Antitrust and Unfair Competition Law

Competition: Spring 2017, Vol 26, No. 1


By Thomas N. Dahdouh1

2016 was marked by several significant defense victories in conduct cases—particularly in the realm of Sherman Act Section 2 monopolization cases. At the same time, the government’s winning streak in merger challenges continued unabated, although two of those wins required a trip to the appellate court. And for the second time in twenty years, the FTC was able to successfully block the merger of Office Depot and Staples. On the privacy front, the FTC issued an important decision in LabMD, and fallout continues from the Supreme Court’s decision in Spokeo. Below I describe the cases and offer some commentary on the opinions.


In 2010, the DOJ filed complaints against Visa, MasterCard, and American Express over rules they applied to their merchants.3 Visa and Mastercard settled with the DOJ; American Express took the matter to trial. At bottom, the American Express rules prohibited merchants from steering consumers to use non-American Express cards. The rules prevented merchants from offering incentives to use rival cards, indicating preference, and disclosing merchant fees to consumers. The DOJ claimed that the credit card companies’ rules effectively blocked merchants from rewarding lower-cost competitors with increased volume.4 Now, it should be noted that the DOJ did not challenge the rule on mischaracterization of American Express fees or the rule barring fees on Amex transactions. It should also be noted that the lower court had analyzed the credit card rules as vertical restraints under Section 1’s rule of reason , but also viewed these restraints as akin to Section 2 exclusionary practices because they hinder interbrand competition.5 The lower court found for the government.

The Second Circuit reversed.6 According to the appellate court, the trial court improperly looked only at the merchant-side of the market, ignoring the cardholder side.7Viewing both sides of this "two-sided" market changed the direct evidence of market power.8 Two-sided markets, also called two-sided networks, are economic platforms having two distinct user groups that provide each other with network benefits. Two-sided networks can be found in many industries. Examples include credit cards (composed of cardholders and merchants); healthcare (patients and insurers); recruitment sites (job seekers and recruiters); search engines (advertisers and users); and communication networks, such as the internet. The two markets interact and complement each other, creating positive feedback loops: consumers, for example, prefer credit cards honored by more merchants, while merchants prefer cards carried by more consumers.

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According to the appellate court, the evidence of American Express raising prices without losing merchants, which the lower court felt showed market power,9 was really just American Express offering greater rebates and incentives to consumers.10 Similarly, the appellate court felt that the more general evidence that American Express had a "loyal" cardholder base, which the lower court felt also showed market power,11 was, again, just evidence that customers valued American Express cards greatly because American Express offered greater quality.12 Since greater quality is akin to lower prices, the appellate court felt that that evidence did not show market power so much as it showed that American Express was popular with cardholders.13 The problem with this tack is that customer loyalty—an unwillingness to switch—is often evidence of market power.14 Injecting the inherently subjective notion of quality improvements into market power determinations may also not be helpful.

The Second Circuit also noted that a significant percentage of merchants do not use American Express at all, and seemed content that this somehow militated against a finding of market power.15 But, this is a marketplace where price discrimination is possible. It is at least plausible that the credit card companies know which merchants are likely to want the kind of customer that is an American Express cardholder and thus can successfully price discriminate against particular merchant customers. Consequently, the proper inquiry for the market power determination is not what the merchants outside the price discrimination market—the inframarginal ones who are not now accepting American Express—do in the face of a price increase. Rather, it is what the marginal merchants in that market do—the ones who may be utilizing American Express now but may drop off in the face of a price increase.16 One must remember the test for market power is what happens to marginal customers in the face of a price increase—if they stay it is significant evidence of market power.

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Interestingly, the third peg that the lower court had rested a finding of market power on, American Express’s 26.4% market share, was not rejected out of hand by the appellate court as possibly showing market power.17 This is true as a matter of analysis—proof of actual effects can serve as an alternative proof of market power even where a defendant’s market share is not so impressive.18 But the Second Circuit felt that that level of market share alone could not itself support a finding of market power, given the problems with the lower court’s other findings on market power.19

At times, the Second Circuit’s market power section reads as if it were not just talking about market power, but also balancing the anticompetitive potential of the restraints at issue against the asserted business justifications.20 Under the rule of reason, the test is whether a restraint is likely to have anticompetitive effects and, if so, whether the restraint is reasonably necessary to achieve procompetitive benefits that outweigh those anticompetitive effects. But that inquiry is very different from the market power test. Consequently, much of the Second Circuit’s market power section may be criticized for mixing up two inquiries that really ought to remain separate. For example, at one point in the market power discussion, the court appears to suggest that determining whether American Express has market power might somehow "disturb the present functioning of the payment-card industry."21 The court states, "[w]e conclude that, so long as Amex’s market share is derived from cardholder satisfaction, there is no reason to intervene and disturb the present functioning of the payment-card industry."22 Whether a particular practice is on balance anticompetitive is a separate inquiry from whether a company has market power. In other words, a company can have market power, but its practices may in fact not be anticompetitive. The Court of Appeals appears to be conflating the two inquiries.

