended to prohibit exclusionary conduct, much like section 2 of the Sherman Act. If this language were inserted, conspiracy would be covered by the concerted action portion. It would also cover single entity conduct by a dominant firm. This type of conduct is not currently covered by the Cartwright Act. Mr. Chiu questioned what the utility would be of adding Section 2 language to the Cartwright Act. Prof. Davis responded, stating Federal law currently fails in three ways: 1) consistency, 2) efficiency, and 3) adaptation. California could lift the forum with consistent rulings under California law.  Efficiency in enforcement could help industries. He noted the market is dynamic and changing, especially with big tech, Ai, and climate change, with paralysis in congress, warning that we cannot rely on the Federal government to produce new rules.

The panelists engaged in a lively discussion regarding the European Union’s “Dominance Standard” and New York’s “21st Century Antitrust Act” (N.Y. Senate Bill 2021-S933C) that incorporates the lower thresholds (40% of Market Share versus 60-65% under current U.S. antitrust law) but which has not passed in the N.Y.’s legislature. Ms. Foote commented that if Section 2 of the Sherman Act was working properly, or if the U.S. Congress was likely to adopt its legislative reforms, California would not need to consider this change. However, California already has unique privacy rules, and competition rules. The state could also take aim at big tech. Ms. Foote reinforced that vibrancy and innovation are good things, but not at a cost of monopolization.

Ms. Johnson asked the panel about California’s role in merger and acquisition review. Texaco eliminated the Cartwright Act as an option for bringing merger challenges and review actions. (Texaco, supra, 46 Cal.3d 1147 at 1169-1170.) Ms. Foote noted most mergers and acquisitions go unchallenged. The panel discussed whether the law should allow merger challenges by the AG.  The panel also considered whether pre-merger notification to state AGs would replace the current voluntary protocol. Prof. Davis commented that these types of revisions to California’s laws could strengthen judges to uphold enforcement.

Prof. Davis emphasized that plaintiff’s lawyers need to look at the standards under California law, they are often lower than Federal precedents and to explore state court in California as an option.  Federal courts may give short shrift to state laws, and often interpret state laws to look like federal law.  Mr. Chiu commented that it appears Cartwright and UCL cases are often an afterthought.  He advised practitioners to look at cases where Sherman Act claims fail, but the Cartwright claims prevail.  Overall, the panel gave an informative view of the possible areas of revision or reform to California’s state antitrust laws.

The esteemed panel included Robert J. Herrington of Greenberg Traurig, LLP, John Newman, a Professor of Economics and Regulation of Digital Markets at Miami School of Law, Karen Silverman of The Cantellus Group, Joseph Saveri of Joseph Saveri Law firm, and moderator Lin Kahn of Jones Day. 

In exploring the intersection of Artificial Intelligence (“AI”) and Antitrust law, the panelists shed light on the challenges and considerations in regulating AI within the framework of antitrust legislation and whether antitrust laws are equipped to handle its implications. Ms. Silverman emphasized that while AI is indeed here to stay, it is often surrounded by hype, particularly in sales and marketing. Mr. Saveri clarified that AI is not human sentience but a set of software and programs using advanced mathematical and statistical methods, as well as computing power, to solve problems rapidly. The critical point emphasized was that regulating AI should not only center on the technology itself but also on issues such as access and utilization, framing it as a dynamic “people sport.”

Professor Newman highlighted that AI is not merely a use case but a foundational technology, posing questions similar to those raised by other foundational technologies. These questions revolve around whether AI will be used for good or bad, and if misused, whether antitrust laws are capable of addressing such issues. Regarding specific antitrust considerations, the seminar delved into different scenarios, including collusion facilitated by independently designed AI and the potential impact of AI on mergers and acquisitions, and potential unilateral conduct using AI to entrench or extend dominance.

Mr. Saveri emphasized the flexibility of antitrust laws to adapt to market changes over time. The discussion revolved around evaluating exchanges of information facilitated by AI, distinguishing between public and confidential agreements, and assessing whether AI limitations are adhered to. The challenge lies in determining whether competitors are using AI to collude or facilitate collusion, requiring a careful examination of exchanged information, reporting, and mutual understandings between competitors.

