2015: A YEAR OF BIG PLAINTIFF WINS IN ANTITRUST AND PRIVACY CASES

By Thomas N. Dahdouh¹

I. INTRODUCTION

The year 2015 will go down as a year of big plaintiff wins in federal antitrust and privacy decisions, particularly notable for those cases brought by government law enforcement officials. With only one loss in the lineup,² these victories suggest that active enforcement of the antitrust and privacy laws is alive and well in the federal courts. These wins stand in stark relief to the dire forecasts of some that federal courts are too tilted to the defense side.³

This Article summarizes eleven major court holdings and attempts to put each decision in context. The cases are generally arranged by area of law, beginning with two Sherman Act Section 1 cases, following with a hybrid Sherman Act Section 1/Section 2 case, then describing two new Sherman Act Section 2 matters, discussing one state-action immunity case, continuing with three major merger challenges, and finally ending with two important privacy cases.

II. SUMMARY OF DECISIONS

A. Section 1 Per Se Challenge: United States v. Apple, Inc.⁴

In this decision, the Second Circuit affirmed the lower court and found that Apple orchestrated a conspiracy among book publishers that had the effect of raising the prices of ebooks.⁵ Writing for the majority of the three judge panel, Judge Livingston found the agreement both per se unlawful and unlawful under a full rule of reason analysis.⁶ Concurring Judge Lohier joined in the opinion only insofar as it found the agreement to be per se unlawful.⁷ Finally, Circuit Judge Dennis Jacobs dissented.⁸ As a result, the lower court’s decision was upheld, but only on a per se theory.

The background facts in this lawsuit are amazing and worth a close review. In 2007, Amazon released the new Kindle ebook reader.⁹ When pricing ebooks for sale on the Kindle, Amazon placed certain NewYork Times bestsellers and new releases at $9.99, the same or slightly lower than the wholesale price for which it paid book publishers.¹⁰ According to the district judge and the majority of the Second Circuit panel, this was a classic "loss-leading" strategy designed to propel interest in and adoption of the new Kindle.¹¹

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According to the court, book publishers did not like this low price and were fearful that $9.99 would become the permanent price-point as ebooks caught on, driving down the prices they could charge for print books.¹² In the face of this perceived threat, the Big Six publishers (Simon and Schuster, HarperCollins, Random House, Macmillan, the Penguin Group, and Hachette)¹³ started to get together on a regular basis, meeting at dinner events to discuss "common challenges."¹⁴ Many of the publishers began to withhold their books from Amazon for a period of time after a book’s first print release—a practice known as "windowing."¹⁵ By late 2009, four of the Big Six had announced such plans.¹⁶ However, the publishers worried that piracy and other issues would make windowing an unsustainable long-term strategy.¹⁷

Then along came Apple, seeking to launch an iBookstore business with the pending release of its iPad in 2010.¹⁸ Apple began negotiating with each of the Big Six. Importantly for the publishers, Apple’s team expressed the belief that Amazon’s price point was not ingrained in consumers’ minds and that Apple could sell new releases and bestsellers at higher prices, between $12.99 and $14.99.¹⁹ In return for higher retail prices, Apple requested the publishers to decrease their wholesale prices and allow Apple to make a small profit on each sale.²⁰

The Big Six began to keep each other apprised about negotiations with the Apple team.²¹ Apple quickly realized that the Big Six saw an advantage in using Apple to increase their leverage on Amazon.²² Acting on this realization, Apple ditched the wholesale pricing strategy in favor of one where it acted as an agent for the book publisher and received a commission on every sale.²³ This gave the publisher, rather than the retailer, more control over pricing, although Apple did set price caps.²⁴ However, according to the district court, Apple did not want any price competition with Amazon, and so hit upon a requirement that book publishers who sold to Apple had to switch over all their ebook retailers, including Amazon, to an agency model.²⁵ Or as Apple’s team told the publishers: ‘"all publishers’ would need to move ‘all retailers’ to an agency model."²⁶

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Apple’s strategy continued to evolve, and soon Apple’s in-house counsel suggested replacing the explicit agency requirement with a "Most Favored Nations" ("MFN") clause.²⁷ Under the MFN clause, the publisher could not charge a higher price on Apple’s iBookstore than other retailers charged.²⁸ According to the court, the MFN clause would place sufficient pressure on the Big Six to move Amazon to an agency model—without an explicit reference to Amazon or any other retailer in the Apple contracts.²⁹

The MFN clause also gave each of the publishers a stake in Apple’s quest for a critical mass of publishers to join the iBookstore because "[w]hile no one Publisher could effect an industry-wide shift in prices or change the public’s perception of a book’s value, if they moved together they could."³⁰

In the final negotiations, the book publishers pushed back against Apple’s proposed price caps. Apple relented because, as Steve Jobs famously wrote in an email, Apple could "live with" more lenient pricing provided Amazon was also moved to an agency model.³¹ Apple’s testimony at trial made it clear that the company knew it was effectively forcing the book publishers to move to an agency model, and that its representatives orchestrated efforts to convince holdout book publishers to go along.³² Apple even kept the book publishers apprised about which other publishers were on board.³³

When Steve Jobs presented the iPad in 2010, he also announced the iBookstore, including pricing.³⁴ After the presentation, Jobs was asked why someone should purchase an ebook from Apple for $14.99 as opposed to $9.99 with Amazon or Barnes & Noble, and Jobs confidently replied, "[t]hat won’t be the case . . . the price will be the same. . . .[P]ublishers will actually withhold their [e]books from Amazon . . . because they are not happy with the price."³⁵ Soon after the announcement, book publishers turned up the heat on Amazon and got it to agree to an agency model.³⁶ The publishers informed Apple of their progress.³⁷

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The trial court found that the evidence showed an agreement between the Big Six and Apple to raise ebook prices, and that the agreement’s effects even bled over to hardcover books.³⁸ Under the Apple contract, publishers were incentivized to raise hardcover prices so they could charge higher ebook prices.

On appeal, Apple argued that it could be charged only with "unwittingly facilitating" the publishers’ joint conduct.³⁹ Of course, it is a dark moment in the land of antitrust defense when counsel is forced to argue that a client is an "unwitting" participant, and the majority soundly rejected this claim and found that Apple was a conscious participant in the conspiracy.⁴⁰ For the majority, the most salient factor was that Apple had to be conscious of the conspiracy’s effect on its rival, Amazon.⁴¹ Indeed, Apple telegraphed its knowledge through its first iteration of the proposed contract—namely, the requirement that the Big Six move "all retailers" over to the agency model: If Apple had no idea that the Big Six were collectively moving against Amazon, why did it reference competing ebook retailers in its initial proposed contracts? Finally, the court found that the evidence supported the notion that Apple was the conscious orchestrator of the agreement—indeed, the linchpin.⁴² Without Apple’s participation, the conspiracy could have broken down, as previous collective efforts to move against Amazon had faltered. By bringing each of the Big Six under a contract with Apple, Apple ensured that the key problems of previous collective efforts—the difficulty in detecting and punishing cheating—would not be repeated, ensuring the success of the conspiracy.

Also on appeal, Apple argued that the contract terms in the final version of the contract, including the MFN clause, are generally lawful and viewed as procompetitive, and thus that Apple could not be condemned for seeking such clauses.⁴³ The court, however, disagreed, finding that in certain circumstances an MFN clause can actually "facilitate anticompetitive horizontal coordination by reduc[ing] [a company’s] incentive to deviate from a coordinated horizontal arrangement."⁴⁴ In other words, what is often designed to provide a buyer protection against being overcharged, i.e. a price ceiling, can become a price floor if utilized by a monopolist or a cartel. This is exactly why the Supreme Court has repeatedly emphasized that the per se bar against price-fixing extends to collective efforts to tamper with any significant facet of horizontal competition. For example, in Catalano, Inc. v. Target Sales, Inc.,⁴⁵ the Supreme Court had no problem condemning as per se unlawful the fixing of credit terms by a group of competitors.⁴⁶

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The majority easily dispatched Apple’s argument that per se condemnation was inappropriate because of the Supreme Court’s decision in EMI.⁴⁷ In BMI, the Court examined a music licensing regime in which copyright owners banded together to negotiate blanket licenses allowing licensees to perform any licensed work for a flat fee.⁴⁸ Although the scheme was per se price fixing, the Court upheld it under a rule of reason analysis.⁴⁹ For the Apple court, the salient distinguishing factor in BMI was that the resulting product— widespread, easy licensing of music—would have been impossible without fixing the prices charged for the licenses.⁵⁰ In other words, restraining competition was the only way to ensure that the product was available at all. In contrast, the court found that Apple could not claim "that creating an ebook retail market is possible only if the participating publishers coordinate with one another on price."⁵¹