There is also a telling footnote in the opinion about how barring American Express from enforcing these rules could reduce American Express’ market share.23 The Second Circuit strayed from its proper focus in the market power section. While the possibility of reduced market share is definitely relevant to a rule of reason balancing analysis, it is not a proper subject for the market power analysis. Market power analysis ought not be a value-laden exercise—it is an objective determination of whether or not a company has "power over price"—that is, the ability to raise price without significant loss so as to render the price increase unprofitable or the power to exclude competition.24

Next, the Second Circuit chided the district court for focusing too much on higher prices for merchants.25 According to the Second Circuit, the lower court needed to also consider benefits to cardholders.26 But, even in this regard, there are telling red flags that do not jibe with the Second Circuit’s conclusion that American Express does not have market power. Indeed, the Second Circuit concedes that the district court was correct that higher prices to merchants were not passed through 100% to cardholders in the form of benefits.27 As the court noticed, "the record suggests—and Amex conceded at oral argument—that not all of Amex’s gains from increased merchant fees are passed along to cardholders in the form of rewards."28 The absence of a full pass-through is striking evidence against the Second Circuit’s conclusion that American Express does not have market power. But, since the appeals court says that it is plaintiff’s burden to show how the practice in question raised prices to all consumers—both cardholders and merchants, DOJ lost.29

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The court may have unnecessarily muddied the analytical waters by conflating market power analysis with the rule of reason balancing test. By doing so, it has raised questions about whether any market participant in a two-sided market could ever have market power. And that in turn raises some questions about whether this decision is going to be used to greenlight exclusionary conduct in two-sided markets. Healthcare, for example, has similar two-sided markets with the actual decision-maker (consumer) divorced from the actual payor (insurance companies/businesses). Payors have often sought to steer patients to lower cost providers by, for example, lowering copays for those lower cost providers or otherwise encouraging patients to use them. Payors will employ "tiered networks," and place lower-cost providers in the top tier, where patient copays are lower. These efforts have generally been thought of as procompetitive for the very reason that DOJ brought the American Express case—steering by customers is generally procompetitive because it increases interbrand competition. More recently, however, some providers have sought to restrict payors’ ability to steer patients. Just last year, the Department of Justice sued the Carolinas HealthCare System, alleging that the anti-steering rules that it imposed on payors violated Section 2.30 And, in that litigation, defense counsel has filed supplemental briefing on a motion to dismiss asserting that the Second Circuit’s decision in American Express requires dismissal of DOJ’s complaint.31


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In this case, the Third Circuit took a decisive step back from its aggressive approach to de facto exclusive dealing—particularly so-called "loyalty discounts."33 In LePage’s Inc. v. 3M, the Third Circuit held that a 3M loyalty rebate program, which provided above-cost price discounts to customers who purchased a bundled group of products, violated Section 2 of the Sherman Act.34 Prior to LePage’s, some thought that a loyalty discount scheme that remained above price could never violate the antitrust laws. Then, in United States v. Dentsply, the Third Circuit found violative of Section 2 Dentsply’s unwritten, but strongly adhered to rule, that its distributors could not carry competing products.35 Because Dentsply had agreements with key distributors, the Court found that its rules violated Section 2, even though the agreements were unwritten and there was no evidence of enforcement.36 Finally, in ZF Meritor, LLC v. Eaton Corp., the court condemned market share and related discounts and rebates for the defendant’s heavy-duty truck transmission products.37 In all these cases, the Third Circuit has led the way in rejecting formulaic "one-size-fits-all" tests for Section 2 exclusive dealing in favor of a fact-based inquiry into the procompetitive and anticompetitive effects of de facto exclusive dealing. In my article, Restoring Balance in the Test for Exclusionary Conduct, I argue that formulaic "one-size-fits-all" tests do not encompass the multitude of potentially anticompetitive practices by monopolists and are likely to bless clearly anticompetitive conduct.38

This most recent decision, Eisai v. Sanofi-Aventis, involves Lovenox—an injectable anticoagulant—that was marketed with "cliff" type discounts that rose the higher the percentage the hospital or GPO was purchasing of Lovenox via-a-vis other anticoagulants.39 According to the plaintiff, it was hard to switch out this drug because Lovenox was necessary for certain type of cardiac situations.40 Plaintiff alleged that Sanofi-Aventis required customers to enter into anti-steering provisions.41 That is, GPOs and hospitals also had to agree not to steer patients away from Lovenox by using restrictive formulary practices. It is interesting that this is the second conduct case involving anti-steering provisions to be decided in 2016. Finally, plaintiff alleged that Sanofi-Aventis ran a "fear, uncertainty, and doubt" campaign to undermine Eisai’s rival product, Fragmin.42 According to plaintiff, Sanofi-Aventis paid doctors to write articles raising concerns about rival product, Fragmin.43 Plaintiff alleged that these discounts, along with the other restrictions and conduct noted above, were exclusionary and violated Section 2.44

The Third Circuit ruled for the defendant.45 The Court discounted evidence of a "few dozen" out of 6000 hospitals that said they wanted to buy more Fragmin, but could not because of the program.46 The court felt this percentage was too small.47 As I noted in my article, Restoring Balance in the Test for Exclusionary Conduct, "Intermediate distributors will often say that the contracts were ‘sleeves off a vest’ in that their behavior would not have been different, even without the contracts. . . . [But] it is virtually impossible for anyone . . . to predict what would have happened but for the monopolist’s exclusionary conduct. It is no more relevant for the final analysis whether [intermediate distributors] testify as to what they think they would have done without the contracts in place. This kind of ‘Monday morning quarterbacking’ is precisely why the D.C. Court of Appeals in United States v. Microsoft warned against placing a heightened causation requirement into monopolization law."48 Rather, the D.C. Circuit held that it is sufficient that the plaintiff show that the conduct reasonably appears capable of making a significant contribution to the creation or maintenance of the company’s monopoly position.49

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The Court of Appeals also discounted the analysis of plaintiff expert Einer Elhauge. 50 His report described how the discounts foreclosed competition because many buyers had to buy Lovenox due to the drug’s unique profile for cardiology care.51 The court thought there were no barriers to a rival getting FDA approvals for cardiology care.52 According to the court, an "equally efficient" rival could have done it.53 Then again, we have learned that rivals to monopolists often are not equally efficient precisely because they are running up against a monopolist. As I have previously written, "it is rare that, in a problematic market, a rival to a monopolist (with seventy plus percent market share) will enjoy the same economies of scale and scope as the monopolist. Exclusionary conduct can foreclose a significant part of the market (for example, the most efficient distribution channels) while leaving the hypothetical equally efficient competitor with enough theoretical space to compete. . . . [T]he proper test is not whether there is sufficient room for a rival to somehow survive, but rather whether there is space for the rival to pose a serious threat to the defendant’s monopoly."54