The discussion also addressed the dual nature of AI tools, acknowledging their potential for both positive and negative impacts. While some AI tools enhance business operations and decision-making, concerns were raised regarding biases and the quality of AI outputs. Ms. Silverman underscored the significance of responsible AI, advising clients to consider ethical implications in addition to antitrust concerns. Looking forward, the panelists contemplated the evolving landscape of antitrust enforcement in response to AI proliferation, the necessity for adapting to changing business models, and the role of private enforcement in addressing gaps where regulators might take time to catch up. The overarching theme was a critical examination of how antitrust laws can effectively navigate the complexities introduced by the widespread adoption of AI technologies.

Moderator Kenneth R. O’Rourke conducted a lively and fun panel addressing several ethical dilemmas facing antitrust and UCL practitioners.   A troupe of practitioners (Cora Allen, Rachel Brass, Lin Chan, Qianwei Fu, Robert Gralewski, Minna Lo Naranjo, Stephen McIntrye, Adam Wolfson, and Christopher Yates) acted out scenarios raising ethical issues. After each vignette, Mr. O’Rourke directed questions to the audience for a vote and then walked through the applicable ethical rule and case law.   It was innovative and entertaining for all!

The five scenarios included the following ethical issues. 

The first scene was a meet and confer between the parties over a so-called Apex deposition when a busy CEO “knows nothing” and does not wish to comply with the proposed notice.  The discussion included: whether the deposition was frivolous; whether the CEO possessed unique relevant knowledge; whether there was a less intrusive means to obtain the discovery; and whether particularized harm or extraordinary circumstances existed if the CEO was forced to testify.

The next scene was another meet and confer on a motion to compel litigation funding documents.   The overriding issues were whether litigation funding itself was ethical and whether such documents were privileged (work product prepared in anticipation of litigation) or not privileged (third party documents with no attorney-client privilege protection).   

The third scene joined a team meeting of outside counsel after the Company’s GC called to inform the team that certain important e-mails that the Defendant Company should have produced to plaintiffs had been deleted.  The discussion focused on whether reasonable steps were taken to preserve the e-mail and if the lost ESI can or cannot be restored through other means.   The team walked through their proposed strategy:  gather all facts as soon as possible; communication with client about the risks including a possible spoliation claim; develop an appropriate defense strategy to respond; and inform plaintiffs and the court about the issue.

The final two scenes focused on a series of meet and confers re: counsel’s contact with unnamed class members and plaintiffs’ contact with defendants’ former employees including an oral argument before Actor-Judge Gralewski. As to absent class members, after class certification, the ethical dilemma focuses on the power disparity between the unnamed class members and defendants in order to decide if certain prohibitions should be imposed.  As to former employees, plaintiffs generally can contact former employees but not about everything.  The “not everything” boundaries can raise difficult ethical considerations.    

Thank you to the Speakers:

• Hon. Edward M. Chen, United States District Court for the Northern District of California, San Francisco
• Hon. Thomas B. Hixson, United States District Court for the Northern District of California, San Francisco
• Hon. Trina L. Thompson, United States District Court for the Northern District of California, San Francisco
• Beatriz Mejia (Moderator), Partner at Cooley LLP, San Francisco

During this highly regarded panel, the speakers provided judicial insight on how the bench handles case management, case development, and discovery.

Hon. Thompson first turns to the jury instructions to get “the rub” of the case and sets the ADR deadline in conjunction with setting discovery and expert discovery cutoffs.  This allows parties an opportunity to resolve the case before incurring large costs.  If the first ADR is unsuccessful, Hon. Thompson will collaborate with counsel to identify the main issues. 

Hon. Chen agrees, starting with jury instructions at the outset assists with sequencing the stages of litigation and scope of discovery thereby allowing for early ADR.  If there is a pending Motion to Dismiss, Hon. Chen will not completely stay discovery unless there is a jurisdictional or statutory reason for the dismissal.  In the interim, if there is proposed e-discovery, he will work with the parties to identify search terms and work on other discrete issues.  He will not, however, necessarily allow for full contention interrogatories or highly voluminous discovery.

Hon. Hixson explained he resolves discovery issues after the first Case Management Conference and staging discovery must be carefully thought out.  Doing so can later limit the fights based on what stage of discovery the parties are in.  Hon. Hixson does hold hearings on discovery motions but will start with a short joint letter brief to identify key issues and then set a more formal briefing schedule, if needed.  If the issues are straight forward, then no formal hearing is required.