The majority also rejected Apple’s argument that the conspiracy allowed it to challenge Amazon’s market dominance and effective monopoly.⁵² The dissent characterized this as a "deconcentrating" argument and accepted that there was a procompetitive effect in upsetting "a market that had been dominated by a monopolist and insulated from competition through below-cost pricing."⁵³ Judge Livingston, however, cleverly turned to Sherman Act Section 2 monopolization law, and noted that there is no bar in American law to monopoly per se, nor is there any requirement that markets must be adjusted so that higher-cost producers like Apple can enter and make a profit.⁵⁴ This was the thrust of Brooke Group, which set a high standard to prove that a competitor is engaged in predatory pricing to drive out rivals: "That below-cost pricing may impose painful losses on its target is of no moment to the antitrust laws if competition is not injured . . . ."⁵⁵ Finally, the majority disagreed with the fundamental assumption underlying the dissent that, if forced to match Amazon’s low prices, Apple would not have entered the market.⁵⁶ The majority noted that others, including Barnes & Noble and Google, had planned to enter the ebook market, and that, in the same way, Apple may have been able to enter as well.⁵⁷

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The decision is a reminder that courts will sometimes ind per se liability for an alleged participant, even when that participant was not in horizontal competition with other alleged participants. In many ways, this decision harkens back to an earlier case, F.T.C. v. Toys "R" Us, Inc.,⁵⁸ where the retailer organized an effort by manufacturers to restrict the types of toy products sold to rival club stores.⁵⁹ For attorneys counseling companies, Apple and Toys "R" Us are reminders that companies in a vertical relationship with manufacturers—such as distributors or retailers—need to be mindful to prevent themselves from playing potentially problematic roles as conduits for anticompetitive price or bidding discussions between those manufacturers. The same holds true for manufacturers vis-a-vis retailers or distributors.

B. Section 1 Rule of Reason Challenge: O’Bannon v. NCAA⁶⁰

In this private litigation, current and former college student-athletes sued the NCAA to challenge its rules barring student-athletes from receiving a share of revenues that colleges receive for licensing the student athletes’ names, images, and likenesses in videogames and live game telecasts.⁶¹ The lower court found the rules violated Sherman Act Section 1 under a full rule of reason analysis.⁶²

The NCAA proffered several legitimate business justifications for its rules: (1) preserving amateurism in college sports; (2) promoting competitive balance among various teams in different leagues; (3) ensuring integration of academics and athletics; and (4) increasing output of student athletics.⁶³

The lower court dismissed most of these concerns, but recognized that large payments to student-athletes could potentially undermine (1) the popularity of college sports (a "public perception of amateurism" notion);⁶⁴ and (2) the integration of student-athletes into academics by creating a wedge between student-athletes and the broader campus community.⁶⁵

Consequently, the court found that plaintiffs had proven anticompetitive effects of the NCAA’s rules but that defendants had met their burden of showing procompetitive effects of their business justifications, which shifted the burden back to plaintiffs to prove that there were less restrictive alternatives to achieve the asserted justifications.⁶⁶

So how should a judge determine whether proven business justiications can be achieved in other, less restrictive ways? Surprisingly, there is not a lot of guidance, perhaps because so few cases have reached the final stage of a rule of reason analysis.

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There are a few lines from Areeda and Hovenkamp suggesting that the alternative (1) must be "substantially less restrictive" and (2) "virtually as effective in serving the legitimate objective without significantly increased cost."⁶⁷ This examination should be "based on actual experience in analogous situations elsewhere or else be fairly obvious"⁶⁸ Of course, with a dearth of other decisions, the judge is left with few "analogous situations" and sometimes what is "fairly obvious" to one person is not so obvious to another.

In O’Bannon, the lower court found that two plaintiff-suggested alternatives met this test: (1) allowing schools to award stipends to student-athletes up to the full cost of attendance; and (2) letting schools hold in trust equal shares of its licensing revenue up to $5000 a year that athletes could receive after they leave college.⁶⁹

The Ninth Circuit’s opinion endorsed the district court’s decisions on everything but the less restrictive alternatives.⁷⁰ The court agreed with the first alternative, but found the lower court had erred in suggesting that student-athletes could have up to $5000 a year in licensing revenues placed into a trust fund.⁷¹ Judge Thomas dissented from this last ruling and disagreed that the district court clearly erred in its order.⁷²

At first blush, the district court’s end result looked an awful lot like micro-managing: Judge Wilken found that student-athletes could receive licensing revenues, but no more than $5000 a year, on an equal basis with each player in the same class at a particular school, and only in a trust. Courts in antitrust have generally been leery of remedies that are overly regulatory because they entangle the court systems in the ongoing business affairs of corporations.⁷³ But the Supreme Court’s rule of reason jurisprudence virtually mandates that, at the end of the analysis, the judge is going to have to make some tough and often razor-thin distinctions in the "balancing" part of the analysis. Indeed, the open-endedness and vagueness of the Standard Oil⁷⁴ standard seem to invite such an end result.

But, at the same timeJudgeThomas’s dissent raises the legitimate question of whether the appellate court "Monday-morning quarterbacked" this decision. That is, having gone this far in a bench trial, the issue is whether an appellate court should defer to the not-unreasonable judgments of a lower court judge who has heard all the testimony and reviewed all the evidence. One possible option is that appellate courts should give substantial deference to the district court’s decision on the final "balancing." That is obviously not what a majority of the Ninth Circuit panel thought, but it may be the wisest course, particularly as courts start to see more rule of reason cases "go the distance."

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C. Section 1 and 2 Hybrid: United States v. American Express Co.⁷⁵

In 2010, the DOJ filed complaints against Visa, MasterCard, and American Express over rules they applied to their merchants.⁷⁶ Visa and MasterCard settled with the DOJ; American Express took the matter to litigation.⁷⁷ At bottom, the rules prevented merchants from steering consumers to use certain credit cards by prohibiting them from: (1) offering incentives to consumers to use lower-cost cards; (2) indicating preference for competing cards; and (3) disclosing merchant fees to consumers.⁷⁸ The DOJ claimed that the credit card companies’ rules effectively blocked merchants from rewarding lower-cost competitors with increased volume.⁷⁹ Importantly to the court, the DOJ did not challenge rules preventing merchants from putting a fee on American Express transactions, nor from "mischaracterizing" American Express cards.⁸⁰

The court analyzed these as vertical nonprice restraints in a full rule of reason analysis under Sherman Act Section 1. Importantly, however, the court noted that the restraints were more akin to exclusive dealing or tying restraints, which sound more in Sherman Act Section 2 than typical nonprice vertical restraints. The court found that, unlike most vertical restraints that hinder intrabrand competition in order to foster interbrand competition, these restraints had a direct and pernicious effect on interbrand competition.⁸¹ In particular, the restraints effectively blocked merchants’ ability to steer end-user customers to particular credit cards, which, in the court’s view, was the key way that merchants could foster interbrand competition between the credit card companies.⁸² This observation by the court colors its entire analysis, and clearly takes the conduct at issue out of the land of traditional vertical restraints, which are generally viewed as procompetitive.

In determining the relevant product market, the court excluded debit cards and found a product market of credit card network services.⁸³ Additionally, the court found American Express had market power based on: (1) a 26.4% market share;⁸⁴ (2) evidence that American Express successfully raised prices without suffering merchant defections;⁸⁵ and (3) American Express’ loyal cardholder base.⁸⁶

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The court found that the anti-steering rules buttressed the credit card network’s market power by effectively making it impossible for merchants, who are responsible for paying the fees, to influence credit card choices of consumers, who are responsible for driving demand for network services.⁸⁷ The court found that these rules "disrupt the normal price-setting mechanism by reinforcing an asymmetry of information between the two sides of the payment card platform."⁸⁸ In particular, the court found that these rules prevent steering, which is "both procompetitive and ubiquitous"⁸⁹

From this view, the court was easily able to condemn the rules at issue. For anticompetitive effects, the court found that the rules led to higher rates, which merchants were then forced to pass on to consumers in the form of higher retail prices: "In effect, Amex’s [rules] deny its competitors the ability to recognize a ‘competitive reward’ for offering merchants lower swipe fees, and thereby suppress an important avenue of horizontal interbrand competition."⁹⁰ For the court, a most telling historical example was the failure of Discover’s lower swipe price to increase Discover’s volume, caused in large part by the anti-steering rules ofVisa, MasterCard, and American Express.⁹¹

The court then passed over American Express’ asserted justifications for the restraints.⁹² American Express argued that it needed the rules to ensure a "frictionless" point of sale customer experience⁹³ and to prevent merchant "free-riding."⁹⁴ The court found these arguments unpersuasive: the first is undermined by the fact that the rules even bar steering that never mentions American Express;⁹⁵ and the second is lacking because American Express charges some customers for the very add-on services that it claims would be "free rode" upon—that is, the ride is not free.⁹⁶ With these findings, the court found the restraints at issue violative of Sherman Act Section 1 and subsequently entered an order enjoining them.⁹⁷

Although styled as a challenge to a vertical restraint, the peculiar facts of this case— namely, that the restraints at issue were implemented by a company with market power and served to impede interbrand competition—suggest that this case is not about to signal a change in courts’ generally lenient attitude toward vertical restraints.