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In perhaps the most worrisome part of the opinion, the Third Circuit attempted to distinguish its previous cases on loyalty discounts.55 The court said LePage was just about bundled products where the monopolist is tying products that it alone makes with ones where it faces rivalry.56 Here, by contrast, the court said, the focus of anticompetitive concern is about one product only.57 The court also distinguished ZF Meritor and Dentsply.58 According to the court, those cases were about situations where the loss of the discounts could imperil supply.59 Here, the buyer just lost the discounts—there was no threat to cut supply.60 While there is some evidence in those two cases that the loss of discounts could imperil supply, and certainly "muscling" type allegations do up the ante in showing that a monopolist’s conduct was exclusionary, it is not clear that that was the deciding factor in finding those contracts exclusionary. Indeed, in the Intel case,61 the Federal Trade Commission found suspect the significance of the minimum share discounts involved—so-called "all unit" discounts that were so large that relatively miniscule reductions in purchases could result in the loss of all the discounts.62 Economic analysis explains that discounts that apply to all of the units that the buyer has purchased if and only if the buyer has met its volume or market share target can create a powerful incentive to meet or exceed the share target.63 The Commission sought to challenge Intel’s rebate programs even though there was no evidence that Intel had ever threatened an OEM’s supply.64

Another interesting aspect of the decision is that the evidence of Sanofi-Aventis paying doctors to write articles raising doubts about Fragmin is never mentioned by the court.65 Deception is the type of "cheap exclusion" that may lead to anticompetitive effects.66 Exclusionary practices that are both inexpensive to undertake and incapable of yielding any cost-reducing efficiencies are "cheap" in both senses of that term and are most likely to appeal to a firm bent on maintaining market power by anticompetitive means.67 So what happened to the evidence of "fear, uncertainty and doubt"?

One saving grace in this opinion is that the court refused to apply Brooke Group to summarily dismiss claims where there is no evidence of below-cost pricing.68 In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp, the Supreme Court held that predatory pricing allegations required a showing of prices below Average Variable Cost ("AVC") during the predation period as well as proof that the predator will likely recoup any lost profits thereafter.69 But, this test does not apply to claims of exclusion from loyalty discount contracts because the focus there should properly be on the foreclosing effect of those contracts, not on the price level set by the discounts.70 The Third Circuit rightly rejected this approach, which would, in essence, end any possible challenge to loyalty discounts.

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In 2015, the Second Circuit, in New York v. Actavis PLC, found "product hopping" unlawful as Section 2 monopolization.72 In that matter, the New York State AG’s office alleged that the defendant withdrew its previous version of Namenda, a drug used to treat Alzheimer’s, and replaced it with an extended release version in order to thwart generic competition.73 (Under Hatch-Waxman, generics can rely on a name-brand drug company’s original NDA approval to gain faster, less costly FDA approval of a generic version.).74

As I wrote in my article last year, 2015: A Year of Big Plaintiff Wins in Antitrust and Privacy Cases, the Actavis decision was a stunning result.75 Challenges to product design changes as exclusionary conduct have generally not fared well in court—and for good reason. Courts have generally shown a high level of hostility to second-guessing product design decisions by companies.76 However, the Second Circuit had plenty of evidence in Actavis that the legitimate explanations for withdrawing its old product were pretextual.77

As in the Actavis case, plaintiff Mylan alleged that Warner engaged in a pattern of changes allegedly to thwart generic competition in Doryx, a tetracycline used to treat severe acne.78 Warner switched from capsule to tablet, then developed larger dose tablets, and then "scored" the tablets.79 Here, though, the Third Circuit ruled for the defendant and, furthermore, expressed serious concerns about courts getting involved in assessing product design changes.80 Why was this situation different?

First, the Third Circuit found a broad market, undercutting any notion that the defendant here had monopoly power.81 The court found a broad market of oral tetracyclines used for acne.82 It credited evidence that, as Doryx’s prices went up, its sales went down and other tetracycline sales went up.83 It also engaged in price promotions at times in competition with other oral tetracyclines used for acne.84 There is some concern that the Third Circuit may have missed the mark here in setting such a broad product market. In particular, the Court may have incorrectly applied the "hypothetical monopolist" test. That test generally looks at the ability of the defendant to impose a small but significant and non-transitory increase in price ("SSNIP").85 This test necessarily starts with the monopolist’s product and then adds competitors if and only if the evidence shows that a SSNIP of 5% by the monopolist would be defeated by existing competitors.86 As the Merger Guidelines warn, "[b]ecause the relative competitive significance of more distant substitutes is apt to be overstated by their share ofsales, when the Agencies rely on market shares and concentration, they usually do so in the smallest relevant market satisfying the hypothetical monopolist test."87 Here, by contrast, the Third Circuit did not start at the narrowest product market and work out from there; nor did it focus on the ability of the monopolist to raise price by a SSNIP successfully. Instead, it focused on the fact that there was a correlation between the prices that Doryx charged and the prices that other oral tetracyclines for acne charged.88 A correlation, however, is simply not enough to determine a proper relevant product market. There is always some interrelation between closer and more distant competitors but that does not set the proper delineation of a relevant product market.

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Once the court found a broad product market, Warner’s resulting 18% market share was insufficient to show monopoly power.89 The court also rejected plaintiff’s expert’s opinion on direct evidence of monopoly power, insisting that it would want to see evidence of an abnormally high price-cost margin.90

In the better supported part of the opinion, the court went on to find Warner’s business justifications for the product design changes non-pretextual.91 The capsule version had resulted in esophageal problems and shelf-stability issues.92 "Scoring" allowed patients to cut capsules in half.93 Both of these are clearly valid business justifications to make the design changes that Warner made.