Hon. Chen was asked about lessons learned from the In re HIV Antitrust Litigation where there are case management challenges, especially when going to trial, due to the many classes and sub-classes.  Problems he sees are parties attempting to “pre-try” too many issues through Motions in Limine and not streamlining exhibit and witness lists.  He uses the bellwether process to obtain a sampling of document objections.  This prompts parties to try to understand how he will rule at trial.  Overall, Hon. Chen advises counsel to organize opening statements to educate a jury with a clear roadmap.

The judges ended discussing what makes an excellent advocate along with words of caution.  They agree they value an attorney who can acknowledge bad facts or lower court decisions not directly in their favor.  “Invariably your opponent has already pointed out these issues” so a lawyer that can identify and speak directly to bad facts or law is more effective and credible.  Pet peeves include citing unpublished cases or other judges without providing how these rulings are binding rather than persuasive.  Having a lack of preparation, being untimely, and lacking decorum especially in a post-covid Zoom environment were also cautioned against.  Being familiar with the local rules is also crucial to avoid procedural pitfalls.  

The judges also unanimously promote allowing younger attorneys to present oral argument, even if just on certain issues.  This gives younger attorneys valuable experience and creates better informed oral argument.  The judges stated they can tell if the ones arguing took the depositions or wrote the brief.  They echoed this into trial advocating for younger colleagues to examine witnesses.  The judges further promoted the importance of mentorship which made a significant impact on all their careers.

By Kate McGuire and Wesley Sweger

In recent years, the issue of antitrust restriction on college athletes’ ability to profit from use of their names, images and likenesses (“NIL”) has garnered significant legal and regulatory interest. On November 3, 2023, Judge Wilken (N.D. Cal.), over fierce opposition on predominance grounds, granted certification of three classes of college athletes bringing antitrust claims under Section 1 of the Sherman Act against the National Collegiate Athletic Association (“NCAA”) and several of its most significant regional competitive subparts (the “Power Five Conferences”) (collectively with the NCAA, “Defendants”). 

The lead plaintiffs, three current or former student athletes for teams in the NCAA’s top division (“Division I”), allege that Defendants conspired to restrict competition through rules prohibiting student athletes from receiving compensation for the commercial use of their NIL from anyone, including third parties, and prohibiting NCAA member conferences and schools from sharing NIL profits with such students.  They allege that these rules are agreements in restraint of trade that artificially fix or depress the prices paid to student athletes for the use of their NIL. (It should be noted that, at present, the NCAA has suspended enforcement of the third-party compensation rule, but Plaintiffs allege that suspension is merely part of a temporary, “interim” policy, and that both the third-party and non-third-party rules remain anticompetitive.)

The Plaintiffs tailored their proposed class structure and damage models to reflect that both athletes’ likelihood of generating profit through NIL and the ways in which athletes’ NIL is likely to be used vary by sport—for example NCAAfootball and basketball games are profitably broadcast, and men’s NCAA football and basketball teams have been used as models for popular video games, while other sports garner less or different attention. Thus, Plaintiffs proposed three classes, consisting respectively of: (i) current and former Division I men’s basketball players and Football Bowl Subdivision (“FBS”) football players; (ii) current and former Division I women’s basketball players; and (iii) current and former Division I athletes played neither Division I basketball or FBS football. Likewise, Plaintiffs asserted three categories of antitrust injury: (1) broadcast TV NIL damages, which arise out of student-athletes having been deprived of compensation they would have received from conferences for use of their NIL in broadcasts of FBS football or Division I basketball games in the absence of the challenged restrictions; (2) video game damages, which arise out of student-athletes having been deprived of compensation they would have received from video game publishers for use of their NIL; and (3) damages based on NIL compensation that student-athletes might have received from third parties (rather than the NCAA or conferences) between 2016 and July 1, 2021, when the NCAA started to allow some NIL compensation for student athletes. Plaintiffs and Defendants each offered extensive expert testimony concerning the proposed damages categories. 

In opposing Plaintiffs’ motion for class certification, Defendants raised little argument to challenge numerosity, commonality, typicality, or adequacy of representation. Rather, the Defendants focused primarily on the predominance requirement of Rule 23(b)(3), arguing that Plaintiffs had not shown that the questions of antitrust impact and damages could be resolved on a class-wide basis with common proof. They raised multiple objections to Plaintiffs’ experts’ analysis, none of which ultimately persuaded the court against certification. Some examples of the argument on and resolution of these objections follows. 