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D. Section 2 Challenge to Exclusive Dealing: McWane, Inc. v. F.T.C.⁹⁸

This case represents the first litigation of a Federal Trade Commission ("FTC") challenge to purely unlawful vertical conduct since the 1990s. Interestingly, though, the FTC’s original complaint did not only allege unlawful vertical conduct, but included some eight counts, several of which alleged unlawful horizontal conduct such as price-fixing.⁹⁹ The FTC, however, deadlocked two-to-two on the horizontal allegations and found liability on just one theory: unlawful Sherman Act Section 2 exclusive dealing or monopoly maintenance.¹⁰⁰

Consequently, as the matter moved out of the FTC’s adjudicative process, the sole finding of liability concerned allegedly unlawful vertical conduct—namely, McWane’s Full Support Program.¹⁰¹ Under this program, McWane, a company with almost fifty percent of the domestic market for pipe fittings,¹⁰² announced to its distributors that, with limited exceptions, unless they bought all of their domestic fittings from McWane, they would lose their rebates and be cut off from purchases for twelve weeks.¹⁰³ According to the FTC complaint, McWane’s Full Support Program harmed competition by foreclosing its sole rival Star’s access to necessary distributors and contributed significantly to Star’s lost sales.¹⁰⁴

Although the FTC did not quantify the exact percentage of foreclosure from this exclusive dealing, it presented evidence showing that the two largest distributors—with fifty to sixty percent of the distribution market—prohibited their branches from purchasing fittings from Star.¹⁰⁵ It also presented evidence that the Full Support Program, by depriving Star of access to distribution, prevented Star from achieving sufficient sales to purchase its own foundry.¹⁰⁶ Without its own foundry, Star was prevented from achieving efficient scale to credibly threaten McWane’s monopoly position.¹⁰⁷

The FTC backed up its evidence with internal documents from McWane laying out much of the anticompetitive intent behind the Full Support Program. While intent is not an element for finding unlawful exclusive dealing or a Sherman Act Section 2 monopoly maintenance claim, documents such as these can provide powerful assistance to courts by undermining any claimed efficiency justifications for exclusive dealing programs. Indeed, it has previously been argued that documentary intent evidence can be quite valuable in demonstrating that asserted procompetitive justifications for particular conduct are in fact "pretextual."¹⁰⁸

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For example, as shown in Figure 1, one internal McWane document spoke of needing to ensure that Star could not reach "critical market mass" that would allow it to invest in building its own foundry:

Figure 1: "[N]eed to make sure they don’t reach any critical market mass that will allow them to continue to invest . . . ." [FTC Plaintiff Exhibit]

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A second document, shown in Figure 2, revealed that McWane hit upon exclusive distribution as a method to raise Star’s costs and "protect [McWane’s] Brand:"

Figure 2: Exclusive Distribution Raises Star’s Costs [FTC Plaintiff Exhibit]

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A third document, shown in Figure 3, reveals that McWane was particularly concerned that Star’s successful entry would drive down prices:

Figure 3: "[M]y chief concern is that the domestic market gets creamed from a pricing standpoint . . . ." [FTC Plaintiff Exhibit]

The Eleventh Circuit’s opinion is notable for its careful and balanced explication of Sherman Act Section 2 monopolization law. First, the court adopted the D.C. Circuit’s burden-shifting balancing test as enunciated in the seminal United States v. Microsoft Corp. en banc decision:¹⁰⁹ that is, the court held that it must balance the likelihood of harm to competition against any legitimate procompetitive justifications for the conduct.¹¹⁰ In this test, the plaintiff has the burden of showing a likelihood of harm to competition, while the defendant must prove any procompetitive justification.¹¹¹

In doing so, however, the court importantly rejected the notion that the FTC must prove that the program caused McWane to keep its monopoly power or kept prices higher.¹¹² Rather, again following the Microsoft opinion, the court held that the plaintiff need only prove that the Full Support Program "reasonably appear[ed] to be a significant contribution to maintaining [McWane’s] monopoly power."¹¹³ Consequently, the court rejected defense arguments that the fact that Star was still able to enter somehow relieved McWane of liability for its conduct.¹¹⁴ Rather, the court found that the Program significantly contributed to key dealers freezing out Star.¹¹⁵ The court credited the testimony of Star executives that the program deprived Star of sales needed to invest in a foundry and led to withdrawn sales after announcement of the program, and noted that there were no alternative channels of distribution.¹¹⁶

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In one part of the opinion that may limit its general application to other instances of exclusive dealing or unlawful monopolization, the court credited evidence put on by the FTC that prices rose after the program went into effect.¹¹⁷ While the court went out of its way to say that the FTC did not need to prove that the Full Support Program was the sole cause of the price increase, it did refer to this evidence as "perhaps [the] most powerful evidence of anticompetitive harm."¹¹⁸ Of course, it is often quite difficult to prove that prices rose as a result of particular conduct, so requiring evidence of a price effect to show a Sherman Act Section 2 monopolization case is not appropriate. Nevertheless, the court clearly did not require evidence of a price effect; it simply noted that, when available, such evidence is "powerful" indicia of anticompetitive harm.¹¹⁹

The court next dealt with McWane’s asserted procompetitive justifications for the Program. McWane argued that exclusive dealing was needed to preserve enough sales to keep its last domestic foundry afloat.¹²⁰ The court had no trouble dismissing this as a cognizable procompetitive justification for antitrust purposes, finding that while such a goal is not unlawful, neither is it a procompetitive justification.¹²¹ Next, McWane argued that the Full Support Program prevented Star from "cherrypicking" by selling only the few highest selling fittings and leaving McWane to sell the remaining items.¹²² The court noted that McWane failed to explain why the company could not compete by simply reducing prices on its most common fittings and increasing prices for the less common fittings, why the collapse of a full line seller would harm consumers, or why "full-line forcing" was necessary.¹²³ In any event, citing documents like those in Figures 1, 2, and 3, the court concluded that the "internal documents belie the notion that the Full Support Program was designed for any procompetitive benefit"¹²⁴ The court explicitly noted that the asserted procompetitive justifications were, at best, pretextual.¹²⁵

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There is much to like in this opinion. By explicitly adopting the Microsoft balancing test and rejecting a "but for" causation test, the court squarely advanced a balanced approach to Sherman Act Section 2 enforcement. Moreover, it explicitly rejected a "form over substance" analysis of exclusive dealing claims that bless exclusive contracts if the foreclosure efect was not one-hundred percent or if the contracts solely involved a loss of discounts, which ignores compelling evidence that, in certain circumstances, such contracts can nevertheless deprive rivals of the most efficient distribution channels. Finally, by not shying away from utilizing intent evidence to show that asserted procompetitive justifications are in fact pretextual, the court kept the analysis focused by examining allegedly exclusionary conduct in a case-by-case, fact-specific way.

E. Section 2 Challenge to Product Hopping: New York v. Actavis PLC¹²⁶

Actavis is another Sherman Act Section 2 case, but involves a very different type of conduct from McWane, which invoked more traditional notions ofexclusive contracts that foreclose rivals from vital distribution outlets. The New York State Attorney General’s office filed this lawsuit, alleging that Actavis engaged in a new form of anticompetitive behavior by pharmaceutical companies—namely, anticompetitive product hopping.¹²⁷ According to the complaint, as Namenda IR, Actavis’ twice-daily drug designed to treat moderate-to-severe Alzheimer’s disease, neared the end of its patent exclusivity period in July 2015, Actavis introduced a new once-daily version called Namenda XR.¹²⁸ The patents on XR ensure exclusivity, and thus prohibit generic versions of XR from entering the market until 2029.¹²⁹ Faced with the prospect of competition from generic IR, Actavis allegedly decided to withdraw virtually all Namenda IR from the market in order to force Alzheimer’s patients who depend on Namenda IR to switch to Namenda XR before generic IR becomes available.¹³⁰

Because generic competition depends heavily on state drug substitution laws that allow pharmacists to substitute generic IR for Namenda IR but not for XR—the New York Attorney General’s office alleged that Actavis’ forced-switch scheme would likely impede generic competition for IR.¹³¹ Moreover, the substantial transaction costs of switching from once-daily XR back to twice-daily IR therapy would likely further ensure that Actavis would maintain their efective monopoly in the relevant drug market beyond the time granted by their IR patents.¹³²

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The district court issued an injunction,¹³³ and the Second Circuit affirmed.¹³⁴ On its face, this is an amazing result: A decision forcing a company to continuing selling something it had withdrawn from the market! A Sherman Act Section 2 judgment concerning the very core of product design changes—something some would view as largely sacrosanct!¹³⁵

In its analysis, the Second Circuit focused on the fact that the product hopping in question here coerced consumers—because it forced them to switch to the new product.¹³⁶ But it should be pointed out that many product redesigns and follow-on products are in effect "coercive." High switching costs in high tech products like computers can make it virtually impossible not to buy the new version of a computer. For example, consumers were not thrilled when the first generation iPad slowly but effectively died barely three years after its release because Apple chose not to support that version in its most recent operating systems. What did they do? They went out and bought a newer version of the iPad. Were they coerced? Hard to tell: the line here can be a hard one to draw.

