11
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U.S. ANTITRUST OUTLOOK:
P
2010 Developments and What to Expect in 2011
With 2010 as a guide, the U.S. antitrust agencies likely will continue their campaign to
“reinvigorate antitrust enforcement” in 2011. 1 This past year, the Federal Trade Commission
(“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) further implemented the
Obama administration’s policy of more active antitrust enforcement by applying increased
scrutiny to mergers, both those subject to the reporting requirements of the Hart-Scott-Rodino
(“HSR”) Act as well as non-reportable, consummated transactions. The antitrust agencies also
demonstrated a proclivity for exploring non-horizontal theories of competitive harm and imposing
behavioral remedies either to enhance or replace more traditional structural relief. In addition, the
FTC and DOJ released revised Horizontal Merger Guidelines (the “New Guidelines”), which
provide the antitrust agencies with greater flexibility and the means for potentially more
aggressive merger enforcement. Moreover, the agencies showed early signs of implementing
this policy shift beyond mergers and were more active with respect to single-firm conduct and
anticompetitive agreements.
The trend toward more aggressive and broader antitrust enforcement will likely continue in 2011.
In particular, the agencies are expected to remain focused on the health care and hightechnology industries.
Tougher Merger Enforcement
There is a growing sentiment among practitioners that, as a result of the more active merger
enforcement policy, the agencies subjected transactions to longer and more burdensome
investigations. In particular, practitioners perceived a noticeable shift in the review process that
placed a greater burden on merging parties to demonstrate clearly that their transaction will not
harm competition.
In August of 2010, the DOJ and the FTC released the first substantial revisions to the Horizontal
Merger Guidelines since 1992. The highly-anticipated New Guidelines – perhaps the most
significant development in U.S. merger review this past year – will certainly influence merger
review in 2011 and beyond. In general, the New Guidelines emphasize that merger review is a
1 Senator Barack Obama, Statement for the American Antitrust Institute (Sept. 27, 2007), available at
http://www.antitrustinstitute.org/files/aai-%20Presidential%20campaign%20-%20Obama%209-07_092720071759.pdf.
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
Copyright © 2011 Fried, Frank, Harris, Shriver & Jacobson LLP. All Rights Reserved.
01/31/2011
flexible, fact-specific process involving analytical tools that may vary depending on the particular
marketplace dynamics and the products at issue.
Although the New Guidelines are a substantial rewrite of the 1992 Guidelines, many of the
revisions are consistent with current enforcement practice. The most noteworthy differences
between the 1992 Guidelines and the New Guidelines are the reduced role of market definition
and the endorsement of new analytical tools and methodologies (e.g., Upward Pricing Pressure)
to determine whether a transaction is likely to have anticompetitive effects. The New Guidelines
may enhance the agencies’ ability to pursue more aggressive merger enforcement. For example,
if accepted by courts, the reduced role of market definition and focus on anticompetitive effects
potentially would allow the agencies to avoid problems that arose in prior cases, such as the
Whole Foods/Wild Oats merger, where the FTC’s case stumbled over market definition issues.
It is still too early to know the impact of the New Guidelines, and the true measure of their impact
may not be known until courts have an opportunity to consider them.2 2011 may provide such a
test. Merging parties in 2011 will certainly face, and should be prepared for, a tougher and more
intense enforcement environment. Accordingly, early planning and antitrust risk analysis will be
critical.
Continued Scrutiny of Non-Reportable and Consummated Transactions
In recent years, as the number of HSR-reportable transactions decreased, the number of agency
challenges to non-reportable transactions increased.3 Whether this enforcement trend was
attributable to the availability of agency resources during the economic downturn or a change in
enforcement policy is subject to debate. This past year, however, despite the uptick in HSR
filings, the agencies continued to challenge non-reportable deals in a wide range of industries.4
The types of non-reportable mergers that were challenged in 2010 were particularly interesting,
and send a clear message that there are no safe harbors. Neither nominal deal value,5 nor
2
One court has already cast doubt on the de-emphasis of market definition in the New Guidelines. In City of New York
v. Group Health, Inc., the district court for the Southern District of New York specifically rejected the plaintiff’s attempt
to use an alternative to a market definition screen, and dismissed the merger challenge on the grounds that the
plaintiff’s definition of the relevant market was inadequate as a matter of law. See City of New York v. Group Health,
Inc., No. 06 Civ. 13122 (RJS), 2010 WL 2132246 (S.D.N.Y. May 11, 2010).
