Fasten Your Seatbelts – No Signs of Slowdown in Antitrust Regulatory Activity This Year
Developments in U.S. antitrust law are off to an eventful start in 2016. Aggressive agency enforcement, a continued stream of private litigation – trending yearly at 600 to 800 newly filed cases – and a now unsettled political environment all presage another year of high-profile and newsworthy developments. Here are a few areas to watch in the coming year.
No Get Out of Jail Free Cards
The Department of Justice Antitrust Division often has claimed that it will hold the highest-level individuals responsible for criminal antitrust violations, but in reality has focused on punishing anticompetitive corporate behavior. However, the Yates Memorandum – a recent DOJ policy statement – calls for increased emphasis on prosecuting executives for corporate misconduct in all areas of the law and the Antitrust Division claims that will follow suit. In a recent speech, Brent Snyder, the Division’s top criminal enforcer, stressed that “[i]ndividuals commit the crimes for which corporate offenders pay” and “[t]his emphasis on individual accountability is fundamental to Antitrust Division prosecutors.” Snyder said that the Division has “adopted new internal procedures to ensure that each of our criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible.” If taken to extremes, CEOs and other C-suite officers could be targeted more routinely, potentially driving a wedge between corporations and their individual executives, greatly complicating the defense and resolution of such matters.
Not Politics As Usual: The Supreme Court and the Presidential Election
The unexpected passing of Justice Antonin Scalia, the ideological split of the remaining eight justices, and the Senate nomination process all cast great uncertainty on future antitrust rulings, which in the past some have argued have had a pro-defendant cast. Justice Scalia famously said during his confirmation hearing that “in law school, I never understood [antitrust law]. I later found out, in reading the writings of those who now do understand it, that I should not have understood it because it did not make any sense then.” Justice Scalia was steadfast in narrowly reading the antitrust laws and avoiding interpretations that would chill innovation. An eventual nominee and replacement may tilt the Court into a more pro-enforcement or activist direction.
More immediately, cases that will be before the Supreme Court this term have an enhanced chance of being upheld; a 4-4 decision leaves the underlying Circuit Court decision undisturbed. Notably, Dow Chemical agreed to an $850 million settlement in a civil price-fixing case rather than continue to seek appellate review of an adverse verdict, specifically cited “political uncertainties due to recent events within the Supreme Court.”
Then there is the presidential election campaign. Whatever the result of the election, it is certain to bring new leadership and priorities to enforcement agencies. While there are few explicit statements from leading candidates so far, Hillary Clinton has called antitrust enforcement “weak” but has applauded the FTC’s long-running attack on pharmaceutical “pay for delay” practices. Bernie Sanders’ call for de-concentration of the banking industry is well known. On the Republican side, Ted Cruz once served as head of the FTC’s Office of Policy Planning. Donald Trump in the 1980s was, notably, at the forefront of a major antitrust suit brought against the NFL by the United States Football League.
Continued Trauma for Health Care & Pharmaceutical Pricing
As the U.S. population ages, competition in the health care and pharmaceutical industries has been subject to increasing antitrust scrutiny. The pricing of pharmaceuticals has been especially controversial. In the wake of the Supreme Court’s 2013 decision in FTC v. Actavis, Inc., which held that so-called “pay for delay” or “reverse payments” (in which a generic drug company agrees to delay entry against a branded pharmaceutical manufacturer by settling lawsuits for some compensation) could be subject to antitrust challenges, cases around the country have sought to define the contours of what is – and what is not – permissible. One hot-button issue is whether the payment in a “pay for delay” transaction must be monetary. A First Circuit decision in a private damages action recently followed the reasoning of the Third Circuit in agreeing that non-monetary payments are subject to scrutiny. FTC enforcement in this area will also remain intense. The FTC last year settled claims against a branded manufacturer for a disgorgement payment of $1.2 billion and continues to litigate and advocate against reverse payments in virtually any form. The pricing of generic and over-the-counter medicines is also being closely examined by enforcers.
The Urge to Merge
Enforcement agencies continue to target mergers using narrow market definitions and, at times, unorthodox economic theories. The FTC alone has three current cases in litigation in which they are seeking to block transactions. The agencies additionally have demonstrated an increased willingness to pursue combinations that are not reportable under the Hart-Scott-Rodino Antitrust Improvements Act.
The FTC has failed in some cases, such as its recent challenge of the Steris/Synergy Health merger, in which it claimed that the merger would eliminate Synergy as an “actual potential competitor” in the United States. In other matters, federal enforcers have blocked proposed mergers using narrow market definitions. A recent example is the proposed merger between Sysco Corporation and US Foods, Inc., which the FTC argued would result in a loss of competition for “broadline foodservice distribution” involving “national customers,” while not challenging the general impact of the merger to locally based consumers.
The next major decision is likely to be in the FTC’s challenge to the proposed Office Depot/Staples merger, where the FTC’s argument is premised not on retail sales to consumers, but rather on contracts for the sale of office supplies to “large business-to-business” customers. A preliminary injunction hearing is scheduled to begin March 21.
These cases – successful or not – demonstrate the agencies’ confidence in their litigation abilities and focus on consumer-sensitive industries. While they do not control deal flow, look for enforcers to focus on health care, consumer goods, and retailing as well as the oil and gas industry, which is undergoing extreme stress as a result of lower pricing power.
This post was written by Matthew E. Liebson and Daniel F. McInnis,partners in Thompson Hine’s antitrust practice, based in Cleveland and Washington, D.C. respectively. They can be reached at Matthew.Liebson@ThompsonHine.com and Dan.McInnis@ThompsonHine.com.