On the other hand, the court had in its possession a lot of evidence suggesting that any legitimate explanations for withdrawing Namenda IR were pretextual. Documents show Actavis’ CEO saying that the company was "trying to . . . put barriers or obstacles to generic competition."¹³⁷ Furthermore, internal documents revealed that Actavis studied the issues of switching and found that only thirty percent of patients would voluntarily switch to the new product.¹³⁸ By contrast, according to the documents, if the old product were withdrawn, eighty to one-hundred percent would switch.¹³⁹

Nevertheless, the absence of a compelling story of why this behavior is "exclusionary"—that is, not competition on the merits—is troubling. Is there a better way of analyzing this conduct rather than simply relying on the fact that the conduct at issue had a coercive effect on consumers? Perhaps the result here can be justified as exclusionary because the behavior sacrificed short-term profits. This is the monopolization equivalent of "cutting of your nose" to undercut a rival. It is akin to Lorain Journal Co. v. United States,¹⁴⁰ where the monopoly newspaper decided to refuse to sell advertising space to customers who also advertised on its radio station rival, in an attempt to "destroy[]" its rival.¹⁴¹ Establishing that a particular practice sacrifices short-term profits should not be a requirement or even a necessary factor to make out a Sherman Act Section 2 violation, as some have argued, because "cheap" forms of exclusion, such as deception, can be quite destructive, too, and should be condemned under Sherman Act Section 2 when appropriate. Nevertheless, the fact that a particular conduct did in fact sacrifice short-term profits can be a telling indication that it was not done for some rational market participant purpose, but rather was done solely to kneecap a rival.

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The Second Circuit finally reaches this point, but only toward the end of its opinion. The actual amount of additional sales Actavis expected from the new drug’s introduction because of the withdrawal of the old drug is confidential, but the opinion clearly states that the incremental sales were less than the annual $1.5 billion in sales Actavis made every year from selling the old drug.¹⁴² Consequently, Actavis sacrificed significant profits by withdrawing the old product from the market, and could provide no explanation as to why this loss made economic sense absent the elimination of generic competition.¹⁴³ Such evidence provides a sounder basis to assert that Actavis’ conduct was something other than "competition on the merits" than the theory of consumer coercion articulated by the court elsewhere.

F. State-Action Immunity Further Limited: North Carolina State Board of Dental Examiners v. F.T.C.¹⁴⁴

This Supreme Court decision answered a question long open in the area of state-action immunity to the antitrust laws. As developed through several Supreme Court decisions, state-action antitrust immunity requires that the particular state conduct at issue meet two requirements: (1) the conduct must be pursuant to a clearly articulated state policy, and (2) the policy involved must be actively supervised by the state.¹⁴⁵ In Town of Hallie v. City of Eau Claire,¹⁴⁶ the Supreme Court held that state actors such as municipalities need only meet the first requirement of clear articulation.¹⁴⁷ According to the Court, a showing of active supervision was not necessary because municipalities present "little or no danger that [they are] involved in a private price-fixing arrangement."¹⁴⁸ In dicta, the Court also suggested that state agencies might be treated the same as municipalities, and likely only need to meet the first clear articulation requirement.¹⁴⁹ North Carolina State Board of Dental Examiners raised the issue of whether a state regulatory board made up of market participants is immune to antitrust scrutiny.¹⁵⁰

The FTC sued the Board of Dental Examiners (the "Board"), alleging that the Board’s actions in sending cease-and-desist letters to non-dentists offering teeth whitening services were anticompetitive.¹⁵¹ The Board, mostly made up of private dentists elected by their dentist colleagues, invoked state action immunity in defending against the suit.¹⁵² In its decision, the Supreme Court squarely held against the Board.¹⁵³ It found that a state board made up of a controlling number of market participants can only invoke state action if it is acting under a clearly articulated policy to displace competition and it is actively supervised.¹⁵⁴

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Although this decision has sparked some concern about liability implications for state professional and licensing boards, its impact is likely to be quite limited. In essence, the focus of the Supreme Court’s opinion is to ensure that "scope of practice" decisions—those that are most likely to raise anticompetitive concerns—are not decided by boards that are effectively cartels of private market participants without any type of state supervision or review whatsoever. Or as the Court put it in Midcal Aluminum: "The national policy in favor of competition cannot be thwarted by casting . . . a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement"¹⁵⁵

G. Healthcare Merger Challenge: Saint Alphonsus Medical Center—Nampa Inc. v. St. Luke’s Health System, Ltd.¹⁵⁶

St. Luke’s Health System, a hospital that owned physician groups in Nampa, Idaho, sought to purchase Saltzer, the largest remaining independent physician group in Nampa.¹⁵⁷ St. Luke’s had previously acquired a group of primary care physicians who competed with Saltzer.¹⁵⁸ The FTC, joined by the State of Idaho and two local hospitals, argued that, together, the two physician groups gave St. Luke’s eighty percent of the Nampa primary care physician services market.¹⁵⁹ The district court ultimately enjoined the acquisition,¹⁶⁰ and the Ninth Circuit affirmed.¹⁶¹

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In both the district and appellate court decisions, the courts focused on geographic market and competitive effects on health insurance companies as the appropriate "buyer" for health care services.¹⁶² This is a major change from the health care combination challenges of the 1990s and early 2000s, where the focus was instead on where ultimate consumers, i.e. patients, might be willing to travel in defining relevant geographic market and competitive effects.¹⁶³ That old analysis was heavily criticized by economists as placing the focus on the wrong "customer."¹⁶⁴ The real buyer in the health care industry is the health insurance company, not the ultimate patient. The relevant geographic market is the one to which the major health insurance providers can steer their customers. It is health insurance companies that must cobble together provider panels that are sufficient to attract large employers to their plans. And if a health insurer says it cannot steer ultimate customers to far away locations for physician services, then providers in those locations do not belong in the relevant geographic market, nor are they likely to affect the competitive conditions in the market at issue. Understanding the practicable options that health insurers can turn to in a particular geographic market in the event of an acquisition also informs the competitive effects analysis. The key is understanding the practicable options that a health insurer can use as leverage when negotiating with each provider group. Reduce those options with a merger or acquisition, and competition is likely to be substantially lessened.¹⁶⁵ Consequently, getting the court in St. Luke’s to adopt this more modern approach was a huge win for the FTC.

The court also rejected efficiencies claims advanced by the parties to justify the deal. As the court put it and as the agencies have long required, "[t]he defendant must also demonstrate that the claimed efficiencies are ‘merger-specific.’"¹⁶⁶ For example, St. Luke’s failed to show the necessity of employing physicians, since other less restrictive forms of collaboration—such as contracting or joint ventures—can achieve the same benefits.¹⁶⁷ The court also noted that, "even if we assume that the claimed efficiencies were merger-specific, the defense would nonetheless fail. . . . [St Luke’s] did not demonstrate that efficiencies resulting from the merger would have a positive effect on competition"¹⁶⁸ Although some have voiced concern about this comment and whether it presages judicial hostility to any type of efficiencies defense, I do not believe that the court intended such a result. Rather, the court’s opinion simply reflects the notion that, once a court has found that a merger is likely to harm competition, it is incumbent on the proponents of that merger to explain why the efficiencies resulting from the merger are likely to be of net benefit to consumers in a competitive marketplace. In sum, the efficiencies must be so output-enhancing and beneficial to consumers such that they overwhelm any other negative effects arising from the deal. And that simply was not done by the defendants in this case.