Finally—and just as importantly, the court expressed concern about federal courts being turned into "innovation sufficiency tribunals."94 This concern about federal courts being required to second-guess product design changes is legitimate. It is for this reason that product design monopolization challenges rarely succeed. The court also faulted plaintiff for failing to market a generic of the capsule for 20 years, and, once it got a generic of the tablet launched, selling it for prices above defendant’s branded prices.95

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This multi-district litigation began in 2005 when plaintiffs brought suit against China’s four main Vitamin C producers and an affiliate.97 The defendants were accused of fixing the prices and volume of Vitamin C producers exported from China to the United States and worldwide.98 After a three week trial, a jury in the Eastern District of New York returned a $54 million verdict against two Chinese Vitamin C producers. This verdict was trebled to $162 million.99

On appeal, the Second Circuit reversed, finding that the lower court should have abstained because of objections from the Chinese Government.100 As the Court noted, "because the Chinese Government filed a formal statement in the district court asserting that Chinese law required Defendants to set prices and reduce quantities of vitamin C sold abroad, and because Defendants could not simultaneously comply with Chinese law and U.S. antitrust laws, the principles of international comity required the district court to abstain from exercising jurisdiction in this case."101

The court in its opinion listed several possible qualifiers or limitations to its decision’s applicability to other contexts. The Court emphasized that the Chinese Ministry of Commerce had provided a sworn statement in support and filed an amicus brief in support of the motion to dismiss, apparently a first by the Ministry before a United States court.102 The court noted that Chinese export policies could have been addressed through World Trade Organization processes—and indeed the USTR had done exactly that in 2002. The court emphasized that the Chinese government had expressed deep dissatisfaction with the lower court’s ruling and that the case had adversely affected US-Chinese relations.103 The Court noted that there is no evidence that "[d]efendants acted with the express purpose or intent to affect U.S. commerce or harm U.S. businesses in particular."104

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The Second Circuit in this matter reversed dismissal of a suit claiming that sixteen of the world’s largest banks colluded to depress the LIBOR.106 LIBOR stands for the London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world.107 Plaintiffs alleged a horizontal price-fixing conspiracy.108 The district court had dismissed for failure to plead anticompetitive harm.109 The Court of Appeals rightly reversed, noting that price-fixing is a per se offense, and, hence, no showing of anticompetitive harm is necessary.110


This is the second win in a row for the FTC in challenging a merger based on a narrow "price discrimination" market definition. In FTC v. Sysco Corp.,112 the FTC successfully alleged a product market of broadline food service distribution services sold to national customers. 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.113

This action involved a challenge to the merger of the two largest business-to-business office supply vendors in the United States, Staples and Office Depot/Office Max.114 As with the Sysco lawsuit, the FTC alleged that, for large businesses with multiple locations across the country, Staples and Office Depot/Office Max were the only two suppliers of office consumables able to meet their needs.115 Interestingly, as in Sysco, the court largely found the narrow market alleged by the FTC, but did so on the basis of the qualitative factors set forth in the Supreme Court’s decision in Brown Shoe Co. v. United States.116

The court found a "cluster" market of consumable office supplies to business customers, using the Brown Shoe factors.117 According to the court, the evidence showed that larger businesses relied on these two companies for their office consumables.118 The court further found that Staples and Office Depot together held 79% of this market.119 According to the court, bidding data showed heavy head-to-head competition, as did internal documents.120 The court found that regional players were too small to handle needs of national buyers, and that Amazon’s relatively new "Amazon Business" service was too inexperienced in RFP process.121 Consequently, for the second time in two years, courts have upheld the FTC’s narrower "price discrimination" product market, but on the basis of the Brown Shoe factors rather than on an explicit adoption of the Merger Guidelines’ price discrimination product market test.122

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2016 saw two district court losses for the FTC that were quickly reversed at the appellate level. Both district court losses came about because, in one way or another, the district court judge followed "old school" healthcare merger law. In both cases, the appellate courts reversed, firmly adhering to the FTC’s new way of viewing healthcare mergers.

In the 1990’s and early 2000’s, the FTC and other government antitrust law enforcers lost many merger challenges because the district courts adopted broad geographic markets. A now classic example is California v. Sutter Hospital System, where the court adopted a geographic market encompassing the San Francisco East Bay all the way to the Central Valley.125 That decision and others relied on a test originally developed using data from coal and beer markets by Kenneth Elzinga and Thomas Hogarty.126 This test focused on patient inflow and outflow data. The problem is that healthcare markets do not behave like beer and coal distribution systems. This analysis 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. Indeed, an FTC retrospective analysis demonstrated anticompetitive price increases from mergers that courts refused to enjoin.127

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As the court decisions described below explain, a key insight into modern analysis of geographic markets in healthcare combinations is that insurers, not individual consumers, are the price-setting bargaining entities. 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 larger 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.

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 more important a provider is to an insurer, the more bargaining power or leverage that provider has. This insight profoundly shifts the analysis from patient flow to the negotiating strength of a firm before and after a merger. And it changes the geographic market and competitive effects analysis.