3
HSR filings decreased from 2,201 in FY 2007 to 1,727 in FY 2008, and then again to 716 in FY 2009. At the same
time, the agencies challenged approximately sixteen non-reportable transactions in FY 2008 and FY 2009,
significantly more than the approximately twelve challenges to non-reportable transactions from FY 2001 – FY 2007.
Because the FTC has not published the total number of non-HSR Act merger enforcement actions prior to 2007, and
because the DOJ has not historically disclosed how many of its non-HSR merger investigations led to enforcement
actions, the numbers listed here regarding such enforcement actions are based on agency press releases and other
publicly-available information.
4
In FY 2010, HSR filings increased to 1,166 (up from 716 in FY 2009), while the agencies challenged approximately
four non-reportable transactions in FY 2010 and another consummated transaction at the end of the 2010 calendar
year.
5
See United States v. Election Sys. and Software, Inc., No. 1:10-cv-00380 (D.D.C. Mar. 8, 2010) (DOJ challenge of a
$5 million consummated merger between competing suppliers of voting equipment systems), available at
http://www.justice.gov/atr/cases/ess.htm.
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
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2
exemptions from HSR reporting requirements,6 nor approval by another court7 protects a
transaction from antitrust scrutiny. Nor will the agencies hesitate to seek redress for
consummated, non-reportable transactions, as the FTC did when it ruled that a 2008 merger of
rival battery component manufacturers was anticompetitive and ordered the acquirer to divest the
acquired company.8
Accordingly, with the agencies taking a harder look at consummated and other non-reportable
transactions, all transactions should be reviewed by counsel to assess antitrust risk, even if no
HSR filing is required.
Expansion into Non-Horizontal Theories of Competitive Harm and Enhanced Behavioral
Remedies
In recent years, the DOJ has publicly stated its desire to explore potential anticompetitive effects
in non-horizontal cases. In her first speech as head of the Antitrust Division, Assistant Attorney
General Varney (“AAG Varney”) expressed her desire to “explore vertical theories and other new
areas of civil enforcement.”9 Indeed, in 2010, the agencies were increasingly focused on vertical
issues and other less traditional remedies, culminating in the DOJ’s recent imposition of
behavioral relief to resolve its challenge to Comcast Corporation’s (“Comcast”) acquisition of a
controlling interest in NBC Universal (“NBCU”), through a joint venture with General Electric.
In Comcast/NBCU, the DOJ expressed concerns that the vertically-integrated Comcast/NBCU
joint venture could lessen competition by denying rival cable TV distributors and emerging online
video distribution (“OVD”) competitors access to NBCU channels and other popular programming
content. To address these concerns, the DOJ conditioned its approval of the joint venture upon
the parties agreeing to a host of behavioral remedies, many of which were designed to ensure
that the transaction would not chill the nascent competition posed by OVDs. These provisions are
quite extensive and regulatory minded.10
Similarly, the DOJ addressed vertical concerns in its challenge to the acquisition of Live Nation,
Inc. (“Live Nation”), the nation’s largest concert promoter, by Ticketmaster Entertainment, Inc.
6
See In the Matter of Simon Prop. Group, Inc., FTC File No. 101-0061 (Nov. 10, 2010) (FTC challenge of an
acquisition of an outlet mall operator by one of its rivals, even though the real estate industry is exempt from the HSR
Act), available at http://ftc.gov/os/caselist/1010061/index.shtm.
7
See In the Matter of Lab. Corp. of Am., FTC File No. 101-0152 (Dec. 1, 2010) (FTC challenge to a merger between
lab operators, notwithstanding that a bankruptcy court previously had approved the buyer), available at
http://www.ftc.gov/os/adjpro/d9345/index.shtm.