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H. Narrower Market Merger Challenge: F.T.C. v. Sysco Corp.¹⁶⁹

In this merger challenge, the two largest foodservice distributors—Sysco and U.S. Foods—sought to merge in a deal valued at $8.2 billion.¹⁷⁰ The FTC filed suit in D.C. federal court to block the merger, alleging that that the distributors were the only two with truly nationwide distribution capability.¹⁷¹ The companies first tried to gain regulatory approval by spinning off eleven of U.S. Foods’ distribution centers to a regional food service distributor, but the FTC rejected the sale as inadequate to address the competitive harms it believed flowed from the merger.¹⁷²

The primary issue in the litigation was the product market. The FTC alleged a product market of broadline foodservice distributors, which are characterized by distinct attributes "such as a vast array of product offerings, private label offerings, next-day delivery, and value-added services."¹⁷³ Within that market, the FTC alleged a more specific market of breadline food service distribution services sold to national customers—that is, customers with a nationwide or multi-regional footprint such as group purchasing organizations, foodservice management companies, hospitality chains, and national chain restaurants.¹⁷⁴ The FTC alleged that the two entities held fifty-nine percent of this narrower market.¹⁷⁵ On the other hand, Sysco argued for a broader definition of the foodservice market including not only broadline food distributors but also other distributors, such as specialty or systems distributors.¹⁷⁶ Sysco and U.S. Foods made up only twenty-five percent of this broader market.¹⁷⁷

Applying the Brown Shoe¹⁷⁸ qualitative factors, the court favored the FTC’s approach, noting how these broadline distributors maintain a vast array of products and services, are organized as separate business units, offer delivery flexibility, serve a distinct set of customers, benchmark prices only against other broadline distributors, and are recognized in the foodservice industry as a distinct channel of distribution.¹⁷⁹ The defendants countered that customers in the market are not dependent on broadline distributors, but can and do allocate their business between the various distribution channels.¹⁸⁰ But the court felt that, as in Whole Foods¹⁸¹ and Staples,¹⁸² the possibility that customers can switch some sales to other modes of distribution outside the market did not alter the demarcation of the product market.¹⁸³ In this regard, the court credited the uniform testimony of customers about the product market, as well as the merging parties’ internal documents.¹⁸⁴

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The court went on at length about the battle of the experts regarding divergent studies with respect to this product market.¹⁸⁵ Despite noting serious issues with the FTC expert’s work, the court ultimately credited his findings and analysis, in part because the expert’s conclusions matched the "business realities" of the testimony and documents.¹⁸⁶

In arguing for a narrower market focused on national customers, the FTC relied upon the Merger Guidelines to suggest that a market may be defined around a subset of customers targeted for price discrimination.¹⁸⁷ The court did not necessarily endorse this concept, but rather focused on the Brown Shoe factors to find such a narrower market.¹⁸⁸ In particular, the judge noted that regional broadline distributors had formed cooperatives to try to compete for national customers,¹⁸⁹ and that the parties’ own documents referred to national customers as a distinct group with different needs.¹⁹⁰

Once the product market was established, the court had no trouble concluding that the divestiture of U.S. Foods’ eleven distribution centers would not fix the problem—the regional distributor set to acquire the distribution centers would not "step into [U.S. Foods]’s shoes" and provide the same competitive intensity as U.S. Foods.¹⁹¹ As a result, the court preliminarily enjoined the merger.¹⁹²

Sysco stands in a line of cases—including Whole Foods and Staples—that found narrow markets based on customer preference. For attorneys advising merging parties on antitrust implications, these decisions suggest that a deeper dive into the merging parties’ customer base may be necessary.

I. "Actual Potential Competition" Theory: F.T.C. v. Steris Corp.¹⁹³

One notable loss for the federal law enforcement agencies this year occurred in the area of "actual potential competition." A little background is necessary here to provide context. Mergers involving potential competitors may be challenged on two theories: the "perceived potential competition" theory and the "actual potential competition" theory. Under the former, a company that is perceived by market participants as potentially entering the market may have a significant procompetitive effect on the marketplace. Acquisition of the perceived entrant by an incumbent (or vice-versa) may thus result in decreased competition in that marketplace. Under the latter, a company is actually planning to enter the market and would increase competition, but a merger with an incumbent prevents that procompetitive effect. Over forty years ago, the Supreme Court accepted the perceived potential competition theory, but left open whether a merger may violate Section 7 under the actual potential competition theory.¹⁹⁴ Federal enforcement authorities have long sought to advance the law on actual potential competition. One area of concern among law enforcers has been a requirement by some lower courts of "clear proof" that the acquiring firm would in fact have entered the relevant market but for the acquisition in question,¹⁹⁵ which is a position even the FTC held at one time.¹⁹⁶ The concern among law enforcers is that "clear proof" is too daunting a standard because it appears to require something significantly more than the usual standard of "reasonable probability."¹⁹⁷

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In F.T.C. v. Steris Corp. ¹⁹⁸ the FTC filed suit to challenge Steris’ acquisition of Synergy, claiming that Synergy was poised to enter the US market for gamma sterilization services just before the acquisition.¹⁹⁹ According to the FTC’s complaint, Steris, headquartered in Mentor, Ohio, and United Kingdom-based Synergy both provide contract sterilization services for companies that need to ensure their products are free of unwanted microorganisms before they reach customers. Implanted medical devices and human tissue products, for example, must meet stringent requirements for sterilization. For most companies, in-house sterilization is not a viable alternative. Instead, these customers bring their products to sterilization service facilities on a contract basis, typically within five-hundred miles of the companies’ manufacturing or distribution facilities to minimize shipping costs. Today, gamma radiation, generated by the radioactive isotope cobalt-60, is considered the only feasible method of sterilizing large volumes of dense and heterogeneously packaged products. Only Steris and one other company, Sterigenics, provide contract gamma sterilization services in the United States, according to the FTC’s complaint. At the time the proposed merger was announced, Synergy was implementing a strategy to open new plants that would provide contract x-ray sterilization services. These services—which currently are not available in the United States— would provide a competitive alternative to gamma radiation, according to the complaint. Because it uses electricity rather than cobalt-60, x-ray sterilization does not raise many of the environmental and regulatory issues associated with gamma sterilization. According to the FTC, it is unlikely that new competitors in the market for contract radiation sterilization services would replicate the competition that would be eliminated by the merger.

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Consequently, the FTC alleged that the effect of the deal was to allow Steris to insulate itself against increased competition in that market by foreclosing the actual potential competition that an independent Synergy would have brought to the market for gamma sterilization services.²⁰⁰

The court, however, rejected the FTC’s effort to preliminarily enjoin the merger.²⁰¹ For purposes of deciding the motion for a preliminary injunction, the court accepted the FTC’s formulation that the test was whether the competitor "probably" would have entered the market, but found the evidence in this instance to be lacking.²⁰² In other words, the judge seemed to accept a lower standard of proof while still ruling against the agency.

The court credited post-acquisition documents and testimony that Synergy’s internal committees never formally approved the entry into gamma sterilization because of (1) a lack of customer commitments;²⁰³ and (2) cost-related problems with procuring the necessary machinery.²⁰⁴ The FTC argued that much of this evidence appeared pretextual, and that Synergy demonstrated that it had made a decision to enter when, shortly after the Steris acquisition was announced, it made public statements that it had "signed an agreement with a [manufacturer of gamma technology machines] for X-ray technology to be deployed in the United States."²⁰⁵ While literally true, the statement certainly suggested entry was imminent. The court, however, discounted this evidence.

As this decision shows, actual potential competition cases often turn on subjective evidence, which is always difficult to prove. Given the varying "spin" of the evidence between the merging parties and the FTC, it is no wonder that the court looked for some type of objective evidence showing that Synergy actually intended to enter. What it found—no final sign off, a lack of customer commitments, and problems with procuring the necessary machinery—led the court to conclude that Synergy would not have probably entered the marketplace. What this may suggest is that, while the judge said he was utilizing a lower standard of proof, he may in fact have been employing a heightened test.

J. Class Action Privacy Case Surmounts Standing Challenge: Remijas v. Neiman Marcus Group, LLC²⁰⁶

The Seventh Circuit overturned the district court’s dismissal of a class action brought against Nieman Marcus, a high-end retailer.²⁰⁷ While the decision appeared to breathe renewed vigor into data breach class actions, it did have some dicta that may prove troublesome to certain privacy plaintiffs with respect to the injury-in-fact requirement.