Penn State Hershey Medical Center: In this matter, the FTC challenged a merger of the two largest hospital systems in Harrisburg, Pennsylvania—Hershey and Pinnacle.128 The district court had denied a preliminary injunction, relying on "old school" theories of geographic market/competitive effects.129 The Third Circuit reversed.130 It found that the district court erred in focusing on the likely response ofpatients to a price increase, completely neglecting any mention of the likely response of insurers.131 The court chided the lower court for falling into the "silent majority fallacy"—just because patients are now traveling from outside the geographic area does not mean that they affect the prices that those unwilling to travel pay.132 Rather, patients use services based on non-price factors such as location and quality.133 The court also faulted the lower court for falling into the "payor problem"—the lower court ignored fact that insurance companies are the true payors.134 If they cannot steer Harrisburg residents outside the geographic area, then those areas outside are not in a relevant geographic market.135 The payors repeatedly said that they could not successfully market a plan in the Harrisburg area without Hershey and Pinnacle.136 In fact, one payor that attempted to do just that (with Holy Spirit, a Harrisburg-area hospital) lost half of its membership.137

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It also found fault in the district court’s reliance on private agreements between the hospitals and two insurers as obviating any likelihood of harm from the merger.138 The court, like the Ninth Circuit in Saint Alphonsus Medical Center—Nampa, Inc. v. St. Luke’s Health System, Ltd.,139 expressed skepticism about the likelihood of an efficiencies defense.140 The court required that efficiencies be "merger specific" (the efficiencies can only be achieved through a merger and not other less restrictive arrangements, such as joint venturing or contracting), "verifiable" (concrete and not speculative), and "cognizable" (procompetitive).141 The court found Hershey’s argument that the deal would allow it to forego building a 100-bed tower to alleviate a capacity constraint too speculative, since the evidence was not clear it was necessary, and in and of itself an output reduction, and thus not cognizable.142

Advocate HealthCare Network: In this matter, the FTC challenged the merger of two hospital systems in Chicago’s northern suburbs.143 The lower court denied a preliminary injunction, finding that some patients were willing to travel outside the northern suburbs, which was the locus of the FTC’s proposed geographic market.144 The Seventh Circuit reversed in an opinion that goes through at some length how the FTC, courts and economists have honed their understanding of geographic markets in healthcare.145 At bottom, the court credited testimony from insurers that "it would be difficult or impossible to market a network to employers in metropolitan Chicago that excludes both NorthShore and Advocate."146 Evidence in the case showed that "no health insurance product [had been] successfully marketed to employers in Chicago without offering access to either NorthShore hospitals or Advocate hospitals."147 The combination of the two entities would thus increase its bargaining leverage over insurers, leading to higher prices.148

The lower court also had criticized the FTC’s proposed market because it had excluded academic medical centers.149 The Court of Appeals disagreed, finding that the evidence consistently supported the notion that academic medical centers were viewed as significantly different from local community hospitals.150 Finally, the Court of Appeals remanded the matter back to the district court for further proceedings.151

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Judge Andre Birotte, a well-respected former United States Attorney for the Central District of California, granted the DOJ’s request for a temporary restraining order preventing the owner of the Los Angeles Times from acquiring the Orange County Register and Riverside County Press-Enterprise in a bankruptcy auction.153 The judge found a relevant product market of English-language daily local newspapers in Orange and Riverside Counties as well as advertising in those newspapers.154 In doing so, the court rejected defendants’ argument that Internet-based sources of local news and advertising constrain local newspapers because defendants’ evidence relied on Internet-based aggregators, not content creators.155 Using this product market, the court found that the deal would have resulted in Tribune controlling some 98 percent of local newspaper daily circulation in Orange County and 81 percent in Riverside County.156

There is an interesting discussion distinguishing dicta in Reilly v. Hearst Corp.,157 where the Northern District had questioned whether daily newspapers could be considered a relevant product market distinct from Internet-based news.158 Although the Northern District in that case had questioned whether daily newspapers could be considered a standalone product market separate from Internet-based sources, Judge Birotte felt comfortable in finding a narrower product market, because, as noted above, much of the Internet-based content was produced by aggregators, not content creaters.


In a unanimous opinion issued July 2016, the Federal Trade Commission ruled that LabMD, a Georgia-based clinical testing laboratory, had violated the FTC Act by having inadequate computer security for records containing protected health information (PHI) and sensitive personally identifiable information (PII).160 The matter is now on appeal to the Eleventh Circuit, which recently granted a stay of the order.161

According to the FTC, LabMD’s security practices were unreasonable, lacking even basic precautions to protect the sensitive consumer information maintained on its computer system: 1) failing to use an intrusion detection system or file integrity monitoring; 2) neglecting to monitor firewall traffic; 3) failing to provide data security training to its employees; and 4) failing to delete any of the 750,000 patient records it had collected between 2008 and 2014, including records culled from its physician-clients’ databases despite never having performed testing for those patients.162

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The FTC believed Section 5 of the FTC applies in this instance. In order to allege that a practice is "unfair" under its statute, the FTC must show that it is "likely" to cause substantial consumer injury.163 The Commission was faced with the question of whether there was likely substantial consumer injury when there was no evidence of actual use of the highly personal information.164 The FTC ruled that a showing of "significant risk" of injury is sufficient to satisfy the "likely to cause" standard set forth in the Act.165 The Commission emphasized that the focus on the likelihood that the practice will cause harm is at the time the practice occurred, not on the basis of actual future outcomes.166 The Commission noted that consumers typically have no way of finding out that their personal information has been part of a data breach.167 The Commission also emphasized that Congress intended to give the Commission the power to address potential harmful practices in their incipiency.168 Indeed, the legislative history of the Federal Trade Commission clearly shows that Congress intended the FTC to have the power to stop harmful practices in their incipiency.169 As the Commission put it, "[w]e need not wait for consumers to suffer known harm at the hands of identity thieves."170


Article III Standing Issues Generally:

Privacy class actions have struggled to overcome one key defense—the claim that the plaintiffs do not have standing because they cannot show injury. Article III’s "case or controversy" language requires (1) Injury in fact; (2) Fairly traceable to the defendant’s conduct; and (3) Capable of redress by the courts.171 Earlier decisions dismissed data-breach privacy suits for lack of standing, finding the potential for harm from data breaches too speculative, but, more recently, courts have found injury sufficiently pled. Or, as Judge Koh put it in In re Adobe Systems, Inc. Privacy Litigation: "[W]hy would hackers target and steal personal customer data if not to misuse it?"172