8
See In the Matter of Polypore Int’l, Inc.,
http://www.ftc.gov/os/adjpro/d9327/index.shtm.
9
See Christine Varney, Remarks as prepared for the Center for American Progress: Vigorous Antitrust Enforcement in
this Challenging Era (May 11, 2009), available at http://www.justice.gov/atr/public/speeches/245711.htm.
FTC
Docket
No.
9327
(Dec.
13,
2010),
available
at
10 In order to proceed with the acquisition, the parties agreed to license NBCU programming content to nascent OVD
competitors of Comcast’s cable TV services, refrain from imposing a variety of contractual terms upon content owners
that unduly limit a content owner’s ability to freely negotiate creative arrangements with Comcast competitors, subject
themselves to anti-retaliation provisions, and adhere to open Internet requirements. See Competitive Impact
Statement, United States v. Comcast Corp., No. 1:11-cv-00106 (D.D.C. Jan. 18, 2011), available at
http://www.justice.gov/atr/cases/f266100/266158.pdf. The access-related provisions are extensive and require, for
example, that OVDs be permitted to seek or be offered content under terms comparable to those in similar licensing
arrangements with multichannel video programming distributors or other OVDs, which third parties may seek to
enforce through arbitration.
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
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(“Ticketmaster”), the nation’s largest primary ticketing business. Although the primary competitive
concern articulated by the DOJ was the loss of nascent competition from Live Nation in the
market for primary ticketing services, the DOJ was concerned that the vertical integration of
Ticketmaster’s primary ticketing business and Live Nation’s concert promotion business would
harm competitors in the market for primary ticketing services.11 In order to remedy the DOJ’s
vertical concerns, Ticketmaster entered into a consent decree prohibiting it from engaging in
conduct “that would impede effective competition from equally efficient rivals that may or may not
be vertically integrated.”12 The decree included, among other provisions, terms preventing
Ticketmaster/Live Nation from retaliating against any venue owner that chooses to use another
company’s ticketing services and from engaging in any anticompetitive ticket bundling with
promotion and artist services.
Moreover, the DOJ continues to explore non-horizontal theories of competitive harm in its
ongoing review of Google, Inc.’s (“Google”) attempt to acquire ITA Software (“ITA”), a leading
supplier of flight information software used by airlines and ticket sites to make online reservations.
The DOJ is reportedly investigating whether, as a result of the acquisition, Google could unfairly
disadvantage competing online ticket sites by limiting or impairing their access to ITA’s software.
These actions demonstrate the DOJ’s active interest in transactions that raise potential vertical
foreclosure issues. Perhaps more interestingly, Comcast/NBCU and Ticketmaster/Live Nation
also illustrate the DOJ’s recent trend of imposing behavioral remedies, as opposed to structural
relief, to protect and facilitate nascent competition. In 2011, the agencies are likely to continue to
explore non-horizontal theories of competitive harm, such as impeding competition from rivals,
nascent or otherwise, through vertical integration.
Companies contemplating mergers and acquisitions should be sure to consider all potential
effects on competition, including effects arising from vertical integration, and be prepared to
consider behavioral remedies as a possible condition to agency approval of the transaction.
Continued Expansion of Non-Merger Section 1 Enforcement
In addition to stepping up merger review and pursuing non-horizontal theories of harm, the
antitrust agencies have also implemented an aggressive civil non-merger enforcement agenda.
In 2010, the agencies challenged a number of practices under Section 1 of the Sherman Act,
which concerns agreements that affect competition. These included horizontal agreements
among competitors not to solicit each other’s employees, and vertical distribution agreements
between suppliers and distributors. The DOJ also sought and obtained disgorgement of profits –
an unusual remedy – in a settlement to resolve claims that a large electricity generator’s
agreement with a financial services company restrained competition.