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In the decision, the court found that a class of consumers whose financial information was compromised in a 2013 hack of Neiman Marcus’s data systems showed injury-in-fact and thus had standing to sue.²⁰⁸ In doing so, the court specifically rejected the defendant’s argument that the class’s injuries were too speculative because the hackers had yet to use the personal information for fraudulent charges or to assume consumers’ identities.²⁰⁹ Adopting a Northern District ofCalifornia judge’s reasoning in In re Adobe Systems, Inc. Privacy Litigation,²¹⁰ the court found that "Neiman Marcus customers should not have to wait until hackers commit identity theft or credit-card fraud in order to give the class standing, because there is an ‘objectively reasonable likelihood’ that such an injury will occur."²¹¹ In arriving at this decision, the court noted that the purpose of the data breach was to steal consumers’ private information in order to make fraudulent charges or assume those consumers’ identities.²¹² It further noted that studies show that hackers sometimes wait for up to a year or more before utilizing stolen data.²¹³ The court also accepted as a concrete injury the fact that consumers notiied of the breach "lost time and money protecting themselves against future identity theft and fraudulent charges" by signing up for credit-monitoring services.²¹⁴ Consequently, the court found that the class had sufficient injury to survive a Rule 12(b)(1) motion.²¹⁵

At the same time, while the court did not rule on whether other injuries put forth by the plaintiffs sufficed for standing, it did go on in dicta to suggest that two other theories of injury were "dubious."²¹⁶ The first injury that the Seventh Circuit found questionable was the notion that plaintiffs were overcharged "because the store failed to invest in an adequate security system."²¹⁷ Although the court noted that this "premium" or "overcharge" analysis has been accepted in the product liability context, the court suggested that this analysis did not apply in the data security breach situation, and seemed to suggest that it did not agree with an Eleventh Circuit decision, Resnick v AvMed, Inc.²¹⁸ that in fact found such injury to meet the standing requirement in a data breach case.

The second injury plaintiffs alleged was that they had "a concrete injury in the loss of their private information, which they characterize as an intangible commodity."²¹⁹ The court cast doubt on this proposition as well, noting that this claim "assumes that federal law recognizes such a property right while refer[ring] [the court] to no authority that would support such a finding."²²⁰ Plaintiffs also cited to California’s and Illinois’s Data Breach Acts as support for the notion that Neiman Marcus’s actions violated a state law right.²²¹ While the Seventh Circuit acknowledged that an actual or threatened violation of a state-law right can confer Article III standing, the court questioned whether Neiman Marcus had in fact violated those statutes.²²² According to the court, a California state appellate court has found that a delay in notification is not a cognizable injury,²²³ and that the Illinois statute in question required a showing of"actual damages."²²⁴

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In addition to finding injury in fact, the court found that plaintiffs also had pled causation and redressability sufficient to meet all three requirements for Article III standing.²²⁵ Neiman Marcus argued that plaintiffs could not show that their injury was caused by the breach at Neiman Marcus because other large stores, such as Target, had experienced similar breaches during the same time period.²²⁶ The court disposed of this argument, inding that it was "certainly plausible" for pleading purposes that the plaintiffs’ injuries stemmed from the Neiman Marcus data breach.²²⁷ If there were multiple companies that could have exposed plaintiffs’ personal information to the hackers, the court found it was the defendant’s burden to prove that their negligent actions were not the but-for cause of the plaintiff’s injury.²²⁸

Finally, the court easily disposed of Neiman Marcus’ argument that the plaintiffs had nothing further to redress because they had already been reimbursed for any fraudulent charges, noting that consumers had not been reimbursed for mitigation expenses (such as obtaining long-term credit monitoring services) or future injuries.²²⁹ The court specifically mentioned that credit and debit card issuers have limitations on when they will reimburse for fraudulent charges, and that such policies are a "business practice," not a "federal requirement."²³⁰

This case suggests that the tide is starting to turn in favor of plaintiffs in getting past the standing hurdle in privacy challenges. Whether this leads to more judgments against companies for privacy violations remains to be seen.

K. FTC Privacy Case Surmounts Challenge: F.T.C. v. Wyndham Worldwide Corp.²³¹

In a long-awaited ruling, the Third Circuit upheld a district court determination that an FTC challenge to allegedly lax data security practices at Wyndham’s hotels could go forward as an "unfair practice" that violates Section 5 of the Federal Trade Commission Act ("FTC Act").²³² While this decision solely focused on Section 5 of the FTC Act, it is likely to reinvigorate efforts by federal, state, and local law enforcement agencies as well as the private bar to challenge potentially deceptive or unfair privacy practices.

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According to the FTC complaint, in 2008 and 2009, hackers successfully accessed Wyndham’s computer systems and stole personal and inancial information for 619,000 customers, which resulted in at least $10.6 million in fraudulent losses.²³³ The FTC filed suit in June 2012, alleging that Wyndham engaged in unfair security practices that "unreasonably and unnecessarily exposed consumers’ personal data to unauthorized access and theft."²³⁴ Among other things, the FTC alleged that the company failed to use irewalls at critical network points, did not restrict speciic IP addresses, did not use encryption for certain customer files, and did not require users to change default or factory-set passwords.²³⁵

In affirming the district court’s decision allowing the case proceed, the appellate court rejected several of Wyndham’s contentions. The irst basket of challenges relate to the meaning of "unfairness" the second to subsequent congressional action, and the third to whether Wyndham had adequate notice that its conduct could violate the FTC Act.

1. The Meaning of Unfairness

First, Wyndham alleged that the plain meaning of the term "unfair" required a showing of further evidence beyond the three-part test the FTC has used since 1980.²³⁶ A little background is in order here. As codiied by Congress in Section 5(n) of the FTC Act in 1994, a inding of unfairness requires the FTC to show that (1) the act or practice causes or is likely to cause substantially injury to consumers (2) which is not reasonably avoidable by consumers themselves and (3) which is not outweighed by countervailing beneits to consumers or competition.²³⁷ This provision also bars the agency from relying primarily on public policy considerations as the basis for determining that a practice is unfair.²³⁸ Wyndham referenced 1930s Supreme Court case law to argue that a inding of unfairness also requires "unscrupulous or unethical behavior,"²³⁹ but the court noted that subsequent Supreme Court precedent rejected that additional requirement.²⁴⁰

Next, Wyndham argued that the dictionary deinition of "unfair" required that the practice be "not equitable" or "marked by injustice, partiality, or deception,"²⁴¹ but the court dismissed this argument because it found that the conduct alleged met such a test.²⁴² In particular, the court focused on how difficult it would be for consumers to reasonably avoid Wyndham’s unreasonable data security because the company’s privacy policy deceptively overstated its cybersecurity,²⁴³ although it left open the possibility that unfairness in data breach situations could be shown even absent a privacy policy that overstates cybersecurity protections.²⁴⁴

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The court also rejected the claim that unfairness could not be shown here because the direct cause of the harm was criminal activity by third parties, and thus that Wyndham did not directly cause the harm to consumers.²⁴⁵ In this regard, the court noted that a company’s conduct need not be the most proximate cause of an injury, and focused on the fact that actual harm is not necessary to make out a claim of unfairness: rather, the standard for unfairness is whether there was an increased likelihood of harm to consumers as a result of the practice in question.²⁴⁶ The court found the cybersecurity intrusions to be a plausible and foreseeable result of the allegedly lax security.²⁴⁷

Finally, the court rejected Wyndham’s argument that giving the FTC authority over lax security practices could lead to FTC liability for poor physical security or lax clean-up procedures at brick-and-mortar retail establishments.²⁴⁸ In colorful language,Wyndham argued that even a banana peel left on a shop floor could lead to FTC liability.²⁴⁹ The court’s "tart" response was that, "were Wyndham a supermarket, leaving so many banana peels all over the place that 619,000 customers fall hardly suggests it should be immune from liability . . . ."²⁵⁰

2. Subsequent Congressional Action and FTC Agency Inaction

Wyndham next argued that subsequent legislative acts excluded consumer privacy violations from the scope of Section 5 of the FTC Act.²⁵¹ Wyndham noted that three separate Congressional actions gave the FTC authority to promulgate regulations in the privacy arena: the 2003 amendments to the Fair Credit Reporting Act gave the FTC the ability to develop regulations for the proper disposal of consumer data; the 1999 Gramm-Leach-Bliley Act required the FTC to establish standards for financial institutions to protect consumers’ personal information; and the Children’s Online Privacy Protection Act gave the FTC authority to promulgate regulations concerning children’s websites.²⁵² Citing F.D.A. v. Brown & Williamson Tobacco Corp., Wyndham concluded that in enacting these specific measures, Congress had excluded FTC authority over cybersecurity.²⁵³ The court disagreed, finding that all these laws either required FTC action (rather than gave authority) or granted the FTC greater leeway to take action.²⁵⁴ In other words, none of these legislative actions was "inexplicable" if the FTC already had some authority over privacy violations under Section 5.²⁵⁵ The court also found unpersuasive the claim that the FTC had somehow disclaimed its authority over cybersecurity through statements made to Congress.²⁵⁶

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3. Fair Notice

Wyndham’s final argument was that "the FTC failed to give fair notice of the specific cybersecurity standards the company was required to follow."²⁵⁷ The court appeared puzzled by Wyndham’s shifting legal arguments regarding what type of notice it was entitled to here, noting seven different positions Wyndham took on appeal.²⁵⁸ The court concluded that Wyndham was not entitled to know with "ascertainable certainty" what cybersecurity practices were required to meet Section 5, and instead focused on whether "Wyndham had fair notice that its conduct could fall within the meaning of the statute."²⁵⁹ The court found the FTC met this requirement handily, given public pronouncements and settlements it had entered into with other companies engaged in lax data security practices.²⁶⁰

In sum, this decision was a "must win" for the FTC, reaffirming its authority to challenge unreasonable cybersecurity practices. It, along with Neiman Marcus, suggests that federal courts are becoming more hospitable to privacy challenges, both by law enforcement agencies and by the private bar.