In Remijas v. Neiman-Marcus Group, LLC, the Seventh Circuit overturned a district court’s dismissal of a class action brought against Neiman Marcus, the high-end retailer, for allegedly unreasonable data security practices that allowed hackers to obtain consumers’ financial information.173 The Court found that the class could show "injury-in-fact" and thus had standing to sue.174 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.175 Following the Adobe decision from this past September in the Northern District of California, the Court found, as the Adobe court did, 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."176

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In dicta, though, the Court rejected two other theories of injury. First, it rejected an "overcharge" theory because the store failed to invest in an adequate security system.177 In this regard, the Court seemed to disagree with Resnick v. AvMed, Inc.178 The court also rejected a theory that consumers have a property right to their personal information, finding no such right under federal or state law.179 The Court also found that the class had pled causation and redressability sufficient to meet all three requirements for Article III standing.180 While other stores had experienced similar breaches during the same time period, it was certainly plausible that the plaintiffs’ injuries stemmed from the Neiman breach.181 The Court rejected the notion that reimbursement for fraudulent charges obviates any redressability claim, noting that the consumers have not been reimbursed for mitigation expenses (credit monitoring) or future injuries.182 The Court also noted that credit and debit card issuers have limitations on when they will reimburse for fraudulent charges.183 The Seventh Circuit recently reaffirmed this view.184

In Galaria v. Nationwide Mutual Insurance Co., the Sixth Circuit reached a similar holding.185 This matter involved a 2012 data breach at an insurance company.186 Plaintiffs’ allegations of "a substantial risk of harm, coupled with reasonably incurred mitigation costs [i.e. purchasing credit report and monitoring services, reviewing bank statements and similar information, instituting credit freezes or modifying financial accounts], are sufficient to establish a cognizable Article III injury at the pleading stage of the litigation" under Spokeo.187 "[A]lthough it might not be ‘literally certain’ that Plaintiffs’ data will be misused . . . [w]here Plaintiffs already know that they have lost control of their data, it would be unreasonable to expect Plaintiffs to wait for actual misuse—a fraudulent charge on a credit card, for example—before taking steps to ensure their own personal and financial security . . ."188 The Sixth Circuit noted that its decision may create a circuit split with the Third Circuit, which held in Reilly v. Ceridian Corp.189 that the mere increased risk of identity theft does not create Article III standing.190

[Page 114]

Article Three Standing Issues for Statutory Violations: The Impact of the Supreme Court’s Spokeo decision: Spokeo Inc. v. Robins191

For statutes that fix statutory damages—most importantly in the privacy arena, the Fair Credit Reporting Act—the issue is whether the availability of statutory damages alone gets a plaintiff past the standing requirement. Plaintiff claimed that Spokeo, a people search engine, reported incorrect information about him.192 Plaintiff claimed an FCRA violation on behalf of a class of victims.193 This could entitle him and the other class members up to $1,000 for each alleged FCRA violation on behalf of the class.194 Spokeo had disclaimers on its website that it was not a credit reporting agency. But remember that the definition of a credit reporting agency subject to FCRA revolves not just around what the company says it is. If a company advertises its services so that it is reasonable to expect that its customers are using the information for one of these purposes—credit, employment, insurance, rental—(or if the company knows customers are using the information for one of these purposes), the company may fall within the definition of a credit reporting agency and the requirements of FCRA.195

The Ninth Circuit had held that a "violation of a statutory right is usually a sufficient injury in fact to confer standing."196 But the Supreme Court reversed and remanded.197 According to the Court, an "injury-in-fact" sufficient to confer standing under Article III must be both "concrete and particularized."198 "Concrete" means "’real,’ and not ‘abstract’" but is not "necessarily synonymous with tangible."199 Post-Spokeo, it is no longer sufficient to "allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III."200

[Page 115]

Defendants are now raising Spokeo challenges to privacy suits brought under state and federal laws. Here are some examples of recent lower court decisions that show different ways lower courts are analyzing this issue:

  • Video Privacy Protection Act:201 One lower court held that a violation of the VPPA on its own constitutes a concrete, cognizable injury under Spokeo.202
  • Cable Communications Policy Act:203 Another lower court held that retention of personally identifiable information (including address, telephone number, and SSN) beyond the statutorily-prescribed time period was a bare procedural violation where there was no allegation that the PII was disclosed, used, or accessed by a third party.204

These two decisions suggest that courts will look to pre-Spokeo case law to determine whether a statute created a procedural versus a substantive right. Where the court believes that the statute is merely a "procedural" right, it will scrutinize the allegations closely for claims of concrete injury. But where the statute creates a substantive rights, courts will accept complaints with no further evidence of concrete injury. This area is evolving, however, and a further appeal to the Supreme Court is likely.


This case concerns Google’s actions in circumventing web browser "cookie blockers."206 Cookies—particularly third party cookies—are used by advertising companies to help create detailed profiles on individuals.207 Both Microsoft’s and Apple’s browsers gave users the ability to either refuse all cookies or to indicate when a cookie was being sent.208Google, however, had discovered loopholes in those browser’s cookie blockers that allowed it to continue placing cookies on browsers.209 Google took these actions despite explicitly stating in its Privacy Policy that users "can reset your browser to refuse all cookies or to indicate a cookie is being sent."210 Google settled with the FTC on federal charges related to this situation, paying a $22.5 million settlement.211 The Third Circuit dismissed nearly all state and federal law claims, except the California Constitution claim relating to invasion of privacy and state tort law.212

[Page 116]


2016 will be remembered for some remarkable wins for the defense on the conduct side, but also for several strong decisions for federal law enforcers in the merger area. On the privacy side, the law is clearly developing, but is very much in a "stay tuned" mode.