Regarding broadcast TV NIL damages, Defendants argued, inter alia, that there was no basis to assume that student-athletes’ NIL in broadcasts have any value at all because: (1) no payments have ever yet been made to student athletes for their broadcast NIL; and (2) Defendants’ existing broadcast contracts do not separately value student-athletes’ NIL. The court rejected this argument, reasoning that the non-zero value of broadcast NIL could be inferred from: (1) broadcasts need for use of the student-athletes’ NIL; and (2) media companies’ requirement of contractual assurances from Defendants that all rights to use student NIL are conveyed. Defendants also argued, for example, that Plaintiffs lacked foundation for the percentages of broadcast NIL that they asserted would be allocated to each sport in multisport contracts, but the court found the assumptions to be well founded based on the experts’ decades of experience negotiating sports media deals and their analysis of relevant data.  

Regarding video game NIL, Plaintiffs’ expert opined that video game makers in the but-for world would have paid student athletes a fixed royalty rate based on the sales of each type of college video game per year. Defendants challenged this opinion by arguing, for example, that it was excessively speculative because no new college sports video games had been released since the NCAA suspended enforcement of relevant NIL policies. The court rejected this argument (as well as others concerning video game NIL), reasoning that it spoke to the persuasiveness of Plaintiffs’ experts’ opinions, not whether the evidence was capable of proving an issue on a class-wide basis.

As the last category of damages, Plaintiffs’ expert used NIL compensation students received from third parties after the NCAA suspended enforcement against third-party NIL compensation as a measure of what they would have received before the suspension had the rules not existed. The court noted that “before and after” methodology is widely accepted for determining damages in antitrust cases. Defendants, inter alia, argued that the model failed to consider factors that could have impacted third-party NIL opportunities, such as competitiveness and viral moments. The court again found that such arguments merely went to persuasiveness, and did not preclude class certification. 

As it progresses, this litigation will be worth watching for how it addresses antitrust issues in this rapidly evolving legal area. 

By Lee Berger and Travis West

On November 3, 2023, a panel on the Ninth Circuit decisively rejected a challenge to the Apple’s alleged App Store monopoly.  In doing so, the Ninth Circuit demonstrated the importance of cleanly defining the relevant market in any antitrust case.

The case arose out of Apple’s denial of two apps for listing in its App Store.  One app sought to share COVID-19 symptoms data with researchers, while the other was a Bitcoin app.  Apple had a policy against listing any COVID-19 app unless it was submitted by a recognized health entity, which plaintiff was not; it also generally blocked blockchain apps.

The plaintiffs brought claims against Apple under Sections 1 and 2 of the Sherman Act, breach of contract, racketeering, and fraud for the alleged censorship of apps.  The district court dismissed the antitrust claims because it held that the plaintiffs had failed to plead a plausible relevant market; it also dismissed the other claims. 

The Ninth Circuit fully affirmed.  It asserted that a necessary precursor for both Section 1 and Section 2 claims is defining the relevant market.  The panel went through the various indicia of a market such as interchangeability and public recognition of the market.  It also noted that a relevant market can be an aftermarket in which demand depends entirely upon prior purchases in a foremarket. 

It is at this step that the plaintiffs stumbled.  The panel observed that the plaintiffs’ complaint had alleged at least fifteen relevant markets but made no effort to define the markets or distinguish them from one another.  The plaintiffs also failed to demonstrate the cross-elasticity of iOS end users’ demand for either the plaintiffs’ apps compared to other apps or for apps in general.  Finally, the plaintiffs implicitly alleged a single-brand market but failed to demonstrate that the iOS end users lacked awareness that buying an iPhone constrains which apps would be available to them through the App Store.  The panel held that this failure to define the market was fatal to any antitrust claim.

The panel also made quick work of the other claims.  It held that because the plaintiffs failed to identify specific provisions of the Developer Agreement between it and Apple that were allegedly breached, its breach of contract claim and related claim for breach of the covenant of good faith and fair dealing were both defeated.  Likewise, the RICO claim failed because it sought to treat Apple as both the enterprise and the RICO defendant, which is impermissible.  It also held that the fraud claim was too vague and conclusory to survive. 