III. CONCLUSION

The year 2015 will go down in history for its big plaintiff wins in both antitrust and privacy. These decisions also advance the thinking in major areas of antitrust law and privacy law. Full Section 1 rule of reason adjudications, new ground broken in Section 2 monopolization law, and important affirmation of the FTC’s authority in the privacy realm are three key developments that occurred in 2015. All in all, as noted above, it was a year that shows that vigorous antitrust and privacy enforcement remains alive and well in the federal courts.

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Notes:

^1. Regional Director, Western Region, Federal Trade Commission. This Article is based on remarks first delivered at the Golden State Antitrust and Unfair Competition Law Institute on October 29, 2015. The author’s remarks are his own, and do not reflect the views of the Federal Trade Commission, any individual Commissioner, or anyone other than himself.

^2. See F.T.C. v. Steris Corp., No. 15-CV-1080, 2015 U.S. Dist. LEXIS 128470 (N.D. Ohio Sept. 24, 2015).

^3. See, e.g., Gene Crew & Holly Gaudreau, Clayworth v. Pfizer: California Supreme Court Lays Down the Law in Favor of Strict Antitrust Enforcement, 19 Competition 23, 24 (2010) (bemoaning the "U.S. Supreme Court’s steady drift away from strict enforcement of the antitrust laws").

^4. 791 F.3d 290 (2d Cir. 2015).

^5. Id. at 339.

^6. Id. at 335.

^7. Id. at 339-40.

^8. Id. at 340.

^9. Id. at 299.

^10. Id.

^11. Id. at 299, 332.

^12. Id. at 299-300.

^13. The Big Six were reduced to the Big Five with the combination of Random House and Penguin in 2013. See Jane Ciabattari, Now There Are 5, Library Journal (Sept. 3, 2013), http://lj.libraryjournal.com/2013/09/publishing/now-there-are-5/.

^14. Apple Inc., 791 F.3d at 300.

^15. Id.

^16. Id. at 300-01.

^17. Id. at 301.

^18. Id.

^19. Id. at 302.

^20. Id.

^21. Id.

^22. Id. at 303.

^23. Id.

^24. Id. at 304.

^25. Id. at 303-04.

^26. Id. at 304 (internal citations omitted).

^27. Id.

^28. Id.

^29. Id. at 305. Publishers already stood to make less money per sale under an agency model, which would be further compounded if they were forced to sell all ebooks at Amazon’s lowest price. Id. Practically, then, the MFN clause would force publishers to move Amazon to an agency model in order to offset lower short-term profits through greater pricing control and the ability to protect traditional print sales. Id.

^30. Id. (alteration in original) (internal quotation marks omitted) (internal citation omitted).

^31. Id. at 306.

^32. See id. at 306-07. For example, the Apple team reminded publishers that this was a "rare opportunity" to take control over pricing, and one executive directly told one holdout publisher that it "had no choice but to move Amazon to an agency model if it wanted to sign an agency agreement with Apple." Id. (internal citations omitted).

^33. Id. at 308.

^34. Id. (alterations in original) (internal citations omitted).

^35. Id.

^36. Id. at 309.

^37. Id.

^38. Id. at 310, 312.

^39. Id. at 316.

^40. Id.

^41. Id. at 316-17.

^42. See id. at 316, 319.

^43. Id. at 319.

^44. Id. at 320 (alterations in original) (internal citations omitted).

^45. 446 U.S. 643 (1980).

^46. Id. at 650.

^47. Apple, Inc., 791 F.3d at 325-26 (citing Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 4-6 (1979)).

^48. Id. at 325.

^49. Id. at 325-26.

^50. Id. at 326.

^51. Id.

^52. Id. at 331.

^53. Id. at 349 ( Jacobs, J., dissenting).

^54. Id. at 331.

^55. Id. at 332 (quoting Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993)).

^56. Id. at 333.

^57. Id.

^58. 221 F.3d 928 (7th Cir. 2000).

^59. Id. at 930.

^60. 802 F.3d 1049 (9th Cir. 2015).

^61. O’Bannon v. NCAA, 7 F. Supp. 3d 955, 963 (N.D. Cal. 2014).

^62. Id. at 1007.

^63. Id. at 999-1004.

^64. Id. at 1001 ("[Restrictions on student-athlete compensation] might justify a restriction on large payments to student-athletes while in school . . . .").

^65. Id. at 980, 1003.

^66. Id. at 1004.

^67. 10 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1760d, at 387 (3d ed. 2011). Although these comments are actually contained within the treatise’s section on tying law, they are general in nature to any rule of reason analysis and hence applicable to this situation.

^68. 11 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1913b, at 375-76 (3d ed. 2011).

^69. O’Bannon, 7 F. Supp. 3d at 1005.

^70. O’Bannon v. NCAA, 802 F.3d 1049, 1053 (9th Cir. 2015).

^71. Id.

^72. Id. at 1079 (Thomas, C.J., concurring in part and dissenting in part).

^73. See generally Howard A. Shelanski & J. Gregory Sidak, Antitrust Divestitures in Network Industries, 68 U. Chi. L. Rev. 1, 34-35 (2001).

^74. Standard Oil Co. v. United States, 221 U.S. 1 (1911).

^75. 88 F. Supp. 3d 143 (E.D.N.Y. 2015).

^76. Id. at 149.

^77. Id.

^78. See id. at 162-66.

^79. Id. at 151 (noting the rules "prevent[ed] merchants from steering additional charge volume to their least expensive network").

^80. Id. at 163.

^81. See id. at 167-68.

^82. Id. at 168.

^83. Id. at 175.

^84. Id. at 188-90.

^85. Id. at 195-202.

^86. Id. at 191-95. The court called this phenomenon "cardholder insistence." Id. at 191.

^87. Id. at 207.

^88. Id. at 209.

^89. Id. at 150.

^90. Id. at 210.

^91. Id. at 213-14.

^92. See id. at 224-38.

^93. Id. at 225.

^94. Id. at 234.

^95. Id. at 228.

^96. Id. at 236.

^97. See Order Entering Permanent Injunction as to the American Express Defendants, United States v. Am. Exp. Co., No. 10-CV-4496-NGG-RER (E.D.N.Y. Apr. 30, 2015).

^98. 783 F.3d 814 (11th Cir. 2015).

^99. Complaint, In re McWane, Inc., F.T.C. Dkt. No. 9351 (Jan. 4, 2012).

^100. In re McWane, Inc., F.T.C. Dkt. No. 9351 (Jan. 30, 2014), 2014 WL 556261 at *1-2.

^101. Id. at *22.

^102. Id. at *1.

^103. Id. at *21.

^104. Id. at *58.

^105. Id.

^106. Id. at *9.

^107. Id. at *25.

^108. Thomas N. Dahdouh, Restoring Balance in the Test for Exclusionary Conduct, 24 Competition 51, 57 n.34 (2015).

^109. McWane, Inc. v. F.T.C., 783 F.3d 814, 833 (11th Cir. 2015) ("[T]he D.C. Circuit has synthesized a structured, ‘rule of reason’-style approach to monopolization cases that has been cited with approval." (citing United States v. Microsoft Corp., 253 F.3d 34, 58-59 (D.C. Cir. 2001) (en banc))).

^110. See id.

^111. Id.

^112. Id. at 836-37.

^113. Id. at 837 (emphasis omitted) (internal citations omitted).

^114. Id. at 832 ("On this record, we are unprepared to say that Star’s entry and growth foreclose a finding that McWane possessed monopoly power in the relevant market.").

^115. Id. at 838.

^116. Id. at 839.

^117. Id. 838-39.

^118. Id. at 838.

^119. Id.

^120. Id. at 841.

^121. Id. (citing United States v. Microsoft Corp., 253 F.3d 34, 71 (D.C. Cir. 2001) (en banc)).

^122. Id.

^123. Id.

^124. Id.

^125. Id. at 841-42.

^126. 787 F.3d 638 (2d Cir. 2015).

^127. Amended Complaint ¶¶ 1-2, New York v. Actavis, PLC, No. 14-CV-7473-RWS (S.D.N.Y. Dec. 10, 2014). The original complaint called this practice a "forced switch," but the practice has become more colloquially known as "product hopping."