[Page 117]



1. Regional Director, Western Region, FTC. The views expressed herein are my own and do not represent the views of the Commission, any Commissioner or anyone else for that matter. This article is adapted from a presentation delivered at the Golden State Antitrust, Unfair Competition and Privay Law Institute on November 3, 2016 and reflects developments as of that date. I want to thank Roberta Tonelli for assisting me in the preparation of this article.

2. 838 F.3d 179 (2d Cir. 2016).

3. United States v. Am. Express Co., 88 F. Supp. 3d 143 (E.D. N.Y. 2015), rev’d, 838 F. 3d 179 (2d Cir. 2016).

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

5. Id. at 167-68.

6. Am. Express, 838 F.3d at 184.

7. Id. at 197.

8. Id. at 200-04.

9. Am. Express, 88 F. Supp. 3d at 195-202.

10. Am. Express, 838 F.3d at 202-03.

11. Am. Express, 88 F. Supp. 3d at 191-95 (the court called this phenomenon "cardholder insistence").

12. Am. Express, 838 F.3d at 202-04.

13. Id. at 204.

14. K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 129 (2d Cir. 1995).

15. Am. Express, 838 F.3d at 203-04.

16. See FTC Horizontal Merger Guidelines, §4.1.4 (Product Market Definition with Targeted Customers) (2010).

17. Am. Express, 838 F.3d at 200 n.47.

18. See Toys "R" Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000) (finding market power through evidence of actual effects even though defendant had a market share in the 20% range).

19. Am. Express, 838 F.3d at 200-04.

20. Id.

21. Id. at 204.

22. Id.

23. Id. at 204 n.51.

24. Graphic Prod. Distrib., Inc. v. Itek Corp., 717 F.2d 1560, 1570, 1572 n.20 (11th Cir. 1983).

25. Am. Express, 838 F.3d at 204-06.

26. Id.

27. Id. at 205.

28. Id.

29. Id.

30. Complaint, United States v. The Charlotte-Mecklenburg Hosp. Auth., No. 3:16cv311 (W.D.N.C. June 9, 2016).

31. Defendant’s Supplemental Memorandum, The Charlotte-Mecklenburg Hosp. Auth., No. 3:16cv311 (W.D.N.C. Sept. 26, 2016).

32. 821 F.3d 394 (3d Cir. 2016).

33. Id. at 408-09.

34. 324 F.3d 141, 157 (3d Cir. 2003) (en banc).

35. 399 F.3d 181, 184 (3d Cir. 2005).

36. Id. at 191-96.

37. 696 F.3d 254 (3d Cir. 2012).

38. Thomas N. Dahdouh, Restoring Balance in the Test for Exclusionary Conduct, 24 Competition: J. Anti. & Unfair Comp. L. Sec. St. B. Cat. 51, 51-52 (Spring 2015).

39. Eisai, 821 F.3d at 399-401.

40. Id. at 400-01.

41. Id. at 400.

42. Id. at 400-01.

43. Id. at 401.

44. Id.

45. Id. at 410.

46. Id. at 404.

47. Id.

48. Dahdouh, supra note 38, at 66 n.75 (citing United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001)).

49. Microsoft, 253 F.3d at 79.

50. Eisai, 821 F.3d at 404-07.

51. Id. at 404-05.

52. Id. at 406.

53. Id.

54. Dahdouh, supra note 38, at 64 (emphasis in original).

55. Eisai, 821 F.3d at 405-07.

56. Id. at 405.

57. Id. at 405-06.

58. Id.

59. Id. at 406.

60. Eisai, 821 F.3d at 406-07.

61. In re Intel Corp., 128 F.T.C. 213 (1999).

62. Dahdouh, supra note 38, at 53, 53 n.20 (referencing In re Intel Corp., 128 F.T.C. 213).

63. Id. at 53 n.20.

64. Id. at 53 (referencing In re Intel Corp., 128 F.T.C. 213).

65. Eisai, 821 F.3d at 401.

66. Dahdouh, supra note 38, at 53.

67. Id.

68. Eisai, 821 F.3d at 408.

69. 509 U.S. 209, 222-23 (1993).

70. Dahdouh, supra note 38, at 58.

71. 838 F.3d 421 (3d Cir. 2016).

72. 787 F.3d 638, 659 (2d Cir. 2015).

73. Id. at 649.

74. Id. at 644.

75. Thomas N. Dahdouh, 2015: A Year of Big Plaintiff Wins in Antitrust and Privacy Cases, 25 Competition: J. Anti. & Unfair Comp. L. Sec. St. B. Cat. 51, 52-54 (Spring 2015).

76. 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.").

77. Dahdouh, supra note 75, at 51-52.

78. Mylan, 838 F.3d at 431.

79. Id. at 429-31.

80. Id. at 440-41.

81. Id. at 431.

82. Id.

83. Id. at 437.

84. Id.

85. U.S. Dep’t Of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines, § 4.1.1 (2010) [hereinafter MERGER GUIDELINES], available at

86. Id. at § 4.1.2.

87. Id. at § 4.1.1 (emphasis added).

88. Mylan, 838 F.3d at 437.

89. Id. at 437-38.

90. Id. at 434-35.

91. Id. at 438-41.

92. Id. at 439.

93. Id.

94. Id. at 440-41.

95. Id. at 438-39.

96. 837 F.3d 175 (2d Cir. 2016).

97. Id. at 179.

98. Judgment, In re Vitamin C Antitrust Litig., No. 05-CV-0453 (E.D.N.Y. Mar. 14, 2013).

99. Id.

100. In re Vitamin C Antitrust Litig., 837 F.3d at 179.

101. Id.

102. Id. at 180-81, 186, 189.

103. Id. at 193-94.

104. Id. at 193.

105. 823 F.3d 759 (2d Cir. 2016).