The panel’s loose language creates a perhaps unintentional ambiguity.  While for Section 1 rule of reason cases a defined relevant market is needed to show anticompetitive effects, there is no such requirement for a per se violation.  See Honey Bum, LLC v. Fashion Nova, Inc., 63 F.4th 813, 819 (9th Cir. 2023) (“When a per se prohibition applies, we deem the restraint unlawful without any elaborate study of the industry in which it occurs.”) (cleaned up).  The entire point of the per se rule is that some conduct is so clearly anticompetitive that it is presumed to be anticompetitive, and thus there is no need to show a relevant market to measure that anticompetitive effect – it is enough to show an agreement for there to be a violation of law.  But the panel makes no efforts to distinguish per se cases, and instead characterizes market definition in “any antitrust case.”  For example, in criminal cases, the Department of Justice usually does not define a market in its indictments.  Does this case now mean that in the Ninth Circuit an indictment that does not define a market is insufficient?  We expect that this case will need to be clarified in subsequent opinions.

 By Cheryl Lee Johnson

The proposed class representative (PCR) sought to certify claims by owners of older Apple iPhone models that began experiencing unexpected power offs (UPOs) in 2016. Apple attempted to fix the UPO problem by a software update that reduced the power available to certain components that reduced the phones’ performance. The PCR’s amended 100-page claim asserted that Apple’s software fix lacked transparency as to its purpose (to fix the UPOs) or effect (impacting phone performance) and breached European statutory prohibitions on abuse of dominance. [2023] CAT 67 at 5. The court decided that the abuse of dominance claim could proceed to trial and that there was a common and proper methodology to assess damages. Id. at 16, 23-24.

Motion to Strike or Reverse Summary Judgment on Claim of Abuse

According to the PCR claim, after Apple’s “surreptitiously installed” software fix to the iPhones, the phones had “substandard performance” and “performed significantly below the level reasonably expected” or did not perform as premium phones should. Id. at 11. The abuse claim arose from a lack of transparency, in which users were persuaded to accept the fix not knowing of the resulting substandard phone performance and should have been given an opportunity to seek appropriate redress from Apple. Id. at 6-7.

Apple moved to strike or for judgment on the abuse claim, asserting that claim lacked a “realistic” chance of success at trial. While the tribunal was skeptical that the fix to the iPhone could be shown to have resulted in “substandard” phones or actionable warranty or statutory rights claims, it stopped short of striking the claim. Id. at 15. Rather, it justified allowing the claim to proceed to trial due to the PCR’s “limited access to documents” and additional evidence that might be available at trial, including materials provided to the UK Competitions and Market Authority (CMA) and the French regulatory agency on a confidential basis. Id. at 9, 14-15.  The tribunal  concluded that there was a reasonable prospect of proving that the negative effect of the iPhone fix on the phone performance was sufficiently material, and that its disclosure might have prompted Apple to provide some compensation. Id. at 15-16.  “Keeping class members ignorant was arguably… an abuse upon which there is a reasonable prospect the PCR could succeed.” Id. at 16.

Motion re Claims after Apple’s 2017 Apology

Apple also claimed that its December 2017 explanatory message about the problem with UPOs, aging iPhone batteries and delayed app launches was in the public domain and made any abuse claim after December 2017 untenable. The tribunal disagreed, noting outstanding issues about the completeness of the message, the extent and context of its dissemination to class members and the legal impact of a post-fix apology. Id. at 17-18. The tribunal also upheld the methodology that the PCR proposed to determine loss on a class wide basis and authorized the PCR to act as a class representative though he did not own an iPhone, was not a member of the intended class, and was alleged to be a “professional litigant.” Id. at 23-24.

Thursday, November 9, 2023 (Press Release, DOJ Office of Public Affairs)

Decree Would Restore Competition for Chicken Growing Services, Expanding Opportunities for Poultry Farmers

The Justice Department filed a civil lawsuit under the Sherman Act and Packers and Stockyards Act today against Koch Foods Incorporated (Koch), the fifth largest poultry processor in the United States. The complaint alleges that Koch anticompetitively and unfairly required chicken farmers, or growers, to pay Koch a termination penalty to switch from working for Koch to a rival chicken processor. At the same time, the department filed a proposed consent decree that would prohibit Koch from penalizing growers for switching processors and require Koch to return certain expenses, fees and penalties it unlawfully imposed on growers who tried to work for other chicken processors.