^128. Id. ¶¶ 3-4; see also id. at 67-97.

^129. New York v. Actavis, PLC, No. 14-CV-7473, (S.D.N.Y. Dec. 11, 2014), 2014 WL 7015198 at *12.

^130. Amended Complaint ¶¶ 76-97, Actavis, No. 14-CV-7473-RWS.

^131. Id. ¶¶ 3-4; see also id. ¶¶ 21-27, 71.

^132. Id. ¶ 71.

^133. Actavis, 2014 WL 7015198 at *45.

^134. New York v. Actavis PLC, 787 F.3d 638, 663 (2d Cir. 2015), cert. dismissed sub nom. Allergan PLC v. New York, 136 S. Ct. 581 (2015).

^135. Courts have shown some level of hostility toward second-guessing product design decisions by companies. See, e.g., Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 286 (2d Cir. 1979) ("[A]ny firm, even a monopolist, may generally bring its products to market whenever and however it chooses.").

^136. Id. at 652-54.

^137. Id. at 658 (internal citations omitted).

^138. Id. at 648.

^139. Id. at 654.

^140. 342 U.S. 143 (1951).

^141. Id. at 148-49.

^142. Actavis, 787 F.3d at 659.

^143. Id.

^144. 135 S. Ct. 1101 (2015).

^145. Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).

^146. 471 U.S. 34 (1985).

^147. See id. at 47 ("Once it is clear that state authorization exists, there is no need to require the State to supervise actively the municipality’s execution of what is a properly delegated function.").

^148. Id. (emphasis omitted).

^149. Id. at 46 n.10.

^150. N.C. State Bd. of Dental Examiners v. F.T.C., 135 S. Ct. 1101, 1107 (2015).

^151. Id. at 1108.

^152. Id. at 1109.

^153. Id. at 1117.

^154. Id. at 1110.

^155. Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 106 (1980).

^156. 778 F.3d 775 (9th Cir. 2015).

^157. Id. at 781.

^158. Saint Alphonsus Med. Ctr.-Nampa, Inc. v. St. Luke’s Health Sys., Ltd., Nos. 12-CV-00560-BLW, 13-CV-00116-BLW, 2014 WL 407446, at *1 (D. Idaho Jan. 24, 2014).

^159. Id.

^160. Id. at *26.

^161. Saint Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 793 (9th Cir. 2015).

^162. Saint Alphonsus, 2014 WL 407446, at *6-7; Saint Alphonsus, 778 F.3d at 784. The Ninth Circuit’s decision in turn relied on a recent Sixth Circuit that provides a fuller explanation of this new economic reasoning undergirding proper geographic market and competitive effects analysis in healthcare merger review. ProMedica Health Sys., Inc. v. F.T.C., 749 F.3d 559, 562 (6th Cir. 2014).

^163. See, e.g., California v. Sutter Hosp. Sys., 130 F. Supp. 2d 1109 (N.D. Cal. 2001) (adopting a large geographic market encompassing the San Francisco East Bay all the way to the Central Valley). That decision, along with others, relied on a test originally developed using data from coal and beer markets by Kenneth Elzinga and Thomas Hogarty. Kenneth G. Elzinga & Thomas F. Hogarty, The Problem of Geographic Market Delineation in Antimerger Suits, 18 Antitrust Bull. 45 (1973).

^164. See, e.g., Cory S. Capps et al., Antitrust Policy and Hospital Mergers: Recommendations for a New Approach, 47 Antitrust Bull. 677 (2002). Another problem with that old analysis is that it assumed that, if some patients before a merger are being treated outside an area, more will follow if prices increase. But the evidence shows that patients who are seeking care outside a proposed area are not doing so because of price, but for other reasons, such as that they work outside the area. Therefore, the assumption that others will seek care elsewhere if some have done so is not valid. See id. at 682.

^165. Cory Capps & David Dranove, Hospital Consolidation and Negotiated PPO Prices, 23 Health Afr 175 (2004) (focusing on how mergers can reduce health insurers’ bargaining leverage and lead to higher prices).

^166. Saint Alphonsus, 778 F.3d at 790 (internal citation omitted).

^167. Id. at 791.

^168. Id. at 791-92.

^169. 113 F. Supp. 3d 1 (D.D.C. 2015).

^170. Id. at 15, 20.

^171. Complaint f 1, F.T.C. v. Sysco Corp., No. 15-CV-00256-APM (D.D.C. Feb. 20, 2015).

^172. Sysco Corp., 113 F. Supp. 3d at 21.

^173. Id. at 24.

^174. Id.

^175. Id. at 25.

^176. Id.

^177. Id.

^178. Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).

^179. See Sysco Corp., 113 F. Supp. 3d at 27-30.

^180. Id. at 30.

^181. F.T.C. v. Whole Foods Mkt., Inc., 548 F.3d 1028 (D.C. Cir. 2008).

^182. F.T.C. v. Staples, Inc., 970 F. Supp. 1066 (D.D.C. 1997).

^183. Sysco Corp., 113 F. Supp. 3d at 30-31.

^184. Id. at 32-33.

^185. Id. at 33-37.

^186. Id. at 36-37.

^187. Id. at 38-39.

^188. Id. at 40-43.

^189. Id. at 40.

^190. Id. at 41-43.

^191. Id. at 73.

^192. Id. at 88.

^193. No. 15-CV-1080, 2015 U.S. Dist. LEXIS 128470 (N.D. Ohio Sep. 24, 2015).

^194. United States v. Marine Bancorp., 418 U.S. 602, 639-40 (1974).

^195. F.T.C. v. Atl. Richfield Co., 549 F.2d 289, 300 (4th Cir. 1977).

^196. In re B.A.T. Indus., Ltd., 104 F.T.C. 852, 926-28 (1984).

^197. See Mary Lou Steptoe, Acting Dir., Bureau of Competition, Fed. Trade Comm’n, Remarks before the ABA Section of Antitrust Law, Annual Meeting: Potential Competition and Vertical Mergers: Theories and Law Enforcement Action at the Federal Trade Commission (Aug. 9, 1994) ("[T]he time may be ripe to reexamine what the phrase ‘clear proof’ really means . . . ."). "Clear proof" is closest to the "clear and convincing evidence" standard which has been defined to require a "highly probable" showing, well beyond the usual civil standard of a preponderance of the evidence. Black’s Law Dictionary 674 (10th ed. 2014).

^198. No. 15-CV-1080, 2015 U.S. Dist. LEXIS 128470 (N.D. Ohio Sept. 24, 2015).

^199. Id. at *5.

^200. Id.

^201. Id. at *63-64.

^202. Id. at *9-10.

^203. Id. at *44-54.

^204. Id. at *44-59.

^205. Id. at *60.

^206. 794 F.3d 688 (7th Cir. 2015).

^207. Id. at 690.

^208. Id. at 689-90.

^209. Id. at 693.

^210. Id. (citing In re Adobe Sys., Inc. Privacy Litig., 66 F. Supp. 3d 1197, 1214 (N.D. Cal. 2014)).

^211. Id. at 693 (quoting Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1147 (2013)).

^212. Id.

^213. Id. at 694.

^214. Id.

^215. Id.

^216. Id.

^217. Id.

^218. 693 F.3d, 1317, 1328 (11th Cir. 2012).

^219. Id. at 695.

^220. Id.

^221. Id.

^222. Id. at 695-96.

^223. Id. at 695 (citing Price v. Starbucks Corp., 192 Cal. App. 4th 1136, 1143 (2011)).

^224. Id. (citing People v. United Constr. of Am., Inc., 981 N.E.2d 404, 411 (Ill. App. Ct. 2012)).

^225. Id. at 696-97.

^226. Id. at 696.

^227. Id.

^228. Id.

^229. Id. at 696-97.

^230. Id. at 697.

^231. 799 F.3d 236 (3d Cir. 2015).

^232. Id. at 259.

^233. Id. at 242.

^234. Id. at 241-42.

^235. Id. at 256.

^236. Id. at 244.

^237. 15 U.S.C. § 45(n).

^238. Id.

^239. Wyndham, 799 F.3d at 244 (citing F.T.C. v. R.F. Keppel & Brother, 291 U.S. 304 (1934)).

^240. Id. at 244-45 (citing F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233, 244 n.5 (1972)).

^241. Id. at 245 (internal citation omitted).

^242. Id.

^243. Id. at 245-46.

^244. Id. at 246 n.5.

^245. Id. at 246.

^246. Id.

^247. Id.

^248. Id. at 246-47.

^249. Id. at 246.

^250. Id. at 247.

^251. Id.

^252. Id. at 247.

^253. Id.

^254. Id. at 248.

^255. Id.

^256. Id. at 248-49.

^257. Id. at 249.

^258. Id. at 252-53.

^259. Id. at 255.

^260. Id. at 255-59.