106. Id. at 765.

107. Id.

108. Id. at 766.

109. Id. at 770.

110. Id. at 771.

111. 2016 U.S. Dist. LEXIS 84444, 2016-1 Trade Cas. (CCH) f 79,626 (D.D.C. May 10, 2016).

112. 113 F. Supp. 3d 1, 37 (D.D.C. 2015).

113. Id. at 38-39 (citing Merger Guidelines, §3 ("Targeted Customers and Price Discrimination")).

114. Staples, 2016 U.S. Dist. LEXIS 84444, at *3-5; Memorandum Decision, FTC v. Staples, Inc., No. 15-2115, at 2, 8-9 (D.D.C. May 17, 2016).

115. Memorandum Decision, Staples, No. 15-2115, at 10 (D.D.C. May 17, 2016).

116. Id. at 24-31, 46-47 (citing Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962)).

117. Id. at 20-21.

118. Id. at 60-61.

119. Id. at 49.

120. Id. at 57.

121. Id. at 61-72.

122. Id. at 74-75.

123. 838 F.3d 327 (3d Cir. 2016).

124. 841 F.3d 460 (7th Cir. 2016).

125. 130 F. Supp. 2d 1109, 1127 (N.D. Cal. 2001).

126. Kenneth G. Elzinga & Thomas F. Hogarty, The Problem of Geographic Market Delineation in Antimerger Suits, 18 Antitrust Bull. 45 (1973); Sutter Hosp. Sys, 130 F. Supp. 2d at 1120-24.

127. Steven Tenn, The Price Effects of Hospital Mergers: A Case Study of the Sutter-Summit Transaction (FTC, Working Paper 293, Nov. 1, 2008).

128. 838 F.3d at 334.

129. Id. at 334-35.

130. Id. at 353.

131. Id. at 342-43.

132. Id. at 340-41.

133. Id. at 341.

134. Id. at 340-43.

135. Id. at 341.

136. Id. at 343.

137. Id. at 345-46.

138. Id. at 343-45.

139. 778 F.3d 775 (9th Cir. 2015).

140. Penn State Hershey Med. Ctr, 838 F.3d at 347-51.

141. Id. at 348-49.

142. Id. at 350-51.

143. 841 F.3d at 464.

144. Id.

145. Id. at 468-73.

146. Id. at 465.

147. Id.

148. Id. at 470-71.

149. Id. at 473-74.

150. Id.

151. Id. at 476.

152. 2016 WL 2989488, 2016-1 Trade Cases ¶ 79,544 (C.D. Cal. Mar. 18, 2016).

153. Id. at *1.

154. Id. at *3-4.

155. Id. at *4.

156. Id. at *5.

157. 107 F. Supp. 2d 1192 (N.D. Cal. 2000).

158. Tribune Publ’g, 2016 WL 2989488, at *4.

159. 2016 FTC LEXIS 128, 2016-2 Trade Cas. (CCH) f79,708 (F.T.C. July 28, 2016).

160. Id. at *1-2.

161. LabMD, Inc. v. FTC, 2016 U.S. App. LEXIS 23559 (11th Cir. Nov. 10, 2016).

162. In re LabMD Inc., 2016 FTC Lexis 128, at *1-2.

163. Id. at *22.

164. Id. at *27-28.

165. Id. at *59-60.

166. Id. at *67.

167. Id. at *67-68.

168. Id. at *27-28.

169. Thomas N. Dahdouh, Section 5, the FTC and Its Critics: Just Who Are the Radicals Here?, 20 Competition: J. Anti. & Unfair Comp. L. Sec. St. B. Cat. 1, 4-9 (Spring 2011).

170. In re LabMD, 2016 FTC LEXIS 128, at *68.

171. In re Adobe Sys., Inc. Privacy Litig., 66 F. Supp. 3d 1197, 1211 (N.D. Cal. 2014).

172. Id. at 1216.

173. 794 F.3d 688, 690 (7th Cir. 2015).

174. Id. at 696-97.

175. Id. at 693.

176. Id. (quoting Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1147 (2013)).

177. Id. at 694-95.

178. 693 F.3d 1317, 1328 (11th Cir. 2012).

179. Remijas, 794 F.3d at 695.

180. Id. at 696-97.

181. Id.

182. Id.

183. Id. at 697.

184. Lewert v. P.F. Chang’s China Bistro, Inn., 819 F.3d 963, 966-67 (7th Cir. 2016).

185. 2016 U.S. App. LEXIS 16840 (6th Cir. Sept. 12, 2016).

186. Id. at *2-3.

187. Id. at *9 (referencing Spokeo Inc. v. Robins, 136 S. Ct. 1540 (2016)).

188. Id. at *10 (internal citations omitted).

189. 664 F.3d 38, 43 (3d Cir. 2011).

190. Galaria, 2016 U.S. App. LEXIS 16840, at *12-13.

191. 136 S. Ct. 1540 (2016).

192. Id. at 1544.

193. Id.

194. Id. at 1545.

195. Id.; Fair Credit Reporting Act, 15 U.S.C. § 1681(a)(d)(1).

196. Spokeo, 136 S. Ct. at 1546 (citations omitted).

197. Id.

198. Id. at 1545.

199. Id. at 1548-49.

200. Id. at 1549.

201. 18 U.S.C. § 2710 et seq.

202. Yershov v. Gannett Satellite Info. Network Inc., No. 14-cv-13112-FDA (D. Mass. Sept. 2, 2016).

203. 47 U.S.C. § 551(e).

204. Braitberg v. Charter Commc’ns, Inc., 836 F.3d 925, 930, (8th Cir. 2016).

205. 803 F.3d 125 (3rd Cir. 2015).

206. Id. at 130.

207. Id. at 130-31.

208. Id. at 131.

209. Id. at 132.

210. Id.

211. In re Google Inc. Cookie Placement Consumer Privacy Litigation, 803 F.3d at 132-33.

212. Id. at 153.

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