 *        *      *

The complaint alleges that Koch, which operates processing facilities in Alabama, Georgia, Mississippi and Tennessee, deterred farmers from switching to other processors by requiring them to repay a substantial share of their income as a penalty if they terminated their contract. As alleged in the complaint, Koch’s termination penalty, which varies across chicken growers, amounted to more than half of most growers’ total annual take-home income and sometimes more than one year’s entire take-home earnings. Koch used the threat of the termination penalty to discourage growers from switching to Koch’s competitors and sued or threatened to sue more than a dozen family farmers who tried to switch to a Koch competitor. 

Accordingly, the termination penalty operated as an anticompetitive, de facto noncompete clause, in violation of the Sherman Act. The penalty provision is also an unfair practice or device in violation of the Packers and Stockyards Act, a landmark statute passed in 1921 that protects livestock and poultry producers.

At the same time, the Antitrust Division filed a proposed consent decree to address its competition concerns. If approved by the court, the proposed consent decree would require Koch to:

• Inform all current growers with contracts containing a termination penalty provision that Koch will not enforce the provision;
• Reimburse growers for all termination penalty payments and out-of-pocket legal expenses incurred as a result of Koch enforcing the termination penalty;
• Refrain from including a termination penalty obligation in any grower contracts and from taking any steps to collect any termination penalty payments for the next seven years;
• Refrain from retaliating against, intimidating or harassing any grower who is involved in any dispute over a termination penalty or who cooperated with the Justice Department or USDA in their investigations of Koch’s termination penalty practices; and
• Meet certain reporting and compliance obligations including an annual certification for the next seven years that Koch is complying with the proposed final judgment.

Today’s lawsuit and proposed consent decree are the second recent Packers and Stockyards Act enforcement action referred to the Justice Department by the USDA. In June, the U.S. District Court for the District of Maryland entered a consent decree to resolve an action alleging that the “tournament system” used by processor Wayne-Sanderson Farms to compensate chicken farmers violated the Packers and Stockyards Act.

View the complaint here.

View the memo here.

Monday, November 6, 2023 (Press Release, DOJ Office of Public Affairs)

Today, the Attorneys General of Minnesota, California, North Carolina and Tennessee joined a civil antitrust lawsuit filed by the Justice Department’s Antitrust Division against Agri Stats Inc. for organizing and managing anticompetitive information exchanges among broiler chicken, pork and turkey processors. The Antitrust Division and the state Attorneys General filed an amended complaint in the District of Minnesota.

“We are pleased that our state law enforcement partners in Minnesota, California, North Carolina and Tennessee are joining our efforts to address these serious allegations,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. “We look forward to working closely with state Attorneys General to litigate this important case, which affects food prices for consumers across the country.”

Anyone with information about collusion in agricultural industries, competitors sharing competitively sensitive information (including price or compensation information) or any other violations of antitrust laws is encouraged to contact the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258 or antitrust.complaints@usdoj.gov. Information about anticompetitive practices in livestock and poultry markets can also be submitted to the USDA and Justice Department’s Agricultural Markets Enforcement Partnership at www.farmerfairness.gov.

View the filing here. 

CRI Genetics will halt deceptive conduct, pay civil penalty, and give consumers a right to delete biometric information to settle the agencies’ charges

November 21, 2023 (Press Release)

California-based CRI Genetics, LLC (CRI) will pay a $700,000 civil penalty and will be barred from a wide range of deceptive practices to settle charges from the Federal Trade Commission and the California Attorney General that the company deceived users about the accuracy of its DNA reports.

In a joint complaint filed in federal district, the agencies say that in marketing its DNA-based ancestry and information reports, CRI deceived consumers about the accuracy of its test reports compared with those of other DNA testing companies, falsely claimed to have patented an algorithm for its genetic matching process and used fake reviews and testimonials on its websites. CRI also used “dark patterns” in its online billing process to trick consumers into paying for products they did not want and did not agree to buy, according to the complaint.

*     *   *

 “CRI Genetics could have found legitimate ways to market its services. Unfortunately, in its pursuit of growth and profits, the company repeatedly misled consumers. The FTC and my office took notice, we investigated, and we are delivering results today,” said California Attorney General Rob Bonta. “Our settlement not only holds CRI Genetics accountable for its past misconduct — it also aims to ensure that CRI Genetics doesn’t engage in similar misconduct going forward. I want to thank our federal counterparts at the FTC for their continued partnership and commitment to ensuring that all businesses play by the same rules.”