11 Specifically, the DOJ was concerned that: (i) Ticketmaster/Live Nation would retaliate against venue owners who
contracted or considered contracting for primary ticketing services with its competitors; (ii) Ticketmaster/Live Nation
would require venues to take its primary ticketing services even if the venues only wanted to obtain concerts that
Ticketmaster/Live Nation promoted; or (iii) Ticketmaster/Live Nation would require venues to take concerts that it
promoted, even if those venues only wanted to obtain primary ticketing services.
12 See Competitive Impact Statement at 16, United States v. Ticketmaster Entm’t, Inc., No. 1:10-cv-00139 (D.D.C. Jan.
25, 2010), available at http://www.justice.gov/atr/cases/f254500/254544.pdf.
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
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In September, the DOJ challenged the agreements of six prominent high-technology firms
(Google, Apple, Adobe, Intel, Intuit, and Pixar) not to “cold call” each other’s employees. 13 A
follow-on challenge involving Pixar and Lucas Film was later announced in December.14 Of
particular interest was the DOJ’s aggressive position that such agreements, which many believe
were commonplace, were per se illegal (i.e., so inherently anticompetitive that no consideration of
whether they actually caused anticompetitive effects was required). Defendants of these practices
had argued that the agreements were pro-competitive and necessary to maintain good working
relationships with technology partners with whom they were jointly developing services.
Later in the fall, the DOJ brought enforcement actions in the credit card and health care
industries, challenging vertical agreements between suppliers and distributors. In U.S. v.
American Express, MasterCard, and Visa, the DOJ challenged rules that prevent merchants from
providing discounts, rewards, and information about credit card costs to consumers at the point of
sale.15 The DOJ alleged that the merchant restraints suppressed competition among credit card
companies by prohibiting merchants from offering discounts or other benefits to customers for the
use of a particular credit card. Two weeks later, the DOJ and the state of Michigan filed suit
against Blue Cross Blue Shield of Michigan (“BCBS”) challenging the use of “most favored nation”
clauses (“MFNs”) by BCBS in its contracts with Michigan hospitals. 16 Although MFNs are quite
common and often viewed as pro-competitive, the DOJ alleged that BCBS used MFNs to harm
competition in the markets for commercial health insurance in numerous areas throughout
Michigan where, according to the DOJ, BCBS already had market power. 17
Finally, in U.S. v. KeySpan, the DOJ sought disgorgement of profits to remedy the alleged
anticompetitive effects of an agreement between KeySpan and a financial services company that
ensured that KeySpan would withhold substantial output from the New York City electricity
generating capacity market.18 The likely effect of the agreement, the DOJ alleged, was to
increase capacity prices for the retail electricity suppliers who must purchase capacity and, in
turn, to increase the prices consumers pay for electricity. This case marked the first time the DOJ
sought disgorgement as a remedy in a civil case. 19 The DOJ has sought disgorgement and
13 See United States v. Adobe Sys., Inc.,
http://www.justice.gov/atr/cases/adobe.htm.
No.
14 See United States v. Lucasfilm Ltd., No.
http://www.justice.gov/atr/cases/lucasfilm.html.
1:10-cv-01629
1:10-cv-02220
(D.D.C.
(D.D.C.
Sept.
Dec.
24,
21,
2010),
2010),
available
at
available
at
15 See United States v. American Express Co., No. 1:10-cv-04496 (E.D.N.Y. Oct. 4, 2010), available at
http://www.justice.gov/atr/cases/americanexpress.html. MasterCard and Visa entered into a consent decree settling
the DOJ’s charges. The DOJ’s case continues against American Express, which declined to settle the charges
against it.
16 See United States v. Blue Cross Blue Shield of Mich., No. 2:10-cv-15155 (E.D. Mich. Oct. 18, 2010), available at
http://www.justice.gov/atr/cases/bcbsmfn.html.
17 In the health care context, MFNs are contractual provisions that require health care providers to agree not to accept
lower reimbursement for health care services from competing health insurers.
18 See United States v. KeySpan Corp.,
http://www.justice.gov/atr/cases/keyspan.html.
No.
1:10-cv-01415
(S.D.N.Y.
Feb.