This action follows the Commission’s Biometric Policy Statement, which states that unsubstantiated marketing claims relating to the validity, reliability, accuracy, performance, fairness, or efficacy of technologies using biometric information violate the FTC Act.

CRI, also doing business as OmniPGX, advertises, markets, distributes, and sells DNA test kits and ancestry and health and wellness reports to consumer nationwide. Since at least 2017, CRI has marketed and sold DNA saliva swab test kits on its website, along with reports generated from the kits processed by a third-party laboratory. The reports provide consumers with information about their genetic ancestry, potential health and wellness traits and conditions, and paternity.

The complaint charges that CRI violated the FTC Act, California’s Unfair Competition Law, Business and Professions Code, and the state’s False Advertising Law, Business and Professions code in several ways. First, CRI allegedly made false claims on its websites and social media that its ancestry reports were more accurate and detailed than other major DNA testing companies, such as Ancestry DNA and 23andMe.

The agencies say that CRI also misrepresented that its ancestry testing reports would show consumers exactly where their relatives are from and when they were there dating back 50 plus generations, with an accuracy rate of more than 90 percent. The company ran ads featuring a prominent genetic scientist who developed CRI’s algorithm for matching DNA, which it falsely claimed was patented, according to the complaint.

Further, CRI posted fake reviews from supposedly “satisfied customers” on its websites and falsely claimed they only had a limited supply of the tests to entice consumers to buy them quickly. The company also published star rating reviews comparing CRI’s reports to other companies on the market on what appeared to be independent and unbiased websites, without disclosing that CRI owned the websites, which also provided links to purchase the company’s test kits.

The complaint states CRI forced consumers to click through a maze of pop-up pages on its websites, falsely promising “special rewards” and then trapped consumers by saying their order “was not complete.” CRI also deceptively told consumers that they would have a chance to review their orders before being charged for them, but instead immediately charged them, forcing consumers to return the unwanted products.

In addition to paying a $700,000 civil penalty to California, the orderwill prohibit CRI from making the misrepresentations alleged by the agencies and bars it from misrepresentations made in connection with the advertising, offering for sale, or sale of any DNA information testing product or service. Next, it prohibits CRI from misrepresentations related to endorsements, reviews, and ratings and requires the company to disclose any material connection with social media or other endorsers.

The order also will prohibit CRI from misrepresenting when product orders are final or complete, when charges will take place, and whether consumers can change the services they choose before being charged. CRI must also disclose the total cost of all products or services to consumers, when they will be charged, and whether they can confirm, edit, or delete products before they are charged.

In addition, the order will require CRI to obtain consumers’ consent and to describe to consumers how it may share their DNA information. The company will also be required to delete the genetic and other information of those consumers who previously received refunds and requested that their data and other personal information be deleted.

November 20, 2023 (Press Release)

The Federal Trade Commission filed an amicus brief to address the anticompetitive harm that stems from improperly listed patents in the Food and Drug Administration’s (FDA) publication of “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the “Orange Book.”

The Commission’s filing relates to an antitrust case brought by drug manufacturer Mylan Pharmaceuticals Inc. and several other affiliated entities alleging that Sanofi-Aventis U.S. LLC and other affiliated entities have engaged in anticompetitive conduct to monopolize the market for injectable insulin glargine, a drug used to treat diabetes. Mylan alleges Sanofi monopolized the injectable insulin glargine market in part by abusing the FDA’s Orange Book regulatory process. Specifically, Mylan alleges Sanofi delayed and blocked Mylan’s generic drug called Semglee from competing with Sanofi’s branded insulin glargine drug Lantus by improperly listing several drugs in the Orange Book.

In its amicus brief filed in Mylan Pharmaceuticals Inc., et al. v. Sanofi-Aventis U.S. LLC, et al., the FTC explains that improper Orange Book listings, such as those alleged in Mylan’s case, can cause significant harm to competition, including delaying consumer access to a lower-priced competing drug that would save patients money while also potentially offering better access and higher quality medications.

As detailed in the FTC’s amicus brief, when a brand pharmaceutical company lists a patent in the Orange Book it may lead to a statutory stay that blocks the introduction of competing drug products for up to 30 months, including lower-cost generic alternatives. When this stay is triggered by a patent that is improperly filed and does not meet the statutory listing criteria, the stay may improperly delay consumer access to a competing product that might reduce prices, improve quality and access, or both. Given the high cost of many drugs, even a short delay in competition can have enormous consequences for consumers in accessing cost-effective medications, the FTC stated in the brief.

The FTC’s amicus brief was filed in the U.S. District Court for the Western District of Pennsylvania.

Friday, November 17, 2023 (Press Release)

California Attorney General Rob Bonta today, alongside the Federal Trade Commission (FTC), filed an antitrust lawsuit in the U.S. District Court for the Northern District of California, challenging John Muir Health’s (John Muir) acquisition of Tenet Healthcare Corporation’s (Tenet) controlling interest in the for-profit San Ramon Regional Medical Center located in San Ramon in Contra Costa County. The complaint for a temporary restraining order and preliminary injunction filed today argues that the acquisition is inherently anticompetitive, and illegal under the Clayton Act. It seeks to block John Muir and Tenet from completing the proposedacquisition,under which John Muir would become the sole owner of San Ramon Regional Medical Center. In the lawsuit, Attorney General Bonta and the FTC argue the proposed acquisition illegally threatens to eliminate substantial competition between the San Ramon Regional Medical Center and John Muir’s nearby hospitals, significantly increasing consolidation in an already highly concentrated market, and leading to increased prices for patients, employers, and insurers.

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In the lawsuit, Attorney General Bonta and the FTC argue that if John Muir were permitted to acquire San Ramon Regional Medical Center, insurers and their enrollees would have fewer alternatives for inpatient services in the I-680 corridor. As a result, John Muir would be able to demand higher rates from insurers. In turn, higher rates would likely lead to higher insurance premiums, co-pays, deductibles, and other out-of-pocket costs or reduced benefits for commercial health insurance enrollees. Furthermore, San Ramon Regional Medical Center also competes with John Muir for patients by investing to improve its quality, service offerings, and facilities. These investments, and the competition that prompts them, provide meaningful benefits to San Ramon’s patients. If allowed to move forward, the proposed acquisition would immediately eliminate this competition, reducing healthcare investment and improvement along the I-680 corridor for California residents.

A copy of the complaint is available here.

Friday, November 17, 2023 (Press Release)

Court set closing arguments for May 1-3, 2024, and verdict is expected next year

California Attorney General Rob Bonta today issued a statement following the conclusion of the 10-week bench trial in United States v. Google, an antitrust case regarding Google’s monopoly on general internet search services and search-based advertising: 

“Yesterday, the historic antitrust trial against Google came to an end. My office proudly joined the U.S. Department of Justice in seeking to hold accountable the Mountain View-based company, and I continue to feel confident in the strength of our case,” said Attorney General Bonta. “With nearly 90% of searches relying on Google, this Google search case is relevant to almost everyone in country. Among the many revelations that came to light at trial was that Google pays other companies billions of dollars each year to ensure that it is the default search engine for iPhones, Android phones, and most third-party web browsers, such as Mozilla’s Firefox. In 2021 alone, Google paid a whopping $26.3 billion to maintain this monopoly. The California Department of Justice has two additional antitrust cases pending against Google, and we will do everything in our power to protect competition in the marketplace.”

BACKGROUND 

On December 11, 2020, then-Attorney General Xavier Becerra announced that California would be joining the U.S. Department of Justice’s lawsuit against Google regarding its monopoly on general internet search services and search-based advertising. This ten-week bench trial in Washington, D.C. began on September 12, 2023 and concluded yesterday. The U.S. District Court for the District of Columbia set closing arguments for May 1-3, 2024. A verdict is expected next year.  

Further, on July 7, 2021, Attorney General Bonta announced a multistate lawsuit against Google for monopolizing the smartphone application market through its Google Play Store in violation of state and federal antitrust laws. This case has a tentative settlement joined by 53 attorneys general. As requested by the U.S. District Court for the Northern District of California in San Francisco, the settlement will be presented to the court after the jury trial in a related case, Epic v. Google, concludes.

Finally, on January 24, 2023, Attorney General Bonta joined the U.S. Department of Justice and eight original states in filing a lawsuit against Google charging the company with operating an unfair monopoly scheme in markets for advertising technology. Seventeen states have now joined this case, which is pending in the rocket docket in the U.S. District Court for the Eastern District of Virginia.