22,
2010),
available
at
19 In its Competitive Impact Statement accompanying the complaint and proposed settlement, the DOJ stated that
disgorgement is needed “to protect the public interest by depriving KeySpan of the fruits of its ill-gotten gains and
deterring KeySpan and others from engaging in similar anticompetitive conduct in the future.” See Competitive Impact
Statement at 9, United States v. KeySpan Corp., No. 1:10-cv-01415 (S.D.N.Y. Feb. 22, 2010), available at
http://www.justice.gov/atr/cases/f255500/255578.pdf. The DOJ explained that private lawsuits could not serve that
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
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restitution for criminal antitrust violations and for civil contempt, but never before in a civil suit.
These cases illustrate a greater focus on non-merger enforcement that will likely continue in the
coming year. These cases also remind that companies, particularly those with significant market
positions, should be careful with respect to their interactions and agreements with other industry
participants.
More Aggressive Single-Firm Conduct Enforcement
Both the FTC and the DOJ have committed to enhancing their efforts to investigate and challenge
single-firm conduct such as monopolization under Section 2 of the Sherman Act or, in the case of
the FTC, unfair or deceptive practices under Section 5 of the FTC Act. In 2010, the FTC reached
a major settlement in its suit against Intel relating to alleged anticompetitive conduct in the
markets for central processing units (“CPU”) and graphics processing units (“GPU”). 20 Among
other allegations, the FTC alleged that Intel used threats and rewards aimed at the world’s largest
computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy
rival CPU chips. Intel also allegedly engaged in exclusive dealing practices to prevent computer
makers from marketing any machines with non-Intel computer chips. The FTC complaint was
based on Section 5 of the FTC Act, which the FTC has used as an enforcement tool to combat
anticompetitive single-firm conduct that may fall outside of Section 2. The Intel action reflects the
FTC’s interest in active enforcement of anticompetitive single-firm conduct through the use of an
expanded set of enforcement tools, including an aggressive use of Section 5.
At the DOJ, AAG Varney has vowed to step up enforcement of anticompetitive single-firm
conduct as the prior Democratic administration had done, for example, in the Microsoft case.
AAG Varney explained, “The Antitrust Division must step forward and take a leading role in the
development of the Government’s multi-faceted response to current market conditions. Vigorous
antitrust enforcement action under Section 2 of the Sherman Act will be part of the Division’s
critical contribution to this response.” 21
Thus far, the tougher rhetoric has not yet translated into a Section 2 enforcement action by the
DOJ. Section 2 cases, however, take longer for agency staff to develop, and there have been
reports of a number of active investigations. As a result, 2011 may be the year the DOJ brings
such a case. Companies should be aware of the potential for increased enforcement in this area
by both agencies, particularly in the health care and high-technology industries. Companies with
market power – which alone does not offend the antitrust laws – need to be cognizant that the
agencies are actively monitoring single-firm conduct.
*
*
*
purpose in this case, as the filed-rate doctrine likely could prevent damages actions. It remains to be seen whether the
DOJ intends to limit disgorgement to circumstances in which private damages actions are unlikely to follow, or if it will
employ the remedy more broadly in future cases.
20 The settlement prohibits Intel from using threats, bundled prices, or other offers to exclude or hamper competition, or
otherwise unreasonably inhibit the sale of competitive CPUs or GPUs. In addition, among other conditions, the
settlement prohibits Intel from deceiving computer manufacturers about the performance of non-Intel CPUs or GPUs.
21 See supra note 9.
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
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Authors:
Barry Nigro
Richard Park
Peter Guryan
Damon Kalt
Contacts:
This memorandum is not intended to provide legal advice, and no legal or business decision
should be based on its content. If you have any questions about the contents of this
memorandum, please call your regular Fried Frank contact or the attorneys listed below:
Barry Nigro
Partner
+1.202.639.7373
Richard Park
Partner
+1.202.639.7064
Fried Frank Antitrust & Competition Law Alert® No. 11-01-31
Peter Guryan
Partner
+1.212.859.8477
Alasdair Balfour
Partner
+44.20.7972.6274
01/31/2011
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